<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1996
REGISTRATION NO. 333-03327
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
GRAND PREMIER FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6712 36-4077455
(PRIMARY STANDARD (I.R.S.
(STATE OR OTHER INDUSTRIAL EMPLOYERIDENTIFICATION
JURISDICTION OF CLASSIFICATION CODE NO.)
INCORPORATION OR NUMBER)
ORGANIZATION)
486 WEST LIBERTY STREET
WAUCONDA, ILLINOIS 60084-2489
(847) 487-1818
(ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT W. HINMAN
486 WEST LIBERTY STREET
WAUCONDA, ILLINOIS 60084-2489
(847) 487-1818
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
GARY L. MOWDER THOMAS F. KARABA
SCHIFF HARDIN & WAITE CROWLEY BARRETT & KARABA, LTD.
7200 SEARS TOWER 20 SOUTH CLARK STREET, SUITE 2310
CHICAGO, ILLINOIS 60606 CHICAGO, ILLINOIS 60603
(312) 258-5514 (312) 726-2468
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
GRAND PREMIER FINANCIAL, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501 of Regulation S-K, the following shows the location in
the Joint Proxy Statement-Prospectus of the responses to the Items of Part I of
Form S-4.
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND CAPTION PROXY STATEMENT-PROSPECTUS CAPTION
--------------------------------------- ----------------------------------
<C> <S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of Facing page of Registration
Prospectus........................ Statement; Grand Premier Financial,
Inc. Cross Reference Sheet; Outside
Front Cover page of Joint Proxy
Statement-Prospectus (pp. (i)-(ii))
2. Inside Front and Outside Back Cover
Pages of Prospectus............... Available Information; Incorporation
of Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Summary of Joint Proxy Statement-
Information....................... Prospectus; Risk Factors; The
Companies; Meetings of
Stockholders--Stockholder Approval
Vote Required; The Merger--
Regulatory Approvals
4. Terms of the Transaction........... Summary of Joint Proxy Statement-
Prospectus; The Merger; Board of
Directors and Management of GPF
Following the Merger; Description of
GPF Capital Stock; Potential
Antitakeover Effect of Certain
Provisions of the GPF Certificate,
GPF Bylaws and the Rights Agreement;
Comparison of Rights of Holders of
Northern Illinois Common Stock and
GPF Common Stock; Comparison of
Rights of Holders of Premier Common
Stock and GPF Common Stock
5. Pro Forma Financial Information.... Pro Forma Financial Information
6. Material Contacts with the Company
Being Acquired.................... The Merger--Background to the Merger
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters......... *
8. Interests of Named Experts and The Merger--Opinions of Financial
Counsel........................... Advisor
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................... *
10. Information with Respect to S-3
Registrants....................... *
11. Incorporation of Certain
Information by Reference.......... *
12. Information with Respect to S-2 or
S-3 Registrants................... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND CAPTION PROXY STATEMENT-PROSPECTUS CAPTION
--------------------------------------- ----------------------------------
<C> <S> <C>
13. Incorporation of Certain
Information by Reference.......... *
14. Information with Respect to
Registrants Other Than S-2 or S-3 Summary of Joint Proxy Statement-
Registrants....................... Prospectus; The Companies; Business
of GPF; Supervision and Regulation
15. Information with Respect to S-3
Companies......................... *
16. Information with Respect to S-2 or Incorporation of Certain Documents By
S-3 Companies..................... Reference Summary of Joint Proxy
Statement-Prospectus; The Companies;
Certain Information Concerning
Northern Illinois; Northern Illinois
Management's Discussion and Analysis
of Results of Operations and
Financial Condition for the Three
Months Ended March 31, 1996;
Northern Illinois Management's
Discussion and Analysis of Results
of Operations and Financial
Condition for the Fiscal Year Ended
December 31, 1995; Additional
Financial Information Concerning
Northern Illinois; Certain
Information Concerning Premier;
Premier Management's Discussion and
Analysis of Financial Condition and
Results of Operations for the Three
Months Ended March 31, 1996; Premier
Management's Discussion and Analysis
of Results of Operations and
Financial Condition for the Fiscal
Year Ended December 31, 1995;
Additional Financial Information
Concerning Premier; Supervision and
Regulation; Financial Statements
17. Information with Respect to
Companies Other Than S-2 or S-3
Companies......................... *
18. Information if Proxies, Consents or
Authorization Are to Be Solicited. Outside Front Cover Page of Joint
Proxy Statement-Prospectus; Summary
of Joint Proxy Statement-Prospectus;
The Companies; Meeting of
Stockholders; Board of Directors and
Management of GPF Following the
Merger; Interests of Certain Persons
in the Merger; Dissenters' Rights;
Certain Information Concerning
Northern Illinois; Certain
Information Concerning Premier
19. Information if Proxies, Consents or
Authorizations Are Not to Be
Solicited, or in an Exchange
Offer............................. *
</TABLE>
- --------
* Item is omitted because answer is negative or item is inapplicable.
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
486 WEST LIBERTY STREET
WAUCONDA, ILLINOIS 60084-2489
July , 1996
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Northern Illinois Financial Corporation, which will be
held at the Niles branch of Grand National Bank, 7100 West Oakton, Niles,
Illinois 60714-3047 at 10:00 a.m. (local time), on Wednesday, August 21, 1996.
At the Special Meeting you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated January
22, 1996, as amended (the "Merger Agreement"), among Northern Illinois
Financial Corporation ("Northern Illinois"), Premier Financial Services, Inc.
("Premier") and Grand Premier Financial, Inc., a newly formed corporation
("GPF"), providing for the merger of Northern Illinois and Premier with and
into GPF (the "Merger"). A copy of the Merger Agreement is attached to the
accompanying Joint Proxy Statement-Prospectus.
Under the terms of the Merger Agreement, each outstanding share of Northern
Illinois Common Stock will be converted into 4.250 shares of GPF Common Stock,
and each outstanding share of Premier Common Stock will be converted into
1.116 shares of GPF Common Stock. In addition, upon consummation of the
Merger, each holder of Premier Preferred Stock will be entitled to receive GPF
Preferred Stock with substantially identical terms. The consummation of the
Merger is subject to the approval of the common stockholders of Northern
Illinois and Premier and the satisfaction of other conditions contained in the
Merger Agreement, all as more fully described in the accompanying Joint Proxy
Statement-Prospectus.
GPF will be headquartered in Wauconda, Illinois. The new company will have
assets of approximately $1.6 billion with facilities in Illinois located
between Lake Michigan and the Mississippi River.
Enclosed are a Notice of Special Meeting of Stockholders and a Joint Proxy
Statement-Prospectus which describes the Merger and the Merger Agreement. You
are urged to read all of these materials carefully.
THE BOARD OF DIRECTORS OF NORTHERN ILLINOIS HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Because of the significance of the proposed Merger to Northern Illinois,
your participation in the Special Meeting, in person or by proxy, is
especially important. An abstention or failure to vote at the Special Meeting
or failure to return a proxy will have the same effect as a vote "against"
approval and adoption of the Merger Agreement. We, therefore, urge you to
complete, sign, date and return the enclosed yellow proxy form promptly in the
accompanying postage-paid envelope. You may, of course, attend the Special
Meeting and vote in person, even if you have previously returned the proxy
card.
Thank you, and we look forward to seeing you at the Special Meeting.
Sincerely,
_____________________________________
Robert W. Hinman, President and
Chief Executive Officer
_____________________________________
Brenton J. Emerick, Chairman of the
Board
_____________________________________
Howard A. McKee, Chairman of the
Executive Committee
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
486 WEST LIBERTY STREET
WAUCONDA, ILLINOIS 60084-2489
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 21, 1996
A Special Meeting of Stockholders (the "Special Meeting") of Northern
Illinois Financial Corporation, an Illinois corporation ("Northern Illinois"),
will be held on Wednesday, August 21, 1996 at 10:00 a.m., (local time) at the
Niles branch of Grand National Bank, 7100 West Oakton, Niles, Illinois 60714-
3047 for the following purposes:
(i) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated January 22, 1996, as amended by the
First Amendment thereto, dated March 18, 1996 (the "Merger Agreement"), by
and among Northern Illinois, Premier Financial Services, Inc., a Delaware
corporation ("Premier"), and Grand Premier Financial, Inc., a Delaware
corporation ("GPF"), pursuant to which Northern Illinois and Premier will
be merged with and into GPF (the "Merger"), upon the terms and subject to
the conditions set forth in the Merger Agreement, as more fully described
in the enclosed Joint Proxy Statement-Prospectus and in the Merger
Agreement, a copy of which is attached as Appendix A thereto;
(ii) To consider and vote upon a proposal to adjourn the Special Meeting
in the event that Northern Illinois' management should determine in its
sole discretion, at the time of the Special Meeting, that such adjournment
is in the best interests of Northern Illinois and its stockholders, as more
fully described in the accompanying Joint Proxy Statement-Prospectus; and
(iii) To transact such other business as may be properly brought before
the Special Meeting, and any adjournment or postponement thereof.
The board of directors has fixed the close of business on July 5, 1996 as
the record date for determining stockholders entitled to notice of, and to
vote at, the Special Meeting and any adjournments or postponements thereof.
Only holders of record of Northern Illinois Common Stock on such record date
are entitled to notice of, and to vote at, the Special Meeting and any
adjournments or postponements thereof.
The affirmative vote of holders of at least (i) 80% of the outstanding
shares of Northern Illinois Common Stock, and (ii) a majority of the
outstanding shares of Northern Illinois Common Stock not held by Howard A.
McKee and certain parties related to Howard A. McKee is necessary to approve
the Merger. Under applicable Illinois law, stockholders of Northern Illinois
are entitled to dissent from the Merger and to receive the fair value of their
shares, as more fully explained in the accompanying Joint Proxy Statement-
Prospectus.
By Order of the Board of Directors
_____________________________________
David E. Albright
Secretary
Wauconda, Illinois
July , 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY
VOTE IN PERSON, EVEN IF YOU PREVIOUSLY RETURNED THE PROXY CARD.
<PAGE>
PREMIER FINANCIAL SERVICES, INC.
27 WEST MAIN STREET, SUITE 101
FREEPORT, ILLINOIS 61032
July , 1996
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Premier Financial Services, Inc., which will be held at
the Best Western Stephenson Hotel, 109 South Galena Avenue, Freeport,
Illinois, at 10:00 a.m. (local time), on Wednesday, August 21, 1996.
At the Special Meeting you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated January
22, 1996, as amended (the "Merger Agreement"), among Northern Illinois
Financial Corporation ("Northern Illinois"), Premier Financial Services, Inc.
("Premier"), and Grand Premier Financial, Inc., a newly formed corporation
("GPF"), providing for the merger of Northern Illinois and Premier with and
into GPF (the "Merger"). A copy of the Merger Agreement is attached to the
accompanying Joint Proxy Statement-Prospectus.
Under the terms of the Merger Agreement, each outstanding share of Northern
Illinois Common Stock will be converted into 4.250 shares of GPF Common Stock,
and each outstanding share of Premier Common Stock will be converted into
1.116 shares of GPF Common Stock. In addition, upon consummation of the
Merger, each holder of Premier Preferred Stock will be entitled to receive GPF
Preferred Stock with substantially identical terms. The consummation of the
Merger is subject to the approval of the common stockholders of Northern
Illinois and Premier and the satisfaction of other conditions contained in the
Merger Agreement, all as more fully described in the accompanying Joint Proxy
Statement-Prospectus.
GPF will be headquartered in Wauconda, Illinois. The new company will have
assets of approximately $1.6 billion with facilities in Illinois located
between Lake Michigan and the Mississippi River.
Enclosed are a Notice of Special Meeting of Stockholders and a Joint Proxy
Statement-Prospectus which describes the Merger and the Merger Agreement. You
are urged to read all of these materials carefully.
THE BOARD OF DIRECTORS OF PREMIER HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
Because of the significance of the proposed Merger to Premier, your
participation in the Special Meeting, in person or by proxy, is especially
important. An abstention or failure to vote at the Special Meeting or failure
to return a proxy will have the same effect as a vote "against" approval and
adoption of the Merger Agreement. We, therefore, urge you to complete, sign,
date and return the enclosed blue proxy form promptly in the accompanying
postage-paid envelope. You may, of course, attend the Special Meeting and vote
in person, even if you have previously returned the proxy card.
Thank you, and we look forward to seeing you at the Special Meeting.
Sincerely,
_____________________________________
Richard L. Geach,
President and Chief Executive
Officer
_____________________________________
David L. Murray,
Executive Vice President and Chief
Financial Officer
<PAGE>
PREMIER FINANCIAL SERVICES, INC.
27 WEST MAIN STREET, SUITE 101
FREEPORT, ILLINOIS 61032
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 21, 1996
A Special Meeting of Stockholders (the "Special Meeting") of Premier
Financial Services, Inc. a Delaware corporation ("Premier"), will be held on
Wednesday, August 21, 1996 at 10:00 a.m., (local time) at the Best Western
Stephenson Hotel, 109 South Galena Ave., Freeport, Illinois for the following
purposes:
(i) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated January 22, 1996 as amended by the
First Amendment thereto, dated March 18, 1996 (the "Merger Agreement"), by
and among Premier, Northern Illinois Financial Corporation, an Illinois
corporation ("Northern Illinois"), and Grand Premier Financial, Inc., a
Delaware corporation ("GPF"), providing for the merger of Northern Illinois
and Premier with and into GPF (the "Merger") upon the terms and subject to
the conditions set forth in the Merger Agreement, as more fully described
in the enclosed Joint Proxy Statement-Prospectus and in the Merger
Agreement, a copy of which is attached as Appendix A thereto;
(ii) To consider and vote upon a proposal to adjourn the Special Meeting
in the event that Premier's management should determine in its sole
discretion, at the time of the Special Meeting, that such adjournment is in
the best interests of Premier and its stockholders, as more fully described
in the accompanying Joint Proxy Statement-Prospectus; and
(iii) To transact such other business as may be properly brought before
the Special Meeting, and any adjournment or postponement thereof.
The board of directors has fixed the close of business on July 5, 1996 as
the record date for determining stockholders entitled to notice of, and to
vote at, the Special Meeting and any adjournments or postponements thereof.
Only holders of record of Premier Common Stock on such record date are
entitled to notice of, and to vote at, the Special Meeting and any
adjournments or postponements thereof. The affirmative vote of the holders of
a majority of the outstanding shares of Premier Common Stock is necessary to
approve the Merger.
By Order of the Board of Directors
_____________________________________
Scott Dixon
Secretary
Freeport, Illinois
July , 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY
VOTE IN PERSON, EVEN IF YOU PREVIOUSLY RETURNED THE PROXY CARD.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY JOINT PROXY STATEMENT-PROSPECTUS
SUBJECT TO COMPLETION, DATED JULY 10, 1996
NORTHERN ILLINOIS FINANCIAL PREMIER FINANCIAL SERVICES, INC.
CORPORATION 27 WEST MAIN STREET, SUITE 101
486 WEST LIBERTY STREET FREEPORT, ILLINOIS 61032
WAUCONDA, ILLINOIS 60084-
2489
JOINT PROXY STATEMENT
-------------
GRAND PREMIER FINANCIAL, INC.
PROSPECTUS
-------------
This Joint Proxy Statement-Prospectus is being furnished to the stockholders
of Northern Illinois Financial Corporation, an Illinois corporation ("Northern
Illinois"), and Premier Financial Services, Inc., a Delaware corporation
("Premier"), in connection with the solicitation of proxies by (i) the board of
directors of Northern Illinois for use at the Special Meeting of Northern
Illinois stockholders to be held on August 21, 1996, including any adjournments
or postponements thereof (the "Northern Illinois Special Meeting"), and (ii)
the board of directors of Premier for use at the Special Meeting of Premier
stockholders to be held on August 21, 1996, including any adjournments or
postponements thereof (the "Premier Special Meeting"). The purpose of each of
these Special Meetings is to consider and vote upon a proposal to approve and
adopt an Agreement and Plan of Merger, dated as of January 22, 1996, as amended
by the First Amendment thereto, dated March 18, 1996 (the "Merger Agreement"),
by and among Northern Illinois, Premier, and Grand Premier Financial, Inc., a
Delaware corporation ("GPF"), as more fully described in this Joint Proxy
Statement-Prospectus. This Joint Proxy Statement-Prospectus, together with a
Notice of Special Meeting of Stockholders and form of proxy, are first being
mailed to the stockholders of Northern Illinois and Premier on or about July
, 1996.
(Continued on next page)
-------------
SEE "RISK FACTORS" ON PAGE 21 FOR A DISCUSSION OF CERTAIN FACTORS TO BE
CONSIDERED BY NORTHERN ILLINOIS STOCKHOLDERS AND PREMIER STOCKHOLDERS.
-------------
THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT-PROSPECTUS RELATES 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
JOINT PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS, OR OTHER
OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this Joint Proxy Statement-Prospectus is July , 1996.
<PAGE>
GPF has filed a Registration Statement on Form S-4 with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), covering the following securities to be
issued in connection with the Merger Agreement: up to 21,099,671 shares of
common stock of GPF, par value $0.01 per share ("GPF Common Stock"), and the
associated preferred stock purchase rights (the "Purchase Rights") issued
pursuant to the Rights Agreement, dated July 8, 1996, between GPF and Premier
Trust Services, Inc. (the "Rights Agreement"), and 9,250 shares of two series
of the preferred stock of GPF, par value $0.01 per share (the "GPF Preferred
Stock"), consisting of (i) 7,250 shares designated as Series B Perpetual
Preferred Stock, with a stated value of $1,000 per share and convertible into
GPF Common Stock at a rate of $8.51255 per share of GPF Common Stock (the "GPF
Series B Preferred Stock"), and (ii) 2,000 shares designated as Series C
Perpetual Preferred Stock, with a stated value of $1,000 per share (the "GPF
Series C Preferred Stock"). The 21,099,671 shares of GPF Common Stock covered
by the Registration Statement include 851,683 shares issuable upon the
conversion of the GPF Series B Preferred Stock, and 321,541 shares issuable
upon the exercise of outstanding options to acquire Premier Common Stock that
have vested or may vest prior to the effective time of the Merger.
Under the Merger Agreement, Northern Illinois and Premier will, subject to
the approval of the common stockholders of Northern Illinois and Premier and
other conditions, be merged with and into GPF (the "Merger"), and GPF will be
the corporation resulting from the Merger. As a result of the Merger, (i) each
issued and outstanding share of common stock of Northern Illinois, without par
value ("Northern Illinois Common Stock"), other than shares held by holders of
Northern Illinois Common Stock who have properly exercised their dissenters'
rights under Illinois law, will be converted into the right to receive 4.250
shares of GPF Common Stock, (ii) each issued and outstanding share of common
stock of Premier, par value $5.00 per share ("Premier Common Stock"), will be
converted into the right to receive 1.116 shares of GPF Common Stock, and
(iii) each issued and outstanding share of the preferred stock of Premier, par
value $1.00 per share ("Premier Preferred Stock"), other than shares held by
holders of Premier Preferred Stock who have properly exercised their
dissenters' rights under Delaware law, will be converted into the right to
receive one share of GPF Preferred Stock having substantially identical terms
to the Premier Preferred Stock so converted. See "THE MERGER--Conversion of
Shares." Outstanding options to acquire Premier Common Stock will be converted
into options to purchase shares of GPF Common Stock. The number of shares of
GPF Common Stock purchasable under each such option, and the exercise price,
will be adjusted on the basis of the exchange ratio for Premier Common Stock.
See "THE MERGER--Conversion of Options."
Northern Illinois Common Stock is not listed or traded on any national or
regional exchange or established over-the-counter market. Premier Common Stock
is traded on the Nasdaq Stock Market's National Market under the symbol
"PREM." On July 5, 1996, the last reported sales price for Premier Common
Stock on the Nasdaq Stock Market's National Market was $10.75 per share.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING
OF SECURITIES MADE HEREBY OTHER THAN THOSE CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT-PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY NORTHERN ILLINOIS, PREMIER OR GPF. THIS JOINT PROXY STATEMENT-
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION OR
TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT
PROXY STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS NOT BEEN A CHANGE IN THE AFFAIRS OF NORTHERN ILLINOIS, PREMIER OR GPF
SINCE THE DATE HEREOF.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 1
SUMMARY OF JOINT PROXY STATEMENT-PROSPECTUS................................ 2
The Companies............................................................ 2
The Meetings of Stockholders; Votes Required............................. 3
Dissenters' Rights....................................................... 4
The Merger............................................................... 4
Reciprocal Stock Option Agreements....................................... 5
Conditions to the Merger; Termination of the Merger Agreement............ 5
Effective Time........................................................... 6
Reasons for the Merger................................................... 6
Board of Directors and Management Following the Merger................... 6
Opinions of Financial Advisors........................................... 7
Recommendation of the Boards of Directors................................ 7
Regulatory Approvals..................................................... 7
Interests of Certain Persons in the Merger............................... 8
Certain Federal Income Tax Consequences.................................. 9
Accounting Treatment..................................................... 10
GPF Common Stock; Comparison of Stockholder Rights....................... 10
GPF Preferred Stock...................................................... 13
Selected Historical Financial Data....................................... 15
Selected Pro Forma Financial Data of GPF................................. 17
Historical and Pro Forma Comparative Per Share Data...................... 18
No Public Market for GPF Common Stock.................................... 19
Market for Northern Illinois Common Stock................................ 19
Market for Premier Common Stock.......................................... 20
RISK FACTORS............................................................... 21
Uncertainties Related to the Integration of Businesses................... 21
Limited Liquidity........................................................ 21
Antitakeover Provisions.................................................. 21
Certain Stockholders Can Block Supermajority Stockholder Votes........... 22
THE COMPANIES.............................................................. 23
Northern Illinois Financial Corporation.................................. 23
Premier Financial Services, Inc.......................................... 23
Grand Premier Financial, Inc............................................. 24
MEETINGS OF STOCKHOLDERS................................................... 25
Introduction............................................................. 25
Purpose.................................................................. 25
Date, Time and Place of Meetings and Record Dates........................ 25
Stockholder Approval: Vote Required...................................... 25
Voting and Revocation of Proxies......................................... 26
Solicitation Of Proxies.................................................. 27
THE MERGER................................................................. 28
Introduction............................................................. 28
Background of the Merger................................................. 28
Reasons for the Merger................................................... 31
Opinions of Financial Advisors........................................... 32
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Terms of the Merger..................................................... 40
Conversion of Shares.................................................... 40
Conversion of Options................................................... 41
Closing of the Merger................................................... 41
Exchange of Stock Certificates; Fractional Shares....................... 42
Representations and Warranties.......................................... 43
Conditions to the Consummation of the Merger............................ 43
Conduct of Business Pending the Merger and Other Agreements............. 44
Nasdaq National Market Listing.......................................... 46
Dividends............................................................... 46
Commitments with Respect to Other Offers................................ 46
Termination of the Merger Agreement..................................... 46
Waiver and Amendment.................................................... 47
Expenses................................................................ 47
Regulatory Approvals.................................................... 47
Certain Federal Income Tax Consequences of the Merger................... 48
Resales of GPF Common Stock Issued in the Merger........................ 49
BOARD OF DIRECTORS AND MANAGEMENT OF GPF FOLLOWING THE MERGER............. 51
Board of Directors...................................................... 51
Management.............................................................. 53
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................ 55
CERTAIN RELATED TRANSACTIONS.............................................. 57
Reciprocal Stock Option Agreements...................................... 57
DISSENTERS' RIGHTS........................................................ 60
Northern Illinois Stockholders.......................................... 60
Holders of Premier Preferred Stock...................................... 62
DESCRIPTION OF GPF CAPITAL STOCK.......................................... 64
Authorized Capital Stock................................................ 64
GPF Common Stock........................................................ 64
GPF Preferred Stock..................................................... 65
Transfer Agent.......................................................... 68
POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF
CERTIFICATE, GPF BYLAWS AND THE RIGHTS AGREEMENT......................... 69
General................................................................. 69
Classified Board of Directors........................................... 69
Number of Directors; Removal; Filling of Vacancies...................... 70
No Shareholder Action by Written Consent; Special Meetings.............. 70
Right to Consider Effect of Certain Transactions on Non-Stockholder
Constituencies......................................................... 70
Advance Notice of Stockholder Nominations and Proposals of Other
Business............................................................... 70
Special Vote Requirements............................................... 71
Restrictions on Business Transactions with Interested Parties........... 72
The Rights Agreement.................................................... 73
COMPARISON OF RIGHTS OF HOLDERS OF NORTHERN ILLINOIS COMMON STOCK AND GPF
COMMON STOCK............................................................. 77
Capital Structure....................................................... 77
Number of Directors..................................................... 77
Structure of Board...................................................... 77
Filling of Vacancies and Newly Created Directorships.................... 78
Removal of Directors.................................................... 78
</TABLE>
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Stockholder Meetings.................................................... 78
Advance Notice of Stockholder Nominations for Directors and Proposals of
Other Business......................................................... 78
Written Consent......................................................... 79
Amendment of Certificate (or Articles) of Incorporation................. 79
Amendment of Bylaws..................................................... 79
Required Vote for Certain Business Combinations......................... 79
Additional Provisions Not Found in the Northern Illinois Articles....... 81
COMPARISON OF RIGHTS OF HOLDERS OF PREMIER COMMON STOCK AND GPF COMMON
STOCK.................................................................... 82
Number of Directors; Classified Board................................... 82
Filling of Vacancies and Newly Created Directorships.................... 82
Removal of Directors.................................................... 82
Stockholder Meetings.................................................... 83
Advance Notice of Stockholder Nominations for Directors and Proposals of
Other Business......................................................... 83
Amendment of Certificate of Incorporation............................... 83
Amendment of the Bylaws................................................. 84
Required Vote for Certain Business Combinations......................... 84
Additional Provisions Not Found in the Premier Certificate.............. 84
BUSINESS OF GPF........................................................... 85
Properties.............................................................. 85
Governmental Monetary Policies.......................................... 85
Market for and Dividends on GPF Common Stock............................ 85
Employees............................................................... 85
Compensation of Directors and Officers of GPF........................... 86
PRO FORMA FINANCIAL INFORMATION........................................... 87
CERTAIN INFORMATION CONCERNING NORTHERN ILLINOIS.......................... 94
Certain Beneficial Owners of Northern Illinois Common Stock............. 94
Executive Compensation.................................................. 96
Pension Plans........................................................... 96
Compensation of Directors............................................... 96
Other Transactions With Management...................................... 97
ADDITIONAL FINANCIAL INFORMATION CONCERNING NORTHERN ILLINOIS............. 98
Average Balances, Interest and Average Rates Earned and Paid............ 98
Rate/Volume Analysis.................................................... 99
Securities Portfolio.................................................... 99
Loan Portfolio.......................................................... 101
Summary of Loan Loss Experience......................................... 105
Deposits................................................................ 106
Return on Equity and Assets............................................. 107
Short-Term Borrowings................................................... 107
NORTHERN ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION FOR THE THREE MONTHS ENDED
MARCH 31, 1996........................................................... 109
Financial Condition at March 31, 1996 Compared to December 31, 1995..... 109
Results of Operations for the Three Months Ended March 31, 1996 Compared
to the Three Months Ended March 31, 1995............................... 109
Shareholders' Equity.................................................... 110
</TABLE>
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NORTHERN ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995........................................................ 111
Financial Condition at December 31, 1995 Compared to December 31, 1994
and December 31, 1993.................................................. 111
Results of Operations for the Twelve Months Ended December 31, 1993,
December 31, 1994 and December 31, 1995................................ 112
CERTAIN INFORMATION CONCERNING PREMIER.................................... 116
Certain Beneficial Owners of Premier Common Stock....................... 116
Executive Compensation.................................................. 119
Stock Options........................................................... 120
Pension Plan............................................................ 121
Change in Control and Termination Agreements............................ 121
Compensation of Directors............................................... 122
Other Transactions with Management...................................... 122
ADDITIONAL FINANCIAL INFORMATION CONCERNING PREMIER....................... 123
Distribution of Assets, Liabilities and Stockholders' Equity............ 123
Interest Rates and Interest Differential................................ 124
Changes in Interest Margin.............................................. 125
Investment Portfolio.................................................... 125
Loan Portfolio.......................................................... 126
Risk Elements in the Loan Portfolio..................................... 127
Summary of Loan Loss Experience......................................... 127
Deposits................................................................ 131
Time Certificates of Deposit/Time Deposits of $100,000 Or More.......... 131
Return On Equity And Assets............................................. 131
Short-Term Borrowings................................................... 132
PREMIER MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION FOR THE THREE MONTHS ENDED MARCH 31, 1996............ 133
Introduction............................................................ 133
Results of Operations................................................... 133
Financial Condition..................................................... 134
PREMIER MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995.......... 135
Introduction............................................................ 135
Results of Operations................................................... 135
Financial Condition..................................................... 138
SUPERVISION AND REGULATION................................................ 140
General................................................................. 140
Bank Holding Company Regulation......................................... 141
Bank Regulation......................................................... 142
Capital Requirements of Banks and Bank Holding Companies................ 142
Other Regulations....................................................... 143
Recent Developments Affecting Deposit Insurance Premiums................ 144
ADJOURNMENT OF SPECIAL MEETINGS........................................... 146
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.................................. 146
CERTAIN OPINIONS.......................................................... 146
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
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<PAGE>
APPENDICES
A.Agreement and Plan of Merger
B.Section 11.65 and 11.70 of the Business Corporation Act of Illinois
C.Section 262 of the General Corporation Law of Delaware
D.Opinion of Prairie Capital Services, Inc.
E.Opinion of The Chicago Corporation
F.Restated Certificate of Incorporation of Grand Premier Financial, Inc.
vii
<PAGE>
AVAILABLE INFORMATION
GPF is not currently subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Northern
Illinois and Premier are each subject to the informational requirements of the
Exchange Act, and in accordance therewith file reports, proxy statements and
other information with the Commission. Reports, proxy statements and other
information filed by either Northern Illinois or Premier can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices in New York, Seven World Trade Center, 13th
Floor, New York, New York 10048, and Chicago, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
This Joint Proxy Statement-Prospectus does not contain all of the
information set forth in the Registration Statement on Form S-4 described in
page (ii) hereof of which this Joint Proxy Statement-Prospectus is a part (the
"Registration Statement"), certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information,
reference is made to the Registration Statement, including the exhibits filed
as a part thereof, which may be inspected and copied as set forth above.
All information contained in this Joint Proxy Statement-Prospectus with
respect to Northern Illinois and its subsidiaries has been supplied by
Northern Illinois, all information with respect to Premier and its
subsidiaries has been supplied by Premier, and all information with respect to
GPF has been supplied jointly by Northern Illinois, Premier and GPF.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Northern Illinois (File
No. 0-17728) and Premier (File No. 0-13425) pursuant to the Exchange Act are
incorporated by reference in this Joint Proxy Statement- Prospectus:
1. Northern Illinois' Annual Report on Form 10-K for the year ended
December 31, 1995;
2. Northern Illinois' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996;
3. Northern Illinois' Current Report on Form 8-K dated January 18, 1996;
4. Premier's Annual Report on Form 10-K for the year ended December 31,
1995;
5. Premier's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996; and
6. Premier's Current Report on Form 8-K dated January 18, 1996.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Joint Proxy
Statement-Prospectus to the extent that a statement contained in this Joint
Proxy Statement-Prospectus modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Joint Proxy Statement-Prospectus.
AS SET FORTH ABOVE, THIS JOINT PROXY STATEMENT-PROSPECTUS INCORPORATES BY
REFERENCE DOCUMENTS WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
THESE DOCUMENTS, EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED HEREIN,
ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF
STOCK OF NORTHERN ILLINOIS OR PREMIER, TO WHOM THIS JOINT PROXY STATEMENT-
PROSPECTUS IS DELIVERED, AND WILL BE DELIVERED BY FIRST CLASS MAIL WITHIN ONE
BUSINESS DAY OF RECEIPT OF SUCH PERSON'S WRITTEN OR ORAL REQUEST TO THE
FOLLOWING:
<TABLE>
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NORTHERN ILLINOIS DOCUMENTS PREMIER DOCUMENTS
--------------------------- -----------------
<S> <C>
Northern Illinois Finan-
cial Corporation Premier Financial Services, Inc.
486 West Liberty Street 27 West Main Street, Suite 101
Wauconda, IL 60084-2489 Freeport, IL 61032
Attention: David E.
Albright Attention: David L. Murray
(847) 487-1818 (815) 233-3773
</TABLE>
IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, A REQUEST MUST BE
RECEIVED NO LATER THAN AUGUST 14, 1996.
<PAGE>
SUMMARY OF JOINT PROXY STATEMENT-PROSPECTUS
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement-Prospectus. This summary does not contain a
complete statement of such information and is qualified in its entirety by
reference to, and should be read in conjunction with, the detailed information
and financial statements included elsewhere in this Joint Proxy Statement-
Prospectus.
THE COMPANIES
Northern Illinois. Northern Illinois is organized under the laws of the State
of Illinois and is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHCA"). Its sole active subsidiary is
Grand National Bank, a national banking association. Grand National Bank was
formed in February 1996 following the merger and consolidation of the national
bank charters of four wholly-owned subsidiaries of Northern Illinois--Grand
National Bank, located in Waukegan, Illinois ("Grand National Bank-Waukegan"),
Grand National Bank, located in Crete, Illinois ("Grand National Bank-Crete"),
Grand National Bank, located in Niles, Illinois ("Grand National Bank-Niles"),
and Grand National Bank, located in Crystal Lake, Illinois ("Grand National
Bank-Crystal Lake"). Northern Illinois' only other subsidiary, American
Suburban Mortgage Corporation, an Illinois corporation, is currently inactive.
Grand National Bank provides an array of financial services of the kind
typically offered by commercial banks to commercial establishments and
individuals throughout northern Illinois. Grand National Bank has offices
located in Crete, Homewood, Tinley Park, South Chicago Heights, Mokena, Niles,
Crystal Lake, Wauconda, Island Lake, Woodstock, Mundelein, Waukegan and Gurnee,
Illinois.
Northern Illinois' principal executive offices are located at 486 West
Liberty Street, Wauconda, Illinois 60084-2489, and its telephone number is
(847) 487-1818. See "THE COMPANIES--Northern Illinois."
Premier. Premier is organized under the laws of the State of Delaware and is
a registered bank holding company under the BHCA. Its bank subsidiaries consist
of First Bank North, an Illinois state bank, First Bank South, an Illinois
state bank, First National Bank of Northbrook, a national banking association,
and First Security Bank of Cary Grove, an Illinois state bank (the "Premier
Banks"). The Premier Banks provide a full array of financial services and
products generally associated with commercial banking to individuals,
businesses, local governmental units and institutional customers throughout
northern Illinois. The Premier Banks have offices located in Freeport,
Stockton, Warren, Mt. Carroll, DeKalb, Dixon, Rockford, Polo, Sterling,
Northbrook, Riverwoods and Cary, Illinois.
Premier's non-bank subsidiaries consist of Premier Trust Services, Inc., an
Illinois trust company, Premier Insurance Services, Inc., an Illinois
corporation and a full-line casualty and life insurance agency, and Premier
Operating Systems, Inc., an Illinois corporation which provides data processing
and operational services to Premier and its subsidiaries (collectively with the
Premier Banks, the "Premier Subsidiaries").
Premier's principal executive offices are located at 27 West Main Street,
Suite 101, Freeport, Illinois 61032, and its telephone number is (815) 233-
3671. See "THE COMPANIES--Premier."
GPF. GPF is a Delaware corporation formed by Northern Illinois and Premier on
January 12, 1996 for the purpose of effecting a merger-of-equals between
Northern Illinois and Premier. GPF will be, upon consummation of the Merger, a
registered bank holding company under the BHCA, owning all of the issued and
outstanding stock of Grand National Bank and American Suburban Mortgage
Corporation (the "Northern Illinois Subsidiaries") and the Premier
Subsidiaries. GPF does not currently own any significant assets and has not yet
engaged in any business activity, other than applying for necessary regulatory
approvals and other matters of a procedural nature relating to the Merger. See
"THE COMPANIES--GPF." GPF's principal executive offices are located at 486 West
Liberty Street, Wauconda, Illinois 60084-2489, and its telephone number is
(847) 487-1818.
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<PAGE>
THE MEETINGS OF STOCKHOLDERS; VOTES REQUIRED
Northern Illinois Special Meeting. The Northern Illinois Special Meeting will
be held at the Niles branch of Grand National Bank, 7100 West Oakton, Niles,
Illinois 60714-3047 on Wednesday, August 21, 1996, at 10:00 a.m. (local time)
for the purpose of considering and voting upon the Merger Agreement. Approval
by Northern Illinois stockholders of the Merger Agreement requires the
affirmative vote of holders of at least (i) 80% of the outstanding shares of
Northern Illinois Common Stock, and (ii) a majority of the outstanding shares
of Northern Illinois Common Stock not held by Howard A. McKee and certain
parties related to Mr. McKee who constitute his "associates" (the "McKee
Associates") within the meaning of Section 7.85 of the Illinois Business
Corporation Act of 1983, as amended (the "IBCA"). Such approval is a condition
to, and required for, the consummation of the Merger. Only holders of record of
Northern Illinois Common Stock at the close of business on July 5, 1996 (the
"Record Date") are entitled to notice of, and to vote at, the Northern Illinois
Special Meeting. As of such date, there were 2,956,784 shares of Northern
Illinois Common Stock outstanding.
As of the Record Date, the directors and executive officers of Northern
Illinois and their affiliates owned beneficially an aggregate of 1,917,434
shares of Northern Illinois Common Stock, not including shares held by members
of the immediate families of such directors and executive officers as to which
such directors and executive officers disclaim beneficial ownership, or
approximately 65% of the shares of Northern Illinois Common Stock entitled to
vote at the Northern Illinois Special Meeting. All of these holders have
indicated their intention to vote their shares for the approval of the Merger
Agreement. As of the Record Date, Mr. McKee and the McKee Associates owned
beneficially an aggregate of 1,744,154 shares of Northern Illinois Common
Stock, or approximately 59% of the outstanding shares of Northern Illinois
Common Stock.
Votes cast by proxy or in person at the Northern Illinois Special Meeting
will be tabulated by the inspectors appointed for such meeting and the
inspectors will determine whether a quorum is present. The inspectors will
treat abstentions (but not broker non-votes) as shares that are present for
purposes of determining the presence of a quorum. However, broker non-votes and
abstentions will not be counted as votes cast for or against the proposal to
approve the Merger Agreement and, as a result, will have the same effect as
votes cast against the Merger Agreement.
Premier Special Meeting. The Premier Special Meeting will be held at the
Best Western Stephenson Hotel, 109 South Galena Avenue, Freeport, Illinois on
Wednesday, August 21, 1996, at 10:00 a.m. (local time) for the purpose of
considering and voting upon the Merger Agreement. Approval by Premier
stockholders of the Merger Agreement requires the affirmative vote of holders
of at least a majority of the outstanding shares of Premier Common Stock, and
such approval is a condition to, and required for, the consummation of the
Merger. Only holders of record of Premier Common Stock at the close of business
on the Record Date are entitled to notice of, and to vote at, the Premier
Special Meeting. As of the Record Date, there were 6,592,582 shares of Premier
Common Stock outstanding. Holders of Premier Preferred Stock do not have voting
rights with respect to the Merger.
As of the Record Date, the directors and executive officers of Premier and
their affiliates owned beneficially an aggregate of 821,128 shares of Premier
Common Stock, not including shares held by members of the immediate families of
such directors and executive officers as to which such directors and executive
officers disclaim beneficial ownership, or approximately 12% of the shares
entitled to vote at the Premier Special Meeting. All of these holders have
indicated their intention to vote their shares for the approval of the Merger
Agreement.
Votes cast by proxy or in person at the Premier Special Meeting will be
tabulated by the inspectors appointed for such meeting and the inspectors will
determine whether a quorum is present. The inspectors will treat abstentions
(but not broker non-votes) as shares that are present for purposes of
determining the presence of a quorum. However, broker non-votes and abstentions
will not be counted as votes cast for or against the proposal to approve the
Merger Agreement and, as a result, will have the same effect as votes cast
against the Merger Agreement.
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<PAGE>
GPF. The Merger Agreement must also be approved by the holders of at least a
majority of the outstanding shares of GPF Common Stock. Northern Illinois and
Premier each currently hold 50% of the outstanding GPF Common Stock. As of the
date hereof, Northern Illinois and Premier have unanimously approved the Merger
Agreement in their capacities as stockholders of GPF.
DISSENTERS' RIGHTS
If the Merger is consummated, holders of Northern Illinois Common Stock and
Premier Preferred Stock have the right to dissent from the Merger and to demand
payment, in cash, of the "fair value" of their shares, provided that such
holders comply with certain statutory procedures. Failure to take any step
required in connection with the exercise of such dissenters' rights in a timely
manner may result in a loss or waiver of those rights. Holders of shares of
Premier Common Stock have no dissenters' rights because such shares are listed
and traded on The Nasdaq Stock Market's National Market (the "Nasdaq National
Market").
Northern Illinois Stockholders. A holder of Northern Illinois Common Stock
may assert dissenters' rights with respect to the Merger by delivering to
Northern Illinois, before the vote is taken to approve the Merger, a written
demand for payment for his or her shares in the event the Merger is
consummated, to David E. Albright, Secretary, Northern Illinois Financial
Corporation, 486 West Liberty Street, Wauconda, Illinois 60084-2489. A Northern
Illinois stockholder who intends to exercise dissenters' rights MAY NOT vote in
favor of the Merger Agreement. If a Northern Illinois stockholder returns a
signed proxy but does not mark the proxy to indicate a vote against, or an
abstention from voting for, the adoption of the Merger Agreement, and such
proxy is not properly revoked, the proxy will be voted for the adoption of the
Merger Agreement, such holder will have waived his or her dissenters' rights,
and any written demand for payment submitted by such holder will be void. For a
complete discussion of the procedures whereby holders of Northern Illinois
Common Stock may assert dissenters' rights, see "DISSENTERS' RIGHTS--Northern
Illinois Stockholders."
Holders of Premier Preferred Stock. Holders of record of Premier Preferred
Stock who desire to exercise their appraisal rights to have the "fair value" of
their shares of Premier Preferred Stock at the Effective Time (exclusive of any
element of value arising from the accomplishment or expectation of the Merger)
judicially determined and paid to them must (i) hold such shares of record on
the date the written demand for appraisal is made, (ii) continue to hold such
shares until the Effective Time, and (iii) deliver a written demand for
appraisal of their shares of Premier Preferred Stock to Scott Dixon, Secretary,
Premier Financial Services, Inc., 27 West Main Street, Suite 101, Freeport
Illinois, 61032 before the vote is taken to approve the Merger Agreement. For a
complete discussion of the procedures whereby holders of Premier Preferred
Stock may assert dissenters' rights, see "DISSENTERS' RIGHTS--Holders of
Premier Preferred Stock."
THE MERGER
At the effective time of the Merger (see "--Effective Time," below), Northern
Illinois and Premier will merge with and into GPF, with GPF as the corporation
resulting from the Merger. Each share of Northern Illinois Common Stock, other
than shares for which dissenters' rights have been validly asserted, will be
converted into the right to receive 4.250 shares of GPF Common Stock; each
share of Premier Common Stock will be converted into the right to receive 1.116
shares of GPF Common Stock; each share of Premier Preferred Stock, other than
shares for which dissenters' rights have been validly asserted, will be
converted into the right to receive one share of GPF Preferred Stock having
terms substantially identical to the terms of the shares so converted; and all
shares of GPF Common Stock currently held by Northern Illinois and Premier in
connection with the formation of GPF will be canceled. The GPF Series B
Preferred Stock and the GPF Series C Preferred Stock, unlike the series of
Premier Preferred Stock for which they are exchanged, will be cumulative,
rather than noncumulative, with respect to dividends, pursuant to the terms of
an agreement entered into with the holders of such Premier Preferred Stock at
the time of its issuance. Moreover, each option to purchase shares of Premier
Common Stock outstanding prior to the Effective Time will be converted into an
option to purchase shares of GPF Common
4
<PAGE>
Stock. The number of shares covered by and the exercise price of each option
will be adjusted pursuant to the exchange ratio for Premier Common Stock. See
"THE MERGER--Terms of the Merger; Conversion of Shares; Conversion of Options."
Assuming that no additional options under the Premier stock option plans are
exercised, and no shares of the Premier Preferred Stock designated as Series B
Perpetual Preferred Stock are converted into Premier Common Stock, prior to the
Merger, at the effective time of the Merger, stockholders of Northern Illinois
will own approximately 63% and stockholders of Premier will own approximately
37% of the GPF Common Stock. On a fully diluted basis (i.e., assuming full
conversion of the Premier Preferred Stock designated as Series B Perpetual
Preferred Stock and the exercise of all outstanding options, vested and
unvested, to acquire Premier Common Stock), at the effective time of the
Merger, stockholders of Northern Illinois would own approximately 59% and
stockholders of Premier would own approximately 41% of the GPF Common Stock.
RECIPROCAL STOCK OPTION AGREEMENTS
Concurrently with the execution of the Merger Agreement, Northern Illinois
and Premier entered into reciprocal stock option agreements. Under the
"Northern Illinois Stock Option Agreement," Northern Illinois granted to
Premier an option to purchase up to 19.9% of the outstanding shares of Northern
Illinois Common Stock upon the occurrence of certain triggering events--
generally, actions or proposals involving a third-party merger with, or
acquisition of the stock or assets of, Northern Illinois. Under the "Premier
Stock Option Agreement," Premier granted to Northern Illinois an option to
purchase up to 19.9% of the outstanding shares of Premier Common Stock upon the
occurrence of certain triggering events--generally, actions or proposals
involving a third-party merger with, or acquisition of the stock or assets of,
Premier. The option price for Northern Illinois Common Stock under the Northern
Illinois Stock Option Agreement is $30.00 per share. The option price for
Premier Common Stock under the Premier Stock Option Agreement is $9.00 per
share.
Northern Illinois and Premier entered into the Northern Illinois Stock Option
Agreement and the Premier Stock Option Agreement (collectively, the "Stock
Option Agreements") in order to increase the likelihood that the Merger will be
consummated in accordance with the terms of the Merger Agreement. Certain
aspects of the Stock Option Agreements may have the effect of discouraging
third-parties who might be interested in entering into a transaction with or
acquiring a significant interest in Northern Illinois or Premier from
considering or proposing such an action. Exercise of the options granted under
the Stock Option Agreements will be subject to the receipt of appropriate
regulatory approvals. For more information, see "CERTAIN RELATED TRANSACTIONS--
Reciprocal Stock Option Agreements"; see also "THE MERGER--Regulatory
Approvals."
CONDITIONS TO THE MERGER; TERMINATION OF THE MERGER AGREEMENT
The consummation of the Merger is subject to stockholder approval and the
satisfaction (or waiver, to the extent such waiver is permitted by law) of the
other conditions contained in the Merger Agreement. Such conditions include the
following: (i) the shares of GPF Common Stock shall have been authorized for
listing on the Nasdaq National Market, subject to official notice of issuance,
(ii) all regulatory approvals necessary to consummate the Merger shall have
been obtained (see "--Regulatory Approvals"), (iii) the Registration Statement
of which this Joint Proxy Statement-Prospectus forms a part, and a registration
registering the GPF Common Stock under the Exchange Act, shall have become
effective, (iv) no court or agency order or other legal restraint preventing
consummation of the Merger shall be in effect, (v) Northern Illinois and
Premier shall have received an opinion from KPMG substantially to the effect
that the Merger will be treated as a tax-free reorganization under the Code
(see "--Certain Federal Income Tax Consequences"), (vi) Northern Illinois and
Premier shall each have received a letter from their accountants to the effect
that the Merger will qualify for "pooling-of-interests" accounting treatment
(see "--Accounting Treatment"), (vii) no event shall have occurred which has
had or may be reasonably expected to have a material adverse effect on the
business, results of operations, financial condition, or reasonable prospects
of Northern Illinois or Premier, (viii) no 10% shareholder of either party
shall have acquired any additional stock in either party, (ix) each party shall
have received a
5
<PAGE>
fairness opinion from its financial advisor, and (x) there is no material
breach by the other party of its representations and warranties and the
performance of its obligations under the Merger Agreement.
As of the date of this Joint Proxy Statement Prospectus, Premier and Northern
Illinois have received a tax opinion from KPMG and fairness opinions from
Prairie Capital and TCC which meet the conditions of the Merger Agreement, the
shares of GPF Common Stock have been approved for listing on the Nasdaq
National Market, and some, but not all, of the bank regulatory approvals
necessary to consummate the Merger have been received. No assurance can be
given as to when or if all of the remaining conditions precedent to the Merger
can or will be satisfied, or waived by the party permitted to waive such
conditions. See "THE MERGER--Representations and Warranties; Conditions to the
Consummation of the Merger; Amendment and Waiver."
The Merger Agreement may be terminated by the board of directors of Northern
Illinois or Premier under certain circumstances, either before or after
stockholder approval. The board of directors of either Northern Illinois or
Premier may terminate the Merger Agreement if the Merger is not consummated on
or before January 22, 1997 (unless the failure to consummate the Merger is due
to the failure of the party seeking to terminate the Merger Agreement to
perform its obligations under the Merger Agreement. See "THE MERGER--
Termination of the Merger Agreement."
EFFECTIVE TIME
The effective time of the Merger (the "Effective Time") will occur upon the
later of (i) the filing of a certificate of merger with the Secretary of State
of the State of Delaware, or (ii) the issuance of a certificate of merger by
the Secretary of State of the State of Illinois. The parties must use
reasonable efforts to cause those events to occur on a closing date no later
than the last business day in the calendar month in which certain conditions in
the Merger Agreement have been satisfied. See "THE MERGER--Closing of the
Merger."
REASONS FOR THE MERGER
In recent years, Northern Illinois and Premier have faced increased
competition, not only from other commercial banks, savings associations and
credit unions, but also from a wide range of more specialized financial service
providers, including mortgage companies, broker-dealers, and insurance
agencies. At the same time, both Northern Illinois and Premier have been faced
with increased costs, most notably the costs associated with regulatory
compliance and with developing and maintaining the level of technology now
required to compete effectively in the financial services industry. Northern
Illinois and Premier each believe that, by combining their operations through a
merger-of-equals, they will achieve sufficient size to permit the increased
specialization required to compete more effectively with their larger
competitors as well as their non-bank competitors. At the same time, both
believe that substantial cost savings, especially in the area of technology and
back-office operations, may be achieved through spreading their costs over a
larger base and eliminating, to the extent possible, duplicative functions.
Northern Illinois and Premier each believe that such benefits can be realized
much earlier through the Merger than through pursuing growth as separate
institutions. Moreover, since a merger-of-equals transaction does not involve
the termination of stockholder interests, it will not preclude the possibility
that the stockholders of the combined company might achieve a premium on the
sale of their stock, at some future date, in the event of a subsequent merger
or sale of the combined company. At the present time, however, neither Northern
Illinois, Premier nor GPF has any plans or intentions of entering into any such
transaction. For a discussion of additional factors considered by the boards of
directors of Northern Illinois and Premier in approving the Merger, see "THE
MERGER--Reasons for the Merger."
BOARD OF DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER
From and after the Effective Time, the board of directors of GPF will consist
of eight directors designated by Northern Illinois, including Robert W. Hinman
(the "Northern Illinois Representatives"), and eight directors
6
<PAGE>
designated by Premier, including Richard L. Geach and David L. Murray (the
"Premier Representatives"). Pursuant to the Merger Agreement, at the Effective
Time, Richard L. Geach will be the Chief Executive Officer of GPF, Robert W.
Hinman will be the President and Chief Operating Officer of GPF, and David L.
Murray will be an Executive Vice President and Chief Financial Officer of GPF.
Mr. Hinman, or such other person nominated for the office of Chief Executive
Officer by the Northern Illinois Representatives, will become Chief Executive
Officer of GPF on the date upon which Mr. Geach ceases to be Chief Executive
Officer of GPF, which date shall in no event be later than December 31, 1999.
See "BOARD OF DIRECTORS AND MANAGEMENT OF GPF FOLLOWING THE MERGER."
OPINIONS OF FINANCIAL ADVISORS
Prairie Capital Services, Inc. ("Prairie Capital") has rendered its opinion
to Northern Illinois' board of directors that, as of the date of this Joint
Proxy Statement-Prospectus, the terms of the Merger are fair, from a financial
point of view, to the stockholders of Northern Illinois. A copy of Prairie
Capital's opinion is attached as Appendix D and should be read in its entirety
with respect to the assumptions made, other matters considered and the scope of
the review that was undertaken. See "THE MERGER--Opinions of Financial
Advisors."
The Chicago Corporation ("TCC") has rendered its opinion to Premier's board
of directors that, as of the date of this Joint Proxy Statement-Prospectus, the
consideration to be received by the stockholders of Premier in the Merger is
fair, from a financial point of view, to Premier's stockholders. A copy of
TCC's opinion is attached as Appendix E and should be read in its entirety with
respect to the assumptions made, other matters considered and the scope of the
review that was undertaken. See "THE MERGER--Opinions of Financial Advisors."
RECOMMENDATION OF THE BOARDS OF DIRECTORS
Northern Illinois. THE BOARD OF DIRECTORS OF NORTHERN ILLINOIS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT. THE BOARD OF DIRECTORS OF NORTHERN
ILLINOIS BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF
NORTHERN ILLINOIS' STOCKHOLDERS AND RECOMMENDS A VOTE FOR THE APPROVAL OF THE
MERGER AGREEMENT. For a discussion of the factors considered by the board of
directors of Northern Illinois in reaching its conclusions, see "THE MERGER--
Reasons for Approving the Merger; Opinions of Financial Advisors."
Premier. THE BOARD OF DIRECTORS OF PREMIER HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT. THE BOARD OF DIRECTORS OF PREMIER BELIEVES THAT THE MERGER IS
FAIR TO AND IN THE BEST INTERESTS OF PREMIER STOCKHOLDERS AND RECOMMENDS A VOTE
FOR APPROVAL OF THE MERGER AGREEMENT. For a discussion of the factors
considered by the board of directors of Premier in reaching its conclusions,
see "THE MERGER--Reasons for Approving the Merger; Opinions of Financial
Advisors."
REGULATORY APPROVALS
The Merger is subject to the prior approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") under Sections 3 and 4 of
the BHCA. Because the Merger involves a change of control of three Illinois
state banks and an Illinois trust company that are included among the Premier
Subsidiaries, it is also subject to the approval of the Illinois Commissioner
of Banks and Trust Companies (the "Illinois Commissioner"). Applications were
filed with the Federal Reserve Board for approval of the Merger on March 29,
1996, and were accepted for filing on April 26, 1996. An application for a
change of control of the Premier Subsidiaries which are Illinois State banks or
trust companies was filed on April 1, 1996.
By letter dated May 24, 1996, the Federal Reserve Board approved all of the
Federal Reserve Board applications necessary to consummate the Merger,
including the applications filed by GPF and two shareholders of Northern
Illinois, Keeco, Inc. and Northland Insurance Agency, pursuant to Section 3 of
the BHCA, and the notifications filed by GPF, Keeco, Inc. and Northland
Insurance Agency pursuant to Section 4 of the BHCA. Under the terms of the
Federal Reserve Board's letter, the Merger may be consummated any time after
June 8,
7
<PAGE>
1996 and must be consummated on or before August 24, 1996 (unless such period
is further extended by the Federal Reserve Board). See "THE MERGER--Regulatory
Approvals."
The Merger Agreement provides that the obligation of each of Northern
Illinois, Premier and GPF to consummate the Merger is conditioned upon the
receipt of all necessary regulatory approvals. There can be no assurance as to
whether the Illinois Commissioner will approve the Merger or as to the date of
such approval.
For a more complete discussion of required regulatory approvals, see "THE
MERGER--Regulatory Approvals."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Northern Illinois' and Premier's management and boards of
directors may be deemed to have certain interests in the Merger in addition to
their interests generally as stockholders of Northern Illinois or Premier, as
the case may be. Richard L. Geach, who is currently the president and chief
executive officer of Premier, and David L. Murray, who is currently the
executive vice president and chief financial officer of Premier, will become
the chief executive officer of GPF and the senior executive vice president and
chief financial officer of GPF, respectively, following the Merger. Robert W.
Hinman, who is currently the president and chief executive officer of Northern
Illinois, Alan J. Emerick, who is currently an executive vice president of
Northern Illinois, and William T. Theobald, who is currently an executive vice
president and chief credit officer of Northern Illinois will become the
president and chief operating officer, an executive vice president, and an
executive vice president and chief credit officer, respectively, of GPF
following the Merger. GPF has not yet determined the amount of the compensation
to be paid to any of its officers following the Merger. No employment
agreements have been entered into in connection with or in anticipation of the
Merger. For information concerning the compensation paid in the last three
years to Mr. Geach and Mr. Murray by Premier and to Mr. Hinman, Mr. Emerick and
Mr. Theobald by Northern Illinois, see "CERTAIN INFORMATION CONCERNING
PREMIER--Executive Compensation" and "CERTAIN INFORMATION CONCERNING NORTHERN
ILLINOIS--Executive Compensation."
Mr. Geach, Mr. Murray, Donald E. Bitz, R. Gerald Fox, Edward G. Maris, H.
Barry Musgrove, and Joseph C. Piland, who are currently members of the board of
directors of Premier, and Mr. Hinman, Mr. Alan Emerick, Jean M. Barry, Henry J.
Bystricky, Frank J. Callero, Brenton J. Emerick, James Esposito, Robert W.
Hinman, and Howard A. McKee, who are currently members of the board of
directors of Northern Illinois, will become directors of GPF upon consummation
of the Merger. See "BOARD OF DIRECTORS AND MANAGEMENT OF GPF FOLLOWING THE
MERGER--Board of Directors." GPF has not yet fixed the amount of the
compensation to be paid to members of its board of directors or officers upon
consummation of the Merger. The parties anticipate, however, that non-employee
directors of GPF will be compensated for their services to GPF following the
Merger in an amount comparable to the amounts currently paid to non-employee
directors of Premier. Non-employee directors of Premier currently receive an
annual retainer fee of $10,800 and $400 per committee meeting attended. See
"BUSINESS OF GPF--Compensation of Directors and Officers of GPF." Mr. Bitz, Mr.
Fox, Mr. Maris, Mr. Musgrove, Mr. Piland, Mr. Bystricky and Mr. Callero are
non-employee directors. Mr. McKee is also a party to a consulting agreement
with Grand National Bank under which he is paid consulting fees of $80,000 per
year.
The Merger Agreement provides that, unless otherwise mutually agreed, all
employee benefit plans of Northern Illinois and GPF will remain in effect after
the Effective Time until such time as GPF shall adopt new plans for the benefit
of GPF and its subsidiaries. All of the persons who are currently executive
officers or directors of Premier or Northern Illinois participate in one or
more such benefit plans (other than Harry J. Bystricky and Frank J. Callero)
and will be eligible to continue to participate in such plans following the
Merger. GPF has approved the adoption of a stock option plan for the benefit of
its key employees that is substantially the same as the 1995 Stock Option Plan
adopted by Premier. The stock option plan will become effective upon
8
<PAGE>
the effective date of the Merger. Mr. Geach, Mr. Murray, Mr. Hinman, Mr.
Emerick, and Mr. Theobald and all management directors of GPF will be eligible
to participate in the stock option plan adopted by GPF. For additional
information concerning the GPF Stock Option Plan, see "BUSINESS OF GPF--
Compensation of Directors and Officers of GPF."
Premier has entered into Change in Control and Termination Agreements with
six executive officers of Premier--Mr. Geach, Mr. Murray, Steve E. Flahaven,
Kenneth A. Urban, Scott Dixon and Lan Pinney--under which each such officer
will be entitled to lump sum severance payment and certain other benefits in
the event that such officer's employment is terminated under certain
circumstances during a twelve-month period following a "change in control" as
defined in the Change in Control and Termination Agreements. Mr. Pinney has
informed Premier of his intent to retire effective July 1, 1996, and his Change
in Control and Termination Agreement with Premier will terminate as of that
date.
The Merger does not constitute a "change in control" for purposes of the
Change in Control and Termination Agreements. The officers who are parties to
such agreements will therefore not be entitled to severance benefits under such
agreements as a result of the Merger. Following consummation of the Merger, GPF
will, however, assume the obligations of Premier under such agreements, and the
officers who are parties to such agreements may be entitled to severance
payments if their employment is terminated following an event, subsequent to
the Merger, that constitutes a "change of control" for purposes of the Change
in Control and Termination Agreements. For a description of the terms,
conditions and amounts payable under such agreements, see "CERTAIN INFORMATION
CONCERNING PREMIER--Change in Control and Termination Agreements."
GPF has also agreed to indemnify, and to maintain directors' and officers'
liability insurance covering, the Northern Illinois and Premier directors for
three years after the Effective Time (or the period of an applicable statute of
limitations, if longer) for those persons serving as directors and officers of
Northern Illinois, Premier or their subsidiaries immediately prior to the
Effective Time. Based on estimates received to date, GPF anticipates that the
cost of providing such coverage for the directors and officers of GPF and for
the former directors and officers of Northern Illinois, Premier and their
subsidiaries, will be approximately $44,000 per year. See "INTERESTS OF CERTAIN
PERSONS IN THE MERGER." The board of directors of Northern Illinois and Premier
were each aware of these interests of their respective directors and officers
and considered them, among other things, in approving the Merger Agreement and
the transactions contemplated thereby.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Northern Illinois and Premier have jointly received an opinion from KPMG Peat
Marwick LLP ("KPMG") to the effect that the Merger will qualify as a
reorganization within the meaning of Section 368(a) and related sections of the
Internal Revenue Code of 1986, as amended (the "Code"). A Northern Illinois
stockholder or a Premier stockholder who receives solely shares of GPF Common
Stock in exchange for shares of Northern Illinois Common Stock or Premier
Common Stock, as the case may be, in the Merger will not recognize gain or loss
on the exchange for federal income tax purposes, and a Premier stockholder who
receives solely shares of GPF Preferred Stock in exchange for shares of Premier
Preferred Stock in the Merger will not recognize gain or loss on the exchange
for federal income tax purposes. The payment to the holders of Northern
Illinois Common Stock or Premier Common Stock of cash in lieu of fractional
shares of GPF Common Stock will be treated as a distribution and full payment
in exchange for the fractional shares redeemed, subject to the provisions and
limitations of Section 302(a) of the Code.
Each Northern Illinois stockholder and Premier stockholder is urged to
consult his or her own tax advisor to determine the specific tax consequences
of the Merger to such stockholder. For a more complete description of the
federal income tax consequences of the Merger, see "THE MERGER--Certain Federal
Income Tax Consequences of the Merger."
9
<PAGE>
ACCOUNTING TREATMENT
Consummation of the Merger is conditioned upon the receipt by Northern
Illinois of a letter from Hutton Nelson & McDonald LLP, Northern Illinois'
independent public accountants ("Hutton"), and the receipt by Premier of a
letter from KPMG, Premier's independent public accountants, to the effect that
the Merger qualifies for pooling-of-interests accounting treatment. Under the
pooling-of-interests method of accounting, the historical basis of the assets
and liabilities of Northern Illinois and Premier will be combined at the
Effective Time and carried forward at their previously recorded amounts, the
shareholders' equity account of Northern Illinois and the stockholders' equity
account of Premier will be combined on GPF's consolidated balance sheet, and no
goodwill or other intangible assets will be created. The unaudited pro forma
per share information contained in this Joint Proxy Statement-Prospectus has
been prepared based upon the use of the pooling-of-interests accounting method
to account for the Merger. See "SUMMARY--Historical and Pro Forma Comparative
Per Share Data."
GPF COMMON STOCK; COMPARISON OF STOCKHOLDER RIGHTS
Based on the number of shares of Northern Illinois Common Stock and Premier
Common Stock outstanding as of the Record Date (and assuming no options to
purchase Premier Common Stock are exercised and no securities convertible into
Premier Common Stock are converted after the Record Date), approximately
19,923,653 shares of GPF Common Stock are expected to be issued in the Merger.
Shares of GPF Series B Preferred Stock convertible into 851,683 shares of GPF
Common Stock and options to acquire an additional 379,221 shares of GPF Common
Stock will also be outstanding as of the Effective Time. As of the Effective
Time, the GPF Series B Preferred Stock and the GPF Series C Preferred Stock
will have dividend rights and rights in liquidation superior to those of the
GPF Common Stock. Each share of GPF Common Stock will be entitled to one vote
on all matters properly voted upon by the GPF stockholders. Holders of GPF
Common Stock will not have the right to cumulative voting in the election of
directors and will have no preemptive rights to subscribe for additional shares
of GPF capital stock. See "DESCRIPTION OF GPF CAPITAL STOCK--GPF Common Stock."
The GPF certificate of incorporation and the GPF bylaws, in the forms in
which they will be in effect at the Effective Time (the "GPF Certificate" and
the "GPF Bylaws"), contain a number of provisions that may render more
difficult an unsolicited acquisition of control of GPF, including a provision
establishing a staggered board of directors. For a description of those
provisions, see "POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF
CERTIFICATE, THE GPF BYLAWS AND THE RIGHTS AGREEMENT."
Comparison of Rights of Holders of Northern Illinois Common Stock or Premier
Common Stock, and GPF Common Stock. The rights of holders of GPF Common Stock
will differ from the rights of holders of Northern Illinois Common Stock and
Premier Common Stock in a number of ways, a brief summary of which follows.
Number of Directors
GPF............. 16, until the 1999 Annual Meeting, equally divided between
Premier Representatives and Northern Illinois
Representatives; thereafter, not less than 10 nor more than
20, as determined by a majority of all directors.
Northern Not less than four nor more than 12, as determined by the
Illinois........ board of directors.
Premier......... Not less than five nor more than 20, as determined by the
board of directors.
Directors' Terms
GPF ............ Three year terms; staggered board.
10
<PAGE>
Northern
Illinois........ One year term; entire board up for reelection each year.
Premier......... Three year terms; staggered board.
Filling of Director Vacancies
GPF............. Prior to 1999 Annual Meeting, vacancy created by resignation,
death or removal of a director who is a Northern Illinois
Representative to be filled by the remaining Northern
Illinois Representatives, and vacancy created by the
resignation, death or removal of a director who is a Premier
Representative to be filled by remaining Premier
Representatives; thereafter, vacancies are to be filled by a
majority of the remaining directors.
Northern Vacancies to be filled by stockholders at annual or special
Illinois........ meeting or by the board of directors.
Premier......... Vacancies to be filled by a majority of the remaining
directors.
Removal of Directors
GPF............. Only for cause; requires an 80% stockholder vote.
Northern
Illinois........ With or without cause; requires a majority stockholder vote.
Premier......... Only for cause; requires a 70% stockholder vote.
Who May Call Special Meeting
GPF............. Majority of the entire board of directors.
Northern President, executive vice president, board of directors or
Illinois........ the holders of not less than one-fifth of all outstanding
shares of capital stock.
Premier......... Holders of 51% of the voting stock of Premier, but only for
the purpose of removing a director or directors; for other
purposes, the board of directors.
Stockholder Nominations/Proposals
GPF............. Advance notice and disclosure requirements for director
nominations and stockholder proposals.
Northern
Illinois........ No advance notice or disclosure requirements.
Premier......... Advance notice and disclosure requirements for director
nominations, somewhat less onerous than those relating to
GPF.
Action of Stockholders by Written Consent
GPF............. Not permitted.
Northern Permitted if the consent evidencing such action is signed by
Illinois........ the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to take such
action, and if certain notice requirements are satisfied.
Premier......... Not permitted.
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<PAGE>
Amendment of Charter
GPF............. Certain provisions of the GPF Certificate require an 80%
stockholder vote for amendment, although the supermajority
stockholder vote is not required if the amendment is approved
by 66 2/3% of the "Continuing Directors." Also, prior to the
annual meeting of stockholders in 2003, any amendment to the
GPF Certificate must be approved by 66 2/3% of all the
directors at a time when there are no vacancies existing in
the GPF board of directors.
Northern An amendment to the articles of incorporation of Northern
Illinois........ Illinois (the "Northern Illinois Articles") must generally be
approved by a 66 2/3% stockholder vote.
Premier......... Certain provisions of the amended and restated certificate of
incorporation of Premier (the "Premier Certificate") require
a 70% stockholder vote for amendment, although the
supermajority stockholder vote is not required if the
amendment is approved by 80% of all the directors.
Amendment of Bylaws
GPF............. An amendment to the GPF Bylaws must be approved by (i) 66
2/3% of all the directors at a time when there are no
vacancies on the GPF board of directors prior to the 2003
Annual Meeting, and thereafter by a majority of directors
then in office, or (ii) by an 80% stockholder vote.
Northern An amendment to the bylaws of Northern Illinois (the
Illinois........ "Northern Illinois Bylaws") must be approved by a majority
vote of either the stockholders or the board of directors.
Premier......... An amendment to the bylaws of Premier (the "Premier Bylaws")
must be approved by either (i) a majority of all of the
members of the board of directors, or (ii) a 70% stockholder
vote.
Required Vote for Certain Business Combinations
Each of GPF, Northern Illinois, and Premier are subject to provisions
requiring certain fundamental transactions between the company and certain
current or former 10% stockholders to be approved by a supermajority
stockholder vote, unless the transaction is approved by disinterested directors
or certain fair price provisions are satisfied. The provisions affecting each
company vary in certain respects. For a complete description of these
provisions, see "COMPARISON OF RIGHTS OF HOLDERS OF NORTHERN ILLINOIS COMMON
STOCK AND GPF COMMON STOCK," "COMPARISON OF RIGHTS OF HOLDERS OF PREMIER COMMON
STOCK AND GPF COMMON STOCK," and "POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN
PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS AND THE RIGHTS AGREEMENT."
Additional GPF Provisions
Unlike the charters of Northern Illinois and Premier, the GPF Certificate
specifically authorizes the directors and officers of GPF to consider the
impact of a sale, takeover or change of control of GPF on constituencies other
than the stockholders. Moreover, unlike Northern Illinois and Premier, GPF will
be a party to a Rights Agreement, which will have the effect of impeding
mergers or fundamental transactions with GPF unless such transaction is
approved by the GPF board of directors. See "POTENTIAL ANTITAKEOVER EFFECT OF
CERTAIN PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS AND THE RIGHTS
AGREEMENT--The Rights Agreement."
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<PAGE>
For a more complete discussion of the differences between Northern Illinois
Common Stock or Premier Common Stock and GPF Common Stock, see "COMPARISON OF
RIGHTS OF HOLDERS OF NORTHERN ILLINOIS COMMON STOCK AND GPF COMMON STOCK,"
"COMPARISON OF RIGHTS OF HOLDERS OF PREMIER COMMON STOCK AND GPF COMMON STOCK,"
"BOARD OF DIRECTORS, MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER--Board of
Directors," and "POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF
CERTIFICATE, GPF BYLAWS AND THE RIGHTS AGREEMENT."
GPF PREFERRED STOCK
The GPF Series B Preferred Stock and the GPF Series C Preferred Stock, shares
of which will be issued in the Merger in exchange for outstanding shares of
Premier Preferred Stock designated as Series B Perpetual Preferred Stock
("Premier Series B Preferred Stock") and Series D Perpetual Preferred Stock
("Premier Series D Preferred Stock") will have the terms described below.
Premier intends to redeem all of the outstanding shares of the Premier
Preferred Stock designated as Series A Perpetual Preferred Stock ("Premier
Series A Preferred Stock") prior to the Effective Time.
GPF Series B Preferred Stock
<TABLE>
<C> <S>
Stated Value............ $1,000 per share.
Dividend Rate........... Cumulative dividends payable quarterly at the rate of
eight percent (8%), based on the Stated Value.
Conversion.............. Convertible into shares of GPF Common Stock at an
initial conversion price of $8.51255 per share of GPF
Common Stock, subject to adjustment under certain
circumstances.
Liquidation Preference.. Stated Value, plus any accrued and unpaid dividends
on the date of liquidation.
Seniority of Preference. Senior to the GPF Series C Preferred Stock, GPF
Junior Preferred Stock and the GPF Common Stock with
respect to dividends. On a parity with the GPF Series
C Preferred Stock and senior to the GPF Junior
Preferred Stock and the GPF Common Stock upon
liquidation.
Redemption.............. Non-Redeemable, at the option of either GPF or the
holder.
Voting Rights........... None, except as affirmatively provided under the
General Corporation Law of Delaware (the "DGCL") or
in the event that GPF seeks to authorize or issue
shares of preferred stock senior to, or on a parity
with, the GPF Series B Preferred Stock with respect
to dividends or liquidation rights.
</TABLE>
GPF Series C Preferred Stock
<TABLE>
<C> <S>
Stated Value............ $1,000 per share.
Dividend Rate........... Cumulative dividends payable quarterly at the rate of
eight percent (8%), based on the Stated Value.
Liquidation Preference.. Stated Value, plus accrued and unpaid dividends on
the date of liquidation.
Seniority of Preference. Junior to the GPF Series B Preferred Stock and senior
to the GPF Junior Preferred Stock and the GPF Common
Stock with respect to dividends. On a parity with the
GPF Series B Preferred Stock and senior to the GPF
Junior Preferred Stock and the GPF Common Stock upon
liquidation.
Redemption.............. Non-Redeemable, at the option of either GPF or the
holder.
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
Change of Control....... Right to receive a cash payment based upon the value
of the consideration received for the GPF Common
Stock in the event that the consent of a majority of
the holders of the GPF Common Stock is not received
in connection with certain transactions constituting
a "change of control" of GPF.
Voting Rights........... None, except as affirmatively provided under the DGCL
or in the event that GPF seeks to authorize or issue
shares of preferred stock senior to, or on a parity
with, the GPF Series B Preferred Stock with respect
to dividends or liquidation rights.
</TABLE>
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth, on an historical basis, certain selected
consolidated financial data for Northern Illinois and Premier. These summaries
have been derived from, and should be read in conjunction with, the
consolidated financial statements of Northern Illinois and Premier and the
related notes thereto included elsewhere in this Joint Proxy Statement-
Prospectus and management's discussions and analyses of financial condition and
results of operations of Northern Illinois and Premier. The results for the
three months ended March 31, 1996 and 1995 of Northern Illinois and Premier are
unaudited but reflect, in the opinion of the managements of Northern Illinois
and Premier, respectively, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of operations for
such periods. Results for the three months ended March 31, 1996 for each of
Northern Illinois and Premier are not necessarily indicative of the results
which may be expected for any other interim period or for the year as a whole.
SELECTED FINANCIAL DATA OF NORTHERN ILLINOIS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Summary:
Interest income........ $ 16,958 $ 15,198 $ 64,402 $ 55,639 $ 54,359 $ 58,069 $ 63,285
Interest expense....... 8,283 6,988 31,381 23,799 24,308 28,826 37,071
-------- -------- -------- -------- -------- -------- --------
Net interest income.... 8,675 8,210 33,021 31,840 30,051 29,243 26,214
Provision for loan
losses................ 306 64 799 355 1,362 4,174 1,615
-------- -------- -------- -------- -------- -------- --------
Net interest income af-
ter provision for loan
losses................ 8,369 8,146 32,222 31,485 28,689 25,069 24,599
Other operating income. 1,500 1,735 9,945 6,457 6,928 6,947 9,243
Other operating ex-
pense................. 7,289 7,079 27,925 28,169 27,346 24,950 21,230
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes and cumulative
effect of change in
accounting............ 2,580 2,802 14,242 9,773 8,271 7,066 12,612
Income taxes........... 539 634 3,475 2,139 884 818 2,509
-------- -------- -------- -------- -------- -------- --------
Income before
cumulative effect of
change in accounting
for income taxes...... 2,041 2,168 10,767 7,634 7,387 6,248 10,103
Cumulative effect of
change in accounting.. -- -- -- -- 898 -- --
-------- -------- -------- -------- -------- -------- --------
Net income............. 2,041 2,168 10,767 7,634 8,285 6,248 10,103
======== ======== ======== ======== ======== ======== ========
Per common share:
Income before
cumulative effect of
change in accounting.. 0.69 0.72 3.62 2.53 2.43 2.03 3.25
Cumulative effect of
change in accounting.. -- -- -- -- .30 -- --
-------- -------- -------- -------- -------- -------- --------
Net income per share... 0.69 0.72 3.62 2.53 2.73 2.03 3.25
======== ======== ======== ======== ======== ======== ========
Dividends.............. 0.17 0.17 0.80 0.80 0.75 0.68 0.68
Selected Period-end Bal-
ances:
Total assets........... 944,557 869,262 954,454 872,563 859,730 810,323 776,942
Loans, net of allowance
for loan losses....... 555,949 484,830 542,470 472,205 429,803 396,270 377,471
Securities............. 319,874 307,656 333,224 322,857 352,662 333,424 311,819
Deposits............... 800,912 727,564 800,164 741,701 729,238 699,713 679,479
Borrowed funds......... 36,879 52,063 48,460 46,227 45,635 35,498 21,617
Shareholders' equity... 95,362 78,785 93,896 74,659 77,560 67,941 64,986
Selected financial ra-
tios(1):
Return on average as-
sets.................. 0.86% 1.00% 1.20% 0.89% 1.00% 0.78% 1.34%
Return on average com-
mon equity............ 8.61% 11.47% 13.03% 10.12% 11.66% 9.33% 16.34%
Net interest margin
(tax equivalent)...... 4.31% 4.33% 4.23% 4.33% 4.34% 4.40% 4.14%
Common stockholders'
equity to total as-
sets.................. 10.10% 9.06% 9.84% 8.56% 9.02% 8.38% 8.36%
Nonperforming assets to
period-end loans and
other real estate..... 1.20% 1.16% 1.28% 1.17% 2.03% 4.05% 3.47%
Reserve for loan losses
to period-end loans... 1.03% 1.20% 1.02% 1.26% 1.42% 1.35% 1.23%
Net charge-offs to av-
erage loans........... 0.08% .17% 0.25% 0.12% 0.14% 0.89% 0.30%
</TABLE>
- --------
(1) Annualized for the three-month periods ended March 31, 1996 and 1995.
15
<PAGE>
SELECTED FINANCIAL DATA OF PREMIER
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Summary:
Interest income........ $ 11,089 $ 10,434 $ 44,380 $ 36,527 $ 30,442 $ 28,353 $ 30,634
Interest expense....... 5,610 5,099 22,160 15,129 12,751 13,359 17,366
-------- -------- -------- -------- -------- -------- --------
Net interest income.... 5,479 5,335 22,220 21,398 17,691 14,994 13,268
Provision for loan
losses................ 100 51 636 200 1,620 325 0
-------- -------- -------- -------- -------- -------- --------
Net interest income
after provision for
loan losses........... 5,379 5,284 21,584 21,198 16,071 14,669 13,268
Other operating income. 1,915 1,607 7,230 6,686 5,993 4,775 3,916
Other operating
expense............... 4,950 5,053 19,872 19,764 16,473 13,109 12,263
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes................. 2,344 1,838 8,942 8,120 5,591 6,335 4,921
Income taxes........... 854 539 2,680 2,410 1,580 1,983 1,303
-------- -------- -------- -------- -------- -------- --------
Net income............. 1,490 1,299 6,262 5,710 4,011 4,352 3,618
======== ======== ======== ======== ======== ======== ========
Per common share:
Net income per share... 0.18 0.15 0.77 0.68 0.55 0.74 0.64
======== ======== ======== ======== ======== ======== ========
Dividends.............. 0.06 0.05 0.21 0.18 0.16 0.15 0.11
Selected Period-end
Balances:
Total assets........... 671,111 620,068 670,219 620,504 610,663 364,024 375,495
Loans, net of allowance
for loan losses....... 319,588 282,286 322,847 280,768 327,018 217,250 211,541
Securities............. 278,936 257,652 265,326 248,478 180,486 105,835 125,391
Deposits............... 546,662 521,375 551,492 523,693 518,018 308,893 286,780
Borrowed funds......... 58,502 38,975 51,360 42,271 32,982 21,006 58,188
Stockholders' equity... 60,716 56,002 62,107 52,477 55,416 31,738 27,929
Selected financial
ratios(1):
Return on average
assets................ 0.92% 0.84% 0.99% 0.95% 0.83% 1.15% 1.01%
Return on average
common equity......... 10.42% 9.77% 11.93% 11.11% 10.80% 14.58% 14.29%
Net interest margin
(tax equivalent)...... 3.94% 4.21% 4.18% 4.32% 4.43% 4.62% 4.34%
Common stockholders'
equity to total
assets................ 6.92% 6.73% 7.14% 6.16% 6.42% 8.72% 7.44%
Nonperforming assets to
period-end loans and
other real estate..... 1.22% 1.64% 1.16% 2.20% 2.26% 1.39% 1.74%
Reserve for loan losses
to period-end loans... 1.19% 1.14% 1.18% 1.30% 1.32% 1.23% 1.49%
Net charge-offs to
average loans......... 0.14% 0.67% 0.16% 0.30% 0.83% 0.37% (0.02%)
Ratio of earnings to
combined fixed charges
and preferred stock
dividends............. 1.35x 1.29x 1.34x 1.42x 1.37x 1.47x 1.28x
</TABLE>
- --------
(1) Annualized for the three-month periods ended March 31, 1996 and 1995.
16
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA OF GPF
The following table presents selected historical financial data for GPF
prepared on a pro forma basis. The pro forma income summary items have been
prepared assuming that the Merger had occurred at the beginning of the periods
presented. The pro forma income summary items and per common share amounts do
not include anticipated expense reductions as a result of the Merger. The pro
forma selected period-end balances give effect to the Merger as if it occurred
at the end of the period. The following pro forma data should be read in
conjunction with the unaudited pro forma financial information, including the
notes thereto, appearing elsewhere in this Joint Proxy Statement-Prospectus.
See "PRO FORMA FINANCIAL INFORMATION."
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH
31, YEAR ENDED DECEMBER 31,
------------------------ ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income Summary:
Interest income........ $ 28,047 $ 25,632 $ 108,782 $ 92,166 $ 84,800
Interest expense....... 13,893 12,087 53,541 38,928 37,058
---------- ---------- ---------- ---------- ----------
Net interest income.... 14,154 13,545 55,241 53,238 47,742
Provision for loan
losses................ 406 115 1,435 555 2,982
---------- ---------- ---------- ---------- ----------
Net interest income af-
ter provision for loan
losses................ 13,748 13,430 53,806 52,683 44,760
Other operating income. 3,415 3,342 17,175 13,143 12,921
Other operating ex-
pense................. 12,239 12,132 47,796 47,933 43,819
---------- ---------- ---------- ---------- ----------
Income before income
taxes and cumulative
effect of change in
accounting............ 4,924 4,640 23,185 17,893 13,862
Income taxes........... 1,393 1,173 6,156 4,549 2,464
---------- ---------- ---------- ---------- ----------
Income before cumula-
tive effect of change
in accounting for in-
come taxes............ 3,531 3,467 17,029 13,344 11,398
Cumulative effect of
change in accounting
for income taxes...... -- -- -- -- 898
---------- ---------- ---------- ---------- ----------
Net income............. $ 3,531 3,467 17,029 13,344 12,296
========== ========== ========== ========== ==========
Per common share:
Earnings before cumula-
tive effect of change
in accounting......... 0.16 0.16 0.79 0.60 0.54
Cumulative effect of
change in accounting.. -- -- -- -- 0.05
---------- ---------- ---------- ---------- ----------
Net income per share... 0.16 0.16 0.79 0.60 0.59
========== ========== ========== ========== ==========
Dividends.............. 0.05 0.04 0.19 0.18 0.17
Selected Period-end Bal-
ances:
Total assets........... $1,615,668 1,489,330 1,624,673 1,493,067 1,470,393
Loans, net of allowance
for loan losses....... 875,537 767,116 865,317 752,973 756,821
Securities............. 598,810 565,308 598,570 571,334 533,148
Deposits............... 1,347,574 1,248,939 1,351,656 1,265,394 1,247,257
Borrowed funds......... 100,381(1) 91,038 99,821 88,498 78,617
Stockholders' equity... 151,078(1) 134,787 156,003 127,136 132,976
Selected financial ra-
tios(2):
Return on average as-
sets.................. 0.88% 0.93% 1.11% 0.92% 0.94%
Return on average com-
mon equity............ 9.20% 10.81% 12.65% 10.46% 10.82%
Net interest margin
(tax equivalent)...... 4.16% 4.26% 4.21% 4.32% 4.38%
Common stockholders'
equity to total
assets................ 8.78% 8.09% 8.73% 7.56% 7.94%
Nonperforming assets to
period-end loans and
other real estate..... 1.21% 1.34% 1.23% 1.55% 2.13%
Reserve for loan losses
to period-end loans... 1.09% 1.18% 1.08% 1.28% 1.38%
Net charge-offs to av-
erage loans........... 0.10% 0.36% 0.22% 0.19% 0.42%
Ratio of earnings to
combined fixed charges
and preferred stock
dividends............. 1.33x 1.35x 1.40x 1.42x 1.35x
</TABLE>
- --------
(1) Assumes redemption of 5,000 shares of Premier Series A Preferred Stock at
stated value through the use of borrowed funds.
(2) Annualized for the three-month periods ended March 31, 1996 and 1995.
17
<PAGE>
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
The following summary presents selected comparative per share data for
Northern Illinois and Premier on an historical basis, unaudited per share data
for Northern Illinois and Premier on an equivalent pro forma basis, assuming
the Merger had been effective as of March 31 in each of 1996 and 1995 and
December 31 in each of 1995, 1994 and 1993, and unaudited per share data for
GPF on a pro forma basis, assuming the Merger had been effective as of March 31
in each of 1996 and 1995 and December 31 in each of 1995, 1994 and 1993. The
pro-forma amount for book value per share of GPF Common Stock as of March 31,
1996 assumes the redemption of the Premier Series A Preferred Stock at stated
value through the use of borrowed funds. See page 41 and page 87 for
information concerning the redemption of the Premier Series A Preferred Stock
and its pro-forma impact. The data presented should be read in conjunction with
the historical consolidated financial statements of Northern Illinois and
Premier and the related notes thereto included elsewhere in this Joint Proxy
Statement-Prospectus. See "INDEX TO FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
QUARTER
ENDED MARCH AT OR FOR THE
31, YEAR ENDED DECEMBER 31,
----------- ------------------------
GPF COMMON STOCK 1996 1995 1995 1994 1993
- ---------------- ------ ---- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Book value per share (pro forma)(1)......... $ 7.14 $-- $ 7.13 $ -- $ --
Cash dividends declared per share (pro
forma)..................................... 0.05 0.04 0.19 0.18 0.17
Income per share (pro forma)(2)............. 0.16 0.16 0.79 0.60 0.59
<CAPTION>
NORTHERN ILLINOIS COMMON STOCK
- ------------------------------
<S> <C> <C> <C> <C> <C>
Book value per share:
Historical................................ $32.25 $-- $31.76 $ -- $ --
Equivalent pro forma(3)................... 30.35 -- 30.30 -- --
Cash dividends declared per share:
Historical................................ 0.17 0.17 0.80 0.80 0.75
Equivalent pro forma(3)................... 0.21 0.17 0.81 0.76 0.72
Income per share:
Historical................................ 0.69 0.72 3.62 2.53 2.73
Equivalent pro forma(3)................... 0.68 0.68 3.36 2.55 2.51
<CAPTION>
PREMIER COMMON STOCK
- --------------------
<S> <C> <C> <C> <C> <C>
Book value per share:
Historical................................ $ 7.09 $-- $ 7.31 $ -- $ --
Equivalent pro forma(3)................... 7.97 -- 7.96 -- --
Cash dividends declared per share:
Historical................................ 0.06 0.05 0.21 0.18 0.16
Equivalent pro forma(3)................... 0.06 0.04 0.21 0.20 0.19
Income per share:
Historical................................ 0.18 0.15 0.77 0.68 0.55
Equivalent pro forma(3)................... 0.18 0.18 0.88 0.67 0.66
</TABLE>
- --------
(1) Based on 19,876,258 and 19,869,823 shares outstanding as of March 31, 1996,
and December 31, 1995, respectively, on a pro forma basis.
(2) For purposes of these calculations, the number of shares of GPF Common
Stock used to compute per share data was based on the weighted average
number of common shares and common equivalent shares of Northern Illinois
Common Stock and Premier Common Stock outstanding during the period in
question multiplied by the applicable exchange ratio to give effect to the
Merger at the beginning of such period.
(3) Equivalent pro forma per share amounts were calculated by multiplying the
pro forma income per share of GPF Common Stock before non-recurring charges
or credits directly attributable to the Merger, pro forma book value per
share of GPF Common Stock, and pro forma dividends per share of GPF Common
Stock by the exchange ratio for Northern Illinois Common Stock or Premier
Common Stock (as the case may be) so that the per share amounts are equated
to the respective values for one share of Northern Illinois or Premier (as
the case may be).
18
<PAGE>
NO PUBLIC MARKET FOR GPF COMMON STOCK
The GPF Common Stock to be issued in the Merger will be quoted on the Nasdaq
National Market under the trading symbol "GPFI." Prior to the Merger, there
will have been no established market for shares of GPF Common Stock, and there
can be no assurance that an active public market will develop or continue after
the Merger. See "RISK FACTORS--Limited Liquidity"; "BUSINESS OF GPF--Market for
and Dividends on GPF Common Stock."
MARKET FOR NORTHERN ILLINOIS COMMON STOCK
Shares of Northern Illinois Common Stock are not traded on any national or
regional exchange or established over-the-counter market. Transactions in
Northern Illinois Common Stock occur on an infrequent basis through privately
negotiated transactions not involving any broker or dealer. Where trades are
privately made between stockholders, the price for which they are sold need not
be reported to Northern Illinois. In addition, Northern Illinois has from time
to time redeemed the Northern Illinois Common Stock of stockholders who have
offered their shares to Northern Illinois. A two year record of the number of
shares traded plus the high and low price per share acquired to the extent
known by Northern Illinois follows:
<TABLE>
<CAPTION>
NO. OF
TRADED DIVIDENDS
SHARES HIGH LOW DECLARED
------ ------- ------- ---------
<S> <C> <C> <C> <C>
1994
First Quarter................................ 9,006 $26.50 $24.00 $.17
Second Quarter............................... 8,849 26.50 26.50 .17
Third Quarter................................ 815 26.50 26.50 .17
Fourth Quarter............................... 4,628 27.625 26.50 .29
1995
First Quarter................................ 7,561 $27.625 $27.625 $.17
Second Quarter............................... 40,525 27.625 27.625 .17
Third Quarter................................ 1,607 27.625 27.625 .17
Fourth Quarter............................... -0- -- -- .29
1996
First Quarter................................ -0- -- -- $.17
Second Quarter............................... -0- -- -- .17
Third Quarter (through July 5, 1996)......... -0- -- -- --
</TABLE>
There were 632 holders of record of Northern Illinois Common Stock at July 5,
1996. The last sale of Northern Illinois Common Stock of which Northern
Illinois' management is aware occurring prior to January 18, 1996, the date of
the public announcement that Northern Illinois and Premier had agreed in
principle to enter into the Merger Agreement, occurred on September 12, 1995,
when 207 shares were sold at a price of $27.625 per share.
19
<PAGE>
MARKET FOR PREMIER COMMON STOCK
Premier Common Stock is traded on the Nasdaq National Market under the symbol
"PREM." The following table sets forth the high and low sale prices per share
of Premier Common Stock as reported on the Nasdaq National Market for the
periods indicated. The table also sets forth the per share dividend declared
for each quarter presented. All data in the table have been adjusted to reflect
the three-for-one stock split effective on July 1, 1994.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
------ ------ ---------
<S> <C> <C> <C>
1994
First Quarter......................................... $ 6.33 $ 5.83 $.043
Second Quarter........................................ 6.33 5.83 .043
Third Quarter......................................... 8.25 6.75 .047
Fourth Quarter........................................ 8.25 6.50 .047
1995
First Quarter......................................... $ 7.50 $ 6.50 $.05
Second Quarter........................................ 8.25 7.25 .05
Third Quarter......................................... 8.00 6.75 .05
Fourth Quarter........................................ 9.75 7.75 .06
1996
First Quarter......................................... $10.25 $ 8.25 $.06
Second Quarter........................................ $10.75 $ 9.50 $.06
Third Quarter (through July 5, 1996).................. $10.75 $10.25 --
</TABLE>
There were 644 holders of record of Premier Common Stock at July 5, 1996. As
of January 17, 1996, the last full trading day prior to issuance of a press
release announcing that Northern Illinois and Premier had agreed in principle
to enter into the Merger Agreement, the last reported sale price per share of
Premier Common Stock was $8.50 for a sale which occurred on January 12, 1996.
On July , 1996, the last full trading day for which information was available
prior to the mailing of this Joint Proxy Statement-Prospectus, the last
reported sale price per share of Premier Common Stock was $ .
STOCKHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR PREMIER
COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE MARKET PRICE OF PREMIER
COMMON STOCK PRIOR TO THE EFFECTIVE TIME OR THE MARKET PRICE OR LIQUIDITY OF
GPF COMMON STOCK AFTER THE EFFECTIVE TIME. SEE "RISK FACTORS--LIMITED
LIQUIDITY."
20
<PAGE>
RISK FACTORS
The following factors should be considered carefully by Northern Illinois
stockholders and Premier stockholders in connection with the matters to be
voted on at the Northern Illinois Special Meeting and the Premier Special
Meeting:
UNCERTAINTIES RELATED TO THE INTEGRATION OF BUSINESSES
The success of GPF after the Merger will depend on the successful
integration of the businesses and operations of Northern Illinois and Premier
and their subsidiaries. Such integration will require communication and
cooperation among the GPF directors, officers and key personnel formerly
serving Northern Illinois and those formerly serving Premier. Because
interpersonal dynamics are difficult to predict accurately, there can be no
assurance that such integration and cooperation will occur. In addition, there
can be no assurance that GPF will retain all such key personnel, and the
failure to retain any such personnel following the Merger could negatively
affect the operations of GPF.
LIMITED LIQUIDITY
The GPF Common Stock to be issued in the Merger has been approved for
listing on the Nasdaq National Market. There is, however, currently no public
market for the GPF Common Stock.
Liquidity for shares of stock is measured by the number of willing buyers
and sellers for the stock, the frequency of trades in the stock and the volume
of shares traded when trades do occur. The Northern Illinois Common Stock is
not traded on any exchange or established over-the-counter market, and to the
knowledge of Northern Illinois, only 49,693 shares or 1.7% of the outstanding
shares as of December 31, 1995 were traded in 1995. Northern Illinois had a
total of 637 holders of record as of that date.
Premier Common Stock is publicly traded on the Nasdaq National Market. In
1995, 437 trades were reported, for a total trading volume of 494,537 shares
and an average trade size of 999 shares. That annual trading volume amounts to
approximately 7.6% of the 6,544,347 shares of Premier Common Stock outstanding
as of December 31, 1995. As of that date, there were 644 holders of record of
Premier Common Stock.
If the Merger had been consummated on the Record Date, there would have been
19,923,653 shares of GPF Common Stock outstanding and approximately 1,276
holders of record of GPF Common Stock. Since the GPF Common Stock, unlike the
Northern Illinois Common Stock, will be quoted on the Nasdaq National Market
and since GPF will have a larger number of shareholders and shares outstanding
and a larger public float than either Premier or Northern Illinois, Premier
and Northern Illinois each believe that the market for the GPF Common Stock
should be at least as liquid, if not more liquid, than the markets for
Northern Illinois Common Stock and Premier Common Stock, respectively, prior
to the Merger. No assurances can be given, however, that an equally liquid or
more liquid public market will develop for the GPF Common Stock upon
consummation of the Merger. See "BUSINESS OF GPF--Market for the GPF Common
Stock"; see also "SUMMARY--Market for Northern Illinois Common Stock; Market
for Premier Common Stock."
ANTITAKEOVER PROVISIONS
The GPF Certificate, the GPF Bylaws and the Rights Agreement contain
provisions which could have the effect of making it more difficult for a third
party to acquire control of GPF, and thus could have the effect of
discouraging a potential acquiror from engaging in an acquisition, even if
such an acquisition might be deemed favorable by individual stockholders. The
certificate of incorporation of Premier also contains provisions that could
have the effect of making it more difficult for a third party to acquire
control of Premier. The articles of incorporation of Northern Illinois contain
no such provisions, but a single holder of Northern Illinois Common Stock--
Howard A. McKee--beneficially owns approximately 52% of the outstanding shares
of Northern Illinois
21
<PAGE>
Common Stock, thus effectively precluding a third party from acquiring control
of Northern Illinois without the approval or cooperation of Mr. McKee.
Northern Illinois is also subject to Section 7.85 of the IBCA, which imposes
certain restrictions on fundamental transactions of Northern Illinois. See
"COMPARISON OF RIGHTS OF HOLDERS OF NORTHERN ILLINOIS COMMON STOCK AND GPF
COMMON STOCK--Required Vote for Certain Business Combinations."
Holders of Northern Illinois Common Stock and Premier Common Stock should
carefully review the differences between such stock and the GPF Common Stock
and, in particular, the relative effects of the provisions that might
discourage a potential acquiror from engaging in an acquisition with Northern
Illinois, Premier, and GPF. See "POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN
PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS AND THE RIGHTS AGREEMENT,"
"COMPARISON OF RIGHTS OF HOLDERS OF NORTHERN ILLINOIS COMMON STOCK AND GPF
COMMON STOCK," and "COMPARISON OF RIGHTS OF HOLDERS OF PREMIER COMMON STOCK
AND GPF COMMON STOCK." In addition, GPF has entered into a Rights Agreement
which will have the effect of precluding certain significant acquisitions of,
or tender offers for, GPF Common Stock following the Merger, without the prior
approval of the board of directors of GPF. See "POTENTIAL ANTITAKEOVER EFFECT
OF CERTAIN PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS AND THE RIGHTS
AGREEMENT--The Rights Agreement."
CERTAIN STOCKHOLDERS CAN BLOCK SUPERMAJORITY STOCKHOLDER VOTES
Upon consummation of the Merger, directors and those persons who, as of the
date hereof, are expected to be appointed executive officers of GPF, as a
group, will beneficially own an aggregate of approximately 47% of the
outstanding shares of GPF Common Stock. Moreover, one of the directors of GPF,
Howard A. McKee, will beneficially own approximately 33% of the outstanding
shares of GPF Common Stock. Accordingly, stockholders of GPF will not have the
requisite 80% vote to approve certain matters (such as a merger between GPF
and a 10% stockholder of GPF, removal of a director or an amendment to certain
provisions of the GPF Certificate or the GPF Bylaws), unless at least some of
the directors and executive officers of GPF, including Mr. McKee, vote their
shares of GPF Common Stock in favor of such proposals.
Mr. McKee beneficially owns approximately 52% of the Northern Illinois
Common Stock, and thus the holders of Northern Illinois Common Stock currently
do not have the requisite vote to approve matters requiring a simple majority
of the outstanding Northern Illinois Common Stock unless Mr. McKee votes his
shares in favor of such proposals.
By comparison, neither the directors of Premier as a group nor any single
stockholder of Premier beneficially owns sufficient shares to block the 70%
vote required under the certificate of incorporation of Premier to approve
certain matters (such as a merger between Premier and a 10% stockholder of
Premier, removal of a director or an amendment to certain provisions of
Premier's certificate of incorporation or bylaws).
22
<PAGE>
THE COMPANIES
NORTHERN ILLINOIS FINANCIAL CORPORATION
Northern Illinois is a bank holding company organized under the laws of the
State of Illinois and registered under the BHCA. Northern Illinois' principal
asset is the issued and outstanding stock of its sole subsidiary bank, Grand
National Bank, a national banking association. The income generated from the
operations of Grand National Bank is Northern Illinois' primary source of
earnings.
Grand National Bank was created by the February 1996 merger of four former
banking subsidiaries of Northern Illinois--Grand National Bank-Waukegan, Grand
National Bank-Crete, Grand National Bank-Niles, and Grand National Bank-
Crystal Lake. Grand National Bank-Waukegan, in turn, was created by the
February 1994 merger of two of Northern Illinois' former banking subsidiaries,
American National Bank & Trust Company of Waukegan and Gurnee National Bank.
Grand National Bank-Crystal Lake was created by the January 1995 merger of two
of Northern Illinois' former banking subsidiaries, First National Bank of
Crystal Lake and Wauconda National Bank & Trust Company. Grand National Bank-
Niles was formerly known as First National Bank of Niles, and Grand National
Bank-Crete was formerly known as American National Bank.
Grand National Bank currently has 16 offices located in Crete, Homewood,
Tinley Park, South Chicago Heights, Mokena, Niles, Crystal Lake, Wauconda,
Island Lake, Woodstock, Mundelein, Waukegan and Gurnee, Illinois. Principally
oriented toward individual consumers and small and medium-sized businesses,
the financial services offered by Grand National Bank are typical of those
offered by a commercial bank. These services primarily consist of the taking
of funds through the acceptance of time, savings and demand deposits of
various types and the subsequent redeployment of those funds through the
making of loans to commercial establishments and individuals in the form of
real estate, personal and installment loans, and the purchase of investment-
grade securities. In addition, Grand National Bank offers a wide range of
services, including the operation of safe deposit facilities, the sale of
annuities and mutual funds through a third-party vendor, secondary mortgage
activities and trust services. Grand National Bank has been granted trust
powers.
Grand National Bank operates under the day-to-day management of its own
officers and board of directors. Northern Illinois provides assistance, advice
and direction with respect to such matters as major capital expenditures,
lending and investment policies, legal, loan review, and accounting functions.
Northern Illinois also provides direct services in the areas of investment
transactions, marketing, internal audit, human resources and employee
benefits, information technology, deposit and proof services, financial
management and financial reporting.
Northern Illinois' sole non-bank subsidiary is American Suburban Mortgage
Corporation, an Illinois corporation, which is currently inactive.
At March 31, 1996, on a consolidated basis, Northern Illinois had total
assets of approximately $945 million, total deposits of approximately $801
million, and shareholders' equity of $95 million.
The principal executive offices of Northern Illinois are located at 486 West
Liberty Street, Wauconda, Illinois 60084-2489. Northern Illinois' telephone
number is (847) 487-1818.
PREMIER FINANCIAL SERVICES, INC.
Premier is a bank holding company organized under the laws of the State of
Delaware and registered under the BHCA. The operations of Premier and the
Premier Subsidiaries consist primarily of those financial activities,
including trust and investment services, common to the commercial banking
industry. Substantially all of the operating revenue and net income of Premier
and the Premier Subsidiaries on a consolidated basis is attributable to the
Premier Subsidiaries.
The primary function of Premier is to coordinate the policies and operations
of the Premier Subsidiaries in order to improve and expand their services and
effect economies in their operations by joint efforts in certain
23
<PAGE>
areas such as auditing, training, marketing and business development. Premier
also provides operational and data processing services for the Premier
Subsidiaries. All services and counsel to the Premier Subsidiaries are
provided on a fee basis, with fees based upon fair market value.
The Premier Banks currently have 16 offices located in Freeport, Stockton,
Warren, Mt. Carroll, DeKalb, Dixon, Rockford, Polo, Sterling, Northbrook,
Riverwoods and Cary, Illinois. Although the Premier Banks are chartered as
commercial banks, the offices of the Premier Banks serve as general sales
offices providing a full array of financial services and products to
individuals, businesses, local governmental units and institutional customers
throughout northern Illinois. Such financial services include those generally
associated with the commercial banking industry such as demand, savings and
time deposits, loans to commercial, agricultural and individual customers,
cash management, electronic funds transfers and other services tailored for
the client.
Premier Trust Services, Inc., a wholly-owned subsidiary of First Bank North,
provides a full line of fiduciary and investment services throughout Premier's
general market area. Premier Insurance Services, Inc., a direct subsidiary of
Premier, is a full-line casualty and life insurance agency. Premier Operating
Systems, Inc. is also a direct subsidiary of Premier and provides data
processing and operational services to Premier and the Premier Subsidiaries.
At March 31, 1996, on a consolidated basis, Premier had total assets of
approximately $671 million, total deposits of approximately $547 million and
stockholders' equity of approximately $61 million.
The principal executive offices of Premier are located at 27 West Main
Street, Suite 101, Freeport, Illinois 61032. Premier's telephone number is
(815) 233-3671.
GRAND PREMIER FINANCIAL, INC.
GPF is a Delaware corporation formed by Northern Illinois and Premier on
January 12, 1996, to effect a merger-of-equals between Northern Illinois and
Premier. It will be, upon consummation of the Merger, a registered bank
holding company under the BHCA, owning all of the issued and outstanding stock
of the Northern Illinois Subsidiaries and the Premier Subsidiaries. GPF does
not currently own any significant assets and has not yet engaged in any
business activity, other than applying for necessary regulatory approvals and
other matters of a procedural nature relating to the Merger. See "BUSINESS OF
GPF." Northern Illinois and Premier each currently own 50% of the outstanding
common stock of GPF. The shares of common stock held by Northern Illinois and
GPF will be canceled upon consummation of the Merger. See "THE MERGER--Terms
of the Merger."
GPF's principal executive offices located at 486 West Liberty Street,
Wauconda, Illinois 60084-2489. GPF's telephone number is (847) 487-1818.
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MEETINGS OF STOCKHOLDERS
INTRODUCTION
This Joint Proxy Statement-Prospectus is being furnished to the stockholders
of Northern Illinois in connection with the solicitation of proxies by the
board of directors of Northern Illinois for use at the Northern Illinois
Special Meeting and any adjournments or postponements thereof. It is also
being furnished to the stockholders of Premier in connection with the
solicitation of proxies by the board of directors of Premier for use at the
Premier Special Meeting and any adjournments or postponements thereof. The
Northern Illinois Special Meeting and the Premier Special Meeting will
collectively be referred to as the "Special Meetings." The information
concerning the Special Meetings has been set forth in a single Joint Proxy
Statement-Prospectus rather than in two separate Proxy Statements, because of
the similarity of the matters to be considered.
PURPOSE
The Special Meetings are being held to consider and vote upon a proposal to
approve the Merger Agreement and any other business that may properly be
brought before the Special Meetings and any adjournment or postponement
thereof.
Each copy of this Joint Proxy Statement-Prospectus that is being mailed or
delivered to Northern Illinois stockholders is accompanied by a yellow proxy
and the Notice of Special Meeting of Stockholders of Northern Illinois, and
each copy of this Joint Proxy Statement-Prospectus that is being mailed or
delivered to Premier stockholders is accompanied by a blue proxy and the
Notice of Special Meeting of Stockholders of Premier.
DATE, TIME AND PLACE OF MEETINGS AND RECORD DATES
The Northern Illinois Special Meeting will be held at the Niles branch of
Grand National Bank, 7100 West Oakton, Niles, Illinois 60714-3047 on
Wednesday, August 21, 1996 at 10:00 a.m. (local time). The Premier Special
Meeting will be held at the Best Western Stephenson Hotel, 109 South Galena
Ave., Freeport, Illinois, on Wednesday, August 21, 1996, at 10:00 a.m. (local
time). The Record Date for each of Northern Illinois and Premier to identify
stockholders entitled to notice of, and to vote at, the applicable Special
Meeting is July 5, 1996.
STOCKHOLDER APPROVAL: VOTE REQUIRED
For approval, the Merger Agreement requires the affirmative vote of the
holders of at least (i) 80% of the outstanding shares of Northern Illinois
Common Stock and a majority of the outstanding shares of Northern Illinois
Common Stock not held by Mr. McKee and the McKee Associates, (ii) a majority
of the outstanding shares of Premier Common Stock, and (iii) a majority of the
outstanding shares of GPF Common Stock. For purposes of these voting
requirements, the McKee Associates consist of Jean M. Barry; Jean M. Barry and
Michael Barry as custodians for Jack Barry and Timothy H. Barry; Cynthia
Hinman; The Robert W. Hinman Revocable Trust; Keeco, Inc., an Illinois
corporation; Virginia McKee; The Howard A. McKee Declaration of Trust;
Municipal Insurance Co., an Illinois corporation; Northland Insurance Agency,
an Illinois corporation; and Public Service Investment and Management, an
Illinois corporation. Holders of Premier Preferred Stock have no voting rights
with respect to the Merger. Northern Illinois and Premier, as the sole
stockholders of GPF, have unanimously approved the Merger Agreement.
A higher percentage is required for the approval of holders of Northern
Illinois Common Stock, than for the approval of holders of Premier Common
Stock, because of certain differences in the requirements of Illinois and
Delaware law, including the application of Section 7.85 of the IBCA to the
Merger. That section provides, in relevant part, that certain "Business
Combinations" involving an "Interested Shareholder," as such terms are defined
in Section 7.85, and an Illinois corporation which has a class of equity
securities registered under the Exchange Act must be approved by 80% or more
of the outstanding voting shares of the corporation, plus a majority of the
outstanding voting shares held by shareholders other than the Interested
Shareholder or any affiliate or associate of the Interested Shareholder. An
"Interested Shareholder" is defined to include the beneficial owner of 10% or
more of the outstanding voting securities of a corporation subject to Section
7.85, and a "Business Combination" is defined to include any merger in which
an Interested Shareholder will hold
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10% or more of the outstanding voting securities of the resulting corporation.
For a more detailed discussion of Section 7.85, see "COMPARISON OF RIGHTS OF
HOLDERS OF NORTHERN ILLINOIS COMMON STOCK AND GPF COMMON STOCK--Required Vote
for Certain Business Combinations." Since Mr. McKee and the McKee Associates
are currently the beneficial owners of more than 10% of the outstanding shares
of Northern Illinois Common Stock and will be the beneficial owners of more
than 10% of the outstanding shares of GPF, the Merger is subject to the
enhanced voting requirements imposed by Section 7.85. See "THE SPECIAL
MEETINGS--Certain Beneficial Owners of Northern Illinois Common Stock."
On the Record Date, there were 2,956,784 shares of Northern Illinois Common
Stock outstanding, each of which is entitled to one vote on each matter
properly brought before the Northern Illinois Special Meeting. As of the
Record Date, the directors and executive officers of Northern Illinois and
their affiliates owned beneficially an aggregate of 1,917,434 shares of
Northern Illinois Common Stock, not including shares held by members of the
immediate families of such directors and executive officers as to which such
directors and executive officers disclaim beneficial ownership, or
approximately 65% of the shares entitled to vote at the Northern Illinois
Special Meeting. All of these holders have indicated their intention to vote
their shares for approval of the Merger Agreement. As of the Record Date, Mr.
McKee and the McKee Associates owned beneficially an aggregate of 1,744,154
shares of Northern Illinois Common Stock, or approximately 59% of the shares
entitled to vote at the Northern Illinois Special Meeting. All of these
holders have indicated their intention to vote their shares for approval of
the Merger Agreement.
On the Record Date, there were 6,592,582 shares of Premier Common Stock
outstanding, each of which is entitled to one vote on each matter properly
brought before the Premier Special Meeting. As of the Record Date, the
directors and executive officers of Premier and their affiliates owned
beneficially an aggregate of 821,128 shares of Premier Common Stock, not
including shares held by members of the immediate families of such directors
and executive officers, as to which such directors and executive officers
disclaim beneficial ownership, or approximately 12% of the shares entitled to
vote at the Premier Special Meeting. All of these holders have indicated their
intention to vote their shares for approval of the Merger Agreement. Holders
of Premier Preferred Stock have no voting rights with respect to the Merger.
VOTING AND REVOCATION OF PROXIES
Shares of Northern Illinois Common Stock that are represented by a proxy
properly executed and received by the secretary of Northern Illinois prior to
the vote at the Northern Illinois Special Meeting will be voted at such
meeting in the manner directed on the proxy, unless such proxy is revoked in
advance of such vote. Likewise, shares of Premier Common Stock that are
represented by a proxy properly executed and received by the secretary of
Premier prior to the vote at the Premier Special Meeting will be voted at such
meeting in the manner directed on the proxy, unless such proxy is revoked in
advance of such vote. IF A STOCKHOLDER SIGNS AND RETURNS A PROXY WITHOUT
VOTING INSTRUCTIONS, AND THE PROXY IS NOT PROPERLY REVOKED, THE SHARES OF
NORTHERN ILLINOIS COMMON STOCK OR PREMIER COMMON STOCK REPRESENTED BY THE
PROXY WILL BE VOTED FOR THE MATTERS PRESENTED THEREIN, AND, IN THE CASE OF THE
HOLDERS OF NORTHERN ILLINOIS COMMON STOCK, SUCH STOCKHOLDER WILL THEREBY WAIVE
HIS OR HER DISSENTERS' RIGHTS.
A stockholder of record may revoke a proxy by (i) filing an instrument of
revocation or a duly executed proxy bearing a later date with David E.
Albright, secretary of Northern Illinois, 486 West Liberty Street, Wauconda,
Illinois 60084-2489 in the case of Northern Illinois stockholders, or with
Scott Dixon, secretary of Premier, 27 West Main Street, Suite 101, Freeport,
Illinois, 61032, in the case of Premier stockholders, or (ii) by appearing in
person at the Northern Illinois Special Meeting or the Premier Special
Meeting, as the case may be, notifying the secretary and voting by ballot at
such meeting. Attendance at a Special Meeting will not in itself constitute
the revocation of a proxy.
Votes cast by proxy or in person at each of the Special Meetings will be
tabulated by the inspectors appointed for such meeting and the inspectors will
determine whether a quorum is present. The inspectors will treat abstentions
(but not broker non-votes) as shares that are present for purposes of
determining the presence
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of a quorum. However, broker non-votes and abstentions will not be counted as
votes cast for or against the proposal to approve the Merger Agreement and, as
a result, will have the same effect as votes cast against the Merger
Agreement.
Stockholders are asked to indicate on their proxy card whether or not they
are granting a proxy to vote in favor of adjournment in the event that the
management of Northern Illinois or Premier, as the case may be, decides in its
sole discretion that an adjournment of the Northern Illinois Special Meeting
or the Premier Special Meeting, respectively, is in the best interests of
Northern Illinois or Premier and its stockholders. See "ADJOURNMENT OF SPECIAL
MEETING."
The boards of directors of Northern Illinois and Premier are not aware of
any business to be brought before their respective Special Meetings other than
that described herein. If, however, other matters are properly brought before
either of the Special Meetings or any adjournments or postponements thereof,
the persons appointed as proxies will have discretionary authority to vote the
shares represented by properly executed proxies in accordance with their
discretion and judgment as to the best interests of the corporation with
respect to which the proxies have been granted.
SOLICITATION OF PROXIES
Northern Illinois and Premier will each bear their own expenses of
soliciting proxies from their stockholders for their respective Special
Meetings. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of Northern Illinois and
Premier in person or by telephone, telegram or by any other means of
communication. Such directors, officers and employees will not receive any
compensation for such solicitation, other than compensation which such persons
otherwise receive in their capacities as directors, officers and employees,
but may be reimbursed for out-of-pocket expenses in connection with such
solicitation.
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THE MERGER
This section of the Joint Proxy Statement-Prospectus describes certain
aspects of the proposed Merger. To the extent that the following description
relates to the Merger Agreement, it does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, which is
attached as Appendix A to this Joint Proxy Statement-Prospectus and is
incorporated herein by reference. All stockholders are urged to read the
Merger Agreement in its entirety.
INTRODUCTION
The boards of directors of Northern Illinois and Premier have unanimously
approved the Merger Agreement, which provides for the Merger, at the Effective
Time, of Northern Illinois and Premier with and into GPF, with GPF as the
surviving corporation. At the Effective Time, each share of Northern Illinois
Common Stock then outstanding (other than dissenting shares; see "DISSENTERS'
RIGHTS"), will be converted into the right to receive 4.250 shares of GPF
Common Stock, each share of Premier Common Stock then outstanding will be
converted into the right to receive 1.116 shares of GPF Common Stock, and each
share of Premier Preferred Stock will be converted into the right to receive
one share of GPF Preferred Stock having substantially identical terms to the
stock so converted (except that, while the Premier Preferred Stock is
noncumulative as to dividends, it will be converted into GPF Preferred Stock
which is cumulative as to dividends). See "THE MERGER--Conversion of Shares."
The boards of directors of Northern Illinois and Premier believe that the
terms of the Merger Agreement are fair to and in the best interests of
Northern Illinois and Premier, respectively, and of their respective
stockholders, and unanimously recommend to their respective stockholders that
such stockholders vote to approve and adopt the Merger Agreement and the
consummation of the transactions contemplated thereby. See "--Reasons for the
Merger" and "--Opinion of Financial Advisors."
BACKGROUND OF THE MERGER
The boards of directors of both Northern Illinois and Premier have
recognized, for some time, that in order to compete more effectively in the
market for financial services and products, their respective companies would
each need to increase their size, either through internal growth or strategic
combinations. As a result, during the past four or five years, Northern
Illinois has explored, from time to time, potential acquisitions. It has
generally decided not to pursue such acquisitions, however, due to a belief
that the prices it would be required to pay for potential targets would be
unduly dilutive to Northern Illinois' shareholders. Prior to its negotiations
with Premier, Northern Illinois also explored the possibility of a merger-of-
equals with three other potential merger partners. In each case, however, the
negotiations did not proceed beyond preliminary discussions, based on the
belief that the potential partners were not in fact interested in a merger-of-
equals, but in an acquisition of Northern Illinois at a price which Northern
Illinois' board believed to be inadequate. All such discussions took place
more than two years before Northern Illinois' first meeting with Premier.
Premier's board of directors decided to pursue an expansion strategy in mid-
1992. In July 1993, Premier acquired First Northbrook Bancorp, Inc., a bank
holding company, and its subsidiaries, First National Bank of Northbrook and
First Security Bank of Cary Grove, and in December 1994, Premier acquired the
DeKalb branch of Home Savings and Loan Association of Elgin, Illinois. Since
1992, Premier has also expressed, from time to time, an interest in acquiring
other financial institutions, but on no occasion have the discussions
proceeded beyond such a preliminary expression of interest. Premier has also
been approached, from time to time, by financial institutions interested in
acquiring it. Two such overtures were received in the past two years, one of
which resulted in a written expression of interest. Premier's board of
directors declined to pursue formal discussions, however, following a
determination that the range of values for the Premier Common Stock included
in the written expression of interest was inadequate.
At its 1995 strategic planning meeting, Premier's board of directors decided
to pursue, if possible, a merger-of-equals transaction, based on its belief
that shareholder value would be more quickly enhanced through a
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merger-of-equals than through the more gradual growth that would result from
acquisitions. Prior to its discussions with Northern Illinois, Premier
explored the possibility of a merger-of-equals with two other potential merger
partners. In neither instance, however, did the negotiations proceed beyond
preliminary informal discussions. TCC, whose analysts follow Premier Common
Stock, was aware of Premier's interest in entering into a strategic
combination if an appropriate merger partner could be found.
In August, 1995, a representative of TCC contacted Northern Illinois and
Premier to suggest the two companies consider one another as possible merger
partners. For a discussion of the fees paid to TCC, including fees paid in
consideration of its role in introducing Northern Illinois and Premier, see
"--Opinions of Financial Advisors--The Chicago Corporation." A meeting of
management representatives of both companies was held on August 29, 1995 at
the executive offices of Northern Illinois. Present from Northern Illinois
were Robert W. Hinman (President and Chief Executive Officer), Alan J. Emerick
(Executive Vice President), and Howard A. McKee (Chairman of the Executive
Committee and the principal stockholder), and from Premier, Richard L. Geach
(President and Chief Executive Officer). Also present were representatives
from TCC. The participants discussed in preliminary and general terms the
possibility of a merger-of-equals between Northern Illinois and Premier and
decided to arrange another meeting to engage in further discussions to
determine whether a merger might be feasible and desirable.
Senior management of both Northern Illinois and Premier advised each of
their respective boards of directors of these preliminary discussions and kept
their respective boards of directors informed of the status of discussions,
both at meetings of such boards of directors and informally between such
meetings.
Senior management of Northern Illinois and Premier met twice in September
and at these meetings discussed a broad range of business, cultural, and
management issues relating to the two companies. The participants included Mr.
Hinman and David Albright, the Chief Financial Officer of Northern Illinois,
and Mr. Geach and David L. Murray, the Chief Financial Officer of Premier.
