<PAGE>
As filed with the Securities and Exchange Commission on May 3, 1996.
Registration No. 33-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
FIRST CHICAGO NBD CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 38-1984850 6711
(State or other jurisdiction of (I.R.S. employer (Primary Standard
incorporation or organization) identification Industrial Classification
number) Code Number)
One First National Plaza
Chicago, Illinois 60670
(312) 732-4000
(Address, including zip code,
and telephone number,
including area code, of
Registrant's principal
executive offices)
Robert A. Rosholt
First Chicago NBD Corporation
One First National Plaza
Chicago, Illinois 60670
(Name and address of agent for service)
(312) 732-3209
(Telephone number, including area code, of agent for service)
Copies to:
Sherman I. Goldberg, Esq. Christopher R. Kelly, P.C.
First Chicago NBD Corporation Silver, Freedman & Taff, L.L.P.
One First National Plaza 1100 New York Avenue, N.W.
Chicago, Illinois 60670 Washington, D.C. 20005-3934
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
Maximum Maximum
Title of each Class of Securities to Amount to be Offering Price Aggregate Amount of
be Registered Registered (1) Per Share Offering Price Registration Fee
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $1 par value.......... 528,150 (2) $17,681,522(3) $6,098
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</TABLE>
(1)This Registration Statement covers the maximum number of the shares of
Registrant's Common Stock that would be issued, or reserved for issuance, in
the transaction described herein or upon exercise of the options issued in,
or the employee benefit plans assumed as contemplated in, the transaction
described herein.
(2)Not applicable.
(3)Computed pursuant to Rule 457(f)(1), based upon the market value of the
securities to be cancelled in the merger (693,393 shares of common stock of
Barrington Bancorp, Inc., par value $.01 per share).
Approximate date of commencement of the proposed sale of the securities to
the public: As soon as practicable after the effective date of this Registration
Statement and all other conditions precedent to the merger of Barrington
Bancorp, Inc. with and into the Registrant have been satisfied or waived as
described in the enclosed Proxy Statement/Prospectus.
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 dates as the Commission, acting pursuant to said Section 8(a)
may determine.
<PAGE>
FIRST CHICAGO NBD CORPORATION
Cross-Reference Sheet for Registration Statement on Form S-4
and
Proxy Statement/Prospectus
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Location in Joint Proxy
S-4 Item Statement-Prospectus
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INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus.................................... Facing Page of Registration Statement; Cross-
Reference Sheet; Cover Page
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 Information........................................... Summary of Proxy Statement/Prospectus; Selected Consolidated
Financial Data of First Chicago NBD Corporation; Selected
Consolidated Financial Information of Barrington
Bancorp, Inc.; Comparative Unaudited Per Share and Pro
Forma Data; Comparative Stock Prices and Dividend
Information
4. Terms of the Transaction....................................... Summary of Proxy Statement/Prospectus; The Merger,
Description of FCN Capital Stock; Comparison of the
Common Stock of FCN and Barrington Bancorp
5. Pro Forma Financial Information............................... Not Applicable
6. Material Contacts with the Company Being Acquired............. The Merger; Interest of Certain Persons in the Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters............... Not Applicable
8. Interests of Named Experts and Counsel........................ Experts; Legal Matters
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.............................. Not Applicable
INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants................... Not Applicable
11. Incorporation of Certain Information by Reference............. Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3 Registrants............ Not Applicable
13. Incorporation of Certain Information by Reference............. Not Applicable
14. Information with Respect to Registrants Other Than
S-2 or S-3 Registrants...................................... Not Applicable
INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies..................... Not Applicable
16. Information with Respect to S-2 or S-3 Companies.............. Not Applicable
17. Information with Respect to Companies Other Than
S-2 or S-3 Companies........................................ Summary of Proxy Statement/Prospectus; Business of Barrington
Bancorp; Supervision and Regulation; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Barrington Bancorp and Subsidiary
Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Location in Joint Proxy
S-4 Item Statement/Prospectus
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VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations are
to be Solicited.............................................. Cover Page; Summary of Proxy Statement/Prospectus; The
Meeting; The Merger; Proposal II-Election of
Directors
19. Information if Proxies, Consents or Authorizations are
not to be Solicited, or in an Exchange Offer................. Not Applicable
</TABLE>
<PAGE>
[BARRINGTON BANCORP, INC. LETTERHEAD]
May 7, 1996
Dear Barrington Bancorp, Inc. Stockholder:
On behalf of the Board of Directors and management of Barrington
Bancorp, Inc. ("Barrington Bancorp") we cordially invite you to attend an
Annual Meeting of Stockholders to be held on June 5, 1996 at 2:00
p.m., local time, at the main office of Barrington Bancorp.