Messrs. Emerick and McKee were also present at the first of the two meetings.
A number of areas of similarity between the two companies emerged. The
participants also discussed, with the assistance of Premier's legal counsel,
key structural issues to be resolved were a merger of the companies to take
place, including the makeup of the combined company's board of directors, the
determination of key management roles, the role of senior management in
dealing with the investment community, and approaches for determining the
exchange ratio.
After careful consideration and negotiation during the September meetings,
the senior managements of the two companies agreed that, if a merger were to
take place, the board of directors of the combined company should be comprised
one-half of Northern Illinois representatives and one-half of Premier
representatives and that the number of outside directors should be at least
equal to the number of directors who were also officers of the combined
company. Moreover, the managements agreed on the need to implement mechanisms
to ensure that no single stockholder would control the combined company. The
parties recognized, however, that before they could fully evaluate the
feasibility and desirability of the potential merger, they needed to resolve a
number of remaining open issues, most notably the makeup of the management of
the new company, the nature and extent of potential cost savings and synergy
benefits of the proposed merger, and the appropriate exchange ratios. It was
agreed that Northern Illinois and Premier would jointly retain KPMG to study
the two companies to arrive at a better understanding of possible cost savings
and synergy benefits available if the proposed merger were to take place, to
evaluate their relative strengths and weaknesses, and also to perform certain
computations to assist the participants in determining the exchange ratio. In
order to facilitate the exchange of information, Northern Illinois and Premier
executed a confidentiality agreement on September 28, 1995. KPMG completed its
work in October, 1995.
Representatives from senior management of Northern Illinois and Premier next
met on November 8, 1995. Present for Northern Illinois were Messrs. Hinman,
McKee, Emerick, and Albright, and present for Premier were Messrs. Geach and
Murray. Representatives from KPMG were also present at the meeting. The
participants from Northern Illinois and Premier discussed the results of
KPMG's evaluation of cost savings and synergy benefits of the proposed merger
and of the relative strengths and weaknesses of Northern Illinois and Premier.
Later the
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same day, Messrs. Hinman, McKee and Geach met, along with a representative of
KPMG, to discuss the makeup of senior management of the combined company if
Northern Illinois and Premier were to be combined. After giving consideration
to a number of issues, Messrs. Hinman, McKee and Geach reached agreement that,
if the merger were to take place, Mr. Geach would be the Chairman of the Board
and Chief Executive Officer of the new company immediately following the
merger for a period of approximately three years, and Mr. Hinman would be
President and Chief Operating Officer of the new company following the merger
and would succeed Mr. Geach as Chief Executive Officer when the latter stepped
down from that position.
Messrs. Geach and Hinman met on November 16, 1995, and discussed several
matters, including goals for the new company, the results of KPMG's
evaluations of cost savings, and the respective roles of Mr. Geach as Chief
Executive Officer and Mr. Hinman as President and Chief Operating Officer in
the new company. They also discussed a range of values for the exchange ratios
that both believed would be fair to stockholders of both companies, subject to
further study and discussion, consultation with their respective financial
advisors, and consultation with and the approval of their respective boards of
directors. It was also agreed that the parties would alert legal counsel to
begin preparing a merger agreement and other necessary documents.
Over the following week the parties agreed to begin preliminary off-site due
diligence of one another's tax returns and audit work papers. This due
diligence was conducted by the parties in early December. Senior management of
both Northern Illinois and Premier, with the assistance of each of their
respective legal counsel, also began the process of negotiating a definitive
merger agreement and stock option agreements, including the negotiation of the
form of the GPF Certificate, GPF Bylaws, and the Rights Agreement.
In late December, Northern Illinois formally retained Prairie Capital, and
in early January Premier formally retained TCC, to advise on the proposed
Merger (including the determination of the exchange ratios) and to render a
fairness opinion to the board of directors of Northern Illinois and Premier,
respectively.
On January 12, 1996, a special meeting of the Premier board of directors was
convened. Representatives of Schiff Hardin & Waite, counsel to Premier, were
present to advise the directors of their duties and responsibilities in
considering this type of transaction and to discuss with the board the Merger
Agreement and Stock Option Agreements and related documents, drafts of which
had been previously distributed to the directors.
On January 13, 1996, Messrs. Hinman and McKee from Northern Illinois and
Messrs. Geach and Murray from Premier met to discuss and finalize the exchange
ratios. Prior to this meeting, Prairie Capital had discussed with senior
management of Northern Illinois a range of exchange ratios within which the
Merger would be fair to the stockholders of Northern Illinois. Likewise, TCC
had discussed with senior management of Premier a range of exchange ratios
within which the Merger would be fair to the Premier stockholders. At the
January 13 meeting, representatives of Prairie Capital and TCC were present in
their capacities as financial advisors to their respective clients to consult
with their clients concerning the exchange ratios proposed by senior
managements of Northern Illinois or Premier at the meeting. Since KPMG had
performed the study of the two companies described above, KPMG representatives
were present at the meeting to answer questions regarding the study as needed.
Northern Illinois and Premier arrived at the final exchange ratios for the
proposed merger, based on their agreement that, assuming complete conversion
of all the convertible preferred stock of Premier and outstanding options to
purchase Premier Common Stock, Northern Illinois stockholders would own
approximately 60%, and Premier stockholders would own approximately 40%, of
the combined company after consummation of the proposed merger.
On January 16, 1996, a special meeting of the board of directors of Northern
Illinois was convened. Also present were representatives of Crowley Barrett &
Karaba, Ltd., counsel to Northern Illinois, and representatives of Prairie
Capital. Counsel was present to advise the directors of their duties and
responsibilities in considering this type of transaction and to discuss with
the board the Merger Agreement and Stock Option Agreements and related
documents, drafts of which had been previously distributed to the directors.
Prairie Capital presented the board with its analysis of the fairness of the
transaction and gave its oral opinion to the Northern Illinois board that the
proposed merger was fair, from a financial point of view, to the stockholders
of Northern Illinois.
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On January 16, 1996, a special meeting of the board of directors of Premier
was convened. Also present were representatives of TCC. Those representatives
provided the Premier board with their analysis of the financial considerations
involved in the proposed merger and gave an oral opinion that the proposed
merger was fair, from a financial point of view to the stockholders of
Premier. The Premier board unanimously approved the Merger Agreement and the
Stock Option Agreements.
On January 18, 1996, the parties issued a press release announcing that they
had reached an agreement in principle to enter into a merger-of-equals. On
January 22, 1996, the board of directors of Northern Illinois reconvened and
unanimously approved the Merger Agreement and the Stock Option Agreements. The
Merger Agreement and the Stock Option Agreements were executed and delivered
by the parties as of that date.
Northern Illinois and Premier subsequently executed and delivered the First
Amendment to the Merger Agreement, dated as of March 18, 1996, subject to
ratification of the First Amendment by their respective boards of directors.
The First Amendment amended the Merger Agreement (i) to provide that approval
of the Merger by Northern Illinois' stockholders was subject to the enhanced
voting requirements of Section 7.85 of the IBCA, (ii) to provide that the
Merger was subject to the approval, by the Federal Reserve Board, of
applications filed by Keeco and Northland Insurance, (iii) to clarify the
terms of Premier's July 16, 1993 agreement to revise the terms of the Premier
Series B Preferred Stock and the Premier Series D Preferred Stock to provide
for the payment of cumulative, rather than non-cumulative dividends under
certain circumstances (and to revise the terms of the proposed GPF Restated
Certificate accordingly), and (iv) to eliminate a right of first refusal
agreement that had been previously contemplated between GPF and Howard A.
McKee. Premier's and Northern Illinois' boards of directors ratified the First
Amendment at meetings held on March 28, 1996 and April 15, 1996, respectively.
REASONS FOR THE MERGER
In recent years, Northern Illinois and Premier have faced increased
competition, not only from other commercial banks, savings associations and
credit unions, but also from a wide range of financial service providers,
including mortgage companies, broker-dealers, and insurance agencies. Many of
their bank competitors are either larger institutions or affiliates of larger
institutions with greater resources than Northern Illinois or Premier, and
many of their non-bank competitors offer highly specialized services. Northern
Illinois and Premier each believe that, by combining their operations through
a merger-of-equals, they will achieve sufficient size to permit the increased
specialization required to compete more effectively with both larger
institutions and non-banking competitors. Northern Illinois and Premier
further believe that such benefits can be realized much earlier through the
Merger than through pursuing growth as separate institutions.
At the same time, both Northern Illinois and Premier have been faced with
increased costs, most notably the costs associated with regulatory compliance
and with developing and maintaining the level of technology required to
compete effectively in the financial services industry. Northern Illinois and
Premier believe that substantial annual costs savings will begin to be
achieved within three years, especially in the area of technology and back-
office operations, by consolidating the operations of the Northern Illinois
Subsidiaries and the Premier Subsidiaries, reorganizing and combining various
responsibilities and functions of their respective employees, and spreading
the costs of operation over a larger base. No assurances can be given that any
such cost savings or other anticipated benefits of the Merger will be
achieved.
Before deciding to enter into the Merger, the boards of directors of
Northern Illinois and Premier also considered a number of other factors
including the financial advantages of the Merger to their respective
stockholders, book value and earnings per share of each company, the financial
condition, results of operations, prospects, asset quality and legal and
regulatory compliance of each company, the compatibility of the managements
and management philosophies of Northern Illinois and Premier, the general tax-
free nature of the proposed Merger, and the fact that GPF and its banking
subsidiaries would continue to be essentially locally owned in a banking
market comprised of an increasing number of non-locally owned financial
institutions.
In deciding to approve the Merger, Premier's board of directors also took
into account the fact that, upon consummation of the Merger, directors and
officers of Northern Illinois who will become directors and officers
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of GPF will beneficially own approximately 41% of the GPF Common Stock and
that one shareholder, Howard A. McKee, will beneficially own approximately 33%
of the outstanding GPF Common Stock. As a result, stockholders of GPF will not
have the requisite 80% vote to approve certain matters (such as a merger
between GPF and a 10% stockholder of GPF, removal of a director or an
amendment to certain provisions of the GPF Certificate or GPF Bylaws) unless
Mr. McKee votes his shares of GPF Common Stock in favor of such proposals. At
present, neither the directors and officers of Premier as a group nor any
single Premier stockholder has sufficient voting power to block such
transactions under the Premier Certificate. See "RISK FACTORS--Certain
Stockholders Can Block Supermajority Stockholder Votes." Premier's board of
directors concluded, however, that the disadvantages to Premier's shareholders
resulting from such concentration of ownership of the GPF Common Stock were
outweighed by the benefits that the Premier board of directors believed would
result from the Merger.
In approving the Merger, Northern Illinois' board of directors also
considered the advantages and disadvantages to Northern Illinois' stockholders
of the wider dispersion of the ownership of the GPF Common Stock, as compared
to the current concentration of ownership of the Northern Illinois Common
Stock in the hands of Howard A. McKee and his affiliates. The Northern
Illinois board of directors concluded that, on balance, the potential
advantages of the Merger, including the prospect of a more liquid market for
the GPF Common Stock, outweighed any disadvantages, including the likelihood
that the price of the GPF Common Stock, unlike the price of the Northern
Illinois Common Stock, might be subject to greater market fluctuations in
price if publicly traded.
Moreover, both boards of directors took into account the fact that, since
the proposed Merger does not involve a termination of stockholder interests,
it does not preclude the possibility that the stockholders of the combined
company might achieve a premium on the sale of their stock, at some future
date, in the event of a subsequent merger or sale of the combined company. At
the present time, however, neither Northern Illinois, Premier nor GPF has any
plans or intentions of entering into any such transaction.
Based on the foregoing and the opinions of the respective financial advisors
described below, the boards of directors of Northern Illinois and Premier each
concluded that the proposed Merger would be in the best interests of their
respective stockholders. ACCORDINGLY, THE BOARDS OF DIRECTORS OF NORTHERN
ILLINOIS AND PREMIER UNANIMOUSLY VOTED TO RECOMMEND THAT THEIR RESPECTIVE
STOCKHOLDERS VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
OPINIONS OF FINANCIAL ADVISORS
Prairie Capital. Northern Illinois entered into an agreement with Prairie
Capital on December 22, 1995 to advise on the proposed Merger, to assist in
the negotiations and to render an opinion as to the fairness, from a financial
point of view, of the consideration to be received by the holders of Northern
Illinois common stock.
There were no limitations placed on the scope of Prairie Capital's
activities in obtaining and reviewing data, holding discussions with Northern
Illinois' and Premier's managements and performing such analyses as it deemed
necessary in order to render a fairness opinion to the Northern Illinois board
of directors. While Prairie Capital assisted Northern Illinois in the
negotiations of the exchange ratios, the management of Northern Illinois and
Premier determined the exchange ratios, subject to the approval of their
respective boards of directors.
On January 16, 1996, Prairie Capital made an oral presentation to the
Northern Illinois board of directors during which it gave an oral opinion to
the effect that the consideration to be received in the Merger is fair, from a
financial point of view, to the Northern Illinois stockholders. Prairie
Capital delivered a written opinion to that effect to the Northern Illinois
board of directors dated the date of this Joint Proxy Statement-Prospectus.
THE FULL TEXT OF PRAIRIE CAPITAL'S WRITTEN OPINION TO THE NORTHERN ILLINOIS
BOARD, DATED THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS, WHICH SETS
FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
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ON THE REVIEW UNDERTAKEN BY PRAIRIE CAPITAL, IS ATTACHED HERETO AS EXHIBIT D
AND IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ CAREFULLY AND IN
ITS ENTIRETY. THE FOLLOWING SUMMARY OF PRAIRIE CAPITAL'S WRITTEN OPINION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH WRITTEN
OPINION. PRAIRIE CAPITAL'S OPINIONS ARE DIRECTED ONLY TO THE CONSIDERATION TO
BE RECEIVED BY NORTHERN ILLINOIS STOCKHOLDERS AND DO NOT CONSTITUTE A
RECOMMENDATION TO ANY NORTHERN ILLINOIS STOCKHOLDER AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE AT THE NORTHERN ILLINOIS SPECIAL MEETING OR AS TO ANY OTHER
MATTER.
In arriving at its opinions, Prairie Capital met with certain officers of
Northern Illinois and Premier and reviewed and analyzed, among other data, (i)
the audited financial statements of Northern Illinois and Premier for the
years ended December 31, 1990 through December 31, 1994, the unaudited
financial statements as of and for the nine months ended September 30, 1995
and September 30, 1994, the unaudited financial statements for the year ended
December 31, 1995, and, as to the written opinion, the audited financial
statements for the year ended December 31, 1995 and the unaudited financial
statements for the quarterly period ended March 31, 1996; (ii) the Merger
Agreement; (iii) as to the written opinion, this Joint Proxy Statement-
Prospectus; (iv) publicly-available information on the common stock prices and
financial performance of selected Illinois bank holding companies, Premier and
Northern Illinois and on the announced terms of and related financial
information on selected "merger-of-equals" transactions; (v) other information
Prairie Capital deemed relevant; and (vi) other internal financial and
operating information which was provided to Prairie Capital by Northern
Illinois and Premier. The internal financial and operating information
provided by Northern Illinois and Premier and relied upon by Prairie Capital
included the following: (i) details on investment securities portfolios; (ii)
discussions and information related to the loan portfolios and loan loss
reserves (including review of and information on loan watch lists and
information relating to nonperforming loans, loan concentrations and insider
loans); (iii) discussions of and information on asset/liability structure;
(iv) discussions of and information on deposits and borrowings, including
concentrations; (v) discussions of and information on noninterest income
sources; (vi) discussions and information on organization and consolidation
issues; (vii) corporate minute books; (viii) regulatory reports; (ix)
discussions of current and potential litigation, environmental issues and
contingent liabilities; (x) financial projections for the years 1996 through
1999; and (xi) projections of potential cost savings (but not revenue
enhancements) from the Merger.
Prairie Capital also took into account its assessment of general economic,
market and financial conditions and its experience in other transactions, as
well as its experience in securities valuation and its knowledge of the
banking industry generally. Prairie Capital's opinions were necessarily based
upon such conditions as they existed and could be evaluated, and the
information made available to Prairie Capital, through the respective dates
thereof.
Prairie Capital assumed and relied upon, without independent verification,
the accuracy and completeness of the information provided by Northern Illinois
and Premier and reviewed by Prairie Capital for the purposes of its opinion.
Prairie Capital did not make any independent valuation or appraisal of the
assets or liabilities of Northern Illinois and Premier, nor was Prairie
Capital furnished with any such appraisals. Prairie Capital assumed, without
independent verification, that the aggregate allowances and reserves for loan
and lease losses of Northern Illinois and Premier were adequate to cover such
losses.
The projections used by Prairie Capital in its analyses were prepared by the
managements of Northern Illinois and Premier, and, included the projected cost
savings and synergy benefits analysis requested by Northern Illinois and
Premier. Prairie Capital relied upon the managements of Northern Illinois and
Premier as to the reasonableness of the projections (and the assumptions and
basis thereof) provided to Prairie Capital and assumed that such projections
reflected the best estimates and judgments of such managements available at
the time of preparation. Neither Northern Illinois nor Premier discloses
internal management projections of the type provided to Prairie Capital in
connection with the review of the Merger. Such projections were not prepared
with a view toward public disclosure. The projections were based on numerous
variables and assumptions which are inherently uncertain, including, without
limitation, factors related to general economic and competitive conditions.
Accordingly actual results could vary significantly from those set forth in
such projections.
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Prairie Capital performed a variety of financial analyses which are
summarized below. The summary of such analyses set forth herein does not
purport to be a complete description of such analyses. Prairie Capital
believes that its analyses and the summary set forth herein must be considered
as a whole and that selecting portions of such analyses and the factors
considered therein, without considering all factors and analyses, could create
an incomplete view of the analyses and the processes behind Prairie Capital's
opinion. The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or
summary description. In its analyses, Prairie Capital made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond the control of Northern
Illinois or Premier. Any estimates contained in Prairie Capital's analyses are
not necessarily indicative of future results, which may be significantly more
or less favorable than such estimates. Estimates of values of companies do not
purport to be appraisals or necessarily reflect the prices at which companies
or their securities actually may be sold. No company utilized in Prairie
Capital's analyses was identical to Northern Illinois, Premier, or GPF and no
transaction utilized in Prairie Capital's analysis was identical to the
Merger. Accordingly, such analyses are not based solely on arithmetic
calculations; rather, they involve complex considerations and judgments
concerning differences in financial and operating characteristics of the
relevant companies, and the timing of the relevant transactions, as well as
other factors that could affect the public trading values of the company or
companies to which Northern Illinois, Premier, or GPF are being compared. None
of the analyses performed by Prairie Capital was assigned a greater
significance by Prairie Capital than any other.
The analyses performed by Prairie Capital in connection with its opinions to
the board of directors of Northern Illinois are summarized below:
Introduction. Prairie Capital assumed that the Merger would be
consummated in accordance with the Merger Agreement.
The managements of Northern Illinois and Premier prepared financial
projections for their respective companies for the years 1996 through 1999
on a stand-alone basis. Per share projections were calculated based on the
projected number of common shares and common equivalent shares of Northern
Illinois and Premier, respectively, for the applicable period. On the basis
of these projections, Prairie Capital prepared two sets of pro forma and
projected GPF financial results, one derived by combining the two sets of
stand-alone projections without taking into account any cost savings,
synergy benefits, or revenue enhancements from the Merger (the "No Cost
Savings Model"), and the other model derived by combining the two sets of
stand-alone projections but also taking into account the projections of
cost savings and synergy benefits, as well as merger expenses, that were
provided to Prairie Capital, but not taking into account any potential
revenue enhancements (the "Cost Savings Model").
At various points in Prairie Capital's analyses where appropriate,
Prairie Capital assumed that the Class B Preferred Stock will be converted.
Also, Prairie Capital has made adjustments to exclude from net income
material items of a nonrecurring nature such as net securities gains or
losses and where appropriate has adjusted stockholders' equity to exclude
unrealized gains or losses.
Contribution Analysis. Prairie Capital analyzed the pro forma
contribution that Northern Illinois will make to GPF in terms of certain
statement of condition and income statement items. These percentages were
compared to the 62.5% of the GPF Common Stock, or 60% of the GPF Common
Stock assuming the conversion of Premier's Class B Preferred Stock, that
Northern Illinois shareholders will receive in the Merger. It was noted
that at December 31, 1995, on a pro forma basis Northern Illinois would
have accounted for 60.7% of the total assets of GPF, 62.7% of the net loans
of GPF and 59.2% of the deposits of GPF. In terms of stockholders' equity,
at December 31, 1995, Northern Illinois would have contributed 66.2% to
GPF's total shareholders' equity, or 63.0% assuming the conversion of
Premier's Class B Preferred Stock. Adjusted to exclude net unrealized gains
in the investment portfolio from common equity, Northern Illinois'
contribution would have been 64.6%, or 61.2% assuming the conversion of
Premier's Class B Preferred Stock. As of December 31, 1995, Northern
Illinois' tangible equity would have constituted 77.2% of the pro forma
total, or 72.8% assuming the conversion of Premier's Class B Preferred
Stock. Adjusted to exclude net unrealized gains in the investment portfolio
from common equity, Northern
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Illinois' contribution to the tangible equity of GPF would have constituted
76.2% of the pro forma total, or 71.5% assuming the conversion of Premier's
Class B Preferred Stock.
The relatively large contribution to tangible equity by Northern Illinois
is a direct reflection of Premier's significant amount of goodwill. In
considering this factor specifically, Prairie Capital gave consideration to
the fact that Premier's earnings include a charge each year for the
amortization of goodwill so that the goodwill factor is already reflected
as a reduction of Premier's earnings, and that, under the
accretion/dilution analysis (set forth below), the Merger is not
significantly dilutive to earnings per share of Northern Illinois.
Moreover, on a pro forma basis, GPF will have tangible capital well in
excess of regulatory requirements.
In considering Northern Illinois' contribution to pro forma earnings in
1995, Prairie Capital adjusted out of earnings the net securities gains
experienced by Northern Illinois in 1995 (which were significant). In 1995
(without regard to any potential cost savings or synergy benefits and
excluding such net securities gains), Northern Illinois would have
contributed 63.4% of GPF's pro forma net income, or 61.0% assuming the
conversion of Premier's Class B Preferred Stock. Under the No Cost Savings
Model, Northern Illinois' relative contribution to net income going forward
would be 61.7% in 1996, 61.5% in 1997, 62.3% in 1998 and 62.5% in 1999.
Assuming the conversion of Premier's Class B Preferred Stock under the No
Cost Savings Model, Northern Illinois' relative contribution would be 59.7%
in 1996, 59.6% in 1997, 60.6% in 1998 and 60.9% in 1999.
Accretion/Dilution Analysis. Prairie Capital reviewed the actual and
projected effect that the combination might have for Northern Illinois
shareholders by comparing Northern Illinois earnings per share on a stand-
alone basis with earnings per share for the combined company on a fully-
diluted basis with and without projected cost savings. Throughout this
analysis, Prairie Capital assumed full conversion of the GPF Series B
Preferred Stock.
Under this analysis, on a pro forma, per share basis for 1995, the Merger
would have resulted in an earnings dilution of 1.5% in 1995 for Northern
Illinois stockholders. Under the No Cost Savings Model, the Merger was
projected to result in no earnings-per-share accretion or dilution in 1996
and 1997, and earnings-per-share dilution of 1.1% and 1.0% in 1998 and
1999, respectively. Under the Cost Savings Model, the Merger was projected
to result in no earnings-per-share accretion or dilution in 1996, and
earnings-per-share accretion of 11.9%, 12.6% and 11.4% in 1997, 1998 and
1999, respectively.
Northern Illinois' stated book value per share is virtually equivalent to
its tangible book value per share. The analysis showed the Merger resulting
in dilution to stated book value per share for Northern Illinois
stockholders, of 5.6% at year end in 1995 on a pro forma basis, and 5.2%,
3.5%, 1.7% and 0.6% at year end in 1996 through 1999, respectively, under
the Cost Savings Model. Greater dilution was evident for tangible book
value per share for Northern Illinois stockholders. The analysis showed the
Merger resulting in dilution to tangible book value per share for Northern
Illinois stockholders, of 18.9% at year end in 1995 on a pro forma basis,
and 16.7%, 12.9%, 10.0% and 7.5% at year end in 1996 through 1999,
respectively, under the Cost Savings Model. As noted above, the difference
between stated and tangible book value narrows over the years as goodwill
is amortized as a charge against earnings.
Present Value Analysis. On the basis of the Northern Illinois and Premier
projections under the Cost Savings Model, Prairie Capital calculated a
range of present values for Northern Illinois Common Stock on a stand-alone
basis and for the Northern Illinois shareholder interest in GPF. Projected
cash dividends for the years 1996 through 1999 were discounted back to
present value at 10%, 12% and 14% rates. Terminal values were calculated by
multiplying the projected 1999 net income of Northern Illinois on a stand-
alone basis and the projected 1999 net income of GPF under the Cost Savings
Model by price/earnings ratios of 9x, 10x, 11x, 12x and 13x. These
price/earnings ratios represent the range within which, in Prairie
Capital's opinion, Northern Illinois Common Stock on a stand-alone basis
and GPF Common Stock might trade at the end of 1999. The terminal values
are also discounted back to present value at 10%, 12% and 14% rates, which
represent a range of rate of return expectations by investors.
The range of present values for Northern Illinois Common Stock on a
stand-alone basis would be $27.19 to $43.38 per share and the range of
values for Northern Illinois Common Stock under the Cost
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Savings Model following the Merger would be $30.10 to $48.16 per share.
Assuming a discount rate of 12% and a terminal value price/earnings ratio
of 11x, the projected value per Northern Illinois share on a stand-alone
basis would be $34.80 and under the Cost Savings Model following the
Merger, the projected value per Northern Illinois share would be $38.59.
Comparison with Other Merger-of-Equals Transactions. Prairie Capital
reviewed merger-of-equals transactions in the United States and selected 11
transactions that were effected during the period from October, 1992
through January, 1996. The transactions reviewed and included in the
analysis were Home Interstate/CU Bancorp (CA); National Commerce/Alabama
National; Carnegie Bancorp (NJ)/Regent Bancshares (PA); New England
Community Bancorp/Equity Bank (CT); Bank Illinois Financial/Central
Illinois Financial; Commercial Bancorp/West Coast Bancorp (OR); BB&T
Financial/Southern National (NC); Community Bancorp/Fishkill National (NY);
Mobile National/South Alabama; Union Bancorp/Northern Neck Bankshares (VA)
and United New Mexico/Ford Bank Group (NM,TX). Prairie Capital compared,
with respect to the smaller merger partner in the selected transactions,
the ratio of price (i.e., market price prior to the announcement of the
merger) to earnings for the last twelve months preceding the merger, the
price to stated book value ratio and the price to tangible book value ratio
for these transactions, with the same ratios for Premier. Based on 1995
earnings and year end 1995 book values, the ratios for Premier were, price
(market price of $8.50 before the Merger was announced)/earnings--11.3X;
price/stated book value--111.3% and price/tangible book value--174.8%. The
median ratios for the selected transactions were, price/earnings--10.2X;
price/stated book value and price/tangible book value--132.1%.
For the selected transactions, Prairie Capital also calculated the ratios
of the percentage ownership to the percent of stockholders' equity and to
the percent of the latest twelve months net income contributed to the
combined entity by the larger partner (in terms of market value) in the
mergers-of-equals. For the selected transactions, the ratio of ownership to
stockholders' equity ranged from .921 to 1.172 and the ratio of ownership
to net income ranged from .961 to 1.180. The comparable ratios for Northern
Illinois under the No Cost Savings Model were .980 for stockholders' equity
(.839 based on tangible equity) and .984 based on 1995 net income and 1.005
based on projected 1996 net income.
Comparative Market Values. Prairie Capital did not compare the market
values of Northern Illinois, Premier and other public entities since
Northern Illinois does not have an active market for its common stock.
Cash Dividend Analysis. As discussed above, under the Cost Savings Model
the earnings of GPF on an equivalent basis per share of Northern Illinois
Common Stock are projected to be higher than the projected earnings of
Northern Illinois on a stand alone basis. Accordingly, assuming dividend
payout ratios for GPF are the same as the historical dividend payout ratios
for Northern Illinois, it is reasonable to project that the stockholders of
Northern Illinois will receive higher dividends (on an equivalent per share
basis) if the Merger is consummated than if Northern Illinois continues on
a stand-alone basis. Notwithstanding the projections in this analysis, the
declaration and payment of dividends on GPF Common Stock will be determined
solely at the discretion of the board of directors of GPF and will depend
upon actual earnings, capital requirements, financial condition, dividends
for the Northern Illinois subsidiaries and the Premier subsidiaries and
other factors that the board of directors deems relevant. No assurances can
be given as to the amount of dividends that may be declared on the GPF
Common Stock.
Prairie Capital, as part of its investment banking business, is engaged in
the valuation of businesses, including banks and thrifts, and securities in
connection with mergers and acquisitions, public and private financings,
thrift stock conversions and valuations for estate, corporate and other
purposes. Northern Illinois selected Prairie Capital on the basis of the
reputations of its principals and their experience in evaluating financial
institutions such as Northern Illinois, Premier and GPF and in evaluating
transactions such as the Merger.
For its services to Northern Illinois in connection with the Merger, Prairie
Capital will receive an aggregate cash fee of $35,000, of which $10,000 was
paid upon execution of the engagement letter with Northern Illinois, $10,000
was paid at the time Prairie Capital informed Northern Illinois that it was
prepared to render the fairness
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opinion and $15,000 will be paid at the time the fairness opinion is first
published, quoted or publicly referred to in any proxy statement or other
public document relating to the Merger. Northern Illinois has agreed to
reimburse Prairie Capital for reasonable out-of-pocket expenses relating to
the Merger. In addition, Northern Illinois has agreed to indemnify Prairie
Capital against certain liabilities, including liabilities which may arise
under the securities laws.
The Chicago Corporation. Pursuant to an engagement letter dated January 2,
1996 between Premier and The Chicago Corporation ("TCC"), Premier retained TCC
to act as Premier's financial advisor in connection with the Merger. As part
of its engagement, TCC agreed, if requested by Premier, to render an opinion
to the board of directors of Premier as to the fairness, from a financial
point of view, of the consideration to be paid to the stockholders of Premier
with respect to the Merger.
At the January 16, 1996 meeting of the Premier Board, TCC delivered its oral
opinion that the consideration to be received by Premier in the Merger was
fair to Premier stockholders from a financial point of view. TCC subsequently
delivered to the Premier Board a written opinion dated as of the date of this
Joint Proxy Statement Prospectus confirming its oral opinion. TCC provided the
Premier board with a range of ratios that it deemed fair from a financial
point of view to Premier's stockholders. The actual exchange ratio was within
that range and agreed upon through negotiations between Premier and Northern
Illinois. No limitations were imposed by Premier on TCC with respect to the
investigations made or procedures followed in rendering its opinion.
THE FULL TEXT OF TCC'S WRITTEN OPINION TO THE PREMIER BOARD OF DIRECTORS,
DATED THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN
BY TCC, IS ATTACHED HERETO AS EXHIBIT E AND IS INCORPORATED HEREIN BY
REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY. THE FOLLOWING
SUMMARY OF TCC'S WRITTEN OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH WRITTEN OPINION. TCC'S OPINION IS ADDRESSED TO THE
PREMIER BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER OF PREMIER OR NORTHERN ILLINOIS AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE WITH RESPECT TO THE MERGER.
In connection with its opinions, TCC has, among other things, (i) reviewed
the Merger Agreement, (ii) reviewed the audited financial statements of
Premier and Northern Illinois for the years ended December 31, 1992 through
December 31, 1994, the unaudited financial statements as of and for the nine
months ended September 30, 1995 and September 30, 1994 and, as to the oral
opinion, for the year ended December 31, 1995, and, as to the written opinion,
the audited financial statements for the year ended December 31, 1995 and the
unaudited financial statements for the quarterly period ended March 31, 1996;
(iii) reviewed other internally generated Premier and Northern Illinois
reports relating to, among other things, asset/liability management and asset
quality as provided to TCC by Premier and Northern Illinois, (iv) reviewed and
analyzed other material bearing upon the financial and operating condition of
Premier and Northern Illinois and material prepared in connection with the
proposed transaction; (v) reviewed financial data with respect to certain
other financial institutions deemed relevant to the contemplated transaction;
(vi) reviewed the nature and terms of recent sale and merger transactions
involving banks, thrifts, bank and thrift holding companies and other
financial institutions that TCC considered relevant; (vii) reviewed historical
and current market data for Premier Common Stock; (viii) conducted meetings
with members of the senior managements of Premier and Northern Illinois for
the purpose of reviewing the future prospects of Premier and Northern
Illinois; (ix) reviewed certain information including forecasts pertaining to
prospective cost savings relative to the proposed transactions; and (x)
evaluated the pro forma ownership of GPF Common Stock by Premier stockholders,
relative to the pro forma contribution of Premier's assets, liabilities,
equity and earnings to GPF.
In connection with its review, TCC did not assume any obligation to
independently verify any of the foregoing information and relied on such
information being complete and accurate in all material respects. With respect
to the financial forecasts for Premier and Northern Illinois provided to TCC
by their respective managements and the estimate of potential cost savings and
synergy benefits prepared at the request of the managements of Premier and
Northern Illinois and provided to TCC by Premier, TCC assumed for purposes of
its opinion that the forecasts were reasonably prepared on bases reflecting
the best available estimates and
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judgments of Northern Illinois and Premier at the time of preparation as to
the future financial performance of Premier, Northern Illinois and GPF and
that they provided a reasonable basis upon which TCC could form its opinion.
Neither Premier nor Northern Illinois publicly discloses internal management
forecasts of the type provided to TCC in connection with TCC's review of the
Merger. Such forecasts were not prepared with a view towards public
disclosure. In addition, such forecasts were based on numerous variables and
assumptions that are inherently uncertain, including, without limitation,
factors relating to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in such
forecasts.
TCC also assumed that there were no material changes in Premier's or
Northern Illinois' assets, financial condition, results of operations,
business or prospects since the respective dates of the last financial
statements made available to TCC. In addition, TCC is not an expert in the
valuation of loan portfolios for purposes of assessing the adequacy of the
allowances for losses with respect thereto and assumed, with Premier's
consent, that such allowances for each of Premier and Northern Illinois are in
the aggregate adequate to cover such losses. In addition, TCC did not assume
responsibility for reviewing any individual credit files or making an
independent evaluation, appraisal or physical inspection of the assets or
individual properties of Premier or Northern Illinois, nor was TCC furnished
with any such appraisals. Further, TCC's opinions were based on economic,
monetary and market and other conditions as in effect on, and the information
made available to TCC as of the respective dates of its opinions.
TCC further assumed, with Premier's consent, that the Merger will be
consummated in accordance with the terms and provisions of the Merger
Agreement without any waiver by Premier or Northern Illinois of any of the
material conditions to their respective obligations. Moreover, in each
analysis that involved per share data for Premier or GPF, TCC adjusted the
data to reflect full dilution, i.e., the exercise of all outstanding options
and the conversion of all convertible preferred stock.
The analyses performed by TCC in rendering its opinions are described below.
Comparable Company Analysis: TCC reviewed and compared actual stock
market data and actual and estimated selected financial information for
Premier with corresponding information for 22 publicly-traded Midwestern
banking organizations with assets between $500 million and $1 billion
(collectively, the "Selected Peer Group Banks") based on publicly available
information. The Selected Peer Group Banks were Irwin Financial
Corporation, Columbus, Indiana; F&M Bancorporation, Inc., Kaukauna,
Wisconsin; National City Bancshares, Inc., Evansville, Indiana; Farmers
Capital Bank Corporation, Frankfort, Kentucky; CBT Corporation, Paducah,
Kentucky; Second Bancorp, Incorporated, Warren, Ohio; Pinnacle Banc Group,
Inc., Oak Brook, Illinois; National City Bancorporation, Minneapolis,
Minnesota; Michigan Financial Corporation, Marquette, Michigan; Old Second
Bancorp, Inc., Aurora, Illinois; Citizens Bancshares, Inc., Salineville,
Ohio; First Merchants Corporation, Muncie, Indiana; Ambanc Corp.,
Vincennes, Indiana; First Oak Brook Bancshares, Inc., Oak Brook, Illinois;
Shoreline Financial Corporation, Benton Harbor, Michigan; Cardinal
Bancshares, Inc., Lexington, Kentucky; Independent Bank Corporation, Ionia,
Michigan; Peoples Bancorp Inc., Marietta, Ohio; CoBancorp, Inc., Elyria,
Ohio; Merchants Bancorp, Inc., Aurora, Illinois; Today's Bancorp, Inc.,
Freeport, Illinois; and Southside Bancshares Corp., St. Louis, Missouri.
This analysis indicated, among other things, that, based on market prices
as of January 12, 1996 and financial data as of September 30, 1995, (i) the
average multiple of price to 1995 earnings (which, in the case of the
January 16 opinion, were estimated) was 13.0 for the Selected Peer Group
Banks as compared to a corresponding multiple of 11.3 for Premier, (ii) the
average multiple of price to estimated 1996 earnings multiple was 11.7
(based on a published consensus market estimate) for the Selected Peer
Group Banks as compared to 10.0 (also based on a published consensus market
estimate) for Premier, (iii) the average ratio of price to book value per
share was 166.4% for the Selected Peer Group Banks versus 121.8% for
Premier, (iv) the average ratio of price to tangible book value per share
was 177.7% as compared to 230.4% for Premier, (v) the average ratio of
tangible equity as a percentage of tangible assets was 9.20% for the
Selected Peer Group Banks versus 6.12% for Premier, (vi) the average return
on average equity was 13.4% for the Selected Peer Group Banks as compared
to 13.5% for Premier, (vii) the average return on average
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assets for the Selected Peer Group Banks was 1.27% as compared to 1.23% for
Premier, (viii) the average ratio of nonperforming assets as a percentage
of total assets was 0.41% for the Selected Peer Group Banks versus 0.68%
for Premier, and (ix) the average ratio of loan loss reserves as a
percentage of nonperforming loans was 261.1% for the Selected Peer Group
Banks as compared to 127.9% for Premier.
Accretion/Dilution Analysis: On the basis of projections prepared by the
respective managements of Premier and Northern Illinois, for the calendar
years 1996, 1997, 1998 and 1999, and the projected net cost savings and
synergy benefits provided to TCC, TCC analyzed pro forma net income, book
value and tangible book value for GPF as compared to the stand-alone
projections for Premier. This analysis assumed synergistic after-tax cost
savings for the calendar years 1996, 1997, 1998 and 1999, and transaction
expenses, which are assumed to be incurred in 1996, in accordance with the
projections provided to TCC.
The accretion/dilution analysis showed, among other things, that the
Merger would result in a projected earnings dilution of 0.9% in 1996 for
Premier stockholders, and earnings accretion of 10.4%, 15.5% and 15.7% in
1997, 1998 and 1999, respectively. The analysis also showed that the Merger
would result in accretion to book value ranging from 1.7% to 2.5%, and
accretion to tangible book value ranging from 16.5% to 29.6% during the
period analyzed.
Discounted Cash Flow: TCC performed discounted cash flow analyses with
respect to Premier on a stand-alone basis and with respect to GPF, using
the earnings and cost savings projections provided by Northern Illinois and
Premier. TCC utilized a discount rate of 15% and terminal multiples applied
to 1999 projected earnings of 15.7 and 17.0 on a stand-alone and pro forma
basis, respectively. The discount rate was selected by TCC as a reasonable
estimate of the cost of capital to Premier and of GPF. The terminal rates
reflect the average price-to-earnings multiple paid in acquisitions of
depository institutions considered comparable to Premier and GPF,
respectively. The analyses resulted in present values of $10.94 per share
and $13.68 per share on a stand-alone and pro forma combined basis,
respectively.
Contribution Analysis: TCC analyzed the contribution of each of Premier
and Northern Illinois to, among other things, the pro forma assets, common
equity, and tangible common equity of GPF as at September 30, 1995 and pro
forma common equity and tangible common equity as at December 31, 1995.
This analysis showed, among other things, that Premier would have
contributed 41.1%, 39.5% and 28.8% of the pro forma assets, common equity,
and tangible common equity, respectively, of GPF as at September 30, 1995
and 39.4% and 29.2% of pro forma common equity and tangible common equity,
respectively, of GPF as at December 31, 1995. Similarly, TCC analyzed the
contribution to pro forma net income for the three quarters ended September
30, 1995 and for the year ended December 31, 1995, and projected net income
for the years ended December 31, 1996 and 1997, which showed that Premier
would have contributed, for such periods, 36.2%, 38.3%, 40.3% and 40.4%,
respectively, to GPF net income. TCC also analyzed the net present value
(assuming a transaction date of January 1, 1996) of projected pro forma
cash flows for fiscal years 1996 through 1999, which showed that Premier
would contribute 39.9% of the total. TCC also analyzed Premier's
contribution to pro forma projected market value, as of January 1, 1996.
This analysis relied upon an assumed market value for Northern Illinois
Common Stock, derived by multiplying projected Northern Illinois earnings
by the average projected price-earnings ratios for companies deemed
comparable to Northern Illinois. On this basis, TCC calculated that 33.0%
of the combined market value would be contributed by Premier. Based upon
the proposed exchange ratios in the Merger, the holders of Premier Common
Stock will own approximately 40.0% of the outstanding common stock of GPF
upon completion of the Merger.
No other company used as a comparison in the above analyses is identical to
Premier, Northern Illinois, or GPF, and no other transaction is identical to
the Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading volume of the
companies to which Premier, Northern Illinois and GPF are being compared.
The description of TCC's analyses set forth above summarizes the material
aspects of the analyses performed but does not purport to be a complete
description of the analyses or data presented by TCC. The
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preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial analysis or summary description. TCC believes that the
summary set forth above and its analyzes must be considered as a whole and
that selecting portions thereof, without considering all the analyses, could
create an incomplete view of the processes underlying its analyses and
opinion. TCC based its analyses on assumptions that it deemed reasonable,
including assumptions about general business and economic conditions and
industry-specific factors. The other principal assumptions upon which TCC
based its analyses are set forth above. TCC's analyses are not necessarily
indicative of actual values or actual future results that might be achieved,
which values may be higher or lower than those indicated. Moreover, TCC's
analyses are not and do not purport to be appraisals or otherwise reflective
of the prices at which businesses actually could be bought or sold.
TCC was selected as a recognized specialist in the financial services
industry in general and in Midwestern banks and thrifts in particular. TCC is
regularly engaged in evaluations of similar businesses and in advising
institutions with respect to mergers and acquisitions as well as raising debt
and equity capital for such institutions. In addition, TCC introduced Northern
Illinois and Premier to one another as possible merger partners. See "--
Background of the Merger."
For its financial advisory services to Premier, and also in consideration of
its role in bringing together Northern Illinois and Premier, upon closing of
the Merger TCC will be paid a fee of $200,000, less $75,000 already received.
In addition, Premier has agreed to reimburse TCC for reasonable out-of-pocket
expenses incurred by it on Premiers's behalf, as well as to indemnify TCC
against certain liabilities, including any which may arise under the federal
securities laws.
TCC is a member of all principal securities exchanges in the United States,
and in the conduct of its broker-dealer activities has from time to time
purchased securities from, and sold securities to, Premier or Northern
Illinois. As a market maker, TCC has also purchased and sold the securities of
Premier and Northern Illinois for TCC's own account and for the accounts of
customers. Two affiliates of TCC manage limited partnerships which invest in
publicly traded securities of banking institutions, and TCC manages two group
trusts which invest in publicly traded securities of banking institutions.
Together, these investment pools, known as The Banc Funds, have reported
ownership of 133,528 shares of Premier Common Stock.
TERMS OF THE MERGER
Subject to the terms and conditions of the Merger Agreement and in
accordance with the DGCL and the IBCA, the Merger will become effective at the
Effective Time. See "--Closing." GPF will be the surviving corporation in the
Merger and will continue its corporate existence under the DGCL. At the
Effective Time, the separate corporate existence of each of Northern Illinois
and Premier will terminate.
The current certificate of incorporation and bylaws of GPF have been adopted
for initial formation purposes only. Immediately prior to the Effective Time,
the certificate of incorporation and bylaws of GPF will be amended and
restated in their entirety, pursuant to the Merger Agreement, and such amended
and restated certificate of incorporation and bylaws of GPF will be the
certificate of incorporation and bylaws, respectively, of GPF at and after the
Effective Time. A copy of the GPF Certificate is attached as Appendix F. See
"DESCRIPTION OF GPF CAPITAL STOCK," "POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN
PROVISIONS OF THE GPF CERTIFICATE, GPF BY-LAWS AND THE RIGHTS AGREEMENT.
Currently GPF has 1,000 shares of its Common Stock issued and outstanding,
of which 500 are held by Northern Illinois and 500 are held by Premier. Those
shares will be canceled automatically at the Effective Time, and new shares of
GPF Common Stock will be issued in exchange for shares of Northern Illinois
Common Stock and Premier Common Stock to the holders thereof. See "--
Conversion of Shares."
CONVERSION OF SHARES
At the Effective Time, each issued and outstanding share of Northern
Illinois Common Stock, other than shares with respect to which the holders
have validly asserted dissenters' rights (see "DISSENTERS'
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RIGHTS"), will be converted into the right to receive 4.250 shares of GPF
Common Stock, and each share of Premier Common Stock will be converted into
the right to receive 1.116 shares of GPF Common Stock. Holders of Northern
Illinois Common Stock and Premier Common Stock will receive cash in lieu of
any fraction of a share resulting from such calculation.
Further, at the Effective Time, (i) each share of Premier Series B Preferred
Stock, par value $1.00 per share, with a stated value of $1,000 per share,
noncumulative as to dividends, and convertible into shares of Premier Common
Stock at $9.50 per share, other than dissenting shares, will be converted into
the right to receive one share of GPF Series B Preferred Stock, par value
$0.01 per share, with a stated value of $1,000 per share, cumulative as to
dividends, and convertible into shares of GPF Common Stock at $8.51255 per
share, with terms otherwise substantially identical to the terms of the
Premier Series B Preferred Stock so converted, together with any accrued,
unpaid dividends through the Effective Time, and (ii) each share of Premier
Series D Preferred Stock, par value $1.00 per share, with a stated value of
$1,000 per share and noncumulative as to dividends, other than dissenting
shares, will be converted into the right to receive one share of GPF Series C
Preferred Stock, par value $0.01 per share, with a stated value of $1,000 per
share and cumulative as to dividends, with terms otherwise substantially
identical to the terms of the Premier Series D Preferred Stock so converted,
together with any accrued, unpaid dividends through the Effective Time.
Under the terms of the Certificate of Designations for the Premier Series A
Preferred Stock, Premier has the right to redeem all of the outstanding shares
of Premier Series A Preferred Stock at their stated value of $1,000 per share
at any time after July 16, 1996. Premier has given written notice to the
holders of the Premier Series A Preferred Stock that all of the outstanding
shares of Premier Series A Preferred Stock will be redeemed on July 17, 1996.
Pursuant to a letter agreement, dated July 16, 1993, entered into between
Premier and the holders of the Premier Series B Preferred Stock and Premier
Series D Preferred Stock, Premier agreed to revise the terms of such stock to
provide for the payment of cumulative, rather than noncumulative, dividends at
such time as all of the Premier Series B Preferred Stock and the Premier
Series D Preferred Stock, if cumulative, would qualify as Tier 1 Capital under
the regulations of the Federal Reserve Board. For a discussion of the Federal
Reserve Board's risk-based capital requirements, see "SUPERVISION AND
REGULATION--Capital Requirements of Banks and Bank Holding Companies." The GPF
Series B Preferred Stock and the GPF Series C Preferred Stock to be issued
upon the exchange of the Premier Series B Preferred Stock and the Premier
Series D Preferred Stock, respectively, will be cumulative, rather than
noncumulative, with respect to the payment of dividends since, upon
consummation of the Merger, all of such cumulative GPF Series B Preferred
Stock and cumulative GPF Series D Preferred Stock will qualify as Tier 1
Capital of GPF.
Holders of shares of Northern Illinois Common Stock have dissenters' rights
with respect to such shares under the IBCA, and holders of the shares of
Premier Preferred Stock have dissenters' rights with respect to such shares
under the DGCL. Holders of Premier Common Stock do not have dissenters' rights
with respect to such shares because Premier Common Stock is listed and traded
on the Nasdaq National Market. See "DISSENTERS' RIGHTS."
CONVERSION OF OPTIONS
At the Effective Time, each option to purchase shares of Premier Common
Stock that is outstanding at the Effective Time will be converted into an
option to purchase shares of GPF Common Stock. The number of shares of GPF
Common Stock covered by each option shall be adjusted by multiplying the
number of shares of Premier Common Stock covered by the option before the
Merger by 1.116, the exchange ratio applicable to the Premier Common Stock.
See "THE MERGER--Conversion Of Shares." The exercise price of the outstanding
options will be adjusted by dividing the exercise price applicable to each
Premier option by 1.116.
Currently, there are no outstanding options to purchase shares of Northern
Illinois Common Stock.
CLOSING OF THE MERGER
Northern Illinois and Premier must use reasonable efforts to cause the
Effective Time to occur on a closing date to be agreed upon by the parties
(the "Closing Date"), which must be no later than the last business day in
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the calendar month in which all of the following conditions have occurred
(unless the date is extended by mutual agreement of the parties):
.the Merger Agreement has been approved by the stockholders of Northern
Illinois and Premier;
. the shares of GPF Common Stock to be issued in the Merger have been
authorized for listing on the Nasdaq National Market;
. all required regulatory approvals have been obtained on terms and
conditions reasonably satisfactory to Northern Illinois and Premier, and
all related waiting periods have expired; and
. there are no orders, injunctions, decrees, laws, regulations or other
legal impediments prohibiting, materially restricting or making illegal
the consummation of the Merger.
If the Merger is not consummated on or before January 22, 1997, the Merger
Agreement may be terminated by either Northern Illinois or Premier, unless the
failure to consummate the Merger by such date is due to a breach of the Merger
Agreement by the party seeking to terminate the Merger Agreement. See "--
Conditions to the Consummation of the Merger; Termination of the Merger
Agreement; Regulatory Approvals."
EXCHANGE OF STOCK CERTIFICATES; FRACTIONAL SHARES
At or prior to the Effective Time, GPF will deposit with a bank, trust
company, or other entity reasonably acceptable to Northern Illinois and
Premier (an "Exchange Agent") certificates representing the shares of common
stock and preferred stock of GPF and the cash in lieu of any fractional shares
to be issued in the Merger in exchange for the outstanding shares of Northern
Illinois Common Stock, Premier Common Stock and Premier Preferred Stock. The
parties currently anticipate that GPF will appoint Premier Trust Services,
Inc., a subsidiary of one of the Premier Banks, as Exchange Agent.
As soon as practicable after the Effective Time and no later than 10
business days thereafter, the Exchange Agent will mail a form of transmittal
letter to the holders of Northern Illinois Common Stock, Premier Common Stock
and Premier Preferred Stock. The form of transmittal letter will contain
instructions with respect to the surrender of certificates representing
Northern Illinois Common Stock, Premier Common Stock and Premier Preferred
Stock in exchange for certificates representing shares of GPF Common Stock and
GPF Preferred Stock, as applicable.
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE THE
FORM OF TRANSMITTAL LETTER AND INSTRUCTIONS.
No dividend or other distributions declared on GPF Common Stock or GPF
Preferred Stock after the Effective Time will be paid to the holder of any
unsurrendered certificate for shares of Northern Illinois Common Stock,
Premier Common Stock or Premier Preferred Stock until such holder surrenders
his or her certificate(s).
When the Exchange Agent receives a surrendered certificate or certificates
from a stockholder, together with the properly signed transmittal form, it
will promptly issue and mail to such holder (i) a certificate or certificates
representing the number of whole shares of GPF Common Stock and/or GPF
Preferred Stock to which such holder is entitled, and (ii) a check for the
amount of cash payable in lieu of any fractional share of GPF Common Stock
(computed by multiplying $9.75 by such fraction), plus the amount, without
interest, of dividends or other distributions, if any, which have previously
become payable with respect to the shares of GPF Common Stock or GPF Preferred
Stock so issued, and, in the case of surrendered Premier Preferred Stock, any
accrued but unpaid dividends thereon.
A certificate for GPF Common Stock or GPF Preferred Stock may be issued in a
name other than the name in which the surrendered certificate is registered if
(i) the certificate surrendered is properly endorsed and accompanied by all
documents required to evidence and effect the transfer to the new holder, and
(ii) the person requesting the issuance of the GPF certificate either pays to
the Exchange Agent in advance any transfer or other taxes due or establishes
to the satisfaction of the Exchange Agent that such taxes have been paid or
are not applicable.
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The Exchange Agent will issue stock certificates evidencing GPF Common Stock
or GPF Preferred Stock in exchange for lost, stolen, or destroyed certificates
for Northern Illinois Common Stock, Premier Common Stock, or Premier Preferred
Stock upon the receipt of a lost certificate affidavit and, if reasonably
required by GPF, a bond indemnifying GPF for any claim that may be made
against GPF arising out of the lost, stolen, or destroyed certificate(s).
After the Effective Time, no transfers will be permitted on the stock
transfer books of Northern Illinois or Premier. If, after the Effective Time,
certificates representing shares of Northern Illinois Common Stock, Premier
Common Stock, or Premier Preferred Stock are presented for transfer to the
Exchange Agent, they will be canceled and exchanged for certificates
representing GPF Common Stock, GPF Preferred Stock, and/or cash in lieu of
fractional shares as provided in the Merger Agreement.
None of GPF, Northern Illinois, Premier, the Exchange Agent or any other
person will be liable to any former holder of Northern Illinois Common Stock,
Premier Common Stock or Premier Preferred Stock for any amount delivered in
good faith to a public official pursuant to applicable abandoned property,
escheat or similar laws.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties of Northern
Illinois and Premier as to, among other things (i) the corporate organization
and existence of each party and its subsidiaries, (ii) the capitalization of
each party and its subsidiaries, (iii) the 10% shareholders of each party,
(iv) the corporate power and authority of each party to enter into the Merger
Agreement and consummate the Merger, and the compliance of the Merger
Agreement with each party's charter and bylaws, applicable law, and certain
material agreements, (v) the governmental and third party approvals necessary
to consummate the Merger, (vi) the timely filing of required regulatory
reports and the absence of any proceedings or investigations (other than
normal examinations conducted in the regular course of business), or any
unresolved written violations, initiated by any regulatory agency, (vii) each
party's financial statements and the compliance thereof with generally
accepted accounting principles, (viii) each party's filings with the
Commission and the material accuracy and completeness thereof, (ix) brokers'
fees owed by each party, (x) the absence of certain changes in each party's
business for periods following the periods covered by the audited and
unaudited financial statements of each party, (xi) the absence of legal
proceedings against each party, (xii) the filing and accuracy of each party's
tax returns and compliance with applicable law, (xiii) each party's employee
benefit plans and the compliance thereof with applicable law, (xiv) each
party's compliance with laws applicable to the conduct of its businesses, (xv)
the existence of specified types of contracts and the absence of material
defaults thereunder, (xvi) the absence of orders issued by, or consent
agreements or memoranda of understanding or similar undertakings with, any
regulatory agency, (xvii) the compliance of the regulated activities of each
party and its subsidiaries with applicable regulations, (xviii) the status of
each party's title to investment securities held by it, (xix) the absence of
undisclosed liabilities, (xx) the absence of environmental liabilities, (xxi)
the insurance policies of the parties, (xxii) the material adequacy of each
party's subsidiaries' loan loss reserves, (xxiii) each party's lack of
knowledge of any reason why any of the regulatory approvals necessary for the
consummation of the Merger should be denied or unduly delayed, and (xxiv)
"pooling-of-interests" accounting.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The Merger will occur only if the Merger Agreement is approved by the
requisite vote of the holders of Northern Illinois Common Stock and the
requisite vote of the holders of Premier Common Stock. The obligations of the
parties to consummate the Merger are also subject to the satisfaction (or
waiver, to the extent permitted under applicable law) of the following
conditions:
(i) the shares of GPF Common Stock to be issued in the Merger shall have
been authorized for listing on the Nasdaq National Market, subject to
official notice of issuance;
(ii) the regulatory approvals necessary to consummate the Merger shall
have been obtained on terms and conditions reasonably satisfactory to
Northern Illinois and Premier, and all related waiting periods shall have
expired;
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(iii) the Registration Statement of which this Joint Proxy Statement-
Prospectus forms a part and the registration of the GPF Common Stock under
the Exchange Act shall have become effective, and no stop order suspending
the effectiveness of either shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the Commission;
(iv) no order, injunction or decree issued by any court or agency or
other legal restraint preventing consummation of the Merger or any of the
other transactions contemplated by the Merger Agreement shall be in effect,
and no statute, rule, regulation or other law shall have been enacted that
prohibits the consummation of the Merger;
(v) Northern Illinois and Premier shall have received an opinion from
KPMG substantially to the effect that the Merger will be treated as a tax
free reorganization under the Code (see "--Certain Federal Income Tax
Consequences");
(vi) Northern Illinois and Premier shall each have received a letter from
their respective independent accountants to the effect that the Merger will
qualify for "pooling-of-interests" accounting treatment (see "--Accounting
Treatment");
(vii) no event shall have occurred which has had a material adverse
effect on the business, results of operations, financial condition, or
reasonable prospects of Northern Illinois and its subsidiaries or Premier
and its subsidiaries, respectively, in each case taken as a whole, and no
condition (other than general economic or competitive conditions) shall
have occurred that may reasonably be expected to have such a material
adverse effect;
(viii) no 10% shareholder of either party shall have acquired any
additional stock in either party; and
(ix) each party shall have received an opinion from its financial advisor
that the consideration to be received in the Merger by such party's
stockholders is fair, from a financial point of view, to such stockholders.
The obligation of each of the parties to consummate the Merger is also
subject to the satisfaction of certain other conditions customary in such
agreements, including the absence of any material breach by the other party in
the performance of its obligations under the Merger Agreement and the
continued accuracy in all material respects of the representations and
warranties of the other party included in the Merger Agreement.
As of the date of this Joint Proxy Statement-Prospectus, (i) the GPF Common
Stock has been approved for listing on the Nasdaq National Market, (ii) all
approvals of the Federal Reserve Board necessary to consummate the Merger have
been received, [(iii) the Registration Statement of which this Joint Proxy
Statement-Prospectus forms a part has become effective], (iv) Northern
Illinois and Premier have received a tax opinion from KPMG substantially to
the effect that the Merger will be treated as a tax-free organization under
the Code, and (v) Northern Illinois and Premier have received opinions from
Prairie Capital and TCC, respectively, that the consideration to be received
in the Merger by their respective stockholders is fair, from a financial point
of view, to such stockholders.
No assurance can be given as to when or if all of the conditions precedent
to the Merger can or will be satisfied, or waived by the party permitted to
waive such conditions. If the Merger is not effected on or before January 22,
1997, the Merger Agreement may be terminated by either party, unless the
failure to consummate the Merger by such date is due to a breach of the Merger
Agreement by the party seeking to terminate the Merger Agreement. See "--
Termination of the Merger Agreement."
CONDUCT OF BUSINESS PENDING THE MERGER AND OTHER AGREEMENTS
Under the Merger Agreement, prior to the Effective Time Northern Illinois
and Premier have each agreed to, and to cause their respective subsidiaries
to, (i) conduct their businesses in the usual, regular and ordinary course
consistent with past practices, (ii) use reasonable efforts to maintain and
preserve intact their business organizations, employees and advantageous
business relationships, and retain key officers and employees, and (iii) take
no action which would adversely affect or delay the ability of the parties to
obtain necessary regulatory
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approvals required for the consummation of the Merger or to perform their
covenants and agreements under the Merger Agreement or the Stock Option
Agreements.
Further, during the period from the date of the Merger Agreement to the
Effective Time, unless otherwise permitted by the Merger Agreement or the
other party consents in writing, Northern Illinois and Premier may not, and
may not permit any of their subsidiaries to:
(i) incur any indebtedness for borrowed money, assume any obligations or
make any loans or advances, other than in the ordinary course of business
consistent with past practices;
(ii) make any adjustments or reclassifications to its capital stock,
make, declare or pay any dividend or other distribution on or redeem or
otherwise acquire any shares of its capital stock (except that (A) Northern
Illinois may pay regular quarterly cash dividends on Northern Illinois
Common Stock at a rate not in excess of $0.17 per share for the first three
calendar quarters, and $0.29 per share for the fourth calendar quarter, (B)
Premier may pay regular quarterly cash dividends on Premier Common Stock at
a rate not in excess of $0.06 per share, (C) Premier may pay regular
quarterly cash dividends on Premier Preferred Stock at the rates set forth
in the applicable certificate of designations for such stock, (D) the
subsidiaries of each of Northern Illinois and Premier may pay dividends to
Northern Illinois and Premier, respectively, and (E) Premier may, after
July 16, 1996, redeem all of the Premier Series A Preferred Stock in
accordance with the terms and conditions of the certificate of designations
for such stock), grant any stock appreciation rights or any rights to
acquire shares of its capital stock (except for ordinary-course-of-business
grants under Premier employee benefit plans), or issue any additional
shares of capital stock except pursuant to existing options, warrants, or
convertible securities;
(iii) sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties or assets (except to a subsidiary), or cancel, release or
assign any indebtedness to any person or any claims held by any such
person, except in the ordinary course of business consistent with past
practices or pursuant to contracts or agreements in force on the date of
the Merger Agreement;
(iv) make any material investments, except for transactions in the
ordinary course of business consistent with past practices or pursuant to
contracts or agreements in force on the date of the Merger Agreement;
(v) enter into or terminate or make any change in any material contract,
other than renewals of contracts without material adverse changes of terms.
(vi) increase the compensation or fringe benefits of any of its employees
or pay any pension or retirement allowance not required by any existing
plan or become a party to, amend or commit itself to any pension,
retirement, profit-sharing or welfare benefit plan or employment agreement,
other than in the ordinary course of business consistent with past
practices.
(vii) accelerate the vesting of any stock options or other stock-based
compensation, except in accordance with the terms of an existing benefit
plan and in a manner consistent with past practices;
(viii) settle any claim, action or proceeding involving money damages
except in the ordinary course of business consistent with past practices;
(ix) take any action that would prevent or impede the Merger from
qualifying for "pooling-of-interests" accounting treatment or as a tax-free
reorganization under the Code;
(x) amend its certificate of incorporation or articles of incorporation,
as the case may be, or its bylaws;
(xi) other than in prior consultation with the other party, restructure
or materially change its investment securities portfolio or its gap
position, through purchases, sales or otherwise, or the manner in which the
portfolio is classified or reported; or
(xii) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties contained in the Merger
Agreement becoming materially untrue, or in any of the conditions to the
Merger not being satisfied, or in a violation of any provision of the
Merger Agreement (except as may be required by applicable law).
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NASDAQ NATIONAL MARKET LISTING
The Merger Agreement requires GPF to file an application for approval to
list the shares of GPF Common Stock on the Nasdaq National Market. An
application to list the shares of GPF Common Stock on the Nasdaq National
Market, as a successor to the Premier Common Stock, was filed on May 24, 1996,
and approval to list the shares was received on July 3, 1996. The Nasdaq Stock
Market has reserved the right to reconsider its approval in the event that
there is a material adverse change in Premier or Northern Illinois prior to
the Effective Time or a material change in the Merger from that disclosed in
this Joint Proxy Statement-Prospectus.
DIVIDENDS
The Merger Agreement requires Northern Illinois and Premier to coordinate
the declaration and payment of dividends on Northern Illinois Common Stock and
Premier Common Stock so that stockholders of Northern Illinois and Premier
receive a single dividend, whether from Northern Illinois and Premier before
the Effective Time or from GPF thereafter, in the quarter in which the
Effective Time occurs. After the Effective Time, the board of directors of GPF
will evaluate the appropriateness of the payment and amount of quarterly
dividends, taking into account the earnings, capital requirements, and
financial condition of GPF and other factors that the board of directors deems
relevant. The board of directors of GPF currently anticipates that a quarterly
dividend will be paid on the GPF Common Stock. See also "SUPERVISION AND
REGULATION--Bank Regulation --Restrictions on Dividends" and "--Capital
Requirements of Banks and Bank Holding Companies."
COMMITMENTS WITH RESPECT TO OTHER OFFERS
Under the Merger Agreement, Northern Illinois and Premier have agreed not to
solicit, encourage or authorize any person to solicit from a third-party any
inquiries or proposals relating to the disposition of its business or assets,
or the acquisition of its capital stock, or the merger of it or any of its
subsidiaries with any third party, or to negotiate with or entertain any
proposals from any third party for any such transaction, unless (i) such
conduct is pursuant to a written direction from a regulatory authority or (ii)
the board of directors of either Northern Illinois or Premier receives an
unsolicited offer from a third-party and reasonably believes, upon the advice
of counsel, that its fiduciary duties require it to enter into discussions
with such third-party. For a discussion of possible consequences of either
party's taking action with respect to third-party transactions, see "CERTAIN
RELATED TRANSACTIONS--Reciprocal Stock Option Agreements."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated prior to the Effective Time, whether
or not the stockholders of Northern Illinois and/or Premier have approved the
Merger Agreement, in the following circumstances:
(i) by written agreement between Northern Illinois and Premier if the
board of directors of each determines to do so;
(ii) by either the board of directors of Northern Illinois or the board
of directors of Premier if regulatory approval of the Merger is not
obtained, or is obtained on terms that are not reasonably acceptable to the
parties, or if a final order is issued permanently enjoining the Merger;
(iii) by either the board of directors of Northern Illinois or the board
of directors of Premier if the Merger is not consummated on or before
January 22, 1997, unless the failure of the Merger to be consummated by
that date is due to the failure of the party seeking to terminate the
Merger Agreement to perform its obligations under the Merger Agreement;
(iv) by either the board of directors of Northern Illinois or the board
of directors of Premier (provided that the terminating party is not in
material breach of the Merger Agreement) if the other party is in material
breach of the Merger Agreement and does not cure such breach within 45 days
following written notice thereof, or if such breach, by its nature or
timing, cannot be cured prior to the Closing Date; or
(v) by either the board of directors of Northern Illinois or the board of
directors of Premier if its stockholders vote on and do not approve the
Merger Agreement.
If the Merger Agreement is terminated, it will become void and have no
effect, except that each party's covenant to keep confidential information
received from the other party and the agreement of the parties to share
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certain expenses equally will survive the termination of the Merger Agreement,
and each party will remain liable to the other for any liabilities or damages
arising out of the willful breach of any provision of the Merger Agreement.
See "--Expenses."
WAIVER AND AMENDMENT
Subject to applicable law, each party may waive the obligations of the other
under the Merger Agreement to the extent legally permitted, provided that
after approval of the Merger Agreement by the stockholders of Northern
Illinois or Premier, no waiver may reduce the amount or change the form of the
consideration to be delivered to the stockholders. Subject to applicable law,
the parties to the Merger Agreement may amend the Merger Agreement at any time
before or after approval of the Merger Agreement by the stockholders of
Northern Illinois or Premier, provided that any such amendment after
stockholder approval may not change the amount or the form of the
consideration to be delivered to the stockholders, alter any term of the GPF
Certificate, or otherwise alter any term of the Merger Agreement if such
alteration would adversely affect any stockholders of Northern Illinois or
Premier. All waivers and amendments must be in writing and properly signed by
the parties.
EXPENSES
The parties have agreed in the Merger Agreement that the following expenses
incurred in connection with the Merger Agreement will constitute the expenses
of GPF and shall be borne equally by Northern Illinois and Premier in the
event that the Merger Agreement is terminated prior to the Effective Time:
(i) all attorneys' fees incurred by the parties in connection with the
preparation and negotiation of the Merger Agreement and the consummation of
the Merger and the other transactions contemplated in the Merger Agreement
(including attorneys' fees incurred in connection with the preparation and
filing of this Joint Proxy Statement-Prospectus and other filings with the
Commission, the Federal Reserve Board, and other agencies or entities);
(ii) the costs and expenses of printing and mailing this Joint Proxy
Statement-Prospectus;
(iii) all filing and other fees paid to the Commission, the Federal
Reserve Board, or any other agency in connection with the Merger and the
transactions contemplated in the Merger Agreement; and
(iv) all filing and other fees relating to the listing of the GPF Common
Stock on the Nasdaq National Market.
All other costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby are to be borne by the
party incurring the expense.
REGULATORY APPROVALS
The Merger is subject to prior approval by the Federal Reserve Board under
Sections 3 and 4 of the BHCA. GPF's acquisition of control of First Bank
North, an Illinois state bank, First Bank South, an Illinois state bank, and
First Security Bank of Cary Grove, an Illinois state bank (the "Premier State
Banks"), and Premier Trust Services, Inc., an Illinois trust company ("Premier
Trust"), is also subject to the prior approval of the Illinois Commissioner of
Banks and Trust Companies under Section 18 of the Illinois Banking Act and
Section 3-2 of the Illinois Corporate Fiduciary Act.
On March 29, 1996 GPF filed with the Federal Reserve Bank of Chicago an
application pursuant to Section 3(a)(1) and 3(a)(3) of the BHCA for approval
to consummate the Merger and a notification pursuant to Section 4(c)(8) of the
BHCA of its intent to engage in certain nonbanking activities following the
Merger. As of that same date, two shareholders of Northern Illinois, Keeco,
Inc., an Illinois corporation ("Keeco"), and Northland Insurance Agency, Inc.,
an Illinois corporation ("Northland Insurance"), both of which are affiliates
of Howard A. McKee, and will be deemed to own, upon consummation of the
Merger, over 5% of the outstanding voting stock of GPF, also filed
applications with the Federal Reserve Bank of Chicago under Section 3(a)(3) of
the BHCA for prior approval to acquire more than 5% of the outstanding voting
stock of GPF upon
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consummation of the Merger and notifications pursuant to Section 4(c)(8) of
the BHCA of their intent to engage indirectly in certain nonbanking activities
through GPF and its subsidiaries. On April 1, 1996, GPF also filed with the
Illinois Commissioner an application for prior approval of a change of control
of the Premier State Banks and of Premier Trust.
Federal Reserve Board Approval. By letter dated May 24, 1996, the Federal
Reserve Board approved the applications filed by GPF, Keeco and Northland
Insurance pursuant to Section 3(a)(1) and 3(a)(3) of the BHCA and the
notifications filed by GPF, Keeco and Northland Insurance pursuant to Section
4(c)(8) of the BHCA. Under the terms of the Federal Reserve Board's letter,
the Merger may be consummated any time after June 8, 1996 and must be
consummated on or before August 24, 1996 (unless such period is extended by
the Federal Reserve Board).
Premier's and Northern Illinois' rights to exercise the option granted under
the Northern Illinois Stock Option and the Premier Stock Option, respectively,
are also subject to the prior approval of the Federal Reserve Board, to the
extent that the exercise of such options would result in Premier or Northern
Illinois, as the case may be, owning more than 5% of the outstanding shares of
Northern Illinois Common Stock or Premier Common Stock, respectively. See
"CERTAIN RELATED TRANSACTIONS--Reciprocal Stock Options" for a description of
the circumstances under which such options may become exercisable. In deciding
whether or not to approve Premier's or Northern Illinois' exercise of its
option, the Federal Reserve Board would generally apply the same statutory
criteria that it was required to apply to its consideration of the Merger.
Under Section 3 of the BHCA, the Federal Reserve Board would be required to
withhold approval of an acquisition of 5% or more of the stock of Premier by
Northern Illinois, or of Northern Illinois by Premier, through the exercise of
the option granted to Northern Illinois or Premier, as applicable, if the
Federal Reserve Board found that the acquisition of such stock would result in
a monopoly or be in furtherance of any combination or conspiracy to monopolize
or attempt to monopolize the business of banking in any part of the United
States. In addition, the Federal Reserve could not approve such an acquisition
of stock through the exercise of either of the options if it found that the
anti-competitive effects of such an acquisition were clearly outweighed in the
public interest by the probable effect of the acquisition in meeting the
convenience and needs of the communities to be served. In addition, the
Federal Reserve Board would take into consideration the financial and
managerial resources and future prospects of the party that sought to exercise
the option and its subsidiary banks and the convenience and needs of the
communities to be served.
Commissioner Approval. In order to approve GPF's application for prior
approval of a change of control of the Premier State Banks and Premier Trust,
the Illinois Commissioner must be of the opinion and find that (i) the general
character of the proposed management of GPF, the Premier State Banks and
Premier Trust following the Merger is such as to assure reasonable promise of
successful safe and sound operation, (ii) the future earnings prospects of
GPF, the Premier State Banks and Premier Trust are favorable, and (iii) any
prior involvement with any other financial institution, whether as
stockholder, director, officer or customer, by the persons proposing to obtain
control of GPF, the Premier State Banks and Premier Trust through the Merger
was conducted in a safe and sound manner.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Northern Illinois and Premier have received a favorable opinion of KPMG to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368(a)(1)(A) of the Code. The opinion has been filed as an exhibit
to the Registration Statement of which this Joint Proxy Statement-Prospectus
is a part. Following is a summary of such opinion and the anticipated material
federal income tax consequences of the Merger to Northern Illinois, Premier
and GPF, and the stockholders of Northern Illinois and Premier. The discussion
is based on current provisions of the Code, the regulations thereunder, and
applicable judicial and administrative interpretations on the date hereof, any
of which is subject to change at any time. It is based upon the parties'
understanding of the federal income tax laws as currently interpreted and does
not address issues of state or local taxation.
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Tax consequences to Northern Illinois, Premier and GPF. No gain or loss will
be recognized by Northern Illinois, Premier, or GPF upon consummation of the
Merger. The tax basis of Northern Illinois and Premier assets received by GPF
in the Merger will be the same as the tax basis of such assets in the hands of
Northern Illinois and Premier, respectively, prior to the Merger. The holding
period of the Northern Illinois and Premier assets in the hands of GPF will
include the period during which such assets were held by Northern Illinois and
Premier, respectively. GPF will succeed to and take into account, as of the
Effective Time, the items of Northern Illinois and Premier described in
section 381(c) of the Code, subject to the conditions and limitations of
sections 381, 382, 383 and 384 of the Code and the regulations thereunder.
None of the GPF Preferred Stock to be issued in the Merger will be "Section
306 Stock" as defined in section 306(c) of the Code.
Tax consequences to Stockholders of Northern Illinois and Premier. The
summary of the anticipated material tax consequences of the Merger to the
stockholders of Northern Illinois and Premier which follows is limited to
those persons who hold shares of Northern Illinois Common Stock, Premier
Common Stock or Premier Preferred Stock as "capital assets" (generally
property held for investment) within the meaning of Section 1221 of the Code.
The tax consequences to any particular stockholder may be affected by matters
not discussed below. For example, certain taxpayers, such as life insurance
companies, tax-exempt organizations and foreign taxpayers may be subject to
special rules not addressed herein.
Receipt of GPF Common Stock or GPF Preferred Stock in Exchange for Northern
Illinois Common Stock, Premier Common Stock or Premier Preferred Stock. A
Northern Illinois stockholder or a Premier stockholder who receives shares of
GPF Common Stock in exchange for shares of Northern Illinois Common Stock or
Premier Common Stock or who receives shares of GPF Preferred Stock in exchange
for shares of Premier Preferred Stock will not recognize federal gain or loss
upon receipt of such shares of GPF Common Stock or GPF Preferred Stock. The
stockholder's tax basis in the stock received will be same as the
stockholder's tax basis in the shares exchanged in the Merger and the holding
period of the GPF Common Stock or GPF Preferred Stock received will include
the holding period of the Northern Illinois Common Stock, the Premier Common
Stock or the Premier Preferred Stock exchanged.
Receipt of Cash in Lieu of Fractional Shares. The payment to a holder of
Northern Illinois Common Stock or Premier Common Stock of cash in lieu of
fractional shares of GPF Common Stock will be treated as if the fractional
shares had been distributed to the stockholder as part of the exchange and
then repurchased by GPF. However, because the payment of cash in lieu of
fractional share interests is undertaken solely for the purposes of saving GPF
the expense and inconvenience of issuing and transferring fractional shares
and is not separately bargained-for consideration, these payments will be
treated as having been received as distributions in full payment in exchange
for the fractional shares redeemed, subject to the provisions and limitations
of Section 302(a) of the Code.
Information Reporting and Backup Withholding. Payments of cash in respect of
Northern Illinois Common Stock, Premier Common Stock, and Premier Preferred
Stock may be subject to information reporting to the Internal Revenue Service
and to a 31% backup withholding tax. Backup withholding will not apply,
however, to a payment to a Northern Illinois or Premier stockholder or other
payee if such stockholder or payee completes and signs the substitute Form W-9
that will be included as part of the transmittal letter furnished by the
Exchange Agent or otherwise proves to GPF and the Exchange Agent that it is
exempt from backup withholding.
NORTHERN ILLINOIS STOCKHOLDERS AND PREMIER STOCKHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
MERGER AND OF OWNERSHIP OF GPF COMMON STOCK, INCLUDING THE APPLICATION AND
EFFECT OF STATE AND LOCAL INCOME TAX AND OTHER TAX LAWS.
RESALES OF GPF COMMON STOCK ISSUED IN THE MERGER
The GPF Common Stock issued pursuant to the Merger will be freely
transferable under the Securities Act, except for shares issued to any
Northern Illinois or Premier stockholder who may be deemed to be an
"affiliate"
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of Northern Illinois or Premier for purposes of Rule 145 under the Securities
Act or of GPF for purposes of Rule 144 under the Securities Act. The
definition of "affiliate" is complex and fact-specific, but generally
encompasses directors, senior officers, 10% stockholders, or any other person
with the power to direct the management and policies of the issuer in
question.
Stockholders who are affiliates of Northern Illinois, Premier, or GPF may
not sell shares of GPF Common Stock received in the Merger except pursuant to
(i) an effective registration statement under the Securities Act, (ii) in
compliance with an exemption from the registration requirements of the
Securities Act, or (iii) in compliance with Rule 144 and Rule 145 promulgated
under the Securities Act. Generally, those rules permit resales of stock
received in a registered offering by an affiliate of Northern Illinois,
Premier or GPF as long as GPF has complied with certain reporting
requirements, and the selling stockholder complies with certain volume and
manner of sale restrictions set forth in Rule 144 and Rule 145.
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BOARD OF DIRECTORS AND MANAGEMENT OF GPF
FOLLOWING THE MERGER
BOARD OF DIRECTORS
As of the Effective Time, the board of directors of GPF will consist of 16
persons, divided into three classes of directors serving staggered terms of
three years, so that only one class is elected in any one year. The Merger
Agreement provides that the board of directors of GPF will initially consist
of eight Northern Illinois Representatives, including Robert W. Hinman, and
eight Premier Representatives, including Richard L. Geach and David L. Murray.
Such persons are to be divided as equally as possible among the three classes
of directors of GPF and are to serve in such capacities until such time as
their successors have been duly elected or qualified. The GPF Certificate
precludes the board of directors of GPF from increasing or decreasing the
number of directors prior to the annual meeting of stockholders to be held in
2003, except by amendment to the GPF Certificate.
Under the terms of both the Merger Agreement and the GPF Certificate, prior
to the annual meeting of stockholders of GPF to be held in 2003, the Northern
Illinois Representatives and the Premier Representatives, respectively, will
each have the right to designate (i) the persons or person to fill vacancies
occurring on the board of directors of GPF as a result of the death,
resignation or removal of any of the Northern Illinois Representatives or the
Premier Representatives, respectively, or (ii) the person or persons to be
nominated in place of each of the Northern Illinois Representatives or Premier
Representatives, respectively, whose terms of office expire at each of the
first three annual meetings of the stockholders of GPF. For purposes of these
provisions, the terms "Northern Illinois Representatives" and "Premier
Representatives" include any person or persons subsequently appointed or
elected a director of GPF following their designation as nominees for director
by persons then constituting Northern Illinois Representatives or Premier
Representatives, respectively.
Richard L. Geach and Robert W. Hinman currently serve as the sole directors
of GPF. The Boards of Directors of Northern Illinois and Premier have
designated the following persons to serve as the directors of GPF immediately
upon consummation of the Merger:
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS
- ------------ --------------------------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 1997
NORTHERN ILLINOIS REPRESENTATIVES
<S> <C>
Harry J. Bystricky (76) President, BIWAX Corporation, a chemical manufacturer, since
1960. Mr. Bystricky was a director of Grand National Bank-Niles
from 1995 to February, 1996 and became a director of Northern
Illinois in February, 1996.
Brenton J. Emerick (71) Chairman of the board of Northern Illinois since 1988 and a
director of Grand National Bank since February, 1996. Mr. Emerick
was chairman of the board and a director of Grand National Bank-
Waukegan from 1967 to February, 1996, chairman of the
administration committee of Grand National Bank-Niles from 1993
to February, 1996 and a director of Grand National Bank-Niles
from 1971 to February, 1996. Mr. Emerick has been a director of
Northern Illinois since 1971.
Robert W. Hinman (50) President and chief executive officer of Northern Illinois since
1988 and president, chief executive officer and a director of
Grand National Bank since February, 1996. He was also a director
of Grand National Bank-Crystal Lake from 1974 to February, 1996,
a director of Grand National Bank-Niles from 1984 to February,
1996, chairman of the board of Grand National Bank-Niles from
1988 to 1995, a director of Grand National Bank-Crete from 1992
to February, 1996 and adirector of Grand National Bank-Waukegan
from 1994 to 1996. He has been a director of Northern Illinois
since 1985.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS
- ------------ --------------------------------------------
PREMIER REPRESENTATIVES
<S> <C>
Donald E. Bitz (67) Retired chairman of the board and chief executive
officer of Economy Fire and Casualty Company, an
insurance company. Mr. Bitz was chairman of the board
and chief executive officer of Economy Fire and
Casualty Company from 1953 until his retirement in
1993. He has been a director of Premier since 1979.
Edward G. Maris (60) Private investor. Mr. Maris was a senior vice
president, chief financial officer, secretary and
treasurer of Northwestern Steel and Wire Company from
1986 to 1996. He has been a director of Premier since
1990.
Joseph C. Piland (63) Educational consultant and retired president, Highland
Community College, a position which he held from 1980
until his retirement in 1991. Mr. Piland has been a
director of Premier since 1987.
DIRECTORS WHOSE TERMS EXPIRE IN 1998
NORTHERN ILLINOIS REPRESENTATIVES
Jean M. Barry (40) Vice president of Northern Illinois since 1989 and a
director of Northern Illinois since 1991. She has been
a director of Grand National Bank since February,
1996. Ms. Barry was a director of Grand National Bank-
Niles from 1988 to February, 1996 and of Grand
National Bank-Crystal Lake from 1994 to February,
1996.
James Esposito (63) Executive vice president and a director of Grand
National Bank since February, 1996. Mr. Esposito was
chief executive officer and director of Grand National
Bank-Crete from 1974 to February, 1996 and chairman of
the board of Grand National Bank-Crete from 1992 to
February, 1996. He has been a director of Northern
Illinois since 1987.
PREMIER REPRESENTATIVES
R. Gerald Fox (60) President and chief executive officer of F.I.A.
Publishing Company, a publisher of financial books and
periodicals, since 1990. He has been a director of
Premier since 1993.
David L. Murray (54) Executive vice president and chief financial officer
of Premier, president of Premier Operating Systems,
Inc., and a director of all of the Premier
Subsidiaries since 1970. Mr. Murray has been a
director of Premier since 1981.
Stephen J. Schostok (59) Attorney and partner, DiMonte Schostok & Lizak,
attorneys at law since 1994, and attorney, Laser
Schostok Kolman and Frank, from 1964 to 1994.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
NORTHERN ILLINOIS REPRESENTATIVES
Frank J. Callero (68) Partner, Callero and Callero LLP, certified public
accountants, since 1961. Mr. Callero was a director of
Grand National Bank-Niles from 1967 to February, 1996
and became a director of Northern Illinois in
February, 1996.
Alan J. Emerick (51) Executive vice president of Northern Illinois since
1994 and a director of Grand National Bank since
February, 1996. Mr. Emerick was chairman of the board
of Grand National Bank-Niles from 1995 to February,
1996, chief executive officer of Grand National Bank-
Niles from 1991 to February, 1996, president of Grand
National Bank-Waukegan from 1995 until February, 1996,
a director of Grand National Bank-Waukegan from 1994
to February, 1996, and a director of Grand National
Bank-Crystal Lake from 1995 to February, 1996. Mr.
Emerick has been a director of Northern Illinois since
1994.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS
- ------------ --------------------------------------------
<S> <C>
Howard A. McKee (80) Chairman of the executive committee of Northern Illinois since
1988 and a director of Grand National Bank since February, 1996,
and chairman of the board since April, 1996. Mr. McKee was
chairman of the board of Grand National Bank-Crystal Lake from
1974 to 1993, chairman of the executive committee of Grand
National Bank-Crystal Lake from 1993 to February, 1996, and a
director of Grand National Bank-Crystal Lake from 1974 to
February, 1996. He was chairman of the board of Grand National
Bank-Crete from 1960 to 1992, chairman of the executive committee
of Grand National Bank-Crete from 1992 to February, 1996 and a
director of Grand National Bank-Crete from 1960 to February,
1996. He was chairman of the executive committee and a director
of Grand National Bank-Niles from 1971 to February, 1996, and
chairman of the executive committee and a director of Grand
National Bank-Waukegan from 1963 to February, 1996. Mr. McKee is
also an attorney. He has been a director of Northern Illinois
since 1971.
PREMIER REPRESENTATIVES
Richard L. Geach (55) Chairman of the board, president and chief executive officer of
Premier since 1982. He is also chairman of the board of all of
the Premier Banks. He has been a director of Premier since 1978.
H. Barry Musgrove (61) Chairman of the Board, Frantz Manufacturing Company, a
manufacturer of anti-friction products, since 1995 and chairman
of the board and chief executive officer of Frantz Manufacturing
Company for more than five years prior to that date. Mr. Musgrove
has been a director of Premier since 1987.
</TABLE>
Directors chosen from among the Northern Illinois Representatives and the
Premier Representatives will be equally represented on the executive committee
of the board of directors of GPF. The executive committee, to the extent
provided in the resolutions of the board of directors, has the power of the
board of directors with respect to the management of the business affairs of
GPF, with exceptions for certain key actions (e.g., declaration of dividends,
approval of a merger agreement, recommendation of the sale of substantially
all of GPF's assets, and amendment of GPF's bylaws). Northern Illinois and
Premier currently anticipate that Messrs. McKee, Hinman, Geach and Murray will
constitute the initial members of the executive committee.
The GPF Certificate also provides that, prior to the annual meeting of the
stockholders of GPF to be held in 2003, certain actions by the GPF Board of
Directors may be taken only with the affirmative vote of 66 2/3% of all of the
directors of GPF at a time when there are no vacancies existing on the Board
of Directors. Those actions include (i) the authorization of any amendment to
the GPF Certificate or the GPF By-laws, (ii) the adoption of an agreement of
merger or consolidation, the recommendation to the stockholders of the sale,
lease or exchange of all or substantially all of GPF's assets, or the
recommendation to the stockholders of a dissolution or liquidation of GPF, and
(iii) the original issuance of any shares of capital stock of GPF, except for
the issuance of such stock pursuant to the exercise of options granted under
any employee benefit plan and outstanding as of the Effective Time, the
conversion of the Series B Preferred Stock or the exercise of Purchase Rights
under the Rights Agreement. In the absence of such provisions in the GPF
Certificate, such actions could have been taken by a simple majority vote of
the Board of Directors. These provisions are intended to ensure that, for a
period of approximately seven years following the Merger, significant actions
affecting all of the GPF stockholders are taken only with the support of a
substantial number of directors designated by both the Northern Illinois
Representatives and Premier Representatives.
MANAGEMENT
At the Effective Time, Richard L. Geach will be the chief executive officer
of GPF, Robert W. Hinman will be the president and chief operating officer of
GPF, and David L. Murray will be the senior executive vice
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president and the chief financial officer of GPF. Mr. Hinman, or such other
person nominated for the office of chief executive officer by the Northern
Illinois Representatives, shall immediately and without further action of the
board of directors become chief executive officer of GPF on the date upon
which Mr. Geach ceases to be chief executive officer of GPF, which date shall
in no event be later than December 31, 1999.
In addition, the parties have determined that Alan J. Emerick will serve as
executive vice president and chief administrative officer and that William T.
Theobald will serve as executive vice president and chief credit officer of
GPF. Mr. Theobald, who is 46 years old, has been the chief credit officer of
Northern Illinois and Grand National Bank since February 1996 and was
president, Grand National Bank-Crete, from 1992 through February, 1996, when
the Northern Illinois' subsidiary banks were merged. From 1990 to 1992 he
served as executive vice president of American National Bank.
It has not yet been determined which other members of Northern Illinois or
Premier senior management also will become executive officers of GPF following
the Merger or what such persons' responsibilities will be. From time to time
prior to consummation of the Merger, further decisions may be made with
respect to the management and operations of the combined company following the
Merger, including the selection of executive officers of GPF.
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<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Northern Illinois' and Premier's management and boards of
directors may be deemed to have certain interests in the Merger in addition to
their interests generally as stockholders of Northern Illinois or Premier, as
the case may be. The boards of directors of Northern Illinois and Premier were
each aware of these interests of their respective directors and officers and
considered them, among other matters, in approving the Merger Agreement and
the transactions contemplated thereby.
Appointments as Executive Officers. Richard L. Geach, who is currently the
president and chief executive officer of Premier, and David L. Murray, who is
currently an executive vice president and chief financial officer of Premier,
will become the chief executive officer of GPF and a senior executive vice
president and chief financial officer of GPF, respectively, following the
Merger. Robert W. Hinman, who is currently the president and chief executive
officer of Northern Illinois, Alan J. Emerick, who is currently an executive
vice president of Northern Illinois, and William T. Theobald, who is currently
an executive vice president and chief credit officer of Northern Illinois will
become the president and chief operating officer, an executive vice president,
and an executive vice president and chief credit officer, respectively, of GPF
following the Merger. GPF has not yet determined the amount of the
compensation to be paid to any of its officers following the Merger. For
information concerning the compensation paid in the last three years to Mr.
Geach and Mr. Murray by Premier and to Mr. Hinman, Mr. Emerick and Mr.
Theobald by Northern Illinois, see "CERTAIN INFORMATION CONCERNING PREMIER--
Executive Compensation" and "CERTAIN INFORMATION CONCERNING NORTHERN
ILLINOIS--Executive Compensation."
Directorships. Mr. Geach, Mr. Murray, Donald E. Bitz, R. Gerald Fox, Edward
G. Maris, H. Barry Musgrove, and Joseph C. Piland, who are currently members
of the board of directors of Premier, and Mr. Hinman, Mr. Alan Emerick, Jean
M. Barry, Henry J. Bystricky, Frank J. Callero, Brenton J. Emerick, James
Esposito, Robert W. Hinman, and Howard A. McKee, who are currently members of
the board of directors of Northern Illinois, will become directors of GPF upon
consummation of the Merger. See "BOARD OF DIRECTORS AND MANAGEMENT OF GPF
FOLLOWING THE MERGER--Board of Directors." GPF has not yet fixed the amount of
the compensation to be paid to members of its board of directors or officers
upon consummation of the Merger. The parties anticipate, however, that non-
employee directors of GPF will be compensated for their services to GPF
following the Merger in an amount comparable to the amounts currently paid to
non-employee directors of Premier. Non-employee directors of Premier currently
receive an annual retainer fee of $10,800 and $400 per committee meeting
attended. See "BUSINESS OF GPF--Compensation of Directors and Officers of
GPF." Mr. Bitz, Mr. Fox, Mr. Maris, Mr. Musgrove, Mr. Piland, Mr. Bystricky
and Mr. Callero will be non-employee directors of GPF.
Indemnification and Insurance. The Merger Agreement provides that, after the
Effective Time, GPF shall indemnify and hold harmless to the fullest extent
permitted by law each director, officer or employee of Northern Illinois,
Premier, or any of their subsidiaries against any liabilities or expenses
(including reasonable attorney's fees and expenses in advance of the final
disposition of any claim) arising out of such person's status as a director,
officer, or employee, or arising out of the Merger Agreement and the
transactions contemplated therein (including the Stock Option Agreements). The
Merger Agreement also provides that Northern Illinois and Premier shall use
reasonable efforts to obtain directors' and officers' liability insurance
coverage for the officers and directors of GPF (to the extent economically
practicable), and to provide post-merger directors' and officers' liability
insurance coverage for three years after the Effective Time (or the period of
an applicable statute of limitations, if longer) for individuals serving as
directors and officers of Northern Illinois, Premier or their subsidiaries
immediately prior to the Effective Time. Based on estimates received to date,
GPF anticipates that the cost of providing such coverage for the directors and
officers of GPF and for the former directors and officers of Northern
Illinois, Premier and their subsidiaries, will be approximately $44,000 per
year. Of that amount, approximately $14,000 is attributable to the cost of
providing post-Merger coverage for individuals who served as directors and
officers of Northern Illinois, Premier or their subsidiaries prior to the
Merger.
Employee Benefit Plans and Agreements. The Merger Agreement provides that,
unless otherwise mutually agreed, all employee benefit plans of Northern
Illinois and Premier will remain in effect after the Effective Time
55
<PAGE>
until such time as GPF shall adopt new plans with respect to the employees of
GPF and its subsidiaries. Northern Illinois and Premier have agreed to
cooperate with one another in reviewing, analyzing and evaluating the employee
benefit plans in effect with a view towards developing appropriate new benefit
plans for GPF and have agreed, to date, to adopt a stock option plan similar
to the executive stock option plan previously adopted by Premier. All of the
persons who are currently executive officers or directors of Premier or
Northern Illinois participate in one or more such benefit plans (other than
Harry J. Bystricky and Frank J. Callero) and will be eligible to continue to
participate in such plans following the Merger.
To date, GPF has approved the adoption of a stock option plan for the
benefit of its key employees that is substantially the same as the 1995 Stock
Option Plan adopted by Premier. The stock option plan will become effective
upon the effective date of the Merger. Mr. Geach, Mr. Murray, Mr. Hinman, Mr.
Emerick, and Mr. Theobald and all management directors of GPF will be eligible
to participate in the stock option plan adopted by GPF. For additional
information concerning the GPF Stock Option Plan, see "BUSINESS OF GPF--
Compensation of Directors and Officers of GPF."
Change of Control and Termination Agreements. Premier has entered into
Change in Control and Termination Agreements with six of its executive
officers of Premier--Mr. Geach, Mr. Murray, Steve E. Flahaven, Kenneth A.
Urban, Scott Dixon and Lan Pinney--under which each such officer will be
entitled to lump sum severance payment and certain other benefits in the event
that such officer's employment is terminated under certain circumstances
during a twelve-month period following a "change in control" as defined in the
Change in Control and Termination Agreements. The Merger does not constitute a
"change in control" for purposes of the Change in Control and Termination
Agreements. The officers who are parties to such agreements will therefore not
be entitled to severance benefits under such agreements as a result of the
Merger. Following consummation of the Merger, such Change of Control and
Termination Agreements will remain in effect (and GPF will assume the
obligations of Premier under such agreements) until such time, if any, as they
are amended or terminated by GPF. The officers who are parties to such
agreements may therefore be entitled to severance payments if their employment
is terminated under certain circumstances following an event, subsequent to
the Merger, that constitutes a "change of control" for purposes of the
agreements. For a description of the terms, conditions and amounts payable
under such agreements, see "CERTAIN INFORMATION CONCERNING PREMIER--Change in
Control and Termination Agreements."
Consulting Agreement. Howard A. McKee, who is currently a director of
Northern Illinois and who will become a director of GPF, has entered into a
consulting agreement with Grand National Bank under which he is entitled to
consulting fees of $80,000 per year. The consulting agreement will expire on
February 17, 2000, unless terminated earlier upon the mutual agreement of the
parties.
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CERTAIN RELATED TRANSACTIONS
RECIPROCAL STOCK OPTION AGREEMENTS
General. Concurrently with the execution of the Merger Agreement, Northern
Illinois executed and delivered to Premier the Northern Illinois Stock Option
Agreement, by which Northern Illinois granted to Premier the option to
purchase up to 19.9% of the outstanding shares of Northern Illinois Common
Stock upon the occurrence of certain triggering events--generally, actions or
proposals involving a third-party merger with, or acquisition of the stock or
assets of, Northern Illinois. At the same time, Premier executed and delivered
to Northern Illinois the Premier Stock Option Agreement, by which Premier
granted to Northern Illinois the option to purchase up to 19.9% of the
outstanding shares of Premier Common Stock upon the occurrence of certain
triggering events--generally, actions or proposals involving a third-party
merger with, or acquisition of the stock or assets of, Premier. The Stock
Option Agreements have substantially identical terms, except as described
herein.
The option price for Northern Illinois Common Stock under the Northern
Illinois Stock Option Agreement is $30 per share. The option price for Premier
Common Stock under the Premier Stock Option Agreement is $9 per share. The
option prices were fixed by Premier and Northern Illinois, in consultation
with TCC and Prairie Capital, at prices intended to reflect the market prices
for Premier Common Stock and Northern Illinois Common Stock at the time that
the Stock Option Agreements were executed. The average of the high and low
sale prices for Premier Common Stock during the month of December, 1995, was
$9.00, and the last sales price for Premier Common Stock on January 12, 1996,
the last date on which Premier Common Stock traded prior to the date on which
Premier's board of directors approved the Stock Option Agreements, was $8.50.
The last sale of Northern Illinois Common Stock of which Northern Illinois'
management was aware prior to the Northern Illinois board of directors'
approval of the Stock Option Agreements occurred on September 12, 1995, when
207 shares of Northern Illinois Common Stock were sold at $27.625 per share.
The reason for the Stock Option Agreements is to increase the likelihood
that the Merger will be consummated in accordance with the terms of the Merger
Agreement. Consequently, certain aspects of the Stock Option Agreements may
have the effect of discouraging third parties who might be interested in
acquiring a significant interest in Northern Illinois or Premier from
considering or proposing such an action.
Triggering Events. The option granted under each Stock Option Agreement is
exercisable by the grantee of the option (i.e., by Premier under the Northern
Illinois Stock Option Agreement, and by Northern Illinois under the Premier
Stock Option Agreement) (the "Option Grantee") if both an "Initial Triggering
Event" and a "Subsequent Triggering Event" occur before the option terminates.
The Option Grantee must exercise the option within 90 days after receiving
notice of a Subsequent Triggering Event.
"Initial Triggering Event" is defined as the occurrence of any of the
following events:
(i) The issuer of the option (i.e., Northern Illinois under the Northern
Illinois Option Agreement, and Premier under the Premier Option Agreement)
(the "Option Issuer"), without the consent of the Option Grantee, shall
have entered into an agreement with a third party to engage in an
"Acquisition Transaction," or the board of directors of the Option Issuer
shall have recommended to its stockholders that they approve such an
Acquisition Transaction.
. ""Acquisition Transaction" means a merger or sale of a substantial
portion of the Option Issuer's assets, or the acquisition of the
Option Issuer's securities representing 15% or more of the voting
power of the Option Issuer.
(ii) The Option Issuer, without the consent of the Option Grantee, shall
have authorized, recommended or proposed, or publicly announced its
intention to authorize, recommend or propose, to engage in an Acquisition
Transaction with a third party, or the board of directors of the Option
Issuer shall have publicly withdrawn or modified its recommendation that
its stockholders approve the Merger Agreement (or publicly announced its
intention to do so).
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(iii) Any person other than an "Excluded Person" or an "Existing 15%
Shareholder" shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 15% or more of the Option Issuer's
outstanding common stock; or any Existing 15% Shareholder shall have
acquired beneficial ownership or the right to acquire beneficial ownership
of any shares of the Option Issuer's common stock in addition to those such
Existing 15% Shareholder beneficially owned on January 22, 1996, subject to
the following exception that applies only to the Northern Illinois Stock
Option Agreement: if an Existing 15% Shareholder of Northern Illinois
inadvertently acquires additional shares of Northern Illinois Common Stock
and promptly upon notice by Premier divests itself of such shares, such
inadvertent acquisition does not constitute an Initial Triggering Event.
For purposes of determining whether an Initial Triggering Event described
in this clause (iii) has occurred, acquisitions of shares by a person's
affiliates and associates are aggregated with such person's acquisitions of
shares.
. ""Excluded Person" means GPF, the Option Grantee, any subsidiary of
the Option Grantee, any employee benefit plan of the Option Issuer in
place on January 22, 1996, any subsidiary of the Option Issuer acting
in a fiduciary capacity in the ordinary course of business, and--only
with respect to the Premier Stock Option Agreement--the trustee and
beneficiaries of any blind voting trust under which certain shares of
Premier Common Stock, and Premier Preferred Stock convertible into
Premier Common Stock, are held.
. ""Existing 15% Shareholder" means any person, other than an Excluded
Person, who beneficially owned 15% or more of the Option Issuer's
outstanding common stock on January 22, 1996.
(iv) Any third party shall have made a bona fide proposal to the Option
Issuer or its stockholders by public announcement or written communication
that is or becomes the subject of public disclosure to engage in an
Acquisition Transaction or commence a tender or exchange offer, the
consummation of which would result in such person acquiring beneficial
ownership of securities representing 15% or more of the Option Issuer's
voting power.
(v) After an overture is made by a third party (other than an Excluded
Person) to the Option Issuer or its stockholders to engage in an
Acquisition Transaction, the Option Issuer shall have breached any covenant
or obligation contained in the Merger Agreement, and such breach (x) would
entitle the Option Grantee to terminate the Merger Agreement and (y) shall
not have been cured prior to the date upon which the Option Grantee sends
the Option Issuer written notice exercising the option.
(vi) Any third party shall have filed an application or notice with the
Federal Reserve Board, or other federal or state bank regulatory authority,
which application or notice has been accepted for processing, for approval
to engage in an Acquisition Transaction, except in connection with
transactions to which the Option Grantee has given its prior written
consent.
"Subsequent Triggering Event" is defined as the occurrence of any of the
following events: (1) the acquisition by any person other than an Excluded
Person or an Existing 15% Shareholder of beneficial ownership of 20% or more
of the Option Issuer's outstanding common stock; or the acquisition by any
Existing 15% Shareholder of any shares of the Option Issuer's common stock in
addition to those shares owned by such Existing 15% Shareholder on January 22,
1996 (with the exception, under the Northern Illinois Stock Option Agreement,
for inadvertent acquisitions described in clause (iii) in the definition of
"Initial Triggering Event" above); or (2) the occurrence of an Initial
Triggering Event described in clause (i) in the definition of "Initial
Triggering Event" above, except that the percentage of voting power of the
Option Issuer referred to in the definition of "Acquisition Transaction" shall
for this purpose be 20%.
Termination of the Option. The option under each Stock Purchase Agreement
terminates upon the first to occur of the following events:
(i) the Effective Time of the Merger;
(ii) termination of the Merger Agreement prior to an Initial Triggering
Event, other than a termination of the Merger Agreement by the Option
Grantee due to a material breach of the Merger Agreement by the Option
Issuer; or
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(iii) the passage of 12 months after termination of the Merger Agreement
if such termination of the Merger Agreement follows an Initial Triggering
Event or is a termination by the Option Grantee due to a material breach of
the Merger Agreement by the Option Issuer; provided that if one or more
additional Initial Triggering Events occur after the termination of the
Merger Agreement, the option will not terminate under this clause (iii)
until 12 months after the last occurring Initial Triggering Event, but in
any event no later than 18 months after termination of the Merger
Agreement.
Registration Rights. Each Option Grantee under the Stock Option Agreements
has the right, after the occurrence of a Subsequent Triggering Event that
occurs prior to the termination of the option, to demand registration of the
option and the underlying stock under the Securities Act. Such a demand must
be made within 90 days after the Subsequent Triggering Event. Each Option
Grantee is entitled to two such registrations.
Repurchase Rights. Also, each Option Grantee has the right to demand that
the Option Issuer repurchase the option and/or the underlying stock upon the
consummation by the Option Issuer of certain third-party transactions, for a
price derived from the per share value of the third-party transaction. The
Option Issuer who has received such a demand must repurchase the option and
underlying stock if, after a Subsequent Triggering Event that occurs prior to
the termination of the option, the Option Issuer consummates a merger or sale
of assets constituting an Acquisition Transaction with a third party, or if a
third party acquires beneficial ownership of 50% or more of the outstanding
shares of the Option Issuer's common stock. The price of the repurchase is
derived from the per share value of the third-party transaction, or the
highest known sale price of the Option Issuer's common stock for the six
months preceding the demand for repurchase, whichever is higher.
Substitute Option. The Option Grantee may elect, in the event that the
Option Issuer engages in certain mergers or other fundamental transactions
with a third party, to exchange the option for a substitute option to purchase
shares of either (1) the surviving corporation in such a merger or other
transaction, or (2) the person or entity that controls such surviving
corporation. The substitute option must have substantially the same terms as
those provided in the Stock Option Agreement.
The Option Grantee may demand that the issuer of the substitute option
repurchase the substitute option and/or the stock underlying the substitute
option. The repurchase price shall be a price derived from the highest closing
price for the shares of stock underlying the substitute option for the six-
month period preceding the date of such demand, plus the Option Grantee's
reasonable out-of-pocket expenses.
Assignment of the Stock Option Agreements. The Stock Option Agreements are
generally not transferrable by either the Option Issuer or the Option Grantee
without the consent of the other. However, the Option Grantee may assign its
interest in the Stock Option Agreement within 90 days following a Subsequent
Triggering Event that occurs prior to the termination of the option, subject
to restrictions on the plan of distribution of such interest specified in the
Stock Option Agreements.
Regulatory Approvals. The exercise of the rights and performance of the
obligations of the Option Grantee and the Option Issuer under the Stock Option
Agreements are subject to receipt of any required regulatory approvals (and
the various 90-day deadlines will be extended, if necessary, to obtain such
approvals), and both parties are bound under the Stock Option Agreements to
use their best efforts to obtain such approvals.
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DISSENTERS' RIGHTS
NORTHERN ILLINOIS STOCKHOLDERS
Holders of Northern Illinois Common Stock who do not vote in favor of the
Merger Agreement and who follow certain procedures, described below, will have
the right to dissent from the Merger and to demand and obtain payment of the
"fair value" of their shares in cash in the event that the Merger is
consummated. The proceedings resulting from such a demand may result in a
determination of "fair value" equal to, less than or greater than the
consideration to be received under the Merger Agreement.
The following is a summary of Section 11.65 and Section 11.70 of the IBCA,
which specify the procedures that must be followed by any Northern Illinois
stockholder who wishes to demand payment for the "fair value" of his or her
shares in the event that the Merger is consummated. Such provisions of the
IBCA are set forth in their entirety in Appendix B attached to this Joint
Proxy Statement-Prospectus, and this summary is qualified by reference to the
exact provisions set forth in Appendix B and to any amendments to Section
11.65 and Section 11.70 as may be adopted after the date of this joint Proxy
Statement-Prospectus. The provisions for demanding payment are complex and
must be complied with precisely. Any Northern Illinois stockholder intending
to dissent from the proposed Merger should review carefully the text of
Section 11.65 and Section 11.70 and is advised to consult legal counsel.
A Northern Illinois stockholder may assert his or her dissenters' rights
only if (i) the Northern Illinois stockholder delivers to Northern Illinois,
before the vote is taken to approve the Merger, a written demand for payment
for his or her shares in the event the Merger is consummated, and (ii) the
Northern Illinois stockholder does not vote in favor of the Merger Agreement.
If a Northern Illinois stockholder votes in favor of the Merger Agreement, he
or she will not be entitled to dissent and demand payment for his or her
shares. If a Northern Illinois stockholder votes against the Merger Agreement
or abstains from voting on the Merger Agreement, such stockholder will not
have waived his or her dissenters' rights. However, if a Northern Illinois
stockholder returns a signed proxy but does not mark the proxy to indicate a
vote against, or an abstention from voting for, the adoption of the Merger
Agreement, and such proxy is not properly revoked, the proxy will be voted for
the adoption of the Merger Agreement. Such action or an affirmative vote for
the adoption of the Merger Agreement will have the effect of waiving such
holder's dissenters' rights and will nullify any written demand for payment
submitted by such holder. Merely voting against the Merger Agreement will not
satisfy the requirement that a written demand for payment be delivered before
the vote is taken.
A written demand for payment by a Northern Illinois stockholder should be
sent to NORTHERN ILLINOIS FINANCIAL CORPORATION, 486 WEST LIBERTY STREET,
WAUCONDA, ILLINOIS 60084-2489, ATTENTION: DAVID E. ALBRIGHT, SECRETARY.
Within the later of (i) 10 days after the Effective Time or (ii) 30 days
after a stockholder delivers his or her written demand for payment, GPF, as
the surviving corporation in the Merger, will send to each Northern Illinois
stockholder who has delivered such a written demand (a "dissenting
stockholder") a statement setting forth its opinion as to the estimated fair
value of the dissenting stockholder's shares (a "statement of value"),
together with its balance sheet and income statement as of its most recent
fiscal year end and its latest interim financial statements. The statement of
value will contain a commitment to pay for the shares of the dissenting
stockholder at the estimated fair value upon transmittal to the corporation of
stock certificate(s) or other evidence of such stockholder's ownership of such
shares.
Upon consummation of the Merger, GPF will pay to each dissenting stockholder
who transmits certificate(s) or other evidence of ownership of the shares the
amount GPF, as the surviving corporation, estimates to be the fair value of
the shares, plus accrued interest, accompanied by a written explanation of how
the interest was calculated.
If the dissenting stockholder does not agree with GPF's opinion as to the
estimated fair value of the shares or the amount of interest due, the
dissenting stockholder must, within 30 days from GPF's delivery of the
statement of value to the dissenting stockholder, notify GPF in writing of the
dissenting stockholder's estimated
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fair value and amount of interest due (a "notification of value") and demand
payment for the difference between (i) the dissenting stockholder's estimated
fair value and interest due and (ii) the amount of the payment made by GPF, as
reflected in its statement of value.
If GPF and the dissenting stockholder are unable to agree in writing on the
value of the shares and interest due within 60 days from delivery to GPF of
the stockholder's notification of value, GPF shall either pay the difference
in value and interest demanded by the dissenting stockholder or file a
petition in the appropriate circuit court requesting the court to determine
the fair value of the shares and interest due. In the latter event, the court
shall determine the fair value of the shares. GPF shall make all dissenting
stockholders whose demands remain unsettled, whether or not residents of
Illinois, parties to the proceeding as an action against their shares and
shall serve all parties with a copy of the petition. Nonresidents may be
served by registered or certified mail or by publication, as provided by law.
Failure of GPF to commence an action pursuant to this paragraph shall not
limit or affect the right of dissenting stockholders to otherwise commence an
action as permitted by law.
Each dissenting stockholder made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds that the fair value
of his or her shares, plus interest from the Effective Time, exceeds the
amount paid by GPF.
The court, in such an appraisal proceeding, shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers,
if any, appointed by the court, but shall exclude the fees and expenses of
counsel and experts for the respective parties. If the fair value of the
shares as determined by the court materially exceeds the amount which GPF
estimated to be the fair value of the shares, or if no estimate was made by
GPF, then all or any part of the costs may be assessed against GPF. If the
amount which any dissenting stockholder estimated to be the fair value of the
shares materially exceeds the fair value of the shares as determined by the
court, then all or any part of the costs may be assessed against that
dissenting stockholder. The court may also assess the fees and expenses of
counsel and experts of the respective parties in amounts the court finds
equitable, as follows:
(1) against GPF and in favor of any or all dissenting stockholders if the
court finds that GPF, as the surviving corporation, did not substantially
comply with the requirements set forth above; and
(2) against either GPF or a dissenting stockholder and 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 hereby.
If the court finds that the services of counsel for any dissenting
stockholder were of substantial benefit to other dissenting stockholders
similarly situated and that the fees for those services should not be assessed
against GPF, the court may award to that counsel reasonable fees to be paid
out of the amounts awarded to the dissenting stockholders who are benefitted.
A record owner of Northern Illinois Common Stock may assert dissenters'
rights as to fewer than all the shares recorded in such person's name only if
such person dissents with respect to all shares beneficially owned by any one
person and notifies Northern Illinois in writing of the name and address of
each person on whose behalf the record owner asserts dissenters' rights. The
rights of a partial dissenter are determined as if the shares as to which the
dissent is made and the other shares were recorded in the names of different
stockholders. A beneficial owner of shares who is not the record owner may
assert dissenters' rights as to shares held on such person's behalf only if
the beneficial owner submits to Northern Illinois the record owner's written
consent to the dissent before or at the same time the beneficial owner asserts
dissenters' rights.
As used in the preceding paragraphs, "fair value," with respect to
dissenting stockholder's shares, means the value of the shares immediately
before the Effective Time, excluding any appreciation or depreciation in
anticipation of the proposed Merger, unless exclusion would be inequitable,
and "interest" means interest from the Effective Time until the date of
payment, at the average rate currently paid by Northern Illinois on its
principal bank loans, or, if none, at a rate that is fair and equitable under
all the circumstances.
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HOLDERS OF PREMIER PREFERRED STOCK
Under Section 262 of the DGCL ("Section 262"), if the Merger is consummated,
holders of record of shares of Premier Preferred Stock with respect to which
appraisal rights have been perfected and not withdrawn or lost will be
entitled, by complying with the provisions of Section 262, to have the "fair
value" of their shares of Premier Preferred Stock at the Effective Time
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) judicially determined and paid to them. HOLDERS OF
PREMIER COMMON STOCK DO NOT HAVE DISSENTERS' RIGHTS UNDER APPLICABLE LAW.
The following summary of Section 262 sets forth the procedures by which a
holder of Premier Preferred Stock may dissent from the Merger and demand
statutory appraisal rights. The following summary does not purport to be a
complete statement of the provisions of Section 262 and is qualified in its
entirety by reference to Section 262, a copy of which is attached hereto as
Appendix C, and to any amendments to Section 262 as may be adopted after the
date of this Joint Proxy Statement-Prospectus. The provisions for demanding
appraisal are complex and must be complied with precisely. Any holder of
Premier Preferred Stock intending to dissent from the proposed Merger should
review carefully the text of Section 262 and is also advised to consult legal
counsel.
Holders of record of Premier Preferred Stock who desire to exercise their
appraisal rights must satisfy all of the following conditions. Such holders of
record must hold such shares of record on the date the written demand for
appraisal is made, must continue to hold such shares until the Effective Time,
and must otherwise comply with the provisions of Section 262. A written demand
for appraisal of shares of Premier Preferred Stock must be delivered to the
secretary of Premier before the vote is taken to approve the Merger Agreement.
A demand for appraisal must be executed by or for the stockholder of record,
fully and correctly, as such stockholder's name appears on the stock
certificate representing such stockholder's shares of Premier Preferred Stock.
If such shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, such demand must be executed by the fiduciary.
If shares of Premier Preferred Stock are owned of record by more than one
person, as in a joint tenancy or tenancy in common, such demand must be
executed by all owners. An authorized agent, including an agent for two or
more joint or common owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in exercising the demand, he is
acting as agent for the record owner or owners.
A record owner who holds Premier Preferred Stock as a nominee for others may
exercise his or her right of appraisal with respect to such shares held for
all or less than all beneficial owners of shares as to which he or she is the
record owner. In such case, the written demand must set forth the number of
shares of Premier Preferred Stock covered by such demand. Where the number of
shares is not expressly stated, the demand will be presumed to cover all
shares of Premier Preferred Stock outstanding in the name of such record
owner. Holders of Premier Preferred Stock who hold shares in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures
for the making of a demand for appraisal by such a nominee.
A holder of Premier Preferred Stock who elects to exercise appraisal rights
should mail or deliver his or her written demand to SCOTT DIXON, SECRETARY,
PREMIER FINANCIAL SERVICES, INC., 27 WEST MAIN STREET, SUITE 101, FREEPORT
ILLINOIS, 61032. The written demand for appraisal should specify the
stockholder's name and mailing address and the number of shares of Premier
Preferred Stock covered by the demand and should state that the stockholder is
thereby demanding appraisal of such shares.
Within 10 days after the Effective Time, GPF, as the surviving corporation,
must provide notice of the date that the Merger has become effective to all
holders of Premier Preferred Stock who timely have complied with Section 262.
Within 120 days after the Effective Time GPF, as the surviving corporation,
or any holder of shares of Premier Preferred Stock who has complied with the
requirements of Section 262, may file a petition in the Delaware Court of
Chancery (the "Chancery Court") demanding a determination of the fair value of
the shares
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of Premier Preferred Stock held by all stockholders entitled to appraisal.
Inasmuch as GPF has no obligation to file such a petition, the failure of a
stockholder to do so within the period specified could nullify such
stockholder's previous written demand for appraisal. In any event, at any time
within 60 days after the Effective Time (or at any time thereafter with the
written consent of GPF), any stockholder who has demanded appraisal has the
right to withdraw the demand and to accept payment of the merger consideration
provided in the Merger Agreement.
If a petition for appraisal is duly filed by a holder of Premier Preferred
Stock and a copy thereof is delivered to GPF, GPF will then be obligated
within 20 days to provide the Chancery Court with a duly verified list
containing the names and addresses of all stockholders who have demanded an
appraisal of their shares and with whom agreements as to the value of their
shares have not been reached. After notice to such stockholders, the Chancery
Court is empowered to conduct a hearing upon the petition to determine those
stockholders who have complied with Section 262 and who have become entitled
to appraisal rights under that section. The Chancery Court may require the
stockholders who demanded payment for their shares to submit their stock
certificates to the office of the Register in Chancery for notation thereon of
the pendency of the appraisal proceedings; and if any stockholder fails to
comply with such direction, the Chancery Court may dismiss the proceedings as
to such stockholder.
If a petition for appraisal is timely filed, after determining which
stockholders are entitled to appraisal rights, the Chancery Court will
appraise the shares of Premier Preferred Stock, determining the fair value of
such shares exclusive of any element of value arising from the accomplishment
or expectation of the Merger. When the value is so determined, the Chancery
Court will direct the payment by GPF of such value, together with a fair rate
of interest thereon if the Chancery Court so determines, to the stockholders
entitled to receive the same. Stockholders considering seeking appraisal
should be aware that the fair value of their shares of Premier Preferred Stock
as determined under Section 262 could be more than, the same as or less than
the consideration they would receive pursuant to the terms of the Merger
Agreement if they did not seek appraisal of their shares.
In determining fair value, the Chancery Court is required to take into
account all relevant factors. The Delaware Supreme Court has stated that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court"
should be considered in an appraisal proceeding and that "fair price obviously
requires consideration of all relevant factors involving the value of a
company." The Delaware Supreme Court has stated that, in making such
determination of fair value, the court must consider market value, asset
value, dividends, earning prospects, the nature of the enterprise and any
other facts which could be ascertained as of the date of the merger which cast
light on future prospects of the merged corporation. Section 262 provides that
fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger." The Delaware Supreme Court has
also held that "elements of future value, including the nature of the
enterprise, which are known or susceptible of proof as of the date of the
merger and not the product of speculation, may be considered."
The cost of the appraisal proceeding may be determined by the Chancery Court
and taxed against the parties as the court deems equitable in the
circumstances. Upon application of a dissenting stockholder, the court may
order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts,
be charged pro rata against the value of all shares of Premier Preferred Stock
entitled to appraisal.
Any holder of Premier Preferred Stock who has duly demanded appraisal in
compliance with Section 262 and has not subsequently withdrawn such demand
will not, after the Effective Time, be entitled to vote for any purpose the
shares of Premier Preferred Stock subject to such demand or to receive payment
of dividends or other distributions on such shares.
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DESCRIPTION OF GPF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of GPF consists of 1,000 shares of common
stock, all of which are issued and outstanding, and of which 500 are currently
owned by Northern Illinois and 500 are owned by Premier. Prior to the
Effective Time, the certificate of incorporation of GPF will be amended and
restated by the board of directors of GPF and by Northern Illinois and
Premier, as the sole stockholders of GPF so that, as of the Effective Time, it
will be substantially in the form of Appendix F (the "GPF Certificate"). The
GPF Certificate provides that the authorized capital stock of GPF will consist
of 2,000,000 shares of GPF Preferred Stock and 30,000,000 shares of GPF Common
Stock.
Based on the number of shares of Northern Illinois Common Stock and Premier
Common Stock outstanding as of the Record Date, approximately 19,923,653
shares of GPF Common Stock will be issued in the Merger, of which 12,566,332
shares will be issued to the stockholders of Northern Illinois and 7,357,321
will be issued to the stockholders of Premier. (In addition, options to
purchase an additional 379,221 shares of GPF Common Stock will be issued in
the Merger in exchange for options to purchase Premier Common Stock, and
shares of GPF Series B Preferred Stock convertible into 851,683 shares of GPF
Common Stock will be issued in the Merger in exchange for shares of Premier
Series B Preferred Stock.) Based on the number of shareholders of record of
Northern Illinois and Premier as of the Record Date, GPF is expected to have
approximately 1,276 holders of record of GPF Common Stock upon consummation of
the Merger. A total of 9,250 shares of GPF Preferred Stock will be issued in
the Merger, consisting of 7,250 shares of GPF Series B Preferred Stock and
2,000 shares of GPF Series C Preferred Stock.
GPF COMMON STOCK
Dividend Rights. The holders of GPF Common Stock are entitled to receive, to
the extent permitted by law and subject to the preferential rights of any
outstanding GPF Preferred Stock, such dividends as may be declared from time
to time by the board of directors of GPF. As of the Effective Time, the GPF
Series B Preferred Stock and the GPF Series C Preferred Stock each will have
dividend rights superior to those of the GPF Common Stock, and no dividends
may be paid on the GPF Common Stock until full cumulative dividends with
respect to the GPF Series B Preferred Stock and the GPF Series C Preferred
Stock have been paid, or declared and funds sufficient for the payment thereof
have been set aside. For a description of certain regulatory restrictions
affecting the ability of GPF to pay dividends, see "SUPERVISION AND
REGULATION--Bank Regulation--Restrictions on Dividends."
Liquidation Rights. Upon the liquidation of GPF, after distribution in full
of the preferential amounts to be distributed to the holders of shares of GPF
Preferred Stock, if any, outstanding as of the liquidation date and
satisfaction of GPF's liabilities (or adequate provision therefor), holders of
GPF Common Stock are entitled to receive all the remaining assets of the
corporation ratably in proportion to the number of shares of GPF Common Stock
held by them. Distributions to the holders of GPF Common Stock upon
liquidation may be in kind or in cash or in stock or obligations of any other
corporation, trust or other entity, or in any combination thereof.
Voting Rights. Each holder of record of GPF Common Stock is entitled to one
vote for each share of GPF Common Stock held by such holder on all matters
properly voted upon by stockholders. The GPF Certificate does not provide for
cumulative voting for the election of directors and, as a result, in the
election of directors, as in all other matters, each holder of GPF Common
Stock has one vote for each share of stock held of record by such holder.
Classified Board of Directors. The GPF Certificate provides that the board
of directors of GPF is to be divided into three classes with staggered terms
so that the initial terms of the directors of GPF will expire at either the
1997, 1998 or 1999 annual meeting of stockholders of the Company. Starting
with the 1997 annual meeting, one class of directors will be elected at each
annual meeting to serve a three-year term. For a description of certain
transitional provisions in effect with respect to the nomination of directors
through 1999, see "BOARD OF DIRECTORS AND MANAGEMENT OF GPF FOLLOWING THE
MERGER--Board of Directors."
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No Preemptive Rights. Holders of GPF Common Stock do not have the right to
subscribe to any additional securities which may be issued by GPF.
Preferred Stock Purchase Rights. Each share of GPF Common Stock issued in
the Merger will be accompanied by a Purchase Right, as more fully described
below. See "POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF
CERTIFICATE, GPF BYLAWS AND THE RIGHTS AGREEMENT--Rights Agreement."
GPF PREFERRED STOCK
The GPF Certificate establishes three series of GPF Preferred Stock
consisting of 7,250 shares of GPF Series B Preferred Stock, 2,000 shares of
GPF Series C Preferred Stock, and 300,000 shares, subject to increase or
decrease as hereinafter described, of Series I Junior Participating Preferred
Stock (the "GPF Junior Preferred Stock"). The GPF Certificate also authorizes
the board of directors of GPF to issue, from time to time, up to 1,690,750
additional shares of GPF Preferred Stock in one or more series having such
designations, preferences, voting powers and relative, participating, optional
or other special rights and qualifications, limitations or restrictions as may
be fixed in resolutions adopted by the board of directors providing for the
issuance of such series.
GPF Series B Preferred Stock. At the Effective Time, each share of the
Premier Series B Preferred Stock (of which 7,250 shares are outstanding) will
be converted into the right to receive one share of GPF Series B Preferred
Stock having substantially identical terms. Unlike the Premier Series B
Preferred Stock, however, the GPF Series B Preferred Stock will be cumulative
rather than noncumulative as to dividends pursuant to the terms and conditions
of an agreement entered into with the holders of the Premier Series B
Preferred Stock at the time of its issuance. See "THE MERGER--Conversion of
Shares." The terms of the GPF Series B Preferred Stock are as follows:
. Stated Value. GPF Series B Preferred Stock has a stated value of $1,000
per share.
. Dividend Rate. Dividends are payable quarterly at the annual rate of
eight percent (8%), based on the stated value of GPF Series B Preferred
Stock.
. Cumulative Dividends. The obligation to pay dividends on the GPF Series B
Preferred Stock will be cumulative from the Effective Time.
. Ranking as to Dividends. GPF Series B Preferred Stock is senior as to
dividends to the GPF Series C Preferred Stock, GPF Junior Preferred Stock
and GPF Common Stock. With certain exceptions, no dividends may be paid
or declared on stock ranking junior as to dividends to the GPF Series B
Preferred Stock, nor may GPF redeem or otherwise acquire any stock
ranking junior to or an a parity with, as to dividends, the GPF Series B
Preferred Stock, unless GPF has paid, or declared and set apart for
payment, all dividends theretofore owing on the GPF Series B Preferred
Stock; and no dividends may be paid on any stock ranking on a parity as
to dividends with the GPF Series B Preferred Stock unless a like
proportion of dividends, ratably in proportion to the respective annual
dividend rates fixed therefor, shall be paid, or declared and set apart
for payment on the GPF Series B Preferred Stock.
. Not Redeemable. The GPF Series B Preferred Stock is not redeemable, at
the option of either GPF or the holder.
. Conversion Rights. The GPF Series B Preferred Stock is convertible, at
the option of the holder thereof, into shares of GPF Common Stock as
follows. Each share of the GPF Series B Preferred Stock will be credited
at its stated value and will be convertible into GPF Common Stock at a
price of $8.51255 per share of GPF Common Stock, subject to anti-dilution
adjustments applicable in the case of
--the payment of a dividend in shares of GPF Common Stock or a split or
combination of the GPF Common Stock,
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--the issuance of rights or warrants to purchase GPF Common Stock at a
price per share less than the then-current market price per share
(except that the distribution of separate certificates representing
rights to purchase GPF Common Stock (such as the Purchase Rights)
subsequent to the initial distribution of such rights shall be deemed
to be the distribution of such rights for purposes of the anti-
dilution adjustment),
--the distribution to any holder of GPF's securities of evidences of
indebtedness or assets (including securities, but excluding dividends
paid in shares of GPF Common Stock, the rights or warrants referred to
above, and any dividend or distribution paid in cash out of the
surplus of GPF), or
--a reclassification of the GPF Common Stock into securities other than
GPF Common Stock.
In the event that GPF engages in a merger, consolidation or share exchange
with another corporation (other than a merger, consolidation or share
exchange in which GPF is the surviving corporation and each share of GPF
Common Stock outstanding immediately prior to such transaction is to remain
outstanding immediately after such transaction) or sells all or
substantially all of its assets to any other corporation, lawful provision
must be made as part of the terms of such transaction whereby the holders
of GPF Series B Preferred Stock shall receive upon conversion thereof, in
lieu of each share of GPF Common Stock which would have been issuable upon
conversion of such stock if converted immediately prior to the consummation
of such transaction, the same kind and amount of stock or other
consideration as may be issuable or distributable in connection with such
transaction with respect to each share of GPF Common Stock outstanding at
the effective time of such transaction, subject to subsequent anti-dilution
adjustments.
Any shares of the GPF Series B Preferred Stock that are converted into
shares of GPF Common Stock, or that GPF otherwise acquires, will be retired
and shall revert to authorized but unissued shares of GPF Preferred Stock.
The GPF Series B Preferred Stock will not be convertible into GPF Common
Stock without the prior approval of the Federal Reserve Board.
. Rights upon Liquidation. The GPF Series B Preferred Stock ranks on a
parity with the GPF Series C Preferred Stock and senior to the GPF Junior
Preferred Stock and the GPF Common Stock as to rights upon liquidation.
In the event of a liquidation of GPF, the holders of the GPF Series B
Preferred Stock will be entitled to receive, after payment in full of all
amounts owing to holders of all stock ranking senior upon liquidation to
the GPF Series B Preferred Stock, an amount equal to the stated value of
the GPF Series B Preferred Stock, plus all accrued and unpaid dividends.
Until this amount is paid, or set apart for payment, to the holders of
the GPF Series B Preferred Stock, no liquidating distribution shall be
made to the holders of shares ranking junior to, or on a parity with, the
GPF Series B Preferred Stock as to rights upon liquidation. If upon
liquidation the assets of GPF are insufficient to make payment in full of
the above-described amount to the holders of the GPF Series B Preferred
Stock and the holders of all stock which ranks on a parity with the GPF
Series B Preferred Stock as to rights upon liquidation, payment of
liquidating distributions shall be made ratably to the holders of the GPF
Series B Preferred Stock and such other stock in accordance with the
respective liquidation values of the stock held by such holders.
. Business Combinations. GPF may not effect a merger, consolidation, share
exchange or similar transaction unless, following such transaction,
either the GPF Series B Preferred Stock will remain outstanding, or
provision shall have been made for the issuance to the holders of the
Series B Preferred Stock of another series of preferred stock with
powers, preferences and special rights substantially identical to those
of the Series B Preferred Stock.
. Voting Rights. The holders of GPF Series B Preferred Stock do not have
voting rights, except as provided under the DGCL. GPF also may not issue
any securities ranking, as to dividends or rights upon liquidation,
senior to or on a parity with the GPF Series B Preferred Stock without
the prior approval of the holders of a majority of the shares of GPF
Series B Preferred Stock.
GPF Series C Preferred Stock. At the Effective Time, each share of Premier
Series D Preferred Stock (of which 2,000 shares are outstanding) will be
converted into the right to receive a share of GPF Series C Preferred
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Stock having substantially identical terms. Unlike the Premier Series C
Preferred Stock, however, the GPF Series C Preferred Stock will be cumulative
rather than noncumulative as to dividends pursuant to the terms and conditions
of an agreement entered into with the holders of the Premier Series D
Preferred Stock at the time of its issuance. See "THE MERGER--Conversion of
Shares." The terms of the GPF Series C Preferred Stock are as follows:
.Stated Value. GPF Series C Preferred Stock has a stated value of $1,000
per share.
. Dividend Rate. Dividends are payable quarterly at the annual rate of
eight percent (8%), based on the stated value of GPF Series C Preferred
Stock.
. Cumulative Dividends. The dividends on the GPF Series C Preferred Stock
will be cumulative from the Effective Time.
. Ranking as to Dividends. GPF Series C Preferred Stock is junior as to
dividends to the GPF Series B Preferred Stock and senior as to dividends
to the GPF Junior Preferred Stock and GPF Common Stock. With certain
exceptions, no dividends may be paid or declared on stock ranking junior
as to dividends to the GPF Series C Preferred Stock, nor may GPF redeem
or otherwise acquire any stock ranking junior to or on a parity with, as
to dividends, the GPF Series C Preferred Stock, unless GPF has paid, or
declared and set apart for payment, all dividends theretofore owing on
the GPF Series C Preferred Stock; and no dividends may be paid on any
stock ranking on a parity as to dividends with the GPF Series C Preferred
Stock unless a like proportion of dividends, ratably in proportion to the
respective annual dividend rates fixed therefor, shall be paid, or
declared and set apart for payment on the GPF Series C Preferred Stock.
. Not Redeemable. The GPF Series C Preferred Stock is not redeemable, at
the option of either GPF or the holder.
. Rights upon Liquidation. The GPF Series C Preferred Stock ranks on a
parity with the GPF Series B Preferred Stock and senior to the GPF Junior
Preferred Stock and the GPF Common Stock as to rights upon liquidation.
In the event of a liquidation of GPF, the holders of the GPF Series C
Preferred Stock will be entitled to receive, after payment in full of all
amounts owing to holders of all stock ranking senior upon liquidation to
the GPF Series C Preferred Stock, an amount equal to the stated value of
the GPF Series C Preferred Stock, plus all accrued and unpaid dividends.
Until this amount is paid, or set apart for payment, to the holders of
the GPF Series C Preferred Stock, no liquidating distribution shall be
made to the holders of shares ranking junior to, or on a parity with, the
GPF Series C Preferred Stock as to rights upon liquidation. If upon
liquidation the assets of GPF are insufficient to make payment in full of
the above-described amount to the holders of the GPF Series C Preferred
Stock and the holders of all stock which ranks on a parity with the GPF
Series C Preferred Stock as to rights upon liquidation, payment of
liquidating distributions shall be made ratably to the holders of GPF
Series C Preferred Stock and such other stock in accordance with the
respective liquidation values of the stock held by such holders.
. Change of Control. In the event of a change of control of GPF that is not
approved by the holders of a majority of the outstanding shares of the
GPF Series C Preferred Stock, and upon the approval of the holders of a
majority of the outstanding shares of GPF Series C Preferred Stock, the
GPF Series C Preferred Stock will be converted into the right to receive
a cash payment equal to the value of the consideration paid in connection
with the change of control for such whole number of shares of GPF Common
Stock into which the shares of GPF Series C Preferred Stock would be
convertible if they had the conversion rights of the GPF Series B
Preferred Stock, plus any cash in lieu of fractional shares payable upon
such a conversion. A "change of control" is defined as any merger,
consolidation, share exchange or similar transaction with, or a tender
offer by, another party after which such other party or its affiliates
would hold more than 50% of the voting power of the stock of GPF entitled
to vote in the election of directors.
Any of the shares of the GPF Series C Preferred Stock that are converted
into cash upon a change of control, or that GPF otherwise acquires, will
be retired and shall revert to authorized but unissued shares of GPF
Preferred Stock.
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. Business Combinations. GPF may not effect a merger, consolidation, share
exchange or similar transaction unless, following such transaction, (i)
the GPF Series C Preferred Stock will remain outstanding, (ii) provision
shall have been made for the issuance to the holders of the Series C
Preferred Stock of another series of preferred stock with powers,
preferences and special rights substantially identical to those of the
Series C Preferred Stock, or (iii) the holders of a majority of the
outstanding shares of the GPF Series C Preferred Stock shall have
approved the conversion of the outstanding shares of the GPF Series C
Preferred Stock into the right to receive a cash payment in the event of
a change of control.
. Voting Rights. The holders of GPF Series C Preferred Stock do not have
voting rights, except as provided under the DGCL and as described above
relating to a change of control. GPF also may not issue any securities
ranking, as to dividends or rights upon liquidation, senior to or on a
parity with the GPF Series C Preferred Stock without the prior approval
of the holders of a majority of the shares of GPF Series C Preferred
Stock.
GPF Junior Preferred Stock. Shares of the GPF Junior Preferred Stock will be
issued only upon the exercise of the Purchase Rights issued under the Rights
Agreement. Such Purchase Rights are exercisable only upon the occurrence of
triggering events relating to the acquisition by a stockholder or group (with
certain exceptions) of 15% or more of the voting stock of GPF. For a
description of such stock, see "POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN
PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS AND THE RIGHTS AGREEMENT--Rights
Agreement."
Undesignated Preferred Stock. Except for those of the GPF Series B Preferred
Stock, the GPF Series C Preferred Stock and the GPF Junior Preferred Stock,
the designations, preferences, voting powers and relative, participating,
optional or other special rights and qualifications, limitations or
restrictions of GPF Preferred Stock are not stated in the GPF Certificate, but
will be fixed by the board of directors in resolutions providing for the
issuance of GPF Preferred Stock in the future (when and if any shares thereof
are issued). Thus, for example, the board of directors of GPF may provide for
the issuance of GPF Preferred Stock with dividend or liquidation rights
superior to those of the GPF Common Stock, and such issuance need not be
approved by holders of the GPF Common Stock. Prior to the annual meeting of
stockholders to be held in 2003, however, any original issuance of shares of
any class of the capital stock of GPF, other than shares of GPF Junior
Preferred Stock issued upon exercise of the Purchase Rights, will require the
approval of not less than 66 2/3% of all the directors of GPF at a time when
there are no vacancies existing on the board of directors.
TRANSFER AGENT
GPF intends to appoint Premier Trust Services, Inc., an Illinois trust
company and a wholly-owned subsidiary of First Bank North, to act as
registrar, transfer agent and dividend paying agent for the GPF Common Stock
and the GPF Preferred Stock and as conversion agent for the GPF Series B
Preferred Stock.
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POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF
THE GPF CERTIFICATE, GPF BYLAWS AND THE RIGHTS AGREEMENT
GENERAL
The GPF Certificate and the GPF Bylaws contain several provisions that may
render more difficult the acquisition of control of GPF by means of a tender
offer, an open market purchase, a proxy fight or otherwise. The Rights
Agreement could also have such an antitakeover effect. These provisions and
the Rights Agreement are designed to ensure that GPF's board of directors will
have a sufficient opportunity to review any unsolicited offer to acquire GPF,
to explore appropriate alternatives and to act in what it believes is the best
interests of GPF's stockholders. The GPF Certificate and GPF Bylaws also
contain provisions designed to prevent substantial holders of GPF Common Stock
from using their voting power to make changes in the board of directors or
corporate structure or for any other purposes, without extensive and broad-
based support among other holders of the GPF Common Stock.
These provisions and the Rights Agreement, individually and collectively,
are also likely to have a significant deterrent effect on acquisitions or
changes of control not approved by the board of directors of GPF. Such
provisions and the Rights Agreement will make more difficult, and as a result
may discourage, a merger or tender offer not approved by GPF's board of
directors or a proxy fight, even if individual stockholders believe that such
a transaction or occurrence is in their best interests. They may also delay or
frustrate the assumption of control by a holder of a large block of the GPF
Common Stock and the removal of incumbent management, even if individual
stockholders believe such removal would be beneficial to stockholders. By
discouraging takeover attempts, these provisions and the Rights Agreement may
have the incidental effect of inhibiting certain changes in management (some
or all of the members of which might be replaced in the course of a change of
control) and also the temporary fluctuations in the market price of stock
which often result from actual or rumored takeover attempts.
The following is a description of such provisions in the GPF Certificate and
the GPF Bylaws and of the Rights Agreement. The description is intended only
as a summary and is qualified in its entirety by reference to the form of the
GPF Certificate, included as Appendix F to this Joint Proxy Statement-
Prospectus, and by reference to the GPF Bylaws and the Rights Agreement, the
form of each of which has been filed as an exhibit to the Registration
Statement.
CLASSIFIED BOARD OF DIRECTORS
Under the GPF Certificate, the directors of GPF are divided into three
classes serving staggered terms. The initial term of office of the Class I
directors (numbering five directors) will expire at the 1997 annual meeting of
stockholders, the initial term of the Class II directors (numbering five
directors) will expire at the 1998 annual meeting of stockholders, and the
initial term of the Class III directors (numbering six directors) will expire
at the annual meeting of stockholders to be held in 1999. Beginning with the
1997 annual meeting of stockholders, one class of directors will be elected
each year for a three-year term. Newly created directorships will be allocated
among the classes of directors so that each class of directors shall consist,
as nearly as possible, of one third of the total number of directors. See
"BOARD OF DIRECTORS AND MANAGEMENT OF GPF FOLLOWING THE MERGER--Board of
Directors" for information concerning the composition of the initial board of
directors of GPF and for a description of certain provisions of the GPF
Certificate governing the designation of nominees to the board of directors
prior to 1999.
GPF, Northern Illinois and Premier believe that the classification of the
board of directors should promote continuity and stability of the board of
directors of GPF and of GPF's business strategies and policies because
generally a majority of the directors at any given time will have had prior
experience as directors of GPF. Such classification will have the effect,
however, of making it more difficult for stockholders to change the
composition of the board of directors of GPF in a relatively short time
period, since at least two annual meetings of stockholders, instead of one,
generally will be required to effect a change in the majority of the board of
directors.
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NUMBER OF DIRECTORS; REMOVAL; FILLING OF VACANCIES
The GPF Certificate provides that, until the 1999 annual meeting of
stockholders of GPF, the number of directors will be fixed at 16 and may be
changed only by amendment to the GPF Certificate. Thereafter, the number of
directors is to be not less than 10 nor more than 20, with the exact number to
be fixed from time by resolution adopted by the affirmative vote of more than
50% of the directors that GPF would have at the time if there were no
vacancies existing on its board of directors. The term of any incumbent
director cannot be shortened by decreasing the number of directors on the
board of directors.
Prior to the 1999 annual meeting of stockholders of GPF, the Northern
Illinois Representatives and the Premier Representatives, respectively, will
each have the right to designate (i) the persons or person to fill vacancies
occurring on the board of directors of GPF as a result of the death,
resignation or removal of any of the Northern Illinois Representatives or the
Premier Representatives, respectively, or (ii) the person or persons to be
nominated in place of each of the Northern Illinois Representatives or Premier
Representatives, respectively, whose terms of office expire at each of the
first three annual meetings of the stockholders of GPF. See "BOARD OF
DIRECTORS AND MANAGEMENT OF GPF FOLLOWING THE MERGER--The Board of Directors."
Thereafter, newly created directorships and vacancies are to be filled by a
majority vote of the directors then in office, although less than a quorum, or
by a sole remaining director.
Moreover, the GPF Certificate provides that a director, or the entire board
of directors, may be removed from office only for cause and by the affirmative
vote of 80% of the outstanding shares of all classes of stock of GPF generally
entitled to vote in the election of directors, voting together as one class.
This provision, when coupled with the provision authorizing only the board of
directors to fill vacancies, will preclude stockholders from removing
incumbent directors without cause and filling the vacancies created by such
removal with their own nominees.
NO SHAREHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The GPF Certificate prohibits stockholder action by written consent and
requires that stockholder action be taken only at a duly called meeting of
stockholders. Under the GPF Certificate, special meetings of the stockholders
may be called only by a majority of the board of directors, upon not less than
10 nor more than 60 days' written notice. Moreover, the business to be
conducted at a special meeting is limited to the business specified in GPF's
notice of meeting. Such provisions may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting of
stockholders unless a special meeting is called by a majority of the board of
directors to consider the proposal. Such provisions would also prevent holders
of a majority of the voting power from using the written consent procedure to
take stockholder action without giving all stockholders an opportunity to
participate in such action at a meeting of stockholders.
RIGHT TO CONSIDER EFFECT OF CERTAIN TRANSACTIONS ON NON-STOCKHOLDER
CONSTITUENCIES
The GPF Certificate provides that the board of directors of GPF, the
committees thereof, individual directors and individual officers, in
discharging their duties and in considering the best long-term and short-term
interests of GPF, are permitted to consider the effects of any action or
potential action involving the sale, takeover or change of control upon
employees, supplier and customers of GPF and its subsidiaries, communities in
which offices or other establishments of GPF or its subsidiaries are located
and all other pertinent factors. Such a provision may strengthen the board of
directors' ability, under applicable Delaware law, to consider the interests
of constituencies other than stockholders in determining whether such a
transaction is in the best interests of GPF.
ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND PROPOSALS OF OTHER BUSINESS
The GPF Certificate establishes an advance notice requirement with regard to
the nomination, other than by or at the direction of the board of directors of
GPF, of candidates for election as directors and with regard to certain
matters to be brought before an annual meeting of stockholders. In general, to
comply with the advance notice requirement, a stockholder must deliver notice
of the nomination or other business in writing to the
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secretary of GPF not less than 40 nor more than 70 days in advance of the
first anniversary of the preceding year's annual meeting. In addition, the
stockholder must disclose certain information with respect to any proposed
nominee for director, including the information that would be required to be
disclosed in a proxy statement under Regulation 14A of the Exchange Act and
Rule 14a-11 in connection with the solicitation of proxies for the election of
directors (e.g., information about the nominee's involvement in legal
proceedings, business background, relationships with GPF and the nominee's
written consent to being named as a nominee and serving as a director) and, as
to any other business such stockholder proposes to bring before an annual
meeting, a brief description of the business to be brought before the annual
meeting, the reasons for conducting such business at the annual meeting and
any material interest of the stockholder in such business.
Likewise, if GPF calls a special meeting of stockholders for the purpose of
electing one or more directors, a stockholder must comply with advance notice
and disclosure requirements in order to nominate a person for election to such
position. In general, advance notice is sufficient if given to the secretary
of GPF no later than 14 days after the earlier of (i) the date on which public
disclosure of the date of the special meeting and the nominees proposed by the
board of directors is first made, or (ii) the date on which notice of the
special meeting is mailed to stockholders. The notice must contain the same
kind of information with respect to the nominee contained in such a notice
given with respect to a nominee for director at an annual meeting.
Such advance notice requirements are intended to ensure that stockholder
proposals and nominations are brought before a stockholder meeting in an
orderly manner and that the board of directors has a meaningful opportunity to
consider the qualifications of proposed nominees and any proposed business and
to inform the stockholders of such qualifications or proposed business, as it
deems appropriate, prior to the meeting. Such provisions may, however, have
antitakeover effects in certain circumstances since they will preclude the
introduction of stockholder proposals or nominations if a stockholder has
failed to comply with the procedures described above.
SPECIAL VOTE REQUIREMENTS
Amendment of Certificate of Incorporation. Under Delaware law, amendments to
the GPF Certificate generally must be approved by both the board of directors
and stockholders of a corporation. The GPF Certificate provides that, until
the annual meeting in 2003, any amendment to the GPF Certificate must be
approved by 66 2/3% of all the directors at a time when there are no vacancies
existing in the GPF board of directors. Thereafter, only the approval of a
majority of the directors at a meeting at which a quorum was present will be
required, in accordance with Delaware law. The GPF Certificate also requires
the affirmative vote of the holders of at least 80% of all of the shares of
GPF Common Stock entitled to vote in the election of directors in order to
approve any amendment regarding (i) the number, classification, term,
election, replacement, removal and nomination of directors, (ii) the creation
of new directorships and the filling of vacancies on the board of directors,
(iii) the procedure for advance notice of stockholder nominations of directors
and other stockholder proposals, (iv) the vote required of directors to
approve certain transactions, (v) the provision prohibiting stockholder action
by written consent and specifying the persons or entities entitled to call
special meetings of stockholders, (vi) the procedure for amending bylaws,
(vii) the provisions requiring the indemnification of directors and officers
and the limitation of the liability of directors, (viii) the provisions
restricting business transactions between GPF and an "Interested Party," and
(ix) the provisions permitting directors and officers to consider the effects
of a sale, takeover or change of control upon persons and entities other than
the stockholders.
Notwithstanding any of the voting requirements described above, any
amendment to the GPF Certificate that is approved by 66 2/3% of the Continuing
Directors will be effective if approved by a majority of the outstanding
shares entitled to vote. Under the GPF Certificate, "Continuing Director"
means any person (i) who is a director of GPF immediately after the Merger,
(ii) who becomes a director through his or her selection to fill a vacancy on
the board of directors by a majority of the Continuing Directors (or, prior to
the 1999 annual meeting of stockholders, his or her selection by a majority of
the Premier Representatives or a majority of Northern Illinois
Representatives, as provided in the GPF Certificate), or (iii) who is
nominated by the
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Continuing Directors (or, prior to the 1999 annual meeting, designated for
nomination by a majority of Premier Representatives to replace a Premier
Representative or by a majority of Northern Illinois Representatives to
replace a Northern Illinois Representative) and is thereafter elected by GPF's
stockholders.
Amendment of Bylaws. The GPF Certificate provides that the GPF Bylaws may be
amended by the affirmative vote of the holders of 80% of the outstanding stock
of GPF generally entitled to vote in the election of directors, voting
together as one class (the "GPF Voting Stock"), or, prior to 2003, by an
affirmative vote of 66 2/3% of the directors at a time when there are no
vacancies existing in the GPF board of directors and, thereafter, by a
majority vote of the directors.
RESTRICTIONS ON BUSINESS TRANSACTIONS WITH INTERESTED PARTIES
Subject to the exceptions set forth therein, the GPF Certificate requires
the affirmative vote of 80% of the outstanding shares of the GPF Voting Stock
to approve a "Business Transaction" between GPF or its subsidiaries and any
"Interested Party," not including any shares of GPF Voting Stock beneficially
owned by such Interested Party. An "Interested Party" is defined as any person
or entity that beneficially owns, together with his or her associates, 10% or
more of the GPF Voting Stock. A "Business Transaction" is defined to include
(i) any merger or consolidation between GPF or any subsidiary of GPF and the
Interested Party, (ii) any sale or disposition to the Interested Party of 10%
or more of GPF's consolidated assets, (iii) any issuance, sale, exchange,
transfer or other disposition (in one or more transactions) of any securities
of GPF or any of its subsidiaries to an Interested Party (other than pursuant
to an employee benefit plan of GPF), (iv) any spin off, split up,
reclassification, recapitalization of securities, reorganization of GPF or any
of its subsidiaries or any merger or consolidation of GPF or any of its
subsidiaries which has the effect, directly or indirectly, of increasing the
proportionate interest of any Interested Party in the equity securities of
GPF, (v) any liquidation or dissolution of GPF or its subsidiaries, (vi) any
other transaction involving GPF or its subsidiaries which has the effect,
directly or indirectly, of increasing the proportionate interest of an
Interested Party in the assets or equity securities of GPF or any of its
subsidiaries, or (vii) the adoption of any plan or proposal for any of the
preceding transactions.
The special 80% stockholder approval provision described above will not
apply to a Business Transaction if any one of the following requirements are
satisfied:
(a) Prior to the acquisition of 10% of the GPF Voting Shares by the
Interested Party, the Business Transaction has been approved by a majority
of the board of directors of GPF (or such greater vote as is otherwise
required under the GPF Certificate);
(b) Following the acquisition of beneficial ownership of 10% of the GPF
Voting Stock by the Interested Party, the Business Transaction is approved
by a resolution adopted by 66 2/3% of those members of the board of
directors of GPF who are not "Interested Directors," as defined therein; or
(c) All of the following conditions, which are designed to insure that
the terms of the Business Transaction are fair to all of the stockholders
of GPF, are met:
(1) the consideration to be received for each share of GPF Common
Stock in the Business Transaction is not less than the highest of (i)
the highest per share price (including any brokerage commissions,
transfer taxes, soliciting dealer's fees, dealer-management
compensation or similar expenses) paid by the Interested Party to
acquire beneficial ownership of any shares of GPF Common Stock during
the five-year period immediately prior to the record date for the
determination of stockholders entitled to vote on the proposed Business
Transaction, (ii) the per share book value of GPF Common Stock at the
end of the fiscal quarter of GPF immediately preceding such record
date, and (iii) the highest market price per share of GPF Common Stock
during the two-year period ending immediately prior to the first public
announcement of the proposed Business Transaction;
(2) the consideration to be received in the Business Transaction by
holders of GPF Common Stock shall be either in cash or in the same form
used by the Interested Party to acquire the largest number of shares of
GPF Common Stock acquired by the Interested Party;
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(3) there is at least one director of GPF who is not an "Interested
Director" with respect to the Business Transaction as of the record
date established for the stockholder vote on such Business Transaction,
and
(4) a proxy or information statement describing the Business
Transaction and complying with the Exchange Act shall have been mailed
to the GPF stockholders entitled to vote on the Business Transaction at
least 30 days prior to the consummation of the Business Transaction,
containing (i) the recommendations of those directors who are not
Interested Directors of GPF with respect to the Business Transaction
and (ii) an opinion of an investment banking firm as to both the fair
market value of any consideration other than cash to be received by the
holders of GPF Common Stock and the fairness (or not) of the terms of
the Business Transaction, from a financial point of view, to the
holders of GPF Common Stock other than Interested Parties.
For purposes of determining whether a transaction is a Business Transaction,
a transaction with an "Associate" of an Interested Party is treated as a
transaction with an Interested Party. An "Associate" of an Interested Party is
defined as (a) a person that, directly or indirectly, (i) controls, or is
controlled by, or is under common control with, the Interested Party, (ii) is
the beneficial owner of 10% or more of equity securities of the Interested
Party, or (iii) has 10% or more of any class of its equity securities owned by
the Interested Party; (b) any person (other than GPF or its subsidiaries) of
which the Interested Party is an officer, director, general partner or other
official and any officer, director, general partner or other official of the
Interested Party; (c) any trust or estate for which the Interested Party
serves as trustee or in a similar fiduciary capacity, or any trustee or a
similar fiduciary of the Interested Party; or (d) any relative or spouse of
the Interested Party, or any relative of such spouse, who has the same home as
the Interested Party or who is an officer or director of any person (other
than GPF or any of its subsidiaries), directly or indirectly controlling,
controlled by or under common control with the Interested Party. An
"Interested Director" is defined to include any director of GPF who is an
Interested Party, an Associate of the Interested Party, or an officer,
director, nominee for officer or director or an employee of an Interested
Party, or who has been nominated or proposed to be elected as a director of
GPF by an Interested Party or an Associate of an Interested Party.
THE RIGHTS AGREEMENT
Following the Effective Time, under the Rights Agreement each share of GPF
Common Stock will be accompanied by a Purchase Right which, when exercisable,
will entitle the holder to purchase one one-hundredth of a share of GPF Junior
Preferred Stock at a price of $27.25 per share, subject to adjustment (the
"Purchase Price"). Such Purchase Right will become exercisable only upon the
occurrence of certain events described below, generally relating to the
concentration of ownership of GPF Common Stock or other voting securities of
GPF into the hands of a person or group, or to the commencement of certain
tender offers for GPF Common Stock. The Purchase Rights will expire on June
30, 2006.
The Purchase Rights will become exercisable as of a "Distribution Date,"
defined as the earlier to occur of (i) the 20th day after the date of a public
announcement that a person or group of affiliated or associated persons has
acquired, or obtained the right to acquire, beneficial ownership of 15% or
more of the voting power of all securities of GPF then outstanding generally
entitled to vote for the election of directors (the "Voting Power") (such
acquiring person or group, an "Acquiring Person" and the date of such public
announcement the "Stock Acquisition Date"), or (ii) the 20th day (or such
later date as the GPF board of directors may determine) after the commencement
or public announcement of a tender offer or exchange offer if, upon
consummation thereof, any person or group would be the beneficial owner of 30%
or more of the GPF Voting Power.
If any person becomes an Acquiring Person, each holder of a Purchase Right,
other than the Purchase Rights beneficially owned by an Acquiring Person on or
after the Distribution Date (which will thereafter become void) will
thereafter have the right to receive, upon the exercise thereof at the then-
current Purchase Price, such number of shares of GPF Common Stock as have a
market value of two times the Purchase Price, unless the event causing such
person to be an Acquiring Person is an acquisition of GPF stock pursuant to a
"Qualified Offer."
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A Qualified Offer is a tender offer or exchange offer that (i) is for all
outstanding shares of GPF Common Stock, and (ii) is at a price and on terms
determined by a majority of the members of the GPF board of directors who are
not officers of GPF and who are Continuing Directors (as hereinafter defined),
after receiving advice from one or more investment banking firms, to be fair
to the GPF stockholders and otherwise in the best interests of GPF and its
stockholders. "Continuing Directors" is defined for purposes of the Rights
Agreement to mean those directors who were directors of GPF at the Effective
Time or whose initial elections or nominations were approved by a majority of
the Continuing Directors then on the board of directors of GPF or by such
lesser portion of the Continuing Directors as are then authorized by the GPF
Certificate, and who are not Acquiring Persons and who do not have certain
relationships with an Acquiring Person.
In the event that GPF is the surviving corporation in a merger involving the
Acquiring Person and GPF Common Stock is not changed or exchanged, or in the
event that an Acquiring Person engages in one of a number of self-dealing
transactions specified in the Rights Agreement, each holder of a Purchase
Right (other than Purchase Rights held by the Acquiring Person or its
transferees) will thereafter have the right to receive upon exercise such
number of shares of GPF Common Stock as have a market value of two times the
Purchase Price. In the event that, on or after the Stock Acquisition Date, GPF
is acquired in a merger or other business combination in which GPF is not the
survivor or in which GPF is the survivor but the GPF Common Stock is changed
into or exchanged for securities of another entity, cash or other property, or
50% or more of its assets or earning power is sold, proper provision shall be
made so that each holder of a Purchase Right, other than Purchase Rights
beneficially owned by an Acquiring Person on or after the Distribution Date
(which will thereafter be void), will thereafter have the right to receive,
upon exercise thereof, that number of shares of common stock of the acquiring
company which, at the time of the transaction, would have a market value of
two times the Purchase Price. Notwithstanding the provisions of the preceding
sentence, the Purchase Rights will not become exercisable in the event of any
merger or other business combination in which the Acquiring Person acquired
its shares pursuant to a Qualified Offer, provided that the price per share of
GPF Common Stock offered in the merger or other business combination is not
less than the price paid in the Qualified Offer and the form of consideration
offered in the merger or other business combination is the same as that paid
in the Qualified Offer.
At any time after the Purchase Rights become exercisable for GPF Common
Stock (or common stock of the acquiring company) the board of directors may
exchange, in whole or in part, the Purchase Rights outstanding (other than
Purchase Rights owned by an Acquiring Person) for shares of GPF Common Stock
or GPF Junior Preferred Stock (or shares having the same rights, privileges
and preferences as the GPF Junior Preferred Stock) at an exchange ratio of one
share of GPF Common Stock, or one one-hundredth of a share of GPF Junior
Preferred Stock (or of a share of other GPF Preferred Stock equivalent to the
GPF Junior Preferred Stock) per Purchase Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction. Under certain
circumstances, authorization of any such exchange must be by a majority vote
of the Continuing Directors then in office.
For purposes of determining who is an Acquiring Person, certain holdings of
shares of GPF Common Stock or other securities of GPF specified in the Rights
Agreement will not be included. More specifically, under the terms of the
Rights Agreement, Howard A. McKee, a majority stockholder of Northern
Illinois, his daughter, Jean M. Barry, and his son-in-law, Robert W. Hinman,
all of whom will be directors of GPF following the Merger, shall not be deemed
to constitute Acquiring Persons so long as (i) all of the shares of GPF Common
Stock and/or other securities of GPF beneficially owned by Mr. McKee, any
associates and affiliates of Mr. McKee (including Keeco and Northland but
excluding, among others, Ms. Barry and Mr. Hinman) and "Related Entities" (as
defined therein) of Mr. McKee or his descendants shall constitute less than
32.81% of the GPF Voting Power, and (ii) until the fifth anniversary of the
date of the Rights Agreement, all of the shares of GPF Common Stock and/or
other securities beneficially owned by Ms. Barry and Mr. Hinman, any
associates or affiliates of Ms. Barry or Mr. Hinman (excluding Mr. McKee his
associates and affiliates (as defined in clause (i)) and Related Entities of
Mr. McKee) and Related Entities of Ms. Barry and Mr. Hinman shall constitute,
in the aggregate, less than 4.98% of the Voting Power. A "Related Entity" of a
person is defined to include, among others, the estate of, certain charitable
organizations established by, or certain trusts, corporations, partnerships
established for the benefit of, such person or his or her descendants.
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The Rights Agreement further provides that no descendant of Mr. McKee shall
be deemed to constitute an Acquiring Person solely as the result of his or her
acquisition of beneficial ownership of shares of GPF Common Stock and/or other
securities that were beneficially owned by Mr. McKee (including certain
associates, affiliates and Related Entities of Mr. McKee) or his descendants
immediately prior to such acquisition. In the event that such descendant
subsequently acquires additional shares of GPF Common Stock and/or other
securities of GPF, any shares acquired from Mr. McKee or his descendants will
nonetheless be counted in determining whether, following such acquisition,
such descendant is the beneficial owner of 15% or more of the Voting Power. In
the event that, following such acquisition, such descendant is the beneficial
owner of 15% or more of the Voting Power, such descendant shall be deemed to
constitute an Acquiring Person.
Shares of GPF Common Stock and/or other GPF securities issued pursuant to
stock options granted, or the terms of any employee benefit plan established
or sponsored, by GPF or its subsidiaries or any predecessor to GPF will also
not be counted in determining whether the holder of such stock constitutes an
Acquiring Person.
The board of directors of GPF has the option to redeem all, but not less
than all, of the Purchase Rights at a price of $0.01 per Purchase Right (the
"Redemption Price") at any time prior to the 20th day following the Stock
Acquisition Date. However, under certain circumstances, such redemption must
be approved by a majority of Continuing Directors. Prior to the date on which
the Purchase Rights become non-redeemable, GPF, with the concurrence of a
majority of the Continuing Directors, may extend the time during which the
Purchase Rights may be redeemed. Under certain circumstances, the Purchase
Rights may not be exercised until the period during which GPF may redeem the
Purchase Rights has expired.
The Purchase Price payable, and the number of shares of GPF Junior Preferred
Stock or other securities or property issuable, upon exercise of the Purchase
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination,
reclassification or recapitalization of, the GPF Junior Preferred Stock, (ii)
upon the grant to holders of GPF Junior Preferred Stock of certain rights,
options or warrants to subscribe for shares of GPF Junior Preferred Stock or
convertible securities at less than the current market price of the GPF Junior
Preferred Stock, or (iii) upon the distribution to holders of GPF Junior
Preferred Stock of evidences of indebtedness or assets (excluding regular
periodic cash dividends and certain other dividends, out of earnings or
retained earnings or payable in the form of GPF Junior Preferred Stock) or of
subscription rights, options or warrants (other than those referred to above).
The number of outstanding Purchase Rights and the number of one one-
hundredths of a share of GPF Junior Preferred Stock issuable upon exercise of
each Purchase Right are also subject to adjustment to prevent dilution in the
event of a stock dividend on, or a subdivision, combination or
recapitalization of, the GPF Common Stock occurring prior to the Distribution
Date.
Prior to the Distribution Date, the Purchase Rights will be evidenced only
by certificates of GPF Common Stock, which will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date,
any transfer of GPF Common Stock will also constitute the transfer of the
associated Purchase Rights, and the Purchase Rights may not be alienated from
the GPF Common Stock. After the Distribution Date, however, separate
certificates evidencing the Purchase Rights ("Right Certificates") will be
mailed to those who are holders of record of GPF Common Stock as of the close
of business on the Distribution Date; thereafter, such separate Right
Certificates alone will evidence the Purchase Rights.
Prior to the Distribution Date, the board of directors of GPF may amend the
Rights Agreement, except as provided below. After the Distribution Date,
however, the board of directors of GPF may amend the Rights Agreement only to
cure any ambiguity, to cure any defective or inconsistent provisions, to make
changes which do not adversely affect the interest of the holders of the
Purchase Rights (other than an Acquiring Person) or to shorten or lengthen any
time period under the Rights Agreement, including the period within which the
Purchase Rights may be redeemed; provided that no amendment to adjust the time
period governing redemption may be made at any time when the Purchase Rights
are not redeemable. In addition, no supplement or amendment may
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be made which changes the Redemption Price, the final expiration date, the
Purchase Price or the number of one one-hundredths of a share of GPF Junior
Preferred Stock for which a Purchase Right is exercisable, unless at the time
of such supplement or amendment certain events have not occurred and such
supplement or amendment does not adversely affect the interests of the holders
of Rights Certificates (other than an Acquiring Person).
The Purchase Rights have certain anti-takeover effects. The Purchase Rights
will cause a substantial dilution to a person or group that attempts to
acquire GPF unless such acquisition is pursuant to a Qualified Offer. The
Purchase Rights, however, should not affect any prospective offeror willing to
make a Qualified Offer. Neither should the Purchase Rights affect any
prospective offeror willing to negotiate with the board of directors, nor
should they interfere with any merger or other business combination approved
by the GPF board of directors, because the GPF board of directors may, at its
option, redeem the then-outstanding Purchase Rights at the Redemption Price in
order to permit an offer to proceed.
GPF Junior Preferred Stock. Generally, each share of GPF Junior Preferred
Stock is entitled to (i) cumulative quarterly dividends equal to the greater
of $10 per share, or 100 times any dividend declared in the preceding quarter
with respect to each share of GPF Common Stock, (ii) 100 votes on all matters
submitted to the stockholders of GPF, voting as a single class with the GPF
Common Stock, (iii) a liquidating distribution equal to the greater of $2,725
per share, plus all accrued and unpaid dividends, or 100 times the amount paid
upon liquidation with respect to each share of GPF Common Stock, and (iv) 100
times the consideration received in respect of each share of GPF Common Stock
in the event GPF enters into any consolidation, merger, combination or other
transaction in which the GPF Common Stock is exchanged for or changed into
other securities or cash. Such rights are protected by customary antidilution
provisions. As long as there is any arrearage in dividends on the GPF Junior
Preferred Stock, GPF may not pay dividends or redeem or otherwise acquire any
GPF Common Stock, or any other stock ranking junior as to dividends or upon
liquidation to the GPF Junior Preferred Stock. The board of directors of GPF
may increase or decrease the number of shares designated as GPF Junior
Preferred Stock (but may not reduce the number of shares of GPF Junior
Preferred Stock to a number less than the number of shares outstanding plus
the number of shares reserved for issuance upon the exercise of outstanding
rights to purchase such shares).
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COMPARISON OF RIGHTS OF HOLDERS OF NORTHERN ILLINOIS
COMMON STOCK AND GPF COMMON STOCK
The rights of stockholders of a corporation are governed by the laws of the
state in which the corporation is incorporated, as well as the governing
instruments of the corporation itself--that is, its articles (or certificate)
of incorporation and by-laws. Northern Illinois is incorporated under the laws
of the State of Illinois, and the rights of the holders of Northern Illinois
Common Stock are therefore governed by the IBCA, the Northern Illinois
Articles and the Northern Illinois Bylaws. GPF is incorporated under the laws
of the State of Delaware. Upon consummation of the Merger, Northern Illinois
stockholders will become GPF stockholders, and, as a result, their rights will
be governed by the DGCL, the GPF Certificate and the GPF Bylaws. The following
is a summary of certain material differences between the IBCA and the DGCL, as
well as differences between the Northern Illinois Certificate and Northern
Illinois Bylaws and the GPF Certificate and the GPF Bylaws.
CAPITAL STRUCTURE
Northern Illinois. The Northern Illinois Certificate authorizes the issuance
of 10,000,000 shares of Northern Illinois Common Stock, of which 2,956,748
shares were outstanding as of the Record Date. No shares of preferred stock
are authorized, and therefore there is no class of stock of Northern Illinois
which has rights superior to the Northern Illinois Common Stock with respect
to the payment of dividends or rights upon the liquidation, dissolution or
winding up of Northern Illinois.
GPF. The GPF Certificate authorizes the issuance of 30,000,000 shares of GPF
Common Stock and 2,000,000 shares of GPF Preferred Stock, of which
approximately 19,923,653 shares of GPF Common Stock and 9,250 shares of GPF
Preferred Stock will be issued in the Merger. See "DESCRIPTION OF GPF CAPITAL
STOCK--Authorized Capital Stock." The GPF Preferred Stock issued in the Merger
will be senior to the GPF Common Stock with respect to dividends and rights
upon the dissolution, liquidation or winding up of GPF. See "DESCRIPTION OF
GPF CAPITAL STOCK--GPF Preferred Stock." Moreover, under the GPF Certificate,
the Board of Directors of GPF will have the right to authorize the issuance
and to fix the rights, powers and preferences of authorized but unissued
shares of GPF Preferred Stock, without further action or approval of the
stockholders. Prior to the annual meeting of stockholders to be held in 2003,
however, any original issuance of shares of any class of the capital stock of
GPF, other than shares of GPF Junior Preferred Stock issued upon the exercise
of the Purchase Rights, will require the approval of not less than 66 2/3% of
all of the directors of GPF at a time when there are no vacancies existing on
the board of directors. See "GPF CAPITAL STOCK--GPF Preferred Stock--
Undesignated Preferred Stock."
NUMBER OF DIRECTORS
Northern Illinois. The Northern Illinois Bylaws provide that the number of
directors shall be not less than four nor more than 12. Northern Illinois'
board of directors has currently fixed the number of directors at eight.
GPF. Under the GPF Certificate, the number of directors of GPF is to remain
fixed at 16, with such directorships to be equally divided between the Premier
and Northern Illinois Representatives, until the 1999 annual meeting of
stockholders. See "BOARD OF DIRECTORS, MANAGEMENT AND OPERATIONS FOLLOWING THE
MERGER--Board of Directors." Thereafter, the number of directors of GPF will
not be less than 10 nor more than 20, with the exact number to be fixed from
time to time by a resolution adopted by the affirmative vote of more than 50%
of the directors that GPF would have at the time if there were no vacancies on
the board.
STRUCTURE OF BOARD
Northern Illinois. The Northern Illinois Bylaws provide that each director
shall hold office until the next annual meeting of stockholders. The entire
board of directors is therefor elected each year.
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GPF. Under the GPF Certificate and GPF Bylaws, the directors are to be
divided into three classes, with each class serving a staggered term of three
years. See "POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF
CERTIFICATE, GPF BYLAWS AND THE RIGHTS AGREEMENT--Classified Board of
Directors."
FILLING OF VACANCIES AND NEWLY CREATED DIRECTORSHIPS
Northern Illinois. Under the Northern Illinois Bylaws, any vacancy in the
board of directors or any newly created directorship resulting from an
increase in the authorized number of directors may be filled by election at an
annual meeting or special meeting of stockholders called for that purpose or
by the board of directors.
GPF. Under the GPF Certificate, prior to the 1999 annual meeting of
stockholders, the Premier Representatives will have the right to fill any
vacancies resulting from the death, resignation or removal of a Premier
Representative, and the Northern Illinois Representatives will have the right
to fill any vacancies arising from the death, resignation or removal of a
Northern Illinois Representative. Thereafter, vacancies and newly created GPF
directorships will be filled by a majority vote of the directors then in
office, though less than a quorum, or by a sole remaining director. See "BOARD
OF DIRECTORS, MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER--Board of
Directors"; "POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF
CERTIFICATE, GPF BYLAWS AND THE RIGHTS AGREEMENT--Number of Directors;
Removal; Filling of Vacancies."
REMOVAL OF DIRECTORS
Northern Illinois. Under the IBCA, a Northern Illinois director may be
removed, with or without cause, at a meeting of stockholders by an affirmative
vote of a majority of the outstanding shares of all classes of stock entitled
to vote generally in the election of directors ("the Northern Illinois Voting
Stock"), provided that notice of such vote naming the director or directors to
be removed is included in the notice of meeting.
GPF. The GPF Certificate provides that directors may be removed from office
only for cause and upon the affirmative vote of 80% of the GPF Voting Stock.
See "POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF
CERTIFICATE, GPF BYLAWS AND THE RIGHTS AGREEMENT--Number of Directors;
Removal; Filling of Vacancies."
STOCKHOLDER MEETINGS
Northern Illinois. Under the Northern Illinois Bylaws, the president,
executive vice president, board of directors or the holders of not less than
one-fifth of all outstanding shares of capital stock of Northern Illinois may
call a special meeting for the purpose or purposes stated in the call of the
meeting.
GPF. Under the GPF Certificate and GPF Bylaws, stockholders are not
authorized to call special meetings under any circumstances, with that power
being given instead to a majority of the GPF board of directors. Moreover, the
business to be conducted at a special meeting is limited to the business
specified in the notice of the GPF board of directors. See "POTENTIAL
ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS
AND THE RIGHTS AGREEMENT--No Shareholder Action by Written Consent; Special
Meetings."
ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS FOR DIRECTORS AND PROPOSALS OF OTHER
BUSINESS
Northern Illinois. The Northern Illinois Articles do not require advance
notice of stockholder nominations of directors or of other business to be
considered at an annual or special meeting of stockholders.
GPF. Under the GPF Certificate, a stockholder may nominate individuals for
election as directors at an annual or special meeting or introduce business at
an annual meeting only if the stockholder provides advance written notice of
the nomination or proposed business in accordance with procedures established
in the GPF Certificate. For a more detailed description of the notice
requirements in the GPF Certificate, see "POTENTIAL
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ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS
AND THE RIGHTS AGREEMENT--Advance Notice of Stockholder Nomination and
Proposals of Other Business." The business to be conducted at a special
meeting is limited to the business specified in the notice of the GPF board of
directors. See "POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF
CERTIFICATE, GPF BYLAWS AND THE RIGHTS AGREEMENT--No Shareholder Action by
Written Consent; Special Meetings."
WRITTEN CONSENT
Northern Illinois. The IBCA permits any action that could be taken at a
meeting of the stockholders to be taken without a meeting if a consent in
writing is signed by (i) the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to take such action
or (ii) by all stockholders entitled to vote on the matter. If the consent is
less than unanimous, certain notice requirements also apply.
GPF. The GPF Certificate prohibits action by written consent and requires
that any stockholder action be taken at a duly called meeting of stockholders.
See "POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF
CERTIFICATE, GPF BYLAWS AND THE RIGHTS AGREEMENT--No Shareholder Action by
Written Consent; Special Meetings."
AMENDMENT OF CERTIFICATE (OR ARTICLES) OF INCORPORATION
Northern Illinois. Under the IBCA, an amendment to the Northern Illinois
Articles must generally be approved by the affirmative vote of the holders of
66 2/3% of the Northern Illinois Common Stock.
GPF. Under the GPF Certificate, prior to the annual meeting of stockholders
in 2003 and in addition to any other voting required under the GPF Certificate
and applicable Delaware law, any amendment to the GPF Certificate must be
approved by 66 2/3% of all the directors at a time when there are no vacancies
existing in the GPF board of directors. Moreover, the GPF Certificate requires
the affirmative vote of 80% of the outstanding GPF Voting Stock to amend
certain provisions of the GPF Certificate. The GPF Certificate provides,
however, that an amendment to such provisions need be approved by only a
majority of the outstanding GPF Common Stock in the event that 66 2/3% of the
"Continuing Directors" of GPF have approved the amendment. For a more detailed
description of such provisions governing the amendment of the GPF Certificate,
including a definition of "Continuing Directors," see "POTENTIAL ANTITAKEOVER
EFFECT OF CERTAIN PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS AND THE RIGHTS
AGREEMENT--Special Vote Requirements--Amendment of Certificate of
Incorporation."
AMENDMENT OF BYLAWS
Northern Illinois. Under the IBCA, the by-laws of a corporation may be
amended by a majority vote of either the stockholders or the board of
directors.
GPF. The GPF Bylaws may be amended by (i) the affirmative vote of a majority
of the members of the board of directors then in office, or, prior to the
annual meeting of stockholders in 2003, the approval of 66 2/3% of all the
directors at a time when there are no vacancies on the GPF board of directors,
or (ii) by the affirmative vote of the holders of at least 80% of the GPF
Voting Stock. The vote required to approve an amendment to the GPF Bylaws may
be amended only by an amendment to the GPF Certificate. See "POTENTIAL
ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS
AND THE RIGHTS AGREEMENT--Special Vote Requirements--Amendment of Bylaws."
REQUIRED VOTE FOR CERTAIN BUSINESS COMBINATIONS
Northern Illinois. Pursuant to Section 7.85 of the IBCA, Northern Illinois
may not enter into a "Business Combination" with an "Interested Shareholder"
unless the transaction has been approved by the holders of at least 80% of the
outstanding shares of Northern Illinois Common Stock and the holders of a
majority of the shares of Northern Illinois Common Stock not held by the
"Interested Shareholder" and his or her affiliates or associates.
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A "Business Combination" is defined as (i) any merger, consolidation, or
share exchange of the corporation or a subsidiary with an Interested
Shareholder or any corporation which would become an affiliate or associate of
the Interested Shareholder following such merger, consolidation or share
exchange; (ii) any type of encumbrance or disposition of the corporation's or
a subsidiary's assets that involves an Interested Shareholder and represents
10% or more of the consolidated net worth of the corporation; (iii) any
issuance or transfer of securities of the corporation or its subsidiary to an
Interested Shareholder; (iv) the adoption of any plan of dissolution or
liquidation proposed by an Interested Shareholder or in which an Interested
Shareholder will receive anything other than cash; and (v) any
reclassification of securities, reorganization or recapitalization of the
corporation or any merger, consolidation or share exchange of the corporation
with or involving any of its subsidiaries which has the effect of increasing
the proportionate share of any outstanding class of securities of the
corporation directly or indirectly owned by an Interested Shareholder. A
"Business Combination" also includes any such transaction between the
corporation and an associate or affiliate of an Interested Shareholder. An
"Interested Shareholder" is defined as any individual, firm, corporation,
partnership, trust or other entity which (i) is the beneficial owner of 10% or
more of the outstanding voting stock of the corporation or (ii) is an
affiliate or associate of the corporation and was the owner of 10% or more of
the outstanding voting stock of the corporation at any time within the two-
year period immediately prior to the date on which it is sought to be
determined whether such person is an Interested Shareholder.
The heightened stockholder voting requirement of Section 7.85 does not apply
if (i) the Business Combination has been approved by 66 2/3% of the
"Disinterested Directors," or (ii) certain procedural requirements and
requirements relating to the consideration to be paid are met. A
"Disinterested Director" is defined as a member of the board of directors who
(i) is neither the Interested Shareholder nor an associate or affiliate of the
Interested Shareholder, (ii) was a member of the board of directors prior to
the time that the Interested Shareholder became an Interested Shareholder, or
was recommended to succeed a Disinterested Director by a majority of the
Disinterested Directors then in office, and (iii) was not nominated for
election as a director by the Interested Party or any associate or affiliate
of the Interested Shareholder.
GPF. The GPF Certificate also contains a provision governing "Business
Transactions" with "Interested Parties," although the specific terms of the
two provisions differ in a number of respects. See "POTENTIAL ANTITAKEOVER
EFFECT OF CERTAIN PROVISION OF THE GPF CERTIFICATE, GPF BYLAWS AND THE RIGHTS
AGREEMENT--Restrictions on Business Transactions with Interested Parties."
In addition, in the event that GPF Common Stock is quoted on the Nasdaq
National Market, as currently anticipated, GPF will also be subject to Section
203 of the DGCL following the Merger. Section 203 of the DGCL restricts
certain forms of "Business Combinations" between a corporation and an
"Interested Stockholder" for a period of three years from the date that such a
person became an Interested Stockholder unless (i) prior to such date, the
board of directors of the corporation approved either the Business Combination
or the transaction which resulted in the stockholder's becoming an Interested
Stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder's becoming an Interested Stockholder, the Interested Stockholder
owned at least 85% of the outstanding voting stock of the corporation
(excluding from the number of outstanding shares any shares held by management
directors and under certain types of employee stock plans), or (iii) on or
subsequent to such date, the Business Combination is approved by the board of
directors and authorized at an annual or special meeting of the stockholders
by the affirmative vote of at least 66 2/3% of the outstanding voting stock,
other than stock owned by the Interested Stockholder.
An "Interested Stockholder" is defined as any individual, corporation,
partnership, unincorporated association or other entity which (i) owns 15% or
more of the outstanding voting stock of the corporation, (ii) is an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an Interested Stockholder, and (iii) the affiliates or
associates of such a person. A "Business Combination" is defined as (i) a
merger or consolidation of the corporation or any of its majority-owned
subsidiaries with the Interested Stockholder, (ii) any sale, lease, exchange,
mortgage, pledge, transfer or disposition of assets of the corporation to the
Interested Stockholder with an aggregate market value equal to
80
<PAGE>
10% of the market value of the corporation's consolidated assets or of its
outstanding stock, (iii) subject to certain limited exceptions, any
transaction which results in the issuance or transfer of the stock of the
corporation to the Interested Stockholder, (iv) any transaction involving the
corporation or its subsidiaries which has the effect of increasing the
Interested Stockholder's proportionate share of the stock of the corporation
or (v) any receipt by the Interested Stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation or its subsidiaries.
ADDITIONAL PROVISIONS NOT FOUND IN THE NORTHERN ILLINOIS ARTICLES
The GPF Certificate contains certain provisions intended to facilitate the
combination of Premier and Northern Illinois into a single entity. For a
description of those provisions, see "BOARD OF DIRECTORS, MANAGEMENT AND
OPERATIONS OF GPF FOLLOWING THE MERGER--Board of Directors."
81
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF PREMIER
COMMON STOCK AND GPF COMMON STOCK
Both Premier and GPF are incorporated under the laws of the State of
Delaware. The rights of holders of Premier Common Stock and GPF Common Stock
are therefore governed by the DGCL and the respective certificates of
incorporation and bylaws of Premier and GPF. Upon consummation of the Merger,
Premier stockholders will become GPF stockholders and, as a result, their
rights will be governed by the GPF Certificate and the GPF Bylaws. The
following is a summary of certain material differences between the GPF
Certificate and the GPF Bylaws and the Premier Certificate and the Premier
Bylaws.
NUMBER OF DIRECTORS; CLASSIFIED BOARD
Premier. The Premier Certificate and Premier Bylaws provide that the number
of directors shall be not less than five nor more than twenty, with the
precise number fixed from time to time by a resolution adopted by at least a
majority of Premier's board of directors. The number of Premier directors is
currently fixed at eight. The Premier Certificate and Premier Bylaws also
provide that the directors are to be divided into three classes serving
staggered terms.
GPF. Under the GPF Certificate, the number of directors of GPF is to remain
fixed at 16, with such directorships to be equally divided between the Premier
and Northern Illinois Representatives, until the 1999 annual meeting of
stockholders of GPF. See "BOARD OF DIRECTORS AND MANAGEMENT OF GPF FOLLOWING
THE MERGER--Board of Directors." Thereafter, the number of directors of GPF
will be not less than 10 nor more than 20, with the exact number to be fixed
from time to time by a resolution adopted by the affirmative vote of more than
50% of the directors that GPF would have at the time if there were no
vacancies on the board. The GPF Certificate also provides that the directors
are to be divided into three classes serving staggered terms. See "POTENTIAL
ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS
AND THE RIGHTS AGREEMENT--Classified Board of Directors."
FILLING OF VACANCIES AND NEWLY CREATED DIRECTORSHIPS
Premier. Under the Premier Certificate and Premier Bylaws, any vacancy in
the board of directors or any newly created directorship resulting from an
increase in the authorized number of directors is to be filled by a majority
vote of the remaining directors of all classes then in office, although less
than a quorum, or by the sole remaining director.
GPF. Under the GPF Certificate, prior to the 1999 annual meeting of
stockholders, the Premier Representatives will have the right to fill any
vacancies resulting from the death, resignation or removal of a Premier
Representative, and the Northern Illinois Representatives will have the right
to fill any vacancies arising from the death, resignation or removal of a
Northern Illinois Representative. Thereafter, vacancies and newly created GPF
directorships will be filled in the same manner as under the Premier
Certificate and Premier Bylaws. See "BOARD OF DIRECTORS AND MANAGEMENT OF GPF
FOLLOWING THE MERGER--Board of Directors"; "POTENTIAL ANTITAKEOVER EFFECT OF
CERTAIN PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS AND THE RIGHTS
AGREEMENT--Number of Directors; Removal; Filling of Vacancies."
REMOVAL OF DIRECTORS
Premier. The Premier Certificate provides that directors may be removed from
office only for cause and upon the affirmative vote of 70% of the outstanding
shares of all classes of stock entitled to vote generally in the election of
directors (the "Premier Voting Stock").
GPF. The GPF Certificate similarly provides that directors may be removed
from office only for cause, but it requires the affirmative vote of 80%,
rather than 70%, of the GPF Voting Stock. See "POTENTIAL ANTITAKEOVER EFFECT
OF CERTAIN PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS AND THE RIGHTS
AGREEMENT--Number of Directors; Removal; Filling of Vacancies."
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<PAGE>
STOCKHOLDER MEETINGS
Premier. Under the Premier Certificate and the Premier Bylaws, holders of at
least 51% of the Premier Voting Stock may call a special meeting, but only for
the purpose of removing a director or directors. All other special meetings
may be called only by the board of directors.
GPF. Under the GPF Certificate and GPF Bylaws, stockholders are not
authorized to call special meetings under any circumstances, with that power
being given instead to a majority of the GPF board of directors. Moreover, the
business to be conducted at a special meeting is limited to the business
specified in the notice of the GPF board of directors. See "POTENTIAL
ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS
AND THE RIGHTS AGREEMENT--No Shareholder Action by Written Consent; Special
Meetings."
ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS FOR DIRECTORS AND PROPOSALS OF OTHER
BUSINESS
Premier. Under the Premier Certificate, a stockholder may nominate
individuals for election as directors only if the stockholder provides written
notice of the nomination to the secretary of Premier, generally not fewer than
14 days nor more than 60 days prior to any meeting of the stockholders called
for the election of directors. The notice of nomination must include (i) the
name, age, business address and, if known, residence address of each nominee
proposed in such notice, (ii) the principal occupation or employment of each
such nominee and (iii) the number of shares of Premier stock beneficially
owned by each such nominee and by the nominating stockholder. The Premier
Certificate does not require stockholders to provide advance notice of any
other stockholder business to be introduced at either an annual or special
meeting of stockholders.
GPF. The GPF Certificate also requires stockholders to provide advance
notice of stockholder nominations for director, but it requires that such
notice be given further in advance of the meeting and that it include more
detailed information than that required by the Premier Certificate. In
addition, the GPF Certificate also requires advance notice to be given in the
event that a stockholder proposes to introduce a proposal at an annual meeting
of stockholders. For a more detailed description of the notice requirements in
the GPF Certificate, see "POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS
OF THE GPF CERTIFICATE, GPF BYLAWS AND THE RIGHTS AGREEMENT--Advance Notice of
Stockholder Nominations and Proposals of Other Business."
AMENDMENT OF CERTIFICATE OF INCORPORATION
Premier. The Premier Certificate requires holders of at least 70% of the
outstanding Premier Voting Stock to approve amendments to certain provisions
of the Premier Certificate, governing, among other things, the number of
authorized shares, stockholder action by written consent, the right to call
special meetings, the number, classification, removal and procedures for the
nomination, of directors, the indemnification of directors and officers, the
limitation of liability of directors, the vote required for certain business
combinations, and the vote required for amendment of these provisions of the
Premier Certificate. The Premier Certificate provides, however, that this 70%
voting requirement does not apply if the board of directors of Premier has
approved such an amendment by at least an 80% vote, in which case the
amendment need only be approved by a majority vote of the Premier Voting
Stock.
GPF. The GPF Certificate requires that, prior to the annual meeting in 2003
and in addition to any other vote required under the GPF Certificate and
applicable Delaware law, any amendment to the GPF Certificate must be approved
by 66 2/3% of all the directors at a time when there are no vacancies existing
in the GPF board of directors. Moreover, the GPF Certificate requires the
affirmative vote of 80% of the outstanding GPF Voting Stock to amend certain
provisions of the GPF Certificate. The GPF Certificate provides, however, that
an amendment to such provisions need be approved by only a majority of the
outstanding GPF Common Stock in the event that 66 2/3% of the "Continuing
Directors" of GPF have approved the amendment. For a more detailed
83
<PAGE>
description of such provisions governing the amendment of the GPF Certificate,
including a definition of "Continuing Directors," see "POTENTIAL ANTITAKEOVER
EFFECT OF CERTAIN PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS AND THE RIGHTS
AGREEMENT--Special Vote Requirements--Amendment of Certificate of
Incorporation."
AMENDMENT OF THE BYLAWS
Premier. The Premier Bylaws may be amended by the affirmative vote of either
(i) a majority of all of the members of the board of directors, or (ii) by at
least 70% of the outstanding Premier Voting Stock. Moreover, the vote required
to approve an amendment of the Premier Bylaws could also be amended in
accordance with the requirements described in the preceding sentence.
GPF. The GPF Bylaws may be amended by (i) the affirmative vote of a majority
of the members of the board of directors then in office, or, prior to the
annual meeting of stockholders in 2003, the approval of 66 2/3% of all the
directors at a time when there are no vacancies on the GPF board of directors,
or (ii) the affirmative vote of the holders of at least 80% of the GPF Voting
Stock. The vote required to approve an amendment to the GPF Bylaws may be
amended, however, only by an amendment to the GPF Certificate. See "POTENTIAL
ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS
AND THE RIGHTS AGREEMENT--Special Vote Requirements--Amendment of Bylaws."
REQUIRED VOTE FOR CERTAIN BUSINESS COMBINATIONS
Premier. The Premier Certificate contains a provision requiring the
affirmative vote of 70% of the Premier Voting Stock to approve certain
"Business Combinations" with an "Interested Stockholder." An "Interested
Stockholder" generally includes (i) any beneficial owner of 10% or more of the
Premier Voting Stock; (ii) any affiliate of Premier who has beneficially owned
10% or more of the Premier Voting Stock at any time within the previous two
years; and (iii) certain successors to the shares of an Interested
Stockholder. A "Business Combination" generally includes (i) any merger or
consolidation of Premier or any of its subsidiaries with an Interested
Stockholder or any other corporation which is, or after such merger or
consolidation would be, an affiliate of an Interested Stockholder; (ii) any
sale or other disposition to or with an Interested Stockholder or its
affiliates of assets of Premier or any of its subsidiaries having an aggregate
fair market value of $5 million or more; (iii) the issuance or transfer by
Premier or any of its subsidiaries of any securities of Premier or such
subsidiary to any Interested Stockholder or its affiliates in exchange for
cash or other property having an aggregate fair market value of $5 million or
more; (iv) the adoption of a plan of liquidation proposed by or on behalf of
an Interested Stockholder or its affiliates; or (v) any reclassification of
securities (including a reverse stock split), or recapitalization of Premier,
or any merger or consolidation of Premier with any of its subsidiaries or any
other transaction which has the effect of increasing the proportionate share
of the Premier Voting Stock held by the Interested Stockholder.
The 70% approval requirement does not apply if the Business Combination is
approved by a majority of the disinterested directors of Premier, or if
certain fair price provisions are satisfied.
GPF. The GPF Certificate contains a provision, similar to the provision in
the Premier Certificate, governing "Business Transactions" with "Interested
Parties," although the specific terms of the two provisions differ in a number
of respects. See "POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE
GPF CERTIFICATE, GPF BYLAWS AND THE RIGHTS AGREEMENT--Restrictions on Business
Transactions with Interested Parties."
ADDITIONAL PROVISIONS NOT FOUND IN THE PREMIER CERTIFICATE
The GPF Certificate specifically authorizes the directors and officers of
GPF to consider the impact of a sale, takeover or change of control of GPF on
constituencies other than the stockholders. See "POTENTIAL ANTITAKEOVER EFFECT
OF CERTAIN PROVISIONS OF THE GPF CERTIFICATE, GPF BYLAWS AND THE RIGHTS
AGREEMENT--Right to Consider Effect of Certain Transactions on Other
Constituencies." No such provision is included in the Premier Certificate.
84
<PAGE>
The GPF Certificate also contains certain provisions intended to facilitate
the combination of Premier and Northern Illinois into a single entity. For a
description of those provisions, see "BOARD OF DIRECTORS AND MANAGEMENT OF GPF
FOLLOWING THE MERGER--Board of Directors."
BUSINESS OF GPF
GPF is a recently formed Delaware corporation. Upon consummation of the
Merger, it will be a registered bank holding company under the BHCA, owning
all of the issued and outstanding stock of the Northern Illinois Subsidiaries
and the Premier Subsidiaries. GPF does not currently own any significant
assets and has not yet engaged in any business activity, other than applying
for necessary regulatory approvals and other matters of a procedural nature
relating to the Merger. Upon consummation of the Merger, GPF's principal
activity will consist of owning and supervising the Northern Illinois
Subsidiaries and the Premier Subsidiaries. Accordingly, on a consolidated
basis, GPF will be engaged in essentially the same businesses in which
Northern Illinois and Premier are currently engaged.
PROPERTIES
Upon consummation of the Merger, GPF will have its principal executive
offices at 486 West Liberty Street, Wauconda, Illinois 60084-2489, in the
space which is currently the main office of Northern Illinois and leased by
Northern Illinois from Grand National Bank. GPF believes that these facilities
are adequate to serve its present and near future needs. These offices consist
of 5,000 square feet of space in a building owned by Grand National Bank
(containing 24,000 square feet in total). Grand National Bank currently
occupies the remainder of the building and is expected to continue to do so
after the Effective Time.
GOVERNMENTAL MONETARY POLICIES
The business of GPF may be affected by the fiscal and monetary policies of
the Federal Reserve Board, which regulates the nation's money supply in order
to mitigate recessionary and inflationary pressures. The techniques used by
the Federal Reserve Board include setting the reserve requirements of member
banks, establishing the discount rate on member bank borrowings and regulating
the interest rates payable on certain time and savings deposits of member
banks. The Federal Reserve Board also conducts open market operations in
United States government securities.
The policies of the Federal Reserve Board have a direct effect on the amount
of bank loans and deposits and the interest rates charged and paid thereon.
While the impact of the policies of the Federal Reserve Board and other
regulatory authorities upon the future business and earning of GPF cannot be
accurately predicted, such policies may materially affect the revenues and
income of commercial banks.
MARKET FOR AND DIVIDENDS ON GPF COMMON STOCK
The GPF Common Stock to be issued in the Merger will be quoted on the Nasdaq
National Market. There is, however, currently no public market for the GPF
Common Stock, and there can be no assurance that a liquid public market will
develop upon consummation of the Merger. See "RISK FACTORS--Limited
Liquidity." Both Premier and Northern Illinois currently pay quarterly
dividends on their outstanding common stock. The board of directors of GPF
will continue to evaluate the appropriateness of the payment and amount of
quarterly dividend, taking into account the earnings, capital requirements,
and financial condition of GPF and other factors that the board of directors
deems relevant. The board of directors of GPF currently anticipates that a
quarterly dividend will be paid on the GPF Common Stock. See also "SUPERVISION
AND REGULATION--Bank Regulation--Restrictions on Dividends and--Capital
Requirements of Banks and Bank Holding Companies."
EMPLOYEES
GPF does not currently have any employees. Upon the consummation of the
Merger, the operations of Northern Illinois and Premier at the holding company
level will be combined and, accordingly, it is expected that GPF will have
roughly the same number of employees as the aggregate number currently
employed by Northern Illinois and Premier.
85
<PAGE>
COMPENSATION OF DIRECTORS AND OFFICERS OF GPF
GPF was originally formed for purposes of consummating the Merger and to
date has not paid compensation to its officers or directors. It is expected
that non-employee directors of GPF will be compensated for their attendance at
board meetings and committee meetings of GPF after the Merger in an amount
comparable to amounts currently paid to directors of Premier. The compensation
of executive officers has not yet been fixed.
In addition, under the Merger Agreement, Northern Illinois and Premier have
agreed to cooperate in reviewing, analyzing and evaluating the employee
benefit plans of Northern Illinois and Premier with a view towards developing
appropriate employee benefit plans for GPF to be in effect subsequent to the
Merger. It is the intention of Northern Illinois and Premier that such new
employee benefit plans will treat similarly situated employees on a
substantially equivalent basis, taking into account all relevant factors, and
will not discriminate between employees who were covered under the Northern
Illinois employee benefit plans on the one hand and those covered by the
Premier employee benefit plans on the other hand, prior to the Effective Time.
GPF expects to adopt a stock option plan basically identical to the 1995
Non-Qualified Stock Option Plan of Premier, which currently has six
participants who are officers of Premier, to cover certain officers of GPF
after the Effective Time. No other decisions have yet been made with respect
to employee benefit plans for GPF. Until a mutual determination can be reached
as to additional new employee benefit plans for GPF, the existing Northern
Illinois employee benefit plans and Premier employee benefit plans will remain
in effect with respect to employees covered by such plans at the Effective
Time.
86
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet gives
effect to the Merger as if the Merger had been consummated on March 31, 1996
and Premier had redeemed the Premier Series A Preferred Stock prior to
consummation of the Merger. The following unaudited pro forma combined
condensed statements of income set forth the operations of Northern Illinois
combined with Premier for the three months ended March 31, 1996 and 1995 and
the years ended December 31, 1995, 1994 and 1993 as if the Merger had occurred
at beginning of the periods presented. The unaudited pro forma financial
statements assume that the Merger will be accounted for under the pooling-of-
interests method of accounting.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS PREMIER COMBINED
FOR FOLLOWING ASSUMING
REDEMPTION REDEMPTION REDEMPTION
OF PREMIER OF PREMIER OF PREMIER
SERIES A SERIES A SERIES A
NORTHERN PREFERRED PREFERRED PRO FORMA PREFERRED
MARCH 31, 1996 ILLINOIS PREMIER STOCK STOCK ADJUSTMENTS STOCK
- -------------- -------- -------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks. $ 22,198 $ 27,430 $ 27,430 $49,628
Interest bearing depos-
its.................... 1,520 283 283 1,803
Federal funds sold...... 4,450 -- -- 4,450
Securities available for
sale................... 319,874 278,936 278,936 598,810
Loans................... 561,728 323,427 323,427 885,155
Allowance for Loan Loss-
es..................... (5,779) (3,839) (3,839) (9,618)
Premises and equipment.. 22,694 13,799 13,799 36,493
Excess cost over fair
value of assets
acquired............... -- 19,610 19,610 19,610
Accrued interest receiv-
able................... 7,766 7,540 7,540 15,306
Other assets............ 10,106 3,925 3,925 14,031
-------- -------- ------ -------- ------- ----------
$944,557 $671,111 -- $671,111 -- $1,615,668
======== ======== ====== ======== ======= ==========
Deposits................ $800,912 $546,662 $546,662 $1,347,574
Borrowed Funds.......... 36,879 58,502 5,000 (1) 63,502 100,381
Other liabilities....... 11,404 5,231 5,231 16,635
-------- -------- ------ -------- ------- ----------
Total liabilities..... 849,195 610,395 5,000 (1) 615,395 -- 1,464,590
-------- -------- ------ -------- ------- ----------
Preferred Stock
Premier Series A per-
petual............... -- 5,000 (5,000)(1) -- --
Premier Series B con-
vertible............. -- 7,250 7,250 (7,250) --
Premier Series D per-
petual............... -- 2,000 2,000 (2,000) --
GPF Series B convert-
ible................. -- -- -- 7,250 7,250
GPF Series C perpetu-
al................... -- -- -- 2,000 2,000
Common stock............ 16,697 32,751 32,751 (49,249) 199
Additional paid in capi-
tal.................... -- -- -- 49,249 49,249
Retained earnings....... 69,929 14,700 14,700 84,629
Unrealized gain (loss)
on securities available
for sale............... 8,736 (985) (985) 7,751
-------- -------- ------ -------- ------- ----------
Total stockholders'
equity............... 95,362 60,716 (5,000)(1) 55,716 -- 151,078
-------- -------- ------ -------- ------- ----------
$944,557 $671,111 -- $671,111 -- $1,615,668
======== ======== ====== ======== ======= ==========
</TABLE>
- --------
(1) Assumes redemption of 5,000 shares of Premier Series A Preferred Stock at
stated value through the use of borrowed funds.
See Notes to Pro Forma Financial Statements
87
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NORTHERN PRO FORMA PRO FORMA
THREE MONTHS ENDED MARCH 31, 1996 ILLINOIS PREMIER ADJUSTMENTS COMBINED
- --------------------------------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income
Loans................................. $12,126 $7,090 $ $19,216
Federal funds sold.................... 84 -- 84
Securities--taxable................... 3,271 3,490 6,761
Securities--nontaxable................ 1,449 423 1,872
Other................................. 28 86 114
------- ------ ------ -------
Total interest income................... 16,958 11,089 -- 28,047
------- ------ ------ -------
Interest expense
Deposits.............................. 7,657 5,072 12,729
Borrowings............................ 626 538 1,164
------- ------ ------ -------
Total interest expense.................. 8,283 5,610 -- 13,893
------- ------ ------ -------
Net interest expense.................... 8,675 5,479 -- 14,154
Provision for loan losses............... 306 100 -- 406
------- ------ ------ -------
Net interest income after provision for
loan losses............................ 8,369 5,379 -- 13,748
------- ------ ------ -------
Other income
Fees and service charges.............. 929 487 1,416
Trust fees............................ 125 663 788
Securities gains...................... 12 69 81
Gain on sale of loans................. 96 96
Other operating income................ 434 600 1,034
------- ------ ------ -------
Total other income...................... 1,500 1,915 -- 3,415
------- ------ ------ -------
Other expenses
Salaries and benefits................. 4,134 2,338 6,472
Occupancy............................. 531 564 1,095
Furniture and equipment............... 573 236 809
Amortization of excess cost over fair
value of assets acquired............. -- 398 398
Other................................. 2,051 1,414 3,465
------- ------ ------ -------
Total other expense..................... 7,289 4,950 -- 12,239
------- ------ ------ -------
Income before income taxes.............. 2,580 2,344 -- 4,924
Income taxes............................ 539 854 -- 1,393
------- ------ ------ -------
Net Income.............................. $ 2,041 $1,490 -- $ 3,531
======= ====== ====== =======
Earnings per share (common and common
equivalent)............................ $ 0.69 $ 0.18 $ 0.16
======= ====== =======
Weighted average common and common
equivalent shares outstanding.......... 2,957 6,746 20,096
======= ====== =======
</TABLE>
See Notes to Pro Forma Financial Statements.
88
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NORTHERN PRO FORMA PRO FORMA
THREE MONTHS ENDED MARCH 31, 1995 ILLINOIS PREMIER ADJUSTMENTS COMBINED
- --------------------------------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income
Loans................................. $10,616 $ 6,443 $17,059
Federal funds sold.................... 122 -- 122
Securities--taxable................... 3,308 3,334 6,642
Securities--nontaxable................ 1,145 554 1,699
Other................................. 7 103 110
------- ------- ------ -------
Total interest income................... 15,198 10,434 -- 25,632
------- ------- ------ -------
Interest expense
Deposits.............................. 6,295 4,535 10,830
Borrowings............................ 693 564 1,257
------- ------- ------ -------
Total interest expense.................. 6,988 5,099 -- 12,087
------- ------- ------ -------
Net interest income..................... 8,210 5,335 -- 13,545
Provision for loan losses............... 64 51 115
------- ------- ------ -------
Net interest income after provision for
loan losses............................ 8,146 5,284 -- 13,430
------- ------- ------ -------
Other income
Fees and service charges.............. 825 500 1,325
Trust fees............................ 109 649 758
Securities gains...................... 293 22 315
Gain on sale of loans................. -- 16 16
Other operating income................ 508 420 928
------- ------- ------ -------
Total other income...................... 1,735 1,607 -- 3,342
------- ------- ------ -------
Other expenses
Salaries and benefits................. 3,733 2,328 6,061
Occupancy............................. 482 538 1,020
Furniture and equipment............... 540 296 836
Amortization of excess cost over fair
value of assets acquired............. -- 398 398
Other................................. 2,324 1,493 3,817
------- ------- ------ -------
Total other expense..................... 7,079 5,053 -- 12,132
------- ------- ------ -------
Income before income taxes.............. 2,802 1,838 -- 4,640
Income taxes............................ 634 539 1,173
------- ------- ------ -------
Net Income.............................. $ 2,168 $ 1,299 -- $ 3,467
======= ======= ====== =======
Earnings per share (common and common
equivalent)............................ $ 0.72 $ 0.15 $ 0.16
======= ======= =======
Weighted average common and common
equivalent shares outstanding.......... 3,001 6,676 20,205
======= ======= =======
</TABLE>
See Notes to Pro Forma Financial Statements.
89
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NORTHERN PRO FORMA PRO FORMA
YEAR ENDED DECEMBER 31, 1995 ILLINOIS PREMIER ADJUSTMENTS COMBINED
- ---------------------------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income
Loans................................... $45,379 $27,729 $ 73,108
Federal funds sold...................... 809 -- 809
Securities--taxable..................... 13,604 14,076 27,680
Securities--nontaxable.................. 4,588 2,292 6,880
Other................................... 22 283 305
------- ------- ---- --------
Total interest income..................... 64,402 44,380 108,782
------- ------- ---- --------
Interest expense
Deposits................................ 28,397 19,851 48,248
Borrowings.............................. 2,984 2,309 5,293
------- ------- ---- --------
Total interest expense.................... 31,381 22,160 -- 53,541
------- ------- ---- --------
Net interest income....................... 33,021 22,220 -- 55,241
Provision for loan losses................. 799 636 -- 1,435
------- ------- ---- --------
Net interest income after provision for
loan losses.............................. 32,222 21,584 -- 53,806
------- ------- ---- --------
Other income
Fees and service charges................ 3,361 1,961 5,322
Trust fees.............................. 469 2,459 2,928
Securities gains........................ 3,637 409 4,046
Gain on sale of loans................... -- 222 222
Other operating income.................. 2,478 2,179 4,657
------- ------- ---- --------
Total other income........................ 9,945 7,230 -- 17,175
------- ------- ---- --------
Other expenses
Salaries and benefits................... 14,604 9,494 24,098
Occupancy............................... 2,384 2,160 4,544
Furniture and equipment................. 1,705 1,068 2,773
Amortization of excess cost over fair
value of assets acquired............... -- 1,592 1,592
Other................................... 9,232 5,557 14,789
------- ------- ---- --------
Total other expense....................... 27,925 19,871 -- 47,796
------- ------- ---- --------
Income before income taxes................ 14,242 8,943 -- 23,185
Income taxes.............................. 3,475 2,681 -- 6,156
------- ------- ---- --------
Net Income................................ $10,767 $ 6,262 -- $ 17,029
======= ======= ==== ========
Earnings per share (common and common
equivalent).............................. $ 3.62 $ 0.77 $ 0.79
======= ======= ========
Weighted average common and common
equivalent shares outstanding............ 2,971 6,694 20,097
======= ======= ========
</TABLE>
See Notes to Pro Forma Financial Statements.
90
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NORTHERN PRO FORMA PRO FORMA
YEAR ENDED DECEMBER 31, 1994 ILLINOIS PREMIER ADJUSTMENTS COMBINED
- ---------------------------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income
Loans................................... $38,094 $23,625 $61,719
Federal funds sold...................... 515 515
Securities--taxable..................... 11,968 9,929 21,897
Securities--nontaxable.................. 4,920 2,310 7,230
Other................................... 142 663 805
------- ------- ---- -------
Total interest income..................... 55,639 36,527 -- 92,166
------- ------- ---- -------
Interest expense
Deposits................................ 21,689 13,510 35,199
Borrowings.............................. 2,110 1,619 3,729
------- ------- ---- -------
Total interest expense.................... 23,799 15,129 -- 38,928
------- ------- ---- -------
Net interest income....................... 31,840 21,398 -- 53,238
Provision for loan losses................. 355 200 -- 555
------- ------- ---- -------
Net interest income after provision for
loan losses.............................. 31,485 21,198 -- 52,683
------- ------- ---- -------
Other income
Fees and service charges................ 3,097 1,907 5,004
Trust fees.............................. 374 2,367 2,741
Securities gains........................ 1,330 35 1,365
Gain on sale of loans................... -- 257 257
Other operating income.................. 1,656 2,120 3,776
------- ------- ---- -------
Total other income........................ 6,457 6,686 -- 13,143
------- ------- ---- -------
Other expenses
Salaries and benefits................... 14,333 8,881 23,214
Occupancy............................... 2,025 1,982 4,007
Furniture and equipment................. 1,862 1,088 2,950
Amortization of excess cost over fair
value of assets acquired............... -- 1,592 1,592
Other................................... 9,949 6,221 16,170
------- ------- ---- -------
Total other expense....................... 28,169 19,764 -- 47,933
------- ------- ---- -------
Income before income taxes................ 9,773 8,120 -- 17,893
Income taxes.............................. 2,139 2,410 -- 4,549
------- ------- ---- -------
Net Income................................ $ 7,634 $ 5,710 -- $13,344
======= ======= ==== =======
Earnings per share........................ $ 2.53 $ 0.68 $ 0.60
======= ======= =======
Weighted average common and common
equivalent shares outstanding............ 3,015 6,649 20,234
======= ======= =======
</TABLE>
See Notes to Pro Forma Financial Statements.
91
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NORTHERN PRO FORMA PRO FORMA
YEAR ENDED DECEMBER 31, 1993 ILLINOIS PREMIER ADJUSTMENTS COMBINED
- ---------------------------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income
Loans................................... $36,282 $22,236 $58,518
Federal funds sold...................... 356 356
Securities--taxable..................... 11,884 6,077 17,961
Securities--nontaxable.................. 5,649 1,892 7,541
Other................................... 188 236 424
------- ------- ---- -------
Total interest income..................... 54,359 30,441 -- 84,800
------- ------- ---- -------
Interest expense
Deposits................................ 23,151 11,461 34,612
Borrowings.............................. 1,157 1,289 2,446
------- ------- ---- -------
Total interest expense.................... 24,308 12,750 -- 37,058
------- ------- ---- -------
Net interest income....................... 30,051 17,691 -- 47,742
Provision for loan losses................. 1,362 1,620 2,982
------- ------- ---- -------
Net interest income after provision for
loan losses.............................. 28,689 16,071 -- 44,760
------- ------- ---- -------
Other income
Fees and service charges................ 3,248 1,466 4,714
Trust fees.............................. 379 2,162 2,541
Securities gains........................ 1,050 136 1,186
Gain on sale of loans................... -- 886 886
Other operating income.................. 2,251 1,343 3,594
------- ------- ---- -------
Total other income........................ 6,928 5,993 -- 12,921
------- ------- ---- -------
Other expenses
Salaries and benefits................... 13,129 7,639 20,768
Occupancy............................... 2,318 1,524 3,842
Furniture and equipment................. 1,737 1,064 2,801
Amortization of excess cost over fair
value of assets acquired............... -- 834 834
Other................................... 10,162 5,412 15,574
------- ------- ---- -------
Total other expense....................... 27,346 16,473 -- 43,819
------- ------- ---- -------
Income before income taxes and cumulative
effect of change in accounting........... 8,271 5,591 -- 13,862
Income taxes.............................. 884 1,580 -- 2,464
------- ------- ---- -------
Income before cumulative effect of change
in accounting............................ 7,387 4,011 -- 11,398
Cumulative effect of change in accounting. 898 -- 898
------- ------- ---- -------
Net Income................................ $ 8,285 $ 4,011 -- $12,296
======= ======= ==== =======
Earnings per share
Income before cumulative effect of
change in accounting................... 2.43 0.55 0.54
Cumulative effect of change in account-
ing.................................... 0.30 -- 0.05
------- ------- -------
Net earnings.............................. $ 2.73 $ 0.55 $ 0.59
======= ======= =======
Weighted average common and common
equivalent shares outstanding............ 3,036 6,245 19,872
======= ======= =======
</TABLE>
See Notes to Pro Forma Financial Statements.
92
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(1) The merger of Northern Illinois and Premier with and into GPF will be
accounted for as a pooling of interests. Each share of Northern Illinois
and Premier common stock will be converted into 4.250 shares and 1.116
shares of GPF common stock respectively. Based upon the shares of common
stock of Northern Illinois and Premier outstanding as of March 31, 1996,
12,566,332 and 7,309,926 shares of GPF Common Stock will be issued to the
respective holders of Northern Illinois Common Stock and Premier Common
Stock.
(2) Each of the 7,250 shares of Premier Series B Preferred Stock will be
exchanged for one share of GPF Series B Preferred Stock, and each of the
2,000 shares of Premier Series D Preferred Stock will be exchanged for one
share of GPF Series C Preferred Stock.
(3) Premier intends to redeem all of the 5,000 outstanding shares of Series A
Preferred Stock at stated value prior to the Effective Time using borrowed
funds. This redemption is assumed to have occurred on March 31, 1996.
(4) Earnings per share for the three months ended March 31, 1996 and 1995 and
the fiscal years ended December 31, 1995, 1994 and 1993 were computed by
dividing net income (less preferred stock dividends) by the total of the
average number of common shares and stock options outstanding during such
period. The aggregate amount of preferred stock dividends paid for the
three months ended March 31, 1996 and 1995 and the fiscal years ended
December 31, 1995, 1994 and 1993, were $276,563, $276,563, $1,106,250,
$1,204,558 and $592,282, respectively.
93
<PAGE>
CERTAIN INFORMATION CONCERNING NORTHERN ILLINOIS
CERTAIN BENEFICIAL OWNERS OF NORTHERN ILLINOIS COMMON STOCK
The following table sets forth information regarding the shares of Northern
Illinois Common Stock beneficially owned, as well as of GPF Common Stock
beneficially owned on a pro forma basis, by holders known by Northern Illinois
to have beneficially owned more than 5% of the voting securities of Northern
Illinois as of June 17, 1996.
<TABLE>
<CAPTION>
NORTHERN ILLINOIS COMMON GPF COMMON STOCK TO
STOCK BENEFICIALLY OWNED BE BENEFICIALLY OWNED
AS OF JUNE 17, 1996 AFTER THE MERGER(2)
------------------------------ ------------------------
NUMBER PERCENT OF NUMBER PERCENT OF
NAME AND ADDRESS OF SHARES CLASS(1) OF SHARES CLASS
- ---------------- -------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Brenton J. Emerick...... 287,499(3) 9.72% 1,221,870 6.13%
350 Glendenning Place
Waukegan, IL 60085
Keeco, Inc. ............ 249,489(5) 8.44% 1,060,328 5.32%
20 S. Clark Street
Suite 2310
Chicago, IL 60603
Howard A. McKee......... 1,533,848(4) 51.88% 6,518,854 32.72%
26990 Countryside Lake
Drive
Mundelein, IL 60060
Northland Insurance
Agency, Inc. ........... 258,054(5) 8.73% 1,096,729 5.50%
20 S. Clark Street
Suite 2310
Chicago, IL 60603
</TABLE>
- --------
(1) Based upon 2,956,784 shares outstanding.
(2) Pro Forma percentages represent beneficial ownership of issued and
outstanding GPF Common Stock after consummation of the Merger based upon
each holder's beneficial ownership of Northern Illinois Common Stock as of
June 17, 1996, and are based upon 19,923,653 shares of GPF Common Stock
outstanding.
(3) Excludes 34,190 shares held by Mr. Emerick's spouse, as to all of which
Mr. Emerick disclaims beneficial interest. Includes 113,437 shares held by
Municipal Insurance Company in which Mr. Emerick shares investment power.
(4) Excludes 36,913 shares held by Mr. McKee's spouse, as to all of which Mr.
McKee disclaims beneficial interest. Includes 249,489 shares held by Keeco
and 258,054 shares held by Northland Insurance, as to which Mr. McKee
shares investment power (see note 5 below). Excludes 118,745 shares held
by corporations that Mr. McKee's family members and/or business interests
control, as to all of which Mr. McKee disclaims beneficial interest.
(5) Mr. McKee personally owns 34.00% of the outstanding stock of Northland
Insurance, and with his family and associates he controls 100%. He also
personally owns 49.90% of the outstanding stock of Keeco and with his
family and associates he controls 100%. The shares held by these companies
are also included in the shares controlled by Mr. McKee.
94
<PAGE>
The following table sets forth information regarding the shares of Northern
Illinois Common Stock beneficially owned, as well as of GPF Common Stock
beneficially owned on a pro forma basis, by each director of Northern Illinois
and all of Northern Illinois' directors and executive officers as a group as
of June 17, 1996.
<TABLE>
<CAPTION>
NORTHERN ILLINOIS COMMON GPF COMMON STOCK TO
STOCK BENEFICIALLY OWNED BE BENEFICIALLY OWNED
AS OF JUNE 17, 1996 AFTER THE MERGER(2)
-------------------------------- ------------------------
NUMBER PERCENT OF NUMBER PERCENT OF
NAME OF SHARES(1) CLASS(2) OF SHARES CLASS
- ---- -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
DIRECTORS:
Jean M. Barry........... 138,293(4) 4.68% 587,745 2.95%
Harold J. Bystricky..... 1,001 * 4,254 *
Frank J. Callero........ 27,619(5) * 117,380 *
Alan J. Emerick......... 12,381(6) * 52,619 *
Brenton J. Emerick...... 287,499(7) 9.72% 1,221,870 6.13%
James Esposito.......... 7,019(8) * 29,830 *
Robert W. Hinman........ 130,893(9) 4.43% 556,295 2.79%
Howard A. McKee......... 1,533,848(10) 51.88% 6,518,854 32.72%
All Directors, Nominees
and Executive Officers
as a group (11 persons,
including all those
listed above).......... 1,917,434 64.85% 8,149,094 40.90%
</TABLE>
- --------
* Less than one percent (1%).
(1) The information contained in this column is based upon information
furnished to Northern Illinois by the individuals named in the table.
Except as set forth in the following notes, each individual has sole
voting and investment power with respect to the shares owned by him or
her.
(2) Based upon 2,956,784 shares outstanding.
(3) Pro Forma percentages represent beneficial ownership of issued and
outstanding GPF Common Stock after consummation of the Merger based upon
each holder's beneficial ownership of Northern Illinois Common Stock as
of June 17, 1996, and are based upon 19,923,653 shares of GPF Common
Stock outstanding.
(4) Includes 1,441 shares held by Ms. Barry as custodian for minor children.
Includes 113,437 shares held by Municipal Insurance Company and 5,308
shares held by Public Service Investment & Management Corporation in
which Ms. Barry shares investment power. Ms. Barry is Mr. McKee's
daughter.
(5) Includes 2,560 shares held by Mr. Callero's spouse.
(6) Excludes 3,387 shares held by Mr. Emerick's spouse, as to all of which
Mr. Emerick disclaims beneficial interest. Alan J. Emerick is Brenton J.
Emerick's son.
(7) Excludes 34,190 shares held by Mr. Emerick's spouse, as to all of which
Mr. Emerick disclaims beneficial interest. Includes 113,437 shares held
by Municipal Insurance Company in which Mr. Emerick shares investment
power, the shares of which are also included in the beneficial interest
ascribed to Ms. Barry and Mr. Hinman.
(8) Includes 6,662 shares held jointly with Mr. Esposito's spouse. Excludes
4,299 shares held by Mr. Esposito's spouse, as to all of which Mr.
Esposito disclaims beneficial interest.
(9) Excludes 17,644 shares held by Mr. Hinman's spouse, as to all of which
Mr. Hinman disclaims beneficial interest. Includes 113,437 shares held by
Municipal Insurance Company in which Mr. Hinman shares investment power,
the shares of which are included in the beneficial interest ascribed to
Ms. Barry and Mr. Brenton Emerick. Mr. Hinman is Mr. McKee's son-in-law.
(10) Excludes 36,913 shares held by Mr. McKee's spouse, as to all of which Mr.
McKee disclaims beneficial interest. Includes 249,489 shares held by
Keeco, Inc, and 258,054 shares held by Northland Insurance Agency, Inc.,
as to which Mr. McKee shares investment power. Excludes 118,745 shares
held by corporations that Mr. McKee's family members and/or business
interests control, as to all of which Mr. McKee disclaims beneficial
interest.
William T. Theobald, who is expected to serve as an executive officer of GPF
following the Merger, currently beneficially owns 50 shares of Northern
Illinois Common Stock, amounting to less than one percent (1%) of such stock.
95
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by Northern Illinois or
its subsidiaries in the last three fiscal years to those executive officers of
Northern Illinois who are currently expected to be executive officers of GPF
after the Effective Time.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------
LONG TERM(2) ALL OTHER(3)
NAME AND PRINCIPAL POSITION(S) YEAR SALARY BONUS OTHER(1) COMPENSATION COMPENSATION
- ------------------------------ ---- -------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Hinman........ 1995 $219,000 $ 1,095 $ 9,750 24,000
President and Chief Ex-
ecutive 1994 210,000 31,203 11,650 30,972
Officer of Northern Il-
linois 1993 188,093 10,000 10,200 24,868
Alan J. Emerick......... 1995 $136,000 $35,782 $ 6,500 24,781
Executive Vice President
of 1994 130,000 32,500 5,000 28,608
Northern Illinois,
Chairman and 1993 120,000 34,500 5,200 17,600
CEO of Grand National
Bank-
Niles, President of
Grand
National Bank-Waukegan
William T. Theobald..... 1995 $105,000 $23,037 $ 2,600 17,293
Chief Credit Officer,
Grand 1994 100,000 18,750 2,100 20,940
National Bank; Presi-
dent, Grand 1993 80,000 20,000 3,000 12,546
National Bank-Crete
</TABLE>
- --------
(1) Represents committee and director fees paid by the subsidiary banks.
(2)Northern Illinois does not provide long-term compensation as defined by the
Commission.
(3) All other compensation consists, mainly, of Northern Illinois'
contributions to the profit sharing plan and Northern Illinois' non-
qualified deferred compensation plan.
PENSION PLANS
American National Bank & Trust Company of Waukegan, Illinois, a predecessor
by merger to Grand National Bank, had a defined benefit retirement plan which
was fully funded as of December 31, 1988. This Plan was terminated as of March
31, 1989. On December 13, 1991, all assets under this terminated plan were
distributed to the participants. Brenton J. Emerick received a lump sum
payment of $383,869 and Howard A. McKee is receiving benefits of $4,230.12 per
year.
COMPENSATION OF DIRECTORS
Directors of Northern Illinois are currently paid a fee of $400 per meeting
for each meeting of the board of directors attended by the director. In
addition, those directors of Northern Illinois who are also directors of Grand
National Bank are paid an annual retainer of $2,400, plus $200 for each
meeting of the board of directors of Grand National Bank attended by the
director.
During 1995 no directors' fees were paid to the directors of Northern
Illinois for their service on the board or for membership on any committees of
Northern Illinois. Directors of Northern Illinois' subsidiary banks (which
were subsequently merged into Grand National Bank) were paid between $200 and
$400 for each board meeting attended, and all of the nominee directors
received directors' fees from Northern Illinois' subsidiaries for service on
the boards of directors of which they were a member during the 1995 fiscal
year. In addition, some of the subsidiary banks' committees paid committee
members a fee of various amounts from $25 to $200 for each committee meeting
of the subsidiary bank attended.
96
<PAGE>
OTHER TRANSACTIONS WITH MANAGEMENT
Northern Illinois has no employment agreements with any of its employees.
Howard A. McKee is retained by Grand National Bank pursuant to a consulting
agreement which expires February 17, 2000 or earlier upon the mutual agreement
of the parties. Mr. McKee receives a consulting fee for his services of
$80,000 per year. In addition, Mr. McKee, who is a lawyer, received legal fees
for his services from the Northern Illinois' subsidiary banks of $73,627,
$65,855 and $84,188 for the years 1995, 1994 and 1993, respectively.
Some of the directors of Northern Illinois and companies with which they are
associated were customers of, and had banking transactions with, subsidiaries
of Northern Illinois in the ordinary course of business during the 1995 fiscal
year. All loans and commitments to loan included in such transactions were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons
and, in the opinion of management of Northern Illinois, did not involve more
than a normal risk of collectibility or present other unfavorable features. As
of the date of this Joint Proxy Statement--Prospectus, no such loans were in
default or the subject of any reserve for possible losses. As of June 17,
1996, loans aggregating approximately $22,988,000 were outstanding to
directors, executive officers and certain associates of such directors and
executive officers.
97
<PAGE>
ADDITIONAL FINANCIAL INFORMATION CONCERNING
NORTHERN ILLINOIS
AVERAGE BALANCES, INTEREST AND AVERAGE RATES EARNED AND PAID
The following table presents the average balances of major categories of
interest earning assets and interest bearing liabilities of Northern Illinois,
the interest earned or paid on such categories, and the average yield on such
categories of interest earning assets and the average rates paid on such
categories of interest bearing liabilities during each of the reported
periods, in thousands of dollars:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1995 1994 1993
----------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
ASSETS BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
- ------ -------- -------- ---------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets
Interest bearing
deposits in other
banks................. $ 361 $ 22 6.09% $ 3,173 $ 142 4.51% $ 5,560 $ 188 3.38%
Investment securities
(1)
Taxable................ 239,278 13,604 5.69 249,976 11,968 4.79 236,377 11,884 5.03
Tax exempt (2)......... 74,827 4,588 6.13 81,114 4,920 6.07 88,076 5,649 6.41
Federal funds sold...... 14,000 809 5.78 9,977 515 5.16 10,312 356 3.45
Loans (3)............... 508,422 45,379 8.93 450,327 38,094 8.46 419,752 36,282 8.64
-------- ------- -------- ------- -------- -------
Total interest earning
assets/interest income. 836,888 64,402 7.70 794,567 55,639 7.00 760,077 54,359 7.15
Cash and due from banks. 25,732 27,440 33,767
Premises and equipment.. 22,459 22,393 20,579
Other assets............ 16,394 16,902 21,013
Securities valuation-
available for
sale (1)............... 2,301 518
Allowance for loan loss-
es..................... (5,771) (6,314) (6,349)
-------- -------- --------
Total................... $898,003 $855,506 $829,087
======== ======== ========
LIABILITIES AND SHARE-
HOLDERS' EQUITY
- ----------------------
Interest bearing liabil-
ities
Demand deposits........ $168,715 5,326 3.16 $151,076 3,477 2.30 $152,460 3,957 2.60
Savings deposits....... 157,536 4,396 2.79 174,456 4,280 2.45 173,388 4,993 2.88
Other time deposits.... 325,066 18,675 5.74 296,250 13,932 4.70 285,229 14,201 4.98
Short-term borrowings.. 42,079 2,536 6.03 46,276 1,974 4.27 36,288 1,153 3.18
Long-term borrowings... 6,555 448 6.83 2,148 136 6.33 55 4 7.27
-------- ------- -------- ------- -------- -------
Total interest bearing
liabilities/interest
expense................ 699,951 31,381 4.48 670,206 23,799 3.55 647,420 24,308 3.75
------- ------- -------
Noninterest bearing de-
posits................. 105,857 103,365 102,363
Other liabilities....... 9,534 6,519 8,257
Shareholders' equity.... 82,661 75,416 71,047
-------- -------- --------
Total................... $898,003 $855,506 $829,087
======== ======== ========
Net interest income..... $33,021 3.22% $31,840 3.45% $30,051 3.40%
======= ==== ======= ==== ======= ====
Net yield on interest
earning assets......... 3.95% 4.01% 3.95%
==== ==== ====
</TABLE>
- --------
(1) Investments are at amortized cost. The valuation from amortized cost to
market for available for sale securities is shown separately.
(2) Yields are not on a tax-equivalent basis.
(3) Average volume includes nonaccrual loans.
98
<PAGE>
RATE/VOLUME ANALYSIS
The following table shows the dollar amount of changes in Northern Illinois'
interest income and expense for the year 1995 and 1994 attributable to changes
in (a) volume, (b) rate, and (c) both volume and rate, in thousands of
dollars:
<TABLE>
<CAPTION>
1995 COMPARED TO 1994* 1994 COMPARED TO 1993*
---------------------------- ----------------------------
TOTAL TOTAL
CHANGE VOLUME RATE BOTH CHANGE VOLUME RATE BOTH
------ ------ ------ ---- ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
Interest income
Interest bearing
deposits in other
banks................ (120) (126) 51 (46) (45) (81) 63 (27)
Investment securities
Taxable............. 1,636 (512) 2,244 (96) 83 684 (568) (33)
Tax exempt.......... (322) (381) 53 (4) (729) (447) (307) 24
Federal funds sold.... 294 208 62 25 159 (12) 176 (6)
Loans................. 7,285 4,914 2,100 271 1,812 2,643 (774) (56)
----- ----- ------ ---- ----- ----- ------ ----
Total interest
income........... 8,763 4,103 4,510 150 1,280 2,788 (1,410) (97)
----- ----- ------ ---- ----- ----- ------ ----
Interest expense
Deposits
Demand.............. 1,849 406 1,292 151 (480) (36) (448) 4
Savings............. 116 (415) 588 (57) (713) 31 (739) (5)
Time................ 4,743 1,355 3,088 300 (269) 549 (787) (30)
Short-term borrowings. 562 (179) 815 (74) 821 317 395 109
Long-term borrowings.. 312 279 11 22 132 152 (1) (20)
----- ----- ------ ---- ----- ----- ------ ----
Total interest
expense.......... 7,582 1,446 5,794 342 (509) 1,013 (1,580) (58)
----- ----- ------ ---- ----- ----- ------ ----
Net interest income..... 1,181 2,657 (1,284) (192) 1,789 1,775 170 (155)
===== ===== ====== ==== ===== ===== ====== ====
</TABLE>
- --------
* Total change may not cross foot due to rounding.
SECURITIES PORTFOLIO
The carrying values of Northern Illinois' securities held for investment on
the dates indicated were as follows, in thousands of dollars:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994 1993
---- ------- -------
<S> <C> <C> <C>
Obligations of states and political subdivisions....... $-0- $73,661 $87,797
Equity securities...................................... 2,077
---- ------- -------
Total................................................ $-0- $73,661 $89,874
==== ======= =======
</TABLE>
The carrying values of Northern Illinois' securities available for sale on
the dates indicated were as follows, in thousands of dollars:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
U. S. Treasury securities........................ $ 53,930 $ 88,674 $ 98,030
U. S. Government agencies........................ 32,024 57,893 48,242
Obligations of states and political subdivisions. 96,712
Corporate and foreign debt securities............ 39,629 43,592 55,491
Mortgage-backed securities....................... 79,987 42,482 42,942
Equity securities................................ 30,962 16,555 18,083
-------- -------- --------
Total.......................................... $333,244 $249,196 $262,788
======== ======== ========
</TABLE>
99
<PAGE>
Maturities of Northern Illinois' securities available for sale and the
weighted average yield as of December 31, 1995 are as follows, in thousands of
dollars. Yields are not on a tax-equivalent basis.
<TABLE>
<CAPTION>
DUE AFTER DUE AFTER
DUE IN 1 YEAR 5 YEARS
1 YEAR THROUGH THROUGH DUE AFTER
OR LESS 5 YEARS 10 YEARS 10 YEARS TOTAL
-------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
U. S. Treasury securities.... $ 46,337 $ 7,593 $ 53,930
5.15% 4.58% 5.07%
U. S. Government agencies.... $ 32,024 $ 32,024
5.43% 5.43%
Obligations of states and
political subdivisions...... $ 7,409 $26,150 $28,655 $34,498 $ 96,712
6.00% 6.30% 6.24% 5.77% 6.09%
Corporate and foreign debt
securities.................. $ 15,038 $18,981 $ 2,002 $ 3,608 $ 39,629
6.29% 6.09% 9.21% 6.34% 6.35%
Mortgage-backed securities... $ 79,987
6.75%
-------- ------- ------- ------- --------
Total debt securities...... $100,808 $52,724 $30,657 $38,106 $302,282
5.47% 5.98% 6.43% 5.82% 6.05%
Equity securities............ $ 30,962
--------
Total securities........... $333,244
========
</TABLE>
The purpose of the security portfolio is to provide earnings, a source of
liquidity and quality return on investment. The composition of the portfolio
seeks to balance credit risk, liquidity considerations, maximization of yield
and total return. As of December 31, 1995, approximately 29% of the total
carrying value of securities available for sale consisted of obligations of
states and political subdivisions, 25.8% consisted of U.S. Treasury and U.S.
government securities, 24% consisted of mortgage-backed securities, 11.9%
consisted of corporate and foreign debt securities, and 9.3% consisted of
equity securities.
Investments in U. S. Treasury and U. S. Government Agency obligations are
generally considered to have a low credit risk and low liquidity risk and are
utilized as collateral for borrowing and public deposits. Northern Illinois
generally limits its investments in obligations of states and political
subdivisions to securities that are rated investment grade by a recognized
national rating organization if the issuer of the securities is located
outside of Northern Illinois' market area. Northern Illinois does not require
that a security be rated investment grade if the issuer is a state or
political subdivision within its market area. Investments in state and
political subdivisions are used as collateral for public deposits and are
considered higher in credit and liquidity risk than U. S. Treasury and U. S.
Government Agency obligations.
Northern Illinois' investments in corporate and foreign securities consist
primarily of securities rated investment grade by recognized national rating
organizations. Such securities also include approximately $2.2 million in non-
rated privately placed debt of other financial institutions. Foreign
securities are limited to dollar- denominated obligations and comprise less
than 1% of the carrying value of the securities portfolio. Generally, the
yields for corporate and foreign securities are greater than those for U. S.
Treasury and Government Agency obligations, but such securities are subject to
greater credit and liquidity risks.
Mortgage-backed securities consist, almost exclusively, of collateralized
mortgage obligations ("CMO's"), all of which are collateralized by FNMA, FHLMC
and GNMA mortgage-backed securities. The CMO's held by Northern Illinois are
well-structured, with highly defined prepayment windows. Mortgage-backed
securities are also used to collateralize borrowing and certain public
deposits.
100
<PAGE>
Mortgage-backed securities involve a higher level of risk than U. S.
Treasury and U. S. Government Agency obligations due in part to prepayment
uncertainties. Prepayments of the underlying mortgages may shorten the life of
the investment, thereby adversely affecting its yield to maturity and the
related market value of the mortgage-backed security. The yield is based upon
the interest income and the amortization of the premium or accretion of the
discount related to the mortgage-backed security. Premiums and discounts on
mortgage-backed securities are amortized or accreted over the estimated term
of the securities using a level yield method. The prepayment assumptions used
to determine the amortization period for premiums and discounts can
significantly affect the yield of the mortgage-backed security. The actual
prepayments of the underlying mortgages depend on many factors, including the
types of mortgages, the coupon rate, the age of mortgages, the geographical
location of the underlying real estate collateralizing the mortgages and
general levels of market interest rates.
If the coupon rate of the underlying mortgages significantly exceeds the
prevailing market interest rates offered for mortgage loans, refinancing
generally increases and accelerates prepayment of the underlying mortgages,
causing an investor's principal to be returned sooner than expected. Under
such circumstances, principal may have to be reinvested at a lower rate of
interest. Conversely, rising market interest rates may slow anticipated
prepayment speeds, causing principal to be committed longer than expected.
Under such circumstances, opportunities to earn a higher rate of interest on
alternative investments may be lost. Prepayment experience is more difficult
to estimate for adjustable rate mortgage-backed securities.
Through its investment in equity securities, Northern Illinois seeks to
achieve a high long-term total return and diversification in the capital
markets. Of the $30,962,000 carrying value of Northern Illinois' equity
securities at December 31, 1995, $11,049,000, or 36%, consisted of unrealized
gains. At December 31, 1995, common stock of the Student Loan Marketing
Association accounted for 45% of the amortized costs and 74% of the unrealized
gains on equity securities, respectively. Equity securities carry the highest
overall risk within the securities portfolio and are not considered a primary
liquidity source.
At December 31, 1995, the carrying value of common stock of the Student Loan
Marketing Association held by Northern Illinois exceeded 10% of stockholders'
equity as of that date. At December 31, 1995, the aggregate book value of such
stock was $8,928,000, and the aggregate market value was $17,127,000.
LOAN PORTFOLIO
The following table shows the classification of Northern Illinois' loans on
the dates indicated, in thousands of dollars:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial and industrial...... $104,085 $ 82,039 $ 86,193 $ 72,042 $ 65,373
Real estate-construction....... 41,413 39,296 34,659 36,999 37,860
Real estate-mortgage........... 353,916 312,520 281,058 265,671 244,673
Installment loans to
individuals................... 49,944 46,397 35,957 29,341 32,928
Bankers acceptances............ 4,167
-------- -------- -------- -------- --------
Total........................ $549,358 $480,252 $437,867 $404,053 $385,001
======== ======== ======== ======== ========
</TABLE>
An active credit risk management process is used for the loan portfolio to
ensure that sound and consistent credit decisions are made. Commercial and
industrial loans consist mainly of lines of credit and installment loans. They
are subject to risks associated with the economic climate and with the
borrower's ability to successfully manage its business and financial
operations. Commercial and industrial loans are underwritten to internal
standards governed by established policies and procedures in order to control
credit risk. Borrower relationships are reviewed on an on-going basis. For
commercial and industrial loans, collateral is generally required with loan to
value ratios ranging from 40% to 100% depending upon the type of collateral.
Unsecured commercial
101
<PAGE>
and industrial loans are made when creditworthy borrowers are well known to
Grand National Bank or the other subsidiary banks of Northern Illinois prior
to the consolidation of the charters of the Northern Illinois in February,
1996 (collectively, the "Northern Illinois Banks").
Real estate-construction loans are carefully reviewed by the Northern
Illinois Banks for feasibility and economic viability of the projects. An
independent appraisal of the property is required, and the loans are generally
subject to maximum loan to value ratios of 70% or up to 100% when takeout
commitments are procured. Land acquisition and development loans are subject
to loan to value ratios of 60% for unimproved land and 70% for improved land.
Real estate construction lending generally offers higher returns, but also
carries higher risks, than certain other types of loans. At the time that the
loan is made, the value of the collateral securing the loan must be estimated
on the basis of a projected selling price for the completed building or
residence, which is typically not completed until some time later, and
correlated with the estimated building and other costs (including interest
costs). Changes in the demand for new housing in the area and higher-than-
anticipated building costs may cause actual results to vary significantly from
those estimated. Additionally, the working out of a problem construction loan
is complicated by the fact that in-process buildings are difficult to sell and
typically must be completed in order to be successfully sold. This may require
Northern Illinois' subsidiary bank to advance additional funds and contract
with another builder to complete the project.
The real estate-mortgage category of loans includes residential real estate
mortgage loans which consist primarily of conventional home mortgages and home
equity loans. Conventional home mortgages are generally underwritten to meet
the requirements of institutional investors in the secondary market.
Residential real estate loans generally contain a limit for the maximum loan
to collateral value of 80% or up to 90% if private mortgage insurance is
obtained.
Also included in the real estate-mortgage category are loans secured by non-
residential properties. Loans of this type are mainly business, industrial or
multi-family properties. These mortgage loans are generally subject to a 75%
loan to collateral value limitation. Business, industrial or multi-family real
estate loans generally involve higher returns, but also carry a higher degree
of credit risk, than one- to four-family residential mortgage loans. The
principal amount of such loans is typically higher, and the repayment of such
loans generally depends on the property producing income sufficient to cover
operating expenses and service the debt. Due to circumstances beyond the
borrower's control, such as general economic conditions, income from the
property may be reduced, thus impairing the borrower's ability to repay the
loan.
Installment loans to individuals are made based on, among other things, the
financial stability, repayment ability, and credit history of the borrowers.
Individuals are generally required to provide collateral with maximum loan-to-
value ratios generally ranging from 80% to 90%. Unsecured loans for personal
use are available to customers who are considered financially stable and have
an excellent credit history, solid net worth and good liquidity.
Commercial, real estate and installment loans are granted to customers
primarily located in the Illinois counties of Cook, Lake, McHenry and Will. As
part of the credit risk management process, the Northern Illinois Banks
analyze the loan portfolio as a whole for concentrations of loans by
collateral type, loan purpose, and industrial classifications of the
borrowers. As of December 31, 1995, the real estate-mortgage category included
$146.3 million of loans secured by 1-4 family residential properties of which
$93.8 million are first mortgages and $52.5 million are junior mortgages. The
real estate-mortgage category also includes $176.3 million of loans secured by
non-farm non-residential properties. As of December 31, 1995, the Northern
Illinois Banks were not aware of any loan concentrations not otherwise
disclosed above that would exceed 10% of total loans to borrowers engaged in
similar activities.