At the Annual Meeting, you will be asked to consider and vote upon a
proposal to approve an Agreement and Plan of Merger dated as of January 25, 1996
(the "Merger Agreement") pursuant to which Barrington Bancorp will be merged
(the "Merger") with and into First Chicago NBD Corporation ("FCN"). Upon
consummation of the Merger each share of common stock of Barrington Bancorp
(other than shares held by holders who perfect dissenters' rights and other
excluded shares) will be converted into the right to receive and be exchangeable
into a number of shares of FCN common stock (the "FCN Common Stock") equal to a
fraction, the numerator of which shall be equal to $25.85 and the denominator of
which shall be equal to the average closing price per share of FCN Common Stock
as reported on the New York Stock Exchange Composite Transaction Tape for the
ten consecutive trading days ending on the fifth trading day prior to the
Effective Time, as defined in the Merger Agreement.
You will also be asked to consider and vote upon the election of two
directors of Barrington Bancorp to serve until completion of the Merger or, in
the event the Merger is not consummated, until the expiration of their three
year term or until their respective successors are elected and qualified.
Finally, you will be asked to ratify the appointment of KPMG Peat Marwick
LLP as auditors of Barrington Bancorp for the fiscal year ending December 31,
1996 in the event the Merger is not consummated.
The proposed Merger has been approved by the Board of Directors of
Barrington Bancorp. Your Board of Directors has determined that the Merger is in
the best interests of Barrington Bancorp and its stockholders and recommends
that you vote FOR approval of the Merger Agreement. The investment banking firm
of Hovde Financial, Inc. has issued its written opinion to your Board of
Directors regarding the fairness of the consideration to be paid by FCN pursuant
to the Merger Agreement as of the date of such opinion. The Hovde Financial,
Inc. opinion is reproduced in full as Appendix II to the acccompanying Proxy
Statement/Prospectus, and you are urged to read the opinion carefully.
Consummation of the Merger is subject to certain conditions, including, but
not limited to, approval by the requisite vote of the stockholders of Barrington
Bancorp and certain regulatory approvals.
The accompanying Notice of Annual Meeting and Proxy Statement/Prospectus
describe the Merger and provide specific information regarding the Annual
Meeting. Please read these materials carefully.
It is very important that your shares are represented at the Annual
Meeting, whether or not you plan to attend in person. The affirmative vote of
the holders of a majority of the outstanding shares of Barrington Bancorp is
required for approval of the Merger Agreement. Therefore, I urge you to execute,
date and return the enclosed proxy card in the enclosed postage-paid envelope as
soon as possible to assure that your shares will be voted at the Annual Meeting.
Any proxy given pursuant to this solicitation or otherwise may be revoked by the
person giving it at any time before it is voted by delivering a written notice
of revocation bearing a later date than the proxy or a later dated proxy
relating to the same shares of the common stock of Barrington Bancorp to the
Secretary of Barrington Bancorp at the above address or by attending the Annual
Meeting and voting in person. You should not send in your Barrington Bancorp
stock certificates at this time.
On behalf of the Board of Directors, I thank you for your support and urge
you to vote FOR approval of the Merger Agreement.
Sincerely,
Hugh H. Palmer
President and Chief Executive Officer
<PAGE>
BARRINGTON BANCORP, INC.
120 S. Hough Street
Barrington, Illinois 60010
(847) 381-4242
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on June 5, 1996
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Barrington Bancorp, Inc. ("Barrington Bancorp") will be held at
2:00 p.m., local time, on June 5, 1996, at the main office of Barrington
Bancorp, located at 120 S. Hough Street, Barrington, Illinois.
A proxy card and a Proxy Statement/Prospectus for the Annual Meeting are
enclosed.
The Annual Meeting is for the purpose of considering and acting upon:
(i) the approval and adoption of the Agreement and Plan of Merger,
dated as of January 25, 1996, between Barrington Bancorp and
First Chicago NBD Corporation, as more fully described in the
accompanying Proxy Statement/Prospectus;
(ii) the election of two directors of Barrington Bancorp;
(iii) the ratification of the appointment of KPMG Peat Marwick LLP as
the auditors of Barrington Bancorp for the fiscal year ending
December 31, 1996; and
such other matters as may properly come before the Annual Meeting or any
adjournments or postponements thereof. The Board of Directors is not aware of
any other business to come before the Annual Meeting.