102
<PAGE>
The following is a summary of maturities of Northern Illinois' loans by
certain categories at December 31, 1995, in thousands of dollars:
<TABLE>
<CAPTION>
DUE AFTER
1 YEAR
DUE IN THROUGH DUE AFTER
1 YEAR OR LESS 5 YEARS 5 YEARS TOTAL
-------------- --------- --------- --------
<S> <C> <C> <C> <C>
Commercial and industrial
(including bankers acceptances
and commercial paper).......... $41,925 $57,481 $4,679 $104,085
Real estate construction loans.. 24,606 15,517 1,290 41,413
Interest rate sensitivity of
loans due after
one year with:
Fixed rates of interest....... 53,830
Adjustable interest rates..... 25,137
</TABLE>
Northern Illinois' nonaccrual loans at the dates indicated were as follows,
in thousands of dollars:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------------------
1996 1995 1994 1993 1992 1991
--------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural................. $ 609 $ 143 $ 245 $ 914 $2,098 $1,914
Real estate construction...... 378 800 900 900 1,414 358
Real estate mortgage.......... 3,223 2,675 2,620 2,636 5,340 5,082
Installment loans to
individuals.................. 143 155 267 102 156 83
------ ------ ------ ------ ------ ------
$4,353 $3,773 $4,032 $4,552 $9,008 $7,437
====== ====== ====== ====== ====== ======
</TABLE>
Other impaired loans under Statement of Financial Accounting Standards
("SFAS") No. 114 not included in Northern Illinois' nonaccrual loans above as
of December 31, 1995 were as follows, in thousands of dollars:
<TABLE>
<S> <C>
Real estate construction.......... $1,257
Real estate mortgage.............. 383
</TABLE>
Northern Illinois' restructured loans at dates indicated were as follows, in
thousands of dollars:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------------
1996 1995 1994 1993 1992 1991
--------- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural................... $ $ 22 $1,860 $2,063 $ 225 $1,608
Installment loans to
individuals.................... 8 33
Real estate-mortgage............ 471 475 1,274 2,111 4,034 2,281
---- ---- ------ ------ ------ ------
$471 $505 $3,134 $4,174 $4,292 $3,889
==== ==== ====== ====== ====== ======
</TABLE>
The following table shows interest income that would have been recorded in
the year ended December 31, 1995 if the loans had been current in accordance
with their original terms, in thousands of dollars:
<TABLE>
<CAPTION>
IMPAIRED UNDER
SFAS 114 OTHER
-------------- -----
Loans accounted for on a nonaccrual basis
<S> <C> <C>
Commercial, financial and agricultural.............. 18 4
Real estate-construction............................ 239
Real estate-mortgage................................ 112 98
Installment loans to individuals.................... 9
<CAPTION>
Troubled debt restructuring
<S> <C> <C>
Commercial, financial and agricultural.............. 4
Real estate-mortgage................................ 38
Installment loans to individuals.................... 1
</TABLE>
103
<PAGE>
The following table shows interest income that was received in the year ended
December 31, 1995 on loans included above, in thousands of dollars:
<TABLE>
<CAPTION>
IMPAIRED UNDER
SFAS 114 OTHER
-------------- -----
Loans accounted for on a nonaccrual basis
<S> <C> <C>
Real estate-construction............................ 181
Real estate-mortgage................................ 35 4
Installment loans to individuals.................... 2
<CAPTION>
Troubled debt restructuring
<S> <C> <C>
Commercial, financial and agricultural.............. 1
Real estate-mortgage................................ 38
Installment loans to individuals.................... 1
</TABLE>
The following table shows interest income that would have been recorded in
the quarter ended March 31, 1996 if the loans had been current in accordance
with their original terms, in thousands of dollars:
<TABLE>
<CAPTION>
Loans accounted for on a nonaccrual basis
<S> <C>
Commercial, financial and agricultural............................... 16
Real estate-construction............................................. 10
Real estate-mortgage................................................. 87
Installment loans to individuals..................................... 7
Troubled debt restructuring
Real estate-mortgage................................................. 9
</TABLE>
The following table shows interest income that was received in the quarter
ended March 31, 1996 on loans included above, in thousands of dollars:
<TABLE>
<S> <C>
Loans accounted for on a nonaccrual basis
Real estate-mortgage................................................. 29
Troubled debt restructuring
Real estate-mortgage................................................. 9
</TABLE>
The following is a discussion of Northern Illinois management's policy for
placing loans on a nonaccrual status.
A loan is placed in nonaccrual status when, in the best judgment of the
management of the Northern Illinois Banks, its collectibility is doubtful.
Generally, loans are placed in nonaccrual status when principal or interest is
contractually past due 90 days, unless a loan is both adequately secured and in
the process of collection.
Accruing loans past due 90 days or more as to principal or interest (not
included above) at the dates indicated were as follows, in thousands of
dollars:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1996 1995 1994 1993 1992 1991
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural... $ 99 $ 30 $25 $12 $291 $110
Real estate mortgage..................... 198 188 98 69 330 699
Installment loans to individuals......... 27 163 61 41 149 65
</TABLE>
As of the end of each reported period, there were no loans outstanding, the
terms of which had been renegotiated to provide a reduction or deferral of
interest or principal because of a deterioration of the financial position of
the borrower (exclusive of items included in nonperforming loans listed above).
At December 31, 1995, there were no loans not disclosed above as to which
there were serious doubts about the ability of the borrower to comply with
present repayment terms.
104
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
An analysis of Northern Illinois' loan loss experience for each reported
period, in thousands of dollars, is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, YEAR ENDED DECEMBER 31,
-------------- --------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period................. $5,585 $6,050 $6,050 $6,226 $5,447 $4,723 $4,239
------ ------ ------ ------ ------ ------ ------
Charge-offs:
Commercial, financial
and agricultural..... 22 133 594 356 522 2,970 1,155
Real estate
construction......... 55
Real estate mortgage.. 159 67 329 423 47
Installment loans to
individuals.......... 196 138 696 336 238 219 162
------ ------ ------ ------ ------ ------ ------
218 271 1,449 814 1,089 3,612 1,364
------ ------ ------ ------ ------ ------ ------
Recoveries:
Commercial, financial
and agricultural..... 32 26 83 164 422 110 125
Real estate mortgage.. 46
Installment loans to
individuals.......... 74 33 102 119 84 52 62
------ ------ ------ ------ ------ ------ ------
106 59 185 283 506 162 233
------ ------ ------ ------ ------ ------ ------
Net charge-offs......... 112 212 1,264 531 583 3,450 1,131
------ ------ ------ ------ ------ ------ ------
Additions charged to
expense................ 306 64 799 355 1,362 4,174 1,615
------ ------ ------ ------ ------ ------ ------
Balance at end of
period................. $5,779 $5,902 $5,585 $6,050 $6,226 $5,447 $4,723
====== ====== ====== ====== ====== ====== ======
Ratio of net charge-offs
during the period to
average loans.......... 0.08% 0.17% 0.25% 0.12% 0.14% 0.89% 0.30%
Ratio of nonaccrual and
other impaired loans to
total loans............ 0.77% 0.73% 0.98% 0.84% 1.03% 2.23% 1.93%
Ratio of allowance for
loan losses to
nonaccrual and other
impaired loans......... 132% 165% 103% 150% 137% 60% 64%
</TABLE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------- -------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------------- --------------- --------------- --------------- --------------- ---------------
% OF % OF % OF % OF % OF % OF
LOANS LOANS LOANS LOANS LOANS LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural.... $1,069 17.9% $1,032 19.0% $1,826 17.1% $3,355 19.7% $2,191 17.8% $1,877 18.0%
Real estate--
construction........ 433 6.7% 445 7.5 186 8.2 69 7.9 628 9.2 550 9.8
Real estate--
mortgage............ 3,786 67.1% 3,620 64.4 3,275 65.1 2,639 64.2 2,392 65.7 2,013 63.6
Installment loans to
individuals......... 491 8.3% 488 9.1 763 9.6 163 8.2 236 7.3 283 8.6
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
$5,779 100.0% $5,585 100.0% $6,050 100.0% $6,226 100.0% $5,447 100.0% $4,723 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
105
<PAGE>
The amount of the additions to the allowance for possible loan losses
charged to expense for the periods indicated were based on a variety of
factors, including actual charge-offs during the year, historical loss
experience, character of portfolio, specific loan allocations, industry
guidelines and an evaluation of current and prospective economic conditions in
the market areas of the Northern Illinois Banks. Additions to the allowance
for loan losses for 1991 and 1992 were, largely, due to adverse economic
conditions which contributed to credit deterioration especially in the
commercial loan portfolios. The significant net charge offs and additions to
the allowance in 1992 were primarily the result of the credit deterioration of
several large commercial relationships. The ratio of nonaccrual and other
impaired loans to total loans and the ratio of the allowance for loan losses
to nonaccrual and other impaired loans were 2.23% and 60%, respectively.
The economic environment improved in 1993 and greatly contributed to an
improvement in credit quality. Net charge offs to average loans were 0.14% in
1993 and 0.89% in 1992. Non-performing loans declined 49% between period end
1992 and 1993. Similarly, the ratio of the allowance for loan losses to
nonaccrual and other impaired loans went from 60% in 1992 to 137% in 1993.
This contributed to a 67% decline in additions charged to expense from
$4,174,000 in 1992 to $1,362,000 in 1993.
A stable economy in 1994 assisted in the continued improvement in loan
quality. Net charge offs to average loans declined to 0.12% in 1994, and the
ratio of the allowance for loan losses to nonaccrual and other impaired loans
increased to 150%. The overall improvement in loan quality was the major
contributor in the decline in the amount of the addition charged to expense,
from $1,362,000 in 1993 to $355,000 in 1994.
In 1995, there was a reversal of the 1993 and 1994 positive trends in the
ratio of net charge-offs to average loans and the ratio of the allowance for
loan losses to nonaccrual and other impaired loans. The ratios of net charge
offs to average loans and of the allowance for loan losses to nonaccrual and
other impaired loans were 0.25% and 103%, respectively. The $1,264,000 in net
charge offs was largely due to credit deterioration in a portfolio of retail
installment sale contracts purchased from automobile dealers and in two
commercial relationships. The net charge offs related to this credit
deterioration contributed to the 125% increase in the additions charged to
expense in 1995 when compared to 1994.
The $306,000 addition to the allowance for loan losses charged to expense in
the first quarter of 1996 was primarily due to loan growth during that period.
Loans net of unearned income increased $13.7 million, from $548 million at
December 31, 1995 to $561.7 million at March 31, 1996.
DEPOSITS
The following table sets forth the classification of Northern Illinois'
average deposits for the indicated periods, in thousands of dollars:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Noninterest bearing demand deposits............ $105,857 $103,365 $102,363
Interest bearing demand deposits............... 168,715 151,076 152,460
Savings deposits............................... 157,536 174,456 173,388
Time deposits.................................. 325,066 296,250 285,229
</TABLE>
The following table sets forth the average rates paid on Northern Illinois'
deposits for the indicated periods:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Interest bearing demand deposits................ 3.16% 2.30% 2.60%
Savings deposits................................ 2.79 2.45 2.88
Time deposits................................... 5.74 4.70 4.98
</TABLE>
106
<PAGE>
The following table sets forth the maturities of Northern Illinois' time
deposits of $100,000 or more, in thousands of dollars, for the period
indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Three months or less..................................... $34,651
Over three months to six months.......................... 13,087
Over six months to twelve months......................... 20,690
Over twelve months....................................... 25,607
-------
Total.................................................. $94,034
=======
</TABLE>
RETURN ON EQUITY AND ASSETS
The following table presents certain ratios relating to Northern Illinois'
equity and assets:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Return on average equity....................... 13.03% 10.12% 11.66%
Return on average assets....................... 1.20 .89 1.00
Dividend payout ratio.......................... 22.04 31.56 27.50
Average total shareholders' equity to average
total assets.................................. 9.20 8.82 8.57
</TABLE>
SHORT-TERM BORROWINGS
The following table presents selected information relating to Northern
Illinois' short-term borrowings:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Federal funds purchased and securities sold un-
der agreements to repurchase................... $32,372 $37,552 $43,210
Average interest rate on amount outstanding at
year end....................................... 5.64% 5.39% 2.82%
Maximum month-end amount outstanding during the
year........................................... $44,419 $51,650 $44,288
Average amount outstanding during the year...... $40,165 $43,925 $35,368
Average interest rate on amount outstanding dur-
ing the year................................... 5.62% 4.01% 3.03%
</TABLE>
107
<PAGE>
NORTHERN ILLINOIS AND SUBSIDIARIES
GAP TABLE
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR >5 TOTAL
------- ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing
deposits in other
banks.................. Maturity 4,848 0 0 0 0 0 4,848
Rate 5.01% 0.00% 0.00% 0.00% 0.00% 0.00% 5.01%
Repricing 4,848 0 0 0 0 0 4,848
Rate 5.01% 0.00% 0.00% 0.00% 0.00% 0.00% 5.01%
Securities.............. Maturity 121,528 43,681 34,092 26,453 710 106,780 333,244
Rate 5.64% 6.37% 6.68% 6.28% 6.59% 5.26% 5.77%
Repricing 144,030 43,158 33,534 25,857 73 86,592 333,244
Rate 5.43% 6.37% 6.68% 6.27% 6.96% 5.54% 5.77%
Fed funds sold.......... Maturity 6,500 0 0 0 0 0 6,500
Rate 5.85% 0.00% 0.00% 0.00% 0.00% 0.00% 5.85%
Repricing 6,500 0 0 0 0 0 6,500
Rate 5.85% 0.00% 0.00% 0.00% 0.00% 0.00% 5.85%
Loans net of unearned
income................. Maturity 147,011 94,690 74,932 84,106 12,303 135,013 548,055
Rate 9.20% 8.90% 8.72% 8.67% 8.93% 8.34% 8.78%
Repricing 236,250 64,198 63,685 67,395 11,552 104,975 548,055
Rate 9.06% 8.87% 8.71% 8.62% 8.89% 8.23% 8.78%
Interest bearing
deposits............... Maturity 262,117 140,022 60,990 38,812 13,664 170,720 686,325
Rate 5.22% 5.08% 4.58% 4.59% 2.73% 3.10% 4.52%
Repricing 338,744 117,034 50,261 34,521 11,734 134,031 686,325
Rate 4.91% 5.32% 4.74% 4.68% 2.57% 2.89% 4.52%
Short-term borrowings... Maturity 36,872 0 0 0 0 0 36,872
Rate 6.04% 0.00% 0.00% 0.00% 0.00% 0.00% 6.04%
Repricing 36,872 0 0 0 0 0 36,872
Rate 6.04% 0.00% 0.00% 0.00% 0.00% 0.00% 6.04%
Long-term borrowings.... Maturity 4,588 2,000 0 5,000 0 0 11,588
Rate 6.50% 6.50% 0.00% 5.85% 0.00% 0.00% 6.22%
Repricing 4,588 2,000 0 5,000 0 0 11,588
Rate 6.50% 6.50% 0.00% 5.85% 0.00% 0.00% 6.22%
Maturing gap............ (23,690) (3,651) 48,034 66,747 (651) 71,073 157,862
Repricing gap........... 11,424 (11,678) 46,958 53,731 (109) 57,536 157,862
Cumulative maturing gap. (23,690) (27,341) 20,693 87,440 86,789 157,862
Cumulative repricing
gap.................... 11,424 (254) 46,704 100,435 100,326 157,862
</TABLE>
ASSUMPTIONS: Principal payments of amortized loans and securities are based
on the contractual schedule or assumed average life. Maturing and repricing of
interest bearing liability balances that have no stated maturity (N.O.W.,
Money Market and Savings) are treated as 10-20% payable in the first year, 15-
30% payable in the second year, 10-20% payable in the third year, 10% payable
in the fourth year, 5-10% payable in the fifth year, and 15-45% payable in
greater than 5 years. Maturity and repricing of interest earning assets with
no stated maturity are treated as due in the greater than 5 year category.
Quoted rates are average weighted rates. Subtotals may not foot due to
rounding.
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<PAGE>
NORTHERN ILLINOIS MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION FOR THE THREE MONTHS ENDED MARCH 31, 1996
The following is Northern Illinois management's discussion and analysis of
the financial condition of Northern Illinois and subsidiaries at March 31,
1996 (unaudited) when compared with December 31, 1995, and the results of
operations for the three months ended March 31, 1996 compared to the three
months ended March 31, 1995 (unaudited). This discussion and analysis should
be read in conjunction with the Northern Illinois' consolidated financial
statements and notes thereto appearing elsewhere in this Joint Proxy
Statement-Prospectus.
In February of 1996, all of the subsidiary banks of Northern Illinois were
merged with and into a single bank charter under the title of Grand National
Bank.
FINANCIAL CONDITION AT MARCH 31, 1996 COMPARED TO DECEMBER 31, 1995
Total assets of the Northern Illinois decreased $9.9 million to $944.6
million from December 31, 1995 to March 31, 1996.
Total securities declined $13.4 million for the comparative periods.
Excluding the effect of accounting to market for investments available for
sale, the amortized cost of total securities decreased $13.3 million. The
reduction reflects the decrease in funding liabilities and loan growth.
Loans net of unearned income increased $13.7 million from the year ended
1995. Increase in the commercial mortgage portfolio was the major contributor
to this growth.
Allowance for loan losses was 1.02% and 1.03% of loans net of unearned
income on December 31, 1995 and March 31, 1996, respectively. Nonaccrual loans
and loans past due 90 days or more and still accruing were .88% and .89% of
loans net of unearned income as of December 31, 1995 and March 31, 1996,
respectively.
Other real estate owned increased approximately $0.5 million from $1.6
million on December 31, 1995 to $2.1 million on March 31, 1996. In April, 1996
Grand National Bank completed the sale of the largest component of other real
estate owned which as of April 30, 1996 decreased the reported balance by $1.2
million.
Historically, the first quarter reflects a net outflow of certain
transaction based accounts including NOW and money market deposits. NOW and
money market deposits decreased $9.9 million between December 31, 1995 and
March 31, 1996. Northern Illinois does not expect this trend to continue for
the remainder of 1996.
Total borrowing decreased $11.6 million with $9.7 million of that decrease
attributed to declines in customer contracts for securities sold with
agreements to repurchase. Northern Illinois' management chose to discourage
renewal or sale of these contracts and encourage the purchase of interest
bearing time deposits.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1995
Net Income. Net income decreased from $2,168,000 for the three months ended
March 31, 1995 to $2,041,000 for the three months ended March 31, 1996.
Net Interest Income. For the comparable periods both interest income and
interest expense increased. The $1,760,000 increase in interest income was
largely due to increases in loan volume. The $1,295,000 increase in interest
expense was, primarily, due to rate and volume increases in the time deposit
category. The average earning asset yield increased 26 basis points while
average rates paid on interest earning liabilities increased 40 basis points
resulting in a reduction in the net yield on average earning assets from 4.04%
on March 31, 1995 to 3.97% on March 31, 1996.
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<PAGE>
Provision for Loan Losses. Provision for loan losses was $64,000 and
$306,000 for the three months ended 1995 and 1996, respectively. The increase
was primarily reflective of the growth in loans net of unearned income. Loan
charge offs net of recoveries to average loans net of unearned income were
.04% on March 31, 1995 and .02% on March 31, 1996.
Noninterest Income. Total noninterest income decreased from $1,735,000 on
March 31, 1995 to $1,500,000 on March 31, 1996. The $281,000 comparative
decrease in security gains was the major contributing factor.
Fees for customer deposit services increased $104,000 from $825,000 in 1995
to $929,000 in 1996. The increase was primarily due to a restructuring and
standardization of service charges to facilitate the February, 1996 merger of
the four subsidiary banks of Northern Illinois.
Other fees and operating income decreased $74,000 due, largely, to a one
time litigation recovery recorded in the first quarter of 1995. Excluding this
litigation recovery, the comparative periods would have shown an increase of
approximately $75,000 of which the major contributor was fees associated with
secondary market mortgage operations.
Security gains decreased $281,000 from $293,000 for the three months ended
March 31, 1995 to $12,000 for the three months ended March 31, 1996.
Noninterest Expense. For the three months ended 1995 and 1996, noninterest
expense rose $210,000 from $7,079,000 to $7,289,000.
Salaries and benefits rose $401,000 from $3,733,000 for the three months
ended March 31, 1995 to $4,134,000 for the three months ended March 31, 1996.
Of the $401,000 increase 88% was attributed to compensation increases for
merit and promotion plus an increase in full time equivalent employees from
399 in March of 1995 to 419 in March of 1996. As a result of the February,
1996 merger of the subsidiary banks, Northern Illinois' management anticipates
that in the second quarter of 1996 one time salary payments of approximately
$300,000 will be made pursuant to a reduction in force policy.
Occupancy and equipment expense increased $82,000 from $1,022,000 in the
first quarter of 1995 to $1,104,000 in the first quarter of 1996. The increase
is, largely, attributed to the addition of three bank facilities that
commenced operation between September, 1995 and February, 1996.
Other expenses declined $269,000 from $2,029,000 to $1,760,000 for the
periods ended March 31, 1995 and 1996, respectively. In late 1995, the Federal
Deposit Insurance Corporation reduced the deposit premium rates to reflect
that the Bank Insurance Fund had neared fully funded status. Deposit premiums
declined $412,000 between the comparative periods and were offset, primarily,
by material increases in postage, printing and legal costs related to the
February, 1996 merger of the subsidiary banks. Northern Illinois' management
anticipates merger expenses to be incurred through the remainder of 1996,
related to the proposed merger with Premier.
Income Taxes. Income taxes were $634,000 and $539,000 representing effective
tax rates of 23% and 21% for the periods ended March 31, 1995 and 1996
respectively. The decline in the tax rate reflects the increased dollar volume
associated with income exempt from federal income taxes.
SHAREHOLDER EQUITY
Total shareholder equity includes net unrealized gains (losses) on
securities available for sale net of tax. Removing the effect of the net
unrealized gains (losses) of securities net of tax, shareholder equity would
have been $79,516,000 on March 31, 1995 and $86,626,000 on March 31, 1996 or a
8.94% increase. Average shareholder equity to average assets was 8.73% and
10.02% on March 31, 1995 and March 31, 1996, respectively. On March 31, 1996,
Northern Illinois' total risk-based capital ratio, Tier 1 risk-based capital
ratio and leverage ratio were 13.78%, 12.92%, and 9.16%, respectively, and
Grand National Bank met the definition of "well capitalized" for each of these
ratios. See "NORTHERN ILLINOIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION FOR THE FISCAL YEAR ENDED DECEMBER 31,
1995--Shareholders' Equity" for further information concerning regulatory
capital requirements.
110
<PAGE>
NORTHERN ILLINOIS MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
The following is Northern Illinois management's discussion and analysis of
the financial condition of Northern Illinois and its subsidiaries at December
31, 1995 when compared with December 31, 1994 and December 31, 1993 and the
results of operations for the twelve month periods ended December 31, 1995,
December 31, 1994 and December 31, 1993. This discussion and analysis should
be read in conjunction with Northern Illinois' consolidated financial
statements and notes thereto appearing elsewhere in this Joint Proxy
Statement-Prospectus.
FINANCIAL CONDITION AT DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994 AND
DECEMBER 31, 1993
Total assets of Northern Illinois increased $12,833,000 to $872,563,000 from
December 31, 1993 to December 31, 1994 and $81,891,000 to $954,454,000 from
December 31, 1994 to December 31, 1995. Average assets grew to $855,506,000 in
1994 and $898,003,000 in 1995 representing growth rates of 3.2% and 5.1%,
respectively.
Loans net of unearned income increased $42,226,000 from $436,029,000 on
December 31, 1993 to $478,255,000 on December 31, 1994 and increased
$69,800,000 to $548,055,000 on December 31, 1995. This represents growth of
9.7% and 14.6% for 1994 and 1995, respectively. Loan categories consist of
commercial-industrial, real estate-construction, real estate-mortgage and
installment loans to individuals. Between 1993 and 1995 these categories have
all increased with the largest volume increases in commercial-industrial and
real estate-mortgage. The 1994 and 1995 growth in loans was a result of a
stable local economy and an increased focus on quality lending relationships.
The total dollar amount of nonaccrual, restructured, 90 days past due and
still accruing and other impaired loans has declined each year since 1993 from
$8,848,000 in 1993 to $7,350,000 in 1994 and $6,299,000 in 1995. These totals
represent 1.0%, .8% and .7% of total assets for the years ended 1993, 1994 and
1995, respectively.
Total securities decreased $29,805,000 in 1994 and increased $10,387,000 in
1995. Of the decrease in 1994 and increase in 1995, $12,284,000 and
$19,941,000 respectively are attributed to compliance with SFAS No. 115 which
requires Northern Illinois to mark to market the securities that have been
designated as available for sale. Growth rates based strictly on comparisons
of amortized cost reflect decreases of 5.1% in 1994 and 2.9% in 1995. These
decreases are largely attributed to funding requirements generated by Northern
Illinois' loan growth. In November, 1995 the Financial Standards Accounting
Board provided an opportunity for financial institutions to reclassify current
securities without violating the provisions of SFAS No. 115. Northern Illinois
availed itself of this opportunity by reclassifying all held to maturity
securities to available for sale. Securities classified held to maturity
generally could not be sold. This reclassification impacts the amount of
Northern Illinois' current and future capital since unrealized gains (losses),
net of tax on securities held for sale must be recorded in capital. However,
since bank regulations do not recognize unrealized gains and losses for
capital adequacy purposes, this reclassification now permits Northern Illinois
to utilize all investment securities in managing interest rate risk and
liquidity.
Premises and equipment rose $740,000 in 1994 and an additional $225,000 in
1995. The 1994 increase was primarily due to land acquisition to facilitate
parking expansion at a subsidiary bank, certain subsidiary bank interior
renovations and computer equipment upgrades. The 1995 increase included fixed
asset outlays associated with Northern Illinois' decision to transfer the
function of item processing from a third party vendor to Northern Illinois'
centralized operation division. The 1995 addition of two banking locations
also contributed to the increase.
Other real estate owned for the years ended 1993, 1994 and 1995 was
$4,400,000, $1,575,000 and $1,610,000, respectively.
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<PAGE>
Total deposits increased $12,463,000 to $741,701,000 from December 31, 1993
to December 31, 1994 and increased $58,463,000 to $800,164,000 as of December
31, 1995. Comparison of average balances for the components of deposit
liabilities is more meaningful than comparison of period end volumes due to
the balance swings associated with transaction type accounts. From 1993
through 1995 average balances for noninterest bearing transaction accounts
showed modest growth. Average interest bearing deposits grew 1.8% in 1994 and
4.8% in 1995.
Short-term borrowing was $45,335,000, $40,577,000 and $36,872,000 as of
December 31, 1993, 1994 and 1995, respectively. Short-term borrowing consists
mainly of institutional sales of securities sold under agreement to repurchase
and is used primarily as a substitute for collateralized deposits. Long-term
borrowing increased from $300,000 in 1993 to $5,650,000 on December 31, 1994
and $11,588,000 for year end 1995. The increase was mainly attributed to a
subsidiary bank borrowing from the Federal Home Loan Bank of Chicago to fund
real estate-mortgage loans.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1993, DECEMBER
31, 1994 AND DECEMBER 31, 1995
Net Income. Net income before applicable income taxes for the years ended
1993, 1994 and 1995 was $8,271,000, $9,773,000 and $14,242,000, respectively.
Net Interest Income. Net interest income prior to provision for loan losses
increased 5.9% in 1994 as compared to 1993 and increased 3.7% in 1995 as
compared to 1994.
For 1994 as compared to 1993, interest income increased $1,280,000, mainly
due to increased loan volumes, while interest expense declined $509,000 due to
rate reductions in interest-bearing deposits partially offset by volume
increases in the time deposit and borrowing categories. The result was a 15
basis point decline in the yield on average earning assets from 7.15% in 1993
to 7.00% in 1994 and a 20 basis point reduction on average rate paid on
interest-bearing liabilities from 3.75% in 1993 to 3.55% in 1994.
For the comparative periods of 1995 and 1994 interest income increased
$8,763,000 primarily due to volume increases in loans and rate increases in
loans and taxable securities. Interest expense increased $7,582,000 due
largely to volume increases in time deposits and rate changes in all interest
bearing deposit categories. The 1994 monetary policy implemented by the
Federal Reserve Board of Governors that repeatedly raised interest rates in
order to slow economic activity and inflationary trends was a major cause in
the reduction of the 1995 net interest margin. The yield on average earning
assets increased 70 basis points from 7.00% in 1994 to 7.70% in 1995; however,
the average rate paid on interest bearing liabilities rose 93 basis points
from 3.55% in 1994 to 4.48% in 1995. The net interest margin, which is not on
a taxable equivalent basis, was 3.95%, 4.01% and 3.95% for the years 1993,
1994 and 1995, respectively.
Provision for Loan Losses. The provision for loan losses is based on
quarterly analysis by the Northern Illinois Banks which includes analysis of
the current and prospective economic conditions, credit quality by loan
classification, specific allocations and historic trends. Provisions were
$1,362,000 in 1993, $355,000 in 1994 and $799,000 in 1995. Non accrual,
impaired, restructured and loans past due 90 days and still accruing declined
16.9% to $7,350,000 in 1994 and 14.3% to $6,299,000 for 1995. Ratio of net
charge-offs to average loans was .14%, .12% and .25% for 1993, 1994 and 1995
respectively.
The $444,000, or 125%, increase in the provision for loan losses in 1995, as
compared to 1994, was primarily due to a $733,000 increase in net charge-offs
in 1995, as compared to 1994. The increase in charge-offs, in turn, was
primarily due to credit deterioration of a portfolio of retail installment
sale contracts purchased from automobile dealers and of two commercial
relationships. The provision for loan losses in 1994 declined by $1,007,000,
as compared to 1993, primarily as a result of an overall improvement in loan
quality between the two periods. Net charge-offs declined by $52,000 from
$583,000 in 1993 to $531,000 in 1994, and nonaccrual loans and restructured
loans also both declined from $4,552,000 and $4,174,000, respectively, at
December 31,
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<PAGE>
1993 to $4,032,000 and $3,134,000, respectively, at December 31, 1994. See
"ADDITIONAL FINANCIAL INFORMATION CONCERNING NORTHERN ILLINOIS--Summary of
Loan Loss Experience."
Noninterest Income. Total other income varied from $6,928,000 in 1993,
$6,457,000 in 1994 and $9,945,000 in 1995. The $2,307,000 increase in the 1995
investment security gains was the major contributing factor for the rise in
noninterest income.
Fees for customer services experienced a 4.6% reduction in 1994 and an 8.5%
increase in 1995. The 1994 reduction was due to a data processing conversion
which entailed waiving customer fees at subsidiary banks during the conversion
months and to unanticipated reductions in fee based transaction volumes. The
increase in 1995 when compared to 1994 was largely due to the adverse revenue
impact of the 1994 conversion and 1995 increases in fees for customer
overdrafts.
Northern Illinois experienced a $595,000 reduction in other operating income
in 1994 as compared to 1993. Due to the significant rise in interest rates
during 1994, the revenues associated with residential mortgage origination and
refinancing, and subsequent sale in the secondary market, declined by over
$600,000 compared to 1993. In 1995, 77.5% of the $822,000 increase as compared
to 1994 was due to increased revenues associated with mortgage origination, a
one time litigation award and the gain on the sale of a portfolio of mortgage
servicing rights held by a subsidiary bank.
Trust department fees were virtually unchanged between 1993 and 1994. The
25.4% increase in 1995 compared to 1994 was the result of Northern Illinois'
focus on increasing service fees for this line of business.
Investment security gains were $1,050,000, $1,330,000 and $3,637,000 for
1993, 1994 and 1995 respectively. The $2,307,000 increase in 1995 as compared
to 1994 is indicative of the strong bond and equity markets. Securities
available for sale are utilized in managing interest rate risk and liquidity.
Noninterest Expense. Total year end other expenses were $27,346,000 in 1993,
$28,169,000 in 1994 and $27,925,000 in 1995.
Salary and employee benefits rose 9.2% in 1994 compared to 1993. Average
full-time equivalent employees increased from 377 in 1993 to 390 in 1994. The
majority of the employee additions were in job positions that were in the
higher end of the compensation range. This increase, along with incentive
based compensation and normal annual merit adjustments, accounted for the vast
majority of the 8.9% increase in the salary portion of the category.
Similarly, the benefit portion of the category rose 9.8% in 1994.
In 1995 salary and benefits rose 1.9% compared with 1994. The salary portion
of this category rose less than 1.0% due largely to reduced payments under an
incentive based compensation program. The impact of a full year of a
structured salary administration program which enhanced the relationship
between job value and compensation was also a contributor. In 1995 the
benefits portion of this category grew 6.5% primarily due to increased costs
in the health and welfare program and expenses associated with the
implementation of a company wide career apparel benefit.
Occupancy and equipment expense decreased 4.1% between 1993 and 1994 and
rose 5.2% between 1994 and 1995. The reduction experienced in 1994 was due to
a subsidiary bank, in late 1993, leasing portions of unused facility space and
overall reductions in certain utility costs. The increase in 1995 was,
primarily, attributed to depreciation expense for fixed asset outlays
associated with Northern Illinois' decision to transfer the item processing
function from a third-party vendor to Northern Illinois' centralized operation
division. The 1995 addition of two banking locations also contributed to the
increase.
Data processing expenses were $1,987,000, $1,627,000 and $1,085,000 for the
years ended 1993, 1994 and 1995. Such expenses were lower in 1994 as compared
to 1993 due to one-time conversion costs that were
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<PAGE>
recorded in 1993 when Northern Illinois converted the major portion of its
application data processing function to a new third-party provider. The 33.3%
reduction recorded in 1995 compared to 1994 was primarily the result of
Northern Illinois' decision to transfer the function of item processing from a
third-party vendor to Northern Illinois' centralized operation division.
Other expenses were $8,175,000 in 1993, $8,322,000 in 1994 and $8,147,000 in
1995 The 1.80% increase in 1994, as compared to 1993, was largely due to an
increase in professional fees that was offset by reductions in expenses to
carry and maintain other real estate owned. In 1995, the Federal Deposit
Insurance Corporation reduced the deposit premium rate to reflect that the
Bank Insurance Fund had neared fully funded status. Financial institutions
deposit premium rates are based on capital adequacy. The Northern Illinois
Banks are classified "well capitalized" and pay the lowest premium rate. The
premium reduction and reduced costs to carry and maintain other real estate
owned offset by material increases in inter-bank courier and employee training
expenses accounted for the decrease. The increase in inter-bank courier
expenses were the result of the 1995 transfer of the item processing function
from a third-party vendor to Northern Illinois' centralized operation
division. The increase in employee training expenses reflects Northern
Illinois' focus on formal and comprehensive sales, service, and system
education.
Income Taxes. Income taxes were $884,000, $2,139,000 and $3,475,000,
representing effective tax rates of 10.7%, 21.9% and 24.4% for the years ended
1993, 1994, and 1995, respectively. The increase in effective tax rates
reflects the reduced dollar volume of interest income exempt from federal
income taxes, coupled with the increased pre-tax income for each succeeding
year.
Liquidity and Interest Rate Sensitivity. Northern Illinois and the Northern
Illinois Banks oversee the liquidity position of the Northern Illinois Banks
to insure that sufficient funds are available for asset growth and to meet
customers' needs for borrowing and deposit withdrawals. The major sources of
liquidity are cash from operating activities, customer liabilities, securities
available for sale, credit accommodations from other banks, and payments on
loans. Analysis of liquidity position and risk is performed on a consolidated
basis as well as at the subsidiary bank level. The "gap table" presented
earlier in this Joint Proxy Statement--Prospectus reconciles principal
payments and maturing interest-earning assets and interest bearing
liabilities. Northern Illinois' liquidity ratios are within industry peer
group norms.
Interest-rate sensitivity has a major impact on the earnings of Northern
Illinois in changing rate environments. The interest-rate risk management of
Northern Illinois and the Northern Illinois Banks operates under a written
policy administered through asset and liability management committees of
Northern Illinois and the Northern Illinois Banks. The measurement and
monitoring of short- and long-term interest-rate risk is necessary to insure
stable earnings in different interest rate environments. Northern Illinois and
each of the Northern Illinois Banks have measurement systems that provide
information on exposures to both long- and short-term interest-rate risk.
Proper management of this risk involves matching interest sensitive assets and
liabilities in the short and long term (see the "gap table" presented earlier
in this Joint Proxy Statement--Prospectus). The measurement system also
provides the projected effect on the net interest income in a most likely
scenario and four different falling and four different rising rate scenarios.
Northern Illinois' consolidated measurements indicate manageable exposure to
earnings fluctuations associated with swings in the interest rate environment.
Shareholders' Equity. Northern Illinois' major source of capital is the
retention of net income. Total shareholder equity was $77,560,000, $74,659,000
and $93,896,000 for the years ended 1993, 1994, and 1995. Total shareholders'
equity includes net unrealized gains (losses) on securities available for
sale, net of tax. Total shareholder equity less the adjustment for net
unrealized gains (losses) on securities available for sale, net of tax, would
have been $73,443,000, $78,068,000 and $85,088,000 for years ended 1993, 1994
and 1995 respectively. Growth in shareholder equity excluding the adjustment
for unrealized gains and losses on investment securities available sale was
6.3% in 1994 and 9.0% in 1995. Average shareholder equity to total average
assets for the years ended 1993, 1994, and 1995 was 8.6%, 8.8% and 9.2%.
Regulatory capital ratios are categorized as "well
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<PAGE>
capitalized," "adequately capitalized" and "undercapitalized." The table below
illustrates regulatory capital ratios:
<TABLE>
<CAPTION>
TOTAL RISK BASED TIER I RISK BASED LEVERAGE
CAPITAL CATEGORY CAPITAL % CAPITAL % RATIO
---------------- ---------------- ----------------- --------
<S> <C> <C> <C>
Well Capitalized................. 10% 6% 5%
Adequately Capitalized........... 8% 4% 4%
Undercapitalized................. < 8% < 4% < 4%
</TABLE>
On December 31, 1995 Northern Illinois' total risk-based capital ratio, Tier I
risk-based capital ratio and leverage capital ratio were 13.60%, 12.76% and
8.98%, respectively. As of December 31, 1995, the Northern Illinois Banks met
the definition of "well capitalized" for each of the capital ratios.
Inflation. The impact of inflation on a banking organization is difficult to
assess. Unlike an industrial company, a banking organization's assets and
liabilities are primarily monetary. Therefore, a banking organization does not
necessarily gain or lose because of inflation. Moreover, interest rates, which
are a major determinant of a banking organization's profitability, do not
necessarily follow changes in the prices of goods and services. An analysis of
a banking organization's asset and liability structure provides the best
indication of how it is positioned to respond to changing interest rates and
maintain profitability.
Fair Value of Financial Instruments. Disclosures as to fair value of
Northern Illinois' financial instruments appear in the notes to the
consolidated financial statements. Changes in the methods and assumptions used
to estimate the fair value of each class of financial instruments may have a
material effect on those estimated values. It should be noted that assets and
liabilities which are not considered financial instruments have not been
valued in Northern Illinois' disclosure. Management of Northern Illinois is
concerned that reasonable comparability between financial institutions may not
be feasible due to the wide range of permitted valuation techniques, given the
absence of active secondary markets for many of these financial instruments.
The lack of uniform valuation methods also introduces a greater degree of
subjectivity to these estimated fair values.
Impact of New Accounting Standards. In May 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 122 "Accounting for Mortgage
Servicing Rights," effective for fiscal years beginning after December 31,
1995. SFAS No. 122 requires the recognition of a separate asset related to the
rights to service loans for others no matter how acquired. Assessment of the
capitalized mortgage servicing rights for impairment would be based on fair
value. In December 1995, Northern Illinois sold all its servicing rights with
a final transfer date of February, 1996. Northern Illinois does not intend to
retain or acquire mortgage servicing in the future. Therefore implementation
of this accounting standard will have no impact on Northern Illinois'
earnings.
Statement of Position 94-6 (SOP 94-6), "Disclosure of Certain Significant
Risks and Uncertainties" is effective for fiscal years ending after December
15, 1995. This statement requires disclosures of risks and uncertainties that
could significantly affect the amounts reported in the financial statements in
the near term and stem from (a) the nature of an entity's operations, (b) the
necessary use of estimates in preparation of the financial statements and (c)
significant concentrations in aspects of an entity's operations. Disclosures
relating to items in SOP 94-6 are referred to in the notes to consolidated
financial statements item No. 1 and do not have an impact on amounts recorded
in the financial statements.
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CERTAIN INFORMATION CONCERNING PREMIER
CERTAIN BENEFICIAL OWNERS OF PREMIER COMMON STOCK
The following table sets forth information regarding the shares of Premier
Common Stock beneficially owned, as well as of GPF Common Stock beneficially
owned on a pro forma basis, by holders known to Premier to have beneficially
owned more than 5% of the voting securities of Premier as of June 17, 1996:
<TABLE>
<CAPTION>
PREMIER COMMON STOCK GPF COMMON STOCK TO BE
BENEFICIALLY OWNED AS OF BENEFICIALLY OWNED AFTER
JUNE 17, 1996 THE MERGER
------------------------------ ---------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME AND ADDRESS SHARES CLASS(1) SHARES CLASS(2)
---------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Premier Trust Services,
Inc.................... 1,161,389(3) 17.62% 1,296,110 6.51%
110 West Main Street
Freeport, IL 61032
Premier Financial Serv-
ices, Inc.............. 696,797(4) 10.57% 777,625 3.90%
Savings and Stock Plan
c/o Premier Trust Serv-
ices, Inc.
110 W. Main Street
Freeport, IL 61032
NBD Bank N.A............ 736,842(5) 10.05% 822,315 3.96%
Trustee of the Thomas D.
Flanagan Blind
Voting Trust dated
7/15/93
P.O. Box 77975
Detroit, MI 48277
American Midwest Bank &
Trust.................. 569,621(6) 8.61% 635,697 3.19%
Trustee of Trust Number
6486
u/t/a dated 7/15/93
1600 West Lake Street
Melrose Park, IL 60160
Richard L. Geach........ 478,715(7) 7.18% 534,245 2.67%
1944 Mesa Drive
Freeport, IL 61032
Harold L. Fenton........ 372,270(8) 5.65% 415,453 2.09%
16640 Bobcat Court
Fort Myers, FL 33908
</TABLE>
- --------
(1) Based upon 6,592,582 shares outstanding plus, with respect to each
beneficial owner, the shares such beneficial owner has the right to
acquire within 60 days of June 17, 1996, pursuant to the exercise of stock
options or the conversion of shares of Premier Series B Stock. In
connection with the Merger, outstanding stock options to acquire Premier
Common Stock will be converted into options to acquire GPF Common Stock on
the basis of the applicable exchange ratio.
(2) Pro Forma percentages represent beneficial ownership of issued and
outstanding GPF Common Stock after consummation of the Merger based upon
each holder's beneficial ownership of Premier Common Stock as of June 17,
1996, and are based upon 19,923,653 shares of GPF Common Stock outstanding
plus, with respect to each beneficial owner, the shares such beneficial
owner would have the right to acquire within 60 days therefrom.
(3) The shares listed in the table are held in various capacities with Premier
Trust and include 696,797 shares listed opposite the Premier Financial
Services, Inc. Savings and Stock Plan (the "Savings and Stock Plan") for
which Premier Trust serves as trustee. Of the 1,161,389 shares listed in
the table, Premier Trust has sole investment power with respect to 459,120
shares, shared investment power with respect to 470,585 shares (including
455,570 shares held in individual participant accounts in the 401(k) and
profit sharing portion of the Savings and Stock Plan), and no investment
power over the remaining 231,684 shares. Premier Trust
116
<PAGE>
has sole voting power with respect to 331,773 shares, no voting power with
respect to 132,819 shares, and no voting power with respect to the shares
held in the Savings and Stock Plan (unless the failure to vote such shares
would be inconsistent with the fiduciary obligations of Premier Trust
Services, Inc., as described in Note 4, below).
(4) Includes 241,227 shares in the employee stock ownership portion of the
Savings and Stock Plan (the "ESOP"), and 455,570 shares held in individual
participant accounts in the 401(k) and profit-sharing portion of the
Savings and Stock Plan for which Premier Trust serves as trustee.
Participants are entitled to direct the trustee as to the voting of shares
held in their accounts in either the ESOP or 401(k) portion of the Savings
and Stock Plan. Shares held in individual participant accounts for which
no directions are received will not be voted by the trustee, unless such
failure to vote would be inconsistent with the trustee's fiduciary
responsibilities. Participants have the right to direct the disposition of
shares held in the 401(k) and profit-sharing portion of the Savings and
Stock Plan, but no right to direct the disposition of shares held in the
ESOP portion until such time as an individual participant has a right to
the distribution of such shares under the terms of the ESOP. Premier
Trust, as trustee, has the right to determine whether or not to tender any
of the shares held in the Savings and Stock Plan.
(5) Represents shares of Premier Common Stock issuable within 60 days upon the
conversion of $7,000,000 in stated value of the Premier Series B Preferred
Stock, which is convertible into Premier Common Stock at $9.50 per share.
Terms of the trust direct that shares of Premier Common Stock, if any, be
voted in proportion to all other shares of Premier Common Stock with
respect to any issue requiring a vote of the holders of the Premier Common
Stock. Thomas D. Flanagan has full investment power over the shares of
stock held in the trust.
(6) Includes 26,315 shares of Premier Common Stock issuable within 60 days
upon conversion of $250,000 of the Premier Series B Preferred Stock, which
is convertible into Premier Common Stock at $9.50 per share, and 543,306
shares of Premier Common Stock currently held in the trust. Terms of the
trust direct that shares of Premier Common Stock be voted in proportion to
all other shares of Premier Common Stock with respect to any issue
requiring a vote of the holders of the Premier Common Stock. James M.
Flanagan has full investment power over the shares of stock held in the
trust.
(7) Includes 180,432 shares held by Janice (Mrs. Richard L.) Geach, 70,446
shares held in the Savings and Stock Plan, and 76,751 shares issuable
pursuant to options which are exercisable within 60 days of June 17, 1996.
Mr. Geach has sole voting power and shared investment power over all
shares held in the Savings and Stock Plan. Mr. Geach disclaims beneficial
ownership of the shares held by his wife. The shares listed do not include
43,856 shares held in the trust established pursuant to the Senior
Leadership and Directors Deferred Compensation Plan (the "Deferred
Compensation Plan") of Premier over which Premier shares investment power
with the trustee. Mr. Geach, as a director and chief executive officer of
Premier may be deemed to share Premier's investment power with the other
members of Premier's board of directors with respect to those shares.
(8) Includes 77,055 shares held by Gwen (Mrs. Harold L.) Fenton. Mr. Fenton
disclaims beneficial ownership of the shares held by his wife.
117
<PAGE>
The following table sets forth information regarding the shares of Premier
Common Stock beneficially owned, as well as of GPF Common Stock beneficially
owned on a pro forma basis, by each director of Premier, the named executive
officers of Premier, and all of Premier's directors and officers as a group,
as of June 17, 1996.
<TABLE>
<CAPTION>
PREMIER COMMON STOCK GPF COMMON STOCK TO BE
BENEFICIALLY OWNED AS OF BENEFICIALLY OWNED AFTER
JUNE 17, 1996 THE MERGER
--------------------------------------- ---------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME SHARES(1) CLASS(2) SHARES CLASS(3)
---- ------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Directors:
Richard L. Geach...... 478,715(4)(5)(6)(7) 7.18% 534,245 2.67%
Edward G. Maris....... 2,316(4) * 2,584 *
Donald E. Bitz........ 47,841(4) * 53,390 *
David L. Murray....... 67,028(4)(5)(6)(8) 1.01% 74,803 *
Joseph C. Piland...... 7,762(4) * 8,662 *
R. Gerald Fox......... 36,032(4) * 40,211 *
Charles M. Luecke..... 18,030(4) * 20,121 *
H. Barry Musgrove..... 26,457(4)(10) * 29,526 *
Certain executive offi-
cers:
Kenneth A. Urban...... 110,196(4)(5)(6) 1.66% 122,978 *
Steve E. Flahaven..... 49,941(5)(6) * 55,734 *
Directors and executive
officers as a group (12
individuals, including
all those listed
above)................. 1,015,469(1)(2)(3)(11) 14.78% 1,133,263 5.60%
</TABLE>
- --------
*Less than one percent (1%).
(1) The information contained in this column is based upon information
furnished to Premier by the individuals named in the table. Except as set
forth in the following notes, each individual has sole voting and
investment power with respect to the shares owned by him or her.
(2) Based upon 6,592,582 shares outstanding plus, with respect to each
beneficial owner, the shares such beneficial owner has the right to
acquire within 60 days of June 17, 1996 pursuant to the exercise of stock
options.
(3) Pro Forma percentages represent beneficial ownership of issued and
outstanding GPF Common Stock after consummation of the Merger based upon
each holder's beneficial ownership of Premier Common Stock as of June 17,
1996, and the number of shares of Premier Common Stock that each
beneficial owner would have the right to acquire within 60 days of June
17, 1996 pursuant to the exercise of stock options. The percentages are
based upon 19,923,653 shares of GPF Common Stock outstanding, plus, with
respect to each holder, the number of shares of GPF Common Stock such
holder would have the right to acquire within 60 days of June 17, 1996
pursuant to the exercise of stock options. In connection with the Merger,
outstanding stock options to acquire Premier Common Stock will be
converted into options to acquire GPF Common Stock on the basis of the
exchange ratio. See "THE MERGER--Conversion of Options."
(4) The shares listed do not include 43,856 shares held in the trust
established pursuant to the Deferred Compensation Plan over which Premier
shares investment power with the trustee. Each of the directors of
Premier, in his capacity as a director, may be deemed to share Premier's
investment power with the other members of the board of directors with
respect to those shares.
(5) Includes shares held in the Savings and Stock Plan over which the
individual executive officer has sole voting power and shared investment
power as follows: Mr. Geach, 70,446 shares; Mr. Murray, 5,677 shares; Mr.
Urban, 53,527 shares; Mr. Flahaven, 11,028 shares; all executive officers
and directors as a group, 175,657 shares. See also note 4 to the
beneficial ownership table on page 116.
(6) Includes shares that could be acquired within 60 days of June 17, 1996,
pursuant to the exercise of stock options as follows; Mr. Geach, 76,751
shares; Mr. Murray, 57,354 shares; Mr. Urban, 47,063 shares; Mr.
Flahaven, 37,350 shares; all executive officers and directors as a group,
276,402 shares.
118
<PAGE>
(7) Includes 180,432 shares held by Mr. Geach's spouse as to which Mr. Geach
disclaims beneficial ownership.
(8) Includes 3,997 shares held by Mr. Murray's spouse as to which Mr. Murray
disclaims beneficial ownership.
(9) Includes 762 shares held by Mr. Piland's spouse as to which Mr. Piland
disclaims beneficial ownership.
(10) Includes 3,000 shares held by Mr. Musgrove's spouse as to which Mr.
Musgrove disclaims beneficial ownership.
(11) Includes 194,341 shares held by or for the benefit of spouses or children
of directors or executive officers as to which such directors or
executive officers disclaim beneficial ownership.
Stephen J. Schostok has been chosen by Premier to be a Premier
Representative on the GPF board of directors following the Merger. Mr.
Schostok currently does not beneficially own any shares of Premier Common
Stock.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by Premier in the last
three fiscal years to those executive officers of Premier who are currently
expected to be executive officers of GPF after the Effective Time.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------- ----------------------
AWARDS PAYOUTS
---------- --------------
OTHER ANNUAL SECURITIES LONG TERM ALL OTHER
COMPENSATION OPTIONS INCENTIVE COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1) (#) PAYOUTS ($)(2) (3)
- --------------------------- ---- ---------- --------- ------------ ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard L. Geach........ 1995 176,292 0 4,800 15,000 0 8,296
President & CEO of 1994 176,292 0 4,800 0 36,838 9,335
Premier 1993 173,250 0 4,800 4,500 0 10,240
David L. Murray......... 1995 130,008 0 4,800 11,100 0 8,296
Executive Vice 1994 123,495 0 4,800 0 27,963 7,551
President & Chief 1993 113,940 0 4,800 2,385 0 7,050
Financial Officer of
Premier
</TABLE>
- --------
(1) Taxable allowance for use of automobiles owned by the executive officer
for business purposes.
(2) Premier terminated its 1990 Performance Unit Plan in 1994. The amount
shown for each named individual is the discounted present value, as
determined by the board of directors, of outstanding grants as of December
31, 1994. No payouts were made prior to 1994, and subsequent to payment
all outstanding grants were canceled.
(3) Amounts accrued for the benefit of the named individuals under the Savings
and Stock Plan and Deferred Compensation Plan.
119
<PAGE>
STOCK OPTIONS
The following table sets forth information regarding stock options exercised
by Mr. Geach and Mr. Murray during the year ended December 31, 1995, as well
as the value of unexercised stock options outstanding at fiscal year end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
SECURITIES TOTAL VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END (#) FISCAL YEAR END ($)(1)
------------------------- ------------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Geach........ -- -- 73,751 26,101 392,636 53,217
David L. Murray......... -- -- 55,134 16,707 303,815 33,058
</TABLE>
- --------
(1) Based on the fair market value (closing bid price) of the Premier Common
Stock on December 31, 1995, as reported on the Nasdaq National Market.
The following table sets forth awards made under Premier's 1995 Non-
Qualified Stock Option Plan during the fiscal year ended December 31, 1995:
STOCK OPTIONS GRANTED IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
- ----------------------------------------------------------------------------------- ----------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE OR
UNDERLYING OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE)(2) DATE 5% ($) 10% ($)
- ---- ------------------ --------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Geach........ 15,000 22.06 6.88 01/26/05 64,901 164,473
David L. Murray......... 11,100 16.32 6.88 01/26/05 48,027 121,710
</TABLE>
- --------
(1) Premier's 1995 Non-Qualified Stock Plan provides that the board of
directors may grant options to key employees to purchase shares of Premier
Common Stock. Up to 200,000 shares of Premier Common Stock have been
authorized for issuance pursuant to the plan. Options may be granted from
time-to-time for any number of shares, and upon such terms and conditions
that Premier's board of directors judges desirable, provided that no
options may be granted after December 31, 2004. Each option granted under
the plan is evidenced by an agreement subject to, among others, the
following terms and conditions: 1) the option price may not be less than
the fair market value of the shares on the date of grant, 2) exercised
options must be paid for in full at the time of exercise in a form as
specified in the plan, and 3) options granted will expire as specified in
the agreement, but in no case later than 10 years from the date of grant.
(2) The fair market value of the Premier Common Stock (i.e., the average of
the high and low sales prices per share of Premier Common Stock) as
reported on the Nasdaq National Market on January 26, 1995, the date of
grant.
120
<PAGE>
PENSION PLAN
Premier provides a defined benefit pension plan for its employees. Benefits
are calculated under a formula based upon the 5 highest of the last 10 years
of service. Effective July 1, 1994, benefits accumulating to plan participants
were frozen. Accrued benefits as of that date were fully funded. The following
table sets forth the annual benefits payable upon retirement at age 65 to
Messrs. Geach and Murray:
<TABLE>
<CAPTION>
AMOUNT PAYABLE
NAME ANNUALLY UPON RETIREMENT
---- ------------------------
<S> <C>
Richard L. Geach.................................. $26,342
David L. Murray................................... 30,122
</TABLE>
CHANGE IN CONTROL AND TERMINATION AGREEMENTS
Premier has entered into Change in Control and Termination Agreements (the
"Agreements") dated January 20, 1995 with six executive officers of Premier,
consisting of Mr. Geach, Mr. Murray, Steve E. Flahaven, Kenneth A. Urban,
Scott Dixon and Lan Pinney. Mr. Pinney has informed Premier of his intent to
retire effective July 1, 1996, and his Agreement with Premier will terminate
as of that date. Each Agreement has a term of 36 months, subject to automatic
extension, unless either party gives the other party notice if its election to
terminate such automatic extension. If such notice is given, the Agreement
will terminate 36 months from the date such notice is given. The Agreements
provide for certain benefits during a severance period (12 months) following
either (i) a change of control and termination of employment for any reason
other than good cause (as defined in the Agreements) at any time during the 24
months after a change of control occurs, or (ii) termination of employment by
the executive officer for good reason (as defined in the Agreements) at any
time during the 24 months following a change of control.
Subsequent to such change of control and termination, the executive is
entitled to receive the following benefits: (i) a lump sum payment equal to
monthly base salary at the date of termination multiplied by 12,
(ii) continuation of coverage for the executive, his or her spouse and
dependents (for 12 months) under all Premier welfare plans in which the
executive participated prior to termination, except that substantially
identical benefits will be provided for any welfare plan in which
participation is no longer possible, (iii) a lump sum payment equal to the
amount of a bonus that would have been paid under any incentive plan during
the year of termination, pro rated for the number of months actually employed,
plus an amount equal to the average bonus paid to the executive for the three
years preceding termination, (iv) any benefits accrued under any retirement,
welfare or incentive plan in which the executive participated at date of
termination, (v) a lump sum payment equal to the amount which Premier would
have contributed on behalf of such officer to any deferred compensation plan
had termination not occurred, and (vi) immediate and full vesting of all
options so that such options become exercisable on the date of termination or
for 200 days thereafter, or, if such acceleration is not permissible under a
plan, a payment equal to the excess, if any, of the aggregate fair market
value of all stock of Premier subject to options held by the executive less
the aggregate exercise price of such stock on the date of termination. If the
executive officer dies during the severance period, his or her spouse or
beneficiary will receive the remainder of all unpaid benefits provided under
the Agreements.
The Merger does not constitute a "change in control" for purposes of the
Change in Control and Termination Agreements. The officers who are parties to
such agreements will therefore not be entitled to severance benefits under
such agreements as a result of the Merger.
Following consummation of the Merger, GPF will, however, assume the
obligations of Premier under such agreements, and the officers who are parties
to such agreements may be entitled to severance payments if their employment
is terminated other than for good cause (as defined in the agreement) or they
resign for good reason (as defined in the agreement) following an event,
subsequent to the Merger, that constitutes a "change of control" for purposes
of the Change in Control and Termination Agreements. If Mr. Geach, Mr. Murray,
Mr. Flahaven, Mr. Urban, and Mr. Dixon had become entitled to benefits under
the Agreements during the 1995 fiscal year, Mr. Geach, Mr. Murray, Mr.
Flahaven, Mr. Urban and Mr. Dixon would have been entitled to a lump sum
121
<PAGE>
cash severance payment equal to approximately $184,588, $138,304, $116,812,
$116,695 and $104,976, respectively. Such amounts equal the aggregate amounts
of the 12-month salary, bonuses and contributions made by Premier, on behalf
of such officer, under deferred compensation plans in 1995.
COMPENSATION OF DIRECTORS
As of December 31, 1995, directors who were not employees of Premier were
paid an annual retainer fee of $10,800 and $400 per meeting attended for
committee participation. Employees of Premier are not compensated separately
for their services as directors.
Under Premier's Deferred Compensation Plan, effective August 1, 1994,
directors of Premier may elect to defer up to 100% of their directors' fees.
Premier makes a matching contribution to the Deferred Compensation Plan equal
to 25% of the amount deferred. A director will become fully vested in such
matching contributions on the earliest of (i) the third anniversary of the
last day of the year in which such matching contributions were made, (ii) the
date on which the director ceases to be a member of Premier's board of
directors as a result of death or disability, or (iii) his retirement date (at
an age and/or following the number of years of service specified in the
Deferred Compensation Plan). Matching contributions may be forfeited in the
event that the director violates certain non-compete provisions of the
Deferred Compensation Plan during a two-year period following the date that he
ceases to be a member of Premier's board of directors. Under the terms of the
Deferred Compensation Plan and a related trust, all such deferred compensation
and matching contributions are invested in Premier Common Stock.
OTHER TRANSACTIONS WITH MANAGEMENT
Directors and executive officers of Premier and their associates were
customers of, and have had transactions with, Premier and in particular the
Premier Banks from time to time in the ordinary course of business. Additional
transactions may be expected to take place in the ordinary course of business
in the future. All loans and loan commitments included in such transactions
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than normal risk of collectability or
present other unfavorable features. As of June 17, 1996, loans aggregating
approximately $729,000 were outstanding to executive officers, directors,
principal holders of Premier's equity securities and to associates of such
persons.
122
<PAGE>
ADDITIONAL FINANCIAL INFORMATION CONCERNING PREMIER
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
The following table sets forth Premier's consolidated average daily condensed
balance sheet for each of the last five years (dollar figures in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash & Non-interest bearing
deposits....................... $ 15,129 $ 17,162 $ 30,003 $ 27,316 $ 27,036
Interest Bearing Deposits....... 1,114 880 1,677 12,027 3,606
Taxable Investment Securities... 114,281 95,691 102,323 185,110 222,011
Non-Taxable Investment
Securities..................... 26,200 24,374 37,038 40,498 38,200
-------- -------- -------- -------- --------
Total Investment Securities... 140,481 120,065 139,361 225,608 260,211
Trading Account Assets.......... 773 2,017 -- -- 333
Federal Funds Sold.............. 1,704 656 4,706 3,737 814
Loans (Net)..................... 182,975 219,684 273,951 287,825 298,508
All Other Assets................ 16,755 17,450 32,101 46,101 45,001
-------- -------- -------- -------- --------
TOTAL ASSETS.................. $358,931 $377,914 $481,799 $602,614 $635,509
======== ======== ======== ======== ========
LIABILITIES & STOCKHOLDERS EQUITY:
Non-Interest Bearing Deposits... $ 36,118 $ 38,402 $ 66,895 $ 88,594 $ 75,320
Interest Bearing Deposits....... 244,253 259,271 335,510 420,530 459,645
-------- -------- -------- -------- --------
Total Deposits................ 280,371 297,673 402,405 509,124 534,965
Short Term Borrowings........... 49,544 47,556 24,014 33,033 37,761
Long Term Debt.................. 826 -- -- -- --
All Other Liabilities &
Reserves....................... 2,861 2,844 10,785 4,619 5,310
Stockholders' Equity............ 25,329 29,841 44,595 55,838 57,473
-------- -------- -------- -------- --------
TOTAL LIABILITIES & EQUITY.... $358,931 $377,914 $481,799 $602,614 $635,509
======== ======== ======== ======== ========
</TABLE>
123
<PAGE>
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table sets forth Premier's interest earned or paid, as well as
the average yield or average rate paid on each of the major interest-earning
assets and interest-bearing liabilities for each of the last five years
(dollar figures are in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest Earned:
Interest Bearing Deposits
Interest Earned.................... $ 94 $ 68 $ 104 $ 514 $ 213
Average Yield...................... 8.43% 7.73% 6.20% 4.27% 5.91%
Taxable Investment Securities
Interest Earned.................... 9,387 6,691 6,077 9,929 14,076
Average Yield...................... 8.21% 6.99% 5.94% 5.36% 6.34%
Non-Taxable Investment Securities
(taxable equivalent)(1)
Interest Earned.................... 2,593 2,418 2,938 3,658 3,631
Average Yield...................... 9.89% 9.92% 7.93% 9.03% 9.50%
Trading Account Assets
Interest Earned.................... 58 151 -- -- 20
Average Yield...................... 7.50% 7.49% -- -- 6.01%
Federal Funds Sold
Interest Earned.................... 88 25 133 150 50
Average Yield...................... 5.16% 3.81% 2.83% 4.01% 6.14%
Loans (Excluding Unearned Discount &
Non Accrual Loans) (taxable equiva-
lent)(1)
Interest & Fees Earned(2).......... 19,357 19,860 22,262 23,641 27,739
Average Yield(3)................... 10.56% 9.06% 8.13% 8.21% 9.29%
Interest Paid:
Interest Bearing Deposits
Interest Paid...................... 14,358 11,559 11,461 13,511 19,851
Average Effective Rate Paid........ 5.87% 4.46% 3.42% 3.21% 4.32%
Borrowed Funds
Interest Paid...................... 2,921 1,800 1,289 1,619 2,309
Average Effective Rate Paid........ 5.89% 3.79% 5.37% 4.90% 6.11%
Long Term Debt
Interest Paid...................... 88 -- -- -- --
Average Effective Rate............. 10.65% -- -- -- --
Margin Between Rates Earned and Rates
Paid:
All Interest Earnings Assets (taxable
equivalent)
Interest & Fees Earned............. 31,577 29,213 31,514 37,892 45,729
Average Yield...................... 9.65% 8.52% 7.44% 7.18% 8.11%
All Interest Bearing Liabilities
Interest Paid...................... 17,367 13,359 12,750 15,130 22,160
Average Effective Rate Paid........ 5.89% 4.35% 3.55% 3.33% 4.46%
Net Interest Earned.................. 14,210 15,854 18,764 22,762 23,569
Net Yield............................ 4.34% 4.62% 4.43% 4.32% 4.18%
</TABLE>
- --------
(1)Yields on tax exempt securities and loans are full tax equivalent yields at
34%.
(2)Includes fees of $548, $568, $718, $675 and $678 for 1991 through 1995
respectively.
(3)There were no material out-of-period adjustments or foreign activities for
any reportable period.
124
<PAGE>
CHANGES IN INTEREST MARGIN
The following table sets forth Premier's dollar amount of change in interest
earned on each of the major interest-earning assets and the dollar amount of
change in interest paid on each of the major interest-bearing liabilities, as
well as the portion of such changes attributable to changes in rate and
changes in volume for each of the last two years (dollar figures in
thousands):
<TABLE>
<CAPTION>
INCREASE (DECREASE)
---------------------------------
1994 OVER 1993 1995 OVER 1994
---------------- ----------------
RATE VOLUME RATE VOLUME
------ -------- ------- --------
<S> <C> <C> <C> <C>
Changes in Interest Earned:
Interest Bearing Deposits..................... $ (42) $ 452 $ 148 $ (449)
Taxable Investment Securities................. (644) 4,496 1,984 2,163
Non-taxable Investment Securities (taxable
equivalent).................................. 290 430 186 (213)
Trading Account Assets........................ -- -- -- 20
Fed Funds Sold................................ 48 (31) 55 (155)
Loans (net)................................... 224 1,155 3,196 902
------ ------- ------- -------
Total....................................... (124) 6,502 5,569 2,268
Changes in Interest Paid:
Interest Bearing Deposits..................... (735) 2,785 4,996 1,344
Short Term Borrowings......................... (121) 451 436 254
------ ------- ------- -------
Total....................................... (856) 3,236 5,432 1,598
------ ------- ------- -------
Changes in Interest Margin...................... $ 732 $ 3,266 $ 137 $ 670
====== ======= ======= =======
</TABLE>
Changes attributable to rate/volume, i.e., changes in the interest margin
which occurred because of a combination rate/volume change and cannot be
attributed solely to a rate change or a volume change, are apportioned between
rate and volume as follows:
1. Percentage rate increases (decreases) in rate and in volume were
calculated for each major interest earning asset and interest bearing
liability based upon their year-to-year change.
2. The percentage rate changes in rate and in volume were then allocated
proportionately in relationship to 100%.
3. The proportionate allocations were applied to the total rate/volume
change.
INVESTMENT PORTFOLIO
The following table sets forth Premier's book values of investments in
obligations of the United States treasury, United States government agencies
and corporations, state and political subdivisions (U.S.), and other
securities for each of the last five years (dollar figures in thousands):
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Agency Se-
curities......................... $ 89,825 $ 77,897 $140,725 $203,956 $219,315
Obligations of States and Politi-
cal Subdivisions................. 25,258 24,358 36,693 40,513 40,463
Other Securities.................. 10,308 3,580 3,068 4,009 5,548
-------- -------- -------- -------- --------
Total........................... $125,391 $105,835 $180,486 $248,478 $265,326
======== ======== ======== ======== ========
</TABLE>
125
<PAGE>
The following table sets forth Premier's book values of investments in
obligations of the United States treasury, United States government agencies
and corporations, state and political subdivisions (U.S.), and other
securities as of December 31, 1995 by maturity and also sets forth the
weighted average yield for each range of maturities:
<TABLE>
<CAPTION>
OBLIGATIONS OF
U.S. TREASURY STATES AND WEIGHTED
AND U.S. AGENCY POLITICAL OTHER AVERAGE
BOOK VALUE: SECURITIES SUBDIVISIONS SECURITIES YIELD
----------- --------------- -------------- ---------- --------
<S> <C> <C> <C> <C>
One Year or Less......... $ 41,512 $ 8,350 $ 86 6.56%
After One Year to Five
Years................... 53,248 18,230 256 7.33%
After Five Years to Ten
Years................... 52,256 7,986 -- 7.84%
Over Ten Years........... 72,299 5,897 5,206 7.00%
-------- ------- ------
Total.................. $219,315 $40,463 $5,548 7.11%
======== ======= ======
</TABLE>
- --------
(1) Weighted average yields were calculated as follows:
1. The weighted average yield for each category in the portfolio was
calculated based upon the maturity distribution shown in the table
above.
2. The yields determined in step 1 were weighted in relation to the total
investments in each maturity range shown in the table above.
(2)Yields on tax-exempt securities are full tax-equivalent yields at a 34%
rate.
(3) At December 31, 1995 Premier did not own any obligation of a state or
political subdivision or other security which was greater than 10% of its
total equity capital.
LOAN PORTFOLIO
The following table sets forth Premier's loan portfolio by major category
for each of the last five years (dollar figures in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial & Financial Loans...... $ 80,420 $ 82,800 $114,552 $ 86,181 $ 95,327
Agricultural Loans................ 32,428 45,924 40,972 31,564 29,905
Real Estate--Construction Loans... 4,627 7,729 10,058 6,854 3,685
Real Estate--Residential Mortgage
Loans............................ 64,986 52,540 100,138 84,462 84,720
Real Estate--Other................ 18,289 16,904 35,832 53,289 92,000
Loans to Individuals.............. 13,364 13,268 29,728 22,056 21,066
Other Loans....................... 859 980 625 394 272
-------- -------- -------- -------- --------
214,973 220,145 331,905 284,800 326,975
Less:
Unearned Discount............... 231 182 518 344 278
Allowance for Possible Loan
Losses......................... 3,202 2,713 4,369 3,688 3,850
-------- -------- -------- -------- --------
Net Loans......................... $211,540 $217,250 $327,018 $280,768 $322,847
======== ======== ======== ======== ========
</TABLE>
The following tables set forth Premier's loan maturity distribution for
certain major categories of loans as of December 31, 1995 (dollar figures in
thousands):
<TABLE>
<CAPTION>
AMOUNT DUE IN
--------------------------------------
1 YEAR OR LESS 1-5 YEARS AFTER 5 YEARS
-------------- --------- -------------
<S> <C> <C> <C>
Commercial & Financial Loans.......... $ 72,291 $24,294 $ 1,182
Agricultural Loans.................... 18,841 8,386 2,678
Real Estate--Other Loans.............. 23,079 58,302 10,619
-------- ------- -------
Total............................... $114,211 $90,982 $14,479
======== ======= =======
</TABLE>
126
<PAGE>
As of December 31, 1995 loans totaling $105,146, which are due after one
year, have predetermined interest rates, while $315 of loans due after one
year have floating interest rates.
RISK ELEMENTS IN THE LOAN PORTFOLIO
Premier's financial statements are prepared on the accrual basis of
accounting, and substantially all of the loans currently accruing interest are
accruing at the rate contractually agreed upon when the loan was negotiated.
When in the judgment of Premier's management the timely receipt of interest
payments on a loan is doubtful, it is Premier's policy to cease the accrual of
interest thereon and to recognize income on a cash basis when payments are
received, unless there is adequate collateral or other substantial basis for
continued accrual of interest. An exception is made in the case of consumer
installment and charge card loans; such loans are not placed on a cash basis
and all interest accrued thereon is charged against income at the time a loan
is charged off. At the time a loan is placed in non-accrual status all
interest accrued in the current year but not yet collected is reversed against
current interest income. Troubled debt restructurings (renegotiated loans) are
loans on which interest is being accrued at less than the original contractual
rate of interest because of the inability of the borrower to service the
obligation under the original terms of the agreement. Income is accrued at the
renegotiated rate so long as the borrower is current under the revised terms
and conditions of the agreement. Other real estate is real estate, sales
contracts, and other assets acquired because of the inability of the borrower
to serve the obligation of a previous loan collateralized by such assets.
The following table sets forth Premier's non-accrual, past due, and
renegotiated loans, and other real estate for the three months ended March 31,
1996 and each of the last five years (dollar figures in thousands):
<TABLE>
<CAPTION>
QUARTER
ENDED
YEAR ENDED DECEMBER 31 MARCH 31,
----------------------------------- ---------
1991 1992 1993 1994 1995 1996
------ ------ ------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Non-accrual Loans................ $3,683 $2,915 $ 5,791 $4,879 $2,345 $1,881
Loans Past Due 90 days or more
and accruing.................... 501 152 5,151 519 158 831
Renegotiated Loans............... 314 288 523 261 75 --
Other Real Estate................ 48 153 1,749 1,403 1,453 1,245
------ ------ ------- ------ ------ ------
Total.......................... $4,546 $3,508 $13,214 $7,062 $4,031 $3,957
====== ====== ======= ====== ====== ======
</TABLE>
Premier's adoption of SFAS 114, effective January 1, 1995, did not impact
the comparability of the above table. See Note 1 to "Premier Financial
Services, Inc. and Subsidiaries, Notes to Consolidated Financial Statements."
Premier classified as impaired loans all non-accrual loans, loans past due
over 90 days and renegotiated loans included in the table.
The following table sets forth interest information for certain non-
performing loans for the year ended December 31, 1995 (dollar figures in
thousands):
<TABLE>
<CAPTION>
NON-ACCRUAL LOANS RENEGOTIATED LOANS
----------------- ------------------
<S> <C> <C>
Balance December 31, 1995................ $2,345 $75
Gross interest income that would have
been recorded if the loans had been cur-
rent in accordance with their original
terms................................... 230 6
Amount of interest included in net earn-
ings.................................... 67 8
</TABLE>
Gross interest income that would have been recorded for the three-month
period ended March 31, 1996 if non-accrual loans had been current in
accordance with their original terms totaled approximately $42,000. No
interest income on those loans was included in net income for the period.
SUMMARY OF LOAN LOSS EXPERIENCE
Premier and the Premier Banks have historically evaluated the adequacy of
their allowance for possible loan losses on an overall basis, and the
resulting provision charged to expense has similarly been determined in
relation to Premier management's evaluation of the entire loan portfolio. In
determining the adequacy of its allowance for possible loan losses, Premier
management considers such factors as the size, composition and quality of the
loan portfolio, historical loss experience, current loan losses, current
potential risks, economic conditions, and other risks inherent in the loan
portfolio.
Premier uses an independent internal loan review and risk grading system to
measure the quality of its loan portfolio on an ongoing basis. All loans
exceeding $150,000, as well as all non-accrual and other credits identified as
carrying more than a normal degree of risk, are reviewed, discussed and
evaluated by the Credit Committee of the Board of Directors at least quarterly
on a loan-by-loan basis. Other loans are evaluated by
127
<PAGE>
category, using the categories shown in the following table. Based upon its
evaluations, the Credit Committee makes recommendations to the Board of
Directors regarding expense provisions to the Allowance for Possible Loan
Losses.
Non-performing loans (i.e., non-accrual loans, loans past due 90 days or
more and still accruing, and renegotiated loans) increased minimally to $2.7
million as of March 31, 1996, as compared to $2.6 million at December 31,
1995. The first quarter provision of $100,000 offset net loan charge offs
which totaled $111,000 in the first quarter of 1996.
The 1995 provision of $636,000 was primarily related to overall growth in
the loan portfolio. Loans outstanding grew by $42.2 million from year-end 1994
to year-end 1995, while non-accrual loans declined by $2.5 million.
A minimal provision of $200,000 was expensed in 1994. Premier reduced its
portfolio of non-accrual loans and loans past due 90 days and still accruing
by $5.5 million from 1993 to 1994, while charging off $1,524,000 as losses.
Loans charged off were slightly less than the 1993 provision, and were offset
by $643,000 in recoveries on loans previously charged off.
Non-Accrual loans and loans past due 90 days and still accruing increased by
approximately $7.9 million from 1992 to 1993, primarily as a result of
applying Premier's loan review and risk-grading system to loans added through
Premier's acquisition of First Northbrook Bancorp, Inc. in July, 1993. Based
upon a review of individual credits and the overall loan portfolio as
described above, the 1993 expense provision totaled $1,620,000.
In 1992, $325,000 was expensed, despite a decline of $768,000 in non-accrual
loans from 1992 to 1991. The $325,000 increase to the allowance for loan
losses was primarily a result of further deterioration in a large non-accrual
loan.
Premier did not expense a provision for possible loan losses in 1991.
Recoveries of loans previously charged off exceeded losses charged off in
1991.
Because Premier has historically evaluated its allowance for loan losses on
an overall basis, the allowance has not been allocated by category. The
allocation shown in the table below, encompassing the major segments of the
loan portfolio judged most informative by Premier's management, represents
only an estimate for each category of loans based upon historical loss
experience and Premier's management's judgment of amounts deemed reasonable to
provide for the possibility of losses being incurred within each category.
Approximately 27% remains unallocated as a general valuation reserve for the
entire portfolio to cover unexpected variations from historical experience in
individual categories. The following table sets forth Premier's loan loss
experience for the quarterly periods ended March 31, 1996 and 1995 and for
each of the last five years (dollar figures in thousands):
<TABLE>
<CAPTION>
COMMERCIAL & LOANS TO
AGRICULTURAL REAL ESTATE INDIVIDUALS OTHER UNALLOCATED TOTAL
------------ ----------- ----------- ----- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED 3/31/96:
- ----------------------
Loans-Quarter End
(Gross)................ $127,010 $179,002 $17,479 $201 $ -- $323,692
Average Loans (Gross)... 122,132 178,484 18,101 227 -- 318,944
Allowance for Loan
Losses (Beginning of
Quarter)............... 943 1,501 334 21 1,051 3,850
Loans Charged Off....... 214 -- 17 -- -- 231
Recoveries--Loans previ-
ously Charged Off...... 101 -- 19 -- -- 120
-------- -------- ------- ---- ------ --------
Net Loan Losses (Recov-
eries)................. 113 -- (2) -- -- 111
Operating Expense Provi-
sion................... 100 -- -- -- -- 100
-------- -------- ------- ---- ------ --------
Allowance for Loan
Losses (Quarter End)... 930 1,501 336 21 1,051 3,839
Ratios:
Loans in Category to
Total Loans.......... 39.2% 55.3% 5.4% 0.1% 0.0% 100%
Net Loan Losses
(Recoveries) to
Average Loans........ 0.09% 0.00% (0.01%) 0.00% 0.00% 0.13%
</TABLE>
128
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL & LOANS TO
AGRICULTURAL REAL ESTATE INDIVIDUALS OTHER UNALLOCATED TOTAL
------------ ----------- ----------- ----- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED 3/31/95:
- ----------------------
Loans-Quarter End
(Gross)................ $123,555 $141,001 $20,982 $323 $ -- $285,861
Average Loans (Gross)... 123,256 140,425 21,888 327 285,896
Allowance for Loan
Losses (Beginning of
Quarter)............... 638 1,549 429 21 1,051 3,688
Loans Charged Off....... 404 76 99 -- -- 579
Recoveries--Loans previ-
ously Charged Off...... 77 -- 21 -- -- 98
-------- -------- ------- ---- ------ --------
Net Loan Losses (Recov-
eries)................. 327 76 78 -- -- 481
Operating Expense Provi-
sion................... 51 -- -- -- -- 51
-------- -------- ------- ---- ------ --------
Allowance for Loan
Losses (Quarter End)... 362 1,473 351 21 1,051 3,258
Ratios:
Loans in Category to
Total Loans.......... 43.2% 49.3% 7.3% 0.1% 0.0% 100%
Net Loan Losses
(Recoveries) to
Average Loans........ 0.27% 0.05% 0.36% 0.00% 0.00% 0.17%
<CAPTION>
COMMERCIAL & LOANS TO
AGRICULTURAL REAL ESTATE INDIVIDUALS OTHER UNALLOCATED TOTAL
------------ ----------- ----------- ----- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED 12/31/95:
- --------------------
Loans-Year End (Gross).. $127,672 $177,965 $21,066 $272 $ -- $326,975
Average Loans (Gross)... 127,829 154,155 20,089 337 -- 302,410
Allowance for Loan
Losses (Beginning of
Year).................. 638 1,549 429 21 1,051 3,688
Loans Charged Off....... 1,113 76 216 -- -- 1,405
Recoveries--Loans previ-
ously Charged Off...... 782 28 121 -- -- 931
-------- -------- ------- ---- ------ --------
Net Loan Losses (Recov-
eries)................. 331 48 95 -- -- 474
Operating Expense Provi-
sion................... 636 -- -- -- -- 636
-------- -------- ------- ---- ------ --------
Allowance for Loan
Losses (Year End)...... 943 1,501 334 21 1,051 3,850
Ratios:
Loans in Category to
Total Loans.......... 39.05% 54.43% 6.44% .08% -- 100%
Net Loan Losses
(Recoveries) to
Average Loans........ .26% .03% .47% -- -- .16%
<CAPTION>
COMMERCIAL & LOANS TO
AGRICULTURAL REAL ESTATE INDIVIDUALS OTHER UNALLOCATED TOTAL
------------ ----------- ----------- ----- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED 12/31/94:
- --------------------
Loans-Year End (Gross).. $122,956 $139,394 $22,056 $394 $ -- $284,800
Average Loans (Gross)... 131,808 135,561 24,354 581 -- 292,304
Allowance for Loan
Losses (Beginning of
Year).................. 1,105 1,607 585 21 1,051 4,369
Loans Charged Off....... 1,081 73 370 -- -- 1,524
Recoveries--Loans previ-
ously Charged Off...... 414 15 214 -- -- 643
-------- -------- ------- ---- ------ --------
Net Loan Losses (Recov-
eries)................. 667 58 156 -- -- 881
Operating Expense Provi-
sion................... 200 -- -- -- -- 200
-------- -------- ------- ---- ------ --------
Allowance for Loan
Losses (Year End)...... 638 1,549 429 21 1,051 3,688
Ratios:
Loans in Category to
Total Loans.......... 43.17% 48.95% 7.74% .14% -- 100%
Net Loan Losses
(Recoveries) to
Average Loans........ .50% .04% .64% -- -- .30%
</TABLE>
129
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED 12/31/93:
- --------------------
Loans-Year End (Gross).. $162,486 $139,066 $29,728 $ 625 $ -- $331,905
Average Loans (Gross)... 148,376 107,254 21,498 800 -- 277,928
Allowance for Loan
Losses (Beginning of
Year).................. 1,062 853 77 21 700 2,713
Allowance from Acquired
Entities............... 750 750 500 -- 351 2,351
Loans Charged Off....... 1,845 546 129 -- -- 2,520
Recoveries--Loans
previously Charged Off. 138 -- 67 -- -- 205
-------- -------- ------- ------ ------ --------
Net Loan Losses
(Recoveries)........... 1,707 546 62 -- -- 2,315
Operating Expense
Provision.............. 1,000 550 70 -- -- 1,620
-------- -------- ------- ------ ------ --------
Allowance for Loan
Losses (Year End)...... 1,105 1,607 585 21 1,051 4,369
Ratios:
Loans in Category to
Total Loans.......... 48.96% 41.90% 8.96% .18% -- 100%
Net Loan Losses
(Recoveries) to
Average Loans........ 1.15% .51% .29% -- -- .83%
YEAR ENDED 12/31/92:
- --------------------
Loans-Year End (Gross).. $134,265 $ 71,632 $13,268 $ 980 $ -- $220,145
Average Loans (Gross)... 129,764 77,851 13,976 1,041 -- 222,632
Allowance for Loan
Losses (Beginning of
Year).................. 1,553 832 97 21 700 3,203
Loans Charged Off....... 925 9 124 -- -- 1,058
Recoveries--Loans
previously Charged Off. 159 30 54 -- -- 243
-------- -------- ------- ------ ------ --------
Net Loan Losses
(Recoveries)........... 766 (21) 70 -- -- 815
Operating Expense
Provision.............. 275 -- 50 -- -- 325
-------- -------- ------- ------ ------ --------
Allowance for Loan
Losses (Year End)...... 1,062 853 77 21 700 2,713
Ratios:
Loans in Category to
Total Loans.......... 60.99% 32.54% 6.03% .44 -- 100%
Net Loan Losses
(Recoveries) to
Average Loans........ .59% (.03%) .50% -- -- .37%
<CAPTION>
COMMERCIAL & LOANS TO
AGRICULTURAL REAL ESTATE INDIVIDUALS OTHER UNALLOCATED TOTAL
------------ ----------- ----------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED 12/31/91:
- --------------------
Loans-Year End (Gross).. $116,205 $ 84,545 $13,364 $ 859 $ -- $214,973
Average Loans (Gross)... 101,545 69,453 13,873 1,500 -- 186,371
Allowance for Loan
Losses (Beginning of
Year).................. 1,394 837 208 21 700 3,160
Loans Charged Off....... 337 36 165 -- -- 538
Recoveries--Loans
previously Charged Off. 496 31 54 -- -- 581
-------- -------- ------- ------ ------ --------
Net Loan Losses
(Recoveries)........... (159) 5 111 -- -- (43)
Operating Expense
Provision.............. -- -- -- -- -- --
-------- -------- ------- ------ ------ --------
Allowance for Loan
Losses (Year End)...... 1,553 832 97 21 700 3,203
Ratios:
Loans in Category to
Total Loans.......... 54.06% 39.32% 6.22% .40 -- 100%
Net Loan Losses
(Recoveries) to
Average Loans........ (.16%) .01% .80% -- -- (.02%)
</TABLE>
130
<PAGE>
DEPOSITS
The following table sets forth Premier's average daily deposits for each of
the last five years (dollar figures in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Demand Deposits (Non-Interest
Bearing)......................... $ 36,119 $ 38,402 $ 66,895 $ 88,594 $ 75,320
Demand Deposits (Interest Bear-
ing)............................. 38,194 44,772 57,937 93,788 121,038
Savings Deposits.................. 67,456 73,684 95,351 154,188 126,021
Time Deposits..................... 138,603 140,815 182,222 172,554 212,586
Deposits in Foreign Bank Offices.. None None None None None
-------- -------- -------- -------- --------
Total Deposits.................. $280,372 $297,673 $402,405 $509,124 $534,965
======== ======== ======== ======== ========
</TABLE>
The following table sets forth the average rate paid on interest bearing
deposits by major category for each of the last five years (dollar figures in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Demand Deposits (Interest Bearing)................ 4.83% 3.67% 2.41% 2.37% 3.11%
Savings Deposits.................................. 4.89% 3.52% 2.74% 2.99% 3.33%
Time Deposits..................................... 6.65% 5.20% 4.09% 4.30% 5.59%
</TABLE>
TIME CERTIFICATES OF DEPOSIT/TIME DEPOSITS OF $100,000 OR MORE
The following table sets forth Premier's maturity distribution for all time
deposits of $100,000 or more as of December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
MATURITY AMOUNT OUTSTANDING
-------- ------------------
<S> <C>
3 Months or less........................................ $23,866
3 through 6 months...................................... 11,928
6 through 12 months..................................... 6,170
Over 12 months.......................................... 4,366
-------
Total................................................. $46,330
=======
</TABLE>
RETURN ON EQUITY AND ASSETS
The following table sets forth Premier's return on average assets, return on
average common equity, return on average equity, dividend payout ratio, and
average equity to average asset ratio for each of the last five years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Return on Average Assets..................... 1.01% 1.15% .83% .95% .99%
Return on Average Common Equity.............. 14.29% 14.58% 10.80% 11.11% 11.93%
Return on Average Equity..................... 14.29% 14.58% 8.99% 10.23% 10.90%
Dividend Payout Ratio........................ 16.75% 19.73% 29.27% 26.47% 27.27%
Average Equity to Average Asset Ratio........ 7.06% 7.90% 9.26% 9.27% 9.04%
</TABLE>
131
<PAGE>
SHORT-TERM BORROWINGS
The following table sets forth a summary of Premier's short-term borrowings
for each of the last five years (dollar figures in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance at End of Period:
Federal Funds Purchased and FHLB
Advances........................... $14,241 $ 4,272 $ -- $13,975 $23,975
Securities Sold Under Repurchase
Agreements......................... 43,688 14,854 20,571 16,086 18,635
Notes Payable to Banks.............. 260 1,880 12,410 12,210 8,750
Other............................... -- -- -- -- --
------- ------- ------- ------- -------
Total............................. $58,189 $21,006 $32,981 $42,271 $51,360
======= ======= ======= ======= =======
Weighted Average Interest Rate at the
End of Period:
Federal Funds Purchased and FHLB
Advances........................... 4.75% 3.53% -- 5.75% 5.75%
Securities Sold Under Repurchase
Agreements......................... 4.53% 3.79% 2.76% 4.47% 4.73%
Notes Payable to Banks.............. 6.50% 6.00% 6.00% 8.00% 7.43%
Other............................... -- -- -- -- --
Highest Amount Outstanding at Any
Month-End:
Federal Funds Purchased and FHLB
Advances........................... $14,241 $16,614 $18,535 $13,975 $23,975
Securities Sold Under Repurchase
Agreements......................... 47,033 45,557 23,952 23,127 18,635
Notes Payable to Banks.............. 1,115 1,880 17,500 14,555 12,570
Other............................... 2,000 -- -- 1,000 3,000
Average Outstanding During the Year:
Federal Funds Purchased and FHLB
Advances........................... $ 6,305 $10,715 $ 8,534 $ 3,205 $10,137
Securities Sold Under Repurchase
Agreements......................... 42,320 36,073 15,480 16,872 17,183
Notes Payable to Banks.............. 760 768 7,362 12,755 10,334
Other............................... 160 -- -- 201 107
Weighted Average Interest Rate During
the Year:
Federal Funds Purchased and FHLB
Advances........................... 5.78% 3.93% 3.30% 4.90% 6.55%
Securities Sold Under Repurchase
Agreements......................... 5.87% 3.74% 3.58% 3.26% 4.94%
Notes Payable to Banks.............. 8.63% 6.12% 6.14% 7.07% 8.00%
Other............................... 6.40% -- -- 3.98% 6.25%
</TABLE>
132
<PAGE>
PREMIER MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION FOR THE THREE MONTHS ENDED MARCH 31, 1996
INTRODUCTION
The discussion presented below provides an analysis of Premier's results of
operations for the three months ended March 31, 1996 and 1995 (unaudited), and
financial condition at March 31, 1996, compared with March 31, 1995
(unaudited). This discussion is intended to cover significant factors
affecting Premier's overall performance during that time. It is designed to
provide stockholders with a more comprehensive review of the operating results
and financial condition than could be obtained from an examination of the
financial statements alone, and should be read in conjunction with the
consolidated financial statements, accompanying notes and other financial
information presented elsewhere in this Joint Proxy Statement-Prospectus.
RESULTS OF OPERATIONS
Premier earned $1.5 million for the first quarter of 1996 or $.18 per share.
Net earnings for the first quarter of 1995 totaled $1.3 million, or $.15 per
share. Return on average assets and common equity was .93% and 10.42%,
respectively for the three months ended March 31, 1996, compared to .85% and
9.77% for the same period in 1995.
Net Interest Income. Net interest income for the first quarter of 1996 was
$5.5 million, as compared to $5.3 million in 1995. The increase was
essentially attributable to growth in average earning assets. Average earning
assets were $584.4 million for the quarter ended March 31, 1996, an increase
of $39.0 million from the $545.4 million reported in 1995. An analysis of
first quarter results reflects a 21 basis point decrease in the average yield
on earning assets from 1995 to 1996, while the average cost of funds increased
6 basis points, resulting in a lower net interest margin (3.94% in 1996 as
compared to 4.21% in 1995).
Provision for Possible Loan Losses. Premier recorded a loan loss provision
of $100,000 in the first quarter of 1996 as compared to $51,000 in the first
quarter of 1995. The $49,000 increase in the provision in the first quarter of
1996, as compared to the first quarter of 1995, was primarily due to the
increase in the size of the loan portfolio as of March 31, 1996, when compared
to March 31, 1995.
At March 31, 1996 the allowance for possible loan losses totaled $3.9
million, or 1.19% of gross loans, compared to $3.3 million, or 1.14% of gross
loans at March 31, 1995. Nonperforming assets as a percentage of total assets
decreased to .59% as of March 31, 1996 as compared to .76% at March 31, 1995
and .60% at December 31, 1995. Premier's management believes that the
allowance for possible loan losses is adequate based upon the composition of
the portfolio and credit quality as of March 31, 1996. Future provisions will
continue to be determined in relation to overall asset quality and loan
portfolio growth.
Noninterest Income. Total noninterest income increased $308,000, or 19.14%
for the three months ended March 31, 1996 as compared to the same period in
1995. Contributors to the increase were net gains on loans sold to the
secondary market, gains on investment securities sold and other operating
income. Income on real estate loan originations and sales to the secondary
market enhanced earnings in 1996 by $95,000, an increase of $78,000 as
compared to $17,000 recorded in 1995. Net gains from sales of investment
securities totaled $69,000 in the first quarter of 1996, up $46,000 from
$23,000 in 1995. The remaining increase was primarily from trust fees, sale of
other real estate and premiums received from selling options on securities
available for sale. Total noninterest expense decreased by approximately
$103,000 in the first quarter of 1996 as compared to the same period in 1995.
Non-tax-deductible expenses totaling approximately $151,000 relating to the
Merger were more than offset by the $278,000 decrease in federal deposit
insurance premiums. Premier expects to continue to incur expenses related to
the Merger in the second and third quarters of 1996.
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Income Taxes. Income taxes for the first quarter of 1996 totaled $855,000 as
compared to $539,000 in 1995. The increase in the tax provision is due to
higher pretax earnings, a decrease in tax exempt income and an increase in
non-tax-deductible expenses (i.e. merger related expenses and goodwill).
Premier's effective tax rate for the period ended March 31, 1996 was 36.46% as
compared to 29.34% for the same period in 1995.
FINANCIAL CONDITION
Assets. Total assets increased from $670.2 million at December 31, 1995 to
$671.1 million at March 31, 1996. Cash and cash equivalents declined by
approximately $10.4 million from $38.1 million at December 31, 1995 to $27.7
million at March 31, 1996. The decline in cash and cash equivalents was
primarily due to the use of such funds to purchase investment securities,
resulting in lower cash balances at correspondent banks. Securities available
for sale increased by $13.6 million to $278.9 million at March 31, 1996, as
compared to $265.3 million at December 31, 1996.
Liabilities; Deposits. Total liabilities increased modestly from $608.1
million at December 31, 1995 to $610.4 million at March 31, 1996. Total
deposits declined by approximately $4.8 million, due to an $11.5 million
decrease in non-interest-bearing deposits, partially offset by a $6.7 million
increase in interest-bearing deposits. Premier has historically experienced a
first-quarter decrease in the amount of non-interest-bearing deposits,
following an increase in such deposits during the fourth quarter. Securities
sold under agreements to repurchase, which are generally short-term sources of
funds and managed in conjunction with all funding sources, increased by $7.4
million during the same December 31, 1995 to March 31, 1996 time-frame.
Stockholders' Equity. At March 31, 1996, stockholders' equity totaled $60.7
million, down from $62.1 million at December 31, 1995. This decrease was due
primarily to earnings net of common and preferred dividends being more than
offset by a $2.2 million decrease in the after tax unrealized gain (loss)
recorded on securities available for sale in accordance with Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities.
At March 31, 1996, Premier had a "Tier 1" capital ratio of 10.69%, a "Total
Risk-Based Capital Ratio" of 11.69% and a "Leverage Ratio" of 6.32%. In
addition, all of the Premier Banks met the definition of "well-capitalized"
under the FDIC's risk related premium system at March 31, 1996. See "PREMIER
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995--Financial Condition--
Stockholders' Equity" for further information concerning regulatory capital
requirements.
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PREMIER MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
INTRODUCTION
The discussion presented below provides an analysis of Premier's financial
condition and results of operations for the past three years, and is intended
to cover significant factors affecting Premier's overall performance during
that time. It is designed to provide stockholders with a more comprehensive
review of the operating results and financial condition than could be obtained
from an examination of the financial statements alone, and should be read in
conjunction with the consolidated financial statements, accompanying notes and
other financial information presented elsewhere in this Joint Proxy Statement-
Prospectus.
RESULTS OF OPERATIONS
Net earnings available to common stockholders for 1995 (i.e., net earnings
less preferred dividends) totaled $5.2 million, or $.77 per common share,
compared with $4.5 million, or $.68 per share, in 1994. In 1993, net earnings
available to common stockholders were $3.4 million or $.55 per share.
Premier's return on average common equity was 11.93% in 1995, 11.11% in 1994
and 10.80% in 1993. Return on average assets was .99%, .95%, and .83% in 1995,
1994 and 1993, respectively.
NET INTEREST INCOME Tax equivalent net interest income for 1995 was $23.6
million, as compared to $22.8 million in 1994 and $18.8 million in 1993. The
year-to-year increases were primarily a result of increased earning asset
volume. The growth is directly related to Premier management's efforts to
expand the loan portfolio, and funded with core deposits. Net interest income
earned from the increased earning asset volume more than offset declines in
net interest margin.
Average earning assets totaled $563.7 million in 1995 versus $527.4 million
and $423.4 million in 1994 and 1993, respectively. Average loans, the highest
yielding component of earning assets, increased by $78.8 million over the
three year period. The remainder of the increase is in investment securities.
Premier's net interest margin was 4.18% in 1995 as compared to 4.32% in 1994
and 4.43% in 1993. The decrease in net interest margin from 1993 to 1995 was
the result of a change in earning asset mix. Although loans increased
significantly during the three year period, they comprised a declining
percentage of average earning assets; 53.6% in 1995, 55.4% in 1994 and 64.7%
in 1993. This change is reflected in the components of net interest margin.
From 1994 to 1995, Premier experienced a 93 basis point increase in the
average yield on earning assets while the average cost of funds increased 107
basis points. In 1994 the yield on average earning assets was 26 basis points
less than in 1993, while cost of funds declined by 15 basis points.
INTEREST RATE RISK MANAGEMENT Movements in general market interest rates are
a key element in changes in net interest margin. The impact on earnings of
changes in interest rates, known as interest rate risk, must be measured and
managed to avoid unacceptable levels of risk. Premier uses simulation modeling
to analyze the effect of predicted or assumed changes in interest rates on
balances and subsequently net interest income, and to manage interest rate
risk. Premier's model provides for simultaneously comparing four different
interest rate scenarios and their impact on net interest income over a two-
year horizon. The "most likely" rate scenario is predicated on an economic
consensus of future movements in short-term interest rates. A "rising" rate
scenario and "declining" rate scenario are used to identify the potential
impact of rapid changes, up or down, from current rates. The fourth scenario,
i.e., the "base" or "flat rate" simulation, (more traditionally known as "gap
measurement") is used as a control to quantify the effect of changes in net
interest income caused solely by repricing existing balances at current rates
as they mature. Changes in balances reflecting repayment risk, likely changes
in customer behavior under different interest rate environments and other
"what if" assumptions are also simulated under each scenario. Premier's
interest sensitivity, i.e., its exposure to change in net interest income is
measured over a rolling 12-month period under each of the first three
scenarios and compared to the base case forecast. Generally, Premier's policy
is to maximize net interest income while limiting its negative
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interest sensitivity (i.e., a decline in net interest income) to no more than
10% of after tax earnings under any interest rate scenario. In January, 1996,
the simulation model indicated rate sensitivity (i.e., a change in net
interest income) of less than 1.00% in either a rising or declining rate
environment.
Premier's management uses earnings simulation under a variety of interest
rate and balance assumptions to manage interest rate risk in a dynamic
environment. The following table shows Premier's base or flat rate measurement
(i.e., "gap position") as of December 31, 1995:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING
----------------------------------
WITHIN WITHIN WITHIN OVER
90 DAYS 180 DAYS 1 YEAR 1 YEAR
-------- -------- ------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans (net of unearned income)........... $180,246 $15,075 $17,717 $113,659
Investment securities.................... 45,300 39,041 27,743 153,242
Other earning assets..................... 676 -- -- --
Total earning assets................... 226,222 54,116 45,460 266,901
Interest-bearing deposits................ 119,510 36,923 32,658 279,707
Short-term borrowings.................... 38,853 10,850 1,657 --
Total interest-bearing liabilities..... 158,363 47,773 34,315 279,707
Asset (liability) gap.................. 67,859 6,343 11,145 (12,806)
Cumulative asset gap................... 67,859 74,202 85,347 72,541
</TABLE>
PROVISION FOR POSSIBLE LOAN LOSSES The amount of the provision for possible
loan losses is based on periodic (but no less than quarterly) evaluations by
Premier's management. In these evaluations, Premier considers numerous factors
including, but not limited to, current economic conditions, loan portfolio
composition, prior loan loss experience, and an estimation of potential
losses.
Each loan in the portfolio is graded according to specific financial, risk
and repayment criteria. The aggregate required reserve balance for the entire
portfolio is maintained through earnings provisions as required. Premier's
provision for loan losses in 1995 totaled $636,000 as compared to $200,000 and
$1.6 million in 1994 and 1993, respectively. The $436,000 increase in the
provision for loan losses in 1995, as compared to 1994, was primarily due to
overall growth in the loan portfolio. Loans outstanding grew by $42.2 million
from year-end 1994 to year-end 1995, while non-accrual loans declined by $2.5
million.
The $1.4 million decrease in the provision for loan losses in 1994, as
compared to 1993, was due to a number of factors. Premier reduced its
portfolio of non-accrual loans and loans past due 90 days and still accruing
by $5.9 million from 1993 to 1994, while charging off $1,524,000 as losses.
Loans charged off were slightly less than the 1993 provision of $1.6 million
and were offset by $643,000 in recoveries on loans previously charged off. The
$1.6 million provision for loan losses in 1993, moreover, was substantially
higher than the provision expensed by Premier in prior years and was primarily
the result of Premier's application of its loan review and risk-grading system
to loans added to its portfolio through its acquisition of First Northbrook
Bancorp, Inc. in July, 1993. See "ADDITIONAL INFORMATION CONCERNING PREMIER--
Summary of Loan Loss Experience."
At December 31, 1995 the allowance for possible loan losses totaled $3.9
million, or 1.17% of gross loans, compared to $3.7 million, or 1.29% of gross
loans at December 31, 1994. At December 31, 1995 and 1994, the allowance for
loan losses, as a percentage of non-performing loans, was 149.3% and 65.2%,
respectively. Net charge-offs as a percentage of average loans were .16% in
1995, compared with .30% and .83% in 1994 and 1993, respectively. Although
Premier's management believes that the present level of the Allowance for
Possible Loan Losses is a conservative assessment of the risk inherent in
Premier's loan portfolio, there can be no assurance that significant
provisions for losses will not be required in the future based on factors such
as deterioration of market conditions, major changes in borrowers' financial
conditions, delinquencies and defaults. Future provisions will continue to be
determined in relation to overall asset quality as well as other factors
mentioned previously.
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NONINTEREST INCOME Total noninterest income increased $544,000, or 8.1%, in
1995 over 1994 following a $693,000, or 11.6%, increase in 1994 over 1993.
Trust fees and service charges on deposits continue to be the primary
components of noninterest income. Revenue from other fee-based services and
products also increased modestly.
Trust fees, which represent Premier's largest fee-based source of income,
totaled $2.5 million in 1995, a 3.9% increase over 1994. This increase
followed revenue growth of 9.5% in 1994. The growth in both years was
primarily due to an increasing customer base. Trust fees are based on
providing fiduciary, investment management, custodial and related services to
corporate and personal clients. As of December 31, 1995, the market value of
total managed assets approximated $.6 billion. Premier anticipates continued
growth in relationships and fees in 1996.
Service charges on deposit accounts totaled $2.0 million and $1.9 million in
1995 and 1994, respectively. In 1993, service charges on deposit accounts
increased $532,000, or 56.9%, to $1.5 million. Although total deposits grew
approximately $27.8 million in 1995, modest growth in fees from service
charges were experienced due to an increase in earnings credit on commercial
transaction accounts, which essentially offset higher transaction volume. The
increase in service charges on deposit accounts from 1993 to 1994 was due to
an overall increase in transaction related fees.
Another source of noninterest income over the past several years has been
premiums recognized on sales of residential mortgage loans to the secondary
market. Net gains from the sale of residential mortgage loans totalled
$222,000, $257,000 and $886,000 for the years 1995, 1994 and 1993,
respectively. Low interest rate environments such as those experienced from
1992 through the first quarter of 1994 and again in the fourth quarter of 1995
create an increase in loan refinancing. As market rates decrease, both
refinancing and premiums recognized on loans sold to the secondary market
generally increase.
Net investment security gains were $409,000 in 1995 as compared to $35,000
in 1994 and $136,000 in 1993. As conditions change over time, the overall
interest rate risk, liquidity demands and potential return on the investment
security portfolio will change. Securities available for sale may be sold in
order to manage interest rate risk, optimize overall investment returns,
respond to changes in the credit risk of a particular security, or meet
liquidity needs.
Other operating income increased modestly, by $60,000, to $2.2 million in
1995, following an increase of $776,000 in 1994 from 1993. Contributing to the
1995 increase were fees from loan servicing, credit card processing and safe
deposit box rental. In 1994, other operating income included non-recurring
income of $396,000 on loans charged off in prior periods that were recovered
in 1994, as well as income from operating the six new offices acquired in
July, 1993 for a full year.
NONINTEREST EXPENSE. Total noninterest expense increased modestly, by
$108,000, to $19.9 million in 1995 as compared to $19.8 million in 1994. In
1993 noninterest expense totalled $16.5 million. Premier's efficiency ratio,
which measures the level of operating expense (non-interest expense exclusive
of taxes, loan loss provision and non-cash charges such as depreciation and
amortization) to total tax equivalent net interest income plus recurring non-
interest revenue, improved from 61.4% in 1993 to 59.2% and 56.5% in 1994 and
1995, respectively.
Salaries and benefits, the largest component of non-interest expense,
totaled $9.5 million in 1995 an increase of $614,000 or 6.9% over 1994
following an increase of approximately $1.2 million over 1993. The 1995
increase was primarily a result of higher incentive pay and increased employee
benefits including medical insurance premiums, profit-sharing contributions
and company-matched 401-k contributions. Employee benefits were 12.4% of
compensation expense in 1995 compared with 12.5% in 1994 and 10.8% in 1993.
The increase in 1994 over 1993 reflects increased employee benefits and
staffing of the six new offices acquired in July, 1993 for a full year. At
December 31, 1995, full-time equivalent employees totaled 296, as compared to
306 and 286 employees at December 31, 1994 and 1993, respectively.
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Combined net occupancy and furniture and fixture expense increased $158,000
and $483,000 in 1995 and 1994, respectively. The increase in 1995 over 1994
was primarily the result of higher real estate taxes and a new office location
in DeKalb, Illinois. The increase in combined net occupancy and furniture and
fixture expense in 1994 was largely the result of the six new office locations
acquired in Northbrook, Riverwoods and Cary, Illinois in July 1993. Premier
anticipates future increases in net occupancy and furniture and fixtures costs
for existing offices will be modest.
In 1995, the Premier Banks paid $586,000 for federal deposit insurance as
compared to $1.2 million in 1994 and $918,000 in 1993. The decrease in 1995
was the result of the FDIC's restructuring of deposit insurance premiums to
reflect the now fully-funded position of the insurance fund. Deposit insurance
premium rates are based on an individual institution's adequacy of capital.
The Premier Banks are currently categorized by the FDIC as "well capitalized"
which allows them to take advantage of the lowest available premium rate. The
increase in 1994 over 1993 was attributable to an increase in deposits.
Amortization of intangible assets was $1.6 million in both 1995 and 1994 as
compared to $834,000 in 1993. The increased amortization in 1994 relates to
the additional amortization expense from the excess cost over fair value of
net assets acquired in July, 1993.
Other operating expenses decreased by $88,000, or 1.7%, in 1995, following a
$566,000, or 12.6%, increase in 1994. The primary factor contributing to the
1995 improvement were lower expenses associated with temporary holding of
other real estate for sale and collection costs on non-performing assets.
Other real estate expense and collection costs totaled approximately $357,000,
$401,000, and $382,000 in 1995, 1994 and 1993 respectively. The 1994 increase
relates primarily to operating the six offices acquired in July 1993 for a
full year and start-up costs for the DeKalb office purchased in December,
1994.
INCOME TAXES Income taxes for 1995 totaled $2.7 million as compared to $2.4
million in 1994 and $1.6 million in 1993. The increase in the tax provision is
due to higher pre-tax earnings and a decrease in tax-exempt income as a
percentage of pre-tax income. Premier's effective tax rate was 29.97% for 1995
as compared to 29.68% and 28.26% in 1994 and 1993, respectively.
FINANCIAL CONDITION
At December 31, 1995, Premier had total assets of $670.2 million, as
compared to $620.5 million at December 31, 1994. Average total assets for 1995
increased $32.9 million, or 5.5%, over 1994. Loan growth and purchase of
securities accounted for much of the increase in total assets. The increase in
assets were funded primarily by interest bearing deposits and short-term
borrowings.
SECURITIES Securities available for sale are a part of Premier's interest
rate risk management strategy and may be sold in response to changes in
interest rates, changes in prepayment risk, liquidity management and other
factors. At December 31, 1995, Premier had $265.3 million in securities
available for sale, compared to $208 million at year-end 1994. The increase in
securities available for sale was due to (i) reclassifying all held-to-
maturity securities into available-for-sale in November 1995 and (ii)
utilization of short-term borrowings for the purchase of adjustable rate
mortgage backed securities. In November 1995, financial institutions were
given a one-time opportunity from the FASB to reclassify, without violating
the provisions of FAS No. 115, their investment securities. Bank regulatory
authorities currently do not include unrealized gains and losses in evaluating
capital adequacy. By carrying all securities in the available-for-sale
category, Premier's management can more actively manage the investment
portfolio. At December 31, 1994 investments held-to-maturity totaled $40.5
million.
LOANS Premier's lending strategy continues to stress quality growth,
diversified by product, geography and industry. Loans represent the largest
component of Premier's earning assets. At December 31, 1995, total gross loans
outstanding were $327 million, a $42.2 million, or 14.80% increase as compared
to a year ago. This increase was the result of growth in both the commercial
and real estate portfolios. Loan portfolio distribution at
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December 31, 1995, was 58% commercial, 33% retail, and 9% agricultural. The
portfolio mix and concentration have not changed significantly from year-end
1994. Preserving loan quality and diversifying the loan portfolio both
geographically and by industry continue to be key objectives for Premier.
Premier anticipates total loan growth to continue in 1996.
ASSET QUALITY Over the past several years, aggressive collection actions
combined with a healthy local and national economy have improved asset quality
significantly. At year end, nonperforming assets declined to $4 million, or
.60% of total assets, down from $7.1 million, or 1.14% of total assets at
December 31, 1994. Non-performing assets consist of loans 90 days or more past
due, loans not accruing interest, loans with renegotiated credit terms, and
other real estate owned. Impaired loans at December 31, 1995 decreased $3.1
million, to $2.6 million, compared to $5.7 million a year earlier. Impaired
loans as a percentage of loans were .78% and 1.99% at December 31, 1995 and
1994, respectively. Other real estate owned totaled $1.5 million and $1.4
million at December 31, 1995 and 1994, respectively.
SOURCES OF FUNDS Premier considers core deposits, which include transaction
accounts, savings deposit accounts, and consumer time deposits less than
$100,000 as its most stable source of funding. These core deposits are
supplemented by time deposits from governmental entities, time deposits
greater than $100,000 and repurchase agreements. Short-term borrowings and
stockholders' equity comprise the other portion of our total funding sources.
Total deposits increased $27.8 million, or 5.3% to $551.5 million at December
31, 1995 compared with $523.7 million at December 31, 1994. Core deposits
totaled $504.8 million at December 31, 1995 and $500.7 million at December 31,
1994. Non-interest bearing deposits were 15.0% and 16.4% of total deposits at
December 31, 1995 and 1994, respectively. Total short-term borrowings,
including repurchase agreements, were $51.4 million at December 31, 1995
compared with $42.3 million at December 31, 1994.
LIQUIDITY Premier defines liquidity as having funds available to meet cash
flow requirements. Effective management of balance sheet liquidity is
necessary to fund growth in earning assets, to pay liabilities, to satisfy
depositors' withdrawal requirements and to accommodate changes in balance
sheet mix. Premier has three major sources of generating cash other than
through operations: (i) primary and secondary market deposits, (ii) securities
available for sale, and (iii) lines of credit from unaffiliated banks. An
ongoing analysis of liquidity is performed at the subsidiary and holding
company levels. Liquid assets are compared to the potential needs for funds to
determine if Premier has sufficient coverage for future liquidity needs.
Management maintains a primary and total liquidity position that provides 100%
coverage relative to the anticipated likelihood of potential events taking
place. At year end, Premier's liquidity coverage exceeded this position.
STOCKHOLDERS' EQUITY Stockholders' equity increased by $9.6 million during
1995, from $52.5 million at December 31, 1994 to $62.1 million in 1995. The
increase was due to retained net earnings of $4.0 million and recording an
after tax unrealized gain on securities available for sale of approximately
$1.2 million in accordance with SFAS No. 115 ("FAS 115") as compared to
recording an after tax unrealized loss of $4.4 million in 1994.
The Federal Reserve Board currently specifies three capital measurements
under the risk-based capital guidelines: (i) "Tier 1 Capital" (i.e., common
stockholders' equity less goodwill to risk-adjusted assets), (ii) "Total Risk
Based Capital" (i.e., Tier 1 Capital plus the lesser of 1.25% of risk-adjusted
assets or the allowance for possible loan losses to risk-adjusted assets), and
(iii) "Tier 1 Leverage Ratio" (i.e., common stockholders' equity less goodwill
to total assets less goodwill). Bank holding companies are required to
maintain minimum risk-based capital ratios of 4% for "Tier 1," 8% for "Total
Risk-Based Capital," and a "Leverage Ratio" of 3% or greater. At December 31,
1995, Premier had a "Tier 1" ratio of 10.61%, well above the regulatory
minimum. Its "Total Risk Based Capital Ratio" was 11.64%, and its "Leverage
Ratio" was 6.14%, also considerably better than required. In addition, all of
the Premier Banks met the definition of "well-capitalized" under the FDIC's
risk related premium system at December 31, 1995.
CURRENT ACCOUNTING DEVELOPMENTS In May, 1995, the FASB issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights, an amendment of SFAS No. 65." SFAS
122 requires the recognition as a separate asset the rights to service
mortgage loans for others, however those servicing rights are acquired. SFAS
122 also
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requires the assessment of capitalized mortgage servicing rights for
impairment to be based on the current value of those rights. This statement is
effective for fiscal years beginning after December 15, 1995. Premier adopted
SFAS 122 January 1, 1996 and it did not have a material effect on the
financial position or results of operation of Premier.
On October 23, 1995, the FASB issued Statement 123, "Accounting for Stock-
Based Compensation." The Statement permits a company to choose either a new
fair value based method or the current APB Opinion 25 intrinsic value based
method of accounting for its stock-based compensation arrangements. The
Statement requires pro forma disclosures of net income and earnings per share
computed as if the fair value based method had been applied in financial
statements of companies that continue to follow current practice in accounting
for such arrangements under APB Opinion 25. Premier plans to continue
accounting for its stock-based compensation plans under APB Opinion 25.
SUPERVISION AND REGULATION
GENERAL
Bank holding companies, banks and financial institutions generally are
highly regulated, with numerous federal and state laws and regulations
governing their activities. Premier and Northern Illinois are currently
registered and GPF, upon consummation of the Merger, will be registered as a
bank holding company under and subject to the provisions of the BHCA. As such,
Premier and Northern Illinois are, and GPF will be, required to file with the
Federal Reserve Board periodic reports and such additional information as the
Federal Reserve Board may require. They are also subject to the supervision
of, and examination by, the Federal Reserve Board. Premier and Northern
Illinois are, and GPF will also be, subject to regulation under the Illinois
Bank Holding Company Act of 1957, as amended (the "Illinois BHCA").
Grand National Bank and First National Bank of Northbrook ("Northbrook") are
national banks chartered under the laws of the United States and are subject
to the supervision of, and examination by, the OCC, their primary regulator.
The OCC regularly examines such areas as reserves, loans, investments,
management practices and other aspects of Grand National Bank's and
Northbrook's operations. Grand National Bank and Northbrook must also furnish
to the OCC quarterly reports containing full and accurate statements of their
affairs. All national banks are members of the Federal Reserve System and
subject to the applicable provisions of the Federal Reserve Act and to regular
examination by the Federal Reserve Bank of their district, in this case the
Federal Reserve Bank of Chicago.
First Bank North, First Bank South and First Security Bank of Cary Grove
("Cary Grove") are Illinois state banks chartered under the Illinois Banking
Act and members of the Federal Reserve System. As such, they are subject to
the supervision of, and examination by, the Illinois Commissioner and the
Federal Reserve Board. The Illinois Commissioner and the Federal Reserve Board
regularly examine such areas as reserves, loans, investments, management
practices, and other aspects of the operations of First Bank North, First Bank
South and Cary Grove. First Bank North, First Bank South and Cary Grove must
also furnish to the Illinois Commissioner and the Federal Reserve Bank of
Chicago quarterly reports containing full and accurate statements of their
affairs. As an Illinois trust company, Premier Trust Services, Inc. is also
subject to the supervision of and examination by the Illinois Commissioner.
The deposits of Grand National Bank and all of the Premier Banks are insured
by BIF of the FDIC. As a result, Grand National Bank and the Premier Banks are
also subject to the provisions of the Federal Deposit Insurance Act and to
examination by the FDIC. The examinations of the various regulatory agencies
are designed for the protection of bank depositors and not for stockholders of
the banks or their holding companies.
The following references to material statutes and regulations affecting GPF,
Premier, Northern Illinois, Grand National Bank and the Premier Banks are
brief summaries thereof and are qualified in their entirety by
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reference to such statutes and regulations. Any change in applicable law or
regulations may have a material effect on the business of GPF, Premier,
Northern Illinois and their subsidiary banks.
BANK HOLDING COMPANY REGULATION
The BHCA requires prior Federal Reserve Board approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than five percent (5%) of the voting shares or
substantially all the assets of any bank, or for a merger or consolidation of
a bank holding company with another bank holding company. With certain
exceptions, the BHCA prohibits a bank holding company from acquiring direct or
indirect ownership or control of voting shares of any company which is not a
bank or bank holding company and from engaging directly or indirectly in any
activity other than banking or managing or controlling banks or performing
services for its authorized subsidiaries. A bank holding company may, however,
engage in or acquire an interest in a company that engages in activities which
the Federal Reserve Board has determined by regulation or order to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto.
A bank holding company is a legal entity separate and distinct from its
subsidiary bank or banks. Normally, the major source of a bank holding
company's revenue is the dividends it receives from its subsidiary banks. The
right of a bank holding company to participate as a stockholder in any
distribution of assets of its subsidiary banks upon their liquidation or
reorganization or otherwise is subject to the prior claims of creditors of
such subsidiary banks. The subsidiary banks are subject to claims by creditors
for long-term and short-term debt obligations, including substantial
obligations for federal funds purchased and securities sold under repurchase
agreements, as well as deposit liabilities. Under the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), in the event that the
FDIC suffers a loss in connection with a banking subsidiary of a bank holding
company (whether due to a default or the provision of assistance to the
banking subsidiary by the FDIC), other banking subsidiaries of the same
holding company may be held liable for such loss.
Federal laws limit the transfer of funds by a subsidiary bank to its holding
company and the non-bank subsidiaries of the holding company ("affiliates") in
the form of loans or extensions of credit, investments in stock or other
securities of the bank holding company or its other subsidiaries or advances
to any borrower collateralized by such stock or other securities. Transfers of
this kind are limited to 10 percent of a bank's capital and surplus with
respect to each affiliate and to 20 percent with respect to all affiliates in
the aggregate and are also subject to certain collateral requirements. These
transactions, as well as other transactions between a subsidiary bank and its
holding company and other affiliates, must also be on terms substantially the
same as, or at least as favorable as, those prevailing at the time for
comparable transactions with non-affiliated companies or, in the absence of
comparable transactions, on terms or under circumstances, including credit
standards, that would be offered to, or would apply to, non-affiliated
companies.
It is the policy of the Federal Reserve Board that a bank holding company is
expected to act as a source of financial strength to each of its subsidiary
banks and to commit resources to support each of its subsidiary banks. The
Federal Reserve Board takes the position that, in implementing this policy, it
may require bank holding companies to provide such support when the holding
company otherwise would not consider itself able to do so.