Any action may be taken on the foregoing proposals at the Annual Meeting on
the date specified above, or on any date or dates to which the Annual Meeting
may be adjourned or postponed. Only stockholders of record at the close of
business on May 2, 1996 are the stockholders entitled to vote at the Annual
Meeting and any adjournments or postponements thereof.
You are requested to complete, sign and date the enclosed proxy, which is
solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed postage paid return envelope. The proxy will not be used if you attend
and vote at the Annual Meeting in person.
By Order of the Board of Directors
Georgeanna Smalarz
Corporate Secretary
Barrington, Illinois
May 7, 1996
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE BARRINGTON BANCORP THE
EXPENSE OF FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE ANNUAL
MEETING. A PRE-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
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<PAGE>
PROXY STATEMENT
OF
BARRINGTON BANCORP, INC.
FOR THE ANNUAL MEETING OF BARRINGTON BANCORP, INC. STOCKHOLDERS
TO BE HELD ON JUNE 5, 1996
-----------------------------------
PROSPECTUS
OF
FIRST CHICAGO NBD CORPORATION
FOR
UP TO 528,150 SHARES OF
COMMON STOCK
$1.00 PAR VALUE PER SHARE
-------------------------------------
This Proxy Statement/Prospectus relates to the proposed merger of
Barrington Bancorp, Inc. ("Barrington Bancorp"), a Delaware corporation, with
and into First Chicago NBD Corporation ("FCN"), a Delaware corporation, as
contemplated by the Agreement and Plan of Merger, dated as of January 25, 1996
(the "Merger Agreement"), between Barrington Bancorp and FCN (the "Merger").
The Merger Agreement is included as Appendix I and incorporated herein by
reference.
This Proxy Statement/Prospectus is being furnished to the holders of shares
of common stock, par value $.01 per share, of Barrington Bancorp ("Barrington
Bancorp Common Stock") in connection with the solicitation of proxies by the
Board of Directors of Barrington Bancorp for use at the annual meeting of
stockholders of Barrington Bancorp (the "Annual Meeting") to be held at 2:00
p.m., local time, on June 5, 1996 at the main office of Barrington Bancorp, and
at any and all adjournments or postponements thereof.
This Proxy Statement/Prospectus also constitutes a prospectus of FCN filed
as part of the Registration Statement (defined below) with respect to up to
528,150 shares of common stock, $1.00 par value per share, of FCN ("FCN Common
Stock") to be issued upon consummation of the Merger pursuant to the terms of
the Merger Agreement.
Subject to the terms, conditions and procedures set forth in the Merger
Agreement, each share of Barrington Bancorp Common Stock issued and outstanding
immediately prior to the Merger (other than shares held by stockholders who
perfect dissenters' rights and other excluded shares) will be converted into the
right to receive and be exchangeable into a number of shares of FCN Common Stock
(rounded to the nearest thousandth of a share) equal to a fraction (the
"Exchange Ratio"), the numerator of which shall be equal to $25.85 and the
denominator of which shall be equal to the average closing price per share of
FCN Common Stock as reported on the New York Stock Exchange Composite
Transactions Tape for the ten consecutive trading days ending on the fifth
trading day prior to the Effective Time, as defined herein. For a more complete
description of the Merger Agreement and the terms of the Merger, see "The
Merger."
The outstanding shares of FCN Common Stock are, and the shares of FCN
Common Stock offered hereby will be, listed on the New York Stock Exchange
("NYSE"). The closing sales price of FCN Common Stock on the NYSE on May 2,
1996 (the latest practical date prior to the mailing of the Proxy
Statement/Prospectus) was $40.00 per share. The Barrington Bancorp Common Stock
is quoted on the Nasdaq SmallCap Market. The last reported bid price of the
Barrington Bancorp Common Stock on the Nasdaq SmallCap Market on May 2, 1996
(the latest practical date prior to the mailing of this Proxy
Statement/Prospectus) was $25.50 per share.
---------------------------------
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), THE OFFICE OF THRIFT
SUPERVISION (THE "OTS"), THE OFFICE OF THE COMPTROLLER OF THE CURRENCY (THE
"OCC"), THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (THE "FRB"), ANY
STATE SECURITIES COMMISSION, OR ANY OTHER GOVERNMENTAL AGENCY, NOR HAS THE SEC,
THE OTS, THE OCC, THE FRB, ANY STATE SECURITIES COMMISSION, OR ANY OTHER AGENCY
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF FCN COMMON
STOCK OFFERED HEREBY ARE NOT SAVINGS
<PAGE>
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND
OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
---------------------------------
This Proxy Statement/Prospectus, the accompanying notices and the
accompanying form of proxy are first being mailed to stockholders of Barrington
Bancorp on or about May 7, 1996.
AVAILABLE INFORMATION
FCN and Barrington Bancorp are subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and, in accordance therewith, file reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
filed by FCN and Barrington Bancorp can be obtained, upon payment of prescribed
fees, from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington D.C. 20549. In addition, such information can be
inspected and copied at the public reference facilities of the SEC located at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the SEC's
Regional Offices located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Such material with respect to Barrington Bancorp also
should be available for inspection at the offices of the Nasdaq Stock Market,
Reports Section, 1735 K Street, N.W., Washington, D.C. 20006. Such material with
respect to FCN also should be available for inspection at the offices of the
NYSE, 20 Broad Street, New York, New York, 10005; the Chicago Stock Exchange,
440 South LaSalle Street, Chicago, Illinois, 60605; and the Pacific Stock
Exchange, 301 Pine Street, San Francisco, California, 94104.
FCN has filed with the SEC a registration statement on Form S-4 (together
with all amendments, schedules, and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of FCN Common Stock to be issued pursuant to and as
contemplated by the Merger Agreement. This Proxy Statement/Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the SEC. The Registration Statement is available for inspection and copying as
set forth above. Statements contained in this Proxy Statement/Prospectus or in
any document incorporated by reference in this Proxy Statement/Prospectus as to
the contents of any contract or other document are not necessarily complete
(although all material information is provided), and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
All information contained in this Proxy Statement/Prospectus with respect
to FCN and its subsidiaries has been supplied by FCN, and all information with
respect to Barrington Bancorp and its subsidiary has been supplied by Barrington
Bancorp.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement/Prospectus incorporates by reference documents which
are not presented herein or delivered herewith. Such documents (excluding
exhibits not specifically incorporated by reference) are available, without
charge, to any person, including any beneficial owner, to whom this Proxy
Statement/Prospectus is delivered, upon the written or oral request of such
person, to First Chicago NBD Corporation, One First National Plaza, Mail Suite
0460, Chicago, Illinois, 60670; telephone (312) 732-4812, Attention: Investor
Relations.
The following documents previously filed by FCN (Commission File No.
1-7127) with the SEC pursuant to the Exchange Act are incorporated herein by
reference:
(i) FCN's Annual Report on Form 10-K for the year ended December 31, 1995;
(ii) FCN's Current Reports on Form 8-K dated January 16, 1996, January 26,
1996 and April 15, 1996;
ii
<PAGE>
(iii) The description of FCN Common Stock set forth in the registration
statement of NBD Bancorp, Inc., a predecessor of FCN ("NBD"),
pursuant to Section 12 of the Exchange Act and any amendment or
report filed with the SEC by NBD or FCN for the purpose of updating
such description; and
(iv) All documents filed by FCN with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the date of the Meetings shall be
deemed to be incorporated by reference herein and to be a part hereof
from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
deemed to be incorporated by reference herein 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 Proxy
Statement/Prospectus.
---------------------------------
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Proxy Statement/Prospectus, and if given or made, such information or
representation should not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to purchase, the securities offered by this Proxy Statement/Prospectus,
or the solicitation of a proxy, in any jurisdiction, to or from any person to
whom or from whom it is unlawful to make such offer, solicitation of an offer or
proxy solicitation in such jurisdiction. Neither the delivery of this Proxy
Statement/Prospectus nor any distribution of securities pursuant to this Proxy
Statement/Prospectus shall, under any circumstances, create an implication that
there has been no change in the affairs of FCN or Barrington Bancorp or any of
their respective subsidiaries, or in the information set forth herein, since the
date of this Proxy Statement/Prospectus.