The Illinois BHCA permits bank holding companies domiciled in Illinois to
make acquisitions throughout the state. It also permits bank holding companies
located in any state of the United States to acquire banks or bank holding
companies within the State of Illinois, subject to certain conditions,
including a regulatory determination that the laws of the state in which the
acquiring bank holding company is located permit bank holding companies in
Illinois to acquire banks or bank holding companies in the acquiror's state
under qualifications and conditions that are not unduly restrictive when
compared to those imposed by Illinois law. Subject to these regulatory
determinations, GPF, Premier and Northern Illinois may acquire banks and bank
holding companies in such states, and bank holding companies in those states
may acquire banks and bank holding companies in Illinois. See also "--Other
Regulations--The Riegle-Neal Act," below.
141
<PAGE>
BANK REGULATION
General. The federal and state laws and regulations generally applicable to
banks regulate, among other things, the scope of a bank's business, allowable
investments, required reserves against deposits, loans and collateral,
establishment of branch offices and activities performed at such offices.
These laws and regulations are generally designed for the protection of bank
depositors and not the stockholders of the bank. For a discussion of the
restrictions on certain types of transactions between bank holding companies
and their bank subsidiaries and of capital adequacy requirement for banks, see
"SUPERVISION AND REGULATION--Bank Holding Company Regulation;--Capital
Requirements."
Restrictions on Dividends. A national bank, such as Grand National Bank or
Northbrook, may not pay a dividend in any calendar year in excess of its net
profits for the current year plus its adjusted retained profits for the two
prior years, unless it obtains OCC approval. Net profits from which dividends
may be paid must be adjusted for losses and the amount of statutory bad debts
in excess of the balance of the bank's allowance for possible credit losses.
"Bad debts" are generally defined to include the principal amounts of loans
which are in arrears with respect to interest by six months or more unless
such loans are well secured and in the process of collection. As of December
31, 1995, Grand National Bank had approximately $7,053,000 and Northbrook had
approximately $432,000 legally available to pay dividends under this test
without prior approval of the OCC. The ability of Grand National Bank and
Northbrook to pay dividends to Northern Illinois and Premier, respectively,
and to GPF upon consummation of the Merger, may be further restricted as a
result of capital adequacy requirements. See "SUPERVISION AND REGULATION--
Capital Requirements," below.
Under the Illinois Banking Act, state banks, such as First Bank North, First
Bank South, and Cary Grove may not declare dividends (i) except out of the
bank's net profits and (ii) unless the bank has transferred to surplus at
least one-tenth of its net profits since the date of the declaration of the
last preceding dividend, until the amount of its surplus is at least equal to
its capital. Net profits under the Illinois Banking Act must be adjusted for
losses and bad debts (i.e., debts owing to the bank on which interest is past
due and unpaid for a period of six months or more unless such debts are
secured and in the process of collection). As of December 31, 1995, First Bank
North, First Bank South and Cary Grove had a total of approximately $1.2
million available to pay dividends under this test. The ability of such banks
to pay dividends to Premier, and to GPF upon consummation of the Merger, may
also be further restricted as a result of capital adequacy requirements. See
"SUPERVISION AND REGULATION--Capital Requirements," below.
CRA. The Community Reinvestment Act (the "CRA") is intended to encourage
banks and thrifts to help meet the credit needs of their entire communities,
including low- and moderate-income neighborhoods, consistent with safe and
sound lending practices. Under the CRA, the federal banking agencies take into
account a financial institution's record of helping to meet the credit needs
of its entire community when evaluating various types of applications, such as
applications for branches, office relocations, mergers, consolidations, and
purchase and assumption transactions, and may deny or condition approval of an
application on the basis of an institution's record. All depository
institutions, including Grand National Bank and the Premier Banks, are
reviewed and rated by their primary federal bank regulator. In reviewing
applications by bank holding companies, the Federal Reserve Board takes into
account the record of compliance of a holding company's subsidiary banking
institutions with the CRA. See "THE MERGER--Regulatory Approvals Required for
the Merger."
CAPITAL REQUIREMENTS OF BANKS AND BANK HOLDING COMPANIES
The various federal bank regulators, including the Federal Reserve Board and
the OCC, have adopted risk-based capital requirements for assessing bank
holding company and bank capital adequacy. The capital standards (including
the definitions of Tier 1 Capital and Tier 2 Capital) established by the OCC
(for national banks such as Grand National Bank and Northbrook) and by the
Federal Reserve Board (for state member banks such as First Bank North, First
Bank South and Cary Grove) are substantially the same as those established by
the Federal Reserve Board for bank holding companies. These standards
significantly revise the definition of capital and establish minimum capital
standards in relation to assets and off-balance sheet exposures, as adjusted
for
142
<PAGE>
credit risks. Capital is classified into two tiers. For bank holding
companies, Tier 1 or "core" capital consists of common shareholders' equity,
perpetual preferred stock (subject to certain limitations) and minority
interests in the common equity accounts of consolidated subsidiaries and is
reduced by goodwill and certain investments in other corporations ("Tier 1
Capital"). Tier 2 capital consists of (subject to certain conditions and
limitations) the allowance for possible credit losses, perpetual preferred
stock, "hybrid capital instruments," perpetual debt and mandatory convertible
debt securities, and term subordinated debt and intermediate-term preferred
stock ("Tier 2 Capital").
Under the risk-adjusted capital standards, a minimum total capital to total
risk-weighted assets ratio of eight percent (8%) is required, and Tier 1
Capital must be at least 50 percent of total capital. The Federal Reserve
Board also has adopted a minimum leverage ratio of Tier 1 Capital to total
assets of three percent (3%). The three percent Tier 1 Capital to total assets
ratio constitutes the leverage standard for bank holding companies and is used
in conjunction with the risk-based ratio in determining the overall capital
adequacy of banking organizations.
The federal banking agencies have emphasized that the foregoing standards
are supervisory minimums and that an institution would be permitted to
maintain such minimum levels of capital only if it were rated in the highest
category under the regulatory rating systems for bank holding companies and
banks. All other bank holding companies and banks are required to maintain a
leverage ratio of 3 percent plus at least one to two percent (1% to 2%) of
additional capital. These rules further provide that banking organizations
experiencing internal growth or making acquisitions will be expected to
maintain capital positions substantially above the minimum supervisory levels
and comparable to peer group averages, without significant reliance on
intangible assets. The Federal Reserve Board continues to consider a "tangible
Tier 1 leverage ratio" in evaluating proposals for expansion or new
activities. The tangible Tier 1 leverage ratio is the ratio of a banking
organization's Tier 1 Capital, less all intangibles, to total assets, less all
intangibles.
For information concerning the capital ratios of Northern Illinois and
Premier, respectively, see "NORTHERN ILLINOIS MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE THREE MONTHS
ENDED MARCH 31, 1996--Shareholders' Equity" and "NORTHERN ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995--Shareholders' Equity"
and "PREMIER MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION FOR THE THREE MONTHS ENDED MARCH 31, 1996--Stockholders'
Equity" and "PREMIER MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION--Stockholders' Equity."
OTHER REGULATIONS
FDICIA. The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") imposed relatively detailed standards and mandated the development
of additional regulations governing nearly every aspect of the operations,
management and supervision of banks and bank holding companies. It also
significantly enhanced the authority of bank regulators to intervene in the
cases of deterioration of a bank's capital level. FDICIA requires that the
banking regulators take prompt corrective action with respect to depository
institutions that fall below certain capital levels and prohibits any
depository institution from making any capital distribution that would cause
it to be considered undercapitalized. Regulations adopted pursuant to FDICIA
established five capital categories: well-capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. Institutions that are not adequately capitalized may be
subjected to a broad range of restrictions on their activities and will be
required to submit a capital restoration plan which, to be accepted by the
regulators, must be guaranteed in part by any company having control of the
institution. Only well-capitalized institutions and adequately capitalized
institutions receiving a waiver from the FDIC will be permitted to accept
brokered deposits, and only those institutions eligible to accept brokered
deposits may provide pass-through deposit insurance for participants in
employee benefit plans.
143
<PAGE>
A range of other regulations adopted as a result of FDICIA have established
interagency guidelines standards for safety and soundness for depository
institutions and their holding companies; requirements relating to annual
audits of depository institutions; requirements applicable to closure of
branches; additional requirements for disclosures to depositors with respect to
terms and interest rates applicable to deposit accounts; requirements for the
banking agencies to adopt uniform regulations for extensions of credit secured
by real estate; modification of accounting standards to conform to GAAP,
including the reporting of off-balance sheet items and supplemental disclosure
of estimated fair market value of assets and liabilities in financial
statements filed with the banking regulators; increased penalties for failing
to file assessment reports with the FDIC; greater restrictions on extensions of
credit to directors, officers and principal shareholders; and increased
reporting requirements on agricultural loans and loans to small businesses.
As required by FDICIA, the FDIC has established a risk-based assessment
system for deposit insurance provided to depositors at depository institutions
whereby assessments to each institution are calculated upon the probability
that the insurance fund will incur a loss with respect to the institution, the
likely amount of such loss, and the revenue needs of the insurance fund. Under
the system, deposit insurance premiums are based upon an institution's
assignment to one of three capital categories and a further assignment to one
of three supervisory subcategories within each capital category. The result is
a nine category assessment system. The classification of an institution into a
category depends, among other things, on the results of off-site surveillance
systems, capital ratio, and its CAMEL rating (a supervisory rating of capital,
asset quality, management, earnings and liquidity).
The Riegle-Neal Act. On September 29, 1994, the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act") became
law. Since September 29, 1995, the Riegle-Neal Act has permitted adequately
capitalized and managed bank holding companies to acquire banks across state
lines, without regard to whether the transaction is prohibited by state law,
except that state law may establish the minimum age of the banks in such state
that are subject to acquisition by out-of-state bank holding companies (not to
exceed five years). The acquiring bank holding company must maintain the
acquired bank as a separately chartered institution. Under the Riegle-Neal Act,
the Federal Reserve Board generally may not approve an acquisition if, upon
consummation, the applicant bank holding company would control more than 10% of
the total deposits of U.S. insured depository institutions or 30% or more of
the deposits in the state where the target bank is located. The Federal Reserve
Board could approve an acquisition, notwithstanding the 30% limit, if the state
waives the limit either by statute, regulation or order of the appropriate
state official. Since September 29, 1995, the Riegle-Neal Act has also
permitted any bank subsidiary of a bank holding company to receive deposits,
renew time deposits, close loans, service loans and receive payments on loans
and other obligations as agent for a bank or thrift affiliate, whether such
affiliate is located in a different state or in the same state.
Beginning on June 1, 1997, banks may, with the approval of the appropriate
Federal bank regulatory agency, merge with one another across state lines and
thereby create a main bank with branches in separate states. After establishing
branches in a state through an interstate merger transaction, the bank could
establish and acquire additional branches at any location in the state where
any bank involved in the merger could have established or acquired branches
under applicable federal or state law. The responsible federal bank regulatory
agency generally may not approve such a merger, however, if, after the merger,
the resulting entity would control more than 10% of the total deposits of U.S.
insured depository institutions or 30% or more of the deposits in the state
where the target bank is located. The responsible federal bank regulatory
agency may approve such a merger, notwithstanding the 30% limit, if the state
waives the limit either by statute, regulation or order of the appropriate
state official.
Under the Riegle-Neal Act, states may adopt legislation permitting interstate
mergers before June 1, 1997. Alternatively, states may adopt legislation before
June 1, 1997, subject to certain conditions, opting-out of interstate
branching. If a state opts out of interstate branching, no out-of-state bank
may establish a branch in that state through an acquisition or de novo, and a
bank whose home state opts-out may not participate in an interstate merger
transaction. Illinois has adopted legislation permitting interstate mergers
beginning June 1, 1997.
144
<PAGE>
RECENT DEVELOPMENTS AFFECTING DEPOSIT INSURANCE PREMIUMS
Subject to the limited exception described below, deposits of Grand National
Bank and the Premier Banks are insured by the FDIC under the BIF. The FDIC also
maintains another insurance fund, the Savings Association Insurance Fund (the
"SAIF"), which primarily insures savings association deposits. Applicable law
requires that the SAIF and BIF funds each achieve and maintain a ratio of
insurance reserves to total insured deposits equal to 1.25%. The BIF recently
reached this 1.25% reserve level, and the FDIC announced a reduction in BIF
premiums for most banks. Based on this reduction, the highest rated
institutions (approximately 92 percent of the nearly 11,000 BIF-insured banks)
will pay the statutory annual minimum of $2,000 for FDIC insurance. Rates for
all institutions were reduced by $0.04 per $100 of deposits, leaving a premium
range of $0.00 (in which the statutory minimum applies) to $0.27 per $100
instead of the previous $0.04 to $0.31 per $100. Grand National Bank and the
Premier Banks, for deposit insurance assessment purposes, are all classified in
the highest category and should, subject to being reclassified, pay the
statutory annual minimum of $2,000 for FDIC deposit insurance. First Bank North
holds approximately $11,250,000 of deposits acquired in connection with the
acquisition of a branch of a savings association. Those deposits are insured by
SAIF and will continue to be subject to the higher premiums due on SAIF-insured
deposits.
145
<PAGE>
ADJOURNMENT OF SPECIAL MEETINGS
Under certain circumstances, the management of Northern Illinois or Premier
may determine at the time of the Northern Illinois Special Meeting or the
Premier Special Meeting, respectively, that it is in the best interests of
Northern Illinois or Premier, as the case may be, and its stockholders to
adjourn such Special Meeting to a later date. For example, in the event that
the number of shares present, in person or by proxy, at either Special Meeting
is insufficient to constitute a quorum or to approve the Merger Agreement,
Northern Illinois or Premier, as the case may be, might decide to adjourn such
Special Meeting to permit further solicitation of proxies. Northern Illinois
or Premier might also decide to adjourn its Special Meeting in the event that
the parties determine that regulatory approval of the Merger will be unduly
delayed or that events occurring subsequent to the date of this Joint Proxy
Statement-Prospectus require Northern Illinois and Premier to furnish
additional proxy soliciting information to the stockholders of both companies
and to give the stockholders an opportunity to assimilate such information. If
either Special Meeting is adjourned, no further notice of the time and place
of the adjourned meeting is required to be given to the stockholders of the
adjourned meeting other than an announcement of such time and place at such
Special Meeting.
The vote of a majority of the shares present at either Special Meeting, in
person or by proxy, whether or not a quorum is present, is required to approve
a proposal for adjournment at such Special Meeting. In order to allow the
managements of Northern Illinois or Premier to vote proxies that have been
received at the time of such Special Meeting in favor of such an adjournment,
in the event that Northern Illinois or Premier determines, in its sole
discretion, that an adjournment is in its best interests and the best
interests of its shareholders, Northern Illinois and Premier has submitted the
question of adjournment as a separate matter for consideration and vote of the
stockholders. The boards of directors of Northern Illinois and Premier
recommend that the stockholders vote FOR the proposal to adjourn the Northern
Illinois Special Meeting and the Premier Special Meeting, respectively, so
that such proxies may be voted in favor of such adjournment under such
circumstances.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The consolidated financial statements of Northern Illinois as of and for
each of the years in the three-year period ended December 31, 1995, have been
included herein in reliance upon the report of Hutton Nelson & McDonald LLP,
independent certified public accountants, whose report is included herein and
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Premier as of and for each of the
years in the three-year period ended December 31, 1995, have been included
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, whose report is included herein and upon the
authority of such firm as experts in accounting and auditing.
CERTAIN OPINIONS
The legality of the GPF Common Stock and associated Purchase Rights, the GPF
Series A Preferred Stock and the GPF Series B Preferred Stock to be issued
pursuant to the Merger will be passed upon for GPF by Schiff Hardin & Waite,
7200 Sears Tower, Chicago, Illinois 60606.
KPMG has delivered an opinion to Northern Illinois and Premier, concerning
certain federal income tax consequences of the Merger. See "THE MERGER--
Certain Federal Income Tax Consequences."
146
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
Interim Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995.. F-2
Consolidated Statements of Income for the three months ended March 31,
1996 and 1995.......................................................... F-3
Consolidated Statements of Changes in Shareholders' Equity for the three
months ended March 31, 1996 and 1995................................... F-4
Consolidated Statements of Cash Flows for the three months ended March
31, 1996 and 1995...................................................... F-5
Note to Unaudited Consolidated Financial Statements..................... F-7
Annual Financial Statements
Independent Auditor's Report............................................ F-8
Consolidated Balance Sheets as of December 31, 1995 and 1994............ F-9
Consolidated Statements of Income for the years ended December 31, 1995,
1994 and 1993.......................................................... F-10
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1993, 1994 and 1995................................. F-12
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.................................................... F-13
Notes to Consolidated Financial Statements.............................. F-15
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Interim Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995.. F-31
Consolidated Statements of Earnings for the three months ended March 31,
1996 and 1995.......................................................... F-32
Consolidated Statements of Cash Flows for the three months ended March
31, 1996 and 1995...................................................... F-33
Notes to Unaudited Consolidated Financial Statements.................... F-34
Annual Financial Statements
Independent Auditors' Report............................................ F-35
Consolidated Balance Sheets as of December 31, 1995 and 1994............ F-36
Consolidated Statements of Earnings for the years ended December 31,
1995, 1994 and 1993.................................................... F-37
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.................................................... F-38
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993................................. F-39
Notes to Consolidated Financial Statements.............................. F-40
</TABLE>
F-1
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED) (AUDITED)
(000'S OMITTED
EXCEPT SHARE DATA)
<S> <C> <C>
Cash and due from banks............................... $ 22,198 $ 27,888
Interest bearing deposits in other banks.............. 1,520 4,848
Securities available for sale, at market.............. 319,874 333,244
Federal funds sold.................................... 4,450 6,500
Loans, net of unearned income......................... 561,728 548,055
Less allowance for loan losses........................ (5,779) (5,585)
Premises and equipment................................ 22,694 22,778
Accrued interest receivable........................... 7,766 7,183
Other real estate owned............................... 2,091 1,610
Other assets.......................................... 8,015 7,933
-------- --------
$944,557 $954,454
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest bearing............................... $117,786 $113,839
Interest bearing.................................. 683,126 686,325
-------- --------
Total deposits.................................. 800,912 800,164
Short-term borrowings............................... 28,224 36,872
Long-term borrowings................................ 8,655 11,588
Other liabilities................................... 10,901 11,077
Dividends payable................................... 503 857
-------- --------
Total liabilities............................... 849,195 860,558
-------- --------
Shareholders' equity
Common stock, no par value; authorized 10,000,000
shares; issued and outstanding 2,956,784 and
2,956,784 shares................................... 16,697 16,697
Retained earnings................................... 69,929 68,391
Net unrealized securities gains, net of tax......... 8,736 8,808
-------- --------
Total shareholders' equity...................... 95,362 93,896
-------- --------
$944,557 $954,454
======== ========
</TABLE>
The accompanying note is an integral part of these financial statements.
F-2
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
----------- -----------
(000'S OMITTED
EXCEPT PER SHARE DATA)
<S> <C> <C>
Interest income
Interest and fees on loans............................ $ 12,126 $ 10,616
Interest on federal funds sold........................ 84 122
Interest on securities
Taxable............................................. 3,271 3,308
Exempt from federal income tax...................... 1,449 1,145
Interest on deposits in other banks................... 28 7
----------- -----------
Total interest income............................. 16,958 15,198
----------- -----------
Interest expense
Interest on deposits.................................. 7,657 6,295
Interest on short-term borrowings..................... 496 614
Interest on long-term debt............................ 130 79
----------- -----------
Total interest expense............................ 8,283 6,988
----------- -----------
Net interest income..................................... 8,675 8,210
Provision for loan losses............................... 306 64
----------- -----------
Net interest income after provision for loan losses..... 8,369 8,146
----------- -----------
Other income
Fees for customer deposit services.................... 929 825
Other fees and operating income....................... 434 508
Trust department income............................... 125 109
Securities gains...................................... 12 293
----------- -----------
Total other income................................ 1,500 1,735
----------- -----------
Other expenses
Salaries and employee benefits........................ 4,134 3,733
Occupancy and equipment expense....................... 1,104 1,022
Data processing....................................... 291 295
Other................................................. 1,760 2,029
----------- -----------
Total other expenses.............................. 7,289 7,079
----------- -----------
Income before income taxes.............................. 2,580 2,802
Applicable income taxes................................. 539 634
----------- -----------
Net income.............................................. $ 2,041 $ 2,168
=========== ===========
Average number of common shares outstanding............. 2,957 3,001
=========== ===========
Earnings per common share............................... $ .69 $ .72
</TABLE>
The accompanying note is an integral part of these financial statements.
F-3
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NET UNREALIZED
GAINS (LOSSES)
COMMON STOCK ON AVAILABLE
------------------ RETAINED FOR SALE
SHARES AMOUNT EARNINGS SECURITIES
--------- ------- -------- --------------
(000'S OMITTED EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Balance January 1, 1995............ 3,006,477 $16,978 $61,090 $(3,409)
Net Income....................... 2,168
Cash dividends $.17 per share.... (510)
Cost of shares acquired.......... (7,561) (43) (167)
Change in unrealized gains on
available for sale securities 2,678
--------- ------- ------- -------
Balance, March 31, 1995............ 2,998,916 $16,935 $62,581 $ (731)
========= ======= ======= =======
Balance, January 1, 1996........... 2,956,784 $16,697 $68,391 $ 8,808
Net income....................... 2,041
Cash dividends $.17 per share.... (503)
Change in unrealized gains on
available for sale securities (72)
--------- ------- ------- -------
Balance, March 31, 1996............ 2,956,784 $16,697 $69,929 $ 8,736
========= ======= ======= =======
</TABLE>
The accompanying note is an integral part of these financial statements.
F-4
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
1996 1995
------- -------
(000'S OMITTED)
<S> <C> <C> <C>
Cash flows from operating activities:
Interest and dividends received........................ $16,472 $14,873
Fees and commissions received.......................... 1,488 1,442
Interest paid.......................................... (8,231) (6,799)
Cash paid to suppliers and employees................... (6,029) (8,272)
Income taxes (paid) refunded........................... (375) 519
------- -------
Net cash provided by operating activities.......... 3,325 1,763
------- -------
Cash flows from investing activities:
Net decrease in interest bearing deposits in other
banks................................................. 3,328 984
Sales of securities available for sale................. 9,325 9,447
Maturities of securities
Held for investment.................................. 1,594
Available for sale................................... 44,105 23,336
Purchase of securities available for sale.............. (41,437) (13,948)
Net increase in loans.................................. (14,266) (12,689)
Capital expenditures................................... (460) (374)
Proceeds from the sale of property and equipment....... 30 12
Proceeds from sale of other real estate owned.......... 165
------- -------
Net cash provided by investing activities.......... 625 8,527
------- -------
Cash flows from financing activities
Net increase (decrease) in deposits.................... 748 (14,137)
Net increase (decrease) in short term borrowings....... (8,648) 4,986
Net increase (decrease) in long term borrowings........ (2,933) 850
Dividends paid......................................... (857) (872)
Common stock acquired.................................. (210)
------- -------
Net cash used in financing activities.............. (11,690) ( 9,383)
------- -------
Net increase (decrease) in cash and cash equivalents..... (7,740) 907
Cash and cash equivalents at beginning of year........... 34,388 36,866
------- -------
Cash and cash equivalents at end of period............... $26,648 $37,773
======= =======
</TABLE>
The accompanying note is an integral part of these financial statements.
F-5
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
31,
---------------
1996 1995
------- ------
(000'S OMITTED)
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net income............................................... $ 2,041 $2,168
------- ------
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for premium amortization..................... 544 661
Provision for discount accretion....................... (446) (378)
Provision for depreciation............................. 515 503
Provision for loan losses.............................. 306 64
Provision for deferred income taxes.................... (434)
Gain on sale of securities............................. (12) (293)
(Gain) Loss on sale of equipment....................... (1) 12
Changes in assets decrease (increase):
Interest receivable.................................. (583) (608)
Prepaid expenses and other assets.................... 348 13
Changes in liabilities increase........................ 613 55
------- ------
Total adjustments.................................. 1,284 (405)
------- ------
Net cash provided by operating activities................ $ 3,325 $1,763
======= ======
Supplemental schedule of noncash investing and financing
activities:
Net change in unrealized gains on securities available
for sale.............................................. $ 117 $4,371
======= ======
Contributions and net earnings of Execuflex Plan....... $ 417 $ 100
======= ======
Securities with a 1994 trade date settled in 1995...... $ (936)
======
Securities with a 1995 trade date settled in 1996...... $(1,353)
=======
Securities purchased not settled....................... $ 439 $2,018
======= ======
Securities sold not settled............................ $ 260 $ 232
======= ======
Loans transferred to OREO.............................. $ 481
=======
</TABLE>
<TABLE>
<S> <C> <C>
--- ---
</TABLE>
The accompanying note is an integral part of these financial statements.
F-6
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the financial
information of Northern Illinois and its subsidiary. All significant
intercompany balances and transactions have been eliminated. In management's
opinion, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the financial position and the results of
operations for the interim periods have been made. For a further description
of significant accounting policies of the Northern Illinois, see the 1995 Form
10-K.
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Northern Illinois Financial Corporation
We have audited the accompanying consolidated balance sheets of Northern
Illinois Financial Corporation and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated 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 consolidated financial position
of Northern Illinois Financial Corporation and subsidiaries as of December 31,
1995 and 1994, and the 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 Company
changed its method of accounting for investment securities and income taxes in
1993, and its method of accounting for impairment of loans in 1995, to conform
to pronouncements of the Financial Accounting Standards Board.
Hutton, Nelson & McDonald LLP
Oakbrook Terrace, Illinois
January 31, 1996
F-8
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Cash and due from banks (Note 2)......................... $ 27,888 $ 27,856
Interest bearing deposits in other banks................. 4,848 1,128
Federal funds sold....................................... 6,500 9,010
Securities (Notes 1, 3 and 4)
Held to maturity, at amortized cost (market value
$73,756 in 1994)...................................... 73,661
Available for sale, at market.......................... 333,244 249,196
Loans, net of unearned income (Notes 4 and 5)............ 548,055 478,255
Allowance for loan losses (Note 6)....................... (5,585) (6,050)
Premises and equipment (Note 7).......................... 22,778 22,553
Accrued interest receivable.............................. 7,183 6,862
Other real estate owned.................................. 1,610 1,575
Other assets (Note 8).................................... 7,933 8,517
--------- ---------
$ 954,454 $ 872,563
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits (Note 9)
Noninterest bearing.................................. $ 113,839 $ 112,640
Interest bearing..................................... 686,325 629,061
--------- ---------
Total deposits..................................... 800,164 741,701
Short-term borrowings (Note 10)........................ 36,872 40,577
Long-term borrowings (Note 11)......................... 11,588 5,650
Other liabilities...................................... 11,077 9,104
Dividends payable...................................... 857 872
--------- ---------
Total liabilities.................................. 860,558 797,904
--------- ---------
Shareholders' equity
Common stock, no par value; authorized 10,000,000
shares; issued and outstanding 2,956,784 and 3,006,477
shares................................................ 16,697 16,978
Retained earnings (Note 17)............................ 68,391 61,090
Net unrealized gains (losses) on available for sale
securities, net of tax of $5,570 in 1995 and $(2,156)
in 1994............................................... 8,808 (3,409)
--------- ---------
Total shareholders' equity......................... 93,896 74,659
--------- ---------
$ 954,454 $ 872,563
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest income
Interest and fees on loans............................ $45,379 $38,094 $36,282
Interest on federal funds sold........................ 809 515 356
Interest on securities................................
Taxable............................................. 13,604 11,968 11,884
Exempt from federal income tax...................... 4,588 4,920 5,649
Interest on deposits in other banks................... 22 142 188
------- ------- -------
Total interest income............................. 64,402 55,639 54,359
------- ------- -------
Interest expense
Interest on deposits.................................. 28,397 21,689 23,151
Interest on short-term borrowings..................... 2,536 1,974 1,153
Interest on long-term borrowings...................... 448 136 4
------- ------- -------
Total interest expense............................ 31,381 23,799 24,308
------- ------- -------
Net interest income..................................... 33,021 31,840 30,051
Provision for loan losses (Note 6)...................... 799 355 1,362
------- ------- -------
Net interest income after provision for loan losses..... 32,222 31,485 28,689
------- ------- -------
Other income
Fees for customer services............................ 3,361 3,097 3,248
Other operating income................................ 2,478 1,656 2,251
Trust department fees................................. 469 374 379
Securities gains...................................... 3,637 1,330 1,050
------- ------- -------
Total other income................................ 9,945 6,457 6,928
------- ------- -------
Other expenses
Salaries and employee benefits........................ 14,604 14,333 13,129
Occupancy and equipment expense....................... 4,089 3,887 4,055
Data processing....................................... 1,085 1,627 1,987
Other................................................. 8,147 8,322 8,175
------- ------- -------
Total other expenses.............................. 27,925 28,169 27,346
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994 1993
-------- ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Income before income taxes and cumulative effect of
change in accounting for income taxes................ $ 14,242 $ 9,773 $ 8,271
Applicable income taxes (Notes 1 and 13).............. 3,475 2,139 884
-------- ------- -------
Income before cumulative effect of change in
accounting for income taxes.......................... 10,767 7,634 7,387
Cumulative effect of change in accounting for income
taxes (Note 1)....................................... 898
-------- ------- -------
Net income............................................ $ 10,767 $ 7,634 $ 8,285
======== ======= =======
Average number of common shares outstanding........... 2,971 3,015 3,036
======== ======= =======
Earnings per common share
Income before cumulative effect of change in
accounting......................................... $ 3.62 $ 2.53 $ 2.43
Cumulative effect of change in accounting........... .30
-------- ------- -------
Net income.......................................... $ 3.62 $ 2.53 $ 2.73
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
GAINS (LOSSES)
COMMON STOCK ON AVAILABLE
------------------ RETAINED FOR SALE
SHARES AMOUNT EARNINGS SECURITIES
--------- ------- -------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Balance, January 1, 1993........... 3,050,801 $17,228 $50,713 $
Net income....................... 8,285
Cash dividend $.75 per share..... (2,278)
Cost of shares acquired.......... (21,026) (119) (386)
Unrealized gains after tax of
$2,604.......................... 4,117
--------- ------- ------- -------
Balance, December 31, 1993......... 3,029,775 17,109 56,334 4,117
Net income....................... 7,634
Cash dividend $.80 per share..... (2,409)
Cost of shares acquired.......... (23,298) (131) (469)
Unrealized (losses) after tax
benefit of $4,760............... (7,526)
--------- ------- ------- -------
Balance, December 31, 1994......... 3,006,477 16,978 61,090 (3,409)
Net income....................... 10,767
Cash dividend $.80 per share..... (2,373)
Cost of shares acquired.......... (49,693) (281) (1,093)
Unrealized gains after tax of
$7,724.......................... 12,217
--------- ------- ------- -------
Balance, December 31, 1995......... 2,956,784 $16,697 $68,391 $ 8,808
========= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received............................ $ 65,042 $ 59,597 $ 58,448
Fees and commissions received................ 6,235 5,033 5,878
Interest paid................................ (29,919) (22,956) (24,595)
Cash paid to suppliers and employees......... (28,329) (25,318) (25,914)
Income taxes refunded (paid)................. (7,833) 112 (1,573)
--------- -------- ---------
Net cash provided by operating
activities.............................. 5,196 16,468 12,244
--------- -------- ---------
Cash flows from investing activities:
Net (increase) decrease in interest bearing
deposits in other banks..................... (3,720) 3,947 2,025
Sale of securities
Held to maturity........................... 182
Available for sale......................... 39,128 18,767 46,828
Maturities of securities
Held to maturity........................... 5,432 17,484 15,169
Available for sale......................... 107,701 76,025 90,951
Purchase of securities
Held to maturity........................... (3,476) (18,519)
Available for sale......................... (139,799) (92,587) (149,809)
Net increase in loans........................ (71,502) (42,708) (36,458)
Capital expenditures......................... (2,351) (2,638) (3,118)
Proceeds from sale of equipment.............. 124 30 9
Proceeds from sale of other real estate
owned....................................... 440 2,774 4,350
Premiums paid for life insurance............. (156) (152) (85)
--------- -------- ---------
Net cash used in investing activities.... (64,521) (22,534) (48,657)
--------- -------- ---------
Cash flows from financing activities:
Net increase in deposits..................... 58,463 12,463 29,525
Net increase (decrease) in short-term
borrowings.................................. (3,705) (4,758) 10,291
Repayment of capital lease obligations....... (153)
Dividends paid............................... (2,387) (2,266) (2,072)
Common stock acquired........................ (1,374) (600) (505)
Proceeds from issuance of long-term notes.... 6,000 5,500
Repayment of long-term notes................. (150) (150)
--------- -------- ---------
Net cash provided by financing
activities.............................. 56,847 10,189 37,086
--------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................... (2,478) 4,123 673
Cash and cash equivalents at beginning of year. 36,866 32,743 32,070
--------- -------- ---------
Cash and cash equivalents at end of year....... $ 34,388 $ 36,866 $ 32,743
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Reconciliation of net income to net cash provided
by operating activities:
Net income......................................... $10,767 $ 7,634 $ 8,285
------- ------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Premium amortization net of discount accretion... 986 3,519 3,940
Provision for depreciation....................... 2,106 1,828 1,732
Provision for loan losses........................ 799 355 1,362
Provision for write-down of other real estate
owned........................................... 170 481
Provision for write-down of securities........... 85
Cumulative effect of change in accounting for
income taxes.................................... (898)
Provision for deferred income taxes.............. (5,567) 2,639 199
Interest on long-term repurchase agreements...... 88
Gain on sale of securities....................... (3,637) (1,330) (1,050)
(Gain) loss on sale of equipment................. (36) (2) 92
Gain on sale of other real estate owned.......... (37) (167) (113)
Changes in assets and liabilities
(Increase) decrease in other assets............ (1,439) 785 (1,134)
Increase (decrease) in other liabilities....... 1,166 952 (652)
------- ------- -------
Total adjustments............................ (5,571) 8,834 3,959
------- ------- -------
Net cash provided by operating activities.......... $ 5,196 $16,468 $12,244
======= ======= =======
Supplemental schedule of noncash investing and
financing activities:
Net unrealized gains (losses) on securities
available for sale.............................. $12,216 $(7,526) $ 4,117
======= ======= =======
Net software transferred to other assets......... $ 42 $ 29
======= =======
Loans transferred to (from) other real estate
owned........................................... $ 438 $ (48) $ 1,563
======= ======= =======
Securities trades settled in a subsequent year... $ 415 $ 936 $ 26
======= ======= =======
Contributions and net earnings of the Execuflex
Plan............................................ $ 392 $ 646 $ 486
======= ======= =======
Securities transferred from held to maturity to
available for sale.............................. $68,047 $ 2,077
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and reporting
practices applicable to the banking industry.
Principles of Consolidation--The consolidated financial statements of
Northern Illinois Financial Corporation include the accounts of the Company
and its subsidiaries. Material intercompany accounts and transactions have
been eliminated.
Nature of Operations--The Company is a bank holding company and through its
banking subsidiaries offers a broad range of financial services to customers
in the Illinois counties of Cook, Lake, Will and McHenry. The financial
services offered are principally oriented toward individual consumers and
small and medium sized businesses and are typical of those offered by a
commercial bank.
Estimates--The preparation of consolidated 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 income and
expenses during the reporting year. Actual results could differ from these
estimates.
Statement of Cash Flows--For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks and federal funds sold. Generally,
federal funds are sold for one day periods.
Securities--Prior to March 31, 1993, generally all securities were carried
at cost, adjusted for amortization of premium and accretion of discount,
generally computed using the interest method. On March 31, 1993, in response
to changing industry practice resulting from recent actions by the Securities
and Exchange Commission and Financial Accounting Standards Board, the Company
revised its method of classifying securities. Securities were classified as
follows:
Securities held to maturity were securities that the Company had the intent
and ability to hold to maturity and were carried at cost adjusted for
amortization premium and accretion of discount, generally computed using the
interest method.
Securities available for sale are securities that are intended to be held
for indefinite periods of time, but which may not be held to maturity. These
securities may be used as a part of the Company's asset/liability management
strategy and may be sold in response to changes in interest rates,
deterioration of issuer's creditworthiness, or due to a desire to increase
capital or liquidity. During 1993, securities available for sale were carried
at the lower of aggregate cost, adjusted for amortization of premium and
accretion of discount, generally computed using the interest method, or
market. Effective December 31, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which requires that securities
available for sale be reported at fair value with unrealized gains and losses
reported net of applicable income taxes as a separate component of
shareholders' equity.
In the second quarter of 1994, due to regulatory reporting requirements, the
Company's holdings of Federal Reserve Bank stock and Federal Home Loan Bank
stock were transferred from the held to maturity category to securities
available for sale.
On December 1, 1995, the Company transferred securities amounting to
$68,047,000 at amortized cost from the held to maturity category to securities
available for sale. The net unrealized gains applicable to these
F-15
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
securities amounted to $2,155,000 at that date. This reclassification was made
in accordance with "A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities" issued by the Financial
Accounting Standards Board in November 1995.
Realized securities gains and losses are determined on a specific
identification basis and are reported in the consolidated statement of income
as securities gains and losses.
Loans--Loans are stated at the principal amount outstanding, net of any
unearned income. Interest on commercial, real estate and other loans is
included in interest income over the terms of the respective loans based upon
principal balances outstanding. On installment loans, the unearned income is
recognized in interest income using both the sum-of-the-months digits method
and the constant yield method. The income recognized by using the sum-of-the-
months digits method is not materially different from that obtained by using
the constant yield method. Loan origination fees and costs are recognized as
an adjustment of the yield on the related loan. Accrual of interest is
discontinued on a loan when management believes, after considering economic
conditions and collection efforts, that the borrower's financial condition is
such that collection of interest is doubtful.
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognized and Disclosures." SFAS
No. 114 covers the accounting for a loan when it is probable that all
principal and interest amounts due will not be collected in accordance with
its contractual terms. Certain loans, such as small-balance homogeneous loans
(e.g., credit-card, installment credit and indirect dealer paper), are exempt
from SFAS No. 114 provisions. Nonperforming loans which are internally rated
as substandard or doubtful are generally identified as "impaired loans."
On a quarterly basis, the Company identifies impaired loans, and impairment
is recognized to the extent the recorded investment of an impaired loan
exceeds the calculated present value. For non-collateral dependent loans, the
calculated present value is measured using a discounted cash flow approach.
Collateral-dependent loans, primarily real estate, are separately measured for
impairment by determining the fair value of collateral less estimated costs to
sell.
The Company's charge-off policy for impaired loans is consistent with its
policy for loan charge offs to the allowance for loan losses: impaired loans
are charged off when an impaired loan, or a portion thereof, is considered
uncollectible or is transferred to foreclosed properties.
The allocated reserve for losses associated with impaired loans is
considered in management's determination of the allowance for loan losses. The
adoption of these statements did not have a material effect on the results of
operations.
SFAS 118 allows the Company to use its existing methods for recognizing
interest income on an impaired loan. Consistent with the Company's method for
nonaccrual loans, interest receipts on impaired loans are recognized as
interest income or are applied to principal when the ultimate collectibility
of principal is in doubt.
Prior to January 1, 1995, impaired loans were included with other
nonperforming loans and restructured debt.
Allowance for Loan Losses--The allowance for loan losses is maintained at a
level which, in management's judgment, is adequate to absorb potential losses
inherent in the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectibility of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans, and economic conditions. Allowances for
impaired loans are generally determined based on collateral values or the
present value of
F-16
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
estimated cash flows. Because of uncertainties associated with regional
economic conditions, collateral values, and future cash flows on impaired
loans, it is reasonably possible that management's estimate of credit losses
inherent in the loan portfolio and the related allowance may change materially
in the near term. However, the amount of change that is reasonably possible
cannot be estimated. The allowance is increased by a provision for loan losses,
which is charged to expense and reduced by charge-offs, net of recoveries.
Changes in the allowance relating to impaired loans are charged or credited to
the provision for loan losses.
Premises and Equipment--Premises and equipment are stated at cost less
accumulated depreciation. The provision for depreciation included in operating
expenses is computed principally by the straight-line method for furniture and
equipment and both the straight-line method and the declining-balance method
for buildings based on the estimated useful lives of the assets. Leased
equipment under capital leases was depreciated over the lease terms.
Other Real Estate Owned--Other real estate owned represents properties
acquired in satisfaction of customers' indebtedness. Such real estate is
recorded at the carrying amount of the related indebtedness or its fair market
value less estimated costs to sell at the date of acquisition, whichever is
lower. Subsequent declines in market value, routine holding costs and losses or
gains on disposition of other real estate are included in other operating
income or expense.
Trust Assets and Fees--Assets held in fiduciary or agency capacities are not
included in the consolidated balance sheets, since such items are not assets of
the Company. Income from trust activities is reported on an accrual basis.
Income Taxes--The Company files consolidated income tax returns with its
subsidiaries. Each subsidiary provides for income taxes on a separate return
basis and is charged or credited by the Company with the tax or tax benefit
shown in a separate return. The provision for income taxes is based upon
reported income and expense adjusted for differences that do not enter into the
computation of taxes payable under applicable laws. Deferred taxes are provided
for temporary differences in the recognition of income and expenses for tax and
financial reporting purposes.
Effective January 1, 1993, the Company prospectively adopted the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." SFAS 109 requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
financial reporting and tax basis of the Company's assets and liabilities.
Measurement of deferred tax assets and liabilities is based upon the provisions
of enacted tax laws and the effects of future changes in tax laws or rates. The
cumulative effect of this accounting change at January 1, 1993 amounted to
$898,000.
Earnings Per Common Share--Earnings per common share are based on the
weighted average number of shares outstanding during the period.
2. CASH AND DUE FROM BANKS
Included in cash and due from banks are amounts required to be deposited with
the Federal Reserve Bank. These reserve balances vary depending on the level of
customer deposits in the subsidiary banks. At December 31, 1995 and 1994 the
reserve balance requirement was approximately $1,494,000 and $1,968,000,
respectively.
F-17
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SECURITIES
Securities have been classified in the balance sheets according to
management's intent. The carrying amount of securities and their approximate
fair values (in thousands) at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Held to maturity securities:
December 31, 1994
Obligations of states and
political subdivisions.......... $ 73,661 $ 1,154 $1,059 $ 73,756
======== ======= ====== ========
Available for sale securities:
December 31, 1995
U. S. Treasury securities........ $ 53,987 $ 120 $ 177 $ 53,930
U. S. Government agencies........ 32,034 9 19 32,024
Obligation of states and
political subdivisions.......... 94,233 2,703 224 96,712
Debt securities issued by foreign
institutions.................... 2,010 2,010
Corporate debt securities........ 37,515 132 28 37,619
Mortgage-backed securities....... 79,174 1,131 318 79,987
Equity securities................ 19,913 11,049 30,962
-------- ------- ------ --------
$318,866 $15,144 $ 766 $333,244
======== ======= ====== ========
December 31, 1994
U. S. Treasury securities........ $ 91,388 $ $2,714 $ 88,674
U. S. Government agencies........ 58,794 901 57,893
Debt securities issued by foreign
institutions.................... 7,114 54 7,060
Corporate debt securities........ 37,321 789 36,532
Mortgage-backed securities....... 44,529 18 2,065 42,482
Equity securities................ 15,613 2,030 1,088 16,555
-------- ------- ------ --------
$254,759 $ 2,048 $7,611 $249,196
======== ======= ====== ========
</TABLE>
In 1995 and 1994, realized gains (losses) on securities held to maturity
which were called amounted to $(3,000) and $13,000.
In 1995, proceeds from the sale of a security classified as held to maturity
amounted to $182,000. The gross loss on this security amounted to $2,000.
Management sold this security based on the determination that the issuer's
creditworthiness would probably deteriorate below the minimum investment grade
for a financial institution.
The scheduled maturities of securities available for sale at December 31,
1995 (in thousands) were as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- --------
<S> <C> <C>
Due in one year or less............................... $100,730 $100,808
Due after one year through five years................. 51,875 52,724
Due after five years through ten years................ 29,414 30,657
Due after ten years................................... 37,760 38,106
Mortgage-backed securities............................ 79,174 79,987
-------- --------
$298,953 $302,282
======== ========
</TABLE>
F-18
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Proceeds from sales of securities available for sale during 1995 and 1994
were $39,128,000 and $18,767,000. Gross gains of $4,218,000 and $1,420,000 and
gross losses of $576,000 and $103,000 were realized in 1995 and 1994.
4. PLEDGED ASSETS
Securities and loans with carrying values of $156,124,000 and $139,269,000
on December 31, 1995 and 1994, respectively, were pledged to secure public and
trust deposits, securities sold under agreements to repurchase, advances from
the Federal Home Loan Bank, and for other purposes as required or permitted by
law.
5. LOANS
A summary of loans outstanding at December 31, 1995 and 1994 are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Commercial and industrial.............................. $104,085 $ 82,039
Real estate--construction.............................. 41,413 39,296
Real estate--mortgage.................................. 353,916 312,520
Installment............................................ 49,944 46,397
-------- --------
549,358 480,252
Unearned income........................................ 1,303 1,997
-------- --------
$548,055 $478,255
======== ========
</TABLE>
At December 31, 1995, collateral-dependent loans with carrying values of
$3,190,000 which required the establishment of a related allowance for loan
losses of $705,000 were recognized as impaired in conformity with the SFAS No.
114 (See Note 1). The average recorded investment in impaired loans was
$3,608,000 for the year ended December 31, 1995. Interest income recognized as
collected on these loans amounted to $216,000 in 1995.
Other nonperforming loans and restructured debt amounted to $2,728,000 at
December 31, 1995 and $7,163,000 at December 31, 1994. Interest income based
on the original contract terms of the loans would have approximated $154,000
in 1995 and $591,000 in 1994 compared with amounts received of $46,000 in 1995
and $456,000 in 1994.
Loans to directors of the Company were made in the ordinary course of
business and were made on substantially the same terms, including rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility
or present other unfavorable features.
As of December 31, 1995 and 1994, loans aggregating approximately
$21,603,000 and $14,149,000, respectively, were outstanding to directors,
executive officers and certain associates. During 1995, new loans aggregating
$14,583,000 and amounts collected of $7,129,000 were transacted with such
parties.
At December 31, 1995 and 1994, real estate mortgage loans in the amount of
$5,290,000 and $1,297,000 respectively, have been sold with recourse for a
period of six months from the date of sale.
The Financial Accounting Standards Board has issued Statement 122,
"Accounting for Mortgage Servicing Rights," which requires that the cost of
the mortgage loans should be allocated to (1) the mortgage servicing rights,
and (2) the loans themselves based on their relative fair values. The Company
is required to adopt
F-19
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Statement 122 beginning January 1, 1996. The Company estimates that the
adoption of this statement will have no material effect on the results of
operations.
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans
serviced for others was $35,397,000 and $36,465,000 at December 31, 1995 and
1994, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing and included in demand deposits were approximately $973,000 and
$1,024,000 at December 31, 1995 and 1994, respectively.
6. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Balance, beginning of year.......................... $6,050 $6,226 $5,447
Provision for loan losses........................... 799 355 1,362
Loan recoveries..................................... 185 283 506
------ ------ ------
7,034 6,864 7,315
Loans charged off................................... 1,449 814 1,089
------ ------ ------
Balance, end of year................................ $5,585 $6,050 $6,226
====== ====== ======
</TABLE>
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- -------
<S> <C> <C>
Land..................................................... $ 3,469 $ 3,484
Buildings and improvements............................... 20,372 19,618
Equipment................................................ 11,222 9,818
Leasehold improvements................................... 513 519
Construction in progress................................. 8 10
------- -------
35,584 33,449
Accumulated depreciation................................. 12,806 10,896
------- -------
$22,778 $22,553
======= =======
</TABLE>
The Company capitalizes interest on projects when construction takes
considerable time and entails major expenditures. Such interest is charged to
construction in progress and is depreciated over the lives of the related
assets. In 1994 and 1993, $4,000 and $8,000 of interest was capitalized.
Depreciation charged to operations amounted to $2,106,000 in 1995,
$1,828,000 in 1994 and $1,732,000 in 1993.
Certain subsidiaries, as lessors, lease property not used in their
operations under leases expiring on or before December 31, 1998. In addition
to the minimum rental, the leases provide for the payment of additional rent
based on real estate taxes paid in excess of a base amount. The subsidiaries
received rental income from these properties of $85,000 in 1995, $86,000 in
1994 and $31,000 in 1993.
F-20
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The minimum annual rental income for future years under these leases follows
(in thousands):
<TABLE>
<CAPTION>
MINIMUM
YEAR ENDING RENTAL
DECEMBER 31, INCOME
------------ -------
<S> <C>
1996............................ $78
1997............................ 47
1998............................ 29
</TABLE>
The Company conducts a portion of its operations from leased facilities
under leases which will expire over the next nine years. All of these leases
are classified as operating leases.
Some of the operating leases for bank facilities contain the option to renew
or extend the lease terms for periods of five to ten years. In addition to the
minimum rental, certain leases require the payment of taxes, insurance and
maintenance costs.
Minimum annual rentals for future years under operating leases having an
original term of more than one year follows (in thousands):
<TABLE>
<CAPTION>
MINIMUM
RENTAL
YEAR ENDING DECEMBER 31, EXPENSE
------------------------ -------
<S> <C>
1996............................. $ 209
1997............................. 198
1998............................. 172
1999............................. 181
2000............................. 180
Later years...................... 509
------
Total minimum payments........... $1,449
======
</TABLE>
Total rental expense for the operating leases follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Minimum rentals............................................ $233 $211 $189
Additional rentals......................................... 25 29 30
---- ---- ----
Total rental expense....................................... $258 $240 $219
==== ==== ====
</TABLE>
Total lease related expenses for capital leases for the year ended December
31, 1993 follows (in thousands):
<TABLE>
<S> <C>
Depreciation expense................ $107
Interest expense.................... 4
----
Total related expenses.............. $111
====
</TABLE>
8. OTHER ASSETS
Included in other assets at December 31, 1995 and 1994 are key-man life
insurance policies, carried on the lives of a director and officers of the
Company with a face amount of $3,070,000 and $3,020,000 and net cash surrender
value of $629,000 and $473,000.
F-21
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEPOSITS
Time certificates of deposit of $100,000 and over included in interest
bearing deposits at December 31, 1995 and 1994 amounted to $94,034,000 and
$80,778,000.
10. SHORT-TERM BORROWINGS
At December 31, 1995 and 1994 short-term borrowings consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Short-term lines of credit with interest at prime rate or
LIBOR......................................................... $ 4,500 $ 3,025
Federal funds purchased, generally mature in one to five days.. 1,250
Securities sold under agreements to repurchase, generally
mature in one to one hundred eighty days from date of sale and
bear interest at money market rates........................... 31,122 37,552
------- -------
$36,872 $40,577
======= =======
</TABLE>
At December 31, 1995, the Company had unused short-term lines of credit of
$1,000,000. The lines are unsecured and bear interest at the option of the
Company of prime rate floating or fixed at one-month, two-month or three-month
periods LIBOR plus 1 3/4%. The weighted average interest rates under the lines
of credit were 7.7% and 7.5% at December 31, 1995 and 1994. The agreements
contain restrictive covenants with respect to maintenance of capital, ratio of
nonperforming loans to capital and ratio of the allowance for loan losses to
loans. The Company was in compliance with these covenants at December 31,
1995.
As of December 31, 1995, securities sold and the corresponding liabilities
(both including accrued interest) under repurchase agreements to the following
parties were as follows (in thousands):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE MARKET REPURCHASE
MATURITY VALUE LIABILITY
---------- ------- ----------
<S> <C> <C> <C>
Lake County Public Works and Public
Building Commission........................ 149.5 days $29,845 $25,029
</TABLE>
11. LONG-TERM BORROWINGS
At December 31, 1995 and 1994 long-term borrowings consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- ------
<S> <C> <C>
4% installment note payable in annual installments of $150,000
each with a final payment due January 2, 1995.................. $ $ 150
Securities sold under agreements to repurchase bearing interest
at 6% to 7% with final maturity at June 19, 1997............... 3,588 2,500
Federal Home Loan Bank advances with interest at 6.92% payable
in quarterly installments of $750,000 commencing January 11,
1996........................................................... 3,000 3,000
Federal Home Loan Bank advances with interest at 5.85% payable
monthly due December 20, 1999.................................. 5,000
------- ------
$11,588 $5,650
======= ======
</TABLE>
Scheduled payments under the various agreements for each of the next four
years are as follows (in thousands):
<TABLE>
<S> <C>
1996............................. $ 4,588
1997............................. 2,000
1999............................. 5,000
-------
$11,588
=======
</TABLE>
F-22
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Advances from the Federal Home Loan Bank are secured by a blanket lien on
residential real estate mortgages of a subsidiary bank (see Note 4).
12. EMPLOYEE BENEFIT PLANS
The Company has a profit-sharing and 401(k) savings plan which covers all
employees who have completed one year of service and 1,000 hours of service
within a plan year. Employees may contribute to the plan no less than 1% nor
more than 10% of their salary with a maximum of $9,240 in 1995. The Company
will match 50% of employee contributions for an amount up to 6% of each
employee's compensation. The Company may contribute additional matching
contributions in amounts it shall determine. Contributions are invested at the
direction of the employee in one or more funds. Company contributions
generally vest over six years of service. The plan is administered by a
committee appointed by the Board of Directors of the Company with the Grand
National Bank acting as trustee. The plan may be terminated at the discretion
of the Board of Directors of the Company.
The contributions charged to expense for the years ended December 31, 1995,
1994 and 1993 were $539,000, $600,000 and $622,000, respectively.
The Company has a nonqualified retirement plan ("Execuflex Plan") to permit
certain directors and key officers to defer current compensation in order to
provide retirement and other benefits for such employees.
Plan participants may defer up to 50% of their annual base pay and 100% of
their prior year bonus with a minimum deferral each year of $1,000. A
participant's deferral is fully vested at all times. Company matching
contributions determined under formulas set forth in the Plan are 100% vested
after completion of six years of service with the Company. The Company in its
discretion may make an incentive/profit sharing contribution for each
contributing participant for a plan year in an amount determined by the
Company. The incentive/profit sharing contribution is fully vested at all
times. The Plan is administered by a committee appointed by the Board of
Directors of the Company with LaSalle National Trust, N.A. acting as trustee.
At December 31, 1995, there were nineteen participants in the plan. During
1995, 1994 and 1993, the Company contributed $148,000, $161,000 and $121,000
to the participants' accounts. At December 31, 1995 and 1994, plan assets and
the liability to plan participants both amounting to $2,428,000 and $2,036,000
are included in other assets and other liabilities.
13. INCOME TAXES
Income tax expense is comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
--------- -------- -------
<S> <C> <C> <C>
Current income tax expense (benefit)
Federal....................................... $ 7,238 $ (317) $ 683
State......................................... 1,804 (183) 2
--------- -------- ------
9,042 (500) 685
--------- -------- ------
Deferred income tax (benefit)
Federal....................................... (4,366) 2,191 74
State......................................... (1,201) 448 125
--------- -------- ------
(5,567) 2,639 199
--------- -------- ------
Total income tax expense........................ $ 3,475 $ 2,139 $ 884
========= ======== ======
</TABLE>
F-23
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The preceding table excludes the tax expense (benefit) recorded directly in
shareholders' equity of $7,724,000 in 1995, $(4,760,000) in 1994 and
$2,604,000 in 1993.
The reasons for the differences between applicable income taxes and the
amount computed at the applicable statutory federal tax rate of 34 percent
were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Federal income tax at statutory rate............. $ 4,842 $ 3,323 $ 2,812
------- ------- -------
Increase (decrease) due to
Interest exempt from federal income taxes...... (1,465) (1,603) (1,858)
State income taxes, net of federal income
taxes......................................... 398 (88) 1
Nondeductible expenses and other items......... (62) 68 (71)
Adjustment of prior year....................... (238) (96)
Rate differential on loss carryback and other
items......................................... 535
------- ------- -------
(1,367) (1,184) (1,928)
------- ------- -------
$ 3,475 $ 2,139 $ 884
======= ======= =======
</TABLE>
The deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Deferred tax assets
SFAS 115 securities valuation........................... $ $2,156 $
Securities Sections 475 and 481 adjustments............. 2,743
Loan loss deduction..................................... 2,164 2,344 2,470
Alternative minimum tax credit.......................... 2,176 1,244
Execuflex Plan.......................................... 960 798 543
Unrealized losses on write down of other real estate
owned.................................................. 32 32 159
Deferred loan origination fees.......................... 32 51 150
Accrued vacation pay.................................... 242 223 203
Net operating loss...................................... 176
Security valuation adjustments.......................... 62 62 29
Other................................................... 2 60 20
------ ------ ------
Net deferred tax assets before deferred tax liabilities... 6,237 8,078 4,818
------ ------ ------
Deferred tax liabilities
Depreciation............................................ 134 142 153
Accumulated accretion income............................ 139 86 76
Promotional premiums on certificates of deposit......... 20 29 41
Federal Home Loan Bank stock dividend................... 6
SFAS 115 securities valuation........................... 5,570 2,604
Securities Sections 475 and 481 adjustments............. 5,294 1,538
------ ------ ------
Gross deferred tax liabilities............................ 5,869 5,551 4,412
------ ------ ------
Net deferred tax assets................................... $ 368 $2,527 $ 406
====== ====== ======
</TABLE>
The Company had an alternative minimum tax credit carryforward for tax
purposes of $2,176,000 at December 31, 1994 which was fully utilized in 1995.
The Company also had a state tax net operating loss carryforward of $3,635,000
at December 31, 1994 which was fully utilized in 1995.
F-24
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company provided tax expense of $1,409,000 in 1995, $515,000 in 1994 and
$407,000 in 1993 on net realized securities gains.
14. COMMITMENTS AND CONTINGENT LIABILITIES
The Company's subsidiaries are defendants in various legal proceedings
arising from normal business activities. With respect to each of these suits,
it is the opinion of both management of the Company and the Company's legal
counsel either that the suits are without merit or that even if the plaintiff
prevails therein the disposition thereof will not have a material effect on
the consolidated financial condition of the Company.
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument to extend credit and standby letters
of credit is represented by the contractual amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Unless noted otherwise, the Company does not require collateral or other
security to support financial instruments with credit risk.
At December 31, 1995 and 1994, financial instruments whose contract amounts
represent credit risk were (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Commitments to extend credit........................... $141,735 $108,809
Standby letters of credit.............................. 10,374 6,721
</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. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company, upon extension of credit is
based on management's credit evaluation of the counterparty. Collateral held
varies but may include certificates of deposit, accounts receivable,
inventory, property and equipment, income-producing commercial properties and
real estate.
Standby letters of credit are conditional commitments issued by the Company
to guarantee performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Company holds various types of
collateral supporting those commitments. At December 31, 1995, those
commitments were approximately 95 percent collateralized.
At December 31, 1995, the Company had outstanding commitments for the
purchase of vacant land amounting to $534,000.
15. RELATED PARTY TRANSACTIONS
Pursuant to a consulting agreement which expires on February 17, 2000, a
subsidiary bank paid the Company's major shareholder consulting fees amounting
to $80,000 per year in 1995, 1994 and 1993. The subsidiary banks also paid the
Company's major shareholder legal fees for services rendered amounting to
$73,627 in 1995, $65,855 in 1994 and $84,188 in 1993.
F-25
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. PARENT COMPANY STATEMENTS
Presented below are the balance sheets, statements of operations and
statements of cash flows for the parent company:
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash*....................... $ 309 $ 313
Investment in subsidiaries*. 83,556 68,996
Securities available for
sale....................... 10,423 5,118
Cost in excess of equity in
assets underlying
investments................ 219 231
Equipment................... 1,091 1,185
Other....................... 6,766 5,113
-------- -------
Total assets............ $102,364 $80,956
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividend payable............ $ 857 $ 871
Other liabilities........... 3,111 2,476
Short-term borrowing........ 4,500 2,950
-------- -------
Total liabilities....... 8,468 6,297
-------- -------
Shareholders' equity
Common stock.............. 16,697 16,978
Retained earnings......... 68,391 61,090
Unrealized gains (losses)
on available for sale
securities............... 8,808 (3,409)
-------- -------
93,896 74,659
-------- -------
Total liabilities and
shareholders' equity... $102,364 $80,956
======== =======
</TABLE>
- --------
*Eliminated in consolidation
F-26
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. PARENT COMPANY STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994 1993
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating income
Dividends received from subsidiaries*............... $ 8,025 $ 5,650 $ 5,950
Interest income
Subsidiaries*..................................... 8 4 4
Other............................................. 206 107 64
Management fees received from subsidiaries*......... 3,248 1,516 1,297
Securities gains.................................... 2,183 1,382 258
Other income........................................ 24 5 2
-------- ------- -------
Total operating income.......................... 13,694 8,664 7,575
-------- ------- -------
Operating expenses
Interest expense.................................... 276 197 139
Salaries and employee benefits...................... 3,019 2,466 2,176
Occupancy and equipment expense..................... 705 608 441
Other............................................... 2,875 1,672 1,170
-------- ------- -------
Total operating expense......................... 6,875 4,943 3,926
-------- ------- -------
Income before equity in undistributed income of
subsidiaries......................................... 6,819 3,721 3,649
Equity in undistributed income of subsidiaries*....... 3,417 3,386 3,558
-------- ------- -------
Income before income taxes and cumulative effect of
change in accounting for income taxes................ 10,236 7,107 7,207
Applicable income tax benefits........................ 531 527 1,001
-------- ------- -------
Income before cumulative effect of change in
accounting for income taxes.......................... 10,767 7,634 8,208
Cumulative effect of change in accounting for income
taxes................................................ 77
-------- ------- -------
Net income............................................ $ 10,767 $ 7,634 $ 8,285
======== ======= =======
</TABLE>
- --------
*Eliminated in consolidation
F-27
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. PARENT COMPANY STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received.............................. $ 223 $ 107 $ 68
Interest paid.................................. (291) (172) (161)
Cash paid to suppliers and employees........... (6,453) (3,958) (3,848)
Net income tax payments from subsidiaries...... 296 1,164 (301)
Management fee income.......................... 3,248 1,521 1,297
Other income................................... 24 2
Dividends received............................. 6,975 3,900 6,950
-------- -------- -------
Net cash provided by operating activities.... 4,022 2,562 4,007
-------- -------- -------
Cash flows from investing activities:
Sale of securities available for sale.......... 5,432 2,317 348
Maturity of security available for sale........ 525
Cash received in merger of subsidiary.......... 7
Purchase of investment, other.................. (135)
Purchase of securities available for sale...... (7,349) (2,643) (597)
Capital expenditures........................... (214) (695) (404)
Proceeds from sale of equipment................ 12 25 7
Premiums paid for life insurance............... (153) (150) (83)
-------- -------- -------
Net cash used in investing activities........ (1,740) (1,281) (729)
-------- -------- -------
Cash flows from financing activities:
Net increase in short-term borrowings.......... 1,475 825 150
Dividends paid................................. (2,387) (2,266) (2,071)
Common stock acquired.......................... (1,374) (600) (505)
-------- -------- -------
Net cash used in financing activities........ (2,286) (2,041) (2,426)
-------- -------- -------
Net (decrease) increase in cash.................. (4) (760) 852
Cash at beginning of year........................ 313 1,073 221
-------- -------- -------
Cash at end of year.............................. $ 309 $ 313 $ 1,073
======== ======== =======
Reconciliation of net income to net cash provided
by operating activities:
Net income....................................... $ 10,767 $ 7,634 $ 8,285
-------- -------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 393 245 151
Cumulative effect of change in accounting for
income taxes.................................. (77)
Deferred income taxes.......................... (872) 316 (692)
(Gain) loss on sale of equipment............... 32 (2) (2)
Gain on sale of securities..................... (2,183) (1,382) (258)
Excess of equity in earnings of subsidiaries
over dividends received....................... (3,417) (3,386) (3,558)
Changes in assets and liabilities:
(Increase) decrease in other assets.......... (932) (948) 143
Increase in other liabilities................ 234 85 15
-------- -------- -------
Total adjustments.......................... (6,745) (5,072) (4,278)
-------- -------- -------
Net cash provided by operating activities........ $ 4,022 $ 2,562 $ 4,007
======== ======== =======
Supplemental schedule of noncash investing and
financing activities:
Contributions and net earnings of the Execuflex
Plan.......................................... $ 392 $ 646 $ 486
======== ======== =======
Net unrealized gains (losses) on available for
sale securities............................... $ 12,217 $(7,526) $ 4,117
======== ======== =======
Net assets acquired in merger of subsidiary.... $ 8
========
</TABLE>
F-28
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. RESTRICTIONS ON DIVIDENDS
The Company's retained earnings include undistributed retained earnings of
its subsidiaries of $61,391,000 at December 31, 1995 and $57,974,000 at
December 31, 1994.
The approval of the Comptroller of the Currency is required if the total of
all dividends declared by the bank subsidiaries in any calendar year will
exceed the bank subsidiaries' net profit for the year, combined with its
retained profits (as so defined), for the two preceding years. The amount of
additional bank dividends permissible under this formula without approval will
be net profits (as so defined), in 1996, plus approximately $7,053,000.
However, the availability of dividends may be further limited because of the
need to maintain capital ratios at individual subsidiaries satisfactory to
applicable regulatory agencies.
18. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
that value:
Securities--For U. S. Treasury and U. S. Government Agency securities, fair
values are based on market prices or dealer quotes. For other investment
securities, fair value equals quoted market price if available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities.
Loans--The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Deposit Liabilities--The fair value of demand deposits, savings accounts,
NOW and money market accounts is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining
maturities.
Short-Term and Long-Term Borrowings--The fair value of short-term and long-
term borrowings is estimated by discounting the future cash flows using the
current interest rates at which similar borrowings could be made for the same
maturities.
Commitments to Extend Credit and Standby Letters of Credit--The fair value
of commitments is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels
of interest rates and the committed rates. The fair value of letters of credit
is based on fees currently charged for similar agreements or on the estimated
cost to terminate them or otherwise settle the obligations with the
counterparties at the reporting date.
F-29
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The estimated fair value of the Company's financial instruments at December
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets
Cash..................................... $27,888 $27,888 $27,856 $27,856
Interest bearing deposits................ 4,848 4,848 1,128 1,128
Securities............................... 333,244 333,244 322,857 322,952
Federal funds sold....................... 6,500 6,500 9,010 9,010
Loans.................................... 548,055 543,118 478,255 465,916
Less allowance for loan losses........... (5,585) (6,050)
Financial liabilities
Deposits................................. 800,164 805,132 741,701 739,854
Short-term borrowings.................... 36,872 36,978 40,577 40,728
Long-term debt........................... 11,588 11,611 5,650 5,390
Unrecognized financial instruments
Commitments to extend credit............. 141,735 141,735 108,809 108,809
Standby letters of credit................ 10,374 10,374 6,721 6,721
Loans sold with recourse................. 5,290 5,290 1,297 1,297
</TABLE>
19. SUBSEQUENT EVENT
On January 22, 1996, the Company signed a definitive agreement (the "Merger
Agreement") to merge its assets and operations with Premier Financial
Services, Inc. (Premier) located in Freeport, Illinois and form a new
financial services organization to be named Grand Premier Financial, Inc. In
the proposed merger, which is subject to shareholder and regulatory approval,
Premier common shareholders will receive 1.116 shares of common stock of Grand
Premier Financial, Inc. for each share of Premier common stock held. Premier
preferred stockholders will receive shares of preferred stock of Grand Premier
Financial, Inc. having terms and conditions substantially identical to the
terms and conditions of the shares of Premier preferred stock held by such
holders. The Company common shareholders will receive 4.25 shares of common
stock of Grand Premier Financial, Inc. for each share of Company common stock
held.
Concurrently with the execution of the Merger Agreement, the Company and
Premier also entered into reciprocal stock option agreements. Under such stock
option agreements, the Company granted Premier an option to purchase up to
19.9% of the outstanding shares of Company common stock at an option price of
$30.00 per share, and Premier granted the Company an option to purchase up to
19.9% of the outstanding shares of Premier common stock at an option price of
$9.00 per share, in each case upon the occurrence of certain triggering
events. Those events include actions or proposals by a third-party to merge
with, or acquire stock or assets of, the Company (in the case of the Company
stock option agreement) or Premier (in the case of the Premier stock option
agreement).
At December 31, 1995, Premier had total assets of approximately $670
million. It is expected that the merger will be accounted for as a pooling-of-
interests and be consummated in the third quarter of 1996.
F-30
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, PRO FORMA MARCH 31, DECEMBER 31,
1996 ADJUSTMENTS (1) 1996 (1) 1995
------------ --------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash & non-interest bearing
deposits....................... $ 27,430,052 $ 27,430,052 $ 37,390,597
Interest bearing deposits....... 282,552 282,552 676,367
------------ ------------ ------------
Cash and cash equivalents... 27,712,604 27,712,604 38,066,964
------------ ------------ ------------
Securities available for sale... 278,935,759 278,935,759 265,326,397
Loans........................... 323,691,555 323,691,555 326,975,311
Less: Unearned discount....... (264,296) (264,296) (278,242)
Allowance for possible loan
losses..................... (3,839,436) (3,839,436) (3,849,863)
------------ ------------ ------------
Net loans................... 319,587,823 319,587,823 322,847,206
------------ ------------ ------------
Bank premises & equipment....... 13,799,525 13,799,525 13,898,077
Excess cost over fair value of
net assets acquired............ 19,610,042 19,610,042 20,008,150
Accrued interest receivable..... 7,539,812 7,539,812 6,514,630
Other assets.................... 3,925,046 3,925,046 3,557,959
------------ ----------- ------------ ------------
Total assets................ $671,110,611 $ -- $671,110,611 $670,219,383
============ =========== ============ ============
LIABILITIES & STOCKHOLDERS'
EQUITY
Non-interest bearing deposits... $ 71,189,774 $ 71,189,774 $ 82,694,865
Interest bearing deposits....... 475,471,833 475,471,833 468,797,581
------------ ------------ ------------
Deposits.................... 546,661,607 546,661,607 551,492,446
------------ ------------ ------------
Short-term borrowings........... 32,450,000 5,000,000 (1) 37,450,000 32,725,000
Securities sold under agreements
to repurchase.................. 26,051,804 26,051,804 18,635,335
Accrued taxes & other expenses.. 4,925,684 4,925,684 5,033,133
Other liabilities............... 305,232 305,232 226,065
------------ ----------- ------------ ------------
Total liabilities........... $610,394,327 $ 5,000,000 (1) $615,394,327 $608,111,979
------------ ----------- ------------ ------------
Stockholders' equity
Preferred stock--$1 par value,
1,000,000 shares authorized:
Series A perpetual, $1,000
stated value, 8.25%, 7,000
shares authorized, 5,000
shares issued and
outstanding.................. 5,000,000 (5,000,000)(1) -- 5,000,000
Series B convertible, $1,000
stated value, 7.50%, 7,250
shares authorized, issued and
outstanding.................. 7,250,000 7,250,000 7,250,000
Series D perpetual, $1,000
stated value, 7.50%, 3,300
shares authorized, 2,000
shares issued and
outstanding.................. 2,000,000 2,000,000 2,000,000
Common stock--$5.00 par value
March 31, December 31,
No. of Shares 1996 1995
Authorized 15,000,000 15,000,000
Issued 6,550,113 6,544,347
Outstanding 6,550,113 6,544,347 32,750,565 32,750,565 32,721,735
Retained earnings............... 14,700,387 14,700,387 13,893,248
Unrealized gain (loss) on secu-
rities available for sale, net
of tax......................... (984,668) (984,668) 1,242,421
------------ ----------- ------------ ------------
Stockholders' equity........ $ 60,716,284 $(5,000,000)(1) $ 55,716,284 $ 62,107,404
------------ ----------- ------------ ------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY....... $671,110,611 $ -- $671,110,611 $670,219,383
============ =========== ============ ============
</TABLE>
- -------
(1) Assumes redemption of 5,000 shares of Premier Series A Preferred Stock at
stated value through the use of borrowed funds.
See notes to unaudited consolidated financial statements.
F-31
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
INTEREST INCOME
Interest & fees on loans............................... $ 7,089,366 $ 6,443,026
Interest & dividends on investment securities:.........
Taxable.............................................. 3,490,074 3,333,761
Exempt from federal income tax....................... 422,974 553,975
Other interest income.................................. 86,314 102,981
----------- -----------
Interest income.................................... 11,088,728 10,433,743
----------- -----------
INTEREST EXPENSE
Interest on deposits................................... 5,071,831 4,535,318
Interest on short-term borrowings...................... 537,714 563,787
----------- -----------
Interest expense................................... 5,609,545 5,099,105
----------- -----------
NET INTEREST INCOME ................................... 5,479,183 5,334,638
Provision for possible loan losses..................... 100,000 51,000
----------- -----------
Net interest income after provision for possible loan
losses................................................ 5,379,183 5,283,638
----------- -----------
OTHER INCOME
Trust fees............................................. 663,196 648,939
Service charges on deposits............................ 487,151 499,677
Net gains on loans sold to secondary market............ 95,495 16,547
Investment securities gains, net....................... 68,919 22,518
Other operating income................................. 600,483 419,862
----------- -----------
Other income....................................... 1,915,244 1,607,543
----------- -----------
OTHER EXPENSES
Salaries............................................... 1,984,716 2,007,503
Pension, profit sharing, & other employee benefits..... 353,246 320,017
Net occupancy of bank premises......................... 563,846 538,409
Furniture & equipment.................................. 235,591 295,782
Federal deposit insurance premiums..................... 1,500 280,774
Amortization of excess cost over fair value of net
assets acquired....................................... 398,108 398,108
Other.................................................. 1,412,951 1,212,479
----------- -----------
Other expense...................................... 4,949,958 5,053,072
----------- -----------
Earnings before income taxes........................... 2,344,469 1,838,109
Applicable income taxes................................ 854,730 539,306
----------- -----------
NET EARNINGS........................................... $ 1,489,739 $ 1,298,803
=========== ===========
Earnings per share
(On weighted average outstanding common shares of
6,746,278 in 1996 and 6,676,422 in 1995)............ $.18 $.15
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
F-32
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings..................................... $ 1,489,739 $ 1,298,803
Adjustments to reconcile net earnings to net cash
from operating activities:......................
Amortization net, related to:
Investment securities.......................... 286,744 354,946
Excess of cost over net assets acquired........ 398,108 398,108
Other.......................................... 91,655 79,456
Depreciation..................................... 236,114 278,242
Provision for possible loan losses............... 100,000 51,000
Gain on sale related to:
Investment securities.......................... (68,919) (22,518)
Loans sold to secondary market................. (95,495) (16,547)
Change in:
Accrued interest receivable.................... (1,025,182) (543,186)
Other assets................................... (367,087) (691,812)
Accrued taxes & other expenses................. (107,449) 1,750,652
Other liabilities.............................. 1,226,455 (97,450)
------------ ------------
Net cash from operating activities................. 2,164,683 2,839,694
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities held-to-
maturity........................................ -- (910,701)
Purchase of securities available for sale........ (81,100,144) (29,281,919)
Proceeds from:
Maturities of investment securities held-to-
maturity...................................... -- 2,262,303
Maturities of securities available for sale.... 25,773,637 9,075,000
Sales of securities available for sale......... 38,124,943 12,044,237
Net (increase) decrease in loans................. 3,176,790 (1,618,275)
Purchase of bank premises & equipment............ (151,129) (136,685)
------------ ------------
Net cash from investing activities................. (14,175,903) (8,566,040)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Deposits....................................... (4,830,839) (2,318,540)
Securities sold under agreements to repurchase. 7,416,469 1,089,390
Short term borrowings.......................... (275,000) (4,385,000)
Reissuance of treasury stock..................... -- 133,417
Exercised stock options.......................... 15,800 --
Cash dividends paid.............................. (669,570) (602,672)
------------ ------------
Net cash from financing activities................. 1,656,860 (6,083,405)
------------ ------------
Decrease in cash and cash equivalents.............. (10,354,360) (11,809,751)
Cash and cash equivalents, beginning of period... 38,066,964 45,870,359
------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD........ $ 27,712,604 $ 34,060,608
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
F-33
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Premier
Financial Services, Inc. ("Premier") and its subsidiaries, all of which are
wholly owned. Significant intercompany balances and transactions have been
eliminated. The consolidated financial statements as of March 31, 1996 and
1995 are unaudited. In the opinion of management, the interim financial
statements reflect all adjustments (consisting only of adjustments of a normal
recurring nature) necessary for a fair presentation of Premier's financial
position, results of operations and cash flows for the interim periods
presented. The results for such interim periods are not necessarily indicative
of the results for the full year. These financial statements should be read in
conjunction with the consolidated financial statements and the accompanying
notes to the consolidated financial statements included in Premier's 1995
Annual Report to Stockholders.
2. PROPOSED MERGER
On January 22, 1996, Premier signed a definitive agreement (the "Merger
Agreement") to merge its assets and operations with Northern Illinois
Financial Corporation ("NIFCO") located in Wauconda, Illinois and form a new
financial services corporation to be named Grand Premier Financial Inc. In the
proposed merger, which is subject to shareholder and regulatory approval,
NIFCO common shareholders will receive 4.25 shares of common stock of Grand
Premier Financial, Inc. for each share of NIFCO Common Stock held. Premier
common shareholders will receive 1.116 shares of common stock of Grand Premier
Financial, Inc. for each share of Premium Common Stock held. Holders of the
Company's preferred stock will receive shares of preferred stock of Grand
Premier Financial, Inc. having terms and conditions substantially identical to
the terms and conditions of the shares of Company preferred stock held by such
holders.
Concurrently with the execution of the Merger Agreement, the Company and
NIFCO also entered into reciprocal stock option agreements. Under such stock
option agreements, NIFCO granted Premier an option to purchase up to 19.9% of
the outstanding shares of NIFCO common stock at an option price of $30.00 per
share, and Premier granted NIFCO an option to purchase up to 19.9% of the
outstanding shares of Premier common stock at an option price of $9.00 per
share, in each case upon the occurrence of certain triggering events. Those
events include actions or proposals by a third party to merge with, or acquire
stock or assets of, NIFCO (in the case of the NIFCO stock option agreement) or
Premier (in the case of the Premier stock option agreement).
At December 31, 1995, NIFCO had total assets of approximately $954 million.
It is expected that the merger will be accounted for as a pooling-of-interests
and be consummated in the third quarter of 1996.
3. PROPOSED REDEMPTION OF PREMIER SERIES A PREFERRED STOCK
Under the terms of the Certificate of Designations for the Premier Series A
Preferred Stock, Premier has the right to redeem all of the outstanding shares
of Premier Series A Preferred Stock at their stated value at any time after
July 16, 1996. Premier has given written notice to the holders of the Premier
Series A Preferred Stock that all of the outstanding shares of Premier Series
A Preferred Stock will be redeemed on July 17, 1996. Such redemption will be
effected through the use of borrowed funds.
F-34
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Premier Financial Services, Inc.
We have audited the accompanying consolidated balance sheets of Premier
Financial Services, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of earnings, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these 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 Premier
Financial Services, Inc. and subsidiaries at December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 26, 1996
F-35
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995, AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Cash & non-interest bearing deposits............... $ 37,390,597 $ 31,186,418
Interest bearing deposits.......................... 676,367 14,683,941
------------ ------------
Cash and cash equivalents...................... 38,066,964 45,870,359
------------ ------------
Securities available for sale at market value...... 265,326,397 207,964,644
Investments held to maturity (approximate market
value):
December 31, 1994--$40,516,000................... -- 40,513,480
Loans.............................................. 326,975,311 284,799,933
Less: Unearned discount.......................... (278,242) (343,902)
Allowance for possible loan losses............. (3,849,863) (3,688,386)
------------ ------------
Net loans...................................... 322,847,206 280,767,645
------------ ------------
Bank premises & equipment.......................... 13,898,077 14,254,748
Excess cost over fair value of net assets acquired. 20,008,150 21,600,583
Accrued interest receivable........................ 6,514,630 5,835,006
Other assets....................................... 3,557,959 3,697,272
------------ ------------
Total assets................................... $670,219,383 $620,503,737
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Non-interest bearing deposits...................... $ 82,694,865 $ 86,018,604
Interest bearing deposits.......................... 468,797,581 437,674,799
------------ ------------
Deposits....................................... 551,492,446 523,693,403
------------ ------------
Short-term borrowings.............................. 32,725,000 26,185,000
Securities sold under agreements to repurchase..... 18,635,335 16,085,872
Accrued taxes & other expenses..................... 5,033,133 1,759,512
Other liabilities.................................. 226,065 303,118
------------ ------------
Liabilities.................................... $608,111,979 $568,026,905
------------ ------------
Stockholders' equity
Preferred stock--$1 par value, 1,000,000 shares
authorized:
Series A perpetual, $1,000 stated value, 8.25%,
7,000 shares authorized, 5,000 shares issued and
outstanding..................................... 5,000,000 5,000,000
Series B convertible, $1,000 stated value, 7.50%,
7,250 shares authorized, issued and outstanding. 7,250,000 7,250,000
Series D perpetual, $1,000 stated value, 7.50%,
3,300 shares authorized, 2,000 shares issued and
outstanding..................................... 2,000,000 2,000,000
Common stock--$5.00 par value
No. of Shares 1995 1994
Authorized 15,000,000 15,000,000
Issued 6,544,347 6,526,227
Outstanding 6,544,347 6,504,876 32,721,735 32,631,135
Retained earnings.................................. 13,893,248 10,149,027
Unrealized gain (loss) on securities available for
sale, net of tax.................................. 1,242,421 (4,403,568)
Less: Treasury stock, (21,351 shares at cost).... -- (149,762)
------------ ------------
Stockholders' equity........................... 62,107,404 52,476,832
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY....... $670,219,383 $620,503,737
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Interest & fees on loans................... $27,729,373 $23,625,296 $22,235,746
Interest & dividends on investment
securities:
Taxable.................................. 14,075,762 9,928,614 6,077,449
Exempt from federal income tax........... 2,291,917 2,309,789 1,891,854
Other interest income...................... 282,972 663,317 236,540
----------- ----------- -----------
Interest income........................ 44,380,024 36,527,016 30,441,589
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits....................... 19,851,147 13,510,527 11,461,443
Interest on borrowings..................... 2,308,515 1,618,879 1,289,326
----------- ----------- -----------
Interest expense....................... 22,159,662 15,129,406 12,750,769
----------- ----------- -----------
NET INTEREST INCOME........................ 22,220,362 21,397,610 17,690,820
Provision for possible loan losses......... 636,000 200,000 1,620,000
----------- ----------- -----------
Net interest income after provision for
possible loan losses...................... 21,584,362 21,197,610 16,070,820
----------- ----------- -----------
OTHER INCOME
Trust fees................................. 2,459,025 2,367,156 2,161,597
Service charges on deposits................ 1,960,424 1,907,463 1,466,387
Net gains on loans sold to secondary
market.................................... 222,333 256,831 886,231
Investment securities gains, net........... 409,021 35,201 136,391
Other operating income..................... 2,179,330 2,119,461 1,342,701
----------- ----------- -----------
Other income........................... 7,230,133 6,686,112 5,993,307
----------- ----------- -----------
OTHER EXPENSES
Salaries................................... 8,313,135 7,767,407 6,814,448
Pension, profit sharing, & other employee
benefits.................................. 1,181,375 1,112,672 825,066
Net occupancy of bank premises............. 2,160,448 1,981,801 1,523,649
Furniture & equipment...................... 1,068,153 1,088,454 1,064,031
Federal deposit insurance premiums......... 585,635 1,161,540 918,447
Amortization of excess cost over fair value
of net assets acquired.................... 1,592,433 1,592,433 833,838
Other...................................... 4,970,549 5,059,412 4,493,368
----------- ----------- -----------
Other expense.......................... 19,871,728 19,763,719 16,472,847
----------- ----------- -----------
Earnings before income taxes............... 8,942,767 8,120,003 5,591,280
Applicable income taxes.................... 2,680,588 2,409,708 1,580,070
----------- ----------- -----------
NET EARNINGS............................... $ 6,262,179 $ 5,710,295 $ 4,011,210
=========== =========== ===========
Earnings per share
(On weighted average common and common
equivalent shares outstanding of
6,694,059 in 1995, 6,648,744 in 1994 and $.77 $.68 $.55
6,245,097 in 1993)....................... ==== ==== ====
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings...................... $ 6,262,179 $ 5,710,295 $ 4,011,210
Adjustments to reconcile net
earnings to net cash from
operating activities:
Amortization net, related to:
Investment securities........... 1,225,796 2,002,842 1,239,194
Excess of cost over net assets
acquired....................... 1,592,433 1,592,433 833,838
Other........................... 356,741 248,371 178,029
Depreciation...................... 1,091,176 1,135,556 1,076,355
Provision for possible loan
losses........................... 636,000 200,000 1,620,000
Gain on sale related to:
Investment securities........... (409,021) (35,201) (136,391)
Loans sold to secondary market.. (222,333) (256,831) (886,231)
Loans originated for sale......... (18,942,000) (18,864,000) (58,485,000)
Loans sold to secondary market.... 18,942,000 18,864,000 58,485,000
Deferred income tax expense....... 88,000 239,000 108,000
Change in:
Securities available for sale... -- -- (64,108,609)
Accrued interest receivable..... (679,624) (764,674) (1,374,094)
Other assets.................... 137,540 (311,337) (4,850,293)
Accrued taxes & other expenses.. 3,185,622 (2,146,783) 1,623,933
Other liabilities............... (2,985,593) (276,156) 127,395
------------- ------------ -------------
Net cash from operating activities. 10,278,916 7,337,515 (60,537,664)
------------- ------------ -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Cash portion of acquisition, net
of cash and cash equivalents
acquired......................... -- -- (2,390,348)
Purchase of investment securities
held-to-maturity................. (8,887,616) (11,095,547) (20,141,426)
Purchase of securities available
for sale......................... (202,555,577) (131,754,087) --
Proceeds from:
Maturities of investment
securities held-to-maturity.... 6,118,044 6,791,405 5,038,965
Sales of investment securities.. -- -- 3,456,965
Maturities of securities
available for sale............. 56,358,609 38,951,206 --
Sales of securities available
for sale....................... 139,856,020 22,744,000 --
Net (increase) decrease in loans.. (42,795,702) 46,113,195 (110,655,210)
Purchase of bank premises &
equipment........................ (788,772) (290,602) (4,614,612)
------------- ------------ -------------
Net cash from investing activities. (52,694,994) (28,540,430) (129,305,666)
------------- ------------ -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase (decrease) in:
Deposits........................ 27,799,043 5,674,460 209,125,831
Securities sold under agreements
to repurchase.................. 2,549,463 (4,485,786) 5,717,248
Short term borrowings........... 6,540,000 13,775,000 6,258,000
Reissuance (purchase) of treasury
stock............................ 149,762 59,016 (208,778)
Exercised stock options........... 50,971 19,000 --
(Redemption) issuance of
preferred stock.................. -- (1,950,000) 5,000,000
Cash dividends paid............... (2,476,556) (2,373,950) (1,574,037)
------------- ------------ -------------
Net cash from financing activities. 34,612,683 10,717,740 224,318,264
------------- ------------ -------------
Increase (decrease) in cash and
cash equivalents.................. (7,803,395) (10,485,175) 34,474,934
Cash and cash equivalents,
beginning of year................ 45,870,359 56,355,534 21,880,600
------------- ------------ -------------
CASH AND CASH EQUIVALENTS, END OF
YEAR.............................. $ 38,066,964 $ 45,870,359 $ 56,355,534
------------- ------------ -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest.......................... $ 21,653,182 $ 14,951,689 $ 12,885,202
Income taxes...................... 3,025,000 2,148,000 1,980,000
PURCHASE OF BANK SUBSIDIARIES AND
BRANCH
Fair value of assets acquired..... -- 90,514 248,018,274
Cash received (paid).............. -- 10,037,078 (16,325,000)
Common and preferred stock
issued........................... -- -- (16,450,000)
Excess cost over fair value of
assets acquired.................. -- -- 21,007,210
Deposit premium................... -- 1,123,304 --
Fair value of liabilities
assumed.......................... -- 11,250,896 236,250,484
NON-CASH ACTIVITIES:
Investment securities transferred
to securities available for
sale............................. 43,309,651 141,744,000 --
Conversion of preferred stock..... -- 1,300,000 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
UNREALIZED GAIN
(LOSS) ON SECURITIES
PREFERRED COMMON RETAINED AVAILABLE FOR SALE, TREASURY
STOCK STOCK SURPLUS EARNINGS NET OF TAX STOCK TOTAL
----------- ----------- ------------ ----------- -------------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1993. $ -- $ 9,965,730 $ 12,533,290 $ 9,989,149 $ -- $ (750,523) $31,737,646
----------- ----------- ------------ ----------- ----------- ---------- -----------
Net earnings........... 4,011,210 4,011,210
Cash dividends common
stock................. (981,755) (981,755)
Cash dividends
preferred stock....... (592,282) (592,282)
Issuance of Class A
perpetual preferred
shares................ 5,000,000 5,000,000
Issuance of shares in
acquisition:
Common shares........ 898,585 3,600,890 4,499,475
Class B convertible
preferred shares.... 5,950,000 5,950,000
Class C perpetual
preferred shares.... 1,950,000 1,950,000
Class D perpetual
preferred shares.... 3,300,000 3,300,000
Treasury stock
reissuance.......... 750,523 750,523
Treasury stock
purchase.............. (208,778) (208,778)
----------- ----------- ------------ ----------- ----------- ---------- -----------
BALANCE DECEMBER 31,
1993................... 16,200,000 10,864,315 16,134,180 12,426,322 -- (208,778) 55,416,039
----------- ----------- ------------ ----------- ----------- ---------- -----------
Net earnings........... 5,710,295 5,710,295
Cash dividends common
stock................. (1,169,392) (1,169,392)
Cash dividends
preferred stock....... (1,204,558) (1,204,558)
Three-for-one stock
split................. 21,728,630 (16,134,180) (5,594,450) --
Redemption of Series C
perpetual preferred
stock................. (1,950,000) (1,950,000)
Exercised stock
options............... 38,190 (19,190) 19,000
Unrealized loss on
securities available
for sale, net of tax.. (4,403,568) (4,403,568)
Treasury stock
reissuance............ 59,016 59,016
----------- ----------- ------------ ----------- ----------- ---------- -----------
BALANCE DECEMBER 31,
1994................... 14,250,000 32,631,135 -- 10,149,027 (4,403,568) (149,762) 52,476,832
----------- ----------- ------------ ----------- ----------- ---------- -----------
Net earnings........... 6,262,179 6,262,179
Cash dividends common
stock................. (1,370,306) (1,370,306)
Cash dividends
preferred stock....... (1,106,250) (1,106,250)
Exercised stock
options............... 90,600 (39,629) 50,971
Change in unrealized
gain (loss) on
securites available
for sale, net of tax.. 5,645,989 5,645,989
Treasury stock
reissuance............ (1,773) 149,762 147,989
----------- ----------- ------------ ----------- ----------- ---------- -----------
BALANCE DECEMBER 31,
1995................... $14,250,000 $32,721,735 $ -- $13,893,248 $ 1,242,421 $ -- $62,107,404
----------- ----------- ------------ ----------- ----------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements conform to generally
accepted accounting principles and to general practices within the banking
industry. 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 income and expense during the reporting
period. Actual results could differ from those estimates. The following is a
description of significant accounting policies.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
Premier Financial Services, Inc. (the Company) and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Securities available for sale
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities," on
January 1, 1994. In accordance with SFAS No. 115, securities classified as
securities available for sale are carried at market value with unrealized
gains and losses net of income taxes excluded from earnings and reported as a
separate component of stockholders' equity. The impact of the adoption of SFAS
No. 115 increased stockholders' equity by $690,000 in 1994.
Investments held-to-maturity
Investments held-to-maturity are stated at cost adjusted for amortization of
premiums and accretion of discounts on the level yield method over the life of
the security. Management has the positive intent and ability to hold these
investment securities to maturity. On November 30, 1995, the Company
transferred all securities classified as held-to-maturity to securities
available for sale under the provisions of the SFAS No. 115 implementation
guide.
Loans
Loans are stated at face value less unearned discounts. Interest income on
loans not discounted is computed on the principal balance outstanding.
Interest income on discounted loans is computed on a basis which results in an
approximate level rate of return over the term of the loan. Accrual of
interest is discontinued on a loan when management believes that the
borrower's financial condition is such that collection of interest is
doubtful.
Impaired Loans
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" (SFAS 114), and No. 118, "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures" (SFAS 118). In accordance with SFAS
114, impaired loans are measured and reported based on the present value of
expected cash flows discounted at the loan's effective interest rate, or at
the fair value of the loan's collateral if the loan is deemed "collateral
dependent." A valuation allowance is required to the extent that the measure
of the impaired loans is less than the recorded investment.
Impaired loans are loans for which it is probable that the creditor will be
unable to collect all amounts due according to the terms of the loan
agreement. The specific factors that influence management's judgment in
F-40
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
determining when a loan is impaired include evaluation of the financial
strength of the borrower and the fair value of the collateral. A loan is not
impaired during a period of "minimum delay" in payment, regardless of the
amount of shortfall, if the ultimate collectibility of all amounts due is
expected. The Company defines "minimum delay" as past due less than 90 days.
SFAS 114 does not apply to larger groups of homogeneous loans such as real
estate-residential and other loans which are collectively evaluated for
impairment. The Company applies the measurement methods described above to
loans on a loan-by-loan basis. The Company's impaired loans are nonaccrual
loans, as generally loans are placed on nonaccrual status on the earlier of
the date that principal or interest amounts are 90 days or more past due or
the date that collection of such amounts is judged uncertain based on
evaluation of the financial strength of the borrower and the fair market value
of the collateral. Restructured loans are impaired loans in the year of
restructuring; thereafter, such loans are subject to management's evaluation
of impairment based on the restructured terms.
The Company's charge-off policy for impaired loans is consistent with its
policy for loan charge-offs to the allowance: impaired loans are charged-off
when an impaired loan, or a portion thereof, is considered uncollectible or is
transferred to foreclosed properties.
SFAS 118 allows a creditor to use existing methods for recognizing interest
income on an impaired loan. Consistent with the Company's method for
nonaccrual loans, interest receipts on impaired loans are recognized as
interest income or are applied to principal when the ultimate collectibility
of principal is in doubt. In accordance with SFAS 114 and SFAS 118, no
retroactive application of these provisions have been made to the consolidated
financial statements for periods prior to January 1, 1995.
Allowance for possible loan losses
The allowance for possible loan losses is increased by provisions charged to
expense and recoveries on loans previously charged off, and reduced by loans
charged off in the period. The allowance is based on past loan loss
experience, management's evaluation of the loan portfolio considering current
economic conditions and such other factors, which, in management's best
judgement, deserve current recognition in estimating loan losses. Regulatory
examiners may require the Company to recognize additions to the allowances
based upon their judgments about information available to them at the time of
their examination.
Bank premises and equipment
Bank premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation expense is computed on a straight
line basis over the estimated useful life of each asset. Rates of depreciation
are based on the following: buildings 40 years and equipment 3-15 years. Cost
of major additions and improvements are capitalized. Expenditures for
maintenance and repairs are reflected as expense when incurred.
Excess cost over fair value of net assets acquired
The excess cost over fair value of net assets acquired is being amortized
over 25 years for acquisitions prior to 1985, and over 15 years for
acquisitions subsequent to that date using the straight line method.
Income taxes
The Company and its subsidiaries file consolidated federal and state income
tax returns. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets
F-41
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment date.
Nature of operations
The Company is a registered bank holding company organized in 1976 under
Delaware law. The operations of the Company and its subsidiaries consist
primarily of those financial activities, including trust and investment
services, common to the commercial banking industry. The Company's markets are
throughout northern Illinois.
Earnings per share
Earnings per share is computed by dividing net income (less preferred stock
dividends) by the total of the average number of common shares outstanding and
the additional dilutive effect of stock options outstanding during the
respective period. The dilutive effect of stock options is computed using the
average market price of the Company's common stock for the period.
2. CASH AND NONINTEREST BEARING DEPOSITS
Cash and noninterest bearing deposits includes reserve balances that the
Company's subsidiary banks are required to maintain with the Federal Reserve
Bank of Chicago. These required reserves are based principally on deposits
outstanding. The average reserves required for the years ended December 31,
1995 and 1994 were $2,821,000 and $1,899,000.
3. INVESTMENTS HELD-TO-MATURITY AND SECURITIES AVAILABLE FOR SALE
The amortized cost and approximate market value of investments held-to-
maturity at December 31, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1994
-------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Obligations of states & political
subdivisions...................... 40,483 1,170 (1,167) 40,486
Other securities................... 30 -- -- 30
------- ------ -------- -------
$40,513 $1,170 $ (1,167) $40,516
======= ====== ======== =======
</TABLE>
The amortized cost and approximate market value of securities available for
sale at December 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------------------------------------- ----------------------------------------
GROSS GROSS APPROX. GROSS GROSS APPROX.
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- -------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
obligations............ $ 44,730 $ 347 $ (300) $ 44,777 $ 71,125 $ 16 $(1,721) $ 69,420
U.S. Government
agencies............... 105,964 977 (562) 106,379 103,408 61 (3,754) 99,715
Obligations of state &
political subdivisions. 39,653 1,441 (631) 40,463 -- -- -- --
Mortgage-backed
securities............. 67,548 672 (61) 68,159 35,723 33 (1,304) 34,452
Other securities........ 5,549 -- (1) 5,548 4,381 -- (3) 4,378
-------- ------ ------- -------- -------- ---- ------- --------
$263,444 $3,437 $(1,555) $265,326 $214,637 $110 $(6,782) $207,965
======== ====== ======= ======== ======== ==== ======= ========
</TABLE>
F-42
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and market value of securities available for sale as of
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>
1995
---------------------
APPROXIMATE
AMORTIZED MARKET
COST VALUE
--------- -----------
<S> <C> <C>
Due in one year or less............................. $ 51,209 $ 49,948
Due after one year through five years............... 70,417 71,734
Due after five years through ten years.............. 59,212 60,242
Due after ten years................................. 15,058 15,243
Mortgage-backed securities.......................... 67,548 68,159
-------- --------
$263,444 $265,326
======== ========
</TABLE>
During 1995, proceeds from sales of securities available for sale were
$139,856,000. Gross gains of $548,000 and gross losses of $139,000 were
realized on those sales. Proceeds from sales of securities available for sale
during 1994 were $22,744,000. Gross gains of $40,000 and gross losses of
$5,000 were realized on those sales. During 1993, proceeds from sales of
investment securities were $3,457,000. Gross gains of $141,000 and gross
losses of $5,000 were realized on those sales.
On December 31, 1995 securities with a carrying value of approximately
$116,939,000 were pledged to secure funds and trust deposits and for other
purposes as required or permitted by law.
4. LOANS
The following is a summary of loans by major classification as of December
31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Commercial and financial loans......................... $ 97,767 $ 91,392
Agricultural loans..................................... 29,905 31,564
Real estate--residential............................... 85,965 86,105
Real estate--commercial................................ 92,000 53,289
Loans to individuals................................... 21,066 22,056
Other loans............................................ 272 394
-------- --------
$326,975 $284,800
======== ========
</TABLE>
The Company serviced loans for others totaling $ 92,350,000, $91,806,000, and
$81,939,000 as of December 31, 1995, 1994 and 1993, respectively.
A summary of changes in the allowance for possible loan losses for the three
years ended December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Balance beginning of year........................... $3,688 $4,369 $2,713
Allowance from acquired entity...................... -- -- 2,351
Recoveries.......................................... 931 643 205
Provision charged to operating expense.............. 636 200 1,620
------ ------ ------
5,255 5,212 6,889
Less: loans charged off............................. 1,405 1,524 2,520
------ ------ ------
Balance end of year................................. $3,850 $3,688 $4,369
====== ====== ======
</TABLE>
F-43
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The recorded investment in collateral-dependent loans for which an
impairment has been recognized at December 31, 1995 was $2,578,000. The
recorded investment in collateral-dependent loans for which an impairment has
been recognized and the related allowance for possible loan losses at December
31, 1995 was $558,000 and $494,000, respectively. The average recorded
investment in impaired loans during 1995 was $3,319,000. Interest income
recognized on impaired loans during 1995, using the cash basis method, was
$68,000.
The Company's subsidiary banks make loans to their executive officers,
directors, principal holders of the Company's equity securities and to
associates of such persons. These loans were made in the ordinary course of
business on the same terms and conditions, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other customers and do not involve more than a normal risk. The following is a
summary of activity with respect to such loans for the latest fiscal year (in
thousands):
<TABLE>
<S> <C>
Balance, January 1, 1995.......................................... $2,151
New loans......................................................... 156
Repayments........................................................ (228)
------
Balance, December 31, 1995........................................ $2,079
======
</TABLE>
As of December 31, 1995 and 1994, the outstanding balance of nonaccrual
loans was approximately $2,345,000 and $4,879,000 respectively. Had interest
on such loans been accrued, interest and fees on loans in the accompanying
consolidated statements of earnings would have been greater by approximately
$163,000, $420,000 and $416,000 in 1995, 1994 and 1993 respectively.
5. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are recorded at cost less accumulated
depreciation as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Land, buildings and improvements......................... $18,317 $17,784
Furniture, fixtures and equipment........................ 5,374 5,331
------- -------
23,691 23,115
Less accumulated depreciation............................ 9,793 8,860
------- -------
$13,898 $14,255
======= =======
</TABLE>
6. SHORT-TERM BORROWINGS AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Following is a summary of short-term borrowings at December 31, 1995 and
1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Federal funds purchased and FHLB advances................ $23,975 $13,975
Note payable to bank..................................... 8,750 12,210
------- -------
$32,725 $26,185
======= =======
</TABLE>
The note payable to bank totaling $8,750,000 and $12,210,000 at December 31,
1995 and 1994, respectively, is due on demand with variable interest (7.43%
and 8.00% at December 31, 1995 and 1994, respectively) and is secured by the
Company's common stock holdings in its subsidiaries. The note payable is a
draw on a $15 million revolving line of credit which matures in January, 1999.
The note agreement contains certain restrictive covenants. The Company was in
compliance with such covenants at December 31, 1995.
F-44
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995 and 1994 there were no material amounts of assets at
risk with any one customer under agreements to repurchase securities sold. At
December 31, 1995 and 1994 securities sold under agreements to repurchase are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE COLLATERAL
REPURCHASE INTEREST COLLATERAL MARKET
1995 LIABILITY RATE BOOK VALUE VALUE
- ---- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Within 30 days........................ $ 2,035 6.58% $ 2,004 $ 2,004
30-90 days............................ 1,276 6.26% 1,277 1,297
After 90 days......................... 2,687 5.67% 2,715 2,734
Demand................................ 12,637 4.07% 16,772 16,919
------- ---- ------- -------
$18,635 4.73% $22,768 $22,954
======= ==== ======= =======
<CAPTION>
WEIGHTED
AVERAGE COLLATERAL
REPURCHASE INTEREST COLLATERAL MARKET
1994 LIABILITY RATE BOOK VALUE VALUE
- ---- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Within 30 days........................ $ -- -- % $ -- $ --
30-90 days............................ 1,075 3.79% 1,096 1,084
After 90 days......................... 2,334 5.91% 2,427 2,357
Demand................................ 12,677 4.26% 29,180 28,603
------- ---- ------- -------
$16,086 4.47% $32,703 $32,044
======= ==== ======= =======
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all of
its employees. The benefits are based on years of service and the employee's
compensation during the highest five of the last 10 years of their employment.
Effective July 1, 1994 the Company froze the benefits accumulating to
participants. Accrued benefits as of that date were fully funded.
Assumptions used in accounting for the pension plans as of December 31, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Discount rate................................................. 7.25% 8.50%
Expected long-term rates of return on assets.................. 8.00% 8.50%
</TABLE>
The following table sets forth the plan's funding status and amounts
recognized in the Company's consolidated balance sheets at December 31, 1995
and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Actuarial present value of accumulated, vested and projected
benefit obligations........................................... $3,344 $2,696
Plan assets at fair value, primarily listed stocks & US Bonds.. 3,871 3,419
------ ------
Plan assets in excess of projected benefit obligation.......... 527 723
Unrecognized net gain (loss) from past experience different
from that assumed and effects of changes in assumptions....... 13 (267)
Unrecognized net assets at beginning of year being recognized
over 15 years................................................. (288) (346)
------ ------
Prepaid pension cost included in other assets.................. $ 252 $ 110
====== ======
</TABLE>
F-45
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net pension cost for 1995, 1994 and 1993 included the following components
(in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Service cost-benefit earned during the period........... $ -- $ 91 $ 166
Interest cost on projected benefits obligation.......... 205 236 255
Actual return on plan assets............................ (584) (103) (231)
Net amortization and deferral........................... 237 (212) (70)
Gain on curtailment..................................... -- (189) --
----- ----- -----
Net periodic pension (income) expense................... $(142) $(177) $ 120
===== ===== =====
</TABLE>
The Company has a savings and stock plan for officers and employees. Company
contributions to the plan are discretionary. The Plan includes provisions for
employee contributions which are considered tax-deferred under Section 401(k)
of the Internal Revenue Code. The total expense was $341,000 for 1995,
$191,000 for 1994, and $218,000 for 1993.
The Company has a nonqualified stock option plan for key employees. Options
may be exercised at market price on grant date at the rate of 20% of granted
shares at the end of each year in the succeeding five-year period after the
grant date. The plan provides for the total number of shares of common stock
that may be available for options under the Plan to be adjusted on January 1
of each calendar year, so that the total number of shares of common stock that
may be issued and sold under the Plan as of January 1, of each calendar year
to be equal to four percent (4%) of the outstanding shares of common stock of
the Company on such date; provided, however, that no such adjustment will
reduce the total number of shares of common stock that may be issued and sold
under the plan below 200,000. The following table summarizes option activity
under this plan.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OPTION PRICE
--------- --------------
<S> <C> <C>
Options outstanding at December 31, 1992......... 311,979 $2.49 to $4.55
Granted........................................ 43,578 7.17
Exercised...................................... -- --
-------
Options outstanding at December 31, 1993......... 355,557 2.49 to 7.17
Granted........................................ -- --
Exercised...................................... 7,638 2.49
-------
Options outstanding at December 31, 1994......... 347,919 2.49 to 7.17
Granted........................................ 68,000 6.88
Exercised...................................... 18,120 2.49 to 4.55
-------
Options outstanding at December 31, 1995......... 397,799 2.49 to 7.17
=======
</TABLE>
At December 31,1995 options to acquire 295,760 shares were exercisable.
The Company adopted a Deferred Compensation Plan in 1994 for Directors and
employees designated as Senior Leadership Employees by the Board of Directors.
Participants may elect to defer up to 20% of salary, 50% of any bonus or 100%
of directors fees under the Plan. The Company makes a 25% matching
contribution. Amounts deferred are used to purchase company stock. Two hundred
thousand shares are registered for purchase by the Plan. Participants'
deferral amounts are 100% vested, with matching contributions 100% vested on
the earlier of the end of the third year following the year in which deferrals
are made or termination of employment for any reason other than discharge for
cause. Total expense was approximately $19,000 and $9,000 in 1995 and 1994,
respectively.
F-46
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. STOCKHOLDERS' EQUITY
On April 28, 1994, the Board of Directors declared a three-for-one stock
split in the form of a stock dividend, payable July 1, 1994 to stockholders of
record on June 8, 1994. The stated par value of each share remained at $5 per
share. The stock split resulted in the issuance of 4,345,726 additional shares
of common stock from authorized but unissued shares. The issuance of
authorized but unissued shares resulted in the transfer of $16,134,180 from
surplus and $5,594,450 from retained earnings to common stock, representing
the par value of the shares issued. Accordingly, earnings per share, cash
dividends per share, weighted average shares outstanding and related prices,
and the stock option plan information for prior periods presented have been
restated to reflect the stock split.
In 1994, the Company redeemed all of the outstanding Series C Preferred
Stock for $1,950,000 and converted 1,300 shares of Series D Preferred Stock to
Series B convertible Preferred Stock at stated value.
The amount of dividends payable by the Company on its common stock is
limited by the provisions of its term loan and revolving credit agreement. At
December 31, 1995, the Company had $3,131,000 of retained earnings available
for the payment of dividends.
State banking regulations restrict the amount of dividends that a bank may
pay to stockholders. The regulations provide that dividends are limited to the
balance of retained earnings, subject to capital adequacy requirements, plus
an additional amount equal to its net earnings in 1996 through the date of any
declaration of dividends.
9. INCOME TAXES
The components of total tax expense reported in the consolidated income
statements for the years ended December 31, 1995, 1994, and 1993 are as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Current federal..................................... $2,592 $2,171 $1,472
Deferred federal.................................... 88 239 108
------ ------ ------
Total income tax expense.......................... $2,680 $2,410 $1,580
====== ====== ======
</TABLE>
The actual tax expense differs from the expected tax expense computed by
applying the Federal Corporate tax rate of 34% to earnings before income taxes
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Tax expense at statutory rate....................... $3,040 $2,760 $1,901
Tax-exempt interest, net of premium amortization.... (806) (892) (592)
Amortization of excess cost over net assets
acquired........................................... 541 541 284
Capitalized acquisition costs....................... 41 -- 39
Reduction in valuation allowance.................... (90) -- --
Other, net.......................................... (46) 1 (52)
------ ------ ------
Total income tax expense............................ $2,680 $2,410 $1,580
====== ====== ======
</TABLE>
F-47
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of existing temporary differences that give rise to
significant portions of the deferred tax liabilities and deferred tax assets
as of December 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
DEFERRED TAX ASSETS:
Alternative minimum tax credit carryforward........... $ -- $ 448
Net operating loss carryforwards...................... 910 1,275
Provision for loan losses............................. 1,035 842
Deferred loan fees.................................... -- 117
Other................................................. 52 90
------ -------
Total gross deferred tax assets..................... 1,997 2,772
Less: Valuation allowance............................. (763) (950)
------ -------
Net deferred tax assets............................. $1,234 $ 1,822
====== =======
DEFERRED TAX LIABILITIES:
Security accretion.................................... $ 26 $ 81
Tax depreciation in excess of book depreciation....... 166 272
Difference between tax and book basis of assets ac-
quired............................................... 1,322 1,753
Deferred loan fees.................................... 109 --
Other................................................. -- 17
------ -------
Total gross deferred tax liabilities................ 1,623 2,123
------ -------
Net deferred tax liability.......................... 389 301
Unrealized gain (losses) on securities available for
sale................................................. 640 (2,268)
------ -------
Net deferred tax (asset) liability.................. $1,029 $(1,967)
====== =======
</TABLE>
The net change in the valuation allowance for the year ended December 31,
1995 was a decrease of $187,000.
Future recognition of tax benefits relating to the valuation allowance for
deferred tax assets as of December 31, 1995 will be allocated as follows (in
thousands):
<TABLE>
<S> <C>
Income tax benefit reported in the consolidated statement of
earnings.......................................................... $655
Excess cost over fair value of net assets acquired................. 108
----
$763
====
</TABLE>
The Company has net operating loss carryforwards for state income tax
purposes of approximately $19 million which expire beginning in 2002 through
2007. A valuation allowance has been established for a portion of the state
net operating loss carryforwards because of the uncertainty regarding their
utilization.
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONTINGENCIES
The company utilizes various financial instruments with off-balance sheet
risk to meet the financing needs of its customers, to generate profits and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments, many of which are so-called "off-balance sheet" transactions,
involve to varying degrees, credit and interest rate risk in excess of the
amount recognized as either an asset or liability in the consolidated balance
sheets.
Credit risk is the possibility that a loss may occur because a party to a
transaction failed to perform according to the terms of the contract. Interest
rate risk is the possibility that future changes in market interest
F-48
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
rates will cause a financial instrument to be less valuable or more onerous.
The Company controls the credit risk arising from these instruments through
its credit approval process and through the use of risk control limits and
monitoring procedures. The Company uses the same credit policies when entering
into financial instruments with off-balance sheet risk as it does for on-
balance sheet instruments. At December 31, 1995 and 1994, such commitments and
off-balance sheet financial instruments are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Letters of credit....................................... $ 8,554 $ 2,827
Lines of credit and other loan commitments.............. 96,091 80,338
-------- -------
$104,645 $83,165
======== =======
</TABLE>
Letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing standby letters of credit is essentially the same as that
involved in extending loan facilities to customers.
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.
There are various claims pending against the Company and its subsidiaries
arising in the normal course of business. Management believes, based upon the
opinion of counsel, that liabilities arising from these proceedings, if any,
will not be material to the Company's financial position.
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Provided below is the information required by Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value Of Financial
Instruments." These amounts represent estimates of fair values at a point in
time. Significant estimates regarding economic conditions, loss experience,
risk characteristics associated with particular financial instruments and
other factors were used for the purposes of this disclosure. These estimates
are subjective in nature and involve matters of judgement. Therefore, they
cannot be determined with precision. Changes in the assumptions could have a
material impact on the amounts estimated.
The estimated fair values disclosed do not reflect the value of assets and
liabilities that are not considered financial instruments. In addition, the
value of long-term relationships with depositors (core deposit intangibles)
and other customers (trust customers) are not reflected. The value of these
items is significant.
Because of the wide range of valuation techniques and the numerous estimates
which must be made, it may be difficult to make reasonable comparisons of the
Company's fair value information to that of other financial institutions. It
is important that the many uncertainties discussed above be considered when
using the estimated fair value disclosures and to realize that because of
these uncertainties, the aggregate fair value amount should in no way be
construed as representative of the underlying value of the Company.
Cash and cash equivalents
Cash and cash equivalents are by definition short-term and do not present
any unanticipated credit issues. Therefore, the carrying amount of $38.1
million is a reasonable estimate of fair value.
Securities available for sale
The estimated fair values of securities available for sale are provided in
note 3 to the consolidated financial statements. These are based on quoted
market prices, when available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
F-49
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Loans
The carrying amount (total outstanding excluding unearned income) and
estimated fair value of loans outstanding at December 31, 1995 are $326.7
million and $327.7 million, respectively. In order to determine the fair
values for loans the loan portfolio was categorized based on loan type such as
commercial, real estate, agricultural, individual and nonperforming. Each loan
category was further segmented into fixed and adjustable rate interest terms.
For performing, variable rate loans with no significant credit concerns and
frequent repricing, estimated fair values are based on carrying values. The
fair values of other performing loans, except residential real estate and
credit card, loans are estimated using discounted cash flow analyses. The
discount rates used in these analyses are based on origination rates for
similar loans of comparable credit quality. For performing residential real
estate loans, fair value is estimated by discounting contractual cash flows
adjusted for prepayment estimates using discount rates based on secondary
market sources adjusted to reflect differences in servicing and credit costs.
Fair value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are
discounted using a rate commensurate with the risk associated with the
estimated cash flow. Assumptions regarding credit risk, cash flows and
discount rates are judgmentally determined using available market information
and specific borrower information.
Deposit liabilities
The carrying amount and estimated fair value of deposits outstanding at
December 31, 1995 are $551.5 million and $553.5 million, respectively. Under
SFAS 107, the fair value of deposits with no stated maturity is equal to the
amount payable upon demand. Therefore, the fair value estimates for these
products do not reflect the benefits that the Company receives from the low-
cost, long-term funding they provide. These benefits are significant. The
estimated fair value of time deposits is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities.
Short-term borrowings
Short-term borrowings reprice frequently and therefore the carrying amount
is a reasonable estimate of fair value.
Securities sold under agreements to repurchase
The fair value of securities sold under agreements to repurchase is
estimated using the rates currently offered for securities sold under
agreements to repurchase with similar remaining maturities. Both the carrying
values and estimated fair values of Premier's securities sold under agreements
to repurchase as of December 31, 1995 were $18.6 million.
Commitments to extend credit and letters of credit
Pricing of these financial instruments is based on the credit quality and
relationship, fees, interest rates, probability of funding, and compensating
balance and other covenants or requirements. Loan commitments generally have
fixed expiration dates, are variable rate and contain termination and other
clauses which provide for relief from funding in the event that there is
significant deterioration in the credit quality of the customer. Many loan
commitments are expected to, and typically do, expire without being drawn
upon. The rates and terms of Premier's commitments to lend, and letters of
credit are competitive with others in the various markets in which Premier
operates. The carrying amounts are reasonable estimates of the fair values of
these financial instruments. Carrying amounts are comprised of the unamortized
fee income and, where necessary, reserves for any expected credit losses from
these financial instruments.
F-50
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. ACQUISITION
On July 16, 1993, the Company acquired 100% of the common stock of First
Northbrook Bancorp, Inc., Northbrook, Illinois for a total purchase price of
$32,775,000. As a result of the merger Premier indirectly acquired 100% of the
stock of First National Bank of Northbrook, Northbrook, Illinois and First
Security Bank of Cary Grove, Cary, Illinois. The acquisition was accounted for
as a purchase transaction. The aggregate of cash and shares exchanged for
First Northbrook Bancorp, Inc. was as follows:
<TABLE>
<S> <C>
Premier Series B--Convertible Preferred Stock (5,950 shares).... $ 5,950,000
Premier Series C--Noncumulative Perpetual Preferred Stock (1,950
shares)........................................................ 1,950,000
Premier Series D--Noncumulative Perpetual Preferred Stock (3,300
shares)........................................................ 3,300,000
Premier Common Stock............................................ 5,250,000
Cash (loan from third party lender)............................. 16,325,000
-----------
Total Purchase Price.......................................... $32,775,000
===========
</TABLE>
In addition, the Company issued $5,000,000 of new Series A cumulative
perpetual preferred stock. The proceeds were used to retire First Northbrook
Bancorp, Inc.'s perpetual preferred stock in the amount of $2,000,000 and
reduce acquisition debt. A summary of the features of each series of preferred
shares follows:
SERIES A--Redeemable after three years at option of the Company at par
value. Stock has a cumulative dividend feature and is non-voting. Dividend
rate of 8.25% changes to the higher of 8.25% or the Prime rate plus 1%
after July 16, 1996, 8.25% or the Prime rate plus 1.25% after July 16,
1998, 8.25% or the Prime rate plus 1.50% after July 16, 2000 and 8.25% or
the Prime rate plus 1.75% after July 16, 2003.
SERIES B--Non-voting, convertible to common stock at $9.50 per share.
Conversion price adjusted for cumulative stock dividends and splits.
Regulatory approval required before conversion of shares. Dividend rate of
7.50% increases to 8.00% after July 16, 1996.
SERIES C--Non-voting, redeemable by the Company at any time at par value
with regulatory approval. Dividend rate of 7.00% increases .25% each year
after July 16, 1996 to a maximum of 9.00%. No longer authorized at December
31, 1995.
SERIES D--Non-voting, up to $1,300,000 convertible at any time into
Series B shares at par, subject to availability of sufficient authorized
common shares. Dividend rate of 9.00% at December 31, 1993 and 7.50%
thereafter.
The unaudited pro forma results of operations (in thousands) which follow
assume the acquisition had occurred at the beginning of the period presented.
In addition to combining the historical results of operations of the two
companies, the pro forma calculations include adjustments for purchase
accounting related to the acquisition and interest on borrowed funds.
<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
Net interest income.......................................... $21,902
Earnings before income taxes................................. 3,565
Net earnings................................................. 2,462
Primary earnings per common share............................ $ .18
</TABLE>
The pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the purchase
actually been made at the beginning of the period, or of results which may
occur in the future.
F-51
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
The following is a summary of condensed financial information for the Parent
Company only (in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- -------
<S> <C> <C>
ASSETS
Investments in subsidiaries.................................. $67,742 $61,774
Cash & interest bearing deposits............................. 173 16
Premises and equipment....................................... 4,631 4,680
Other assets................................................. 221 38
------- -------
TOTAL ASSETS................................................. $72,767 $66,508
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings........................................ $ 8,750 $12,210
Other liabilities............................................ 1,910 1,821
------- -------
TOTAL LIABILITIES............................................ 10,660 14,031
Stockholders' equity........................................... 62,107 52,477
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $72,767 $66,508
======= =======
</TABLE>
CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
INCOME:
Dividends from subsidiaries............... $ 6,888 $ 5,145 $ 8,250
Other..................................... 2,996 2,940 2,706
---------- ---------- -----------
9,884 8,085 10,956
---------- ---------- -----------
EXPENSES:
Interest.................................. 826 902 452
Salaries.................................. 2,517 2,670 2,263
Other..................................... 1,187 1,285 1,135
---------- ---------- -----------
4,530 4,857 3,850
---------- ---------- -----------
Earnings before income tax benefit and
equity in undistributed earnings of
subsidiaries............................... 5,354 3,228 7,106
Income tax benefit.......................... 456 587 272
---------- ---------- -----------
Earnings before equity in undistributed
earnings of subsidiaries................... 5,810 3,815 7,378
Equity in undistributed earnings of
subsidiaries............................... 452 1,895 (3,367)
---------- ---------- -----------
NET EARNINGS............................ $ 6,262 $ 5,710 $ 4,011
========== ========== ===========
Earnings per share...................... $.77 $.68 $.55
========== ========== ===========
</TABLE>
F-52
<PAGE>
PREMIER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Operating activities:
Net cash provided by operating
activities............................. $ 6,033 $ 4,095 $ 7,649
---------- ---------- -----------
Investing activities:
Cash paid for acquisition of
subsidiaries........................... -- -- (16,325)
Additional paid in capital to
subsidiaries........................... -- -- (5,950)
Purchase of bank premises and equipment. (45) (76) (47)
---------- ---------- -----------
Net cash used by investing activities... (45) (76) (22,322)
---------- ---------- -----------
Financing activities:
Increase (decrease) in short-term debt.. (3,460) (200) 10,530
Redemption of Series C Preferred stock.. -- (1,950) --
Purchase of treasury stock.............. -- -- (209)
Reissuance of treasury stock............ 149 59 --
Dividends paid.......................... (2,477) (2,374) (1,574)
Other................................... (43) 443 935
Issuance of stock....................... -- -- 5,000
---------- ---------- -----------
Net cash provided (used) by financing
activities............................. (5,831) (4,022) 14,682
---------- ---------- -----------
Increase (decrease) in cash............... $ 157 $ (3) $ 9
========== ========== ===========
Cash paid (received) for
Interest................................ $ 837 $ 1,031 $ 290
Income taxes............................ (3,525) (1,168) (273)
</TABLE>
14. SUBSEQUENT EVENT
On January 22, 1996, the Company signed a definitive agreement (the "Merger
Agreement") to merge their assets and operations with Northern Illinois
Financial Corporation (NIFCO) located in Wauconda, Illinois and form a new
financial services organization to be named Grand Premier Financial, Inc. In
the proposed merger, which is subject to director, shareholder and regulatory
approval, NIFCO shareholders will receive 4.25 shares of common stock of Grand
Premier Financial, Inc. for each share of NIFCO's common stock held. Premier
common shareholders will receive 1.116 shares of common stock of Grand Premier
Financial, Inc. for each share of Premier common stock held. Holders of the
Company's preferred stock will receive shares of preferred stock of Grand
Premier Financial, Inc. having terms and conditions substantially identical to
the terms and conditions of the shares of Company preferred stock held by such
holders.
Concurrently with the execution of the Merger Agreement, the Company and
NIFCO also entered into reciprocal stock option agreements. Under such stock
option agreements, NIFCO granted Premier an option to purchase up to 19.9% of
the outstanding shares of NIFCO common stock at an option price of $30.00 per
share, and Premier granted NIFCO an option to purchase up to 19.9% of the
outstanding shares of Premier common stock at an option price of $9.00 per
share, in each case upon the occurrence of certain triggering events. Those
events include actions or proposals by a third party to merge with, or acquire
stock or assets of, NIFCO (in the case of the NIFCO stock option agreement) or
Premier (in the case of the Premier stock option agreement).
At December 31, 1995, NIFCO had total assets of approximately $954 million.
It is expected that the merger will be accounted for as a pooling-of-interests
and be consummated in the third quarter of 1996.
F-53
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
NORTHERN ILLINOIS FINANCIAL CORPORATION,
PREMIER FINANCIAL SERVICES, INC.
AND
GRAND PREMIER FINANCIAL, INC.
COMPOSITE
CONFORMED
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I............................................................... 1
THE MERGER.............................................................. 1
1.1 The Merger..................................................... 1
1.2 Effective Time................................................. 1
1.3 Effects of the Merger.......................................... 1
1.4 Conversion of Northern Illinois Common Stock, Premier Common
Stock and Premier Preferred Stock; Treatment of GPF Common
Stock.......................................................... 2
1.5 Options........................................................ 3
1.6 Certificate of Incorporation................................... 4
1.7 By-Laws........................................................ 4
1.8 Tax Consequences............................................... 4
1.9 Plans for Management Succession................................ 4
1.10 Board of Directors; Filling of Vacancies on the Board.......... 4
1.11 Headquarters of GPF............................................ 5
1.12 Share Purchase Rights Agreement................................ 5
1.13 Closing........................................................ 5
ARTICLE II.............................................................. 5
EXCHANGE OF SHARES...................................................... 5
2.1 GPF to Make Shares Available................................... 5
2.2 Exchange of Shares............................................. 5
ARTICLE III............................................................. 6
REPRESENTATIONS AND WARRANTIES OF NORTHERN ILLINOIS..................... 6
3.1 Corporate Organization......................................... 6
3.2 Capitalization................................................. 7
3.3 Certain Beneficial Owners of Northern Illinois Common Stock and
Premier Common Stock........................................... 8
3.4 Authority; No Violation........................................ 8
3.5 Consents and Approvals......................................... 8
3.6 Reports........................................................ 9
3.7 Financial Statements........................................... 9
3.8 Broker's Fees.................................................. 10
3.9 Absence of Certain Changes or Events........................... 10
3.10 Legal Proceedings.............................................. 10
3.11 Taxes and Tax Returns.......................................... 10
3.12 Employees...................................................... 11
3.13 SEC Reports.................................................... 12
3.14 Compliance with Applicable Law................................. 12
3.15 Certain Contracts.............................................. 12
3.16 Agreements with Regulatory Agencies............................ 13
3.17 Other Activities of Northern Illinois and its Subsidiaries..... 13
3.18 Investment Securities.......................................... 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
3.19 Undisclosed Liabilities......................................... 14
3.20 Environmental Liability......................................... 14
3.21 Insurance....................................................... 14
3.22 Loan Loss Reserves.............................................. 14
3.23 Approval Delays................................................. 15
3.24 Pooling of Interests............................................ 15
ARTICLE IV............................................................... 15
REPRESENTATIONS AND WARRANTIES OF PREMIER................................ 15
4.1 Corporate Organization.......................................... 15
4.2 Capitalization.................................................. 15
4.3 Certain Beneficial Owners of Premier Common Stock and Northern
Illinois Common Stock........................................... 16
4.4 Authority; No Violation......................................... 16
4.5 Consents and Approvals.......................................... 17
4.6 Reports......................................................... 17
4.7 Financial Statements............................................ 18
4.8 Broker's Fees................................................... 18
4.9 Absence of Certain Changes or Events............................ 18
4.10 Legal Proceedings............................................... 19
4.11 Taxes and Tax Returns........................................... 19
4.12 Employees....................................................... 19
4.13 SEC Reports..................................................... 20
4.14 Compliance with Applicable Law.................................. 20
4.15 Certain Contracts............................................... 20
4.16 Agreements with Regulatory Agencies............................. 21
4.17 Other Activities of Premier and its Subsidiaries................ 21
4.18 Investment Securities........................................... 22
4.19 Undisclosed Liabilities......................................... 22
4.20 Environmental Liability......................................... 22
4.21 Insurance....................................................... 22
4.22 Loan Loss Reserves.............................................. 22
4.23 Approval Delays................................................. 23
4.24 State Takeover Laws............................................. 23
4.25 Pooling of Interests............................................ 23
ARTICLE V................................................................ 23
COVENANTS RELATING TO CONDUCT OF BUSINESS................................ 23
5.1 Conduct of Businesses Prior to the Effective Time............... 23
5.2 Forbearances.................................................... 23
ARTICLE VI............................................................... 25
ADDITIONAL AGREEMENTS.................................................... 25
6.1 Regulatory Matters; Cooperation with Respect to Filing.......... 25
6.2 Access to Information........................................... 26
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
6.3 Stockholders' Approvals.......................................... 27
6.4 Legal Conditions to Merger....................................... 27
6.5 Affiliates; Publication of Combined Financial Results............ 27
6.6 Listing of GPF Common Stock...................................... 27
6.7 Employee Benefit Plans........................................... 27
6.8 Indemnification; Directors' and Officers' Insurance.............. 28
6.9 Additional Agreements............................................ 29
6.10 Advice of Changes................................................ 29
6.11 Dividends........................................................ 29
6.12 No Conduct Inconsistent with this Agreement...................... 29
ARTICLE VII............................................................... 30
CONDITIONS PRECEDENT...................................................... 30
7.1 Conditions to Each Party's Obligation To Effect the Merger....... 30
7.2 Conditions to Obligations of Northern Illinois................... 31
7.3 Conditions to Obligations of Premier............................. 31
ARTICLE VIII.............................................................. 32
TERMINATION AND AMENDMENT................................................. 32
8.1 Termination...................................................... 32
8.2 Effect of Termination............................................ 33
8.3 Amendment........................................................ 33
8.4 Extension; Waiver................................................ 34
ARTICLE IX................................................................ 34
GENERAL PROVISIONS........................................................ 34
9.1 Non-survival of Representations, Warranties and Agreements....... 34
9.2 Expenses......................................................... 34
9.3 Notices.......................................................... 34
9.4 Interpretation................................................... 35
9.5 Counterparts..................................................... 35
9.6 Entire Agreement................................................. 35
9.7 Governing Law.................................................... 35
9.8 Severability..................................................... 35
9.9 Publicity........................................................ 36
9.10 Assignment; Third Party Beneficiaries............................ 36
</TABLE>
<TABLE>
<C> <C> <S>
Exhibit A --Form of Northern Illinois Stock Option Agreement
Exhibit B --Form of Premier Stock Option Agreement
Exhibit C --Form of Amended and Restated Certificate of Incorporation of Newco
Exhibit D --Form of By-laws of Newco
Exhibit E --Form of Share Purchase Rights Agreement
Exhibit F --Form of Affiliate Letter
Exhibit G --Form of Opinion of Schiff Hardin & Waite
Exhibit H --Form of Opinion of Crowley Barrett & Karaba, Ltd.
</TABLE>
iii
<PAGE>
<TABLE>
<C> <C> <S>
Schedule 1.10 --Directors
Schedule 3.1(b) --Ownership in outside entities by Northern Illinois
Schedule 3.1(c) --Ownership in outside entities by Northern Illinois Subsidiaries
Schedule 3.3 --Owners of Northern Illinois Stock
Schedule 3.4(b) --Authority, No Violation
Schedule 3.6 --Regulatory Agency examinations
Schedule 3.8 --Brokers
Schedule 3.9(a) --Absence of certain changes
Schedule 3.9(b) --Exceptions to ordinary course of business (general)
Schedule 3.9(c) --Exceptions to ordinary course of business (employment matters)
Schedule 3.10(a) --Legal Proceedings
Schedule 3.11 --Income adjustments pursuant to Section 481 of the Code
Schedule 3.12 --Northern Illinois Employee Plans and Agreements
Schedule 3.15 --Contracts
Schedule 3.16 --Agreements with Regulatory Agencies
Schedule 3.20 --Environmental Liability
Schedule 3.21 --Insurance Policies
Schedule 3.22 --Possible Loan Losses
Schedule 4.3 --Owners of Premier Stock
Schedule 4.5 --Consents and Approvals
Schedule 4.8 --Brokers
Schedule 4.9 --Exceptions to ordinary course of business
Schedule 4.10 --Legal Proceedings
Schedule 4.12 --Premier Employee Plans and Agreements
Schedule 4.15 --Contracts
Schedule 4.21 --Insurance Policies
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated January 22, 1996, by and among NORTHERN
ILLINOIS FINANCIAL CORPORATION, an Illinois corporation ("Northern Illinois"),
PREMIER FINANCIAL SERVICES, INC., a Delaware corporation ("Premier"), and
Grand Premier Financial, Inc., a Delaware corporation ("GPF"), as amended by
the First Amendment to the Agreement and Plan of Merger, dated March 18, 1996,
by and among Northern Illinois, Premier and GPF.
WHEREAS, the Boards of Directors of Northern Illinois, Premier and GPF have
determined that it is in the best interests of their respective companies and
their stockholders to consummate the business combination transaction provided
for herein in which Northern Illinois and Premier will each, subject to the
terms and conditions set forth herein, merge with and into GPF (the "Merger"),
so that GPF is the resulting corporation (hereinafter sometimes called the
"Resulting Corporation") in the Merger; and
WHEREAS, it is the intent of the respective Boards of Directors of Northern
Illinois and Premier that the Merger be structured as a "merger of equals" of
Northern Illinois and Premier and that the Resulting Corporation be governed
and operated on this basis; and
WHEREAS, as a condition to, and immediately after the execution of, this
Agreement, Northern Illinois and Premier are entering into a Northern Illinois
stock option agreement (the "Northern Illinois Option Agreement") attached
hereto as Exhibit A; and
WHEREAS, as a condition to, and immediately after the execution of, this
Agreement, Northern Illinois and Premier are entering into a Premier stock
option agreement (the "Premier Option Agreement"; and together with the
Northern Illinois Option Agreement, the "Option Agreements") attached hereto
as Exhibit B; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, in
accordance with the Delaware General Corporation Law (the "DGCL") and the
Illinois Business Corporation Act of 1983, as amended (the "IBCA"), at the
Effective Time (as defined in Section 1.2), Northern Illinois and Premier
shall merge with and into GPF which shall be the Resulting Corporation in the
Merger and shall continue its corporate existence under the laws of the State
of Delaware. Upon consummation of the Merger, the separate corporate existence
of Northern Illinois and Premier shall terminate.
1.2 Effective Time. The Merger shall become effective upon the later of (i)
the issuance of a certificate of merger by the Secretary of State of the State
of Illinois (the "Illinois Secretary"), following the filing of articles of
merger with such office, and (ii) the time and date on which a certificate of
merger is filed with the Secretary of State of the State of Delaware (the
"Delaware Secretary"). The parties shall each use reasonable efforts to cause
articles of merger to be filed, and a certificate of merger to be issued, by
the Illinois Secretary and a certificate of merger to be filed with the
Delaware Secretary on the Closing Date. The term "Effective Time" shall be the
date and time when the Merger becomes effective, in accordance with this
Section 1.2.
1.3 Effects of the Merger. At and after the Effective Time, the Merger shall
have the effects set forth in Sections 259 and 261 of the DGCL and Section
11.50 of the IBCA.
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1.4 Conversion of Northern Illinois Common Stock, Premier Common Stock and
Premier Preferred Stock; Treatment of GPF Common Stock. At the Effective Time,
in each case, subject to Section 2.2(e), by virtue of the Merger and without
any action on the part of Northern Illinois, Premier or the holder of any of
the following securities:
(a) Each share of the common stock, no par value, of Northern Illinois
(the "Northern Illinois Common Stock") issued and outstanding immediately
prior to the Effective Time (other than shares of Northern Illinois Common
Stock with respect to which the holders have validly asserted, and not
withdrawn or forfeited, dissenters' rights pursuant to Sections 11.65 and
11.70 of the IBCA ("Dissenting Shares")) shall be converted into the right
to receive 4.250 shares (the "Northern Illinois Exchange Ratio") of the
common stock, par value $0.01 per share, of GPF (the "GPF Common Stock").
(b) Each share of common stock, par value $5.00 per share, of Premier
(the "Premier Common Stock") issued and outstanding immediately prior to
the Effective Time (other than shares of Premier Common Stock held in
Premier's treasury) shall be converted into the right to receive 1.116
shares (the "Premier Exchange Ratio") of GPF Common Stock.
(c) Each share of Series A Perpetual Preferred Stock of Premier, par
value $1.00 per share and with a stated value of $1,000 per share (the
"Premier Series A Perpetual Preferred Stock"), issued and outstanding
immediately prior to the Effective Time (other than shares of Premier
Series A Perpetual Preferred Stock with respect to which the holders have
validly asserted, and not withdrawn, dissenters' rights pursuant to Section
262 of the DGCL) shall be converted into the right to receive one share of
Series A Perpetual Preferred Stock of GPF, par value $0.01 per share and
with a stated value of $1,000 per share (the "GPF Series A Perpetual
Preferred Stock," and together with the GPF Series B Perpetual Preferred
Stock (as defined below) and the GPF Series C Perpetual Preferred Stock (as
defined below), the "GPF Preferred Stock"), together with accrued but
unpaid dividends on the Premier Series A Perpetual Preferred Stock to but
not including the Effective Time. The terms of the GPF Series A Perpetual
Preferred Stock shall be substantially identical to the terms of the
Premier Series A Perpetual Preferred Stock.
(d) Each share of Premier Series B Perpetual Preferred Stock of Premier,
par value $1.00 per share and with a stated value of $1,000 per share, with
a right of conversion into shares of Premier Common Stock (the "Premier
Series B Perpetual Preferred Stock"), issued and outstanding immediately
prior to the Effective Time (other than shares of Premier Series B
Perpetual Preferred Stock with respect to which the holders have validly
asserted, and not withdrawn, dissenters' rights pursuant to Section 262 of
the DGCL) shall be converted into the right to receive one share of
convertible preferred stock of GPF, par value $0.01 per share and with a
stated value of $1,000 per share (the "GPF Series B Perpetual Preferred
Stock"), together with accrued but unpaid dividends on the Premier Series B
Perpetual Preferred Stock to but not including the Effective Time. The
terms of the GPF Series B Perpetual Preferred Stock shall be substantially
identical to the terms of the Premier Series B Perpetual Preferred Stock.
(e) Each share of Series D Perpetual Preferred Stock of Premier, par
value $1.00 per share and with a stated value of $1,000 per share (the
"Series D Perpetual Preferred Stock"), issued and outstanding immediately
prior to the Effective Time (other than shares of Premier Series D
Perpetual Preferred Stock with respect to which the holders have validly
asserted, and not withdrawn, dissenters' rights pursuant to Section 262 of
the DGCL) shall be converted into the right to receive one share of
perpetual preferred stock of GPF (the "GPF Series C Perpetual Preferred
Stock"), together with accrued but unpaid dividends on the Premier Series D
Perpetual Preferred Stock to but not including the Effective Time. The
terms of the GPF Series C Perpetual Preferred Stock shall be substantially
identical to the terms of the Premier Series D Perpetual Preferred Stock.
(f) All of the shares of Northern Illinois Common Stock and Premier
Common Stock converted into GPF Common Stock pursuant to this Article I
shall no longer be outstanding and shall automatically be canceled and
shall cease to exist as of the Effective Time, and each certificate (each a
"Common Stock Certificate") previously representing any such shares of
Northern Illinois Common Stock or Premier Common Stock shall thereafter
represent only the right to receive (i) a certificate representing the
number of whole shares of GPF Common Stock and (ii) cash in lieu of
fractional shares into which the shares of
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Northern Illinois Common Stock or Premier Common Stock represented by such
Common Stock Certificate have been converted pursuant to this Section 1.4
and Section 2.2(e). Common Stock Certificates previously representing
shares of Northern Illinois Common Stock and Premier Common Stock shall be
exchanged for certificates representing whole shares of GPF Common Stock
and cash in lieu of fractional shares issued in consideration therefor upon
the surrender of such Common Stock Certificates in accordance with Section
2.2, without any interest thereon. If, prior to the Effective Time, the
outstanding shares of Northern Illinois Common Stock or Premier Common
Stock shall have been increased, decreased, changed into or exchanged for a
different number or kind of shares or securities as a result of a
reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split, or other similar change in capitalization, then
an appropriate and proportionate adjustment shall be made to the Northern
Illinois Exchange Ratio and the Premier Exchange Ratio, respectively.
(g) At the Effective Time, all shares of Premier Common Stock that are
owned by Premier as treasury stock, if any, shall be canceled and shall
cease to exist, and no stock of GPF or other consideration shall be
delivered in exchange therefor.
(h) All of the shares of Premier Series A Perpetual Preferred Stock,
Series B Perpetual Preferred Stock, and Series D Perpetual Preferred Stock
converted into GPF Preferred Stock pursuant to this Article I shall no
longer be outstanding and shall automatically be canceled and shall cease
to exist as of the Effective Time, and each certificate (each a "Preferred
Stock Certificate") previously representing any such shares of Premier
Preferred Stock shall thereafter represent only the right to receive a
certificate representing the number of whole shares of corresponding GPF
Preferred Stock into which the shares of Premier Preferred Stock
represented by such Preferred Stock Certificate have been converted
pursuant to this Section 1.4. Preferred Stock Certificates previously
representing shares of Premier Preferred Stock shall be exchanged for
certificates representing whole shares of corresponding GPF Preferred Stock
issued in consideration therefor upon the surrender of such Preferred Stock
Certificates in accordance with Section 2.2 hereof, without any interest
thereon.
(i) Any Dissenting Shares shall not be converted pursuant to this
Agreement, and the holders thereof shall be entitled only to such rights as
are granted by Sections 11.65 and 11.70 of the IBCA; provided that if any
holder of shares of Northern Illinois Common Stock shall fail to perfect
his or her rights to payment pursuant to Section 11.70 of the IBCA, each
share of Northern Illinois Common Stock held by such holder shall be
converted into the right to receive the consideration specified in
subparagraph (a) of this Section 1.4.
(j) Each share of GPF Common Stock which is issued and outstanding
immediately prior to the Effective Time shall at the Effective Time be
automatically canceled without consideration and without further action.
1.5 Options. At the Effective Time, each option granted by Premier to
purchase shares of Premier Common Stock which is outstanding and unexercised
immediately prior thereto shall cease to represent a right to acquire shares
of Premier Common Stock and shall be converted automatically into an option to
purchase shares of GPF Common Stock in an amount and at an exercise price
determined as provided below, subject to the terms of the Premier benefit
plans under which they were issued (collectively, the "Premier Stock Plans")
and the agreements evidencing grants of such options thereunder:
(a) The number of shares of GPF Common Stock to be subject to each new
option shall be equal to the product of the number of shares of Premier
Common Stock subject to the original option and the Premier Exchange Ratio,
provided that any fractional shares of GPF Common Stock resulting from such
multiplication shall be rounded to the nearest whole share; and
(b) The exercise price per share of GPF Common Stock under the new option
shall be equal to the exercise price per share of Premier Common Stock
under the original option divided by the Premier Exchange Ratio, provided
that such exercise price shall be rounded down to the nearest whole cent.
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1.6 Certificate of Incorporation. Subject to the terms and conditions of
this Agreement, at the Effective Time, an amended and restated Certificate of
Incorporation of GPF shall be filed with the Delaware Secretary so that the
Amended and Restated Certificate of Incorporation of GPF, substantially in the
form attached as Exhibit C hereto, shall be the Amended and Restated
Certificate of Incorporation of the Resulting Corporation until thereafter
amended in accordance with applicable law.
1.7 By-Laws. Subject to the terms and conditions of this Agreement, at the
Effective Time, the By-Laws of GPF, substantially in the form attached as
Exhibit D hereto, shall be the By-Laws of the Resulting Corporation until
thereafter amended in accordance with applicable law.
1.8 Tax Consequences. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a)(i)(A) of the Code, and
that this Agreement shall constitute a "plan of reorganization" for the
purposes of Section 368 of the Code.
1.9 Plans for Management Succession. At the Effective Time, (a) Richard L.
Geach shall be the Chief Executive Officer of GPF, (b) Robert W. Hinman shall
be the President and Chief Operating Officer of GPF, and (c) David L. Murray
shall be an Executive Vice President and Chief Financial Officer of GPF. Mr.
Hinman, or such other person nominated for the office of President by the
Northern Illinois Representatives (as defined in Section 1.10), shall
immediately and without further action of the Board of Directors become Chief
Executive Officer of GPF on the date upon which Mr. Geach ceases to be Chief
Executive Officer of GPF, which date shall in no event be later than December
31 of the third full calendar year following the year in which the Effective
Time occurs. Nothing in this Section 1.9 shall preclude the Board of Directors
of GPF from subsequently removing any person appointed as an officer of GPF
pursuant to this Section 1.9.
1.10 Board of Directors; Filling of Vacancies on the Board. (a) From and
after the Effective Time, the Board of Directors of GPF shall consist of
sixteen (16) persons, including Mr. Geach, Mr. Hinman and Mr. Murray. Seven
(7) directors, in addition to Mr. Hinman, shall have been selected by Northern
Illinois (the "Northern Illinois Representatives"), and six (6) directors, in
addition to Mr. Geach and Mr. Murray, shall have been selected by Premier (the
"Premier Representatives"). The Northern Illinois Representatives and the
Premier Representatives, respectively, shall be divided as equally as
practicable among the three classes of directors of GPF, in accordance with
Schedule 1.10, and shall serve in such capacities until their successors shall
have been elected or appointed and shall have qualified in accordance with the
Amended and Restated Certificate of Incorporation of GPF and By-laws of GPF
and the DGCL. Directors chosen from among the Northern Illinois
Representatives and the Premier Representatives shall be equally represented
on the executive committee of the Board of Directors.
(b) Prior to the third annual meeting of the stockholders of GPF, the
Northern Illinois Representatives and the Premier Representatives,
respectively, shall have the right to designate (i) the person or persons to
fill any vacancies occurring on the Board of Directors of GPF as the result of
the death, resignation or removal of any of the Northern Illinois
Representatives or the Premier Representatives, respectively, (ii) the person
or persons to be nominated in place of each of the Northern Illinois
Representatives and Premier Representatives, respectively, whose terms of
offices expire at each of the first three annual meetings of the stockholders
of GPF, and (iii) the person or persons to serve on the executive committee in
place of any Northern Illinois Representatives or Premier Representatives,
respectively, previously appointed to the executive committee. For purposes of
Section 1.9 and this Section 1.10, the terms "Northern Illinois
Representatives" and "Premier Representatives" shall include any person or
persons subsequently appointed or elected directors of GPF following their
designation as nominees for director by the Northern Illinois Representatives
or Premier Representatives, respectively, in accordance with the preceding
sentence.
1.11 Headquarters of GPF. At the Effective Time, the headquarters and
principal executive offices of GPF shall be in Wauconda, Illinois, or in such
other place as may be mutually agreed upon by Northern Illinois and Premier
prior to the Effective Time.
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1.12 Share Purchase Rights Agreement. At the Effective Time, GPF shall be a
party to a Share Purchase Rights Agreement, substantially in the form of
Exhibit E hereto (the "Rights Agreement"), and such Rights Agreement shall
remain in effect from and after the Effective Time until such Rights Agreement
is amended or terminated in accordance with its terms.
1.13 Closing. Subject to the terms and conditions of this Agreement and the
Option Agreements, including but not limited to the provisions of Article VII
of this Agreement, the closing of the Merger (the "Closing") will take place
at 10:00 a.m. on a date and at a place to be specified by the parties, which
shall be no later than the last business day in the calendar month in which
all of the conditions precedent to the Merger set forth in Section 7.1(a),
(b), (c) and (e) have occurred, unless such date is extended by mutual
agreement of the parties (the "Closing Date").
ARTICLE II
EXCHANGE OF SHARES
2.1 GPF to Make Shares Available. At or prior to the Effective Time, GPF
shall deposit, or shall cause to be deposited, with a bank, trust company or
other entity (including any subsidiary bank or trust company of GPF as of the
Effective Time) reasonably acceptable to each of Northern Illinois and Premier
(the "Exchange Agent"), for the benefit of the holders of Common Stock
Certificates and Preferred Stock Certificates (collectively, the
"Certificates"), for exchange in accordance with this Article II, certificates
representing the shares of GPF Common Stock and GPF Preferred Stock and cash
in lieu of any fractional shares of GPF Common Stock (such cash and
certificates for shares of GPF Common Stock and GPF Preferred Stock, together
with any dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") to be issued pursuant to Section 1.4 and
paid pursuant to Section 2.2(a) in exchange for outstanding shares of Northern
Illinois Common Stock, Premier Common Stock or Premier Preferred Stock,
respectively.
2.2 Exchange of Shares. (a) As soon as practicable after the Effective Time,
and in no event later than ten business days thereafter, the Exchange Agent
shall mail to each holder of record of one or more Certificates a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing the
shares of GPF Common Stock, GPF Preferred Stock and any cash in lieu of
fractional shares into which the shares of Northern Illinois Common Stock,
Premier Common Stock and Premier Preferred Stock represented by such
Certificate or Certificates shall have been converted pursuant to this
Agreement. Upon proper surrender of a Certificate for exchange and
cancellation to the Exchange Agent, together with such properly completed
letter of transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor, as applicable, (i) a certificate
representing that number of whole shares of GPF Common Stock or GPF Preferred
Stock to which such holder of Northern Illinois Common Stock, Premier Common
Stock or Premier Preferred Stock shall have become entitled pursuant to the
provisions of Article I, and (ii) a check representing the amount of any cash
in lieu of fractional shares and, in the case of the Premier Preferred Stock,
any accrued but unpaid dividends thereon, which such holder has the right to
receive in respect of the Certificates surrendered pursuant to the provisions
of this Article II, and the Certificate so surrendered shall forthwith be
canceled. No interest will be paid or accrued on any cash in lieu of
fractional shares or on any unpaid dividends and distributions payable to
holders of Certificates.
(b) No dividends or other distributions declared with respect to GPF Common
Stock or GPF Preferred Stock with a record date following the Effective Time
shall be paid to the holder of any unsurrendered Certificate until the holder
thereof shall have surrendered such Certificate in accordance with this
Article II. Subject to Section 2.2(e) and to the effect of applicable laws,
after the surrender of a Certificate in accordance with this Article II, the
record holder thereof shall be entitled to receive any such dividends or other
distributions with a record date following the Effective Time, without any
interest thereon, which had theretofore become payable with respect to shares
of GPF Common Stock or GPF Preferred Stock represented by such Certificate.
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(c) If any certificate representing shares of GPF Common Stock or GPF
Preferred Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the Certificate so surrendered shall be
properly endorsed (or accompanied by an appropriate instrument of transfer)
and otherwise in proper form for transfer, and that the person requesting such
exchange shall pay to the Exchange Agent in advance any transfer or other
taxes required by reason of the issuance of a certificate representing shares
of GPF Common Stock or GPF Preferred Stock in any name other than that of the
registered holder of the Certificate surrendered, or required for any other
reason, or shall establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of Northern Illinois of the shares of Northern Illinois Common
Stock and no transfers on the stock transfer books of Premier of the shares of
Premier Common Stock or Premier Preferred Stock which were issued and
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates representing such shares are presented for transfer to the
Exchange Agent, they shall be canceled and exchanged for certificates
representing shares of GPF Common Stock or GPF Preferred Stock as provided in
this Article II.
(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of GPF Common Stock shall
be issued upon the surrender for exchange of Certificates, no dividend or
distribution with respect to GPF Common Stock shall be payable on or with
respect to any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a stockholder of
GPF. In lieu of the issuance of any such fractional share, GPF shall pay to
each former stockholder of Northern Illinois and Premier who otherwise would
be entitled to receive such fractional share an amount in cash determined by
multiplying (i) $9.75 by (ii) the fraction of a share (rounded to the nearest
thousandth when expressed as an Arabic number) of GPF Common Stock to which
such holder would otherwise be entitled to receive pursuant to Section 1.4.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Northern Illinois and Premier for 12 months after the
Effective Time shall be paid to GPF. Any stockholders of Northern Illinois and
Premier who have not theretofore complied with this Article II shall
thereafter look only to GPF for the issuance of certificates representing
shares of GPF Common Stock or GPF Preferred Stock and the payment of cash in
lieu of any fractional shares and any unpaid dividends and distributions on
the GPF Common Stock or GPF Preferred Stock deliverable in respect of each
share of Northern Illinois Common Stock, Premier Common Stock or Premier
Preferred Stock, as the case may be, such stockholder holds as determined
pursuant to this Agreement, in each case, without any interest thereon.
Notwithstanding the foregoing, none of GPF, Northern Illinois, Premier, the
Exchange Agent or any other person shall be liable to any former holder of
shares of Northern Illinois Common Stock, Premier Common Stock or Premier
Preferred Stock for any amount delivered in good faith to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if reasonably required by
GPF, the posting by such person of a bond in such amount as GPF may determine
is reasonably necessary as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the shares of GPF
Common Stock, GPF Preferred Stock and any cash in lieu of fractional shares
deliverable in respect thereof pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NORTHERN ILLINOIS
Except as disclosed in the Northern Illinois disclosure schedules delivered
to Premier concurrently herewith (the "Northern Illinois Disclosure
Schedules"), Northern Illinois hereby represents and warrants to Premier as
follows:
3.1 Corporate Organization. (a) Northern Illinois is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Illinois. Northern Illinois has the corporate power and authority to
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own or lease all of its properties and assets and to carry on its business as
it is now being conducted, and is duly licensed or qualified to do business in
each jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect (as defined
below) on Northern Illinois. Northern Illinois is duly registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended (the
"BHC Act"). True and complete copies of the Articles of Incorporation and By-
Laws of Northern Illinois, as in effect as of the date of this Agreement, have
previously been made available by Northern Illinois to Premier. As used in
this Agreement, the term "Material Adverse Effect" means, with respect to
Northern Illinois, Premier or GPF, as the case may be, a material adverse
effect on the business, results of operations, financial condition, or
(insofar as they can reasonably be foreseen) prospects of such party and its
Subsidiaries taken as a whole. The word "Subsidiary" when used with respect to
any party means any bank, corporation, partnership, limited liability company,
or other organization, whether incorporated or unincorporated, which is
consolidated with such party for financial reporting purposes.
(b) As of the date of this Agreement, Northern Illinois has, as its sole
direct or indirect Subsidiaries, Grand National Bank (South Chicago Heights),
a national banking association, First National Bank of Niles, a national
banking association, Grand National Bank (Waukegan), a national banking
association, Grand National Bank (Crystal Lake), a national banking
association, and American Suburban Mortgage Corporation, an Illinois
corporation (the "Northern Illinois Subsidiaries"). On November 27, 1995,
Northern Illinois filed an application with the Office of the Comptroller of
the Currency (the "Comptroller") requesting the Comptroller's approval to
effect the merger of the Northern Illinois Subsidiaries that are organized as
national banks into a single national banking association under the charter of
Grand National Bank (Crystal Lake) and with the name of Grand National Bank
(the "Northern Illinois Subsidiary Bank Merger"). In the event that such
application is approved and the Northern Illinois Subsidiary Bank Merger is
effected prior to the Effective Time, at the Effective Time Northern Illinois
will have, as its sole Subsidiaries, Grand National Bank and American Suburban
Mortgage Corporation. Except as set forth in Schedule 3.1(b) of the Northern
Illinois Disclosure Schedules, Northern Illinois does not own any voting stock
or equity securities of any bank, corporation, partnership, limited liability
company, or other organization, whether incorporated or unincorporated, other
than the Northern Illinois Subsidiaries.
(c) Each Northern Illinois Subsidiary (i) is duly organized and validly
existing as a bank or corporation under the laws of its jurisdiction of
organization, (ii) is duly qualified to do business and in good standing in
all jurisdictions (whether federal, state, local or foreign) where its
ownership or leasing of property or the conduct of its business requires it to
be so qualified and in which the failure to be so qualified would have a
Material Adverse Effect on Northern Illinois, and (iii) has all requisite
corporate power and authority to own or lease its properties and assets and to
carry on its business as now conducted. Except as set forth in Schedule 3.1(c)
of the Northern Illinois Disclosure Schedules, none of the Northern Illinois
Subsidiaries owns any voting stock or equity securities of any bank,
corporation, partnership, limited liability company, or other organization,
whether incorporated or unincorporated.
(d) The minute books of Northern Illinois and of each of the Northern
Illinois Subsidiaries accurately reflect in all material respects all
corporate meetings held or actions taken since January 1, 1994 by the
stockholders and Boards of Directors of Northern Illinois and each Northern
Illinois Subsidiary, respectively, (including committees of the Boards of
Directors of Northern Illinois and the Northern Illinois Subsidiaries).
3.2 Capitalization. (a) The authorized capital stock of Northern Illinois
consists of 10,000,000 shares of Northern Illinois Common Stock, of which, as
of December 31, 1995, 2,956,784 shares were issued and outstanding and no
shares were held in treasury. All of the issued and outstanding shares of
Northern Illinois Common Stock have been duly authorized and validly issued
and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. Except for the Northern
Illinois Option Agreement, Northern Illinois does not have and is not bound by
any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
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of Northern Illinois Common Stock or any other equity securities of Northern
Illinois or any securities representing the right to purchase or otherwise
receive any shares of Northern Illinois Common Stock. No shares of Northern
Illinois Common Stock have been reserved for issuance, other than the shares
of Northern Illinois Common Stock reserved for issuance under the Northern
Illinois Option Agreement. Since December 31, 1995, Northern Illinois has not
issued any shares of its capital stock or any securities convertible into or
exercisable for any shares of its capital stock.
(b) Northern Illinois owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of each of the Northern Illinois
Subsidiaries, free and clear of any liens, pledges, charges, encumbrances and
security interests whatsoever ("Liens"), and all of such shares are duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. No Northern Illinois Subsidiary has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of capital stock
or any other equity security of such Northern Illinois Subsidiary or any
securities representing the right to purchase or otherwise receive any shares
of capital stock or any other equity security of such Northern Illinois
Subsidiary.
3.3 Certain Beneficial Owners of Northern Illinois Common Stock and Premier
Common Stock. Schedule 3.3 of the Northern Illinois Disclosure Schedules sets
forth the name and the number of shares of Northern Illinois Common Stock and
the percentage of the outstanding shares of Northern Illinois Common Stock
beneficially owned by any individual, entity or group, including any "person"
within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), known to Northern Illinois to be
the beneficial owner, alone or together with such person's affiliates or
associates (as such terms are defined in Rule 12b-2 under the Exchange Act),
of 10% or more of the outstanding shares of Northern Illinois Common Stock as
of the date of this Agreement. To the best knowledge of Northern Illinois, no
person listed on Schedule 3.3 beneficially owns any shares of Premier Common
Stock as of the date of this Agreement. For purposes of this Agreement,
"beneficial ownership" shall have the meaning given such term in Rule 13d-3
under the Exchange Act.
3.4 Authority; No Violation. (a) Northern Illinois has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
and validly approved by the Board of Directors of Northern Illinois. The Board
of Directors of Northern Illinois has directed that this Agreement and the
transactions contemplated hereby be submitted to Northern Illinois'
stockholders for approval at a meeting of such stockholders and, except for
the adoption of this Agreement by the affirmative vote of the holders of (i)
at least 80% of the outstanding shares of Northern Illinois Common Stock and
(ii) a majority of the outstanding shares of Northern Illinois Common Stock
not held by Howard A. McKee and his "associates" and "affiliates" (as defined
in Section 7.85 of the IBCA and Rule 12b-2 under the Exchange Act), no other
corporate proceedings on the part of Northern Illinois are necessary to
approve this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Northern
Illinois and (assuming due authorization, execution and delivery by Premier
and GPF) constitutes a valid and binding obligation of Northern Illinois,
enforceable against Northern Illinois in accordance with its terms.
3.5 Consents and Approvals. No consents or approvals of or filings or
registrations with any court, administrative agency or commission or other
governmental authority or instrumentality (each a "Governmental Entity") or
with any third party are necessary in connection with the execution and
delivery by Northern Illinois of this Agreement and the consummation by
Northern Illinois of the Merger and the other transactions contemplated hereby
except for (a) the filing by GPF of an application with the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") under the BHC Act
and the approval of such application, (b) the filing by Keeco, Inc., an
Illinois corporation, and Northland Insurance Agency, Inc., an Illinois
corporation, of an application with the Federal Reserve System under the BHC
Act and the approval of such
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application, (c) the filing with the Securities and Exchange Commission (the
"SEC") of a joint proxy statement in definitive form relating to the meetings
of Northern Illinois' and Premier's stockholders to be held in connection with
this Agreement and the transactions contemplated hereby (the "Joint Proxy
Statement") and the registration statement on Form S-4 (the "S-4") in which
such Joint Proxy Statement will be included as a prospectus, (d) the filing of
a registration statement on Form 8-A (the "8-A") registering the GPF Common
Stock under Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (e) the filing of articles of merger with, and the
issuance of a certificate of merger by, the Illinois Secretary under the IBCA,
and the filing of a certificate of merger with the Delaware Secretary pursuant
to the DGCL, (f) the filing of a consent to service of process, an appointment
of the Illinois Secretary as agent for service of process, and an agreement
with respect to any Dissenting Shares required to be filed by GPF with the
Illinois Secretary pursuant to Section 11.35 of the IBCA, (g) such filings and
approvals as are required to be made or obtained under the securities or "Blue
Sky" laws of various states in connection with the issuance of the shares of
GPF Common Stock and GPF Preferred Stock pursuant to this Agreement, (h) the
approval of an application to list the GPF Common Stock on The Nasdaq Stock
Market's National Market, subject to official notice of issuance, and (i) the
approval of this Agreement by the requisite vote of the stockholders of
Northern Illinois and Premier.
3.6 Reports. Northern Illinois and each of the Northern Illinois
Subsidiaries have timely filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto, that
they were required to file since January 1, 1994 with (i) the Federal Reserve
Board, (ii) the Federal Deposit Insurance Corporation (the "FDIC"), (iii) any
state regulatory authority (each a "State Regulator"), (iv) the Comptroller,
(v) the SEC, and (vi) any self-regulatory organization ("SRO") with
jurisdiction over any of the activities of Northern Illinois or any of its
Subsidiaries (collectively "Regulatory Agencies"), and all other reports and
statements required to be filed by them since January 1, 1994, including,
without limitation, any report or statement required to be filed pursuant to
the laws, rules or regulations of the United States, any state, or any
Regulatory Agency, and have paid all fees and assessments due and payable in
connection therewith, except where the failure to file such report,
registration or statement or to pay such fees and assessments, either
individually or in the aggregate, will not have a Material Adverse Effect on
Northern Illinois or GPF. Except for normal examinations conducted by a
Regulatory Agency in the regular course of the business of Northern Illinois
and the Northern Illinois Subsidiaries, no Regulatory Agency has initiated any
proceeding or, to the best knowledge of Northern Illinois, investigation into
the business or operations of Northern Illinois or any of the Northern
Illinois Subsidiaries since January 1, 1994. There is no unresolved written
violation, written criticism, or written exception by any Regulatory Agency
with respect to any report or statement relating to any examinations of
Northern Illinois or any of the Northern Illinois Subsidiaries, which is
likely, either individually or in the aggregate, to have a Material Adverse
Effect on Northern Illinois or GPF.
3.7 Financial Statements. Northern Illinois has previously made available to
Premier copies of (a) the consolidated balance sheets of Northern Illinois and
its Subsidiaries as of December 31, 1993 and 1994 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
fiscal years ended December 31, 1992, 1993 and 1994, inclusive, as reported in
Northern Illinois' Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 filed with the SEC under the Exchange Act, in each case
accompanied by the audit report of Hutton, Nelson and McDonald LLP,
independent public accountants with respect to Northern Illinois, and (b) the
unaudited consolidated balance sheet of Northern Illinois and its Subsidiaries
as of September 30, 1995 and September 30, 1994 and the related unaudited
consolidated statements of income, cash flows and changes in stockholders'
equity for the three- and nine-month periods then ended as reported in
Northern Illinois' Quarterly Report on Form 10-Q for the period ended
September 30, 1995 filed with the SEC under the Exchange Act (the "Northern
Illinois Third Quarter 10-Q"). The December 31, 1994 consolidated balance
sheet of Northern Illinois (including the related notes, where applicable)
fairly presents the consolidated financial position of Northern Illinois and
its Subsidiaries as of the date thereof, and the other financial statements
referred to in this Section 3.7 (including the related notes, where
applicable) fairly present the results of the consolidated operations and
changes in stockholders' equity and consolidated financial position of
Northern Illinois and its Subsidiaries for the respective fiscal periods or as
of the respective dates therein set forth, subject, in the case of the
unaudited statements, to recurring audit adjustments normal in nature and
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amount; each of such statements (including the related notes, where
applicable) comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto; and each of such statements (including the related notes,
where applicable) has been prepared in all material respects in accordance
with generally accepted accounting principles ("GAAP") consistently applied
during the periods involved, except, in each case, as indicated in such
statements or in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q. The books and records of Northern Illinois and its
Subsidiaries have been, and are being, maintained in all material respects in
accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions.
3.8 Broker's Fees. Except as set forth in Schedule 3.8, neither Northern
Illinois nor any Northern Illinois Subsidiary nor any of their respective
officers or directors has employed any broker or finder or incurred any
liability for any broker's fees, commissions or finder's fees in connection
with the Merger or related transactions contemplated by this Agreement or the
Option Agreements.
3.9 Absence of Certain Changes or Events. (a) Except as publicly disclosed
in Northern Illinois Reports (as defined in Section 3.13) filed prior to the
date hereof, since September 30, 1995, (i) Northern Illinois and its
Subsidiaries taken as a whole have not incurred any material liability, except
in the ordinary course of their business, and (ii) no event has occurred which
has had, individually or in the aggregate, a Material Adverse Effect on
Northern Illinois or will have a Material Adverse Effect on GPF.
(b) Except as publicly disclosed in the Northern Illinois Reports filed
prior to the date hereof, since September 30, 1995, Northern Illinois and its
Subsidiaries have carried on their respective businesses in all material
respects in the ordinary and usual course.
(c) Since December 31, 1994, neither Northern Illinois nor any of its
Subsidiaries has (i) except for such actions as are in the ordinary course of
business consistent with past practice or except as required by applicable
law, (A) increased the wages, salaries, compensation, pension, or other fringe
benefits or perquisites payable to any executive officer, employee, or
director from the amount thereof in effect as of December 31, 1994, or (B)
granted any severance or termination pay, entered into any contract to make or
grant any severance or termination pay, or paid any bonuses, other than
customary year-end bonuses for the 1994 and 1995 fiscal years which did not
exceed, in the aggregate, 5% of Northern Illinois' 1994 salary and employee
benefits, or (ii) suffered any strike, work stoppage, slowdown, or other labor
disturbance.
3.10 Legal Proceedings. (a) Except as set forth in Schedule 3.10(a), there
are no pending or, to the best of Northern Illinois' knowledge, threatened,
legal, administrative, arbitration or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against Northern
Illinois or any of its Subsidiaries or challenging the validity or propriety
of the transactions contemplated by this Agreement or the Northern Illinois
Option Agreement.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction (other than those that apply to similarly situated bank holding
companies or banks) imposed upon Northern Illinois, any of its Subsidiaries or
the assets of Northern Illinois or any of its Subsidiaries.
3.11 Taxes and Tax Returns. (a) Each of Northern Illinois and its
Subsidiaries has duly filed all federal, state, county, foreign and, to the
best of Northern Illinois' knowledge, local information returns and tax
returns required to be filed by it on or prior to the date hereof (all such
returns being accurate and complete in all material respects) and has duly
paid or made provisions for the payment of all Taxes (as defined in Section
3.11(b)) and other governmental charges which have been incurred or are due or
claimed to be due from it by federal, state, county, foreign or local taxing
authorities on or prior to the date of this Agreement (including, without
limitation, if and to the extent applicable, those due in respect of its
properties, income, business, capital stock, deposits,
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franchises, licenses, sales and payrolls) other than Taxes or other charges
which are not yet delinquent or are being contested in good faith and have not
been finally determined. The income tax returns of Northern Illinois and its
Subsidiaries have never been examined by the Internal Revenue Service (the
"IRS"). There are no material disputes pending, or claims asserted for, Taxes
or assessments upon Northern Illinois or any of its Subsidiaries for which
Northern Illinois does not have adequate reserves, nor has Northern Illinois
or any of its Subsidiaries given any currently effective waivers extending the
statutory period of limitation applicable to any federal, state, county or
local income tax return for any period. In addition, (i) proper and accurate
amounts have been withheld by Northern Illinois and its Subsidiaries from
their employees for all prior periods in compliance in all material respects
with the tax withholding provisions of applicable federal, state and local
laws, except where failure to do so would not have a Material Adverse Effect
on Northern Illinois, (ii) federal, state, county and local returns which are
accurate and complete in all material respects have been filed by Northern
Illinois and its Subsidiaries for all periods for which returns were due with
respect to income tax withholding, Social Security and unemployment taxes,
(iii) the amounts shown on such federal, state, local or county returns to be
due and payable have been paid in full or adequate provision therefor has been
included by Northern Illinois in its consolidated financial statements as of
December 31, 1994, and (iv) there are no Tax liens upon any property or assets
of Northern Illinois or its Subsidiaries except liens for current taxes not
yet due. Except as set forth in Schedule 3.11, neither Northern Illinois nor
any of its Subsidiaries has been required to include in income any adjustment
pursuant to Section 481 of the Code by reason of a voluntary change in
accounting method initiated by Northern Illinois or any of its Subsidiaries,
and the IRS has not initiated or proposed any such adjustment or change in
accounting method. Except as set forth in the financial statements described
in Section 3.7, neither Northern Illinois nor any of its Subsidiaries has
entered into a transaction which is being accounted for as an installment
obligation under Section 453 of the Code.
(b) As used in this Agreement, the term "Tax" or "Taxes" means all federal,
state, county, local, and foreign income, excise, gross receipts, gross
income, ad valorem, profits, gains, property, capital, sales, transfer, use,
payroll, employment, severance, withholding, duties, intangibles, franchise,
backup withholding, and other taxes, charges, levies or like assessments
together with all penalties and additions to tax and interest thereon.
3.12 Employees. (a) Schedule 3.12 in the Northern Illinois Disclosure
Schedules sets forth a true and complete list of each employee benefit plan,
arrangement, commitment, agreement or understanding that is maintained as of
the date of this Agreement (the "Northern Illinois Benefit Plans") (i) by
Northern Illinois or any of its Subsidiaries or (ii) by any trade or business,
whether or not incorporated which (A) is under "common control," as described
in Section 414(c) of the Code, with Northern Illinois, or (B) is a member of a
"controlled group," as defined in Section 414(b) of the Code, which includes
Northern Illinois (a "Northern Illinois ERISA Affiliate"), all of which
together with Northern Illinois would be deemed a "single employer" within the
meaning of Section 4001 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
(b) Northern Illinois has heretofore delivered to Premier true and complete
copies of each of the Northern Illinois Benefit Plans and certain related
documents, including, but not limited to, (i) the actuarial report for such
Northern Illinois Benefit Plan (if applicable) for each of the last two years,
and (ii) the most recent determination letter from the IRS (if applicable) for
such Northern Illinois Benefit Plan.
(c) (i) Each of the Northern Illinois Benefit Plans has been operated and
administered in all material respects with applicable laws, including, but not
limited to, ERISA and the Code, (ii) each of the Northern Illinois Benefit
Plans intended to be "qualified" within the meaning of Section 401(a) of the
Code is so qualified, (iii) with respect to each Northern Illinois Benefit
Plan which is subject to Title IV of ERISA, the present value of accrued
benefits under such Northern Illinois Benefit Plan, based upon the actuarial
assumptions used for funding purposes in the most recent actuarial report
prepared by such Northern Illinois Benefit Plan's actuary with respect to such
Northern Illinois Benefit Plan, did not, as of its latest valuation date,
exceed the then current value of the assets of such Northern Illinois Benefit
Plan allocable to such accrued benefits, (iv) no Northern Illinois Benefit
Plan provides benefits, including, without limitation, death or medical
benefits (whether or not insured), with respect to current or former employees
of Northern Illinois, its Subsidiaries or any ERISA Affiliate beyond their
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retirement or other termination of service, other than (A) coverage mandated
by applicable law, (B) death benefits or retirement benefits under any
"employee pension plan" (as such term is defined in Section 3(2) of ERISA),
(C) deferred compensation benefits accrued as liabilities on the books of
Northern Illinois, its Subsidiaries or the ERISA Affiliates, or (D) benefits
the full cost of which is borne by the current or former employee (or his
beneficiary), (v) no material liability under Title IV of ERISA has been
incurred by Northern Illinois, its Subsidiaries or any ERISA Affiliate that
has not been satisfied in full, and no condition exists that presents a
material risk to Northern Illinois, its Subsidiaries or any ERISA Affiliate of
incurring a material liability thereunder, (vi) no Northern Illinois Benefit
Plan is a "multiemployer pension plan" (as such term is defined in Section
3(37) of ERISA), (vii) all contributions or other amounts payable by Northern
Illinois or its Subsidiaries as of the Effective Time with respect to each
Northern Illinois Benefit Plan in respect of current or prior plan years have
been paid or accrued in accordance with GAAP and Section 412 of the Code,
(viii) neither Northern Illinois, its Subsidiaries nor any ERISA Affiliate has
engaged in a transaction in connection with which Northern Illinois, its
Subsidiaries or any ERISA Affiliate reasonably could be subject to either a
material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or
a material tax imposed pursuant to Section 4975 or 4976 of the Code, and (ix)
to the best knowledge of Northern Illinois, there are no pending, threatened
or anticipated claims (other than routine claims for benefits) by, on behalf
of or against any of the Northern Illinois Benefit Plans or any trusts related
thereto which are, in the reasonable judgment of Northern Illinois, likely,
either individually or in the aggregate, to have a Material Adverse Effect on
Northern Illinois.
3.13 SEC Reports. Northern Illinois has previously made available to Premier
an accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since
January 1, 1994 by Northern Illinois with the SEC pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), or the Exchange Act (the
"Northern Illinois Reports") and prior to the date hereof and (b)
communication mailed by Northern Illinois to its stockholders since January 1,
1994 and prior to the date hereof. None of the Northern Illinois Reports or
such communications to stockholders contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, except that information
as of a later date shall be deemed to modify information as of an earlier
date. Since January 1, 1994, Northern Illinois has timely filed all Northern
Illinois Reports and other documents required to be filed by it under the
Securities Act and the Exchange Act, and, as of their respective dates, all
Northern Illinois Reports complied in all material respects with the published
rules and regulations of the SEC with respect thereto.
3.14 Compliance with Applicable Law. Northern Illinois and each of its
Subsidiaries hold all licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to all, and have complied with and are not in default under any,
applicable laws, statutes, orders, rules, regulations, policies and/or
guidelines of any Governmental Entity relating to Northern Illinois or any of
its Subsidiaries, except where the failure to hold such license, franchise,
permit or authorization or such noncompliance or default would not,
individually or in the aggregate, have a Material Adverse Effect on Northern
Illinois.
3.15 Certain Contracts. (a) Except as set forth in Schedule 3.15 of the
Northern Illinois Disclosure Schedules, neither Northern Illinois nor any of
its Subsidiaries is a party to or bound by:
(i) any contract, arrangement, commitment or understanding (whether
written or oral) with respect to the employment of any directors, officers
or employees other than in the ordinary course of business consistent with
past practice;
(ii) any contract, arrangement, commitment or understanding (whether
written or oral) which, upon the consummation of the transactions
contemplated by this Agreement will (either alone or upon the occurrence of
any additional acts or events) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute or
otherwise) becoming due from Northern Illinois, Premier, GPF or any of
their respective Subsidiaries to any officer, director or employee thereof;
(iii) any contract, arrangement, commitment or understanding (whether
written or oral) which is a "material contract" (as such term is defined in
Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the
date of this Agreement that has not been filed or incorporated by reference
in the Northern Illinois Reports;
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(iv) any contract, arrangement, commitment or understanding (whether
written or oral) which materially restricts the conduct of any line of
business by Northern Illinois;
(v) any contract, arrangement, commitment or understanding (whether
written or oral) with a labor union or guild (including any collective
bargaining agreement); or
(vi) any contract, arrangement, commitment or understanding (whether
written or oral), including any stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement, or the value of any of the benefits of
which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
Northern Illinois has previously made available to Premier true and correct
copies of all employment and deferred compensation agreements which are in
writing and to which Northern Illinois is a party. Each contract, arrangement,
commitment or understanding of the type described in this Section 3.15(a),
whether or not set forth in the Northern Illinois Disclosure Schedules, is
referred to herein as a "Northern Illinois Contract", and neither Northern
Illinois nor any of its Subsidiaries knows of, or has received notice of, any
violation of the above by any of the other parties thereto, which,
individually or in the aggregate, would have a Material Adverse Effect on
Northern Illinois or GPF.
(b) (i) Each Northern Illinois Contract is valid and binding on Northern
Illinois or any of its Subsidiaries, as applicable, and is in full force and
effect, (ii) Northern Illinois and each of its Subsidiaries has performed all
obligations required to be performed by it to date under each Northern
Illinois Contract, except where such noncompliance, individually or in the
aggregate, would not have a Material Adverse Effect on Northern Illinois, and
(iii) no event or condition exists which constitutes or, after notice or lapse
of time or both, would constitute, a default on the part of Northern Illinois
or any of its Subsidiaries under any such Northern Illinois Contract, except
where any such default, individually or in the aggregate, would not have a
Material Adverse Effect on Northern Illinois or GPF.
3.16 Agreements with Regulatory Agencies. Neither Northern Illinois nor any
of its Subsidiaries is subject to any cease-and-desist or other order issued
by, or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has been since
January 1, 1994, a recipient of any supervisory letter from, or since January
1, 1994, has adopted any board resolutions at the request of any Regulatory
Agency or other Governmental Entity that currently restricts the conduct of
its business or that relates to its capital adequacy, its credit policies, its
management or its business (each, whether or not set forth in the Northern
Illinois Disclosure Schedules, a "Northern Illinois Regulatory Agreement"),
nor has Northern Illinois or any of its Subsidiaries been advised since
January 1, 1994, by any Regulatory Agency or other Governmental Entity that it
is considering issuing or requesting any such Northern Illinois Regulatory
Agreement.
3.17 Other Activities of Northern Illinois and its Subsidiaries.
(a) Neither Northern Illinois nor any of its Subsidiaries that is neither a
bank, a bank operating subsidiary or a bank service corporation directly or
indirectly engages in any activity prohibited by the Federal Reserve Board.
Without limiting the generality of the foregoing, no equity investment of
Northern Illinois and each Northern Illinois Subsidiary that is not a bank,
bank operating subsidiary or a bank service corporation is prohibited by the
Federal Reserve Board.
(b) Each Northern Illinois Subsidiary that engages in personal trust,
corporate trust and other fiduciary activities ("Trust Activities") engages in
such Trust Activities with requisite authority under the applicable law of
Governmental Entities and in accordance in all material respects with the
terms of the agreements and instruments governing such Trust Activities and
applicable law and regulation (specifically including, but not limited to,
applicable law governing such Northern Illinois Subsidiary's performance of
its fiduciary obligations and Section 9 of Title 12 of the Code of Federal
Regulations); there is no investigation or inquiry by any
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Governmental Entity pending, or to the best knowledge of Northern Illinois,
threatened, against or affecting Northern Illinois or any Northern Illinois
Subsidiary relating to the compliance by Northern Illinois or any Northern
Illinois Subsidiary with sound fiduciary principles and applicable
regulations; and except where any such failure would not have a Material
Adverse Effect on Northern Illinois, each employee of a Northern Illinois
Subsidiary had the authority to act in the capacity in which he or she acted
with respect to Trust Activities, in each case, in which such employee held
himself or herself out as a representative of a Northern Illinois Subsidiary;
and each Northern Illinois Subsidiary has established policies and procedures
for the purpose of complying with applicable laws of Governmental Entities
relating to Trust Activities, has followed such policies and procedures in all
material respects and has performed appropriate internal audit reviews of, and
has engaged independent accountants to perform audits of, Trust Activities,
which audits since January 1, 1994 have disclosed no material violations of
applicable laws of Governmental Entities or such policies and procedures.
3.18 Investment Securities. Each of Northern Illinois and its Subsidiaries
has good and marketable title to all securities held by it (except securities
sold under repurchase agreements or held in any fiduciary or agency capacity),
free and clear of any Lien, except to the extent such securities are pledged
in the ordinary course of business consistent with prudent banking practices
to secure obligations of Northern Illinois or any of the Northern Illinois
Subsidiaries. Such securities are valued on the books of Northern Illinois and
the Northern Illinois Subsidiaries in accordance with GAAP.
3.19 Undisclosed Liabilities. Except for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of Northern
Illinois included in the Northern Illinois Third-Quarter 10-Q and for
liabilities incurred in the ordinary course of business consistent with past
practice, since September 30, 1995 neither Northern Illinois nor any of the
Northern Illinois Subsidiaries has incurred any liability of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether due
or to become due) that, either alone or when combined with all similar
liabilities, has had, or could reasonably be expected to have, a Material
Adverse Effect on Northern Illinois.
3.20 Environmental Liability. There are no legal, administrative,
arbitration or other proceedings, claims, actions, causes of action, private
environmental investigations or remediation activities or governmental
investigations of any nature pending or, to the best of Northern Illinois'
knowledge, threatened against Northern Illinois seeking to impose, or that
could reasonably result in the imposition, on Northern Illinois of any
liability or obligation arising under common law or under any local, state or
federal environmental statute, regulation or ordinance including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"). To the best of Northern
Illinois' knowledge, there is no reasonable basis for any such proceeding,
claim, action or governmental investigation that would impose any such
liability or obligation. Northern Illinois is not subject to any agreement,
order, judgment, decree, letter or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any such
liability or obligation.
3.21 Insurance. Schedule 3.21 in the Northern Illinois Disclosure Schedules
describes all policies of insurance in which Northern Illinois or any of the
Northern Illinois Subsidiaries is named as an insured party or which otherwise
relate to or cover any assets or properties of Northern Illinois or any of the
Northern Illinois Subsidiaries. Each of such policies is in full force and
effect, and the coverage provided under such properties complies with the
requirements of any contracts binding on Northern Illinois or any of the
Northern Illinois Subsidiaries relating to such assets or properties.
3.22 Loan Loss Reserves. Except as set forth in Schedule 3.22, the reserve
for possible loan losses shown on the September 30, 1995 call reports filed
for each of the Northern Illinois Subsidiaries is adequate in all material
respects under the requirements of GAAP to provide for possible losses, net of
recoveries relating to loans previously charged off, on loans outstanding
(including accrued interest receivable) as of September 30, 1995. The
aggregate loan balances of each of the Northern Illinois Subsidiaries at such
date in excess of such reserves are, to the best knowledge and belief of
Northern Illinois, collectible in accordance with their terms.
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3.23 Approval Delays. Northern Illinois knows of no reason why any of the
Requisite Regulatory Approvals (as defined in Section 7.1(c)) should be denied
or unduly delayed.
3.24 Pooling of Interests. As of the date of this Agreement, Northern
Illinois has no reason to believe that the Merger will not qualify as a
"pooling of interests" for accounting purposes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PREMIER
Except as disclosed in the Premier disclosure schedules delivered to
Northern Illinois concurrently herewith (the "Premier Disclosure Schedules"),
Premier hereby represents and warrants to Northern Illinois as follows:
4.1 Corporate Organization. (a) Premier is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Premier has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on Premier.
Premier is duly registered as a bank holding company under the BHC Act. True
and complete copies of the Restated Certificate of Incorporation and By-Laws
of Premier, as in effect as of the date of this Agreement, have previously
been made available by Premier to Northern Illinois.
(b) As of the date of this Agreement, Premier has as its sole direct or
indirect Subsidiaries, First Bank North, an Illinois state bank, First Bank
South, an Illinois state bank, First National Bank of Northbrook, a national
banking association, First Security Bank of Cary Grove, an Illinois state
bank, Premier Acquisition Company, a Delaware corporation and an intermediate
holding company for First National Bank of Northbrook and First Security Bank
of Cary Grove, Premier Operating Systems, Inc., an Illinois corporation,
Premier Trust Services, Inc., an Illinois trust company, and Premier Insurance
Services, Inc., an Illinois corporation (the "Premier Subsidiaries"). Premier
does not own, directly or indirectly, any voting stock or equity securities of
any bank, corporation, partnership, limited liability company, or other
organization, whether incorporated or unincorporated, other than the Premier
Subsidiaries.
(c) Each Premier Subsidiary (i) is duly organized and validly existing as a
bank, trust company or corporation under the laws of its jurisdiction of
organization, (ii) is duly qualified to do business and in good standing in
all jurisdictions (whether federal, state, local or foreign) where its
ownership or leasing of property or the conduct of its business requires it to
be so qualified and in which the failure to be so qualified would have a
Material Adverse Effect on Premier, and (iii) has all requisite corporate
power and authority to own or lease its properties and assets and to carry on
its business as now conducted. None of the Premier Subsidiaries owns any
voting stock or equity securities of any bank, corporation, partnership,
limited liability company, or other organization, whether incorporated or
unincorporated, except that First Bank North owns all of the issued and
outstanding capital stock of Premier Trust Services, Inc.
(d) The minute books of Premier and of each of the Premier Subsidiaries
accurately reflect in all material respects all corporate meetings held or
actions taken since January 1, 1994 of the stockholders and Boards of
Directors of Premier and each Premier Subsidiary, respectively, (including
committees of the Boards of Directors of Premier and the Premier
Subsidiaries).
4.2 Capitalization. (a) The authorized capital stock of Premier consists of
15,000,000 shares of Premier Common Stock, of which, as of December 31, 1995,
6,544,347 shares were issued and outstanding, and 1,000,000 shares of
Preferred Stock, par value $1.00 per share (the "Premier Preferred Stock", of
which (i) 7,000 shares were designated and 5,000 shares were issued and
outstanding as Premier Series A Perpetual Preferred Stock, (ii) 7,250 shares
were designated and issued and outstanding as Premier Series B Perpetual
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Preferred Stock, and (iii) 2,000 shares were designated and issued and
outstanding as Premier Series D Perpetual Preferred Stock. During the fiscal
year ended December 31, 1994, (i) Premier redeemed all 1,950 shares of Premier
Series C Perpetual Preferred Stock, with a par value of $1.00 and a stated
value of $1,000 per share, that had previously been authorized and issued, and
such shares reverted to authorized but unissued shares of Premier Preferred
Stock in accordance with the terms of the Certificate of Designation
establishing the Premier Series C Perpetual Preferred Stock, and (ii) 1,300
shares of Premier Series D Perpetual Preferred Stock were converted into 1,300
shares of Premier Series B Perpetual Preferred Stock and such 1,300 shares of
Series D Perpetual Preferred Stock reverted to authorized but unissued shares
of Premier Preferred Stock, in accordance with the terms and conditions of the
Certificate of Designation establishing the Premier Series D Perpetual
Preferred Stock. The shares of Premier Series B Perpetual Preferred Stock and
Premier Series D Perpetual Preferred Stock are subject to a letter agreement,
dated as of the date of their issuance, pursuant to which Premier has agreed
to amend the terms of the Premier Series B Perpetual Preferred Stock and the
Premier Series D Perpetual Preferred Stock to provide for the payment of
cumulative, rather than non-cumulative dividends, at such time as such
cumulative preferred stock may be counted as "Tier 1 Capital" under applicable
regulations of the Federal Reserve Board. As of December 31, 1995, no shares
of Premier Common Stock were held in treasury. On December 31, 1995, no shares
of Premier Common Stock or Premier Preferred Stock were reserved for issuance,
except for (i) 397,799 shares of Premier Common Stock reserved for issuance
upon the exercise of stock options pursuant to the Premier Stock Plans, (ii)
763,157 shares of Premier Common Stock reserved for issuance upon the
conversion of the Series B Perpetual Preferred Stock, (iii) the shares of
Premier Common Stock issuable pursuant to the Premier Option Agreement, and
(iv) 200,000 shares of Premier Common Stock reserved for issuance pursuant to
the Premier Benefit plans, other than the stock option plans. All of the
issued and outstanding shares of Premier Common Stock and Premier Preferred
Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. As of the date of this Agreement, except
for the Premier Option Agreement, certain provisions of the Certificates of
Designation of the Premier Series B Perpetual Preferred Stock and the Premier
Series D Perpetual Preferred Stock, and the Premier Stock Plans, Premier does
not have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the purchase or
issuance of any shares of Premier Common Stock or Premier Preferred Stock or
any other equity securities of Premier or any securities representing the
right to purchase or otherwise receive any shares of Premier Common Stock or
Premier Preferred Stock. Assuming compliance by Northern Illinois and GPF with
Article I of this Agreement, after the Effective Time, there will not be any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character by which Premier or any of the Premier Subsidiaries will be
bound calling for the purchase or issuance of any shares of the capital stock
of Premier. Premier has previously provided Northern Illinois with a list of
the option holders, the date of each option to purchase Premier Common Stock
granted, the number of shares subject to each such option, the expiration date
of each such option, and the price at which each such option may be exercised
under an applicable Premier Stock Plan. Since September 30, 1995, Premier has
not issued any shares of its capital stock or any securities convertible into
or exercisable for any shares of its capital stock, other than pursuant to the
exercise of employee stock options granted prior to such date.
4.3 Certain Beneficial Owners of Premier Common Stock and Northern Illinois
Common Stock. Schedule 4.3 of the Premier Disclosure Schedules sets forth the
name and the number of shares of Premier Common Stock and the percentage of
the outstanding shares of Premier Common Stock beneficially owned by any
individual, entity or group, including any "person" within the meaning of
Sections 13(d)(3) or 14(d)(2) of the Exchange Act, known to Premier to be the
beneficial owner, alone or together with such person's affiliates or
associates (as such terms are defined in Rule 12b-2 under the Exchange Act),
of 10% or more of the outstanding shares of Premier Common Stock as of the
date of this Agreement. To the best knowledge of Premier, no person listed on
Schedule 4.3 beneficially owns any shares of Northern Illinois Common Stock as
of the date of this Agreement.
4.4 Authority; No Violation. (a) Premier has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
and validly approved
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by the Board of Directors of Premier. The Board of Directors of Premier has
directed that this Agreement and the transactions contemplated hereby be
submitted to Premier's shareholders for approval at a meeting of such
shareholders and, except for the adoption of this Agreement by the affirmative
vote of the holders of a majority of the outstanding shares of Premier Common
Stock, no other corporate proceedings on the part of Premier are necessary to
approve this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Premier and
(assuming due authorization, execution and delivery by Northern Illinois and
GPF) constitutes a valid and binding obligation of Premier, enforceable
against Premier in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by Premier nor the
consummation by Premier of the transactions contemplated hereby, nor
compliance by Premier with any of the terms or provisions hereof, will (i)
violate any provision of the Restated Certificate of Incorporation or By-Laws
of Premier, or (ii) assuming that the consents and approvals referred to in
Section 4.5 are duly obtained, (x) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to Premier
or any of the Premier Subsidiaries or any of their respective properties or
assets, or (y) violate, conflict with, result in a breach of any provision of
or the loss of any benefit under, constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under,
result in the termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation of any Lien
upon any of the respective properties or assets of Premier or any of the
Premier Subsidiaries under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which Premier or any of the Premier
Subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected, except (in the case of clause
(y) above) for such violations, conflicts, breaches or defaults which, either
individually or in the aggregate, will not have or be reasonably likely to
have a Material Adverse Effect on Premier or GPF.
4.5 Consents and Approvals. Except as set forth in Schedule 4.5, no consents
or approvals of or filings or registrations with any Governmental Entity or
with any third party are necessary in connection with the execution and
delivery by Premier of this Agreement and the consummation by Premier of the
Merger and the other transactions contemplated hereby except for (a) the
filing by GPF of applications and notices, as applicable, with the Federal
Reserve Board under the BHC Act and approval of such applications and notices,
(b) the filing of any required applications or notices with any state or
foreign agencies and the approval of such applications and notices, (c) the
filing with the SEC of the Joint Proxy Statement and the S-4 in which such
Joint Proxy Statement will be included as a prospectus, (d) the filing of an
8-A registering the GPF Common Stock under Section 12(g) of the Exchange Act,
(e) the filing of a certificate of merger with the Delaware Secretary pursuant
to the DGCL and the filing of articles of merger with, and the issuance of a
certificate of merger by, the Illinois Secretary under the IBCA, (f) the
filing of a consent to service of process, an appointment of the Illinois
Secretary as agent for service of process, and an agreement with respect to
the Dissenting Shares required to be filed by GPF with the Illinois Secretary
pursuant to Section 11.35 of the IBCA, (g) such filings and approvals as are
required to be made or obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of the shares of GPF Common
Stock and GPF Preferred Stock pursuant to this Agreement, (h) the approval of
an application to list the GPF Common Stock on The Nasdaq Stock Market's
National Market, subject to official notice of issuance, and (i) the approval
of this Agreement by the requisite vote of the stockholders of Northern
Illinois and Premier.
4.6 Reports. Premier and each of the Premier Subsidiaries have timely filed
all reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file
since January 1, 1994 with the Regulatory Agencies, and all other reports and
statements required to be filed by them since January 1, 1994, including,
without limitation, any report or statement required to be filed pursuant to
the laws, rules or regulations of the United States, any state, or any
Regulatory Agency, and have paid all fees and assessments due and payable in
connection therewith, except where the failure to file such report,
registration or statement or to pay such fees and assessments, either
individually or in the aggregate, will not have a Material Adverse Effect on
Premier. Except for normal examinations conducted by a Regulatory Agency in
the regular
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course of the business of Premier or the Premier Subsidiaries, no Regulatory
Agency has initiated any proceeding or, to the best knowledge of Premier,
investigation into the business or operations of Premier or any of the Premier
Subsidiaries since January 1, 1994. There is no unresolved written violation,
written criticism, or written exception by any Regulatory Agency with respect
to any report or statement relating to any examinations of Premier or any of
the Premier Subsidiaries, which is likely, either individually or in the
aggregate, to have a Material Adverse Effect on Premier or GPF.
4.7 Financial Statements. Premier has previously made available to Northern
Illinois copies of (a) the consolidated balance sheets of Premier and its
Subsidiaries as of December 31, 1993 and 1994 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
fiscal years ended December 31, 1992, 1993 and 1994, inclusive, as reported in
Premier's Annual Report on Form 10-K for the fiscal year ended December 31,
1994 filed with the SEC under the Exchange Act, in each case accompanied by
the audit report of KPMG Peat Marwick LLP, independent public accountants with
respect to Premier, and (b) the unaudited consolidated balance sheet of
Premier and its Subsidiaries as of September 30, 1995 and September 30, 1994
and the related unaudited consolidated statements of income, cash flows and
changes in stockholders' equity for the three- and nine-month periods then
ended as reported in Premier's Quarterly Report on Form 10-Q for the period
ended September 30, 1995 filed with the SEC under the Exchange Act (the
"Premier Third Quarter 10-Q"). The December 31, 1994 consolidated balance
sheet of Premier (including the related notes, where applicable) fairly
presents the consolidated financial position of Premier and its Subsidiaries
as of the date thereof, and the other financial statements referred to in this
Section 4.7 (including the related notes, where applicable) fairly present the
results of the consolidated operations and changes in stockholders' equity and
consolidated financial position of Premier and its Subsidiaries for the
respective fiscal periods or as of the respective dates therein set forth,
subject, in the case of the unaudited statements, to recurring audit
adjustments normal in nature and amount; each of such statements (including
the related notes, where applicable) comply in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto; and each of such statements
(including the related notes, where applicable) has been prepared in all
material respects in accordance with GAAP consistently applied during the
periods involved, except, in each case, as indicated in such statements or in
the notes thereto or, in the case of unaudited statements, as permitted by
Form 10-Q. The books and records of Premier and its Subsidiaries have been,
and are being, maintained in all material respects in accordance with GAAP and
any other applicable legal and accounting requirements and reflect only actual
transactions.
4.8 Broker's Fees. Except as set forth in Schedule 4.8, neither Premier nor
any Premier Subsidiary nor any of their respective officers or directors has
employed any broker or finder or incurred any liability for any broker's fees,
commissions or finder's fees in connection with the Merger or related
transactions contemplated by this Agreement or the Option Agreements.
4.9 Absence of Certain Changes or Events. (a) Except as publicly disclosed
in Premier Reports (as defined in Section 4.13) filed prior to the date
hereof, since September 30, 1995, (i) Premier and its Subsidiaries taken as a
whole have not incurred any material liability, except in the ordinary course
of their business, and (ii) no event has occurred which has had, individually
or in the aggregate, a Material Adverse Effect on Premier or will have a
Material Adverse Effect on GPF.
(b) Except as publicly disclosed in the Premier Reports filed prior to the
date hereof, since September 30, 1995, Premier and its Subsidiaries have
carried on their respective businesses in all material respects in the
ordinary and usual course.
(c) Since December 31, 1994, neither Premier nor any of its Subsidiaries has
(i) except as set forth in Schedule 4.9 and except for such actions as are in
the ordinary course of business consistent with past practice or required by
applicable law, (A) increased the wages, salaries, compensation, pension, or
other fringe benefits or perquisites payable to any executive officer,
employee, or director from the amount thereof in effect as of December 31,
1994, or (B) granted any severance or termination pay, entered into any
contract to make or grant any severance or termination pay, or paid any
bonuses, other than customary year-end bonuses for the 1994 and 1995 fiscal
years which did not exceed, in the aggregate, 5% of Premier's 1994 salary and
employee benefits, or (ii) suffered any strike, work stoppage, slowdown, or
other labor disturbance.
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4.10 Legal Proceedings. (a) Except as set forth in Schedule 4.10, there are
no pending or, to the best of Premier's knowledge, threatened, legal,
administrative, arbitration or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against Premier or any
of the Premier Subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Agreement or the Premier Option Agreement.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction (other than those that apply to similarly situated bank holding
companies or banks) imposed upon Premier, any of the Premier Subsidiaries or
the assets of Premier or any of the Premier Subsidiaries.
4.11 Taxes and Tax Returns. (a) Each of Premier and its Subsidiaries has
duly filed all federal, state, county, foreign and, to the best of Premier's
knowledge, local information returns and tax returns required to be filed by
it on or prior to the date hereof (all such returns being accurate and
complete in all material respects) and has duly paid or made provisions for
the payment of all Taxes and other governmental charges which have been
incurred or are due or claimed to be due from it by federal, state, county,
foreign or local taxing authorities on or prior to the date of this Agreement
(including, without limitation, if and to the extent applicable, those due in
respect of its properties, income, business, capital stock, deposits,
franchises, licenses, sales and payrolls) other than Taxes or other charges
which are not yet delinquent or are being contested in good faith and have not
been finally determined. The income tax returns of Premier and its
Subsidiaries have been examined by the IRS and any liability with respect
thereto has been satisfied for all years to and including 1987, and either no
material deficiencies were asserted as a result of such examination for which
Premier does not have adequate reserves or all such deficiencies were
satisfied. There are no material disputes pending, or claims asserted for,
Taxes or assessments upon Premier or any of its Subsidiaries for which Premier
does not have adequate reserves, nor has Premier or any of its Subsidiaries
given any currently effective waivers extending the statutory period of
limitation applicable to any federal, state, county or local income tax return
for any period. In addition, (A) proper and accurate amounts have been
withheld by Premier and its Subsidiaries from their employees for all prior
periods in compliance in all material respects with the tax withholding
provisions of applicable federal, state and local laws, except where failure
to do so would not have a Material Adverse Effect on Premier, (B) federal,
state, county and local returns which are accurate and complete in all
material respects have been filed by Premier and its Subsidiaries for all
periods for which returns were due with respect to income tax withholding,
Social Security and unemployment taxes, (C) the amounts shown on such federal,
state, local or county returns to be due and payable have been paid in full or
adequate provision therefor has been included by Premier in its consolidated
financial statements as of December 31, 1994, and (D) there are no Tax liens
upon any property or assets of Premier or its Subsidiaries except liens for
current taxes not yet due. Neither Premier nor any of its Subsidiaries has
been required to include in income any adjustment pursuant to Section 481 of
the Code by reason of a voluntary change in accounting method initiated by
Premier or any of its Subsidiaries, and the IRS has not initiated or proposed
any such adjustment or change in accounting method. Except as set forth in the
financial statements described in Section 4.7, neither Premier nor any of its
Subsidiaries has entered into a transaction which is being accounted for as an
installment obligation under Section 453 of the Code.
4.12 Employees. (a) Schedule 4.12 in the Premier Disclosure Schedules sets
forth a true and complete list of each employee benefit plan, arrangement,
commitment, agreement or understanding that is maintained as of the date of
this Agreement (the "Premier Benefit Plans") (i) by Premier or any of its
Subsidiaries or (ii) by any trade or business, whether or not incorporated,
which (A) is under "common control," as described in Section 414(c) of the
Code, with Premier, or (B) is a member of a "controlled group," as defined in
Section 414(c) of the Code, which includes Premier (a "Premier ERISA
Affiliate"), all of which together with Premier would be deemed a "single
employer" within the meaning of Section 4001 of ERISA.
(b) Premier has heretofore delivered to Northern Illinois true and complete
copies of each of the Premier Benefit Plans and certain related documents,
including, but not limited to, (i) the actuarial report for such Premier
Benefit Plan (if applicable) for each of the last two years, and (ii) the most
recent determination letter from the IRS (if applicable) for such Premier
Benefit Plan.
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(c) (i) Each of the Premier Benefit Plans has been operated and administered
in all material respects with applicable laws, including, but not limited to,
ERISA and the Code, (ii) each of the Premier Benefit Plans intended to be
"qualified" within the meaning of Section 401(a) of the Code is so qualified,
(iii) with respect to each Premier Benefit Plan which is subject to Title IV
of ERISA, the present value of accrued benefits under such Premier Benefit
Plan, based upon the actuarial assumptions used for funding purposes in the
most recent actuarial report prepared by such Premier Benefit Plan's actuary
with respect to such Premier Benefit Plan, did not, as of its latest valuation
date, exceed the then current value of the assets of such Premier Benefit Plan
allocable to such accrued benefits, (iv) except as set forth in Schedule 4.12,
no Premier Benefit Plan provides benefits, including, without limitation,
death or medical benefits (whether or not insured), with respect to current or
former employees of Premier, its Subsidiaries or any ERISA Affiliate beyond
their retirement or other termination of service, other than (A) coverage
mandated by applicable law, (B) death benefits or retirement benefits under
any "employee pension plan" (as such term is defined in Section 3(2) of
ERISA), (C) deferred compensation benefits accrued as liabilities on the books
of Premier, its Subsidiaries or the ERISA Affiliates, or (D) benefits the full
cost of which is borne by the current or former employee (or his beneficiary),
(v) no material liability under Title IV of ERISA has been incurred by
Premier, its Subsidiaries or any ERISA Affiliate that has not been satisfied
in full, and no condition exists that presents a material risk to Premier, its
Subsidiaries or any ERISA Affiliate of incurring a material liability
thereunder, (vi) no Premier Benefit Plan is a "multiemployer pension plan" (as
such term is defined in Section 3(37) of ERISA), (vii) all contributions or
other amounts payable by Premier or its Subsidiaries as of the Effective Time
with respect to each Premier Benefit Plan in respect of current or prior plan
years have been paid or accrued in accordance with GAAP and Section 412 of the
Code, (viii) neither Premier, its Subsidiaries nor any ERISA Affiliate has
engaged in a transaction in connection with which Premier, its Subsidiaries or
any ERISA Affiliate reasonably could be subject to either a material civil
penalty assessed pursuant to Section 409 or 502(i) of ERISA or a material tax
imposed pursuant to Section 4975 or 4976 of the Code, and (ix) to the best
knowledge of Premier, there are no pending, threatened or anticipated claims
(other than routine claims for benefits) by, on behalf of or against any of
the Premier Benefit Plans or any trusts related thereto which are, in the
reasonable judgment of Premier, likely, either individually or in the
aggregate, to have a Material Adverse Effect on Premier.
4.13 SEC Reports. Premier has previously made available to Northern Illinois
an accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since
January 1, 1994 by Premier with the SEC pursuant to the Securities Act or the
Exchange Act (the "Premier Reports") and prior to the date hereof and (b)
communication mailed by Premier to its stockholders since January 1, 1994 and
prior to the date hereof. None of the Premier Reports or such communications
to stockholders contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances in which they
were made, not misleading, except that information as of a later date shall be
deemed to modify information as of an earlier date. Since January 1, 1994,
Premier has timely filed all Premier Reports and other documents required to
be filed by it under the Securities Act and the Exchange Act, and, as of their
respective dates, all Premier Reports complied in all material respects with
the published rules and regulations of the SEC with respect thereto.
4.14 Compliance with Applicable Law. Premier and each of its Subsidiaries
hold all licenses, franchises, permits and authorizations necessary for the
lawful conduct of their respective businesses under and pursuant to all, and
have complied with and are not in default under any, applicable laws,
statutes, orders, rules, regulations, policies and/or guidelines of any
Governmental Entity relating to Premier or any of its Subsidiaries, except
where the failure to hold such license, franchise, permit or authorization or
such noncompliance or default would not, individually or in the aggregate,
have a Material Adverse Effect on Premier.
4.15 Certain Contracts. (a) Except as set forth in Schedule 4.15 of the
Premier Disclosure Schedules, neither Premier nor any of its Subsidiaries is a
party to or bound by:
(i) any contract, arrangement, commitment or understanding (whether
written or oral) with respect to the employment of any directors, officers
or employees other than in the ordinary course of business consistent with
past practice;
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(ii) any contract, arrangement, commitment or understanding (whether
written or oral) which, upon the consummation of the transactions
contemplated by this Agreement will (either alone or upon the occurrence of
any additional acts or events) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute or
otherwise) becoming due from Premier, Northern Illinois, GPF, or any of
their respective Subsidiaries to any officer, director or employee thereof;
(iii) any contract, arrangement, commitment or understanding (whether
written or oral) which is a "material contract" (as such term is defined in
Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the
date of this Agreement that has not been filed or incorporated by reference
in the Premier Reports;
(iv) any contract, arrangement, commitment or understanding (whether
written or oral) which materially restricts the conduct of any line of
business by Premier;
(v) any contract, arrangement, commitment or understanding (whether
written or oral) with a labor union or guild (including any collective
bargaining agreement); or
(vi) any contract, arrangement, commitment or understanding (whether
written or oral), including any stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement, or the value of any of the benefits of
which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
Premier has previously made available to Northern Illinois true and correct
copies of all employment and deferred compensation agreements which are in
writing and to which Premier is a party. Each contract, arrangement,
commitment or understanding of the type described in this Section 4.15(a),
whether or not set forth in the Premier Disclosure Schedules, is referred to
herein as a "Premier Contract", and neither Premier nor any of its
Subsidiaries knows of, or has received notice of, any violation of the above
by any of the other parties thereto which, individually or in the aggregate,
would have a Material Adverse Effect on Premier or GPF.
(b) (i) Each Premier Contract is valid and binding on Premier or any of its
Subsidiaries, as applicable, and is in full force and effect, (ii) Premier and
each of its Subsidiaries has performed all obligations required to be
performed by it to date under each Premier Contract, except where such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect on Premier, and (iii) no event or condition exists which
constitutes or, after notice or lapse of time or both, would constitute, a
default on the part of Premier or any of its Subsidiaries under any such
Premier Contract, except where any such default, individually or in the
aggregate, would not have a Material Adverse Effect on Premier or GPF.
4.16 Agreements with Regulatory Agencies. Neither Premier nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or
is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has been since
January 1, 1994, a recipient of any supervisory letter from, or since January
1, 1994, has adopted any board resolutions at the request of any Regulatory
Agency or other Governmental Entity that currently restricts the conduct of
its business or that relates to its capital adequacy, its credit policies, its
management or its business (each, whether or not set forth in the Premier
Disclosure Schedules, a "Premier Regulatory Agreement"), nor has Premier or
any of its Subsidiaries been advised since January 1, 1994, by any Regulatory
Agency or other Governmental Entity that it is considering issuing or
requesting any such Premier Regulatory Agreement.
4.17 Other Activities of Premier and its Subsidiaries.
(a) Neither Premier nor any of its Subsidiaries that is neither a bank, a
bank operating subsidiary or a bank service corporation directly or indirectly
engages in any activity prohibited by the Federal Reserve Board. Without
limiting the generality of the foregoing, no equity investment of Premier and
each Premier Subsidiary that is not a bank, a bank operating subsidiary or a
bank service corporation is prohibited by the Federal Reserve Board.
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(b) Each Premier Subsidiary that engages in Trust Activities engages in such
Trust Activities with requisite authority under the applicable law of
Governmental Entities and in accordance in all material respects with the
terms of the agreements and instruments governing such Trust Activities and
applicable law and regulation, including applicable law governing such Premier
Subsidiary's performance of its fiduciary obligations; there is no
investigation or inquiry by any Governmental Entity pending, or to the best
knowledge of Premier, threatened, against or affecting Premier or any Premier
Subsidiary relating to the compliance by Premier or any Premier Subsidiary
with sound fiduciary principles and applicable regulations; and except where
any such failure would not have a Material Adverse Effect on Premier, each
employee of a Premier Subsidiary had the authority to act in the capacity in
which he or she acted with respect to Trust Activities, in each case, in which
such employee held himself or herself out as a representative of a Premier
Subsidiary; and each Premier Subsidiary has established policies and
procedures for the purpose of complying with applicable laws of Governmental
Entities relating to Trust Activities, has followed such policies and
procedures in all material respects and has performed appropriate internal
audit reviews of, and has engaged independent accountants to perform audits
of, Trust Activities, which audits since January 1, 1994 have disclosed no
material violations of applicable laws of Governmental Entities or such
policies and procedures.
4.18 Investment Securities. Each of Premier and its Subsidiaries has good
and marketable title to all securities held by it (except securities sold
under repurchase agreements or held in any fiduciary or agency capacity), free
and clear of any Lien, except to the extent such securities are pledged in the
ordinary course of business consistent with prudent banking practices to
secure obligations of Premier or any of the Premier Subsidiaries. Such
securities are valued on the books of Premier and the Premier Subsidiaries in
accordance with GAAP.
4.19 Undisclosed Liabilities. Except for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of Premier
included in the Premier Third-Quarter 10-Q and for liabilities incurred in the
ordinary course of business consistent with past practice, since September 30,
1995 neither Premier nor any of the Premier Subsidiaries has incurred any
liability of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether due or to become due) that, either alone or when
combined with all similar liabilities, has had, or could reasonably be
expected to have, a Material Adverse Effect on Premier.
4.20 Environmental Liability. There are no legal, administrative,
arbitration or other proceedings, claims, actions, causes of action, private
environmental investigations or remediation activities or governmental
investigations of any nature pending or, to the best of Premier's knowledge,
threatened against Premier seeking to impose, or that could reasonably result
in the imposition, on Premier of any liability or obligation arising under
common law or under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, CERCLA. To the best of
Premier's knowledge, there is no reasonable basis for any such proceeding,
claim, action or governmental investigation that would impose any such
liability or obligation. Premier is not subject to any agreement, order,
judgment, decree, letter or memorandum by or with any court, governmental
authority, regulatory agency or third party imposing any such liability or
obligation.
4.21 Insurance. Schedule 4.21 in the Premier Disclosure Schedules describes
all policies of insurance in which Premier or any of the Premier Subsidiaries
is named as an insured party or which otherwise relate to or cover any assets
or properties of Premier or any of the Premier Subsidiaries. Each of such
policies is in full force and effect, and the coverage provided under such
properties complies with the requirements of any contracts binding on Premier
or any of the Premier Subsidiaries relating to such assets or properties.
4.22 Loan Loss Reserves. The reserve for possible loan losses shown on the
September 30, 1995 call reports filed for each of the Premier Subsidiaries
which is a Subsidiary bank is adequate in all material respects under the
requirements of GAAP to provide for possible losses, net of recoveries
relating to loans previously charged off, on loans outstanding (including
accrued interest receivable) as of September 30, 1995. The aggregate loan
balances at such date in excess of such reserves of each of the Premier
Subsidiaries which is a bank Subsidiary are, to the best knowledge and belief
of Premier, collectible in accordance with their terms.
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4.23 Approval Delays. Premier knows of no reason why any of the Requisite
Regulatory Approvals (as defined in Section 7.1(c)) should be denied or unduly
delayed.
4.24 State Takeover Laws. The Board of Directors of Premier has approved the
transactions contemplated by this Agreement and the Option Agreements such
that the provisions of Section 203 of the DGCL will not apply to this
Agreement or the Option Agreements or any of the transactions contemplated
hereby or thereby.
4.25 Pooling of Interests. As of the date of this Agreement, Premier has no
reason to believe that the Merger will not qualify as a "pooling of interests"
for accounting purposes.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective Time. During the period
from the date of this Agreement to the Effective Time, except as expressly
contemplated or permitted by this Agreement (including the Premier Disclosure
Schedules and the Northern Illinois Disclosure Schedules) or the Option
Agreements, each of Premier and Northern Illinois shall, and shall cause each
of their respective Subsidiaries to, (a) conduct its business in the usual,
regular and ordinary course consistent with past practice, (b) use reasonable
efforts to maintain and preserve intact its business organization, employees
and advantageous business relationships and retain the services of its key
officers and key employees, and (c) take no action which would adversely
affect or delay the ability of either Premier or Northern Illinois to obtain
any necessary approvals of any Regulatory Agency or other governmental
authority required for the transactions contemplated hereby or to perform its
covenants and agreements under this Agreement or the Option Agreements.
5.2 Forbearances. During the period from the date of this Agreement to the
Effective Time, except as set forth in the Premier Disclosure Schedules or the
Northern Illinois Disclosure Schedules, as the case may be, and, except as
expressly contemplated or permitted by this Agreement or the Option
Agreements, neither Premier nor Northern Illinois shall, or shall permit any
of their respective Subsidiaries to, without the prior written consent of the
other:
(a) other than in the ordinary course of business consistent with past
practice, (i) incur any indebtedness for borrowed money (other than short-
term indebtedness incurred in the ordinary course of business consistent
with past practice, indebtedness of Premier to any of the Premier
Subsidiaries or of any of the Premier Subsidiaries to Premier, or
indebtedness of Northern Illinois to any of the Northern Illinois
Subsidiaries or of any of the Northern Illinois Subsidiaries to Northern
Illinois, it being understood and agreed that incurrence of indebtedness in
the ordinary course of business shall include, without limitation, the
creation of deposit liabilities, purchases of Federal funds, sales of
certificates of deposit and entering into repurchase agreements), (ii)
assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual, corporation or
other entity, or (iii) make any loan or advance;
(b) (i) adjust, split, combine or reclassify any capital stock, (ii)
make, declare or pay any dividend or make any other distribution on, or
directly or indirectly redeem, purchase or otherwise acquire, any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock (except, (A) in the case
of Northern Illinois, for regular quarterly cash dividends for the first
three calendar quarters at a rate not in excess of $0.17 per share, and for
the fourth calendar quarter at a rate not in excess of $0.29 per share, of
Northern Illinois Common Stock, (B) in the case of Premier Common Stock,
for regular quarterly cash dividends on Premier Common Stock at a rate not
in excess of $0.06 per share of Premier Common Stock, (C) in the case of
Premier Preferred Stock, for regular quarterly cash dividends thereon at
the rates set forth in the applicable certificate of designation for such
securities, and (D) dividends paid by any of the Subsidiaries of each of
Northern Illinois and Premier to Northern Illinois or Premier or any of
their Subsidiaries, respectively); provided, however, that in the event
that the Effective
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Time occurs later than July 16, 1996 (the "Series A Redemption Date"),
Premier shall have the right to redeem all of the shares of Premier Series
A Perpetual Preferred Stock for a redemption price per share equal to the
stated value, per share, of the Series A Perpetual Preferred Stock,
together with all accrued and unpaid dividends due thereon to and including
the Series A Redemption Date, in accordance with the terms and conditions
of the Certificate of Designation establishing the Premier Series A
Perpetual Preferred Stock, (iii) grant any stock appreciation rights or
grant any individual, corporation or other entity any right to acquire any
shares of its capital stock (except for options to purchase stock granted
in the ordinary course of business consistent with past practice pursuant
to the Premier Stock Plans) or (iv) issue any additional shares of capital
stock except pursuant to (A) the exercise of stock options or warrants
outstanding as of the date hereof, (B) the conversion of shares of Premier
Series B Perpetual Preferred Stock in accordance with its terms, or (C) the
Option Agreements;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of its
properties or assets to any individual, corporation or other entity other
than a Subsidiary, or cancel, release or assign any indebtedness to any
such person or any claims held by any such person, except in the ordinary
course of business consistent with past practice or pursuant to contracts
or agreements in force at the date of this Agreement;
(d) except for transactions in the ordinary course of business consistent
with past practice or pursuant to contracts or agreements in force at the
date of this Agreement, make any material investment either by purchase of
stock or securities, contributions to capital, property transfers, or
purchase of any property or assets of any other individual, corporation or
other entity other than a Subsidiary thereof;
(e) except for transactions in the ordinary course of business consistent
with past practice, enter into or terminate any material contract or
agreement, or make any change in any of its material leases or contracts,
other than renewals of contracts and leases without material adverse
changes of terms;
(f) other than in the ordinary course of business consistent with past
practice, increase in any manner the compensation or fringe benefits of any
of its employees or pay any pension or retirement allowance not required by
any existing plan or agreement to any such employees or become a party to,
amend or commit itself to any pension, retirement, profit-sharing or
welfare benefit plan or agreement or employment agreement with or for the
benefit of any employee;
(g) accelerate the vesting of any stock options or other stock-based
compensation, except in accordance with the terms of an applicable Premier
Stock Plan and in a manner consistent with past practice;
(h) settle any claim, action or proceeding involving money damages,
except in the ordinary course of business consistent with past practice;
(i) take any action that would prevent or impede the Merger from
qualifying (i) for "pooling of interests" accounting treatment or (ii) as a
reorganization within the meaning of Section 368 of the Code; provided,
however, that nothing contained herein shall limit the ability of Premier
or Northern Illinois to exercise its rights under the Northern Illinois
Option Agreement or the Premier Option Agreement, as the case may be;
(j) amend its certificate of incorporation or articles of incorporation,
as the case may be, or its bylaws, except, in the case of the Northern
Illinois Subsidiaries, in connection with the Northern Illinois Subsidiary
Bank Merger;
(k) other than in prior consultation with the other party to this
Agreement, restructure or materially change its investment securities
portfolio or its gap position, through purchases, sales or otherwise, or
the manner in which the portfolio is classified or reported;
(l) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time
prior to the Effective Time, or in any of the conditions to the Merger set
forth in Article VII not being satisfied or in a violation of any provision
of this Agreement, except, in every case, as may be required by applicable
law; or
(m) agree to, or make any commitment to, take any of the actions
prohibited by this Section 5.2.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters; Cooperation with Respect to Filing. (a) Premier and
Northern Illinois shall promptly prepare and file with the SEC the Joint Proxy
Statement, and shall cause GPF promptly (i) to prepare and file with the SEC
the S-4, in which the Joint Proxy Statement will be included as a prospectus,
and the 8-A, and (ii) to prepare and file an application with the Federal
Reserve Board under the BHC Act for approval to consummate the transactions
contemplated by this Agreement. Each of GPF, Premier and Northern Illinois
shall use all reasonable efforts to have the S-4 and the 8-A declared
effective under the Securities Act and the Exchange Act as promptly as
practicable after such filing and to have the application filed with the
Federal Reserve Board approved, and Premier and Northern Illinois shall mail
or deliver the Joint Proxy Statement to their respective stockholders. Premier
and Northern Illinois shall also cause GPF to use all reasonable efforts to
obtain all necessary state securities law or "Blue Sky" permits and approvals
required to carry out the transactions contemplated by this Agreement, and
Premier and Northern Illinois shall furnish all information concerning Premier
and the holders of the Premier Common Stock and Premier Preferred Stock, and
Northern Illinois and the holders of the Northern Illinois Common Stock,
respectively, as may be reasonably requested in connection with any such
action.
(b) The parties hereto shall cooperate with each other and shall each use
reasonable efforts to promptly prepare and file all necessary documentation,
to effect all applications, notices, petitions and filings, to obtain as
promptly as practicable all permits, consents, approvals and authorizations of
all third parties and Governmental Entities which are necessary or advisable
to consummate the transactions contemplated by this Agreement (including,
without limitation, the Merger), and to comply with the terms and conditions
of all such permits, consents, approvals and authorizations of all such
Governmental Entities. Premier and Northern Illinois shall have the right to
review in advance, and, to the extent practicable, each will consult the other
on, in each case subject to applicable laws relating to the exchange of
information, all the information relating to Premier or Northern Illinois, as
the case may be, and any of their respective Subsidiaries, which appears in
any filing made with, or written materials submitted to, any third party or
any Governmental Entity in connection with the transactions contemplated by
this Agreement. In exercising the foregoing right, each of the parties hereto
shall act reasonably and as promptly as practicable. The parties hereto agree
that they will consult with each other with respect to the obtaining of all
permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate the transactions
contemplated by this Agreement, and each party will keep the other apprised of
the status of matters relating to completion of the transactions contemplated
herein.
(c) Premier and Northern Illinois shall, upon request, furnish each other
and GPF with all information concerning themselves, their Subsidiaries,
directors, officers and stockholders and such other matters as may be
reasonably necessary or advisable in connection with the Joint Proxy
Statement, the S-4 or any other statement, filing, notice or application made
by or on behalf of Premier, Northern Illinois or GPF or any of their
respective Subsidiaries to any Governmental Entity in connection with the
Merger and the other transactions contemplated by this Agreement. Premier
covenants and agrees that none of the information which is furnished by
Premier for inclusion, or which is included, in the S-4, the Joint Proxy
Statement or any other statement, filing, notice or application made by or on
behalf of Premier, Northern Illinois or GPF or any of their respective
Subsidiaries to any Governmental Entity in connection with the Merger and the
other transactions contemplated by this Agreement will, at the respective
times such documents are filed and, in the case of the S-4, when it becomes
effective and, with respect to the Joint Proxy Statement, when mailed or at
the time of the meetings of the stockholders of Premier and Northern Illinois,
be false or misleading with respect to any material fact or shall omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading. Northern
Illinois covenants and agrees that none of the information which is furnished
by Northern Illinois for inclusion, or which is included, in the S-4, the
Joint Proxy Statement or any other statement, filing, notice or application
made by or on behalf of Premier, Northern Illinois or GPF or any of their
respective Subsidiaries to any Governmental Entity in connection with the
Merger and the other transactions
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contemplated by this Agreement will, at the respective times such documents
are filed and, in the case of the S- 4, when it becomes effective and, with
respect to the Joint Proxy Statement, when mailed or at the time of the
meetings of the stockholders of Premier and Northern Illinois, be false or
misleading with respect to any material fact or shall omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading. Notwithstanding the
foregoing, Premier shall have no responsibility for the truth or accuracy of
any information with respect to Northern Illinois or the Northern Illinois
Subsidiaries included in the S-4, the Joint Proxy Statement, or any other
statement, filing, notice or application filed with any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement, and Northern Illinois shall have no responsibility for the truth or
accuracy of any information with respect to Premier or the Premier
Subsidiaries included in the S-4, the Joint Proxy Statement, or any other
statement, filing, notice or application filed with any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement.
(d) Premier, Northern Illinois and GPF shall promptly advise one another
upon receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any Requisite Regulatory Approval will not be obtained or that
the receipt of any such approval will be materially delayed.
6.2 Access to Information. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, each of Premier and
Northern Illinois shall, and shall cause each of their respective Subsidiaries
to, afford to the officers, employees, accountants, counsel and other
representatives of the other party, access, during normal business hours
during the period prior to the Effective Time, to all its properties, books,
contracts, commitments and records and, during such period, each of Premier
and Northern Illinois shall, and shall cause their respective Subsidiaries to,
make available to the other party (i) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of federal securities laws or federal or
state banking laws (other than reports or documents which Premier or Northern
Illinois, as the case may be, is not permitted to disclose under applicable
law) and (ii) all other information concerning its business, properties and
personnel as such party may reasonably request. Neither Premier nor Northern
Illinois nor any of their respective Subsidiaries shall be required to provide
access to or to disclose information where such access or disclosure would
violate or prejudice the rights of Premier's or Northern Illinois', as the
case may be, customers, jeopardize the attorney-client privilege of the
institution in possession or control of such information or contravene any
law, rule, regulation, order, judgment, decree, fiduciary duty or binding
agreement entered into prior to the date of this Agreement. The parties hereto
will make appropriate substitute disclosure arrangements under circumstances
in which the restrictions of the preceding sentence apply.
(b) Each of Premier and Northern Illinois shall hold all information
furnished by or on behalf of the other party or any of such party's
Subsidiaries or representatives pursuant to Section 6.2(a) in confidence and
shall return all documents containing any information concerning the
properties, business and assets of each other party that may have been
obtained in the course of negotiations or examination of the affairs of each
other party either prior or subsequent to the execution of this Agreement
(other than such information as shall be in the public domain or otherwise
ascertainable from public or outside sources). Each of Premier and Northern
Illinois shall use such information solely for the purpose of conducting
business, legal and financial reviews of the other party and for such other
purposes as may be related to this Agreement.
(c) No investigation by either of the parties or their respective
representatives shall affect the representations and warranties of the other
set forth herein. Without limitation of the foregoing, each party shall
promptly notify the other party of any information obtained by such party
during the course of any due diligence conducted by such party or its
representatives in accordance with Section 8.1(b) or (c) which is materially
inconsistent with any representation or warranty made by the other party under
this Agreement; provided, however, that either party's failure to provide such
notice to the other party shall not, in turn, be deemed to constitute a
material breach of such party's obligations under this Agreement.
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6.3 Stockholders' Approvals. Each of Premier and Northern Illinois shall
call a meeting of its stockholders to be held as soon as reasonably
practicable for the purpose of voting upon this Agreement, and each shall use
reasonable efforts to cause such meetings to occur on the same date.
6.4 Legal Conditions to Merger. Each of Premier and Northern Illinois shall,
and shall cause its Subsidiaries to, use reasonable efforts (a) to take, or
cause to be taken, all actions necessary, proper or advisable to comply
promptly with all legal requirements which may be imposed on such party or its
Subsidiaries with respect to the Merger and, subject to the conditions set
forth in Article VII hereof, to consummate the transactions contemplated by
this Agreement and (b) to obtain (and to cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any exemption by,
any Governmental Entity and any other third party which is required to be
obtained by Premier or Northern Illinois or any of their respective
Subsidiaries in connection with the Merger and the other transactions
contemplated by this Agreement.
6.5 Affiliates; Publication of Combined Financial Results. (a) Each of
Premier and Northern Illinois shall use reasonable efforts to cause each
director, executive officer and other person who is an "affiliate" (for
purposes of Rule 145 under the Securities Act and for purposes of qualifying
the Merger for "pooling of interests" accounting treatment) of such party to
deliver to the other party hereto, not later than 30 days after the date of
this Agreement, a written agreement, in the form of Exhibit F, providing that
such person will not sell, pledge, transfer or otherwise dispose of (i) any
shares of Premier Common Stock or Northern Illinois Common Stock held by such
"affiliate," except to the extent and under the conditions permitted therein,
during the period commencing 30 days prior to the Merger and ending at the
time of the publication of financial results covering at least 30 days of
combined operations of Premier and Northern Illinois, and (ii) any shares of
GPF Common Stock to be received by such "affiliate" in the Merger, except in
compliance with the applicable provisions of the Securities Act and the rules
and regulations thereunder.
(b) GPF shall use reasonable efforts to publish as promptly as reasonably
practical but in no event later than 90 days after the end of the first month
after the Effective Time in which there are at least 30 days of post-Merger
combined operations (which month may be the month in which the Effective Time
occurs), combined sales and net income figures as contemplated by and in
accordance with the terms of SEC Accounting Series Release No. 135.
6.6 Listing of GPF Common Stock. GPF shall file an application with The
Nasdaq Stock Market for approval to list the shares of GPF Common Stock on The
Nasdaq Stock Market's National Market, subject to official notice of issuance,
and the parties shall each use reasonable efforts to have such application
approved prior to the Effective Time.
6.7 Employee Benefit Plans. (a) From and after the Effective Time, unless
otherwise mutually determined, the Premier Benefit Plans and Northern Illinois
Benefit Plans in effect as of the date of this Agreement shall remain in
effect with respect to employees of Premier or Northern Illinois (or their
Subsidiaries) covered by such plans at the Effective Time until such time as
GPF shall, subject to applicable law, the terms of this Agreement and the
terms of such plans, adopt new benefit plans with respect to employees of GPF
and its Subsidiaries (the "New Benefit Plans"). Prior to the Closing Date,
Premier and Northern Illinois shall cooperate in reviewing, evaluating and
analyzing the Premier Benefit Plans and Northern Illinois Benefit Plans with a
view towards developing appropriate New Benefit Plans for the employees
covered thereby subsequent to the Merger. It is the intention of Premier and
Northern Illinois to develop New Benefit Plans, effective as of the Effective
Time, which, among other things, (i) treat similarly situated employees on a
substantially equivalent basis, taking into account all relevant factors,
including, without limitation, duties, geographic location, tenure,
qualifications and abilities, and (ii) do not discriminate between employees
of GPF who were covered by Premier Benefit Plans, on the one hand, and those
covered by Northern Illinois Benefit Plans, on the other, at the Effective
Time.
(b) The foregoing notwithstanding, GPF agrees to honor in accordance with
their terms all benefits vested as of the date hereof under the Premier
Benefit Plans or the Northern Illinois Benefit Plans or under other contracts,
arrangements, commitments, or understandings described in the Premier
Disclosure Schedules and the Northern Illinois Disclosure Schedules.
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(c) Nothing in this Section 6.7 shall be interpreted as preventing GPF from
amending, modifying or terminating any Premier Benefit Plans, Northern
Illinois Benefit Plans, or other contracts, arrangements, commitments or
understandings, in accordance with their terms and applicable law, following
the Effective Time.
6.8 Indemnification; Directors' and Officers' Insurance. (a) In the event of
any threatened or actual claim, action, suit, proceeding or investigation,
whether civil, criminal or administrative, including, without limitation, any
such claim, action, suit, proceeding or investigation in which any individual
who is now, or has been at any time prior to the date of this Agreement, or
who becomes prior to the Effective Time, a director or officer or employee of
Premier, Northern Illinois or any of their Subsidiaries (the "Indemnified
Parties"), is, or is threatened to be, made a party based in whole or in part
on, or arising in whole or in part out of, or pertaining to (i) the fact that
he or she is or was a director, officer or employee of Premier, Northern
Illinois or any of their Subsidiaries or any of their respective predecessors,
or (ii) this Agreement, the Option Agreements or any of the transactions
contemplated hereby or thereby, whether in any case asserted or arising before
or after the Effective Time, the parties hereto agree to cooperate and use
reasonable efforts to defend against and respond thereto. It is understood and
agreed that after the Effective Time, GPF shall indemnify and hold harmless,
as and to the fullest extent permitted by law, each such Indemnified Party
against any losses, claims, damages, liabilities, costs, expenses (including
reasonable attorney's fees and expenses in advance of the final disposition of
any claim, suit, proceeding or investigation incurred by each Indemnified
Party to the fullest extent permitted by law upon receipt of any undertaking
required by applicable law), judgments, fines and amounts paid in settlement
in connection with any such threatened or actual claim, action, suit,
proceeding or investigation, and in the event of any such threatened or actual
claim, action, suit, proceeding or investigation (whether asserted or arising
before or after the Effective Time), the Indemnified Parties may retain
counsel reasonably satisfactory to them after consultation with GPF; provided,
however, that (A) GPF shall have the right to assume the defense thereof and
upon such assumption GPF shall not be liable to any Indemnified Party for any
legal expenses of other counsel or any other expenses subsequently incurred by
any Indemnified Party in connection with the defense thereof, except that if
GPF elects not to assume such defense or counsel for the Indemnified Parties
reasonably advises the Indemnified Parties that there are issues which raise
conflicts of interest between GPF and the Indemnified Parties, the Indemnified
Parties may retain counsel reasonably satisfactory to them after consultation
with GPF, and GPF shall pay the reasonable fees and expenses of such counsel
for the Indemnified Parties, (B) GPF shall be obligated pursuant to this
paragraph to pay for only one firm of counsel for all Indemnified Parties,
unless an Indemnified Party shall have reasonably concluded, based on the
advice of counsel, that there is a material conflict of interest between the
interests of such Indemnified Party and the interests of one or more other
Indemnified Parties and that the interests of such Indemnified Party will not
be adequately represented unless separate counsel is retained, in which case,
GPF shall be obligated to pay for such separate counsel, (C) GPF shall not be
liable for any settlement effected without its prior written consent (which
consent shall not be unreasonably withheld) and (D) GPF shall have no
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and nonappealable, that indemnification of such Indemnified Party
in the manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim Indemnification under this Section 6.8,
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify GPF thereof, provided that the failure to so notify shall not
affect the obligations of GPF under this Section 6.8 except to the extent such
failure to notify materially prejudices GPF. GPF's obligations under this
Section 6.8 continue in full force and effect for a period of three years from
the Effective Time (or the period of the applicable statute of limitations, if
longer); provided, however, that all rights to indemnification in respect of
any claim (a "Claim") asserted or made within such period shall continue until
the final disposition of such Claim.
(b) Premier and Northern Illinois shall each use reasonable efforts (i) to
obtain, after the Effective Time, directors' and officers' liability insurance
coverage for the officers and directors of GPF, to the extent that the same is
economically practicable, and (ii) either to cause the individuals serving as
officers and directors of Premier, Northern Illinois or their Subsidiaries
immediately prior to the Effective Time to be covered for a period of three
years from the Effective Time (or the period of the applicable statute of
limitations, if longer) by the
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directors' and officers' liability insurance policies maintained by Premier
and Northern Illinois, respectively, or to substitute therefor policies of at
least the same coverage and amounts containing terms and conditions which are
not less advantageous than the policies previously maintained by Premier and
Northern Illinois, respectively) with respect to acts or omissions occurring
prior to the Effective Time which were committed by such officers and
directors in their capacity as such; provided, however, that in no event shall
GPF be required to expend more than $50,000 per year (the "Insurance Amount")
to maintain or procure insurance coverage pursuant to clause (ii) of this
sentence, and provided further that if GPF is unable to maintain or obtain the
insurance called for by clause (ii) of this sentence, GPF shall use reasonable
efforts to obtain as much comparable insurance as available for the Insurance
Amount.
(c) In the event GPF or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger, or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, to the extent necessary, proper
provision shall be made so that the successors and assigns of GPF assume the
obligations set forth in this section.
(d) The provisions of this Section 6.8 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs
and representatives.
6.9 Additional Agreements. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest GPF with full title to all properties, assets, rights,
approvals, immunities and franchises of any of the parties to the Merger, the
proper officers and directors of each party to this Agreement and their
respective Subsidiaries shall take all such necessary action as may be
reasonably requested by, and at the sole expense of, GPF.
6.10 Advice of Changes. Premier and Northern Illinois shall promptly advise
the other party of any change or event having a Material Adverse Effect on it
or which it believes would or would be reasonably likely to cause or
constitute a material breach of any of its representations, warranties or
covenants contained herein.
6.11 Dividends. After the date of this Agreement, each of Premier and
Northern Illinois shall coordinate with the other the declaration of any
dividends in respect of Premier Common Stock and Northern Illinois Common
Stock and the record dates and payment dates relating thereto, it being the
intention of the parties hereto that holders of Premier Common Stock or
Northern Illinois Common Stock shall not receive two dividends, or fail to
receive one dividend, for any quarter with respect to their shares of Premier
Common Stock and/or Northern Illinois Common Stock and any shares of GPF
Common Stock any such holder receives in exchange therefor in the Merger.
6.12 No Conduct Inconsistent with this Agreement. Neither Premier nor
Northern Illinois shall (a) solicit, encourage or authorize any individual,
corporation or other entity to solicit from any third party any inquiries or
proposals relating to the disposition of the business or assets, or the
acquisition of its capital stock, or the merger of it or any of its
Subsidiaries with any corporation or other entity other than as provided by
this Agreement, except pursuant to a written direction from a regulatory
authority, or (b) negotiate with or entertain any proposals from any other
person for any such transaction wherein the business, assets or capital stock
of it or any of its Subsidiaries would be acquired, directly or indirectly, by
any party other than GPF, except pursuant to a written direction from any
regulatory authority or upon the receipt of an unsolicited offer from a third
party where the Board of Directors of the party receiving such offer
reasonably believes, upon the written advice of counsel, that its fiduciary
duties require it to enter into discussions with such party. Each party shall
promptly notify the other of all of the relevant details relating to all
inquiries and proposals which it may receive relating to any proposed
disposition of the business or assets, or the acquisition of its capital
stock, or the merger of it or any of its Subsidiaries with any corporation or
other entity other than as provided by this Agreement.
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ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the respective
requisite affirmative votes of the holders of Northern Illinois Common
Stock and Premier Common Stock entitled to vote thereon.
(b) Nasdaq-NMS Listing. The shares of GPF Common Stock which shall be
issued to the stockholders of Northern Illinois and Premier upon
consummation of the Merger shall have been authorized for listing on The
Nasdaq Stock Market's National Market, subject to official notice of
issuance.
(c) Other Approvals. All regulatory approvals required to consummate the
transactions contemplated hereby shall have been obtained, on terms and
conditions reasonably satisfactory to each of Northern Illinois and
Premier, and shall remain in full force and effect and all statutory
waiting periods in respect thereof shall have expired (all such approvals
and the expiration of all such waiting periods being referred to herein as
the "Requisite Regulatory Approvals").
(d) Registration Statements. The S-4 and the 8-A shall have become
effective under the Securities Act and the Exchange Act, respectively, and
no stop order suspending the effectiveness of the S-4 or the 8-A shall have
been issued and no proceedings for that purpose shall have been initiated
or threatened by the SEC.
(e) No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition (an "Injunction") preventing the
consummation of the Merger or any of the other transactions contemplated by
this Agreement shall be in effect. No statute, rule, regulation, order,
injunction or decree shall have been enacted, entered, promulgated or
enforced by any Governmental Entity which prohibits, materially restricts
or makes illegal consummation of the Merger.
(f) Federal Tax Opinion. Northern Illinois and Premier shall each have
received an opinion of their respective counsel, in form and substance
reasonably satisfactory to each, dated as of the Effective Time,
substantially to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion which are consistent with the
state of facts existing at the Effective Time:
(i) The Merger will constitute a tax free reorganization under
Section 368(a)(i)(A) of the Code, and Northern Illinois and Premier
will each be a party to the reorganization;
(ii) No gain or loss will be recognized by Northern Illinois or
Premier, as the case may be, as a result of the Merger;
(iii) No gain or loss will be recognized by the stockholders of
Northern Illinois or Premier, as the case may be, who exchange their
Northern Illinois Common Stock or Premier Common Stock or Premier
Preferred Stock, as the case may be, solely for GPF Common Stock or GPF
Preferred Stock pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in GPF Common Stock);
(iv) The tax basis of the GPF Common Stock or GPF Preferred Stock
received by stockholders who exchange all of their Northern Illinois
Common Stock or all of their Premier Common Stock or Premier Preferred
Stock, as the case may be, solely for GPF Common Stock or GPF Preferred
Stock in the Merger will be the same as the tax basis of the Northern
Illinois Common Stock or the Premier Common Stock or Premier Preferred
Stock, as the case may be, surrendered in exchange therefor (reduced by
any amount allocable to a fractional share interest for which cash is
received); and
(v) The holding period of the GPF Common Stock or GPF Preferred Stock
received by stockholders of Northern Illinois or Premier, as the case
may be, in the Merger will include the period during which the shares
of Northern Illinois Common Stock or Premier Common Stock or Premier
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Preferred Stock, as the case may be, surrendered in exchange therefor
were held; provided, such Northern Illinois Common Stock or Premier
Common Stock or Premier Preferred Stock, as the case may be, was held
as a capital asset by the holder of such Northern Illinois Common Stock
or Premier Common Stock or Premier Preferred Stock, as the case may be,
at the Effective Time.
In rendering such opinion, counsel may require and rely upon
representations contained in certificates of officers of Northern Illinois
or Premier, as the case may be, and others.
(g) Pooling of Interests. Northern Illinois and Premier shall each have
received a letter from their respective independent accountants addressed
to Northern Illinois or Premier, as the case may be, to the effect that the
Merger will qualify for "pooling of interests" accounting treatment.