iii
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TABLE OF CONTENTS
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Page
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INTRODUCTION................................................................ i
AVAILABLE INFORMATION....................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. ii
TABLE OF CONTENTS........................................................... iv
SUMMARY..................................................................... 1
The Parties to the Merger.............................................. 1
First Chicago NBD Corporation.................................. 1
Barrington Bancorp, Inc........................................ 1
The Annual Meeting..................................................... 2
Barrington Bancorp Annual Meeting.............................. 2
The Proposed Merger.................................................... 3
General........................................................ 3
Recommendation of the Board of Directors....................... 3
Merger Consideration........................................... 3
Opinion of Financial Advisor................................... 3
Effective Time and Closing Date................................ 4
Appraisal Rights............................................... 4
Interests of Certain Persons in the Merger..................... 4
Conditions to the Merger....................................... 4
Regulatory Approvals........................................... 4
Waiver and Amendment; Termination.............................. 5
Stock Option Agreement......................................... 5
Accounting Treatment........................................... 6
Conduct of Business Pending the Merger......................... 6
Expenses....................................................... 6
Certain Federal Income Tax Consequences of the Merger.......... 6
Effects of the Merger on Rights of Stockholders................ 6
Resales of FCN Common Stock by Affiliates...................... 7
Liquidation Account............................................ 7
Comparative Unaudited per Share and Pro Forma Data..................... 8
Comparative Stock Prices and Dividend Information...................... 10
Selected Consolidated Financial Data of First Chicago NBD Corporation.. 11
Selected Consolidated Financial Data of Barrington Bancorp, Inc........ 13
RECENT FINANCIAL DEVELOPMENTS............................................... 16
FCN Recent Developments................................................ 16
Barrington Bancorp Recent Developments................................. 18
OTHER RECENT DEVELOPMENTS................................................... 22
THE MEETING................................................................. 22
Barrington Bancorp Annual Meeting...................................... 22
THE MERGER.................................................................. 24
General................................................................ 24
Background of the Merger............................................... 24
Reasons for the Merger................................................. 25
Recommendation of the Board of Directors............................... 26
Merger Consideration................................................... 26
Opinion of Barrington Bancorp's Financial Advisor...................... 27
Effective Time and Closing Date........................................ 31
Appraisal Rights....................................................... 31
Fractional Shares...................................................... 33
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iv
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<TABLE>
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Exchange of Certificates............................................... 33
Interests of Certain Persons in the Merger............................. 34
Representations and Warranties......................................... 36
Conditions to the Merger............................................... 36
Regulatory Approvals................................................... 37
Waiver and Amendment; Termination...................................... 38
Stock Option Agreement................................................. 39
Conduct of Business Pending the Merger................................. 40
Expenses............................................................... 41
Accounting Treatment................................................... 41
Resales of FCN Common Stock by Affiliates.............................. 41
Certain Federal Income Tax Consequences of the Merger.................. 42
DESCRIPTION OF FCN CAPITAL STOCK............................................ 43
COMPARISON OF THE COMMON STOCK OF FCN AND BARRINGTON BANCORP................ 45
General................................................................ 45
Anti-Takeover and Supermajority Provisions............................. 45
Capitalization......................................................... 46
Board of Directors..................................................... 46
Action by Stockholders................................................. 46
Voting Limitation...................................................... 47
Indemnification........................................................ 47
Amendment to Certificate of Incorporation and By-laws.................. 47
Board Review of Certain Transactions................................... 48
BUSINESS OF BARRINGTON BANCORP.............................................. 48
General................................................................ 48
Market Area............................................................ 48
Lending Activities..................................................... 49
One- to Four-Family Residential Real Estate Lending.................... 52
Construction and Land Lending.......................................... 53
Home Equity Lines of Credit............................................ 54
Commercial Real Estate Lending......................................... 54
Consumer Lending....................................................... 55
Mortgage-Backed Securities............................................. 55
Originations, Purchases and Sales of Loans............................. 55
Delinquencies and Non-Performing Assets................................ 57
Investment Activities.................................................. 61
Sources of Funds....................................................... 62
Competition............................................................ 66
Employees.............................................................. 67
Service Corporations................................................... 67
SUPERVISION AND REGULATION.................................................. 67
General................................................................ 67