7.2 Conditions to Obligations of Northern Illinois. The obligation of
Northern Illinois to effect the Merger is also subject to the satisfaction, or
waiver by Northern Illinois, at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and warranties of
Premier set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date. Northern
Illinois shall have received a certificate signed on behalf of Premier by
the Chief Executive Officer and the Chief Financial Officer of Premier to
the foregoing effect.
(b) Performance of Obligations of Premier. Premier shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and Northern Illinois
shall have received a certificate signed on behalf of Premier by the Chief
Executive Officer and the Chief Financial Officer of Premier to such
effect.
(c) No Material Adverse Change. Since the date of this Agreement, (i) no
event shall have occurred which has had a Material Adverse Effect on
Premier, and (ii) no condition (other than general economic or competitive
conditions generally affecting bank holding companies and banks of a size
or in locations comparable to those of Premier and the Premier
Subsidiaries), event, circumstances, fact or other occurrence shall have
occurred that may reasonably be expected to have or result in such a
Material Adverse Effect on Premier.
(d) Changes in Ownership of Premier Common Stock; Acquisition of Northern
Illinois Common Stock. Since the date of this Agreement, no individual,
entity or group identified in Schedule 4.3 of the Premier Disclosure
Schedules shall have acquired beneficial ownership of (i) any additional
shares of Premier Common Stock, other than shares acquired by a Premier
Subsidiary in a fiduciary capacity for the benefit of third parties or
shares acquired pursuant to the terms and conditions of any Premier Stock
Plan, or (ii) any shares of Northern Illinois Common Stock.
(e) Opinion of Counsel to Premier. Northern Illinois shall have received
from Schiff Hardin & Waite, counsel to Premier, an opinion, dated the
Closing Date, in substantially the form of Exhibit G.
(f) Comfort Letter. Northern Illinois shall have received from KPMG Peat
Marwick "comfort letters" dated the date of mailing of the Joint Proxy
Statement and the Closing Date, covering matters customary to transactions
such as the Merger and in form and substance reasonably satisfactory to
Northern Illinois.
(g) Fairness Opinion. Northern Illinois shall have received from Prairie
Capital Services, Inc., a fairness opinion, dated the date of mailing of
the Joint Proxy Statement and in form and substance reasonably satisfactory
to Northern Illinois, to the effect that the consideration to be received
in the Merger by the stockholders of Northern Illinois is fair, from a
financial point of view, to the stockholders of Northern Illinois.
7.3 Conditions to Obligations of Premier. The obligation of Premier to
effect the Merger is also subject to the satisfaction, or waiver by Premier,
at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Northern Illinois set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date. Premier
shall have received a certificate signed on behalf of Northern Illinois by
the Chief Executive Officer and the Chief Financial Officer of Northern
Illinois to the foregoing effect.
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(b) Performance of Obligations of Northern Illinois. Northern Illinois
shall have performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing Date,
and Premier shall have received a certificate signed on behalf of Northern
Illinois by the Chief Executive Officer and the Chief Financial Officer of
Northern Illinois to such effect.
(c) No Material Adverse Change. Since the date of this Agreement, (i) no
event shall have occurred which has had a Material Adverse Effect on
Northern Illinois, and (ii) no condition (other than general economic or
competitive conditions generally affecting bank holding companies and banks
of a size or in locations comparable to those of Northern Illinois and the
Northern Illinois Subsidiaries), event, circumstances, fact or other
occurrence shall have occurred that may reasonably be expected to have or
result in such a Material Adverse Effect on Northern Illinois.
(d) Changes in Ownership of Northern Illinois Common Stock; Acquisition
of Premier Common Stock. Since the date of this Agreement, no individual,
entity or group identified in Schedule 3.3 of the Northern Illinois
Disclosure Schedules shall have acquired beneficial ownership of (i) any
additional shares of Northern Illinois Common Stock or (ii) any shares of
Premier Common Stock.
(e) Opinion of Counsel to Northern Illinois. Premier shall have received
from Crowley Barrett & Karaba Ltd., counsel to Northern Illinois, an
opinion, dated the Closing Date, in substantially the form of Exhibit H.
(f) Comfort Letter. Premier shall have received from Hutton, Nelson and
McDonald LLP "comfort letters" dated the date of mailing of the Joint Proxy
Statement and the Closing Date, covering matters customary to transactions
such as the Merger and in form and substance reasonably satisfactory to
Northern Illinois.
(g) Fairness Opinion. Premier shall have received from The Chicago
Corporation a fairness opinion, dated the date of mailing of the Joint
Proxy Statement and in form and substance reasonably satisfactory to
Premier, to the effect that the consideration to be received in the Merger
by the stockholders of Premier is fair, from a financial point of view, to
the stockholders of Premier.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated prior to the Effective
Time:
(a) at any time, whether before or after approval of the matters
presented in connection with the Merger by the stockholders of Premier or
Northern Illinois, by written agreement between Premier and Northern
Illinois, if the Board of Directors of each so determines;
(b) by Premier, by written notice to Northern Illinois, within 35 days of
the date of this Agreement, provided that:
(i) such notice is given prior to the occurrence of an "Initial
Triggering Event," as such term is defined in the Premier Option
Agreement, and Premier determines, in its sole discretion, in the light
of information discovered in the course of its investigation of
Northern Illinois and the Northern Illinois Subsidiaries, that the
transactions contemplated by this Agreement would not be in the best
interests of Premier; or
(ii) such notice is given after a "Third-Party Initial Triggering
Event" (as defined below) and Premier is able to demonstrate (A) that
the occurrence of such Third-Party Initial Triggering Event was not
due, in whole or in part, to a breach of Premier's obligations under
Section 6.12. of this Agreement, and (B) that the occurrence of such
Third-Party Initial Triggering Event was not a material factor in its
decision to provide such notice. A "Third-Party Initial Triggering
Event" shall mean any of the events described in Section 2(b)(iii)(A)
or (B) (other than the formation of a group that includes an "Existing
15% Shareholder"), Section 2(b)(iv), or Section 2(b)(vi) of the Option
Agreements.
(c) by Northern Illinois, by written notice to Premier, within 35 days of
the date of this Agreement, provided that:
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(i) such notice is given prior to the occurrence of an "Initial
Triggering Event," as such term is defined in the Northern Illinois
Option Agreement, and Northern Illinois determines, in its sole
discretion, in the light of information discovered in the course of its
investigation of Premier and the Premier Subsidiaries, that the
transactions contemplated by this Agreement would not be in the best
interests of Northern Illinois; or
(ii) such notice is given after a Third-Party Initial Triggering
Event and Northern Illinois is able to demonstrate (A) that the
occurrence of such Third-Party Initial Triggering Event was not due, in
whole or in part, to a breach of Northern Illinois' obligations under
Section 6.12. of this Agreement, and (B) that the occurrence of such
Third-Party Initial Triggering Event was not a material factor in its
decision to provide such notice.
(d) at any time, whether before or after approval of the matters
presented in connection with the Merger by the stockholders of Premier or
Northern Illinois, by either the Board of Directors of Premier or the Board
of Directors of Northern Illinois if (i) any Governmental Entity which must
grant a Requisite Regulatory Approval (A) has denied approval of the Merger
and such denial has become final and nonappealable or (B) has advised the
parties of its unwillingness to grant such a Requisite Regulatory Approval
on terms and conditions reasonably acceptable to the parties,
notwithstanding the parties' fulfillment of their obligations to take
reasonable efforts to obtain such Requisite Regulatory Approval, or (ii)
any Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order permanently enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement;
(e) by either the Board of Directors of Premier or the Board of Directors
of Northern Illinois if the Merger shall not have been consummated on or
before the first anniversary of the date of this Agreement, unless the
failure of the Closing to occur by such date shall be due to the failure of
the party seeking to terminate this Agreement to perform or observe the
covenants and agreements of such party set forth herein;
(f) by either the Board of Directors of Premier or the Board of Directors
of Northern Illinois (provided that the terminating party is not then in
material breach of any representation, warranty, covenant or other
agreement contained herein) if there shall have been a material breach of
any of the covenants or agreements or any of the representations or
warranties set forth in this Agreement on the part of the other party,
which breach is not cured within 45 days following written notice to the
party committing such breach, or which breach, by its nature or timing,
cannot be cured prior to the Closing Date; or
(g) by either Premier or Northern Illinois if any approval of the
stockholders of Premier or Northern Illinois required for the consummation
of the Merger shall not have been obtained by reason of the failure to
obtain the required vote at a duly held meeting of stockholders or at any
adjournment or postponement thereof.
8.2 Effect of Termination. In the event of termination of this Agreement by
either Premier or Northern Illinois as provided in Section 8.1, this Agreement
shall forthwith become void and have no effect, and none of Premier, Northern
Illinois, any of their respective Subsidiaries or any of the officers or
directors of any of them shall have any liability of any nature whatsoever
hereunder, or in connection with the transactions contemplated hereby, except
that (i) Sections 6.2(b), 8.2, 9.2 and 9.3, shall survive any termination of
this Agreement, and (ii) notwithstanding anything to the contrary contained in
this Agreement, neither Premier nor Northern Illinois shall be relieved or
released from any liabilities or damages arising out of its willful breach of
any provision of this Agreement.
8.3 Amendment. Subject to compliance with applicable law, this Agreement may
be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of Premier
or Northern Illinois; provided, however, that after any approval of the
transactions contemplated by this Agreement by the respective stockholders of
Premier or Northern Illinois there may not be, without further approval of
such stockholders, any amendment of this Agreement which changes the amount or
the form of the consideration to be delivered to the holders of Premier Common
Stock or Northern Illinois Common Stock hereunder other than
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as contemplated by this Agreement. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Board of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto, and (c) waive compliance with any of
the agreements or conditions contained herein; provided, however, that after
any approval of the transactions contemplated by this Agreement by the
respective stockholders of Premier or Northern Illinois, there may not be,
without further approval of such stockholders, any extension or waiver of this
Agreement or any portion thereof which reduces the amount or changes the form
of the consideration to be delivered to the holders of Premier Common Stock or
Northern Illinois Common Stock hereunder other than as contemplated by this
Agreement. Any agreement on the part of a party hereto to any such extension
or waiver shall be valid only if set forth in a written instrument signed on
behalf of such party, but such extension or waiver or failure to insist on
strict compliance with an obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1 Non-survival of Representations, Warranties and Agreements. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement (other than pursuant to
the Option Agreements, which shall terminate in accordance with their terms)
shall survive the Effective Time, except for those covenants and agreements
contained herein and therein which by their terms apply in whole or in part
after the Effective Time.
9.2 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, provided, however, that (i) all attorneys' fees
incurred by the parties in connection with the preparation and negotiation of
this Agreement, the related agreements and documents contemplated hereby and
the transactions contemplated herein, including any attorneys' fees incurred
in connection with the preparation and filing of the Joint Proxy Statement,
the S-4, the 8-A, or any other notice, filing, or application with any
Governmental Entity, Regulatory Agency or SRO to be made by GPF or jointly by
Northern Illinois and Premier, (ii) the costs and expenses of printing and
mailing the Joint Proxy Statement, (iii) all filing and other fees paid to the
SEC, the Federal Reserve Board, or any State Regulatory Agency in connection
with the Merger and the transactions contemplated by this Agreement, and (iv)
all filing and other fees relating to the listing of the GPF Common Stock on
The Nasdaq Stock Market's National Market, shall constitute expenses of GPF
and shall be borne equally by Northern Illinois and Premier in the event that
this Agreement is terminated prior to the Effective Time.
9.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt
requested) or delivered by an express courier (with confirmation) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Northern Illinois, to:
Northern Illinois Financial Corporation
486 West Liberty Street
Wauconda, Illinois 60084-2489
Attention: Robert W. Hinman
President and Chief Executive Officer
Telephone: 708-487-1818
Telecopier: 708-487-1896
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with a copy to:
Crowley Barrett & Karaba, Ltd.
20 South Clark Street
Suite 2310
Chicago, Illinois 60603
Attention: Thomas F. Karaba
Telephone: 312-726-2468
Telecopier: 312-726-2741
and
(b) if to Premier, to:
Premier Financial Services, Inc.
27 West Main Street
Suite 101
Freeport, Illinois 61032
Attention: Richard L. Geach
President and Chief Executive Officer
Telephone: 815-233-3770
Telecopier: 815-233-3697
with a copy to:
Schiff Hardin & Waite
7200 Sears Tower
Chicago, Illinois 60606
Attention: Gary L. Mowder
Telephone: 312-258-5514
Telecopier: 312-258-5600
9.4 Interpretation. When a reference is made in this Agreement to Sections,
Exhibits or Schedules, such reference shall be to a section of or exhibit or
schedule to this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation". No provision of this Agreement shall be construed to require
Northern Illinois, Premier or any of their respective Subsidiaries or
affiliates to take any action which would violate any applicable law, rule or
regulation.
9.5 Counterparts. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
9.6 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof other than the
Option Agreements.
9.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Illinois, without regard to any
applicable conflicts of law, except to the extent that the law of the state of
Delaware shall apply to certain matters of corporate law relating to Premier,
GPF and the Merger and except to the extent superseded by federal law.
9.8 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
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9.9 Publicity. Except as otherwise required by applicable law or the rules
of The Nasdaq Stock Market, neither Northern Illinois nor Premier shall, or
shall permit any of its Subsidiaries to, issue or cause the publication of any
press release or other public announcement with respect to, or otherwise make
any public statement concerning, the transactions contemplated by this
Agreement without the consent of the other party, which consent shall not be
unreasonably withheld.
9.10 Assignment; Third Party Beneficiaries. Neither this Agreement nor any
of the rights, interests or obligations of the parties under this Agreement
shall be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors
and assigns. Except as otherwise specifically provided in Section 6.8, this
Agreement (including the documents and instruments referred to herein) is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
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IN WITNESS WHEREOF, Premier, Northern Illinois and GPF have caused this
Agreement to be executed by their respective officers thereunto duly
authorized as of the date first above written.
Premier Financial Services, Inc. Northern Illinois Financial
Corporation
/s/ Richard L. Geach /s/ Robert W. Hinman
By: _________________________________ By: _________________________________
Richard L. Geach Robert W. Hinman
President and Chief Executive President and Chief Executive
Officer Officer
Grand Premier Financial, Inc.
/s/ Richard L. Geach
By: _________________________________
Richard L. Geach
Chief Executive Officer
/s/ Robert W. Hinman
By: _________________________________
Robert W. Hinman
President
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APPENDIX B
ILLINOIS BUSINESS CORPORATION ACT
PROVISIONS RELATING TO DISSENTERS' RIGHTS
SECTION 11.65 [805 ILCS 5/11.65]. RIGHT TO DISSENT
(a) A shareholder of a corporation is entitled to dissent from, and obtain
payment for his or her shares in the event of any of the following corporate
actions:
(1) consummation of a plan of merger or consolidation or a plan of share
exchange to which the corporation is a party if
(i) shareholder authorization is required for the merger or
consolidation or the share exchange by Section 11.20 [805 ILCS 5/11.20]
or the articles of incorporation or
(ii) the corporation is a subsidiary that is merged with its parent
or another subsidiary under Section 11.30 [805 ILCS 5/11.30];
(2) consummation of a sale, lease or exchange of all, or substantially
all, of the property and assets of the corporation other than in the usual
and regular course of business;
(3) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of such shares;
(ii) alters or abolishes a right in respect of redemption, including
a provision respecting a sinking fund for the redemption or repurchase,
of such shares;
(iii) in the case of a corporation incorporated prior to January 1,
1982, limits or eliminates cumulative voting rights with respect to
such shares; or
(4) any other corporate action taken pursuant to a shareholder vote if
the articles of incorporation, by-laws, or a resolution of the board of
directors provide that shareholders are entitled to dissent and obtain
payment for their shares in accordance with the procedures set forth in
Section 11.70 [805 ILCS 5/11.70] or as may be otherwise provided in the
articles, by-laws or resolution.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this Section may not challenge the corporate action creating his
or her entitlement unless the action is fraudulent with respect to the
shareholder or the corporation or constitutes a breach of a fiduciary duty
owed to the shareholder.
(c) A record owner of shares may assert dissenters' rights as to fewer than
all the shares recorded in such person's name only if such person dissents
with respect to all shares beneficially owned by any one person and notifies
the corporation in writing of the name and address of each person on whose
behalf the record owner asserts dissenters' rights. The rights of a partial
dissenter are determined as if the shares as to which dissent is made and the
other shares were recorded in the names of different shareholders. A
beneficial owner of shares who is not the record owner may assert dissenters'
rights as to shares held on such person's behalf only if the beneficial owner
submits to the corporation the record owner's written consent to the dissent
before or at the same time the beneficial owner asserts dissenters' rights.
SECTION 11.70 [805 ILCS 5/11.70]. PROCEDURE TO DISSENT
(a) If the corporate action giving rise to the right to dissent is to be
approved at a meeting of shareholders, the notice of meeting shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to the meeting, the corporation furnishes to the shareholders material
information with respect to the transaction that will objectively enable a
shareholder to vote on the transaction and to determine whether or not to
exercise dissenters' rights, a shareholder may assert dissenters' rights only
if the shareholder delivers to the corporation before the vote is taken a
written demand for payment for his or her shares if the proposed action is
consummated, and the shareholder does not vote in favor of the proposed
action.
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(b) If the corporate action giving rise to the right to dissent is not to be
approved at a meeting of shareholders, the notice to shareholders describing
the action taken under Section 11.30 or Section 7.10 [805 ILCS 5/11.30 or 805
ILCS 5/7.10] shall inform the shareholders of their right to dissent and the
procedure to dissent. If, prior to or concurrently with the notice, the
corporation furnishes to the shareholders material information with respect to
the transaction that will objectively enable a shareholder to determine
whether or not to exercise dissenters' rights, a shareholder may assert
dissenter's rights only if he or she delivers to the corporation within 30
days from the date of mailing the notice a written demand for payment for his
or her shares.
(c) Within 10 days after the date on which the corporate action giving rise
to the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand for
payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as
of the end of a fiscal year ending not earlier than 16 months before the
delivery of the statement, together with the statement of income for that year
and the latest available interim financial statements, and either a commitment
to pay for the shares of the dissenting shareholder at the estimated fair
value thereof upon transmittal to the corporation of the certificate or
certificates, or other evidence of ownership, with respect to the shares, or
instructions to the dissenting shareholder to sell his or her shares within 10
days after delivery of the corporation's statement to the shareholder. The
corporation may instruct the shareholder to sell only if there is a public
market for the shares at which the shares may be readily sold. If the
shareholder does not sell within that 10 day period after being so instructed
by the corporation, for purposes of this Section the shareholder shall be
deemed to have sold his or her shares at the average closing price of the
shares, if listed on a national exchange, or the average of the bid and asked
price with respect to the shares quoted by a principal market maker, if not
listed on a national exchange, during that 10 day period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are cancelled or
modified by the consummation of the proposed corporate action. Upon
consummation of that action, the corporation shall pay to each dissenter who
transmits to the corporation the certificate or other evidence of ownership of
the shares the amount the corporation estimates to be the fair value of the
shares, plus accrued interest, accompanied by a written explanation of how the
interest was calculated.
(e) If the shareholder does not agree with the opinion of the corporation as
to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement
of value, shall notify the corporation in writing of the shareholder's
estimated fair value and amount of interest due and demand payment for the
difference between the shareholder's estimate of fair value and interest due
and the amount of the payment by the corporation or the proceeds of sale by
the shareholder, whichever is applicable because of the procedure for which
the corporation opted pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay
the difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as 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. Failure of the corporation to commence an action pursuant
to this Section shall not limit or affect the right of the dissenting
shareholders to otherwise commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced under
subsection (f) by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the power
described in the order appointing them, or in any amendment to it.
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<PAGE>
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of the appraisers, if any, appointed by the court under
subsection (g), but shall exclude the fees and expenses of counsel and experts
for the respective parties. If the fair value of the shares as determined by
the court materially exceeds the amount which the corporation estimated to be
the fair value of the shares or if no estimate was made in accordance with
subsection (c), then all or any part of the costs may be assessed against the
corporation. If the amount which any dissenter estimated to be the fair value
of the shares materially exceeds the fair value of the shares as determined by
the court, then all or any part of the costs may be assessed against that
dissenter. The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable, as
follows:
(1) Against the corporation and in favor of any or all dissenters if the
court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and 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 Section.
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 that counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who are benefited. Except as otherwise provided in
this Section, the practice, procedure, judgment and costs shall be governed by
the Code of Civil Procedure [735 ILCS 5/1-101 et seq.].
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the consummation 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.
(2) "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.
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<PAGE>
APPENDIX C
DELAWARE GENERAL CORPORATION LAW
PROVISION RELATING TO DISSENTERS' RIGHTS
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to Section 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the words
"stock" and "share" mean and include what is ordinarily meant by those words
and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to Sections 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
(i) Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
(ii) Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
(iii) Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
(iv) Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the
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<PAGE>
surviving or resulting corporation, the petition shall be accompanied by such
a duly verified list. The Register in Chancery, if so ordered by the Court,
shall give notice of the time and place fixed for the hearing of such petition
by registered or certified mail to the surviving or resulting corporation and
to the stockholders shown on the list at the addresses therein stated. Such
notice shall also be given by 1 or more publications at least 1 week before
the day of the hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court deems advisable.
The forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any
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<PAGE>
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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APPENDIX D
[LETTERHEAD OF PRAIRIE CAPITAL SERVICES, INC.]
July 9, 1996
Board of Directors
Northern Illinois Financial Corporation
486 West Liberty Street
Wauconda, Illinois 60084
Members of the Board:
We understand that Northern Illinois Financial Corporation ("Northern
Illinois") has entered into an Agreement and Plan of Reorganization dated
January 22, 1996, as amended (the "Merger Agreement"), among Northern
Illinois, Premier Financial Services, Inc. ("Premier") and Grand Premier
Financial, Inc. ("GPF") pursuant to which Northern Illinois and Premier will
be merged into GPF (the "Merger"). Under the terms of the Merger Agreement,
each outstanding share of Northern Illinois Common Stock will be converted
into 4.250 shares of GPF Common Stock, and each outstanding share of Premier
Common Stock will be converted into 1.116 shares of GPF Common Stock. In
addition, upon consummation of the Merger, each holder of Premier Preferred
Stock will be entitled to receive GPF Preferred Stock of substantially
identical terms. You have requested that we render to you our opinion, as
investment bankers, as to the fairness, from a financial point of view, of the
terms of the Merger to the stockholders of Northern Illinois.
Prairie Capital Services, Inc. ("Prairie Capital") is an investment banking
firm that specializes in providing investment banking and financial advisory
services to banks, thrifts and related holding companies. The principals of
Prairie Capital have performed many independent valuations of bank and thrift
securities and rendered related fairness opinions. The principals of Prairie
Capital have significant experience in management and operations, strategic
planning, investment banking and investment research relating to banks and
thrifts.
In arriving at our opinion, we have reviewed and analyzed, among other data:
(1) the audited financial statements of Northern Illinois and Premier for the
years ended December 31, 1990 through 1995, the unaudited financial statements
of Northern Illinois and Premier as of and for the nine months ended September
30, 1995 and September 30, 1994 and the unaudited financial statements for
Northern Illinois and Premier as of and for the three months ended March 31,
1996 and March 31, 1995; (2) copies of the Merger Agreement among Northern
Illinois, Premier and GPF dated January 22, 1996; (3) copies of the S-4
Registration Statement and Joint Proxy Statement-Prospectus; (4) publicly-
available information on the common stock prices and financial performance of
selected Illinois bank holding companies, Premier and Northern Illinois and
the announced terms of and related financial information on selected "merger-
of-equals" transactions; (5) other information Prairie Capital deemed
relevant; and (6) other internal financial and operating information which was
provided to Prairie Capital by Northern Illinois and Premier. In addition, we
have met with and discussed the foregoing, as well as other matters we deemed
relevant to our inquiry, with members of Northern Illinois and Premier senior
managements.
Prairie Capital compared the contributions which Northern Illinois would
make to GPF to the proportion of GPF Common Stock which Northern Illinois
stockholders would receive. We reviewed the accretion or dilution to Northern
Illinois' earnings per share, stated book value per share and tangible book
value per share from the Merger. Based on projections provided by Northern
Illinois and Premier managements and certain other assumptions, Prairie
Capital calculated and compared a range of present values for Northern
Illinois Common Stock on a stand alone basis to a range of present values for
the Northern Illinois stockholder interest in GPF. Prairie Capital also
compared the Merger to other, selected "mergers-of-equals." Finally, based on
projections provided to us by Northern Illinois and Premier, we compared the
projected cash dividends that Northern Illinois stockholders might receive
from Northern Illinois operating on a stand alone basis to the cash dividends
they might receive as GPF stockholders.
<PAGE>
Prairie Capital also took into account its assessment of general economic,
market and financial conditions and its experience in other transactions, as
well as its experience in securities valuation and its knowledge of the banking
industry generally. Prairie Capital's opinion was necessarily based upon
conditions as they existed and could be evaluated on the date hereof and
information made available to Prairie Capital through the date thereof.
We assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of our
opinion. Prairie Capital relied upon the managements of Northern Illinois and
Premier as to the reasonableness of the projections (and the assumptions and
basis thereof) provided to Prairie Capital. Prairie Capital did not make any
independent valuation or appraisal of the assets or liabilities of Northern
Illinois and Premier, nor was Prairie Capital furnished with any such
appraisals. Prairie Capital assumed, without independent verification, that the
aggregate allowances and reserves for loan and lease losses of Northern
Illinois and Premier were adequate to cover such losses.
Based on the foregoing and such other factors as we deem relevant, it is our
opinion as investment bankers that, as of the date hereof, the terms of the
Merger are fair, from a financial point of view, to the stockholders of
Northern Illinois.
Very truly yours,
Prairie Capital Services, Inc.
D-2
<PAGE>
APPENDIX E
[LETTERHEAD OF THE CHICAGO CORPORATION]
July 9, 1996
Board of Directors
Premier Financial Services, Inc.
27 West Main Street
Freeport, IL 61032
Members of the Board:
You have requested our opinion as to the fairness of the merger
consideration (the "Merger Consideration"), from a financial point of view, to
the shareholders of Premier Financial Services, Inc. ("Premier") with respect
to the proposed merger of Premier and Northern Illinois Financial Corp.
("Northern Illinois") with and into Grand Premier Financial, Inc., a Delaware
corporation ("GPF"), which shall be the resulting corporation in the merger.
Premier has entered into an Agreement and Plan of Merger (the "Agreement"),
dated January 22, 1996 between Premier, Northern Illinois and GPF. As is set
forth in the Agreement, each outstanding share of common stock of Premier
shall be converted into the right to receive 1.116 shares of the common stock,
par value $0.01 per share, of GPF, (the "GPF Common Stock"). Each share of the
common stock of Northern Illinois issued and outstanding shall be converted
into the right to receive 4.25 shares of GPF Common Stock.
All of the shares of Premier Series A Perpetual Preferred Stock, Series B
Perpetual Preferred Stock, and Series D Perpetual Preferred Stock shall be
converted into the right to receive similar GPF securities. The conversion
feature of the Series B Perpetual Preferred Stock will entitle the holder to
receive 1.116 shares of GPF Common Stock per share of underlying Premier
common stock.
Each option granted by Premier to purchase shares of Premier common stock
which is outstanding and unexercised shall be converted automatically into an
option to purchase a number of shares of GPF Common Stock equal to the number
of shares of Premier common stock subject to the original option multiplied by
1.116, provided that any fractional shares of GPF Common Stock resulting from
such multiplication shall be rounded to the nearest whole share. The exercise
price per share of GPF Common Stock under the new option shall be equal to the
exercise price per share of Premier common stock under the original option
divided by 1.116, provided that such exercise price shall be rounded down to
the nearest whole cent.
During the course of our engagement, we have, among other things;
(1) reviewed the Agreement, both audited and unaudited recent financial
statements of Premier and Northern Illinois as provided to us, as well as
other internally generated Premier and Northern Illinois reports relating
to asset/liability management, asset quality and so forth;
(2) reviewed and analyzed other material bearing upon the financial and
operating condition of Premier and Northern Illinois and material prepared
in connection with the proposed transaction;
(3) reviewed the operating characteristics of certain other financial
institutions deemed relevant to the contemplated transaction;
(4) reviewed the nature and terms of recent sale and merger transactions
involving banks, thrifts, bank and thrift holding companies and other
financial institutions that we consider relevant;
(5) reviewed historical and current market data for Premier common stock;
(6) reviewed financial and other information provided to us by the
managements of Premier and Northern Illinois;
<PAGE>
(7) conducted meetings with members of the senior managements of Premier
and Northern Illinois for the purpose of reviewing the future prospects of
Premier and Northern Illinois;
(8) reviewed certain information including forecasts pertaining to
prospective cost savings and revenue enhancements relative to the proposed
transactions;
(9) evaluated the pro forma ownership of GPF common stock by Premier
shareholders, relative to the pro forma contribution of Premier's assets,
liabilities, equity and earnings to GPF.
The Chicago Corporation ("TCC"), as part of its investment banking business,
is continually engaged in the valuation of banks and bank holding companies
and thrifts and thrift holding companies in connection with mergers and
acquisitions as well as initial and secondary offerings of securities and
valuations for other purposes. TCC is a member of all principal U.S.
Securities exchanges and in the conduct of our broker-dealer activities may
from time to time purchase securities from, and sell securities to, Premier or
Northern Illinois and as a market maker buy or sell the equity securities of
Premier or Northern Illinois for our own account or for the accounts of
customers. Two affiliates of TCC manage limited partnerships which invest in
publicly traded securities of banking institutions, and TCC manages two group
trusts which invest in publicly traded securities of banking institutions.
Together, these investment pools, known as The Banc Funds, have reported
ownership of 133,528 shares of Premier common stock. In rendering this
fairness opinion we have been engaged by the Board of Directors of Premier and
will receive a fee from Premier for delivering this opinion to be used in
evaluating the proposed merger to the Board of Directors.
In rendering this opinion, we have relied upon, without independent
verification, the accuracy and completeness of the financial and other
information and representations provided to us by Premier and Northern
Illinois. We have relied upon the management of Premier and Northern Illinois
as to the reasonableness and achievability of the financial forecasts and
projections (and the assumptions and basis therefore) provided to us, and have
assumed that such forecasts and projections are the best available estimates
of management.
Based on the foregoing and our experience as investment bankers, we are of
the opinion that, as of the date hereof, the Merger Consideration to be paid
to the shareholders of Premier as described in the Agreement is fair from a
financial point of view.
Sincerely,
The Chicago Corporation
E-2
<PAGE>
APPENDIX F
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GRAND PREMIER FINANCIAL, INC.
ARTICLE 1
The name of the Corporation is: Grand Premier Financial, Inc.
ARTICLE 2
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is Corporation Service
Company.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware.
ARTICLE 4
The total number of shares of all classes of capital stock which the
Corporation has the authority to issue is 32,000,000 shares, which are divided
into two classes as follows:
(a) 2,000,000 shares of Preferred Stock with a par value of $.01 per
share (the "Preferred Stock"); and
(b) 30,000,000 shares of Common Stock with a par value of $.01 per share
(the "Common Stock").
The designations, voting powers, preferences and relative, participating,
optional or other special rights and qualifications, limitations or
restrictions of the above classes of stock are as follows:
Section 4.1 Preferred Stock. The Board of Directors is authorized, at any
time and from time to time, to provide for the issuance of shares of Preferred
Stock in one or more series with such designations, preferences, voting powers
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof as are stated and
expressed in the resolution or resolutions providing for the issuance of such
Preferred Stock adopted by the Board of Directors, and as are not stated and
expressed in this Amended and Restated Certificate of Incorporation
("Certificate of Incorporation") or any amendment thereto, including, but not
limited to, determination of any of the following:
(a) the distinctive serial designation and the number of shares
constituting a series;
(b) the dividend rate or rates, whether dividends are cumulative (and if
so on what terms and conditions), the payment date or dates for dividends
and the participating or other special rights, if any, with respect to
dividends;
(c) the voting rights, full or limited, if any, of the shares of the
series, which could include the right to elect a specified number of
directors in any case if dividends on the series are not paid for in a
specified period of time;
APPF-1
<PAGE>
(d) whether the shares of the series are redeemable and, if so, the price
or prices at which, and the terms and conditions on which, the shares may
be redeemed, which prices, terms and conditions may vary under different
conditions and at different redemption dates;
(e) the amount or amounts, if any, payable upon the shares of the series
in the event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation prior to any payment or distribution of the
assets of the Corporation to any class or classes of stock of the
Corporation ranking junior to the series;
(f) whether the shares of the series are entitled to the benefit of a
sinking or retirement fund to be applied to the purchase or redemption of
shares of the series and the amount of the fund and the manner of its
application, including the price or prices at which the shares of the
series may be redeemed or purchased through the application of the fund;
(g) whether the shares are convertible into, or exchangeable for, shares
of any other class or classes or of any other series of the same or any
other class or classes of stock of the Corporation and the conversion price
or prices, or the rates of exchange, and the adjustments thereof, if any,
at which the conversion or exchange may be made, and any other terms and
conditions of the conversion or exchange; and
(h) any other preferences, privileges and powers, and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions of a series, as the Board of Directors may deem
advisable and as are not inconsistent with the provisions of this
Certificate of Incorporation.
Section 4.2 Outstanding or Reserved For Issuance: Series B Perpetual
Preferred Stock. This section 4.2 hereby creates a series of Preferred Stock
and hereby states the designation and number of shares, and fixes the relative
powers, preferences and rights of such series.
4.2.1 Designation and Amount. The shares of such series shall be designated
as Series B Perpetual Preferred Stock (the "Series B Preferred Stock"), which
shall be a closed series consisting of 7,250 shares of cumulative perpetual
convertible preferred stock. The number of authorized shares of the Series B
Preferred Stock may not be increased or decreased. Each share of the Series B
Preferred Stock shall have a stated value of $1,000 per share (the "Series B
Stated Value").
4.2.2 Dividends.
4.2.2.1 Entitlement. The holders of the Series B Preferred Stock shall be
entitled to receive, as and when declared payable by the Board of Directors
from funds of the Company legally available for the payment thereof,
cumulative preferred dividends in lawful money of the United States of America
at the applicable rate fixed and determined as herein authorized, and no more,
payable quarterly on the last day of each March, June, September, and December
(the "Series B Dividend Payment Dates") in each year with respect to the
quarterly period beginning on the first day of each calendar quarter and
ending on each such respective payment date (the "Series B Dividend Period")
to stockholders of record on a date, to be fixed by the Board of Directors,
not exceeding forty (40) days preceding each Series B Dividend Payment Date.
Accumulations of dividends shall not bear interest. The initial dividend
payment for Series B Preferred Stock will accrue from the date such series is
issued (the "Series B Issue Date") and will be payable on the First Series B
Dividend Payment Date following such date. The annual rate of preferred
dividends on each share of Series B Preferred Stock shall be the product of
the applicable Series B Dividend Rate (as hereinafter described) and the
Series B Stated Value, payable in quarterly installments, provided, however,
that if any change in the Series B Dividend Rate shall occur the dividends
payable for that part of the Series B Dividend Period occurring prior to such
change shall be payable on the basis of the Series B Dividend Rate in effect
prior to such change and the dividends payable for that part of the Series B
Dividend Period from and after such change shall be payable on the basis of
the Series B Dividend Rate then becoming effective and such determination
shall be made on the basis of a thirty (30) day month and a 360 day year.
4.2.2.2 Series B Dividend Rate. The rate of preferred dividends per share of
the Series B Preferred Stock per annum based on the Series B Stated Value (the
"Series B Dividend Rate") shall be seven and one-half (7.5)
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percent for the period up to and including July 15, 1996, and eight (8)
percent thereafter commencing on July 16, 1996.
4.2.2.3 Cumulative and Perpetual. All dividends payable on account of the
Series B Preferred Stock shall be cumulative and shall be paid, from funds of
the Company legally available for the payment thereof, so long as any shares
of the Series B Preferred Stock are outstanding.
4.2.2.4 Restrictions on Dividend Payments. All shares of the Common Stock,
the Series C Preferred Stock, and the Junior Preferred Stock shall rank junior
to the Series B Preferred Stock as to dividends.
So long as any shares of the Series B Preferred Stock remain outstanding, no
dividend shall be paid or declared, or declared and set apart for payment, or
other distribution made, on the shares of any class of stock ranking, as to
dividend rights, junior to the Series B Preferred Stock, nor shall any shares
of any class of stock (or series thereof) of the Company ranking, as to
dividend rights, junior to, or on a parity with, the Series B Preferred Stock,
be purchased, redeemed or otherwise acquired for value by the Company, unless
all dividends, at the applicable rate, on the Series B Preferred Stock shall
have been declared and paid, or declared and set apart for payment, for all
past Series B Dividend Periods ending immediately prior to the date on which
such dividend, distribution, purchase, redemption or acquisition is to occur
and the then current Series B Dividend Period; provided, however, that the
foregoing restrictions shall not apply (a) to the declaration and payment, on
shares ranking junior to the Series B Preferred Stock as to dividend rights,
of dividends payable solely in shares of stock of any class of shares ranking
junior to the Series B Preferred Stock as to dividend rights, or (b) to the
acquisition of any shares ranking junior to, or on a parity with, the Series B
Preferred Stock as to dividend rights through application of the proceeds of
the issue and sale of any class of any shares ranking junior to, or on a
parity with, the Series B Preferred Stock as to dividend rights sold at or
about the time of such acquisition. No dividends shall be paid or declared, or
declared and set apart for payment, or other distribution made on any shares
of any class of stock (or series thereof) of the Company ranking, as to
dividend rights, on a parity with the Series B Preferred Stock for any
dividend period unless, at the same time, a like proportion of dividends for
the same or similar dividend period, ratably in proportion to the respective
annual dividend rate fixed therefor, shall be paid or declared, or declared
and set apart for payment, on all shares of Series B Preferred Stock.
4.2.3 Status of Reacquired Shares. The Company shall retire any of the
shares of the Series B Preferred Stock that are converted into shares of the
Common Stock pursuant to section 4.2.5, or that it repurchases or otherwise
acquires, and such shares shall not be reissued as shares of Series B
Preferred Stock but shall revert to authorized but unissued shares of
Preferred Stock and may be reissued as shares of a different series of
Preferred Stock in any future designation by the Board of Directors.
4.2.4 Restriction on Issuance of Additional Preferred Stock. So long as any
shares of the Series B Preferred Stock are outstanding, the Company shall not
issue any securities ranking senior to, or on a parity with, the Series B
Preferred Stock as to dividend rights or rights upon the liquidation,
dissolution or winding up of the Company, without the prior approval of the
holders of a majority of the Series B Preferred Stock.
4.2.5 Conversion.
4.2.5.1 Right of Conversion. Subject to the provisions for adjustment set
forth herein, each share of Series B Preferred Stock shall be convertible, at
the option of the holder thereof, in the manner hereinafter provided, into
fully paid and nonassessable shares of Common Stock at the conversion price,
determined as herein provided, in effect on the date of conversion, each share
of Series B Preferred Stock being credited at its Series B Stated Value. The
price at which shares of Common Stock shall be delivered upon conversion of
shares of Series B Preferred Stock (the "Series B Conversion Price") shall be
initially $8.51255 per share of Common Stock. The Series B Conversion Price
shall be adjusted in certain instances as provided in section 4.2.5.3 herein.
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4.2.5.2 Procedure for Conversion. Any holder of shares of Series B Preferred
Stock desiring to convert such shares into shares of Common Stock shall
surrender the certificate or certificates for the shares of Series B Preferred
Stock being converted, duly endorsed in blank or duly endorsed or assigned to
the Company, at the principal office of the Company or at a bank or trust
company appointed by the Company for that purpose, accompanied by a written
notice of conversion specifying the number of shares of Series B Preferred
Stock to be converted and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. If such
notice shall specify a name or names other than that of such holder, such
notice shall be accompanied by payment of all transfer taxes payable upon the
issue of shares of Common Stock in such name or names. If less than all of the
shares of Series B Preferred Stock represented by a certificate are to be
converted by a holder, the Company, upon such conversion, shall issue and
deliver, or cause to be issued and delivered, to such holder a certificate or
certificates for the shares of Series B Preferred Stock not so converted. The
holders of shares of Series B Preferred Stock at the close of business on the
record date fixed for a Series B Dividend Payment Date shall be entitled to
receive the dividend payable on such shares of Series B Preferred Stock on the
corresponding Series B Dividend Payment Date notwithstanding the subsequent
conversion thereof or the Company's default in payment of the dividend due on
such Series B Dividend Payment Date. However, shares of Series B Preferred
Stock surrendered for conversion during the period from the close of business
on any record date fixed for a Series B Dividend Payment Date for the Series B
Preferred Stock to the opening of business on the corresponding Series B
Dividend Payment Date must be accompanied by payment of an amount equal to the
dividend payable on such shares of Series B Preferred Stock on such Series B
Dividend Payment Date. A holder of shares of Series B Preferred Stock on a
record date fixed for a Series B Dividend Payment Date who (or whose
transferee) converts shares of Series B Preferred Stock on a Series B Dividend
Payment Date will receive the dividend payable on such shares of Series B
Preferred Stock by the Company on such date, and the converting holder need
not include payment in the amount of such dividend upon surrender of shares of
Series B Preferred Stock for conversion. Except as provided above, no payment
or adjustment will be made on account of unpaid dividends upon the conversion
of Series B Preferred Stock.
As promptly as practicable after the surrender of certificates for shares of
Series B Preferred Stock as aforesaid, the Company shall issue and shall
deliver at such office to such holder, or on his or her written order, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with the provisions
of this section 4.2.5, and any fractional interest in respect of a share of
Common Stock arising upon such conversion shall be promptly settled as
provided in section 4.2.5.6.
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for shares of
Series B Preferred Stock shall have been surrendered and such notice received
by the Company as aforesaid; the shares of Series B Preferred Stock so
surrendered for conversion shall no longer be deemed to be outstanding and all
rights with respect to such shares of Series B Preferred Stock shall cease,
except the right of the holders thereof to receive full shares of Common Stock
in exchange therefor, payment of dividends as provided in the first paragraph
of this section 4.2.5.2 and payment for any fractional shares; and the person
or persons in whose name or names any certificate or certificates for shares
of Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby at
such time on such date. All shares of Common Stock delivered upon conversions
of the Series B Preferred Stock will upon delivery be duly and validly issued
and fully paid and nonassessable.
4.2.5.3 Adjustments of the Series B Conversion Price.
(A) The Series B Conversion Price shall be adjusted from time to time as
follows:
(A).1 In case the Company shall pay or make a dividend or other distribution
on any class of capital stock of the Company in shares of Common Stock, the
Series B Conversion Price in effect at the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying
such Series B Conversion Price by a fraction of which the
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numerator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination and the denominator
shall be the sum of such number of shares and the total number of shares
constituting such dividend or other distribution, such reduction to become
effective immediately after the opening of business on the day following the
date fixed for such determination.
(A).2 In case the Company shall issue rights or warrants entitling any
person to subscribe for or purchase Common Stock at a price per share less
than the current market price per share (determined as provided in section
4.2.5.3(B) herein) of the Common Stock on the date fixed for the determination
of the persons entitled to receive such rights or warrants, the Series B
Conversion Price in effect at the opening of business on the day following the
date fixed for such determination shall be reduced by multiplying such Series
B Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered for subscription or purchase would purchase at such current market
price and the denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock so offered for subscription or
purchase, such reduction to become effective immediately after the opening of
business on the day following the date fixed for such determination.
Notwithstanding the foregoing, in the event that the Company shall distribute
or shall have distributed any rights or warrants to acquire capital stock
("Rights") pursuant to this section 4.2.5.3(A).2, the distribution of separate
certificates representing the Rights subsequent to their initial distribution
(whether or not the initial distribution of the Rights shall have occurred
prior to the date of the issuance of the Series B Preferred Stock) shall be
deemed to be the distribution of the Rights for purposes of this section
4.2.5.3(A).2; provided that the Company may, in lieu of making any adjustment
pursuant to this section 4.2.5.3(A).2 upon a distribution of separate
certificates representing the Rights, make proper provision so that each
holder of Series B Preferred Stock who converts such Series B Preferred Stock
(or any portion thereof) (A) before the record date for such distribution of
separate certificates shall be entitled to receive upon conversion shares of
Common Stock issued with Rights and (B) after such record date and prior to
the expiration, redemption or termination of the Rights shall be entitled to
receive upon conversion, in addition to the shares of Common Stock issuable
upon conversion, the same number of Rights as would a holder of the number of
shares of Common Stock that such Series B Preferred Stock so converted would
have entitled the holder thereof to purchase in accordance with the terms and
provisions applicable to the Rights if such Series B Preferred Stock were
converted immediately prior to the record date for such distribution. Common
Stock owned by or held for the account of the Corporation or any majority
owned subsidiary shall not be deemed outstanding for the purpose of any
adjustment required under this section 4.2.5.3(A).2.
(A).3 In case the Company shall, by dividend or otherwise, distribute to
any holder of the Company's securities evidences of indebtedness or assets
(including securities, but excluding any rights or warrants referred to in
section 4.2.5.3(A).2, any dividend or distribution paid in cash out of the
surplus of the Company and any dividend or distribution referred to in
section 4.2.5.3(A).1 herein), the Series B Conversion Price shall be
adjusted so that the same shall equal the price determined by multiplying
the Series B Conversion Price in effect immediately prior to the close of
business on the date fixed for the determination of stockholders entitled
to receive such distribution by a fraction of which the numerator shall be
the current market price per share (determined as provided in section
4.2.5.3(B) herein) of the Common Stock on the date fixed for such
determination, less the then fair market value (as determined by the Board,
whose determination shall be conclusive) of the portion of the assets or
evidences of indebtedness so distributed allocable to one share of Common
Stock, and the denominator shall be such current market price per share of
Common Stock, such adjustment to become effective immediately prior to the
opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such distribution.
(A).4 In case the outstanding shares of Common Stock shall be subdivided
into a greater number of shares, the Series B Conversion Price in effect at
the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and,
conversely, in case the
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outstanding shares of Common Stock shall each be combined into a smaller
number of shares, the Series B Conversion Price in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase,
as the case may be, to become effective immediately after the opening of
business on the day following the day upon which such subdivision or
combination becomes effective.
(A).5 The reclassification of Common Stock into securities other than
Common Stock (other than any reclassification upon a consolidation or
merger to which section 4.2.5.3(E) applies) shall be deemed to involve (a)
a distribution of such securities other than Common Stock to all holders of
Common Stock (and the effective date of such reclassification shall be
deemed to be "the date fixed for the determination of stockholders entitled
to receive such distribution" and the "date fixed for such determination"
within the meaning of section 4.2.5.3(A).3), and (b) a subdivision or
combination, as the case may be, of the number of shares of Common Stock
outstanding immediately prior to such reclassification into the number of
shares of Common Stock outstanding immediately thereafter (and the
effective date of such reclassification shall be deemed to be "the day upon
which such subdivision becomes effective," or "the day upon which such
combination becomes effective," as the case may be, and "the day upon which
such subdivision or combination becomes effective," within the meaning of
section 4.2.5.3(A).4).
(B) For the purpose of any computation under sections 4.2.5.3(A).2 and
4.2.5.3(A).3, the current market price per share of Common Stock on any day
shall be deemed to be the average of the average bid and asked price per share
for the Common Stock, as reported on The Nasdaq Stock Market's National Market
("Nasdaq-NMS") for 30 consecutive trading days immediately preceding the day
in question.
(C) Notwithstanding the provisions of section 4.2.5.3(A) above, no
adjustment in the Series B Conversion Price shall be required unless such
adjustment (plus any adjustments not previously made by reason of this section
4.2.5.3(C)) would require an increase or decrease of at least 1% in such
price; provided, however, that any adjustments which by reason of this section
4.2.5.3(C) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this section
4.2.5.3 shall be made to the nearest cent.
(D) The Company may make such reductions in the Series B Conversion Price,
in addition to those required by this section 4.2.5.3, as it considers to be
advisable in order to avoid or diminish any income tax to any holder of shares
of Common Stock resulting from any dividend or distribution of stock or
issuance of rights or warrants to purchase or subscribe for stock or from any
event treated as such for income tax purposes or for any other reasons.
(E) In case the Corporation shall effect any capital reorganization of the
Common Stock (other than a subdivision, combination, capital reorganization or
reclassification provided for in section 4.2.5.3(A)) or shall consolidate,
merge or engage in a statutory share exchange with or into any other
corporation (other than a consolidation, merger or share exchange in which the
Company is the surviving corporation and each share of Common Stock
outstanding immediately prior to such consolidation or merger is to remain
outstanding immediately after such consolidation or merger) or shall sell or
transfer all or substantially all its assets to any other corporation, lawful
provision shall be made as a part of the terms of such transaction whereby the
holders of Series B Preferred Stock shall receive upon conversion thereof, in
lieu of each share of Common Stock which would have been issuable upon
conversion of such stock if converted immediately prior to the consummation of
such transaction, the same kind and amount of stock (or other securities, cash
or property, if any) as may be issuable or distributable in connection with
such transaction with respect to each share of Common Stock outstanding at the
effective time of such transaction, subject to subsequent adjustments for
subsequent stock dividends and distributions, subdivisions or combination of
shares, capital reorganization, reclassifications, consolidations, mergers or
share exchanges, as nearly equivalent as possible to the adjustments provided
for in this section 4.2.5.3.
(F) Whenever the Series B Conversion Price is adjusted as herein provided, a
notice stating that the Series B Conversion Price has been adjusted and
setting forth the adjusted Series B Conversion Price shall, as soon as
practicable, be mailed to the holders of record of outstanding shares of
Series B Preferred Stock.
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(G) In case:
(G).1 the Company shall declare a dividend or other distribution on the
Common Stock otherwise than in cash out of its surplus;
(G).2 the Company shall authorize the granting to the holders of the
Common Stock of rights or warrants entitling them to subscribe for or
purchase any shares of capital stock of any class or of any other rights;
(G).3 of any reclassification of the Common Stock (other than a
subdivision or combination of outstanding shares of Common Stock), or of
any consolidation, merger or share exchange to which the Company is a party
and for which approval of any stockholders of the Company is required, or
of the sale or transfer of all or substantially all the assets of the
Company; or
(G).4 of the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation;
then the Company shall cause to be mailed to the holders of record of the
outstanding shares of Series B Preferred Stock, at least 20 days (or 10 days
in any case specified in sections 4.2.5.3(G).1 or 4.2.5.3(G).2 above) prior to
the applicable record or effective date hereinafter specified, a notice
stating (a) the date as of which the holders of record of shares of Common
Stock to be entitled to such dividend, distribution, rights or warrants is to
be determined, or (b) the date on which such reclassification, consolidation,
merger, share exchange, sale, transfer, liquidation, dissolution or winding up
is expected to become effective and the date as of which it is expected that
holders of record of Common Stock shall be entitled to exchange their shares
for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, share exchange, sale, transfer,
liquidation, dissolution or winding up. Such notice shall also state whether
such transaction will result in any adjustment in the Series B Conversion
Price applicable to the Series B Preferred Stock and, if so, shall state what
the adjusted Series B Conversion Price will be and when it will become
effective. Neither the failure to give the notice required by this section
4.2.5.3(G), nor any defect therein, to any particular holder shall affect the
sufficiency of the notice or the legality or validity of the proceedings
described in sections 4.2.5.3(G).1 through 4.2.5.3(G).4.
4.2.5.4 Reservation of Shares Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, for the purpose of issuance upon conversion of Series B
Preferred Stock, the full number of shares of Common Stock then issuable upon
the conversion of all shares of Series B Preferred Stock then outstanding and
shall take all action necessary so that shares of Common Stock so issued will
be validly issued, fully paid and nonassessable.
4.2.5.5 Allocation of Costs. The Company will pay any and all stamp or
similar taxes that may be payable in respect of the issuance or delivery of
shares of Common Stock on conversion of Series B Preferred Stock. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of shares of Common
Stock in a name other than that in which the shares of Series B Preferred
Stock so converted were registered, and no such issuance or delivery shall be
made unless and until the person requesting such issuance has paid to the
Company the amount of any such tax or has established to the satisfaction of
the Company that such tax has been paid.
4.2.5.6 Payment in Lieu of Fractional Shares. No fractional shares or scrip
representing fractional shares of Common Stock shall be issued upon the
conversion of Series B Preferred Stock. If any such conversion would otherwise
require the issuance of such a fractional share, an amount equal to such
fraction multiplied by the average of the average bid and asked price per
share for the Common Stock, as reported on Nasdaq-NMS for 30 consecutive
trading days immediately preceding the date of conversion, shall be paid to
the holder in cash by the Company.
4.2.5.7 Approval of Conversion. Conversion of shares of the Series B
Preferred Stock held of record by Thomas D. Flanagan may be converted into
shares of Common Stock pursuant to this section 4.2.5 only if the conversion
has received the prior approval of the Board of Governors of the Federal
Reserve System or, where
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permitted to be approved by a Federal Reserve Bank, the prior approval of the
appropriate Federal Reserve Bank, unless at the time of such redemption, such
prior approval shall not be required under applicable laws, rules or
regulations, or order of said Board of Governors.
4.2.6 Liquidation Preference. In the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Company, each holder of the
Series B Preferred Stock shall be entitled to receive out of the assets of the
Company available for distribution to stockholders, after payment in full of
all amounts owing to the holders of all shares of all classes or series of
stock having rights senior to the Series B Preferred Stock upon the
liquidation, dissolution or winding up of the Company, an amount per share
equal to, but no more than, the Series B Stated Value per share of each share
of Series B Preferred Stock held by such holder, including all accrued and
unpaid dividends, whether or not declared, to and including the date of the
voluntary or involuntary liquidation, dissolution or winding up of the
Company. Until payment to the holders of the Series B Preferred Stock of all
amounts owing as aforesaid, or until money or other assets sufficient for such
payment shall have been set apart from its other funds and assets for payment
by the Company, for the account of such holders, so as to be and continue to
be available for payment to such holders, no payment or distribution upon such
liquidation, dissolution or winding up shall be made to holders of shares
ranking junior to, or on a parity with, the Series B Preferred Stock as to
rights upon the liquidation, dissolution or winding up of the Company. The
Common Stock and the Junior Preferred Stock shall be junior to the Series B
Preferred Stock as to rights upon the liquidation, dissolution or liquidation
or winding up of the Company. The Series C Preferred Stock shall be on a
parity with the Series B Preferred Stock with respect to the right to receive
payment or distribution upon the liquidation, dissolution or liquidation or
winding up of the Company. If upon any such liquidation, dissolution or
winding up, the assets of the Company available for payment and distribution
to stockholders are insufficient to make payment in full, as hereinabove
provided, to the holders of the Series B Preferred Stock and the holders of
all other shares of Preferred Stock which rank on a parity with the Series B
Preferred Stock as to rights upon the liquidation, dissolution or winding up
of the Company, payment shall be made to such holders ratably in accordance
with the liquidation value of shares held by them, respectively.
Neither a consolidation nor merger of the Company with or into any other
corporation, nor a merger of any other corporation into the Company, nor the
purchase or redemption of all or any part of the outstanding shares of any
class or classes of stock of the Company, nor the sale or transfer of
properties of the Company substantially as an entirety, shall be construed to
be a liquidation, dissolution or winding up of the Company within the meaning
of the foregoing provisions.
4.2.7 Business Combinations and Other Transactions. The Corporation shall
not effect a merger, consolidation, reorganization, recapitalization or
similar transaction or an exchange of securities with another party unless,
following such merger, consolidation, reorganization, recapitalization,
similar transaction or exchange of securities, (i) the Series B Preferred
Stock will remain issued and outstanding, or (ii) provision shall have been
made for the issuance to the holders of the Series B Preferred Stock of
another series of preferred stock with powers, preferences and special rights
substantially identical to those of the Series B Preferred Stock.
4.2.8 Voting of Series B Preferred Stock. The holders of the Series B
Preferred Stock shall have no right to vote upon any matter except as shall be
affirmatively provided in the Delaware General Corporation Law.
Section 4.3 Outstanding or Reserved for Issuance: Series C Perpetual
Preferred Stock. This section 4.3 hereby creates a series of Preferred Stock
and hereby states the designation and number of shares, and fixes the relative
powers, preferences and rights of such series.
4.3.1 Designation and Amount. The shares of such series shall be designated
as Series C Perpetual Preferred Stock (the "Series C Preferred Stock"), which
shall be a closed series consisting of 2,000 shares of cumulative perpetual
preferred stock. The number of authorized shares of Series C Preferred Stock
may not be increased or decreased. Each share of the Series C Preferred Stock
shall have a stated value of $1,000 per share (the "Series C Stated Value").
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4.3.2 Dividends.
4.3.2.1 Entitlement. The holders of Series C Preferred Stock shall be
entitled to receive, as and when declared payable by the Board of Directors
from funds of the Company legally available for the payment thereof,
cumulative preferred dividends in lawful money of the United States of America
at the applicable rate fixed and determined as herein authorized, and no more,
payable quarterly on the last day of each March, June, September, and December
(the "Series C Dividend Payment Dates") in each year with respect to the
quarterly period beginning on the first day of each calendar quarter and
ending on each such respective payment date (the "Series C Dividend Period")
to stockholders of record on a date, to be fixed by the Board of Directors,
not exceeding forty (40) days preceding each Series C Dividend Payment Date.
Accumulations of dividends shall not bear interest. The initial dividend
payment for Series C Preferred Stock will accrue from the date such series is
issued (the "Series C Issue Date") and will be payable on the first Series C
Dividend Payment Date following such date. The annual rate of preferred
dividends on each share of Series C Preferred Stock shall be the product of
the applicable Series C Dividend Rate (as hereinafter described) and the
Series C Stated Value, payable in quarterly installments, provided, however,
that if any change in the Series C Dividend Rate shall occur the dividends
payable for that part of the Series C Dividend Period occurring prior to such
change shall be payable on the basis of the Series C Dividend Rate in effect
prior to such change and the dividends payable for that part of the Series C
Dividend Period from and after such change shall be payable on the basis of
the Series C Dividend Rate then becoming effective and such determination
shall be made on the basis of a thirty (30) day month and a 360 day year.
4.3.2.2 Series C Dividend Rate. The rate of preferred dividends per share of
the Series C Preferred Stock per annum based on the Series C Stated Value (the
"Series C Dividend Rate") shall be the same rate applicable to shares of the
Series B Preferred Stock of the Company.
4.3.2.3 Cumulative and Perpetual. Dividends payable on account of the Series
C Preferred Stock shall be cumulative and shall be paid, from funds of the
Company legally available for the payment thereof, so long as any shares of
the Series C Preferred Stock are outstanding.
4.3.2.4 Restrictions on Dividend Payments. All shares of the Common Stock
and Junior Preferred Stock shall rank junior to the Series C Preferred Stock
as to dividends. The Series B Preferred Stock shall rank senior to the Series
C Preferred Stock as to dividends.
So long as any shares of the Series C Preferred Stock remain outstanding, no
dividend shall be paid or declared, or declared and set apart for payment, or
other distribution made, on the shares of any class of stock ranking, as to
dividend rights, junior to the Series C Preferred Stock, nor shall any shares
of any class of stock (or series thereof) of the Company ranking, as to
dividend rights, junior to, or on a parity with, the Series C Preferred Stock,
be purchased, redeemed or otherwise acquired for value by the Company, unless
dividends on the Series C Preferred Stock shall have been declared and paid,
or declared and set apart for payment, for all past Series C Dividend Periods
ending immediately prior to the date on which such dividend, distribution,
purchase, redemption or acquisition is to occur and the then current Series C
Dividend Period; provided, however, that the foregoing restrictions shall not
apply (a) to the declaration and payment, on shares ranking junior to the
Series C Preferred Stock as to dividend rights, of dividends payable solely in
shares of stock of any class of shares ranking junior to the Series C
Preferred Stock as to dividend rights or, (b) to the acquisition of any shares
ranking junior to, or on a parity with, the Series C Preferred Stock as to
dividend rights through application of the proceeds of the issue and sale of
any class of any shares ranking junior to, or on a parity, with the Series C
Preferred Stock as to dividend rights sold at or about the time of such
acquisition. No dividends shall be paid or declared, or declared and set apart
for payment, or other distribution made on any shares of any class of stock
(or series thereof) of the Company ranking, as to dividend rights, on a parity
with the Series C Preferred Stock for any dividend period unless, at the same
time, a like proportion of dividends for the same or similar dividend period,
ratably in proportion to the respective annual dividend rate fixed therefor,
shall be paid or declared, or declared and set apart for payment, on all
shares of Series C Preferred Stock.
APPF-9
<PAGE>
4.3.3 Status of Reacquired Shares. The Company shall retire any of the
shares of the Series C Preferred Stock that are converted into cash pursuant
to section 4.3.5, or that it repurchases or otherwise acquires, and such
shares shall not be reissued as shares of Series C Preferred Stock but shall
revert to authorized but unissued shares of Preferred Stock and may be
reissued as shares of a different series of Preferred Stock in any future
designation by the Board of Directors.
4.3.4 Restriction on Issuance of Additional Preferred Stock. So long as any
shares of the Series C Preferred Stock are outstanding, the Company shall not
issue any securities ranking senior to, or on a parity with, the Series C
Preferred Stock as to dividend rights or rights upon the liquidation,
dissolution or winding up of the Company without the prior approval of the
holders of a majority of the Series C Preferred Stock.
4.3.5 Change of Control. In the event of a Change of Control of the Company
as hereinafter defined that is not approved by the holders of a majority of
the outstanding shares of the Series C Preferred Stock and upon the approval
of the holders of a majority of the outstanding shares of Series C Preferred
Stock, the shares of Series C Preferred Stock then outstanding shall convert
into the right to receive a cash payment, effective as of the effective date
of such Change of Control, (the "Change of Control Effective Date"), equal to
the sum of (1) the value of the consideration exchanged or paid in connection
with the Change of Control for such whole number of shares of Common Stock
into which the shares of Series C Preferred Stock outstanding on the Change of
Control Effective Date would be convertible if such shares were at the time
shares of Series B Preferred Stock, and (2) the amount that would have been
payable in lieu of fractional shares to a holder of such number of shares of
Series B Preferred Stock upon conversion into Common Stock. For purposes of
this section 4.3.5 a "Change of Control" shall mean any merger, consolidation,
reorganization, recapitalization or similar transaction, a tender offer by or
exchange of securities with another party, or a combination of the foregoing,
wherein another party or its affiliates shall acquire voting securities of the
Company which, together with voting securities already owned by such party or
affiliates, exceeds 50% of the voting power of the Company entitled to vote in
the election of directors of the Company. Any consideration paid in a Change
of Control other than cash shall be valued for purposes of the this section
4.3.5 on the same basis that it was valued in good faith by the Board of
Directors of the Company in taking any action on or with respect to the Change
of Control.
4.3.6 Liquidation Preference. In the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Company, each holder of the
Series C Preferred Stock shall be entitled to receive out of the assets of the
Company available for distribution to stockholders, after payment in full of
all amounts owing to the holders of all shares of all classes or series of
stock having rights senior to the Series C Preferred Stock upon the
liquidation, dissolution or winding up of the Company, an amount per share
equal to, but no more than, the Series C Stated Value per share of each share
of Series C Preferred Stock, including all accrued and unpaid dividends,
whether or not declared, to and including the date of the voluntary or
involuntary liquidation, dissolution or winding up of the Company. Until
payment to the holders of the Series C Preferred Stock of all amounts owing as
aforesaid, or until money or other assets sufficient for such payment shall
have been set apart from its other funds and assets for payment by the
Company, for the account of such holders, so as to be and continue to be
available for payment to such holders, no payment or distribution upon such
liquidation, dissolution or winding up shall be made to holders of shares
ranking junior to, or on a parity with, the Series C Preferred Stock as to
rights upon the liquidation, dissolution or winding up. The Common Stock and
the Junior Preferred Stock shall be junior to the Series C Preferred Stock as
to rights upon the liquidation, dissolution or liquidation or winding up of
the Company. The Series B Preferred Stock shall be on a parity with the Series
C Preferred Stock with respect to the right to receive payment or distribution
upon the liquidation, dissolution or liquidation or winding up of the Company.
If upon any such liquidation, dissolution or winding up, the assets of the
Company available for payment and distribution to stockholders are
insufficient to make payment in full, as hereinabove provided, to the holders
of the Series C Preferred Stock and the holders of all other shares of
Preferred Stock which rank on a parity with the Series C Preferred Stock as to
rights upon the liquidation, dissolution or winding up of the Company, payment
shall be made to such holders ratably in accordance with the liquidation value
of shares held by them, respectively.
APPF-10
<PAGE>
Neither a consolidation nor merger of the Company with or into any other
corporation, nor a merger of any other corporation into the Company, nor the
purchase or redemption of all or any part of the outstanding shares of any
class or classes of stock of the Company, nor the sale or transfer of
properties of the Company substantially as an entirety, shall be construed to
be a liquidation, dissolution or winding up of the Company within the meaning
of the foregoing provisions.
4.3.7 Business Combinations and Other Transactions. The Corporation shall
not effect a merger, consolidation, reorganization, recapitalization or
similar transaction or an exchange of securities with another party unless,
following such merger, consolidation, reorganization, recapitalization,
similar transaction or exchange of securities, (i) the Series C Preferred
Stock will remain issued and outstanding, (ii) provision shall have been made
for the issuance to the holders of the Series C Preferred Stock of another
series of preferred stock with powers, preferences and special rights
substantially identical to those of the Series C Preferred Stock, or (iii) the
holders of a majority of the outstanding shares of the Series C Preferred
Stock shall have approved the conversion of the outstanding shares of Series C
Preferred Stock into the right to receive a cash payment in accordance with
section 4.3.5.
4.3.8 Voting of Series C Preferred Stock. The holders of the Series C
Preferred Stock shall have no right to vote upon any matter except as shall be
affirmatively provided in the Delaware General Corporation Law.
Section 4.4 Outstanding or Reserved for Issuance: Series I Junior
Participating Preferred Stock. This section 4.4 hereby creates a series of
Preferred Stock and hereby states the designation and number of shares, and
fixes the relative powers, preferences and rights of such series.
4.4.1 Designation and Amount. The shares of such series shall be designated
as "Series I Junior Participating Preferred Stock" (the "Junior Preferred
Stock") and the number of shares constituting the Junior Preferred Stock shall
be 300,000. Such number of shares may be increased or decreased by resolution
of the Board of Directors; provided, that no decrease shall reduce the number
of shares of Junior Preferred Stock to a number less than the number of shares
then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants for the purchase of, or
the conversion of any outstanding securities issued by the Corporation
convertible into, shares of Junior Preferred Stock.
4.4.2 Dividends Rights. Subject to the rights of the holders of any shares
of any series of Preferred Stock (or any similar shares) ranking prior and
senior to the Junior Preferred Stock with respect to dividends, the holders of
Junior Preferred Stock, in preference to the holders of Common Stock and of
any other junior stock, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable on the last day of each March, June, September,
and December of each year (each such date occurring after the first issuance
of a share or a fraction of a share of Junior Preferred Stock being referred
to herein as a "Junior Preferred Dividend Payment Date"), commencing after the
first issuance of a share or fraction of a share of Junior Preferred Stock, in
an amount per share (rounded to the nearest cent) equal to the greater of (a)
$10 per quarter or (b) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend payable in Common
Stock or a subdivision of the outstanding Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Junior Preferred Dividend Payment Date or, with respect to the first Junior
Preferred Dividend Payment Date, since the first issuance of any share or
fraction of a share of Junior Preferred Stock. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding Common Stock (by reclassification or otherwise than by payment of
a dividend in Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the multipliers set out in clause (b) of
the preceding sentence (i.e., 100, as further adjusted as hereinafter
described) in effect immediately prior to such event shall automatically be
adjusted upon the occurrence of such event by multiplying such multipliers by
a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
APPF-11
<PAGE>
The Corporation shall declare a dividend or distribution on the Junior
Preferred Stock as provided in this section 4.4.2 immediately after it declares
a dividend or distribution on the Common Stock (other than a dividend payable
in Common Stock); provided that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any Junior
Preferred Dividend Payment Date (or the date of the first issuance of a share
or a fraction of a share of Junior Preferred Stock) and the next subsequent (or
first) Junior Preferred Dividend Payment Date, a dividend of $10 per share on
the Junior Preferred Stock shall nevertheless be payable on such subsequent (or
first) Junior Preferred Dividend Payment Date.
Dividends shall begin to accrue and be cumulative on outstanding Junior
Preferred Stock from the Junior Preferred Dividend Payment Date next preceding
the date of issue of such shares, unless the date of issue of such shares is
prior to the record date for the first Junior Preferred Dividend Payment Date,
in which case dividends on such shares shall begin to accrue from the date of
issue of such shares, or unless the date of issue is a Junior Preferred
Dividend Payment Date or is a date after the record date for the determination
of holders of Junior Preferred Stock entitled to receive a quarterly dividend
and before such Junior Preferred Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such Junior
Preferred Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the Junior Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date
for the determination of holders of Junior Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record date shall
be not more than sixty (60) days prior to the date fixed for the payment
thereof.
4.4.3 Redemption. The Junior Preferred Stock shall not be redeemable.
4.4.4 Conversion. The Junior Preferred Stock shall not be convertible into
Common Stock or shares of any other series of Preferred Stock unless the terms
of any such series provide otherwise.
4.4.5 Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, no distribution shall be made,
(a) to the holders of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the holders of Junior Preferred
Stock unless, prior thereto, the holders of Junior Preferred Stock shall have
received from the assets of the Corporation a preferential amount equal to
$2,725 per share plus all accrued and unpaid dividends thereon, whether or not
declared, to the date of payment, provided that the holders of Junior Preferred
Stock shall be entitled to receive an aggregate amount per share, subject to
the provision for adjustment hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of Common Stock, or (b)
to the holders of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Junior Preferred Stock, except
distributions made ratably on the Junior Preferred Stock and all such parity
stock in proportion to the total amounts to which the holders of all such stock
are entitled upon such liquidation, dissolution or winding up. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in Common Stock, or effect a subdivision or combination or
consolidation of the outstanding Common Stock (by reclassification or otherwise
than by payment of a dividend in Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the multipliers set out in
the proviso in clause (a) of the preceding sentence (i.e., 100, as further
adjusted as hereinafter described) in effect immediately prior to such event
shall automatically be adjusted upon the occurrence of such event by
multiplying such multipliers by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
4.4.6 Voting. Except as provided herein or as may be required by law, holders
of Junior Preferred Stock shall have no voting rights and their consent shall
not be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
In addition to any other voting rights as a separate class or otherwise to
which the holders of Junior Preferred Stock may be entitled by law and subject
to the provision for adjustment hereinafter set forth, each
APPF-12
<PAGE>
share of Junior Preferred Stock shall entitle the holder thereof to 100 votes
on all matters submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in Common Stock, or effect a subdivision or combination
or consolidation of the outstanding Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the number of
votes per share to which holders of Junior Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such number
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
Except as otherwise provided herein, in any other provisions of the
Certificate of Incorporation creating a series of Preferred Stock or any
similar stock, or by law, the holders of Junior Preferred Stock and the
holders of Common Stock and any other capital stock of the Corporation having
general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
4.4.7 Certain Restrictions.
4.4.7.1 Whenever quarterly dividends or other dividends or distributions
payable on the Junior Preferred Stock as provided in this section 4.4.7 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on Junior Preferred Stock outstanding
shall have been paid in full, the Corporation shall not:
(a) declare or pay dividends, or make any other distributions, on any
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock;
(b) declare or pay dividends, or make any other distributions, on any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Junior Preferred Stock, except
dividends paid ratably on the Junior Preferred Stock and all such parity
stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such stock are then entitled;
(c) redeem or purchase or otherwise acquire for consideration any stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Junior Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares of any such
junior stock in exchange for any shares of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up) to
the Junior Preferred Stock; or
(d) redeem or purchase or otherwise acquire for consideration any Junior
Preferred Stock, or any stock ranking on a parity with the Junior Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of
such stock upon such terms as the Board of Directors, after consideration
of the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective
series or classes.
4.4.7.2 The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any stock of the
Corporation unless the Corporation could, under section 4.4.7.1, purchase or
otherwise acquire such stock at such time and in such manner.
4.4.8 Consolidation, Merger, etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the
Common Stock is exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case each share of Junior
Preferred Stock shall at the same time be similarly exchanged or changed into
an amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in Common Stock, or effect a subdivision or combination or
consolidation of the outstanding Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the multiplier
set out in the preceding sentence (i.e.,
APPF-13
<PAGE>
100, as further adjusted as hereinafter described) in effect immediately prior
to such event shall automatically be adjusted upon the occurrence of such
event by multiplying such multiplier by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
4.4.9 Priorities. So long as any Junior Preferred Stock remains outstanding,
the Corporation shall not, without the affirmative vote of the holders of at
least 80% of the outstanding Junior Preferred Stock, voting together as a
single class, amend, alter or repeal any of the provisions of this Certificate
of Incorporation so as adversely to affect the preferences, limitations and
relative rights of Junior Preferred Stock. So long as any Junior Preferred
Stock remains outstanding, Junior Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets, junior to any series
of any class of Preferred Stock or any other series of any other class of
Preferred Stock, unless the terms of any such series shall provide otherwise.
4.4.10 Status of Reacquired Shares. The Corporation shall retire and cancel
any shares of Junior Preferred Stock that it purchases or otherwise acquires
in any manner whatsoever. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part
of a new series of Preferred Stock subject to the conditions and restrictions
on issuance set forth in the Certificate of Incorporation creating a series of
Preferred Stock or as otherwise required by law.
Section 4.5 Common Stock.
4.5.1 Dividends. Subject to the preferential rights of the Preferred Stock,
the holders of the Common Stock are entitled to receive, to the extent
permitted by law, such dividends as may be declared from time to time by the
Board of Directors.
4.5.2 Liquidation. In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding up of the Corporation, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of shares of Preferred Stock, holders of Common Stock shall
entitled to receive all of the remaining assets of the Corporation of whatever
kind available for distribution to stockholders ratably in proportion to the
number of shares of Common Stock held by them respectively. The Board of
Directors may distribute in kind to the holders of Common Stock such remaining
assets of the Corporation or may sell, transfer or otherwise dispose of all or
any part of such remaining assets to any other corporation, trust or other
entity and receive payment therefor in cash, stock or obligations of such
other corporation, trust or other entity, or any combination hereof, and may
sell all or any part of the consideration so received and distribute any
balance thereof in kind to holders of Common Stock. Neither the merger or
consolidation of the Corporation into or with any other corporation or
corporations, nor the purchase or redemption of shares of stock of the
Corporation of any class, nor the sale or transfer by the Corporation of all
or any part of its assets, nor the reorganization or recapitalization of the
Corporation, shall be deemed to be a dissolution, liquidation or winding up of
the Corporation for the purposes of this paragraph.
4.5.3 Voting Rights. Except as may be otherwise required by law or this
Certificate of Incorporation, each holder of Common Stock has one vote in
respect of each share of stock held by the holder of record on the books of
the Corporation on all matters voted upon by the stockholders.
Section 4.6 Other Provisions.
4.6.1 No Preemptive Rights. No stockholder shall have any preemptive right
to subscribe to an additional issue of stock, whether now or hereafter
authorized, of any class or series or to any securities of the Corporation
convertible into such stock.
4.6.2 Changes in Authorized Capital Stock. Any amendment to this Certificate
of Incorporation which increases or decreases the authorized capital stock of
any class or classes may be made only by the affirmative vote of the holders
of a majority of the outstanding shares of all classes of stock of the
Corporation generally entitled to vote in the election of directors,
considered for purposes of this section 4.6.2 as one class; provided, however,
that so long as any shares of Series B Preferred Stock or Series C Preferred
Stock remain outstanding, any amendment to this Certificate of Incorporation
which increases or decreases the authorized Preferred Stock must be approved
by the holders of such outstanding shares of the Series B Preferred Stock and
the Series C Preferred Stock, voting as a class.
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<PAGE>
4.6.3 Unclaimed Dividends. Any and all right, title, interest and claim in
or to any dividends declared by the Corporation, whether in cash, stock, or
otherwise, which are unclaimed by the stockholder entitled thereto for a
period of six years after the close of business on the payment date, shall be
and be deemed to be extinguished and abandoned; and such unclaimed dividends
in the possession of the Corporation, its transfer agents or other agents or
depositaries shall at such time become the absolute property of the
Corporation, free and clear of any and all claims of any persons whatsoever.
ARTICLE 5
Section 5.1 Number, Election and Terms of Directors. The business and
affairs of the Corporation shall be managed by or under the direction of a
Board of Directors. Until the annual meeting of stockholders to be held in
1999 the number of directors comprising the full Board of Directors shall be
sixteen (16) and shall not be increased or decreased except by amendment to
this Article 5. After the annual meeting of stockholders to be held in 1999,
the number of directors shall be not less than ten (10) nor more than twenty
(20) with the exact number to be specified from time to time by a resolution
adopted by the affirmative vote of more than fifty percent (50%) of the
directors that the Corporation would have at the time if there were no
vacancies existing in the Board of Directors. The Board of Directors shall be
divided into three classes. The initial term of office of Class I directors
shall expire at the annual meeting of stockholders to be held in 1997; the
initial term of office of Class II directors shall expire at the annual
meeting of stockholders to be held in 1998; and the initial term of office of
Class III directors shall expire at the annual meeting of stockholders to be
held in 1999, and in each case until their respective successors are elected
and qualified. At each annual meeting of stockholders, directors shall be
chosen to succeed those whose terms then expire and shall be elected for a
term of office expiring at the third succeeding annual meeting of stockholders
after their election, and in each case until their respective successors are
elected and qualified.
Section 5.2 Newly Created Directorships and Vacancies. Until the annual
meeting of stockholders to be held in 1999, vacancies in the Board of
Directors shall be filled in the manner herein provided. Any vacancy resulting
from the death, resignation, retirement, disqualification, removal from office
or other cause of a "Premier Director" (as hereinafter defined) shall be
filled by a majority vote of the directors then in office, although less than
a quorum, who are Premier Directors. Any vacancy resulting from the death,
resignation, retirement, disqualification, removal from office or other cause
of a "Northern Illinois Director" (as hereinafter defined) shall be filled by
a majority vote of the directors then in office, although less than a quorum,
who are Northern Illinois Directors. "Premier Directors" are each of the
individuals indicated in the following table in the column under the heading
"Initial Premier Directors," each person who has been appointed as a director
by the Premier Directors in accordance with this section 5.2, and each person
elected as a director by the stockholders of the Corporation who was
designated as a nominee of the Board of Directors by the Premier Directors
pursuant to section 5.5, 5.5 herein. "Northern Illinois Directors" are each of
the individuals indicated in the following table in the column under the
heading "Initial Northern Illinois Directors," each person who has been
appointed as a director by the Northern Illinois Directors in accordance with
this section 5.2, and each person elected as a director by the stockholders of
the Corporation who was designated as a nominee of the Board of Directors by
the Northern Illinois Directors pursuant to section 5.5, 5.5 herein.
<TABLE>
<CAPTION>
INITIAL PREMIER
DIRECTORS INITIAL NORTHERN ILLINOIS DIRECTORS
--------------- -----------------------------------
<S> <C>
Donald E. Bitz Jean M. Barry
R. Gerald Fox Harry J. Bystricky
Richard L. Geach Frank J. Callero
Edward G. Maris Alan J. Emerick
David L. Murray Brenton J. Emerick
H. Barry Musgrove James Esposito
Joseph C. Piland Robert W. Hinman
Stephen J. Schostok Howard A. McKee
</TABLE>
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<PAGE>
Beginning with the annual meeting of stockholders to be held in 1999, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
shall be filled by a majority vote of the directors then in office, although
less than a quorum, or by a sole remaining director.
Directors chosen to fill vacancies pursuant to this section 5.2 shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of the class to which they have been elected expires. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director. Newly created directorships shall be allocated
among the classes of directors so that each class of directors shall consist,
as nearly as possible, of one-third of the total number of directors.
Section 5.3 Removal. Any director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least eighty percent (80%) of the
outstanding shares of all classes of stock of the Corporation generally
entitled to vote in the election of directors, considered for purposes of this
section 5.3 as one class.
Section 5.4 Advance Notice of Nominations for Directors and other Business.
5.4.1 Notice with respect to Annual Meetings. At any annual meeting of the
stockholders of the Corporation, nominations of persons for election to the
Board of Directors and any proposal of business to be considered by the
stockholders shall be brought before an annual meeting (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a stockholder
of record at the time of giving of notice provided for in this section 5.4.1,
who is entitled to vote with respect thereto and who complies with the notice
procedures set forth in this section 5.4.1. For nominations or other business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the Corporation and in conformance with the requirements of section 5.4.3,
and such other business must otherwise be a proper matter for stockholder
action. To be timely, a stockholder's notice must be delivered to or mailed to
and received by the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 40th day nor earlier
than the close of business on the 70th day prior to the first anniversary of
the preceding year's annual meeting. Notwithstanding the foregoing, in the
event that the number of directors to be elected to the Board of Directors of
the Corporation is increased and there is no public disclosure by the
Corporation naming all of the nominees for director or specifying the size of
the increased Board of Directors at least 50 days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's notice
required by this section 5.4.1 shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it
shall be delivered to or mailed to and received by the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 14th day following the day on which such public disclosure is
first made by the Corporation. In no event shall the public or other
announcement of an adjournment of an annual meeting or the adjournment thereof
commence a new time period for the giving of a stockholder's notice as
described above.
5.4.2 Notice with respect to Special Meetings. At any special meeting of the
stockholders, only such business shall be conducted as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting
(a) by or at the direction of the Board of Directors or, (b) provided that the
Board of Directors has determined that directors shall be elected at such
special meeting, by any stockholder of the Corporation who is a stockholder of
record at the time of the giving of notice provided for in this section 5.4.2,
who is entitled to vote for the election of directors at the meeting and who
complies with the notice procedures set forth in this section 5.4.2. In the
event the Corporation calls a special meeting of stockholders for the purpose
of electing one or more directors to the board, any such stockholder may
nominate a person or persons (as the case may be) for election to such
position(s) as specified in the Corporation's notice of meeting if the
stockholder's notice meeting the requirements of section 5.4.3 shall be
delivered to the Secretary at the principal executive offices of the
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Corporation not later than the close of business on the 14th day following (i)
the date on which public disclosure of the date of such meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting is
first made by the Corporation or (ii) the date on which notice of such meeting
is mailed to the stockholders, whichever is earlier; provided, however, that
if such public disclosure is not made by the Corporation or notice of such
meeting is not mailed to the stockholders more than 21 days before the date of
such special meeting, the stockholder's notice meeting the requirements of
section 5.4.3 shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the 7th day
following the date on which such public disclosure is first made by the
Corporation or notice of such meeting is mailed to the stockholders, whichever
is earlier. In no event shall the public or other announcement of an
adjournment of a special meeting or the adjournment thereof commence a new
time period for the giving of a stockholder's notice as described above.
5.4.3 Content of Notice. Each stockholder's notice to the Secretary of the
Corporation shall set forth (a) as to each person whom such stockholder
proposes to nominate for election or reelection as a director, all information
relating to such person that would be required to be disclosed in
solicitations of proxies for election of directors in an election contest, or
otherwise required, under Regulation 14A under the Securities Exchange Act of
1934 ("Regulation 14A") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director, if elected), (b) as to any other business such
stockholder proposes to bring before an annual meeting, a brief description of
the business desired to be brought before such annual meeting, the reasons for
conducting such business at the annual meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination is made or
such business is to be brought, (i) the name and address of such stockholder,
as they appear on the Corporation's books, and the name and address of such
beneficial owner and (ii) the class, series (if applicable) and number of
shares of the Corporation's capital stock that are owned beneficially and of
record by such stockholder and such beneficial owner.
5.4.4 Notwithstanding anything in this Certificate of Incorporation to the
contrary, only such persons who are nominated in accordance with the
procedures set forth in this section 5.4 shall be eligible for election as
directors. The officer of the Corporation or other person presiding over the
meeting shall, if the facts so warrant, determine and declare to the meeting
that a nomination was not made in accordance with the provisions of this
section 5.4 and, if such presiding officer should so determine, he or she
shall so declare to the meeting and any such defective nomination shall be
disregarded.
Nothing in this section 5.4 shall be deemed to affect any rights of the
holders of any class or series of Preferred Stock to elect directors under
specified circumstances.
Section 5.5 Nominations by the Board of Directors. The person or persons to
be nominated in place of each of the Northern Illinois Directors and the
Premier Directors, respectively, whose terms of office expire at the annual
meetings of stockholders in each of 1997, 1998, and 1999 shall be designated
by the majority vote of the Northern Illinois Directors and of the Premier
Directors, respectively, then in office, although less than a quorum of all
directors. Commencing after the annual meeting of stockholders to be held in
1999, nominees for election as Directors at any meeting of stockholders shall
be selected by a majority of the entire Board of Directors.
Section 5.6 Succession of Initial Chief Executive Officer. Richard L. Geach
shall be the Chief Executive Officer of the Corporation from and after the
effective date of the merger of Premier Financial Services, Inc., a Delaware
corporation, and Northern Illinois Financial Corporation, an Illinois
corporation, with and into the Corporation as set forth in the Agreement and
Plan of Reorganization, dated January 22, 1996, as amended, among such merging
parties. When Mr. Geach ceases, for any reason, to be Chief Executive Officer
of the Corporation, the vacancy in the office of Chief Executive Officer of
the Corporation occurring thereby shall be filled by a majority vote of the
directors then in office, although less than a quorum, who are Northern
Illinois Directors.
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Section 5.7 Certain Actions by the Board of Directors. Notwithstanding any
provisions of this Certificate of Incorporation to the contrary, until the
annual meeting of stockholders to be held in 2003 none of the following
actions shall be taken unless approved by the affirmative vote of not less
than sixty-six and two-thirds percent (66 2/3%) of all of the directors of the
Corporation at a time when there are no vacancies existing in the Board of
Directors:
(a) the authorization of any amendment to this Certificate of
Incorporation or By-Laws of the Corporation;
(b) the adoption of an agreement of merger or consolidation or the
recommendation to the stockholders of the sale, lease or exchange of all or
substantially all of the Corporation's property and assets or the
recommendation to the stockholders of a dissolution or liquidation of the
Corporation or the revocation of a dissolution or liquidation of the
Corporation; and
(c) the original issuance of any shares of any class of capital stock of
the Corporation, whether now or hereafter authorized, except for (i) the
issuance of Common Stock pursuant to the exercise of options granted under
any employee benefit plan and outstanding upon the merger of Premier
Financial Services, Inc. and Northern Illinois Financial Corporation with
and into the Corporation pursuant to the terms of the Agreement and Plan of
Reorganization, dated January 22, 1996, as amended, among such merging
parties, (ii) the issuance of Common Stock upon the conversion of the
Series B Preferred Stock, and (iii) the issuance of the Junior Preferred
Stock issued pursuant to the exercise of stock purchase rights issued under
the Rights Agreement between the Corporation and Premier Trust Services,
Inc. as Rights Agent, dated as of July 8, 1996.
Any resolution adopted by the Board of Directors by the affirmative vote of
sixty-six and two-thirds percent (66 2/3%) of all of the directors then
holding office may specify that any amendment, alteration or revocation of
such resolution must be approved by the affirmative vote of sixty-six and two-
thirds percent (66 2/3%) of all of the directors then holding office, in which
case no such amendment, alteration or revocation shall be effective if not
approved by such vote of the directors.
Section 5.8 Amendment, Alteration or Repeal. In addition to any affirmative
vote that may be otherwise required and subject to the provisions of Article
17, the affirmative vote of the holders of at least eighty percent (80%) of
the outstanding shares of all classes of stock of the Corporation generally
entitled to vote in the election of directors, considered for purposes of this
section as one class, shall be required to amend, alter or repeal in any
respect, or adopt any provision inconsistent with, this Article 5.
ARTICLE 6
No action required to be taken or which may be taken at any annual or
special meeting of stockholders of the Corporation may be taken without a
meeting, and the power of stockholders to consent in writing, without a
meeting, to the taking of any action is specifically denied.
Special meetings of stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution approved by a majority of the
entire Board of Directors, upon not less than 10 nor more than 60 days'
written notice.
In addition to any affirmative vote which may be otherwise required and
subject to the provisions of Article 17, the affirmative vote of the holders
of at least eighty percent (80%) of the outstanding shares of all classes of
stock of the Corporation generally entitled to vote in the election of
directors, considered for purposes of this Article 6 as one class, shall be
required to amend, alter or repeal in any respect, or adopt any provision
inconsistent with, this Article 6.
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ARTICLE 7
The By-Laws of the Corporation may be amended, altered or repealed and new
By-Laws not inconsistent with any provisions of this Certificate of
Incorporation may be made only (a) by the affirmative vote of a majority of
the members of the Board of Directors then in office or such greater vote of
the Board of Directors as may be required by Article 5, or (b) by the
affirmative vote of the holders of at least eighty percent (80%) of the
outstanding shares of all classes of stock of the Corporation generally
entitled to vote in the election of directors, considered for purposes of this
Article 7 as one class.
In addition to any affirmative vote which may be otherwise required and
subject to the provisions of Article 17, the affirmative vote of the holders
of at least eighty percent (80%) of the outstanding shares of all classes of
stock of the Corporation generally entitled to vote in the election of
directors, considered for purposes of this Article 7 as one class, shall be
required to amend, alter or repeal in any respect, or adopt any provision
inconsistent with, this Article 7.
ARTICLE 8
The name and mailing address of the incorporator of this Corporation are as
follows:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
James G. Keane 7200 Sears Tower
Chicago, Illinois 60606-6473
</TABLE>
ARTICLE 9
Elections of directors need not be by written ballot unless the By-Laws of
the Corporation so provide.
ARTICLE 10
Except as otherwise provided in the Certificate of Incorporation, the Board
of Directors shall have authority to authorize the issuance, from time to time
without any vote or other action by the stockholders, of any or all shares of
stock of the Corporation of any class at any time authorized, any securities
convertible into or exchangeable for any such shares so authorized, and any
warrant, option or right to purchase, subscribe for or otherwise acquire,
shares of stock of the Corporation of any class at any time authorized, in
each case to such persons and for such consideration and on such terms as the
Board of Directors from time to time in its discretion lawfully may determine.
Stock so issued, for which the consideration has been paid to the Corporation,
shall be fully paid stock, and the holders of such stock shall not be liable
to any further call or assessments thereon.
ARTICLE 11
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof, or on the application
of any receiver or receivers appointed for this Corporation under (S)291 of
Title 8 of the Delaware Code or on the application of trustees in dissolution
or of any receiver or receivers appointed for this Corporation under (S)279 of
Title 8 of the Delaware Code order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this
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Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
ARTICLE 12
Each person who is or was a director or officer of the Corporation, and each
person who is or was a director or officer of the Corporation and serves or
served at the request of the Corporation as a director or officer of another
enterprise, shall be indemnified by the Corporation in accordance with, and to
the fullest extent authorized by, the General Corporation Law of the State of
Delaware as it may be in effect from time to time.
In addition to any affirmative vote which may be otherwise required and
subject to the provisions of Article 17, the affirmative vote of the holders
of at least eighty percent (80%) of the outstanding shares of all classes of
stock of the Corporation generally entitled to vote in the election of
directors, considered for purposes of this Article 12 as one class, shall be
required to amend, alter or repeal in any respect, or adopt any provision
inconsistent with, this Article 12.
ARTICLE 13
No person who was at any time a director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, except for liability (a) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) under Section 174 of
the General Corporation Law of the State of Delaware, or (d) for any
transaction from which the director derived an improper personal benefit. If
the General Corporation Law of the State of Delaware is hereafter amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended. For purposes hereof,
"fiduciary duty as a director" shall include fiduciary duties arising in
serving at the request of the Corporation as a director of another
corporation, partnership, joint venture, trust or other enterprise, and
"personally liable to the Corporation" shall include liabilities to the
Corporation in its capacity as a security holder, joint venturer, partner,
beneficiary, creditor or investor in any such other corporation, partnership,
joint venture, trust or other enterprise.
Any repeal or modification of the foregoing paragraph by the stockholders of
the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification.
In addition to any affirmative vote which may be otherwise required and
subject to the provisions of Article 17, the affirmative vote of the holders
of at least eighty percent (80%) of the outstanding shares of all classes of
stock of the Corporation generally entitled to vote in the election of
directors, considered for purposes of this Article 13 as one class, shall be
required to amend, alter or repeal in any respect, or adopt any provision
inconsistent with, this Article 13.
ARTICLE 14
Section 14.1 Vote Required for Certain Business Transactions. In addition to
any affirmative vote which may be otherwise required, no Business Transaction,
except as otherwise expressly provided in this Article 14, shall be effected
or consummated, unless such Business Transaction has been approved by the
affirmative vote of the holders of at least that number of the Voting Shares
which equals eighty percent (80%) of the number of Voting Shares that are not
beneficially owned by any such Interested Party.
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Section 14.2 When Higher Vote is Not Required. The provisions of this
Article 14 shall not apply to any Business Transaction if:
14.2.1 Prior to the acquisition of beneficial ownership of ten percent
(10%) or more of the Voting Shares by all Interested Parties with respect
to the Business Transaction, the Business Transaction has been approved by
a resolution adopted by a majority of the Board of Directors holding office
at the time such resolution is adopted or such greater vote of the Board of
Directors that may be required by Article 5; or
14.2.2 In addition to any other vote of the Board of Directors that may
be required by Article 5, the Business Transaction has been approved by a
resolution adopted by sixty-six and two-thirds percent (66 2/3%) of those
members of the Board of Directors holding office at the time such
resolution is adopted who are not themselves Interested Directors with
respect to the Business Transaction; or
14.2.3 All of the following conditions have been met:
(a) the aggregate amount of the cash and the fair market value (as
determined by the investment banking firm referred to in subsection (d)
below) of consideration other than cash to be received for each share
of Common Stock in the Business Transaction by holders thereof is not
less than the highest of (i) the highest per share price (including any
brokerage commissions, transfer taxes, soliciting dealer's fees,
dealer-management compensation and similar expenses) paid or payable by
the Interested Party with respect to the Business Transaction to
acquire beneficial ownership of any shares of Common Stock within the
five-year period immediately prior to the record date for the
determination of stockholders entitled to vote on the proposed Business
Transaction, (ii) the per share book value of Common Stock (computed in
accordance with generally accepted accounting principles) at the end of
the fiscal quarter of the Corporation immediately preceding the record
date for the determination of stockholders entitled to vote on the
proposed Business Transaction, and (iii) the highest market price per
share of Common Stock during the two-year period ending immediately
prior to the first public announcement of the proposal of the Business
Transaction;
(b) the consideration to be received in the Business Transaction by
holders of Common Stock other than an Interested Party with respect to
the Business Transaction shall be either in cash or in the same form
used by an Interested Party with respect to the Business Transaction to
acquire the largest number of shares of Common Stock acquired by all
Interested Parties with respect to the Business Transaction from a
person who is not an Interested Party with respect to the Business
Transaction;
(c) at the record date for the determination of stockholders entitled
to vote on the Business Transaction, there shall be one or more
directors of the Corporation who are not Interested Directors with
respect to the Business Transaction; and
(d) a proxy or information statement describing the Business
Transaction and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or regulations) shall
be mailed to the holders of Voting Shares as of the record date for the
determination of stockholders entitled to vote on the Business
Transaction, at least thirty (30) days prior to the consummation of
such Business Transaction (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or subsequent
provisions), and such proxy or information statement shall contain in a
prominent place (i) any recommendations as to the advisability (or
inadvisability) of the Business Transaction that those members of the
Board of Directors who are not themselves Interested Directors with
respect to the Business Transaction may choose to state, and (ii) the
opinion of an investment banking firm as to both (X) the fair market
value of any consideration other than cash to be received in the
Business Transaction by holders of Common Stock, and (Y) the fairness
(or not) of the terms of the Business Transaction from a financial
point of view to the holders of Common Stock other than Interested
Parties with respect to the Business Transaction. Such investment
banking firm shall be engaged solely on behalf of the holders of Common
Stock other than Interested Parties with respect to the Business
Transaction, shall be selected by a majority of the directors of the
Corporation who are not themselves Interested Directors with respect to
the Business Transaction, shall be paid a reasonable fee for its
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services by the Corporation upon receipt of such opinion and shall be a
nationally recognized investment banking firm that has not previously
been associated with any Interested Party with respect to the Business
Transaction. For purposes of subsection (a) above, the term
"consideration other than cash to be received" shall include Common
Stock retained by the Corporation's stockholders in the event of a
Business Transaction in which the Corporation is the surviving
corporation.
Section 14.3 Definitions. For purposes of this Article 14,
An "Associate" of a specified person is (a) a person that, directly or
indirectly, (i) controls, or is controlled by, or is under common control
with, the specified person, (ii) is the beneficial owner of ten percent (10%)
or more of any class of equity securities of the specified person, or (iii)
has ten percent (10%) or more of any class of its equity securities
beneficially owned, directly or indirectly, by the specified person; (b) any
person (other than the Corporation or a Subsidiary) of which the specified
person is an officer, director, general partner or other official and any
officer, director, general partner or other official of the specified person;
(c) any trust or estate in which the specified person serves as trustee or in
a similar fiduciary capacity, or any trustee or similar fiduciary of the
specified person; and (d) any relative or spouse of the specified person, or
any relative of such spouse, who has the same home as the specified person or
who is an officer or director of any person (other than the Corporation or a
Subsidiary), directly or indirectly, controlling, controlled by or under
common control with the specified person. No director of the Corporation,
however, shall be deemed to be an Associate of any other director of the
Corporation by reason of such service as a director or by concurrence in any
action of the Board of Directors.
"Beneficial ownership" of any Voting Shares shall be determined pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934 as in effect on the date
of incorporation of the Corporation; provided, however, that a person shall,
in any event, be the beneficial owner of any Voting Shares: (a) which such
person, or any of such person's Associates, beneficially owns, directly or
indirectly; (b) which such person or any of such person's Associates, directly
or indirectly, (i) has 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 pursuant to the power to revoke a
trust, discretionary account or other arrangement, or otherwise; or (ii) has
or shares the power, or has the right to acquire (whether such right is
exercisable immediately or only after the passage of time) the exclusive or
shared power, to vote or direct the vote pursuant to any agreement,
arrangement, relationship or understanding; or pursuant to the power to revoke
a trust, discretionary account or other arrangement; or otherwise; or (c)
which are beneficially owned, directly or indirectly, by any other person with
which such first-mentioned person or any of its Associates has any agreement,
arrangement or understanding, or is acting in concert, with respect to
acquiring, holding, voting or disposing of any Voting Shares; provided
further, however, that no director of the Corporation shall be deemed to be
acting in concert with any other director of the Corporation by reason of such
service as a director or by concurrence in any action of the Board of
Directors.
"Business Transaction" shall mean: (a) any merger or consolidation of the
Corporation or any Subsidiary with or into any Interested Party or any
Associate of an Interested Party, or any other corporation (whether or not an
Interested Party) which is, or after such merger or consolidation would be, an
Associate of an Interested Party; (b) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in one or a series of related
transactions) of all or any Substantial Part of the Consolidated Assets of the
Corporation to or with any Interested Party or any Associate of an Interested
Party; (c) any issuance, sale, exchange, transfer or other disposition by the
Corporation or any Subsidiary (in one or a series of related transactions) of
any securities of the Corporation or any Subsidiary to or with any Interested
Party or any Associate of an Interested Party (except any such issuance, sale,
exchange, transfer or disposition made to security holders generally or in
accordance with any stock option plan or other employee benefit plan of the
Corporation); (d) any spin-off, split-up, reclassification of securities
(including any reverse stock split), recapitalization or reorganization of the
Corporation or any Subsidiary, or any merger or consolidation of the
Corporation with any Subsidiary (whether or not with or into or otherwise
involving an Interested Party) which has the effect, directly or indirectly,
of increasing the
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proportionate interest of any Interested Party or any Associate of an
Interested Party in the equity securities of the Corporation; (e) any
liquidation or dissolution of the Corporation or any Subsidiary proposed by or
on behalf of the Interested Party or any Associate of an Interested Party; (f)
any other transaction involving the Corporation or any Subsidiary (whether or
not with or otherwise involving an Interested Party) which has the effect,
directly or indirectly, of increasing the proportionate interest of any
Interested Party or any Associate of an Interested Party in the equity
securities or assets of the Corporation or any Subsidiary; or (g) adoption of
any plan or proposal with respect to any of the foregoing.
"Interested Director" shall mean each director of the Corporation who (a) is
an Interested Party or an Associate of an Interested Party; (b) has an
Associate who is an Interested Party or an Associate of an Interested Party;
(c) was nominated or proposed to be elected as a director of the Corporation
by an Interested Party or an Associate of an Interested Party; or (d) is, or
has been nominated or proposed to be elected as, an officer, director or
employee of an Interested Party or an Associate of an Interested Party.
"Interested Director with respect to the Business Transaction" shall mean
any Interested Director who is an Interested Director as a result of his
relationship with an Interested Party with respect to the Business
Transaction. In the instance of any transaction in which the Corporation
purchases Voting Shares or any other equity securities, no director of the
Corporation shall be deemed to be an Interested Director with respect to the
transaction solely because that director's ownership percentage of Voting
Shares increases as a result of such transaction provided the increase is
proportionate with that of other stockholders of the Corporation who did not
sell shares in the transaction.
"Interested Party" shall mean any person (other than the Corporation or a
Subsidiary) who or which is the beneficial owner of ten percent (10%) or more
of the Voting Shares: (a) in connection with determining the required vote by
stockholders on any Business Transaction, as of any of the following dates:
the record date for the determination of stockholders entitled to notice of or
to vote on such Business Transaction or immediately prior to the consummation
of any such transaction or the adoption by the Corporation of any plan or
proposal with respect thereto; (b) in connection with determining the required
vote by stockholders on any amendment, alteration or repeal of this Article 14
pursuant to subsections (a) and (b) of section 14.6, as of the record date for
the determination of stockholders entitled to notice of and to vote on such
amendment, alteration or repeal; and (c) in connection with determining
whether a person who is a director is an "Interested Director" in respect of
any approval by the Board of Directors of the amendment, alteration or repeal
of this Article 14 pursuant to section 14.6 or in respect of any determination
made by the Board of Directors pursuant to section 14.4, as of the date at
which the vote on such recommendation or determination is being taken, or as
close as is reasonably practicable to such date.
"Interested Party with respect to the Business Transaction" shall mean any
Interested Party who has, or whose Associates have, an interest in the
Business Transaction of the nature described in the definition of "Business
Transaction" in this section 14.3.
"Market Price" shall mean the closing sales price of a share of Common 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 closing sales price or the average of the bid and asked prices
reported with respect to a share of such stock on The Nasdaq Stock Market or
any interdealer quotation system then in use.
A "person" shall include any individual, firm, corporation, partnership,
group, trust or other entity, organization or association.
"Subsidiary" shall mean any corporation of which a majority of any class of
equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for purposes of the definition of "Interested Party"
herein, 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.
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"Substantial Part of the Consolidated Assets" of the Corporation shall mean
assets of the Corporation and/or any Subsidiary having a book value
(determined in accordance with generally accepted accounting principles) in
excess of ten percent (10%) of the book value (determined in accordance with
generally accepted accounting principles) of the total consolidated assets of
the Corporation and all Subsidiaries which are consolidated for public
financial reporting purposes, at the end of its most recent quarterly fiscal
period ending prior to the time the determination is made for which financial
information is available.
"Voting Shares" shall mean the outstanding shares of all classes of stock of
the Corporation generally entitled to vote in the election of directors,
considered for purposes of this Article 14 as one class. "Voting Shares" shall
include shares beneficially owned by any Interested Party through application
of the definition of "beneficial ownership" in this section 14.3, but shall
not include any other shares which may be issuable based upon a right to
acquire any other shares (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 pursuant to the power to revoke a trust, discretionary
account or other arrangement, or otherwise.
Section 14.4 Determinations of the Board of Directors. Sixty-six and two-
thirds percent (66 2/3%) of those members of the Board of Directors who are
not themselves Interested Directors with respect to the Business Transaction
shall have the power and duty to make all determinations to be made under this
Article 14, including whether (a) a transaction is a Business Transaction; (b)
a person is an Interested Party or is an Interested Director; (c) a person is
an Associate of another person; (d) a person is an Interested Party with
respect to the Business Transaction or is an Interested Director with respect
to the Business Transaction; (e) the assets subject to any Business
Transaction constitute a Substantial Part of the Consolidated Assets of the
Corporation; (f) a transaction has the effect of increasing the proportionate
interest of any Interested Party or any Associate of an Interested Party in
the equity securities or assets of the Corporation or any Subsidiary; (g) a
person beneficially owns any Voting Shares; (h) a person has an agreement,
arrangement, relationship or understanding, or is acting in concert, with
another as to the matters referred to in the definition of "beneficial
ownership" in section 14.3; (i) shares of stock of the Corporation are
included within the term Voting Shares; (j) an amount equals or exceeds the
highest per share price paid or payable for Common Stock by an Interested
Party with respect to the Business Transaction; (k) an amount equals or
exceeds the per share book value of Common Stock; (l) an amount equals or
exceeds the highest market price per share of Common Stock; (m) the aggregate
amount of the cash and the fair market value of consideration other than cash
to be received for each share of Common Stock in the Business Transaction is
not less than the highest of the amounts referred to in clauses (i), (ii) and
(iii) of subsection (a) of section 14.2.3; (n) a form of consideration other
than cash is of the same type used by an Interested Party with respect to the
Business Transaction to acquire the largest number of shares of Common Stock
previously acquired by all Interested Parties with respect to the Business
Transaction from a person not an Interested Party with respect to the Business
Transaction; (o) an investment banking firm is a nationally recognized
investment banking firm; (p) a fee to be paid an investment banking firm is
reasonable; (q) an investment banking firm has been previously associated with
an Interested Party with respect to the Business Transaction; or (r) the most
recent quarterly fiscal period for which financial information is available.
Any such determination shall be conclusive and binding for all purposes of
this Article 14.
Section 14.5 No Effect on Fiduciary Obligations. Nothing contained in this
Article 14 shall be construed to relieve any Interested Party or any Associate
of an Interested Party from any fiduciary obligation imposed by law.
Section 14.6 Amendment, Alteration or Repeal. In addition to any affirmative
vote which may be otherwise required and subject to the provisions of Article
17, the affirmative vote of the holders of at least that number of the Voting
Shares which equals the sum of (a) the number of all the Voting Shares
beneficially owned by all Interested Parties, plus (b) eighty percent (80%) of
the remaining number of Voting Shares that are not beneficially owned by any
Interested Party, shall be required to amend, alter or repeal in any respect,
or adopt any provisions inconsistent with, this Article 14; provided that this
section 14.6 shall not apply to, and such vote
APPF-24
<PAGE>
shall not be required for, any such amendment, alteration, repeal or adoption
approved by a resolution adopted by at least sixty-six and two-thirds percent
(66 2/3%) of those members of the Board of Directors holding office at the
time such resolution is adopted who are not themselves Interested Directors.
ARTICLE 15
In discharging the duties of their respective positions, the Board of
Directors, committees of the board, individual directors and individual
officers may, in considering the best long term and short term interests of
the Corporation, consider the effects of any action involving or relating to a
sale, takeover or change in control or a potential sale, takeover or change in
control of the Corporation upon employees, suppliers, and customers of the
Corporation and its subsidiaries, communities in which offices or other
establishments of the Corporation or its subsidiaries are located and all
other pertinent factors.
In addition to any affirmative vote which may be otherwise required, the
affirmative vote of the holders of at least eighty percent (80%) of the
outstanding shares of all classes of stock of the Corporation generally
entitled to vote in the election of directors, considered for purposes of this
Article 15 as one class, shall be required to amend, alter or repeal in any
respect, or adopt any provision inconsistent with, this Article 15.
ARTICLE 16
The Corporation reserves the right to amend, alter or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute or by this Certificate of Incorporation, and all rights
conferred upon stockholders herein are granted subject to this reservation.
ARTICLE 17
Notwithstanding anything contained herein to the contrary, any amendment to
this Certificate of Incorporation of the Corporation that is approved by not
less than sixty-six and two thirds percent (66 2/3%) of the Continuing
Directors, as hereinafter defined, as well as by any other vote of the Board
of Directors that may be required by Article 5, shall require only the
affirmative vote of not less than a majority of the outstanding shares of all
classes of stock of the Corporation generally entitled to vote in the election
of directors, considered for purposes of this Article 17 as one class, for
such amendment to be effective. For purposes of this section, "Continuing
Director" shall mean the individuals who are directors of the Corporation
immediately after the merger of Premier Financial Services, Inc., a Delaware
corporation, and Northern Illinois Financial Corporation, an Illinois
corporation, into the Corporation; provided, however, that any individual who
becomes a director through his or her selection to fill a vacancy on the
Corporation's Board of Directors by either a majority of the Continuing
Directors or in accordance with section 5.2 hereof, or who is nominated by a
majority of the Continuing Directors or in accordance with section 5.5,5.5
hereof and is thereafter elected by the Corporation's stockholders, shall for
all purposes of this Article 17 be deemed to be a Continuing Director.
APPF-25
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, Article Sixth of the
registrant's certificate of incorporation and Article 6 of the registrant's
by-laws provide for indemnification of the registrant's directors and officers
in a variety of circumstances, which may include liabilities under the
Securities Act of 1933, as amended. The general effect of the provisions in
the registrant's certificate of incorporation and by-laws and under the
Delaware General Corporation Law is to provide that the registrant shall
indemnify its directors and officers against all liabilities and expenses
reasonably incurred in connection with the defense or settlement of any
judicial or administrative proceedings in which they become involved by reason
of their status as corporate directors and officers, if they acted in good
faith and in the reasonable belief that their conduct was neither unlawful (in
the case of criminal proceedings) nor inconsistent with the best interests of
the registrant. With respect to legal proceedings by or in the right of the
registrant in which a director or officer is adjudged liable for improper
performance of his duty to the registrant, indemnification is limited by such
provisions to the amount which is permitted by the court.
In addition, pursuant to the Agreement and Plan of Merger, Premier and
Northern Illinois have agreed to use reasonable efforts to obtain, after the
Effective Time of the Merger, insurance coverage as permitted by Delaware law
on behalf of the registrant's directors and officers, which may cover
liabilities under the Securities Act of 1933, as amended. Premier and Northern
Illinois also have agreed to cause the persons serving as directors and
officers of Premier and Northern Illinois to be covered by the directors' and
officers' liability policies maintained by Premier and Northern Illinois,
respectively, or to substitute policies of at least the same coverage, for a
period of three years from the Effective Time with respect to acts or
omissions occurring prior to the effective time which were committed by such
officers and directors in their capacity as officers and directors of Premier
and Northern Illinois.
Article 12 of the form of registrant's restated certificate of
incorporation, which will be adopted at the Effective Time of the Merger
contemplated by this joint proxy statement-prospectus, and Article 6 of the
form of registrant's by-laws, which will be adopted at the Effective Time of
the Merger, provide for indemnification of the registrant's directors and
officers substantially equivalent to the indemnification provisions described
in the preceding paragraph.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) The exhibits filed herewith are set forth on the exhibit index filed as
part of this registration statement at page II-4.
(b) Not applicable.
(c) Not applicable. The fairness opinions of Prairie Capital Services, Inc.
and The Chicago Corporation have been included as appendices to the
prospectus.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or in the most recent
post-effective amendment thereof) which, individually or
II-1
<PAGE>
in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar volume of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or preceding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant 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 Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt
II-2
<PAGE>
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.
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-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS PRE-EFFECTIVE AMENDMENT NO. 2 TO THE REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF FREEPORT, STATE OF ILLINOIS, ON THE 8TH DAY OF
JULY, 1996.
Grand Premier Financial, Inc.
(Registrant)
/s/ Richard L. Geach
By: _________________________________
Richard L. Geach
Chairman of the Board, Chief
Executive Officer and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS PRE-
EFFECTIVE AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard L. Geach Chairman of the Board, Chief July 8, 1996
____________________________________ Executive Officer and
Richard L. Geach Director (Principal
Executive Officer)
/s/ Robert W. Hinman Director July 8, 1996
____________________________________
Robert W. Hinman
/s/ David L. Murray Vice-President and Chief July 8, 1996
____________________________________ Financial Officer
David L. Murray (Principal Financial and
Accounting Officer)
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
2.1* Agreement and Plan of Merger, dated January 22, 1996, among Northern Illinois
Financial Services, Premier Financial Services, Inc. and Grand Premier Financial,
Inc.
2.2* First Amendment to Agreement and Plan of Merger, dated March 18, 1996, among
Northern Illinois Financial Services, Premier Financial Services, Inc. and Grand
Premier Financial, Inc.
3.1* Certificate of Incorporation of GPF.
3.2 Form of Amended and Restated Certificate of Incorporation of GPF to be adopted at
the effective time of the Merger (incorporated by reference to Appendix F of the
Joint Proxy Statement-Prospectus).
3.3* By-laws of GPF.
3.4* Form of By-laws of GPF to be adopted at the effective time of the Merger.
4.1 Rights Agreement between Grand Premier Financial, Inc. and Premier Trust Services,
Inc.
5 Opinion of Schiff Hardin & Waite.
8 Opinion of KPMG Peat Marwick LLP.
10.1* Consulting Agreement between Grand National Bank and Howard A. McKee, dated
February 17, 1995.
10.2* Change in Control and Termination Agreement, dated January 20, 1995, between
Premier and Richard L. Geach.
10.3* Change in Control and Termination Agreement, dated January 20, 1995, between
Premier and David L. Murray.
12.1* Statement regarding computation of ratio of earnings to combined fixed charges and
preferred stock dividends for Grand Premier Financial, Inc.
12.2* Statement regarding computation of ratio of earnings to combined fixed charges and
preferred stock dividends for Premier Financial Services, Inc.
23.1 Consent of Hutton Nelson & McDonald LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Schiff Hardin & Waite (filed as part of Exhibit 5 and Exhibit 8).
23.4 Consent of KPMG Peat Marwick LLP (filed as part of Exhibit 8).
23.5 Consent of Prairie Capital Services, Inc.
23.6 Consent of The Chicago Corporation.
23.7* Consents of persons named as directors of GPF who have not signed the Registration
Statement.
23.8 Consent of Crowley Barrett & Karaba (filed as part of Exhibit 8).
99.1* Form of Proxy of Northern Illinois Financial Services.
99.2* Form of Proxy of Premier Financial Services, Inc.
99.3 Fairness Opinion of Prairie Capital Services, Inc. (incorporated by reference to
Appendix D of the Joint Proxy Statement-Prospectus).
99.4 Fairness Opinion of The Chicago Corporation (incorporated by reference to Appendix
E of the Joint Proxy Statement-Prospectus).
</TABLE>
- --------
*Previously filed.
II-5
<PAGE>
EXHIBIT 4.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GRAND PREMIER FINANCIAL, INC.
AND
PREMIER TRUST SERVICES, INC.,
RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF JULY 8, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 1. Certain Definitions.......................................... 1
Section 2. Appointment of Rights Agent.................................. 8
Section 3. Issue of Right Certificates.................................. 8
Section 4. Form of Right Certificates................................... 10
Section 5. Countersignature and Registration............................ 11
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen
Right Certificates........................................... 11
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights.................................................... 12
Section 8. Cancellation and Destruction of Right Certificates........... 15
Section 9. Reservation and Availability of Shares of Preferred and
Common Stock................................................. 15
Section 10. Preferred Stock Record Date.................................. 17
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights............................................. 18
Section 12. Certificate of Adjusted Purchase Price or Number of Shares... 29
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power................................................ 30
Section 14. Fractional Rights and Fractional Shares...................... 33
Section 15. Rights of Action............................................. 34
Section 16. Agreement of Right Holders................................... 35
Section 17. Right Certificate Holder Not Deemed a Stockholder............ 36
Section 18. Concerning the Rights Agent.................................. 36
Section 19. Merger or Consolidation or Change of Name of Rights Agent.... 37
Section 20. Terms and Conditions to Duties of Rights Agent............... 37
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
Section 21. Change of Rights Agent....................................... 39
Section 22. Issuance of New Right Certificates........................... 40
Section 23. Redemption................................................... 41
Section 24. Exchange..................................................... 42
Section 25. Notice of Certain Events..................................... 44
Section 26. Notices...................................................... 45
Section 27. Supplements and Amendments................................... 46
Section 28. Successors................................................... 47
Section 29. Benefits of this Agreement................................... 47
Section 30. Governing Law................................................ 47
Section 31. Counterparts................................................. 47
Section 32. Descriptive Headings......................................... 47
Section 33. Severability................................................. 47
Section 34. Determinations and Actions by the Board of Directors, etc.... 48
</TABLE>
Exhibit A Certificate of Incorporation
Exhibit B Form of Right Certificate
Exhibit C Summary of Rights to Purchase Common Stock
ii
<PAGE>
RIGHTS AGREEMENT
----------------
This Agreement, dated as of July 8, 1996, between Grand Premier
Financial, Inc., a Delaware corporation (the "Company"), and Premier Trust
Services, Inc., an Illinois trust company (the "Rights Agent").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Board of Directors of the Company has authorized the
issuance of one preferred stock purchase right (as such number may hereafter be
adjusted as set forth in Section 11) in respect of each share of Common Stock of
the Company issued (whether originally issued or delivered from the Company's
treasury) between the date hereof and the earlier of the Distribution Date or
the Expiration Date (as such terms are hereinafter defined), and in certain
circumstances provided in Section 22 hereof, after the Distribution Date, each
preferred stock purchase right initially representing the right to purchase one
one-hundredth of a share of Preferred Stock (as such term is hereinafter
defined) of the Company, upon the terms and subject to the conditions
hereinafter set forth (individually a "Right" and collectively the "Rights");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates (as such term is
hereinafter defined) and Associates (as such term is hereinafter defined) of
such Person, is or becomes the Beneficial Owner (as such term is hereinafter
defined) of a Substantial Block (as such term is hereinafter defined), but shall
not include the Company, any Subsidiary (as such term is hereinafter defined) of
or other Person controlled by the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company or any Person appointed as trustee
by the Company or such Subsidiary pursuant to the terms of any such plan in that
Person's capacity as trustee or any Person excluded from the definition of
"Acquiring Person" pursuant to the application of Section 1(b) below.
Notwithstanding the first sentence of this section 1(a), no Person shall become
an Acquiring Person solely as a result of an acquisition of Common Stock and/or
other securities by the Company which, by reducing the number of outstanding
shares of Common Stock and/or other securities, causes the shares of Common
Stock and/or other securities of the Company beneficially owned by such Person
to constitute a Substantial Block; provided, however, that if after such
acquisition by the Company, such Person becomes the Beneficial Owner of any
additional shares of Common Stock and/or other
<PAGE>
securities of the Company (other than as the result of a stock dividend on, or a
stock split, recapitalization or reclassification of, the Common Stock or other
securities of the Company which does not increase such Person's proportionate
share of the Voting Power) and is the Beneficial Owner of a Substantial Block,
then such Person shall be deemed to be an Acquiring Person. Notwithstanding the
foregoing, if the Board of Directors of the Company determines in good faith
that a Person who would otherwise be an "Acquiring Person," as defined pursuant
to the foregoing provisions of this paragraph (a), has become such
inadvertently, and such Person divests as promptly as practicable a sufficient
number of shares of Common Stock so that such Person would no longer be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
paragraph (a), then such Person shall not be deemed to be an "Acquiring Person"
for any purposes of this Agreement.
(b) "Acquiring Person Exclusions." The following provisions shall be
applied to exclude certain persons and entities related to Howard A. McKee and
his family members from the definition of an Acquiring Person and to preclude
certain acquisitions of beneficial ownership of Common Stock and/or other
securities of the Company from causing such persons to become Acquiring Persons.
"Howard A. McKee" shall mean Howard A. McKee, any Affiliate or Associate of
Howard A. McKee (including, but not limited to, Keeco, Inc. and Northland
Insurance Agency, Inc., but excluding Virginia C. McKee, Jean M. Barry and
Robert W. Hinman) and any Related Entities (as such term is hereinafter defined)
of Howard A. McKee. "Jean M. Barry" shall mean Jean M. Barry, any Affiliate or
Associate of Jean M. Barry (excluding Howard A. McKee), and any Related Entities
of Jean M. Barry. "Robert W. Hinman" shall mean Robert W. Hinman, any Affiliate
or Associate of Robert W. Hinman (excluding Howard A. McKee) and any Related
Entities of Robert W. Hinman. "McKee Descendants" shall mean any descendant of
Howard A. McKee (including descendants by adoption and their descendants) or any
spouse, former spouse or surviving spouse of any descendant of Howard A. McKee,
including but not limited to Jean M. Barry and Robert W. Hinman, any Affiliate
or Associate of a McKee Descendant and any Related Entities of a McKee
Descendant. "Related Entities" of Howard A. McKee or of any McKee Descendant,
respectively, shall mean (i) the estate of, or the executor or administrator of
any estate of, or any guardian or custodian for, Howard A. McKee or such McKee
Descendant, or any trust in existence as of, or established after, the date
hereof by Howard A. McKee or such McKee Descendant, provided that one or more
McKee Descendants or charitable organizations which qualify as exempt
organizations under Section 501(c) of the Internal Revenue Code of 1986, as
amended ("Charitable Organizations"), collectively, are the beneficiaries of at
least 50% of the
2
<PAGE>
actuarially-determined beneficial interests in such estate or trust, (ii) any
Charitable Organization which is established by Howard A. McKee or any McKee
Descendant ("McKee Charitable Organizations"), (iii) any corporation of which a
majority of the voting power is held, directly or indirectly, by or for the
benefit of Howard A. McKee or of any McKee Descendant, any estates or trusts
described in clause (ii) and (iii) above, or any McKee Charitable Organizations,
or (iv) any partnership or other entity of which a majority of the voting
interest is held, directly or indirectly, by or for the benefit of Howard A.
McKee or any McKee Descendant, any estates or trusts described in clause (i)
above or any McKee Charitable Organizations. For purposes hereof, all references
to shares of Common Stock and/or other securities of the Company beneficially
owned by a Person shall include shares of Common Stock and/or other securities
of the Company beneficially owned by Related Entities of such Person.
(i) An Acquiring Person shall not include Howard A. McKee, Jean
M. Barry or Robert W. Hinman so long as (A) all of the shares of Common
Stock and/or other securities of the Company beneficially owned by Howard
A. McKee shall constitute less than 32.81% of the Voting Power, and (B)
until the fifth anniversary of the date of this Agreement, all of the
shares of Common Stock and/or other securities of the Company beneficially
owned by Jean M. Barry and Robert W. Hinman shall constitute in the
aggregate less than 4.98% of the Voting Power.
(ii) Notwithstanding anything in this Agreement to the contrary,
any acquisition by a McKee Descendant of beneficial or record ownership of
shares of Common Stock and/or other securities of the Company that were
beneficially owned, immediately prior to such acquisition, by Howard A.
McKee or a McKee Descendant shall not cause the acquiror thereof to become
an Acquiring Person but such shares of Common Stock and/or other securities
shall be counted in determining whether, following such acquisition, such
McKee Descendant owns a Substantial Block. If, following such acquisition
of beneficial or record ownership of shares of Common Stock and/or other
securities of the Company, a McKee Descendant shall acquire beneficial
ownership of any additional shares of Common Stock and/or other securities
of the Company from any Person other than Howard A. McKee or a McKee
Descendant and, following such acquisition, such McKee Descendant shall
have beneficial ownership of Common Stock and/or other securities of the
Company constituting a Substantial Block, such McKee Descendant shall be
deemed to be an Acquiring Person.
3
<PAGE>
(c) "Act" shall mean the Securities Act of 1933, as amended and in
effect on the date of this Agreement.
(d) "Adjustment Shares" shall have the meaning set forth in Section
11(a)(ii) hereof.
(e) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act (as such term is hereinafter defined), as in effect on the date
of this Agreement, but shall not include the Company, any Subsidiary or other
Person controlled by the Company, any employee benefit plan of the Company or of
any Subsidiary of the Company, or any Person appointed as trustee by the Company
or such Subsidiary pursuant to the terms of any such plan in that Person's
capacity as trustee.
(f) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) of which such Person or any of such Person's Affiliates or
Associates directly or indirectly has "beneficial ownership," as determined
pursuant to Rule 13d-3 and Rule 13d-5 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement;
(ii) which such Person or any of such Person's 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 (whether or not in writing and other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), or upon
the exercise of conversion rights, exchange rights, rights (other than the
Rights), warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially own,
(I) securities tendered pursuant to a tender or exchange offer made by or
on behalf of such Person or any of such Person's Affiliates or Associates
until such tendered securities are accepted for purchase or exchange, (II)
securities issuable upon exercise of Rights at any time prior to the
occurrence of a Section 11(a)(ii) Event or a Section 13(a) Event, or (III)
securities issuable upon exercise of Rights from and after the occurrence
of a Section 11(a)(ii) Event or a Section 13(a) Event but only if such
Rights were acquired by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date or pursuant to Section 3(a) or
Section 22 hereof ("Original Rights") or
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pursuant to Section 11(i) hereof in connection with an adjustment made with
respect to any Original Rights; or (B) the right (whether sole or shared)
to vote or dispose of pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a Person
shall not be deemed the Beneficial Owner of, or to beneficially own, any
security under this clause (B) pursuant to an agreement, arrangement or
understanding to vote such security that (1) arises solely from a revocable
proxy or consent given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the Exchange Act and
the rules and regulations thereunder and (2) is not also then required to
be reported as beneficially owned on a Schedule 13D under the Exchange Act
(or any comparable or successor statement or report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which such
Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in writing and
other than customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of securities)
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy or consent as described in clause (B) of subparagraph (ii)
of this paragraph (e)) or disposing of any securities of the Company.
Notwithstanding the foregoing: (x) nothing in this Section 1(f) shall cause a
Person engaged in business as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment underwriting
registered under the Act until the expiration of 40 days after the date of such
acquisition; (y) the phrase "then outstanding," when used with reference to a
Person's beneficial ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder, and (z) any employee or former
employee of the Company or of any Subsidiary of the Company shall not be deemed
to be the "Beneficial Owner" of, or to "beneficially own," any securities which
the Company grants or awards, on or after the Initial Issue Date, to the
employee or any of such employee's Affiliates or Associates pursuant to any
employee benefit plan of the Company or of any Subsidiary of the Company.
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(g) "Business Day" shall mean any day other than a Saturday, Sunday
or a day on which national banking associations the State of Illinois are
authorized or obligated by law or executive order to close.
(h) "Close of Business" on any given date shall mean 5:00 P.M.,
Chicago, Illinois time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 P.M., Chicago, Illinois time, on the next
succeeding Business Day.
(i) "Common Stock" when used with reference to the Company shall mean
the Common Stock, par value $.01 per share, of the Company. "Common stock" when
used with reference to any Person other than the Company shall mean the common
stock with the greatest aggregate voting power (or the equity securities or
other equity interests having power to control or direct the management) of such
Person or, if such Person is a subsidiary of or controlled by another Person,
the Person which ultimately controls such first-mentioned Person.
(j) "Common stock equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(k) "Continuing Director" shall mean a director who (i) either (A) is
a member of the Board of Directors of the Company as of the "Initial Issue Date"
(as such term is hereinafter defined), or (B) subsequent to the Initial Issue
Date, becomes a director of the Company and whose initial election or initial
nomination for election is approved by a vote of a majority of the Continuing
Directors then on the Board of Directors of the Company or by such lesser
portion of the Continuing Directors as shall then be authorized by the
Certificate of Incorporation of the Corporation, and (ii) is not an Acquiring
Person or an Affiliate or Associate of an Acquiring Person or a representative
of an Acquiring Person or of any such Affiliate or Associate.
(l) "Current market price" shall have the meaning set forth in
Section 11(d) hereof.
(m) "Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
(n) "Distribution Date" shall have the meaning set forth in Section
3(a) hereof.
(o) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended and in effect on the date of this Agreement.
(p) "Expiration Date" shall have the meaning set forth in Section
7(a) hereof.
(q) "Final Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
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(r) "Initial Issue Date" shall mean the date that shares of Common
Stock of the Company are issued in the merger contemplated by the Agreement and
Plan of Merger, dated as of January 22, 1996, as amended, among Northern
Illinois Financial Corporation, Premier Financial Services, Inc. and the
Company.
(s) "Original Stock" shall have the meaning set forth in Section
11(a)(ii) hereof.
(t) "Person" shall mean any individual, firm, corporation,
partnership, trust, syndicate or other entity.
(u) "Preferred Stock" shall mean the Series I Junior Participating
Preferred Stock, par value $.01 per share, of the Company having the rights and
preferences set forth in the form Amended and Restated Certificate of
Incorporation of the Company attached as Exhibit A hereto.
(v) "Preferred stock equivalents" shall have the meaning set forth in
Section 11(b) hereof.
(w) "Principal Party" shall have the meaning set forth in Section
13(b) hereof.
(x) "Purchase Price" shall have the meaning set forth in Sections
4(a) and 7(b) hereof.
(y) "Qualified Offer" shall have the meaning set forth in Section
11(a)(ii)(A) hereof.
(z) "Redemption Price" shall have the meaning set forth in Section
23(a) hereof.
(aa) "Registered Common Shares" shall have the meaning set forth in
Section 13(b) hereof.
(bb) "Rights" shall have the meaning set forth in the WHEREAS clause
at the beginning of this Agreement.
(cc) "Right Certificate" shall have the meaning set forth in Section
3(a) hereof.
(dd) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii)(A), (B), or (C) hereof (except that "Section 11(a)(ii) Event"
shall not include a Section 13(a) Event or an acquisition of Common Stock
pursuant to a Qualified Offer).
(ee) "Section 13(a) Event" shall mean any event described in clause
(i), (ii) or (iii) of Section 13(a) hereof.
(ff) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such.
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(gg) "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
(hh) "Substantial Block" shall mean a number of shares of Common Stock
of the Company and/or a number of shares or amount of other securities of the
Company which in the aggregate represents 15% or more of the Voting Power (as
such term is hereinafter defined), provided, however, that for all purposes of
this Agreement, in calculating the number of shares of Common Stock of the
Company or amount of other securities of the Company beneficially owned by any
Person, there shall not be considered in such calculation any such shares or
other securities that are: (i) issued to such Person pursuant to any stock
options granted to such Person under, or otherwise pursuant to the terms of, any
employee benefit plan established or sponsored, by the Company or any
predecessor corporation thereto; or (ii) issued by the Company in connection
with any recapitalization, dividend, stock split, exchange, sale, transfer or
similar transaction made or affecting all security holders of the Company
generally.
(ii) "Summary of Rights" shall have the meaning set forth in Section
3(b) hereof.
(jj) "Trading Day" shall have the meaning set forth in Section 11(d)
hereof.
(kk) "Voting Power" shall mean the voting power of all securities of
the Company then outstanding generally entitled to vote for the election of
directors of the Company.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such Co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier of (i) the
twentieth day after the Stock Acquisition Date, or (ii) the twentieth day (or
such later date as may be determined by action of the Board of Directors prior
to such time as any Person becomes an Acquiring Person) after the commencement
of, or first public announcement of the intent of any Person (other than the
Company or any of its Subsidiaries or any employee benefit plan of the Company
or of any Subsidiary of the Company or any Person appointed as trustee by the
Company or such subsidiary pursuant to the terms of any such plan in such
Person's capacity as trustee) to commence, a tender or exchange offer if upon
consummation thereof such Person, together with all Affiliates and
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Associates of such Person, would be the Beneficial Owner of shares of Common
Stock and/or other securities representing 30% or more of the Voting Power (the
earlier of such days being herein referred to as the "Distribution Date"), (x)
the Rights will be evidenced (subject to the provisions of Section 3(b) hereof)
by the certificates for the Common Stock of the Company registered in the names
of the holders of the Common Stock (which certificates for Common Stock shall be
deemed also to be Right Certificates) and not by separate Right Certificates,
and (y) the right to receive Right Certificates will be transferrable only in
connection with any transfer of Common Stock. As soon as practicable after the
Distribution Date, the Rights Agent will send, by first-class, insured, postage
prepaid mail, to each record holder of the Common Stock as of the Close of
Business on the Distribution Date, at the address of such holder shown on the
records of the Company, a Right Certificate, in substantially the form of
Exhibit B hereto, evidencing one Right for each share of Common Stock so held.
As of and after the Distribution Date, the Rights will be evidenced solely by
such Right Certificates.
(b) Upon request by any record holder of the Common Stock, the
Company will send a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form attached hereto as Exhibit C (the "Summary of Rights"),
by first-class, postage prepaid mail, to such record holder of the Common Stock
at the address of such holder shown on the records of the Company. With respect
to certificates for the Common Stock issued on the Initial Issue Date, until the
Distribution Date (or earlier Expiration Date), the Rights will be evidenced by
such certificates for the Common Stock registered in the names of the holders of
the Common Stock. Until the Distribution Date (or earlier Expiration Date), the
surrender for transfer of any of the certificates for the Common Stock
outstanding on the Initial Issue Date shall also constitute the transfer of the
Rights associated with the Common Stock represented by such certificate.
(c) Rights shall be issued in respect of all shares of Common Stock
which become outstanding after the Initial Issue Date but prior to the earlier
of the Distribution Date or the Expiration Date or, in certain circumstances
provided in Section 22 hereof, after the Distribution Date. Certificates issued
for shares of Common Stock on the Initial Issue Date or that become outstanding
or are transferred or exchanged after the Initial Issue Date but prior to the
earlier of the Distribution Date or the Expiration Date or, in certain
circumstances provided in Section 22 hereof, after the Distribution Date, shall
have impressed on, printed on, written on or otherwise affixed to them the
following legend:
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This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between Grand Premier
Financial, Inc., and Premier Trust Services, Inc. dated as of July 8, 1996
(the "Rights Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal executive
offices of Grand Premier Financial, Inc.. Under certain circumstances, as
set forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this certificate.
Grand Premier Financial, Inc. will mail to the holder of this certificate a
copy of the Rights Agreement without charge promptly upon receipt of a
written request therefor. Under certain circumstances, Rights beneficially
owned by any Person who is, was or becomes an Acquiring Person or any
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement), whether then held by or on behalf of such Person or by any
subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date (or earlier Expiration Date), the Rights associated with the
Common Stock represented by such certificates shall be evidenced by such
certificates alone, and the surrender for transfer of any of such certificates
shall also constitute the transfer of the Rights associated with the Common
Stock represented by such certificate.
Section 4. Form of Right Certificates. (a) The Right Certificates (and
the forms of election to purchase shares and of assignment to be printed on the
reverse thereof) shall be substantially the same as Exhibit B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22 hereof, the Right Certificates, whenever
issued, shall be dated as of the Initial Issue Date, and on their face shall
entitle the holders thereof to purchase such number of one one-hundredths of a
share of Preferred Stock as shall be set forth therein at the price per one one-
hundredth of a share of Preferred Stock set forth therein (the "Purchase
Price"), but the amount and type of securities
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purchasable upon the exercise of each Right and the Purchase Price shall be
subject to adjustments as provided herein.
(b) Any Right Certificate that represents Rights beneficially owned
by an Acquiring Person or any Affiliate or Associate of an Acquiring Person, or
any transferee of an Acquiring Person or any Affiliate or Associate of an
Acquiring Person under the circumstances set forth in Section 7(e), and any
Right Certificate issued upon transfer, exchange, replacement or adjustment of
any other Right Certificate referred to in this sentence, shall contain (to the
extent feasible) the following legend:
The Rights represented by this Certificate are or were beneficially
owned by a Person who was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms are defined in the Rights
Agreement). This Right Certificate and the Rights represented hereby may
become void in the circumstances specified in Section 7(e) of the Rights
Agreement.
Section 5. Countersignature and Registration. (a) The Right Certificates
shall be executed on behalf of the Company by the Chairman or the President of
the Company or any other officer of the Company as may be designated by the
Board of Directors of the Company, either manually or by facsimile signature,
and have affixed thereto the Company's seal or a facsimile thereof which shall
be attested by the Secretary or an Assistant Secretary of the Company or any
other officer of the Company as may be designated by the Board of Directors of
the Company, either manually or by facsimile signature. The Right Certificates
shall be countersigned manually by the Rights Agent and shall not be valid for
any purpose unless so countersigned. In case any officer of the Company who
shall have signed any of the Right Certificates shall cease to be such officer
of the Company before countersignature by the Rights Agent and issuance and
delivery by the Company, such Right Certificates, nevertheless, may be
countersigned by the Rights Agent, issued and delivered with the same force and
effect as though the person who signed such Right Certificates had not ceased to
be such officer of the Company; and any Right Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Right Certificate, shall be a proper officer of the Company to sign such
Right Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right
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Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a)
Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof,
at any time after the Close of Business on the Distribution Date, and at or
prior to the Close of Business on the Expiration Date, any Right Certificate or
Certificates may be transferred, split up, combined or exchanged for another
Right Certificate or Right Certificates, entitling the registered holder to
purchase a like number of one one-hundredths of a share of Preferred Stock (or,
following the occurrence of a Section 11(a)(ii) Event or a Section 13(a) Event,
Common Stock and/or other securities or property) as the Right Certificate or
Right Certificates surrendered then entitled such holder (or former holder in
the case of a transfer) to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate shall make such request in
writing delivered to the Rights Agent, and shall surrender the Right Certificate
or Right Certificates to be transferred, split up, combined or exchanged at the
principal office of the Rights Agent. Neither the Rights Agent nor the Company
shall be obligated to take any action whatsoever with respect to the transfer of
any such surrendered Right Certificate until the registered holder shall have
completed and signed the certificate contained in the form of assignment on the
reverse side of such Right Certificate and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e) and
Section 14 hereof, countersign and deliver to the person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the request of the Company,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor
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to the Rights Agent for delivery to the registered holder in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) Subject to Section 7(e) hereof, the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date,
upon surrender of the Right Certificate, with the form of election to purchase
on the reverse side thereof duly executed, to the Rights Agent, at the principal
office of the Rights Agent, together with payment of the aggregate Purchase
Price with respect to the total number of one one-hundredths of a share of
Preferred Stock (or, following the occurrence of a Section 11(a)(ii) Event or a
Section 13(a) Event, Common Stock and/or other securities or property) as to
which the Rights are exercised, at or prior to the Close of Business on the
earliest of (i) at 5:00 p.m., Chicago, Illinois time on June 30, 2006 (the
"Final Expiration Date"), (ii) the time at which the Rights are redeemed
pursuant to Section 23 hereof, (iii) the time at which a transaction pursuant to
Section 13(g) hereof is consummated (the earliest of such herein referred to as
the "Expiration Date") or (iv) the time at which such Rights are exchanged
pursuant to Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $27.25,
shall be subject to adjustment from time to time as provided in Section 11 and
Section 13(a) hereof and shall be payable in accordance with paragraph (c)
below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment of the Purchase Price for the shares (or other securities
or property) to be purchased, and an amount equal to any applicable transfer
tax, the Rights specified in the election shall be exercised, and the Rights
Agent shall, subject to Section 20(j) hereof, thereupon promptly (i) (A)
requisition from the Company or, if applicable, any transfer agent of the
Preferred Stock (or make available, if the Rights Agent is the transfer agent)
certificates for the number of whole shares of Preferred Stock to be purchased
(and the Company hereby irrevocably authorizes its transfer agent to comply with
all such requests) or (B) if the Company shall have elected to deposit the total
number of shares of Preferred Stock of the Company issuable upon exercise of the
Rights hereunder with a depositary agent, requisition from the depositary agent
for the Preferred Stock depositary receipts representing such number of one one-
hundredths of a share of Preferred Stock as are to be purchased (in which
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case certificates for the shares of Preferred Stock represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Company will direct the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof, (iii)
promptly after receipt of such certificates or depositary receipts, cause the
same to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder, and (iv) when appropriate, after receipt promptly deliver such cash to
or upon the order of the registered holder of such Right Certificate. The
payment of the Purchase Price may be made in cash or by certified bank check or
bank draft payable to the order of the Company. In the event that the Company is
obligated to issue other securities of the Company, pay cash and/or distribute
other property pursuant to Section 11(a) hereof, the Company will make all
arrangements necessary so that such other securities, cash and/or other property
are available for distribution by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to such Rights remaining unexercised shall be
issued by the Rights Agent to the registered holder of such Right Certificate or
to his duly authorized assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, upon
the occurrence of a Section 11(a)(ii) Event or a Section 13(a) Event, any Rights
that are or were on or after the Distribution Date beneficially owned by (i) an
Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such, or (iii) a transferee of an
Acquiring Person (or such Associate or Affiliate) who becomes a transferee prior
to or concurrently with the Acquiring Person becoming such and receives such
Rights pursuant to either (A) a transfer (whether or not for consideration) from
the Acquiring Person to holders of equity interests in such Acquiring Person (or
such Associate or Affiliate) or to any Person with whom the Acquiring Person (or
such Associate or Affiliate) has any agreement, arrangement or understanding
(whether or not in writing) regarding the transferred Rights or (B) a transfer
which is part of a plan, arrangement or understanding (whether or not in
writing) which has as a primary purpose or effect avoidance of this Section 7(e)
and Section 4(b) hereof, shall become void and any holder of such Rights shall
thereafter have no right to exercise such Rights under any provision of this
Agreement. The Company shall use all reasonable efforts to insure that the
provisions of this
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Section 7(e) and Section 4(b) hereof are complied with, but shall have no
liability to any holder of Right Certificates or to any other Person as a result
of its failure to make any determinations with respect to any Acquiring Person
or any of their respective Affiliates, Associates or transferees hereunder. The
Company may require (or cause the Rights Agent or any transfer agent of the
Company to require) any Person who submits a Right Certificate (or a certificate
representing shares of Common Stock that evidences, or but for the provisions of
this Section 7(e) would evidence, Rights) for transfer on the registry books or
to exercise the Rights represented thereby to establish to the satisfaction of
the Company in its sole discretion that such Rights have not become null and
void pursuant to the provisions of this Section 7(e).
(f) Notwithstanding anything in this Agreement to the contrary, the
Rights shall not be effectively exercised and neither the Rights Agent nor the
Company shall be obligated to undertake any action with respect to a registered
holder upon the occurrence of any purported exercise as set forth in this
Section 7, unless such registered holder shall have (i) completed and signed the
certificate contained in the form of election to purchase set forth on the
reverse side of the Right Certificate surrendered for such exercise, (ii)
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request, and (iii) complied with any other requirements of
applicable law.
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
the provisions of this Rights Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Shares of Preferred and Common
Stock. (a) The Company covenants and agrees that it will cause to be reserved
and kept available, and not reserved for other purposes, out of its authorized
and unissued shares of Preferred Stock or its
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authorized and issued shares of Preferred Stock held in its treasury (and,
following the occurrence of a Section 11(a)(ii) Event or a Section 13(a) Event,
out of its authorized and unissued shares of Common Stock and/or other
securities or out of its authorized and issued shares of Common Stock and/or
other securities held in its treasury), the number of shares of Preferred Stock
(and, following the occurrence of a Section 11(a)(ii) Event or a Section 13(a)
Event, Common Stock and/or other securities) that will be sufficient to permit
the exercise in full of all outstanding Rights.
(b) If and so long as the Preferred Stock (and, following the
occurrence of a Section 11(a)(ii) Event or Section 13(a) Event, Common Stock
and/or other securities) issuable upon the exercise of Rights may be listed on
The Nasdaq Stock Market or any national securities exchange, the Company shall
use its best efforts to cause, from and after such time as the Rights become
exercisable (but only to the extent that it is reasonably likely that the Rights
will be exercised), all shares reserved for such issuance to be listed on The
Nasdaq Stock Market or such exchange upon official notice of issuance upon such
exercise.
(c) The Company covenants and agrees that it will take all such
action as may be necessary to insure that all shares of Preferred Stock (and,
following the occurrence of a Section 11(a)(ii) Event or a Section 13(a) Event,
Common Stock and/or other securities) delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such shares (subject to payment
of the Purchase Price), be duly and validly authorized and issued and fully paid
and nonassessable shares.
(d) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the initial issuance or delivery of the Right
Certificates or of any shares of Preferred Stock (and, following the occurrence
of a Section 11(a)(ii) Event or a Section 13(a) Event, Common Stock and/or other
securities) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
involved in the transfer or delivery of Right Certificates or the issuance or
delivery of certificates or depositary receipts for shares of Preferred Stock
(or Common Stock and/or other securities) in a name other than that of the
registered holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or deliver any certificates or depositary receipts for
shares of Preferred Stock (or Common Stock and/or other securities) upon the
exercise of any Rights until any such tax shall have been paid (any such tax
being payable by the holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's satisfaction that no such tax
is due.
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(e) The Company shall use its best efforts (i) to file, as soon as
practicable following the first occurrence of a Section 11(a)(ii) Event for
which the consideration to be delivered by the Company upon exercise of the
Rights has been determined in accordance with Section 11(a)(ii) or (iii) hereof,
or as soon as is required by law following the Distribution Date, as the case
may be, a registration statement under the Act, with respect to the securities
purchasable upon exercise of the Rights on an appropriate form, (ii) to cause
such registration statement to become effective as soon as practicable after
such filing, and (iii) to cause such registration statement to remain effective
(with a prospectus at all times meeting the requirements of the Act) until the
earlier of (A) the date as of which the Rights are no longer exercisable for
such securities, and (B) the Expiration Date. The Company will also take such
action as may be appropriate under, or to ensure compliance with, the securities
or "blue sky" laws of the various states in connection with the exercisability
of the Rights. The Company may temporarily suspend, for a period of time not to
exceed 90 days after the date set forth in clause (i) of the first sentence of
this paragraph (i.e., the date of the Section 11(a)(ii) Event or the
Distribution Date, as the case may be, referred to in clause (i)) the
exercisability of the Rights in order to prepare and file such registration
statement and permit it to become effective. Upon any such suspension, the
Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect. Notwithstanding any provision of
this Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction unless the requisite qualification in such jurisdiction shall have
been obtained, the exercise thereof shall be permitted under applicable law and
a registration statement shall have been declared effective.
Section 10. Preferred Stock Record Date. Each person in whose name any
certificate for shares of Preferred Stock (or Common Stock and/or other
securities) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the Preferred Stock (or Common
Stock and/or other securities) represented thereby on, and such certificate
shall be dated, the date upon which the Right Certificate evidencing such Rights
was duly surrendered and payment of the Purchase Price (and any applicable
transfer taxes) was made; provided, however, that if the date of such surrender
and payment is a date upon which the Preferred Stock (or Common Stock and/or
other securities) transfer books of the Company are closed, such person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding Business Day on which the Preferred Stock
(or
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Common Stock and/or other securities) transfer books of the Company are open.
Prior to the exercise of the Rights evidenced thereby, the holder of a Right
Certificate shall not be entitled to any rights of a stockholder of the Company
with respect to shares for which the Rights shall be exercisable, including,
without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights. The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare or pay a dividend on the Preferred Stock payable
in shares of Preferred Stock, (B) effect a subdivision, combination or
consolidation of the Preferred Stock (by reclassification or otherwise than
by payment of dividends in Preferred Stock) into a greater or lesser number
of shares of Preferred Stock or (C) effect a reclassification or
recapitalization of the Preferred Stock into another class of capital stock
(including any such reclassification or recapitalization in connection with
a consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided this Section 11(a) and
Section 7(e) hereof, the Purchase Price in effect at the time of the record
date for such dividend or of the effective date of such subdivision,
combination, reclassification or recapitalization, and the number and kind
of shares of Preferred Stock or capital stock issuable on such date, shall
be proportionately adjusted so that the holder of any Right exercised after
such time shall be entitled to receive the aggregate number and kind of
shares of Preferred Stock or capital stock, which, if such Right had been
exercised immediately prior to such date and at a time when the Preferred
Stock transfer books of the Company were open, such holder would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination, reclassification or recapitalization. If an event
occurs which would require an adjustment under both this Section 11(a)(i)
and Section 11(a)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii).
(ii) In the event:
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(A) any Person (other than the Company, any subsidiary of
or other Person controlled by the Company, any employee benefit plan
of the Company or of any subsidiary of the Company or any Person
appointed as trustee by the Company or such subsidiary pursuant to the
terms of any such plan in that Person's capacity as trustee), together
with all Affiliates and Associates of such Person, shall, at any time
after the date of this Agreement, become an Acquiring Person, unless
the event causing such Person to become an Acquiring Person is a
Section 13(a) Event hereof, or is an acquisition of Common Stock
pursuant to a tender offer or exchange offer by such Person that (1)
is for all outstanding shares of Common Stock and (2) is at a price
and on terms determined by at least a majority of the members of the
Board of Directors who are not officers of the Company and who are
Continuing Directors, after receiving advice from one or more
investment banking firms, to be (I) at a price which is fair to
stockholders (taking into account all factors which such members of
the Board deem relevant including, without limitation, prices which
could reasonably be achieved if the Company or its assets were sold on
an orderly basis designed to realize maximum value) and (II) otherwise
in the best interests of the Company and its stockholders (an offer
meeting the requirements above being referred to herein as a
"Qualified Offer"),
(B) any Acquiring Person or any Affiliate or Associate of
any Acquiring Person, at any time after the date of this Agreement,
directly or indirectly, (1) shall merge into the Company or otherwise
combine with the Company, the Company shall be the continuing or
surviving corporation of such merger or combination, and the Common
Stock of the Company shall remain outstanding and shall not be changed
or exchanged, (2) shall, in one or more transactions, transfer any
assets to the Company or any of its subsidiaries in exchange (in whole
or in part) for equity or voting securities of the Company or any of
its subsidiaries or for securities exercisable for or convertible into
equity or voting securities of the Company or any of its subsidiaries
or otherwise obtain from the Company, with or without consideration,
any additional equity or voting securities of the Company or any of
its subsidiaries or securities exercisable for or convertible into
equity or voting securities of the Company or any of its
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subsidiaries (other than as part of a pro rata distribution to all
holders of Common Stock), (3) shall sell, purchase, lease, exchange,
mortgage, pledge, transfer or otherwise dispose (in one transaction or
a series of transactions), to, from or with the Company or any of the
Company's subsidiaries, other than incidental to business currently
engaged in as of the date hereof between the Company and such
Acquiring Person or Affiliate or Associate, assets (or a controlling
interest in a Person with assets) having an aggregate fair market
value of more than 5% of the then total consolidated assets of the
Company, (4) shall sell, purchase, lease, exchange, mortgage, pledge,
transfer or otherwise dispose (in one transaction or a series of
transactions), to, from or with the Company or any of the Company's
subsidiaries, assets on terms and conditions less favorable to the
Company than the Company would be able to obtain through arm's-length
negotiation with an unaffiliated third party, (5) shall receive any
compensation from, or otherwise charge for any services to, the
Company or any of the Company's subsidiaries other than (x)
compensation for full-time employment as a regular employee at rates
in accordance with the Company's (or its subsidiaries') past practices
or (y) retirement compensation and benefits received in accordance
with a plan or contract approved by a majority of the Continuing
Directors, or (6) shall receive the benefit, directly or indirectly
(except proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits
or other tax advantage provided by the Company or any of its
subsidiaries, or
(C) at any time when there is an Acquiring Person, there
shall be any reclassification of securities (including any reverse
stock split), or recapitalization of the Company, or any merger or
consolidation of the Company with any of its subsidiaries or any other
transaction or series of transactions with the Company or any of its
subsidiaries (whether or not with or into or otherwise involving an
Acquiring Person) which has the effect, directly or indirectly, of
increasing by more than 1% the proportionate share of the outstanding
shares of any class of equity securities of the Company or any of its
subsidiaries or securities exercisable for or convertible into equity
securities of the Company or
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any of its subsidiaries which is directly or indirectly owned by any
Acquiring Person or any Affiliate or Associate of any Acquiring
Person,
then, and in each such case, proper provision shall be made so that each
holder of a Right, except as provided below and in Section 7(e) hereof,
shall thereafter have a right to receive, upon exercise thereof at a price
equal to the then current Purchase Price multiplied by the number of one
one-hundredths of a share of Preferred Stock for which a Right is then
exercisable, in accordance with the terms of this Agreement and in lieu of
shares of Preferred Stock, such number of shares of Common Stock of the
Company as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the then number of one one-hundredths of a share
of Preferred Stock for which a Right is then exercisable and dividing that
product by (y) 50% of the current market price per share of the Common
Stock of the Company (determined pursuant to Section 11(d)) on the date of
the occurrence of the earlier of any of the Section 11(a)(ii) Events (such
number of shares issuable upon exercise of all outstanding Rights being
herein referred to as the "Adjustment Shares"); provided, however, that if
the transaction that would otherwise give rise to the foregoing adjustment
is also subject to the provisions of Section 13 hereof, then only the
provisions of Section 13 hereof shall apply and no adjustment shall be made
pursuant to this Section 11(a)(ii); provided further that, if the Common
Stock of the Company has been reclassified or recapitalized in a
transaction described in Section 11(a)(i) or converted or otherwise changed
in any manner from the common stock of the Company that was Common Stock of
the Company on the date of this Agreement (such Common Stock prior to any
such reclassification, recapitalization, conversion or other change being
referred to as the "Original Stock"), then each holder of a Right
thereafter shall have a right to receive, upon exercise thereof at the then
current Purchase Price in accordance with the terms of this Agreement, at
the election of the holder, either the number of shares of Common Stock of
the Company determined pursuant to clauses (x) and (y) above or such number
of shares of common stock, other securities and/or property into which the
Original Stock was reclassified, recapitalized, converted or changed,
adjusted to reflect changes in the market price of such common stock or
other securities and in the fair market value of such property since the
date of such reclassification, recapitalization, conversion or other
change, as determined by an investment banking firm selected by the Board
of Directors of the Company, so that the holder of any Right exercised
thereafter shall be entitled to receive
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<PAGE>
the aggregate number and kind of shares of common stock, other securities
and/or property (adjusted for changes in market price and fair market
value) which, if such Section 11(a)(ii) Event (and the related adjustment
of the number of shares of Common Stock to be received upon exercise of a
Right) had occurred prior to the date of such reclassification,
recapitalization, conversion or other change and such Right as so adjusted
had been exercised immediately prior to such date and at a time when the
transfer books of the Company were open, such holder would have owned upon
such exercise and been entitled to receive by virtue of such
reclassification, recapitalization, conversion or change.
(iii) In the event that there shall not be sufficient authorized
but unissued Common Stock and authorized and issued shares of Common Stock
held in the treasury and not reserved for other purposes to permit the
exercise in full of the Rights in accordance with the foregoing
subparagraph (ii), the Company shall take all such action as may be
necessary to authorize additional shares of Common Stock for issuance upon
exercise of the Rights; provided, however, that if the Company is unable
to, or for any reason does not promptly, cause the authorization of a
sufficient number of additional shares of Common Stock, then, in the event
the Rights become exercisable as provided in Section 7(a), the Company
shall make adequate provision to substitute for that number of the
Adjustment Shares as to which additional shares of Common Stock have not
been authorized for issuance: (A) an amount in cash equal to the excess of
(1) the product of (x) the number of Adjustment Shares, multiplied by (y)
the current market price (determined pursuant to Section 11(d)) per share
of Common Stock on the date on which the Section 11(a)(ii) Event occurs
(such product being hereinafter referred to as the "Current Value"), over
(2) the Purchase Price, in lieu of issuing shares of Common Stock and
requiring payment therefor, (B) debt or equity securities (other than
shares of Common Stock) having a value equal to the Current Value, where
the value of such securities shall be determined by an investment banking
firm selected by the Board of Directors of the Company, and requiring the
payment of the Purchase Price, (C) a number of shares of preferred stock
equal to the number of Adjustment Shares where an investment banking firm
selected by the Board of Directors of the Company shall have determined
such shares to have the same value as the shares of Common Stock (a "common
stock equivalent"), and requiring the payment of the Purchase Price, or (D)
any combination of cash, property, common stock equivalents and/or other
securities having the requisite value pursuant to Section 11 as determined
by an investment
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<PAGE>
banking firm selected by the Board of Directors of the Company and
requiring the payment of all or any requisite portion of the Purchase
Price; provided further, however, that if the Company shall not have made
adequate provision to deliver value pursuant to clauses (A), (B), (C) or
(D) of the first proviso to the first sentence of this Section 11(a)(iii)
within 60 days following the date of the occurrence of the Section
11(a)(ii) Event, then the Company shall be obligated to deliver cash in
accordance with clause (A) above. To the extent that the Company determines
that some action need be taken pursuant to clauses (A), (B), (C) or (D) of
the first proviso to the first sentence of this Section 11(a)(iii), the
Company may suspend the exercisability of the Rights for a period of up to
60 days following the date of the occurrence of the Section 11(a)(ii) Event
in order to decide the appropriate form of distribution to be made pursuant
to such first proviso and to determine the value thereof. In the event of
any such suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended.
(b) In case a record date is fixed or otherwise established by the
Company for the issuance of rights, options or warrants to all holders of
Preferred Stock entitling them (for a period expiring within 45 calendar days
after such record date) to subscribe for or purchase Preferred Stock or shares
having the same rights, privileges and preferences as the Preferred Stock
("preferred stock equivalents") (or securities convertible into Preferred Stock
or preferred stock equivalents) at a price per share of Preferred Stock or
preferred stock equivalents (or having a conversion price per share, if a
security convertible into Preferred Stock or preferred stock equivalents) less
than the current market price (as defined in Section 11(d)) per share of
Preferred Stock on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, of which the numerator
shall be the number of shares of Preferred Stock outstanding on such record date
plus the number of shares of Preferred Stock and/or preferred stock equivalents
which the aggregate offering price of the total number of shares of Preferred
Stock so to be offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such current market
price and of which the denominator shall be the number of shares of Preferred
Stock outstanding on such record date plus the number of additional shares of
Preferred Stock and/or preferred stock equivalents to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible). In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than
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cash, the value of such consideration shall be as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent. Shares of Preferred Stock owned by or
held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed or established; and in the event that such
rights, options or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed or established.
(c) In case a record date is fixed or otherwise established by the
Company for the making of a distribution to all holders of Preferred Stock
(including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation) of
evidences of indebtedness or assets (other than (i) a regular periodic cash
dividend out of earnings or retained earnings, (ii) a special cash dividend out
of earnings or retained earnings, which dividend, if declared at any time when
there is an Acquiring Person, has been approved by a majority of the Continuing
Directors then holding office and at such time, the Board of Directors includes
at least one Continuing Director or (iii) a dividend payable in Preferred Stock)
or subscription rights, options or warrants (excluding those referred to in
Section 11(b)), the Purchase Price to be in effect after such record date shall
be determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, of which the numerator shall be the current
market price (as defined in Section 11(d)) per share of Preferred Stock on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights, options or
warrants applicable to one share of Preferred Stock and of which the denominator
shall be such current market price per share of Preferred Stock. Such adjustment
shall be made successively whenever such a record date is fixed or established;
and in the event that such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed or established.
(d) (i) For the purpose of any computation hereunder, the "current
market price" per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of Common Stock for the 30
consecutive Trading Days (as such term is hereinafter defined) immediately prior
to such date; provided, however, that in the event that the current market price
per share of Common Stock is determined during a period following the
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announcement by the issuer of the Common Stock of (x) a dividend or distribution
on the Common Stock payable in shares of Common Stock or securities convertible
into shares of Common Stock or (y) any subdivision, combination or
reclassification of the Common Stock, and prior to the expiration of 30
consecutive Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, as the case may be, then, and in each such case, the "current
market price" shall be appropriately adjusted to reflect the current market
price per capital share equivalent. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the shares of Common Stock are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading or, if the shares of Common Stock are not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ") or such other system then in use, or, if
on any such date the shares of Common Stock are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected by the
Board of Directors of the Company, except that, if on any such date no market
maker is making a market in the Common Stock, the fair value of such shares on
such date as determined in good faith by the Board of Directors of the Company
shall be used. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the shares of Common Stock are listed or
admitted to trading is open for the transaction of business or, if the shares of
Common Stock are not listed or admitted to trading on any national securities
exchange, a Business Day. If the Common Stock is not publicly held or not so
listed or traded, "current market price" per share of Common Stock shall mean
the fair value per share as determined in good faith by the Board of Directors
of the Company, whose determination shall be described in a statement filed with
the Rights Agent.
(ii) For the purpose of any computation hereunder, the "current
market price" per share of Preferred Stock on any date shall be determined in
the same manner as set forth
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for the Common Stock in Section 11(d)(i) hereof. If the current per share market
price of the Preferred Stock cannot be determined in such manner, the current
per share market price of the Preferred Stock shall be conclusively deemed to be
the current per share market price of the Common Stock (appropriately adjusted
to reflect any share split, share dividend or similar transaction occurring
after the date hereof), multiplied by 100. If neither the Common Stock nor the
Preferred Stock is publicly held or listed or traded as contemplated by Section
11(d)(i), "current market price" per share of Common Stock or Preferred Stock
shall mean the fair value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in such price; provided, however, that any
adjustments which by reason of this Section 11(e) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment
(including whether such subsequent adjustment should be made). All calculations
under this Section 11 shall be made to the nearest cent or to the nearest ten-
thousandth of a share of Common Stock or other share or one-millionth of a share
of Preferred Stock, as the case may be. Notwithstanding the first sentence of
this Section 11(e), any adjustment required by this Section 11 shall be made no
later than the earlier of (i) three years from the date of the transaction which
mandates such adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a) or
Section 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock of the Company other than shares
of Preferred Stock, thereafter the number of such other shares so receivable
upon exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the shares contained in this Section 11, and the provisions of
Sections 7, 9, 10, 13 and 14 hereof with respect to the shares of Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
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(h) Unless the Company shall have exercised its election as provided
in Section 11(i) below, upon each adjustment of the Purchase Price as a result
of the calculations made in Section 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of one one-
hundredths of a share of Preferred Stock (calculated to the nearest one-
millionth of a share of Preferred Stock) obtained by (i) multiplying (A) the
number of one one-hundredths of a share covered by a Right immediately prior to
this adjustment by (B) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a share of Preferred Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-hundredths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. Such record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Right Certificates have been issued, the record date shall be at least 10
days later than the date of the public announcement. If Right Certificates have
been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record date Right
Certificates evidencing, subject to Section 14, the additional Rights to which
such holders shall be entitled as a result of such adjustment, or, at the option
of the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be distributed
shall be
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issued, executed and countersigned in the manner provided for herein (and may
bear, at the option of the Company, the adjusted Purchase Price) and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a share of Preferred Stock issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-hundredths
of a share of Preferred Stock which were expressed in the initial Right
Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the number of one one-
hundredths of a share of Preferred Stock issuable upon exercise of the Rights,
the Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable such number of one one-hundredths of a share of
Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
the number of one one-hundredths of a share of Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise over and
above the number of one one-hundredths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in the good faith judgment the Board of Directors shall
determine to be advisable in order that any (i) consolidation or subdivision of
the Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred
Stock at less than the current market price, (iii) issuance wholly for cash of
shares of Preferred Stock or securities which by their terms are convertible
into or exchangeable for shares of Preferred Stock, (iv) stock dividends or (v)
issuance of rights, options or warrants referred to hereinabove in this Section
11,
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hereafter made by the Company to holders of its Preferred Stock shall not be
taxable to such stockholders.
(n) Notwithstanding any other provision of this Agreement, no
adjustment to the Purchase Price, the number of one one-hundredths of a share of
Preferred Stock for which a Right is exercisable or the number of Rights
outstanding (except as permitted by Section 23 hereof) or any similar adjustment
shall be made or be effective if such adjustment would have the effect of
reducing or limiting the benefits the holders of the Rights would have had
absent such adjustment, including, without limitation, the benefits under
Section 11(a)(ii) and Section 13, unless the terms of this Agreement are amended
so as to preserve such benefits.
(o) In the event that at any time after the date of this Agreement and
prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Stock payable in Common Stock or (ii) effect a
subdivision, combination or consolidation of the Common Stock (by classification
or otherwise than by payment of dividends in Common Stock) into a greater or
lesser number of shares of Common Stock, then in any such case (i) the number of
one one-hundredths of a share of Preferred Stock purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a share of Preferred Stock so purchasable immediately
prior to such event by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately before such event and the
denominator of which is the number of shares of Common Stock outstanding
immediately after such event, and (ii) each share of Common Stock outstanding
immediately after such event shall have issued with respect to it that number of
Rights which each share of Common Stock outstanding immediately prior to such
event had issued with respect to it. The adjustments provided for in this
Section 11(o) shall be made successively whenever such a dividend is declared or
paid or such a subdivision, combination or consolidation is effected.
(p) The Company covenants and agrees that, following the Distribution
Date, except as permitted by Section 23 or Section 27 hereof, it will not,
directly or indirectly, take any action if at the time of such action it is
reasonably foreseeable that such action will substantially diminish or otherwise
eliminate the benefits intended to be afforded by the Rights.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Sections 11 or 13 hereof, the
Company shall (a) promptly prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) promptly
file with the Rights Agent and with each transfer agent for the
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Preferred Stock and the Common Stock a copy of such certificate and (c) mail a
brief summary thereof to each holder of a Right Certificate (or, if prior to the
Distribution Date, to each holder of a certificate representing shares of Common
Stock) in accordance with Section 26 hereof. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment contained
therein.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power. (a) In the event that, on or after the Stock Acquisition Date, directly
or indirectly, (i) the Company shall consolidate with, or merge with and into,
any other Person, and the Company shall not be the continuing or surviving
corporation, (ii) any Person shall consolidate with the Company, or merge with
and into the Company, and the Company shall be the continuing or surviving
corporation and, in connection therewith, all or part of the Common Stock of the
Company shall be changed into or exchanged for stock or other securities of any
other Person or cash or any other property, or (iii) the Company shall sell or
otherwise transfer (or one or more of its subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating more
than 50% of the assets or earning power of the Company and its subsidiaries
(taken as a whole) to any other Person or Persons, then, and in each such case,
proper provision shall be made so that (A) each holder of a Right, except as
provided in Section 7(e) hereof, shall thereafter have the right to receive,
upon the exercise thereof at a price equal to the then current Purchase Price
multiplied by the number of one one-hundredths of a share of Preferred Stock for
which a Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of shares of Preferred Stock, such number of validly
authorized and issued, fully paid, non-assessable and freely tradeable shares of
common stock of the Principal Party (as hereinafter defined), free and clear of
any liens, encumbrances and adverse claims and not subject to any rights of
call, purchase or first refusal, as shall be equal to the result obtained by (x)
multiplying the then current Purchase Price by the number of one one-hundredths
of a share of Preferred Stock for which a Right is then exercisable and dividing
that product by (y) 50% of the current market price (determined pursuant to
Section 11(d)) per share of the common stock of the Principal Party on the date
of consummation of such consolidation, merger, sale or transfer; (B) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such consolidation, merger, sale or transfer, all the obligations and duties of
the Company pursuant to this Agreement; (C) the term "Company" shall thereafter
be deemed to refer to such Principal Party, it being specifically intended that
the provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of an event set forth
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in Section 13(a) hereof; and (D) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of shares
of its common stock in accordance with Section 9) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to the
shares of its Common Stock or cash, property or other securities thereafter
deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean (i) in the case of any transaction
described in (i) or (ii) of the first sentence of Section 13(a), the Person that
is the issuer of any securities into which shares of Common Stock of the Company
are converted in such merger or consolidation, and if no securities are so
issued, the Person that is the other party to such merger or consolidation; and
(ii) in the case of any transaction described in (iii) of the first sentence in
Section 13(a), the Person that is the party receiving the greatest portion of
the assets or earning power transferred pursuant to such transaction or
transactions; provided, however, that in any such case, (1) if the shares of
common stock of such Person are not at such time and have not been continuously
over the preceding twelve month period registered under Section 12 of the
Exchange Act ("Registered Common Shares") or such Person is not a corporation,
and such Person is directly or indirectly controlled by another Person which has
Registered Common Shares outstanding, "Principal Party" shall refer to such
other Person; (2) if the shares of common stock of such Person are not
Registered Common Shares or such Person is not a corporation, and such Person is
directly or indirectly controlled by another Person which does not have
Registered Common Shares outstanding, "Principal Party" shall refer to the
controlling Person of such first-mentioned Person; (3) if the shares of common
stock of such Person are not Registered Common Shares or such Person is not a
corporation, and such Person is directly or indirectly controlled by more than
one Person, and one or more of such controlling Persons have Registered Common
Shares outstanding, "Principal Party" shall refer to whichever of such
controlling Persons is the issuer of the Registered Common Shares having the
greatest aggregate market value; and (4) if the shares of common stock of such
Person are not Registered Common Shares or such Person is not a corporation, and
such Person is directly or indirectly controlled by more than one Person, and
none of such controlling Persons have Registered Common Shares outstanding,
"Principal Party" shall refer to whichever controlling Person is the corporation
having the greatest stockholders equity or, if no such controlling Person is a
corporation, shall refer to whichever controlling Person has the greatest net
assets.
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(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a legally valid, binding and
enforceable supplemental agreement in compliance with the provisions set forth
in Section 13(a) and (b), and if applicable Section 13(d), and further providing
that, as soon as practicable after the date of any consolidation, merger or sale
of assets mentioned in this Section 13, such Principal Party will (i) prepare
and file a registration statement under the Act, with respect to the Rights and
the securities purchasable upon exercise of the Rights on an appropriate form,
and will use its best efforts to cause such registration statement to (A) become
effective as soon as practicable after such filing and (B) remain effective
(with a prospectus at all times meeting the requirements of the Act) until the
Expiration Date; (ii) will deliver to holders of the Rights historical financial
statements for such issuer and each of its Affiliates which comply in all
respects with the requirements for registration on Form 10 under the Exchange
Act; and (iii) will use its best efforts to qualify or register the Rights and
the securities purchasable upon exercise of the Rights under the blue sky laws
of such jurisdictions as may be necessary or appropriate.
(d) Notwithstanding anything in Section 13(b) and (c) to the contrary,
if the Principal Party as determined pursuant to paragraph (b) above is not a
corporation or does not have shares of common stock, proper provision shall be
made so that such Principal Party shall create or otherwise make available for
purposes of the exercise of the Rights in accordance with the terms of this
Agreement, cash or a type or types of securities having a fair market value (as
determined by a nationally recognized investment banking firm selected by the
Board of Directors of the Company) equal to at least the value of the shares of
common stock which each holder of a Right would have been entitled to receive if
such Principal Party had been a corporation or had shares of common stock.
(e) The Company covenants and agrees that, following the Distribution
Date, it shall not consummate any of the transactions described in clauses (i),
(ii) and (iii) of the first sentence of Section 13(a) if at the time of or after
such consummation there would be any charter or by-law provisions or any rights,
warrants or other instruments or securities outstanding or agreements in effect
or any other action taken which would diminish or eliminate the benefits
intended to be afforded by the Rights, unless prior thereto the Principal Party
shall have amended or repealed such charter or by-law provisions, instruments or
securities, agreements or actions or otherwise protected the holders of the
Rights from such diminution or elimination of benefits, and
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the Company and the Principal Party shall have executed and delivered to the
Rights Agent a legally valid, binding and enforceable supplemental agreement
providing for such amendment, repeal or other protection.
(f) The provisions of this Section 13 shall similarly apply to
successive mergers, consolidations, sales or other transfers. In the event that
any transaction set forth in Section 13 occurs at any time after the occurrence
of any transaction set forth in Section 11(a)(ii), the Rights which have not
theretofore been exercised shall thereafter become exercisable in the manner
described in this Section 13.
(g) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraph
(i) and (ii) of Section 13(a) if (i) such transaction is consummated with a
Person or Persons who acquired shares of Common Stock pursuant to a Qualified
Offer (or a wholly owned subsidiary of any such Person or Persons), (ii) the
price per share of Common Stock offered in such transaction is not less than the
price per share of Common Stock paid to all holders of shares of Common Stock
whose shares were purchased pursuant to such tender offer or exchange offer, and
(iii) the form of consideration being offered to the remaining holders of shares
of Common Stock pursuant to such transaction is the same as the form of
consideration paid pursuant to such tender offer or exchange offer. Upon
consummation of any such transaction contemplated by this Section 13(g), all
Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national
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securities exchange on which the Rights are listed or admitted to trading or, if
the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use or, if on any such date the Rights are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Company, except that, if on any such
date no such market maker is making a market in the Rights, the fair value of
the Rights on such date as determined in good faith by the Board of Directors of
the Company shall be used.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one one-
hundredths of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-hundredth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock, the
Company may pay to the registered holders of Right Certificates at the time such
Right Certificates are exercised as herein provided an amount in cash equal to
the same fraction of the current market value of one one-hundredth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market value of
a share of Preferred Stock shall be the closing price of a share of Preferred
Stock (as determined pursuant to Section 11(d)(ii)) for the Trading Day
immediately prior to the date of such exercise.
(c) Following the occurrence of a Section 11(a)(ii) Event or a Section
13(a) Event, the Company shall not be required to issue fractions of shares of
Common Stock upon exercise of the Rights or to distribute certificates which
evidence fractional shares of Common Stock. In lieu of fractional shares of
Common Stock, the Company may pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one share of
Common Stock. For purposes of this Section 14(c), the current market value of
one share of Common Stock shall be the closing price of one share of Common
Stock (as determined pursuant to Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(d) Each holder of a Right or Rights by the acceptance of the Rights
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right or Rights except as provided in this Section 14.
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Section 15. Rights of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance,
and injunctive relief against actual or threatened violations, of the
obligations of any Person subject to this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the close of business on the Distribution Date, the
Rights will be transferred in connection with any transfer of Common Stock,
which will be the only way that Rights will be transferred;
(b) after the close of business on the Distribution Date, the Rights
will be transferable only by transfer of the Right Certificates, which are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer;
(c) the Company and the Rights Agent may deem and treat the person in
whose name each Right Certificate (or, prior to the Distribution Date, the
associated Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of ownership
or writing on the Right Certificate or the associated Common Stock certificate
made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be affected by
any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as
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a result of its inability to perform any of its obligations under this Agreement
by reason of any preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of such obligation;
provided, however, the Company must use its best efforts to have any such order,
decree or ruling lifted or otherwise overturned as soon as possible.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of Common Stock or any other securities
of the Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Right
Certificate be construed to confer upon the holder of any Right Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 25), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right Certificate shall
have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. (a) The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
gross negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Right Certificate
or certificate for Common Stock or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement or other paper or
document believed
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by it to be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper person or persons.
Section 19. Merger or Consolidation or Change of Name of Rights Agent. (a)
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the corporate trust
business of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto;
provided, however, that such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21. In case at the time
such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
Section 20. Terms and Conditions to Duties of Rights Agent. The Rights
Agent undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full
authorization to the Rights Agent for any action taken or omitted by it in good
faith and in accordance with such opinion.
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(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or omitting any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman, the President or any Vice
President and by the Treasurer or any Assistant Treasurer or the Secretary or
any Assistant Secretary of the Company and delivered to the Rights Agent; and
such certificate shall be full authorization to the Rights Agent for any action
taken or omitted by it in good faith under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any adjustment required under the provisions of Sections 11
or 13 or responsible for the manner, method or amount of any such adjustment or
the ascertaining of the existence of facts that would require any such
adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after actual notice of any such adjustment); nor shall it by any
act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Preferred Stock to be issued
pursuant to this Agreement or any Right Certificate or as to whether any shares
of Preferred Stock will, when issued, be validly authorized and issued, fully
paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
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(g) The Rights Agent is hereby authorized and directed to accept
determinations, interpretations and instructions with respect to the performance
of its duties hereunder from the Chairman, the President or any Vice President
or the Secretary or any Assistant Secretary or the Treasurer or any Assistant
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with
determinations, interpretations and instructions of any such officer.
(h) Except as limited and restricted by the last sentence of Section
23(b) herein, the Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided the Rights Agent exercised reasonable care in
the selection and continued employment thereof.
(j) If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has not been
completed or indicates an affirmative response to clause 1 and/or 2 thereof, the
Rights Agent, subject to the provisions of Section 11(a)(ii), shall not take any
further action with respect to such requested exercise or transfer without first
consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Stock by registered or certified mail, and to the holders of the
Right Certificates by first-class mail (at the expense of the Company). The
Company may remove the Rights Agent or any successor Rights Agent upon 30 days'
notice in writing, mailed to the Rights Agent or successor Rights Agent, as the
case may be,
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and to each transfer agent of the Common Stock by registered or certified mail,
and to the holders of the Right Certificates by first-class mail. If the Rights
Agent shall resign or be removed or shall otherwise become incapable of acting
or shall repeatedly fail or refuse to act, the Company shall appoint a successor
to the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity or repeated failure or
refusal to act by the Rights Agent or by the holder of a Right Certificate (who
shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be (a) a corporation organized and doing business under the laws of the
United States or of the State of Illinois (or of any other state of the United
States so long as such corporation is authorized to do business as a banking
institution in the State of Illinois), in good standing, having a principal
office in the State of Illinois which is authorized under such laws to exercise
corporate trust powers and is subject to supervision or examination by federal
or state authority and which has at the time of its appointment as Rights Agent
a combined capital, surplus and undivided profits of at least $10,000,000 or (b)
an Affiliate of any corporation described in the foregoing clause (a). After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed, and the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock, and mail a
notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the Purchase Price per share and the number or kind or class of shares of stock
or other securities or property purchasable under the Right Certificates made in
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accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution
Date and prior to the Expiration Date pursuant to the exercise, conversion or
exchange of stock options, warrants, rights or convertible securities of the
Company that are outstanding prior to the Distribution Date, the Company shall
issue Rights with respect to all such shares of Common Stock so issued or sold
(and shall issue Rights Certificates representing such Rights); provided,
however, that (i) no such Rights Certificate shall be issued if, and to the
extent that, the Company shall be advised by counsel that such issuance would
create a significant risk of material adverse tax consequences to the Company or
the Person to whom such Rights Certificate would be issued, and (ii) no such
Rights Certificate shall be issued if, and to the extent that, appropriate
adjustment shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption. (a) The Board of Directors of the Company may, at
its option, at any time prior to the earlier of (i) the close of business on the
twentieth day after the Stock Acquisition Date, as such period may be extended
pursuant to Section 27 hereof, or (ii) the Final Expiration Date, redeem all but
not less than all the then outstanding Rights at a redemption price of $0.01 per
Right, as such amount may be appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (such
redemption price being hereinafter referred to as the "Redemption Price");
provided, however, that if the Board of Directors of the Company authorizes
redemption of the Rights in any of the circumstances set forth in clauses (A) or
(B) below, there must be at least one Continuing Director and such authorization
shall require the approval of a majority of the Continuing Directors then
holding office: (A) such authorization occurs on or after the Stock Acquisition
Date, or (B) such authorization occurs on or after the date of a change
(resulting from a proxy or consent solicitation) in a majority of the directors
in office at the commencement of such solicitation if any Person who is a
participant in such solicitation has stated that such Person (or any of its
Affiliates or Associates) intends to take or may consider taking, or if a
majority of the Board of Directors of the Company has determined in good faith
that such Person (or any of its Affiliates or Associates) intends or is likely
to take, any action which would result in such Person becoming an Acquiring
Person or which would cause the occurrence of a Section 11(a)(ii) Event or
Section 13(a) Event, unless, concurrent with such solicitation, such Person (or
one or more of its Affiliates or Associates) is making a Qualified Offer;
provided further, that if, following the occurrence of a Stock Acquisition Date
and following the expiration of the right of redemption hereunder but prior to
the occurrence of a Section 11(a)(ii)
41
<PAGE>
Event or Section 13(a) Event, (x) a Person who is an Acquiring Person shall have
transferred or otherwise disposed of a number of shares of Common Stock in one
transaction or series of transactions, not directly or indirectly involving the
Company or any of its subsidiaries, which did not result in the occurrence of a
Section 11(a)(ii) Event or Section 13(a) Event such that such Person is
thereafter the Beneficial Owner of less than 10% of the outstanding shares of
Common Stock of the Company and (y) there are no other Persons, immediately
following the occurrence of the event described in clause (x), who are Acquiring
Persons, then the right of redemption shall be reinstated and thereafter be
subject to the provisions of this Section 23. Notwithstanding anything contained
in this Agreement to the contrary, the Rights shall not be exercisable after the
first occurrence of a Section 11(a)(ii) Event until such time as the Company's
right of redemption hereunder has expired. The Company may, at its option, pay
the Redemption Price in cash, shares of Common Stock (based on the current
market price of the Common Stock, as defined in Section 11(d)(i) hereof, at the
time of redemption) or any other form of consideration deemed appropriate by the
Board of Directors.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, and without any further action
and without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price. Within ten business days after the action of the Board of
Directors ordering the redemption of the Rights, the Company shall give notice
of such redemption to the holders of the then outstanding Rights by mailing such
notice to all such holders at their last addresses as they appear upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Stock. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Such notice of redemption shall state the method by
which the payment of the Redemption Price will be made. Neither the Company nor
any of its Affiliates or Associates may redeem, acquire or purchase for value
any Rights at any time in any manner other than that specifically set forth in
this Section 23, and other than in connection with the repurchase of Common
Stock prior to the Distribution Date.
Section 24. Exchange. (a) The Board of Directors of the Company may, at its
option, at any time after the occurrence of a Section 11(a)(ii) Event or a
Section 13(a) Event exchange all or part of the then outstanding and exercisable
Rights (which shall not include Rights that have become void pursuant to the
provisions of Section 7(e) hereof) for shares of Common Stock at an
42
<PAGE>
exchange ratio of one share of Common Stock per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such exchange ratio being hereinafter referred to as the
"Exchange Ratio"); provided, however, that if the Board of Directors of the
Company authorizes such exchange of the Rights in either of the circumstances
set forth in clauses (A) and (B) below, there must be at least one Continuing
Director and such authorization shall require the approval of a majority of the
Continuing Directors then holding office: (A) such authorization occurs on or
after the Stock Acquisition Date, or (B) such authorization occurs on or after
the date of a change (resulting from a proxy or consent solicitation) in a
majority of the directors in office at the commencement of such solicitation if
any Person who is a participant in such solicitation has stated that such Person
(or any of its Affiliates or Associates) intends to take or may consider taking,
or if a majority of the Board of Directors of the Company has determined in good
faith that such Person (or any of its Affiliates or Associates) intends or is
likely to take, any action which would result in such Person becoming an
Acquiring Person or which would cause the occurrence of a Section 11(a)(ii)
Event or a Section 13(a) Event, unless, concurrent with such solicitation, such
Person (or one or more of its Affiliates or Associates) is making a Qualified
Offer.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of shares of Common Stock equal
to the number of such Rights held by such holder multiplied by the Exchange
Ratio. The Company shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company promptly shall mail a
notice of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the shares of Common Stock for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 7(e) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute shares of Preferred Stock (or preferred stock
equivalents, as such term is defined in
43
<PAGE>
Section 11(b) hereof) for shares of Common Stock exchangeable for Rights, at the
initial rate of one one-hundredth of a share of Preferred Stock (or preferred
stock equivalents) for each share of Common Stock as appropriately adjusted to
reflect adjustments in the voting rights of the shares of Preferred Stock
pursuant to the Certificate of Incorporation attached hereto as Exhibit A, so
that the fraction of a share of Preferred Stock delivered in lieu of each share
of Common Stock shall have the same voting rights as one share of Common Stock.
(d) In the event that there shall not be sufficient shares of Common
Stock or Preferred Stock issued but not outstanding or authorized but unissued
to permit any exchange of Rights as contemplated in accordance with this Section
24, the Company shall take all such action as may be necessary to authorize
additional shares of Common Stock or Preferred Stock for issuance upon exchange
of the Rights.
(e) The Company shall not be required to issue fractional shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of such fractional shares of Common Stock, the Company
shall pay to the registered holders of the Right Certificates with regard to
which such fractional shares would otherwise be issuable an amount in cash equal
to the same fraction of the current market value of a whole share of Common
Stock. For the purposes of this subsection (e), the current market value of a
whole share of Common Stock shall be the closing price of the Common Stock (as
determined pursuant to the second sentence of Section 11(d)(i) hereof) for the
Trading Day immediately prior to the date of exchange pursuant to this Section
24.
Section 25. Notice of Certain Events. In case the Company shall propose (a)
to pay any dividend payable in stock of any class to the holders of its
Preferred Stock or to make any other distribution to the holders of its
Preferred Stock (other than a regular periodic cash dividend out of earnings or
retained earnings or other than a special cash dividend out of earnings or
retained earnings, which dividend, if declared at any time when there is an
Acquiring Person, has been approved by a majority of the Continuing Directors
then holding office, and at such time the Board of Directors includes at least
one Continuing Director), or (b) to offer to the holders of its Preferred Stock
rights, options or warrants to subscribe for or to purchase any additional
shares of Preferred Stock or shares of stock of any class or any other
securities, rights or options, or (c) to effect any reclassification of its
Preferred Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (d) to effect any consolidation or
merger into or with, or to effect any sale or other transfer (or to permit one
or more of its subsidiaries to
44
<PAGE>
effect any sale or other transfer), in one or more transactions, of more than
50% of the assets or earning power of the Company and its subsidiaries (taken as
a whole) to, any other Person or Persons, or (e) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Right, in accordance with Section 26, a notice of
such proposed action, which shall specify the record date for the purposes of
such stock dividend, distribution of rights, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of Preferred Stock, if any such date is to be fixed, and
such notice shall be so given in the case of any action covered by clause (a) or
(b) above at least twenty days prior to the record date for determining holders
of the Preferred Stock for purposes of such action, and in the case of any such
other action, at least twenty days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of Preferred
Stock, whichever shall be the earlier.
In case of the occurrence of a Section 11(a)(ii) Event or a Section
13(a) Event, then (i) the Company or the Principal Party, as the case may be,
shall as soon as practicable thereafter give to each holder of a Right, in
accordance with Section 26, a notice of the occurrence of such event, which
shall specify the event and the consequences of the event to holders of Rights
under Section 11(a)(ii) or Section 13(a) hereof, as the case may be, and (ii)
all references in the preceding paragraph to Preferred Stock shall be deemed
hereafter to refer to Common Stock and/or, if appropriate, other securities.
Section 26. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate to
or on the Company shall be sufficiently given or made if delivered personally,
telecopied (with confirmation), mailed by registered or certified mail (return
receipt requested) or delivered by an express courier (with confirmation) to the
parties at the following addresses (until another address is filed in writing by
like notice with the Rights Agent) as follows:
Grand Premier Financial, Inc.
486 West Liberty Street
Wauconda, Illinois 60084-2489
Attention: President
with copy to the Secretary at the same address. Subject to the provisions of
Section 21, any notice or demand authorized by this Agreement to be given or
made by the Company or by the holder of any Right Certificate to or on the
Rights Agent shall be sufficiently given or made if delivered
45
<PAGE>
personally, telecopied (with confirmation), mailed by registered or certified
mail (return receipt requested) or delivered by an express courier (with
confirmation) to the parties at the following addresses (until another address
is filed in writing by like notice with the Company) as follows:
Premier Trust Services, Inc.
101 West Stephenson
Freeport, Illinois 61032
Attention: Secretary
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Rights Agent.
Section 27. Supplements and Amendments. Prior to the Distribution Date and
subject to the penultimate sentence of this Section 27, the Company and the
Rights Agent shall, if the Company so directs, supplement or amend any provision
of this Agreement without the approval of any holders of certificates
representing shares of Common Stock. From and after the Distribution Date and
subject to the penultimate sentence of this Section 27, the Company and the
Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Right Certificates in order (i)
to cure any ambiguity, (ii) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder, including, without
limitation, the period within which the Rights may be redeemed in accordance
with Section 23 hereof (which shortening or lengthening, at any time after the
occurrence of an event described in clause (A) or (B) of the first proviso to
Section 23(a), shall be effective only if there is at least one Continuing
Director and such shortening or lengthening is approved by a majority of such
Continuing Directors then holding office), or (iv) to change or supplement the
provisions hereunder in any manner which the Company may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Right Certificates (other than an Acquiring Person or an Affiliate or Associate
of an Acquiring Person); provided, however, that this Agreement may not be
supplemented or amended to lengthen, pursuant to clause (iii) of this sentence,
a time period relating to when the Rights may be redeemed at any time when the
Rights are not redeemable. Upon the delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 27, the Rights Agent
shall execute such supplement or amendment. Notwithstanding anything contained
in this
46
<PAGE>
Agreement to the contrary, no supplement or amendment shall be made which
changes the Redemption Price, the Final Expiration Date, the Purchase Price or
the number of one one-hundredths of a share of Preferred Stock for which a Right
is exercisable, unless at the time of such supplement or amendment there has
been no occurrence of an event described in clause (A) or (B) of the first
proviso to Section 23(a) and such supplement or amendment shall not adversely
affect the interests of the holders of Right Certificates (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person). Prior to
the Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of shares of Common Stock.
Section 28. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Stock).
Section 30. Governing Law. This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such state applicable to contracts to be made and performed
entirely within such state.
Section 31. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 32. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 33. Severability. If any term, provision, covenant or restriction
of this Agreement shall be held by a court of competent jurisdiction or other
authority to be invalid, void, illegal, unenforceable or in conflict with any
applicable law or regulation then in effect, the validity or enforceability of
the remainder of the terms, provisions, covenants and restrictions shall not be
affected thereby; provided, however, that notwithstanding anything in this
Agreement to the
47
<PAGE>
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void, illegal or unenforceable and the Board
of Directors of the Company determines in its good faith judgment (which
determination, at any time when there is an Acquiring Person, shall be effective
only if there is at least one Continuing Director and the determination is
approved by a majority of the Continuing Directors then holding office) that
severing the invalid language from this Agreement would adversely affect the
purpose or effect of this Agreement, the right of redemption set forth in
Section 23 hereof shall be reinstated, if heretofore expired, or extended so as
not to expire until the close of business on the fifteenth Business Day
following the date of such determination by the Board of Directors.
Section 34. Determinations and Actions by the Board of Directors, etc. For
all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding Common Stock of which
any Person is the Beneficial Owner, shall be made in accordance with the terms
of this Agreement and the last sentence of Rule 13d-3(d)(1)(i) of the General
Rules and Regulations under the Exchange Act. The Board of Directors of the
Company (with, where specifically provided for herein, the approval of a
majority of the Continuing Directors) shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board (with, where specifically provided for herein,
the approval of a majority of the Continuing Directors) or to the Company, or as
may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power to (i) interpret the
provisions of this Agreement, and (ii) make all determinations deemed necessary
or advisable for the administration of this Agreement (including a determination
to redeem or not redeem the Rights or to amend the Agreement). All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (y) below, all omissions with respect to the foregoing) which are done or
made by the Board (with, where specifically provided for herein, the approval of
a majority of the Continuing Directors) in good faith, shall (x) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights and all other parties, and (y) not subject the Board or the Continuing
Directors to any liability to the holders of the Rights.
48
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: GRAND PREMIER FINANCIAL, INC.
By: By: /s/ Richard L. Geach
----------------------------- ---------------------------------------
Name: Name: Richard L. Geach
------------------------- --------------------------
Title:------------------------ Title: Chairman of the Board
and Chief Executive
Officer
-------------------------
Attest: PREMIER TRUST SERVICES, INC.
By: By: /s/ Kenneth A. Urban
----------------------------- ---------------------------------------
Name: Name: Kenneth A. Urban
------------------------- --------------------------
Title: Title: President
------------------------ -------------------------
49
<PAGE>
EXHIBIT A
[Exhibit A is the Form of Amended and Restated Certificate of Incorporation of
GPF to be adopted at the Effective Time of the Merger, which appears at Appendix
F of the Joint Proxy Statement-Prospectus of which this Registration Statement
is a part.]
<PAGE>
Exhibit B
---------
[Form of Right Certificate]
Certificate No. R- _____ Rights
NOT EXERCISABLE AFTER THE FINAL EXPIRATION DATE OR EARLIER IF
CONSUMMATION OF A TRANSACTION PURSUANT TO SECTION 13(g) OF THE
RIGHTS AGREEMENT OCCURS OR IF NOTICE OF REDEMPTION OR EXCHANGE IS
GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $0.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH
IN THE RIGHTS AGREEMENT. [THE RIGHTS REPRESENTED BY THIS
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR
BECAME AN ACQUIRING PERSON OR AN ASSOCIATE OR AFFILIATE OF AN
ACQUIRING PERSON. THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED
HEREBY MAY BECOME VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION
7(e) OF THE RIGHTS AGREEMENT.]*
Right Certificate
Grand Premier Financial, Inc.
This certifies that _______________________________________, or
registered assigns, is the registered owner of the number of Rights set forth
above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement dated as of July 8, 1996 (the
"Rights Agreement") between Grand Premier Financial, Inc., a Delaware
corporation (the "Company"), and Premier Trust Services, Inc, an Illinois trust
company (the "Rights Agent"), to purchase from the Company at any time after the
Distribution Date (as such term is defined in the Rights Agreement) when the
rights are exercisable pursuant to the Rights Agreement and prior to 5:00 P.M.
(Chicago, Illinois time) on the Final Expiration Date (as such term is defined
in the Rights Agreement) at the principal office of the Rights Agent, or its
successors as Rights Agent, in Chicago, Illinois, one one-hundredth of a fully
paid non-assessable share of the Series I Junior
- ----------------------------
* The portion of the legend in brackets shall be inserted only if applicable.
<PAGE>
Participating Preferred Stock, without par value ("Preferred Stock"), of the
Company, at a purchase price of $__________ per one-hundredth of a share
(the "Purchase Price"), upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase duly executed. The number of
Rights evidenced by this Right Certificate (and the number of one one-hundredths
of a share which may be purchased upon exercise thereof) set forth above, and
the Purchase Price set forth above, are the number and Purchase Price as of
__________, 199_, based on the shares of Preferred Stock of the Company as
constituted at such date.
As provided in the Rights Agreement, the Purchase Price and the number
of one one-hundredths of a share of Preferred Stock or other securities or
property which may be purchased upon the exercise of the Rights evidenced by
this Right Certificate are subject to modification and adjustment upon the
happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the above-mentioned office of the Rights
Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
one one-hundredths of a share of Preferred Stock or other securities or property
as the Rights evidenced by the Right Certificate or Right Certificates
surrendered shall have entitled such holder to purchase. If this Right
Certificate shall be exercised in part, the holder
B-2
<PAGE>
shall be entitled to receive upon surrender hereof another Right Certificate or
Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $0.01 per Right.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions that are
integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depository receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Preferred Stock or
of any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or, to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, until the Right or
Rights evidenced by this Right Certificate shall have been exercised as provided
in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
B-3
<PAGE>
WITNESS the signature of the proper officers of the Company. Dated
as of __________, 19__.
ATTEST: Grand Premier Financial, Inc.
By
- ---------------------------- -------------------------------
Secretary Title:
Countersigned:
Premier Trust Services, Inc.
By
--------------------------
Authorized Signature
B-4
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED __________________________________ hereby sells,
assigns and transfers unto __________________________________________________
_____________________________________________________________________________
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _____________________ Attorney,
to transfer the within Right Certificate on the books of the within-named
Company, with full power of substitution.
Dated: _______________, 19____
---------------------------------
Signature
Signature Guaranteed:
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Right Certificate [ ] is/ [ ] is not being sold, assigned
and transferred by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
B-5
<PAGE>
(2) after due inquiry and to the best knowledge of the undersigned,
the undersigned [ ] did/ [ ] did not acquire the Rights evidenced by this
Right Certificate from any Person who is, was or subsequently became an
Acquiring Person or an Affiliate or Associate of an Acquiring Person.
Dated: _______________, 19____
---------------------------------
Signature Guaranteed:
NOTICE
------
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
B-6
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise the Right Certificate.)
To Grand Premier Financial, Inc.:
The undersigned hereby irrevocably elects to exercise ______________
___________________ Rights represented by this Right Certificate to purchase
the shares of Preferred Stock or other securities or property issuable upon the
exercise of such Rights and requests that certificates for such shares be issued
in the name of:
Please insert social security
or other identifying number
- -----------------------------------------------------------------------------
(Please print name and address)
- -----------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- -----------------------------------------------------------------------------
(Please print name and address)
- -----------------------------------------------------------------------------
Dated: ______________, 19____
---------------------------------------
Signature
(Signature must conform in all respects
to name of holder as specified on the
face of this Right Certificate.)
Signature Guaranteed:
B-7
<PAGE>
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Right Certificate [_] are/[_] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
the undersigned [_] did/[_] did not acquire the Rights evidenced by this
Right Certificate from any Person who is, was or became an Acquiring Person or
an Affiliate or Associate of an Acquiring Person.
Dated: _______________, 19____
------------------------------
Signature Guaranteed:
NOTICE
------
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Right Certificate
in every particular, without alteration or enlargement or any change whatsoever.
B-8
<PAGE>
EXHIBIT C
---------
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On July 1, 1996, the Board of Directors of Grand Premier Financial,
Inc. (the "Company") authorized the issuance of one preferred stock purchase
right ("Right") in respect of each share of common stock, $.01 par value
("Common Stock") issued after the date of the Rights Agreement (the "Rights
Agreement") between the Company and Premier Trust Services, Inc., as Rights
Agent (the "Rights Agent"). Each Right, when exercisable, entitles the
registered holder to purchase from the Company one one-hundredth of a share of
Series I Junior Participating Preferred Stock, without par value, of the Company
(the "Preferred Stock") at a price of $27.25 per one one-hundredth of a share
(the "Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in the Rights Agreement.
Initially, the Rights are not exercisable. The Rights become
exercisable upon the earlier to occur of (i) the twentieth day after a public
announcement that a person or group of affiliated or associated persons
acquired, or obtained the right to acquire, beneficial ownership of Common Stock
or other securities of the Company representing 15% or more of the voting power
of all securities of the Company then outstanding generally entitled to vote for
the election of directors ("Voting Power") (such person or group being called an
"Acquiring Person" and such date of first public announcement being called the
"Stock Acquisition Date"), or (ii) the twentieth day (or such later date as the
Board of Directors may determine) after the commencement of, or announcement of
an intention to make, a tender offer or exchange offer if, upon consummation
thereof, any person or group of affiliated or associated persons would be the
beneficial owner of Common Stock or other securities of the Company representing
30% or more of the Voting Power (the earlier of such dates being called the
"Distribution Date"). For purposes of determining who is an Acquiring Person,
certain holdings of Common Stock or other securities specified in the Rights
Agreement will not be included. For example, shares of Common Stock or other
securities issued pursuant to any stock options granted, or the terms of any
employee benefit plan established or sponsored, by the Company or any
predecessor corporation shall be not included.
Until the Distribution Date (or earlier redemption or expiration of
the Rights), (i) the Rights will be evidenced by the Common Stock certificates
and will be transferred only with the Common Stock certificates, (ii) new Common
Stock certificates issued after the date of the Rights Agreement upon transfer
or new issuance of the Company's Common Stock will contain a notation
incorporating the Rights Agreement by reference and (iii) the surrender for
transfer of any of the Company's Common Stock certificates will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Company's Common Stock as of the close of business on
the Distribution Date and, thereafter, such separate Right Certificates alone
will evidence the Rights.
The Rights are not exercisable until the Distribution Date and until
they are no longer redeemable. The Rights will expire on June 30, 2006, unless
earlier redeemed or exchanged by the Company or rendered unexercisable as
described below.
<PAGE>
The Preferred Stock is a series of preferred stock of the Company.
Each share of Preferred Stock will be entitled to a minimum preferential
quarterly dividend payment of $10 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per share of Common Stock. In the
event of liquidation, the holders of the Preferred Stock will be entitled to a
minimum preferential liquidation payment of $2,725 per share but will be
entitled to an aggregate payment of 100 times any liquidation payment made per
share of Common Stock. Each share of Preferred Stock will have 100 votes, voting
together with the Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which Common Stock is exchanged, each
share of Preferred Stock will be entitled to receive 100 times the amount
received per share of Common Stock. These rights are protected by customary
antidilution provisions. Preferred Stock purchasable upon exercise of the Rights
will not be redeemable. The dividend, liquidation and voting rights of the
Preferred Stock are designed so that the value of one one-hundredth of a share
of Preferred Stock purchasable upon exercise of each Right should approximate
the value of one share of Common Stock.
If any person becomes an Acquiring Person, each holder of a Right,
other than Rights beneficially owned by any Acquiring Person on or after the
Distribution Date (which will thereafter be void), will thereafter have the
right to receive upon exercise that number of shares of Common Stock having a
market value of two times the Purchase Price, unless the event causing the
person to become an Acquiring Person is a tender offer or exchange offer for all
outstanding shares of Common Stock, at a price and on terms determined by a
majority of the members of the Board of Directors of the Company who are not
officers of the Company and who are Continuing Directors, after receiving advice
from one or more investment banking firms, to be at a price which is fair to
stockholders and otherwise in the best interests of the Company and its
stockholders (a "Qualified Offer"). "Continuing Directors" are those directors
who were directors of the Company at the time of the Merger, or whose initial
elections or nominations were approved by a majority of such directors or by
such lesser portion of the Continuing Directors as shall then be authorized by
the Certificate of Incorporation of the Company and who are not Acquiring
Persons or do not have certain relationships with an Acquiring Person.
If (i) the Company is the surviving corporation in a merger involving
the Acquiring Person and the Common Stock is not changed or exchanged or (ii) an
Acquiring Person engages in one of a number of self-dealing transactions
specified in the Rights Agreement, proper provision shall be made so that each
holder of a Right, other than Rights beneficially owned by the Acquiring Person
on or after the Distribution Date (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of shares of
Common Stock having a market value of two times the exercise price of the Right.
If, on or after the Stock Acquisition Date, the Company is acquired in
a merger or other business combination in which the Company is not the survivor
or in which the Company is the survivor but the Common Stock is changed into or
exchanged for securities of another entity, cash or other property, or 50% or
more of its assets or earning power is sold, proper provision shall be made so
that each holder of a Right, other than Rights beneficially owned by an
Acquiring Person on or after the Distribution Date (which will thereafter be
void), will thereafter have the right to receive, upon the exercise thereof at
the then current exercise price of the Right, that number of shares of common
stock of the acquiring company which at the time of such transaction would have
a market value of two times the exercise price of the Right. Notwithstanding the
foregoing, the Rights will not be exercisable as set forth in this paragraph in
the event of any such merger or other business combination in which the
Acquiring Person acquired its shares pursuant to a Qualified Offer, provided
that the price per share of Common Stock offered in the merger or
C-2
<PAGE>
other business combination is not less than the price paid in the Qualified
Offer and the form of consideration offered in the merger or other business
combination is the same as that paid in the Qualified Offer.
At any time after the Rights become exercisable for Common Stock (or
common stock of the acquiring company), the Board of Directors of the Company
may exchange the unexercised Rights (other than Rights beneficially owned on or
after the Distribution Date by an Acquiring Person that have become void), in
whole or in part, at an exchange ratio of one share of Common Stock, or one one-
hundredth of a share of Preferred Stock (or of a share of a class or series of
the Company's preferred stock having equivalent rights, preferences and
privileges) per Right (subject to adjustment). Under certain circumstances,
authorization of any such exchange must be by a majority of the Continuing
Directors then in office.
The Purchase Price payable, and the number of shares of Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of the
Preferred Stock, (ii) upon the grant to holders of Preferred Stock of certain
rights, options or warrants to subscribe for shares of Preferred Stock or
convertible securities at less than the current market price of the Preferred
Stock or (iii) upon the distribution to holders of Preferred Stock of evidences
of indebtedness or assets (excluding (a) a regular periodic cash dividend out of
earnings or retained earnings, (b) a special cash dividend out of earnings or
retained earnings, which dividend, if declared at any time when there is an
Acquiring Person, has been approved by a majority of the Continuing Directors
then holding office and at such time, the Board of Directors includes at least
one Continuing Director or (c) a dividend payable in Preferred Stock) or of
subscription rights, options or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths
of a share of Preferred Stock issuable upon exercise of each Right are also
subject to adjustment in the event of a stock split of the Common Stock or a
stock dividend on the Common Stock payable in shares of Common Stock or certain
other changes affecting the number of shares of Common Stock occurring, in any
such case, prior to the Distribution Date.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Rights or shares will be issued (other than
fractions that are integral multiples of one one-hundredth of a share of
Preferred Stock, which may, at the Company's election, be evidenced by
depositary receipts) and, in lieu thereof, a cash payment will be made based on
the market price of the Rights or the shares, determined as described in the
Rights Agreement.
At any time prior to the close of business on the twentieth day
following the Stock Acquisition Date, the Company may, at its option, redeem the
Rights in whole but not in part, at a price of $0.01 per Right (the "Redemption
Price"); provided that if the Board of Directors of the Company authorizes
redemption of the Rights under certain circumstances, there must be at least one
Continuing Director and such authorization shall require the approval of a
majority of the Continuing Directors then holding office. Prior to the date on
which the Rights become non-redeemable, the Company, with the concurrence of a
majority of the Continuing Directors, may extend the time in which the Rights
may be redeemed. Immediately upon the authorization of the redemption of the
Rights by the Board of Directors of the Company, the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.
C-3
<PAGE>
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends.
The Board of Directors of the Company may amend the Rights Agreement.
After the Distribution Date, however, the Board of Directors of the Company may
amend the Rights Agreement only to cure any ambiguity, to cure any defective or
inconsistent provisions, to make changes which do not adversely affect the
interest of the holders of the Rights (other than an Acquiring Person) or to
shorten or lengthen any time period under the Rights Agreement; provided that no
amendment to adjust the time period governing redemption may be made at any time
when the Rights are not redeemable. In addition, no supplement or amendment may
be made which changes the Redemption Price, the final expiration date, the
Purchase Price or the number of one one-hundredths of a share of Preferred Stock
for which a Right is exercisable, unless at the time of such supplement or
amendment certain events have not occurred and such supplement or amendment does
not adversely affect the interests of the holders of Rights Certificates (other
than an Acquiring Person).
C-4
<PAGE>
EXHIBIT 5
SCHIFF HARDIN & WAITE
7200 SEARS TOWER
CHICAGO, ILLINOIS 60606
Gary L. Mowder
(312) 258-5602
July 8, 1996
Grand Premier Financial, Inc.
486 West Liberty Street
Wauconda, Illinois 60084-2489
Re: Grand Premier Financial, Inc.
Registration Statement on Form S-4,
as Amended (Registration No. 333-03327)
---------------------------------------
Ladies and Gentlemen:
We are acting as counsel to Grand Premier Financial, Inc., a Delaware
corporation ("GPF"), in connection with GPF's filing of a Registration Statement
on Form S-4 (the "Registration Statement") with the Securities and Exchange
Commission covering up to 21,099,671 shares of common stock and associated
Preferred Stock Purchase Rights of GPF (the "GPF Common Stock"), 7,250 shares of
Series B Perpetual Preferred Stock of GPF (the "GPF Series B Preferred Stock"),
and 2,000 shares of Series C Perpetual Preferred Stock of GPF (the "GPF Series C
Preferred Stock") to be issued pursuant to the Agreement and Plan of Merger,
dated January 22, 1996, as amended March 18, 1996 (the "Merger Agreement"),
among GPF, Northern Illinois Financial Corporation ("Northern Illinois") and
Premier Financial Services, Inc. ("Premier"). In that connection, we have
examined such corporate records, certificates and other documents and have made
such other factual and legal investigations as we have deemed necessary or
appropriate for the purposes of this opinion.
Based upon the foregoing, it is our opinion that:
(1) GPF is a corporation duly incorporated and validly existing under
the laws of the State of Delaware.
(2) Subject to the filing of an Amended and Restated Certificate of
Incorporation of GPF with the Secretary of State of the State of
Delaware, as contemplated by and described in the Registration
Statement, the GPF Common Stock, the GPF Series B Preferred
Stock, and the GPF Series C Preferred Stock have been duly
authorized, and when issued in exchange for shares of common
stock of Northern Illinois and Premier and shares of preferred
stock of Premier, as contemplated by and described in the
Registration Statement, will be legally issued, fully paid and
non-assessable.
<PAGE>
Grand Premier Financial, Inc.
July 8, 1996
Page 2
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to us under the caption "Opinions"
in the Joint Proxy Statement-Prospectus contained in the Registration Statement.
Very truly yours,
SCHIFF HARDIN & WAITE
By: /s/ Gary L. Mowder
-----------------------------------
Gary L. Mowder
<PAGE>
[KPMG Letterhead]
Exhibit 8
July 9, 1996
Board of Directors
Premier Financial Services, Inc.
27 West Main Street
Freeport, Illinois 61032
Board of Directors
Northern Illinois Financial Corporation
486 West Liberty Street
Wauconda, Illinois 60084-2489
Board of Directors
Grand Premier Financial, Inc.
486 West Liberty Street
Wauconda, Illinois 60084-2489
Dear Board Members:
In connection with the proposed consolidation ("Consolidation") of Northern
Illinois Financial Corporation ("Northern Illinois"), an Illinois corporation,
and Premier Financial Services, Inc. ("Premier"), a Delaware corporation, with
and into Grand Premier Financial, Inc. ("GPF"), a Delaware corporation, you have
requested our opinion with respect to certain federal income tax consequences of
the Consolidation.
Northern Illinois, Premier, and GPF have entered into an Agreement and Plan of
Reorganization dated as of January 22, 1996 (the "Agreement"), whereby Northern
Illinois and Premier will consolidate in accordance with the state laws of
Illinois and Delaware with and into and become GPF, with GPF being the resulting
corporation and the separate corporate existence of Northern Illinois and
Premier terminating. Such Agreement was amended on March 18, 1996. Northern
Illinois' capital structure consists of common stock, whereas Premier's capital
structure consists of common stock and several classes of preferred stock. The
Agreement provides for the exchange of Northern Illinois and Premier common
stock for shares of GPF common stock. Fractional shares of GPF common stock will
not be issued in the Consolidation. Instead, each shareholder of Northern
Illinois and Premier entitled to receive a fractional share interest in GPF
common stock will receive cash from GPF equal to the value of the fractional
share interest to which they would be entitled. The Agreement also provides for
the exchange of Premier's Series B and D preferred stock for substantially
identical shares of GPF Series B and C preferred stock, respectively, as
described below, except that, while the Premier Series B and D preferred stock
is
<PAGE>
noncumulative as to dividends, it will be converted into GPF Series B and C
preferred stock which is cumulative as to dividends. However, while the
Agreement provided for an exchange of Series A preferred stock, it has been
represented that Premier will redeem all of its Series A preferred stock prior
to the Consolidation.
GPF is a Delaware corporation formed by Northern Illinois and Premier on January
12, 1996, to effect a merger-of-equals between Northern Illinois and Premier. It
will be, upon consummation of the Consolidation, a registered bank holding
company under the Bank Holding Company Act of 1956, owning all of the issued and
outstanding stock of the Northern Illinois Subsidiaries (defined below) and the
Premier Subsidiaries (defined below). GPF does not currently own any significant
assets and has not yet engaged in any business activity, other than applying for
necessary regulatory approvals and other matters of a procedural nature relating
to the Consolidation. Northern Illinois and Premier each currently own 50% of
the outstanding common stock of GPF. The shares of common stock held by Northern
Illinois and Premier will be canceled upon consummation of the Consolidation.
Concurrently with the execution of the Agreement, Northern Illinois and Premier
entered into reciprocal stock option agreements. Under the "Northern Illinois
Stock Option Agreement," Northern Illinois granted to Premier an option to
purchase up to 19.9% of the outstanding shares of Northern Illinois Common Stock
(as defined below) upon the occurrence of certain triggering events - generally,
actions or proposals involving a third-party merger with, or acquisition of the
stock or assets of, Northern Illinois. Under the "Premier Stock Option
Agreement," Premier granted to Northern Illinois an option to purchase up to
19.9% of the outstanding shares of Premier Common Stock (as defined below) upon
the occurrence of certain triggering events - generally, actions or proposals
involving a third-party merger with, or acquisition of the stock or assets of
Premier.
FACTS
-----
EXCHANGE AS IT RELATES TO NORTHERN ILLINOIS:
- -------------------------------------------
Northern Illinois, a multi-bank holding company incorporated under the laws of
the state of Illinois and headquartered in Wauconda, Illinois, has 100% control
of the following subsidiaries: Grand National Bank and American Suburban
Mortgage Corporation (the "Northern Illinois Subsidiaries"). Prior to February
of 1996, Grand National Bank consisted of four individual banks: Grand National
Bank-Crete, Grand National Bank-Waukegan, Grand National Bank-Crystal Lake, and
Grand National Bank-Niles. The subsidiary banks were merged pursuant to an
approved application filed on November 27, 1995 with the Office of the
Comptroller of the Currency (the "Northern Illinois Subsidiary Bank Merger").
<PAGE>
Northern Illinois is authorized to issue 10,000,000 shares of Northern Illinois
Common Stock (as defined below), of which 2,956,784 shares were issued and
outstanding as of June 15, 1996. All of the shares of Northern Illinois Common
Stock are fully paid, nonassessable, and free of preemptive rights, with no
personal liability attaching to the ownership thereof. Except for the Northern
Illinois Stock Option Agreement, Northern Illinois does not have and is not
bound by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of Northern Illinois Common Stock or any other equity securities of Northern
Illinois or any securities representing the right to purchase or otherwise
receive any shares of Northern Illinois Common Stock.
The Consolidation contemplates the exchange by Northern Illinois shareholders of
each share of common stock, no par value, of Northern Illinois ("Northern
Illinois Common Stock") for 4.25 shares of common stock, $.01 par value, of GPF
("GPF Common Stock") pursuant to the Agreement.
EXCHANGE AS IT RELATES TO PREMIER:
- ---------------------------------
Premier, a multi-bank holding company incorporated under the laws of the state
of Delaware and headquartered in Freeport, Illinois, controls 100% of the
following subsidiaries: First Bank North, First Bank South, Premier Operating
Systems, Inc., Premier Insurance Services, Inc., and Premier Acquisition Company
(the "Premier Subsidiaries"). Premier Acquisition Company owns 100% of First
National Bank of Northbrook and First Security Bank of Cary Grove. First Bank
North owns 100% of Premier Trust Services, Inc. The capital stock of Premier
Acquisition Company, First Bank North, First Bank South, First National Bank of
Northbrook, and First Security Bank of Cary Grove have been pledged to Firstar
Bank-Milwaukee to secure Premier's obligations under a $20 million revolving
credit facility maturing in January, 1999.
Premier is authorized to issue 15,000,000 shares of Premier Common Stock, of
which 6,577,303 shares were issued and outstanding as of June 15, 1996. No
shares of Premier Common Stock were held in treasury at June 15, 1996. Premier
is also authorized to issue 1,000,000 shares of preferred stock of which 7,000
shares were designated and 5,000 shares were issued and outstanding as Premier
Series A Preferred Stock, 7,250 shares were designated and issued and
outstanding as Premier Series B Preferred Stock, and 2,000 shares were
designated and issued and outstanding as Premier Series D Preferred Stock. All
of the issued and outstanding shares of Premier Common Stock and Premier
preferred stock are fully paid, nonassessable and free of preemptive rights,
with no personal liability attaching to the ownership thereof.
The Consolidation contemplates the exchange by the Premier shareholders of the
following shares of Premier common and preferred stock pursuant to the
Agreement:
<PAGE>
(a) each share of common stock, $5 par value, of Premier ("Premier Common
Stock") solely for 1.116 shares of GPF Common Stock;
(b) however, while the Agreement provides for an exchange of Series A
preferred stock, Premier will redeem all of its Series A preferred
stock prior to the Consolidation;
(c) each share of Series B perpetual preferred stock, $1.00 par value and
$1,000 stated value with a right of conversion into shares of Premier
Common Stock, of Premier ("Premier Series B Preferred Stock") solely
for one share of GPF Series B convertible preferred stock, $.01 par
value and $1,000 stated value ("GPF Series B Preferred Stock"),
together with unpaid dividends on the Premier Series B Preferred
Stock. The terms of the GPF Series B Preferred Stock will be
substantially identical to the terms of the Premier Series B Preferred
Stock, except that, while the Premier Series B preferred stock is
noncumulative as to dividends, it will be converted into GPF Series B
preferred stock which is cumulative as to dividends; and
(d) each share of Series D perpetual preferred stock, $1.00 par value and
$1,000 stated value, of Premier ("Premier Series D Preferred Stock")
solely for one share of GPF Series C perpetual preferred stock ("GPF
Series C Preferred Stock"), together with unpaid dividends on the
Premier Series D Preferred Stock. The terms of the GPF Series C
Preferred Stock will be substantially identical to the terms of the
Premier Series D Preferred Stock, except that, while the Premier
Series D preferred stock is noncumulative as to dividends, it will be
converted into GPF Series C preferred stock which is cumulative as to
dividends.
Neither the GPF Series B nor Series C Preferred Stock will be callable
by GPF or putable by a holder. It has been represented that no shares
of Premier's Series B or Series D stock are "Section 306 Stock" as
defined in Section 306(c) of the Code.
In addition, the Agreement provides for the conversion of unexercised
nonqualified options granted by Premier to purchase shares of Premier Common
Stock into options to purchase shares of GPF Common Stock based upon the number
of shares of Premier Common Stock under the original option and the 1.116
exchange ratio. Any fractional shares of GPF Common Stock resulting from the
conversion of these options will be rounded to the nearest whole share.
<PAGE>
CONDITIONS PRECEDENT TO THE CONSOLIDATION:
- -----------------------------------------
The proposed transaction is subject to the following requirements:
(1) The Agreement and the transactions contemplated therein shall have
been approved and adopted by the respective requisite affirmative
votes of the holders of Northern Illinois Common Stock and Premier
Common Stock entitled to vote thereon;
(2) the shares of GPF Common Stock to be issued in the Consolidation shall
have been authorized for listing on The Nasdaq National Market,
subject to official notice of issuance;
(3) the regulatory approvals required to consummate the Consolidation
shall have been obtained on terms and conditions reasonably
satisfactory to Northern Illinois and Premier, and all related waiting
periods shall have expired;
(4) the S-4 and the 8-A shall have become effective under the Securities
Act and the Exchange Act, respectively, and no stop order suspending
the effectiveness of the S-4 or the 8-A shall have been issued and no
proceedings for that purpose shall have been initiated or threatened
by the SEC;
(5) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Consolidation or any other of the
transactions contemplated by the Agreement shall be in effect, and no
statute, rule, regulation or other law shall have been enacted that
prohibits the consummation of the Consolidation;
(6) Northern Illinois and Premier shall have received an opinion from KPMG
Peat Marwick LLP substantially to the effect that the Consolidation
will be treated as a tax-free reorganization under the Internal
Revenue Code (the "Code");
(7) Premier shall receive a letter from their independent accountant to
the effect that the Consolidation will qualify for "pooling-of-
interests" accounting treatment;
<PAGE>
(8) no event shall have occurred which has had a material adverse effect
on the business, results of operations, financial condition, or
reasonable prospects of Northern Illinois and its subsidiaries or
Premier and its subsidiaries, respectively, in each case taken as a
whole, and no condition (other than general economic or competitive
conditions) shall have occurred that may reasonably be expected to
have such a material adverse effect;
(9) no 10% shareholder of either party shall have acquired any additional
stock in either party; and
(10) each party shall have received an opinion from its financial advisor,
dated as of the mailing of the Joint Proxy Statement-Prospectus, that
the consideration to be received in the Consolidation by such party's
stockholders is fair, from a financial point of view, to such
stockholders.
REPRESENTATIONS - NORTHERN ILLINOIS
-----------------------------------
1) The fair market value of the GPF stock received by each Northern Illinois
shareholder will be approximately equal to the fair market value of the
Northern Illinois stock surrendered in the exchange.
2) There is no plan or intention by the shareholders of Northern Illinois who
own 5 percent or more in value of Northern Illinois stock, and to the best
of the knowledge of the management of Northern Illinois, there is no plan
or intention on the part of the remaining shareholders of Northern Illinois
to sell, exchange, or otherwise dispose of a number of shares of GPF stock
received in the transaction that would reduce the Northern Illinois
shareholders' ownership of GPF stock to a number of shares having a value,
as of the date of the transaction, of less than 50 percent of the value of
all of the formerly outstanding stock of Northern Illinois as of the same
date. For purposes of this representation, shares of Northern Illinois
stock surrendered by dissenters, or exchanged for cash in lieu of
fractional shares of GPF stock will be treated as outstanding Northern
Illinois stock on the date of the transaction. Moreover, shares of Northern
Illinois stock and shares of GPF stock held by Northern Illinois
shareholders and otherwise sold, redeemed, or disposed of prior or
subsequent to the transaction will be considered in making this
representation.
3) GPF has no plan or intention to reacquire any of the GPF stock issued in
the transaction.
<PAGE>
4) GPF has no plan or intention to sell or otherwise dispose of any of the
assets of Northern Illinois or Premier acquired by GPF in the transaction,
except for dispositions made in the ordinary course of business or
transfers described in section 368(a)(2)(C) of the Code.
5) The liabilities of Northern Illinois assumed by GPF and the liabilities to
which the transferred assets of Northern Illinois are subject were incurred
by Northern Illinois in the ordinary course of its business.
6) Following the transaction, GPF will continue the historical business of
Northern Illinois or use a significant portion of its historic business
assets in a business.
7) Northern Illinois and the shareholders of Northern Illinois will pay their
respective expenses, if any, incurred in connection with the transaction.
8) There is no intercorporate indebtedness existing between Northern Illinois
and GPF that was issued, acquired, or will be settled at a discount.
9) Northern Illinois is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
10) Northern Illinois is not under the jurisdiction of a Court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code.
11) The fair market value and the adjusted tax basis of the assets of Northern
Illinois transferred to GPF in the Consolidation will equal or exceed the
sum of the liabilities assumed by GPF plus the amount of liabilities, if
any, to which the transferred assets are subject.
12) The total cash distributed in lieu of a fractional share of GPF Common
Stock will be less than 1% of the total consideration received by the
Northern Illinois shareholders and no such shareholder will receive cash
for more than one fractional share.
REPRESENTATIONS - PREMIER
-------------------------
1) The fair market value of the GPF stock received by each Premier shareholder
will be approximately equal to the fair market value of the Premier stock
surrendered in the exchange.
2) There is no plan or intention by the shareholders of Premier who own 5
percent or more in value of Premier stock, and to the best of the knowledge
of the management of Premier, there is no plan or intention on the part of
the remaining shareholders of Premier to sell, exchange,
<PAGE>
or otherwise dispose of a number of shares of GPF stock received in the
transaction that would reduce the Premier shareholders' ownership of GPF
stock to a number of shares having a value, as of the date of the
transaction, of less than 50 percent of the value of all of the formerly
outstanding stock of Premier as of the same date. For purposes of this
representation, shares of Premier stock surrendered by dissenters or
exchanged for cash in lieu of fractional shares of GPF stock will be
treated as outstanding Premier stock on the date of the transaction.
Moreover, shares of Premier stock and shares of GPF stock held by Premier
shareholders and otherwise sold, redeemed, including any redemption of the
Series A Preferred Stock, or disposed of prior or subsequent to the
transaction will be considered in making this representation.
3) GPF has no plan or intention to reacquire any of the GPF stock issued in
the transaction.
4) GPF has no plan or intention to sell or otherwise dispose of any of the
assets of Premier or Northern Illinois acquired by GPF in the transaction,
except for dispositions made in the ordinary course of business or
transfers described in section 368(a)(2)(C) of the Code.
5) The liabilities of Premier assumed by GPF and the liabilities to which the
transferred assets of Premier are subject were incurred by Premier in the
ordinary course of its business.
6) Following the transaction, GPF will continue the historical business of
Premier or use a significant portion of its historic business assets in a
business.
7) Premier and the shareholders of Premier will pay their respective expenses,
if any, incurred in connection with the transaction.
8) There is no intercorporate indebtedness existing between Premier and GPF
that was issued, acquired, or will be settled at a discount.
9) Premier is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
10) Premier is not under the jurisdiction of a Court in a Title 11 or similar
case within the meaning of section 368(a)(3)(A) of the Code.
11) The fair market value and the adjusted tax basis of the assets of Premier
transferred to GPF will equal or exceed the sum of the liabilities assumed
by GPF plus the amount of liabilities, if any, to which the transferred
assets are subject.
<PAGE>
12) The total cash distributed in lieu of a fractional share of GPF Common Stock
will be less than 1% of the total consideration received by Premier Stock
reholders and no such share holder will receive cash for more than one
fractional share;
13) The terms, conditions and fair market value of the GPF nonstatutory stock
options to be received by each Premier option holder will be substantially
the same as the terms, conditions and fair market value of the Premier
nonstatutory stock options surrendered in the exchange.
REPRESENTATIONS - KEECO, INC.
-----------------------------
1) Neither Keeco, Inc. nor the shareholders of Keeco, Inc., has any plan or
intention to sell or otherwise dispose of any of the GPF stock received in
the Consolidation.
2) Keeco, Inc. and the shareholders of Keeco, Inc. will pay their respective
expenses, if any, incurred in connection with the transaction.
REPRESENTATIONS -NORTHLAND INSURANCE AGENCY
-------------------------------------------
1) Neither Northland Insurance Agency nor the shareholders of Northland
Insurance Agency has any plan or intention to sell or otherwise dispose of
any of the GPF stock received in the Consolidation.
2) Northland Insurance Agency and the shareholders of Northland Insurance
Agency will pay their respective expenses, if any, incurred in connection
with the transaction.
OPINIONS OF COUNSEL TO NORTHERN ILLINOIS AND PREMIER
Crowley Barrett & Karaba Ltd., as counsel to Northern Illinois, and
Schiff Hardin & Waite, as counsel to Premier, have each rendered their opinion
(the "Northern Illinois Legal Opinion" and the "Premier Legal Opinion,"
respectively) to the Boards of Directors of Northern Illinois, Premier and GPF
that the Consolidation, if effected in accordance with the Agreement, as amended
on March 18, 1996, will be effected in accordance with the corporation laws of
Illinois and Delaware, namely the Illinois Business Corporation Act of 1983, as
amended, and the Delaware General Corporation Law. Copies of the Northern
Illinois Legal Opinion and the Premier Legal Opinion are attached as Appendix A
and Appendix B, respectively, to this opinion.
OPINIONS
--------
The opinions expressed in this letter are based on the Internal Revenue Code of
1986, as amended, the Income Tax Regulations promulgated by the Treasury
Department thereunder and judicial authority reported as of the date hereof. We
have also considered the position of the Internal Revenue Service (the
"Service") reflected in published and private rulings. Although we are not
aware of any pending changes to these authorities that would alter our opinions,
there can be no assurance that future legislative or administrative changes,
court decisions or Service interpretations will not significantly modify the
statements or opinions expressed herein. Unless specifically agreed otherwise,
we undertake no responsibility to update this opinion in the event of any such
subsequent change. Although the conclusions contained herein are based upon our
best interpretation of existing sources of law and express what we believe a
court would properly conclude if presented with these issues, no assurance can
be given that such interpretations would be followed if they were to become the
subject of judicial or administrative proceedings. We express no opinion herein
as to any issue of federal law other than those specifically considered
<PAGE>
herein. We also do not express any opinion as to any issue of state or local law
and, in particular, we render no opinion regarding any aspect of the Northern
Illinois Subsidiary Bank Merger.
For the purposes indicated above and based upon the Facts stated herein, our
review of the Agreement, as amended on March 18, 1996, the conditions set forth
below, and representations made to us by Northern Illinois, Premier, Keeco,
Inc., and Northland Insurance Agency and in reliance upon the Northern Illinois
Legal Opinion and the Premier Legal Opinion, it is our opinion that:
(1) The Consolidation will constitute a reorganization within the meaning
of section 368(a)(1)(A) of the Code. Northern Illinois, Premier, and
GPF will each be considered "a party to a reorganization" within the
meaning of section 368(b) of the Code for purposes of this
reorganization;
(2) No gain or loss will be recognized by Northern Illinois or Premier on
the transfer of substantially all of their respective assets to GPF in
exchange for shares of GPF stock (common or preferred), or any cash to
be paid to the shareholders of Northern Illinois and Premier in lieu
of fractional share interests of GPF Common Stock (Code section
361(a));
(3) No gain or loss will be recognized by GPF upon the receipt by GPF of
substantially all the Northern Illinois and Premier assets in exchange
for shares of GPF common or preferred stock and any cash to be paid to
the shareholders of Northern Illinois and Premier in lieu of
fractional share interests of GPF Common Stock (Code section 1032(a);
Regulation 1.1032-2);
(4) The basis of Northern Illinois and Premier assets to be received by
GPF will be the same, in each instance, as the basis of such asset in
the hands of Northern Illinois and Premier, respectively, immediately
prior to the Consolidation (Code section 362(b));
(5) The holding period of the Northern Illinois and Premier assets in the
hands of GPF will include, in each instance, the period during which
such asset was held by Northern Illinois and Premier, respectively
(Code section 1223(2));
<PAGE>
(6) No gain or loss will be recognized by the holders of Northern Illinois
or Premier common or preferred stock upon the exchange of such stock
solely for shares of GPF common or preferred stock of equal value,
including any fractional share interests of GPF Common Stock to which
they may be entitled (Code section 354(a)(1));
(7) The basis of the GPF stock (common or preferred, including any
fractional share interests of GPF Common Stock to which they may be
entitled) which is received by Northern Illinois and Premier
shareholders will be the same as the basis of the Northern Illinois
and Premier stock, respectively, surrendered in exchange therefore
(Code section 358(a)(1));
(8) The holding period of GPF stock (common or preferred, including any
fractional share interests of GPF Common Stock to which they may be
entitled) which is received by a Northern Illinois or Premier
shareholder will include the period during which the Northern Illinois
or Premier stock, respectively, surrendered in exchange therefore was
held, provided that the Northern Illinois or Premier stock is held as
a capital asset in the hands of the Northern Illinois or Premier
shareholder, respectively, on the date of the exchange (Code section
1223(1));
(9) The payment of cash in lieu of fractional share interests of GPF
Common Stock will be treated as if the fractional shares were
distributed as part of the exchange and then redeemed by GPF. These
cash payments will be treated as having been received as distributions
in full payment in exchange for the fractional shares redeemed,
subject to the provisions and limitations of section 302(a) of the
Code (Rev. Rul. 66-365, 1966-2 C.B. 116; Rev. Proc. 77-41, C.B. 574).
Provided the GPF Common Stock constitutes a capital asset in the hands
of the shareholder and provided GPF is not a collapsible corporation
as defined in section 341(b) of the Code, then the shareholder will
recognize capital gain or loss upon the receipt of cash in lieu of a
fractional share of GPF Common Stock;
(10) GPF will succeed to and take into account, as of the effective date of
the Consolidation, the items of Northern Illinois and Premier
described in section 381(c) of the Code, subject to the conditions and
limitations of sections 381, 382, 383 and 384 of the Code, and the
regulations thereunder;
<PAGE>
(11) Neither the GPF Series B Preferred Stock nor Series C Preferred Stock
will be "Section 306 Stock" as defined in Section 306(c) of the Code.
See Rev. Rul. 88-100, 1988-2 C.B. 46;
(12) No gain or loss will be recognized by the holders of Premier
nonstatutory stock options upon the exchange of such solely for GPF
nonstatutory stock options identical as to their terms and
substantially similar value (Regulation section 1.83-7).
In rendering this opinion, we have examined the Agreement, as amended on March
18, 1996, and such other documents as we have deemed necessary. We have assumed
the genuineness of all signatures, the legal capacity of all natural persons,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as copies, the
authenticity of the originals of such copies, and that the Consolidation will be
consummated in the manner set forth in the Agreement, as amended on March 18,
1996. We have also assumed that any written representations and covenants of
Keeco, Inc., Northland Insurance Agency, Northern Illinois, Premier and GPF made
in connection with rendering our opinion will be accurate and complete in all
respects as of the time they are provided to us and as of the closing of the
Consolidation. Any changes in these facts, or in the accuracy of these
assumptions, representations or covenants, would necessitate reconsideration of
our opinion and possibly result in a different conclusion. We undertake no
obligation to update our opinion in the event of any such change.
Our opinion is limited to those federal income tax issues specifically
considered herein and is addressed to and is only for the benefit of Northern
Illinois, Premier, and GPF and their respective shareholders. The opinion is
furnished to you pursuant to section 7.1(f) of the Agreement and may not be used
or relied upon for any other purpose, and may not be circulated or otherwise
referred to for any other purpose, without our express written consent.
Notwithstanding the foregoing, we hereby consent to the filing of this opinion
as an exhibit to the Registration Statement on Form S-4 of GPF registering the
offer and sale of the GPF stock to be issued in the Consolidation and to all
references to our firm under the captions "SUMMARY OF JOINT PROXY STATEMENT-
PROSPECTUS"--Certain Federal Income Tax Consequences," "THE MERGER-- Certain
Federal Income Tax Consequences of the Merger," "CERTAIN OPINIONS" in the joint
proxy statement-prospectus included in such Registration Statement.
Very truly yours,
KPMG Peat Marwick LLP
<PAGE>
Appendix A to Exhibit 8
CROWLEY BARRETT & KARABA LTD.
20 SOUTH CLARK STREET
SUITE 2310
CHICAGO, ILLINOIS 60603
Alan R. Orschel
(312) 726-2468
July 8, 1996
Board of Directors
Premier Financial Services, Inc.
27 West Main Street
Freeport, Illinois 61032
Board of Directors
Northern Illinois Financial Corporation
486 West Liberty Street
Wauconda, Illinois 60084-2489
Board of Directors
Grand Premier Financial, Inc.
486 West Liberty Street
Wauconda, Illinois 60084-2489
RE: GRAND PREMIER FINANCIAL, INC.
REGISTRATION STATEMENT ON FORM S-4,
AS AMENDED (REGISTRATION NO. 333-03327)
---------------------------------------
Ladies and Gentlemen:
We are acting as counsel to Northern Illinois Financial Corporation,
an Illinois corporation ("Northern Illinois"), in connection with the
consolidation (the "Consolidation") of Northern Illinois and Premier Financial
Services, Inc., a Delaware corporation ("Premier"), with and into Grand Premier
Financial, Inc., a newly formed Delaware corporation ("GPF"), all of the
outstanding shares of which are currently held of record by Northern Illinois
and Premier. As counsel to Northern Illinois, we have participated in the
negotiation and drafting of the Agreement and Plan of Merger, dated January 22,
1996, as amended by the First Amendment to the Agreement and Plan of Merger,
dated March 18, 1996 (as amended, the "Merger Agreement"), pursuant to which the
Consolidation is to be effected. We have examined such additional corporate
records, certificates and other documents and have made such other factual and
legal investigations as we have deemed necessary or appropriate for the purposes
of this opinion.
Based upon the foregoing, it is our opinion that:
(1) Northern Illinois and GPF are each corporations duly incorporated
and validly existing under the laws of the State of Illinois and
the State of Delaware, respectively.
<PAGE>
Grand Premier Financial, Inc.
July 8, 1996
Page 2
(2) If effected in accordance with the Merger Agreement, the
Consolidation of Northern Illinois and Premier with and into GPF
will be effected in accordance with the corporation laws of
Illinois and Delaware, namely the Illinois Business Corporation
Act of 1983, as amended, and the Delaware General Corporation
Law.
We hereby consent to the filing of this opinion as an appendix to
Exhibit 8 to the Registration Statement on Form S-4 of GPF, as filed with the
Securities and Exchange Commission, and we hereby agree that KPMG Peat Marwick
LLP may rely upon this opinion in rendering its tax opinion, filed as Exhibit 8
to such Registration Statement.
Very truly yours,
CROWLEY BARRETT & KARABA LTD.
By: /s/ Alan R. Orschel
--------------------------
Alan R. Orschel
<PAGE>
Appendix B to Exhibit 8
SCHIFF HARDIN & WAITE
7200 SEARS TOWER
CHICAGO, ILLINOIS 60606
Gary L. Mowder
(312) 258-5602
July 8, 1996
Board of Directors
Premier Financial Services, Inc.
27 West Main Street
Freeport, Illinois 61032
Board of Directors
Northern Illinois Financial Corporation
486 West Liberty Street
Wauconda, Illinois 60084-2489
Board of Directors
Grand Premier Financial, Inc.
486 West Liberty Street
Wauconda, Illinois 60084-2489
RE: GRAND PREMIER FINANCIAL, INC.
REGISTRATION STATEMENT ON FORM S-4,
AS AMENDED (REGISTRATION NO. 333-03327)
---------------------------------------
Ladies and Gentlemen:
We are acting as counsel to Premier Financial Services, Inc., a
Delaware corporation ("Premier"), in connection with the consolidation (the
"Consolidation") of Premier and Northern Illinois Financial Corporation, an
Illinois corporation ("Northern Illinois"), with and into Grand Premier
Financial, Inc., a newly formed Delaware corporation ("GPF"), all of the
outstanding shares of which are currently held of record by Premier and Northern
Illinois. As counsel to Premier, we have participated in the negotiation and
drafting of the Agreement and Plan of Merger, dated January 22, 1996, as amended
by the First Amendment to the Agreement and Plan of Merger, dated March 18, 1996
(as amended, the "Merger Agreement"), pursuant to which the Consolidation is to
be effected. We have examined such additional corporate records, certificates
and other documents and have made such other factual and legal investigations as
we have deemed necessary or appropriate for the purposes of this opinion.
Based upon the foregoing, it is our opinion that:
(1) Premier and GPF are each corporations duly incorporated and
validly existing under the laws of the State of Delaware.
<PAGE>
Grand Premier Financial, Inc.
July 8, 1996
Page 2
(2) If effected in accordance with the Merger Agreement, the
Consolidation of Premier and Northern Illinois with and into GPF
will be effected in accordance with the corporation laws of
Delaware and Illinois, namely the Delaware General Corporation
Law and the Illinois Business Corporation Act of 1983, as
amended.
We hereby consent to the filing of this opinion as an appendix to
Exhibit 8 to the Registration Statement on Form S-4 of GPF, as filed with the
Securities and Exchange Commission, and we hereby agree that KPMG Peat Marwick
LLP may rely upon this opinion in rendering its tax opinion, filed as Exhibit 8
to such Registration Statement.
Very truly yours,
SCHIFF HARDIN & WAITE
By: /s/ Gary L. Mowder
---------------------------
Gary L. Mowder
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Registration Statement on Form S-4 of Grand
Premier Financial, Inc. and the Joint Proxy Statement-Prospectus included
therein of our report dated January 31, 1996 accompanying the consolidated
financial statements of Northern Illinois Financial Corporation contained in
such Registration Statement and Joint Proxy Statement-Prospectus, and to the use
of our name and the statements with respect to us appearing under the heading
"Independent Certified Public Accountants" in such Joint Proxy Statement-
Prospectus.
Hutton, Nelson & McDonald LLP
Oakbrook Terrace, Illinois
July 9, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Premier Financial Services, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Independent Certified Public Accountants" in the joint
proxy statement prospectus.
KPMG Peat Marwick LLP
Chicago, Illinois
July 8, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF PRAIRIE CAPITAL SERVICES, INC.
-----------------------------------------
We hereby consent to the use of our opinion letter to the Board of
Directors of Northern Illinois Financial Corporation included as Appendix D to
the Joint Proxy Statement-Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of Northern Illinois
Financial Corporation and Premier Financial Services, Inc., and to the
references to our firm and such opinion in such Joint Proxy Statement-
Prospectus. In giving such consent, we do not admit and we hereby disclaim that
we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
PRAIRIE CAPITAL SERVICES, INC.
By: /s/ David E. Downen
--------------------
David E. Downen
President
July 9, 1996
<PAGE>
EXHIBIT 23.6
CONSENT OF THE CHICAGO CORPORATION
----------------------------------
We hereby consent to the use of our opinion letter to the Board of
Directors of Premier Financial Services, Inc. included as Appendix E to the
Joint Proxy Statement-Prospectus which forms a part of the Registration
Statement on Form S-4, relating to the proposed merger of Northern Illinois
Financial Corporation, and Premier Financial Services, Inc., and to the
references to our firm and such opinion in such Joint Proxy Statement-
Prospectus. In giving such consent, we do not admit and we hereby disclaim that
we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
THE CHICAGO CORPORATION
July 9, 1996