Federal Regulation of Savings Associations............................. 67
Insurance of Accounts and Regulation by the FDIC....................... 68
Regulatory Capital Requirements........................................ 69
Limitations on Dividends and Other Capital Distributions............... 71
Liquidity.............................................................. 72
Accounting............................................................. 72
Qualified Thrift Lender Test........................................... 72
Community Reinvestment Act............................................. 73
Transactions with Affiliates........................................... 73
Company Regulation..................................................... 73
Federal Securities Law................................................. 74
Federal Reserve System................................................. 74
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v
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Federal Home Loan First Federal System................................. 74
Federal and State Taxation............................................. 75
Executive Officers of Barrington Bancorp............................... 76
Executive Officers of Barrington Bancorp who are not Directors......... 77
Properties............................................................. 77
Legal Proceedings...................................................... 77
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................................... 77
General................................................................ 78
Financial Condition.................................................... 78
Results of Operations.................................................. 79
Comparison of Operating Results for the Years Ended December 31, 1995
and December 31, 1994................................................. 79
Comparison of Operating Results for the Years Ended December 31, 1994
and December 31, 1993................................................. 80
Asset/Liability Management............................................. 86
Liquidity and Capital Resources........................................ 87
Impact of Inflation and Changing Prices................................ 88
Significant Accounting Policies........................................ 88
BARRINGTON BANCORP AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS......... 90
Independent Auditors' Report........................................... 90
Consolidated Statements of Financial Condition......................... 91
Consolidated Statements of Operations.................................. 92
Consolidated Statements of Changes in Stockholders' Equity............. 93
Consolidated Statements of Cash Flows.................................. 94
Notes to Consolidated Financial Statements............................. 96
PROPOSAL II - ELECTION OF DIRECTORS......................................... 116
Board of Directors' Meetings and Committees............................ 117
Compensation Committee Interlocks and Insider Participation............ 118
Director Compensation.................................................. 118
Executive Compensation................................................. 118
Benefit Plans.......................................................... 119
Certain Transactions................................................... 120
PROPOSAL III - RATIFICATION OF APPOINTMENT OF AUDITORS...................... 120
STOCKHOLDER PROPOSALS....................................................... 120
LEGAL MATTERS............................................................... 120
EXPERTS..................................................................... 120
APPENDICES
I. Agreement and Plan of Merger.................................... I-1
II. Fairness Opinion of Hovde Financial, Inc....................... II-1
III. Section 262 of the Delaware General Corporation Law........... III-1
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vi
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SUMMARY
The following is a brief summary of certain information contained
elsewhere or incorporated by reference in this Proxy Statement/Prospectus.
Certain capitalized terms used in this summary are defined elsewhere in
this Proxy Statement/Prospectus. This summary is not intended to be a
complete description of all material facts regarding Barrington Bancorp,
FCN and the matters to be considered at the Annual Meeting and is qualified
in its entirety by, and reference is made to, the more detailed information
contained elsewhere in this Proxy Statement/Prospectus, the accompanying
Appendices and the documents referred to and incorporated herein by
reference.
The Parties to the Merger
First Chicago NBD Corporation
FCN, incorporated in Delaware in 1972, is a multibank holding company
registered under the Bank Holding Company Act of 1956. FCN is the
surviving corporation resulting from the merger, effective December 1,
1995, of First Chicago Corporation, a Delaware corporation and registered
bank holding company, with and into NBD Bancorp, Inc., also a Delaware
corporation and registered bank holding company. FCN engages primarily in
four lines of business--Credit Card; Regional Banking, which includes
retail banking and middle market banking; Corporate and Institutional
Banking; and Corporate Investments. Each of these businesses is conducted
through FCN's bank and nonbank subsidiaries. FCN's lead bank subsidiary is
The First National Bank of Chicago ("FNBC"). FCN also is the parent
corporation of NBD Bank (Michigan), American National Bank and Trust
Company of Chicago ("ANB"), FCC National Bank, NBD Bank, N.A. (Indiana),
NBD Bank (Illinois) ("NBD Illinois"), NBD Bank (Florida) and several other
bank subsidiaries. In addition, FCN directly or indirectly owns the stock
of various nonbank companies engaged in businesses related to banking and
finance. FCN also directly or indirectly raises funds principally to
finance the operations of its nonbank subsidiaries. A substantial portion
of FCN's annual income typically has been derived from dividends from its
subsidiaries and from interest on loans, some of which are subordinated, to
its subsidiaries. At December 31, 1995, FCN had total assets of $122
billion, deposits of $69 billion, and stockholders' equity of $8.5 billion,
making FCN the largest bank holding company headquartered in the Midwest.
FCN routinely explores opportunities for additional acquisitions of
financial institutions and other financial services-related businesses and
assets. In addition, FCN occasionally sells assets, or exits businesses or
markets, determined not to be consistent with FCN's overall business
strategy. During 1995, FCN consummated its previously announced
acquisitions of Deerbank Corporation and AmeriFed Financial Corp., and the
related thrift subsidiary mergers into NBD Illinois. On February 23, 1996,
FCN sold substantially all of the assets and deposits of NBD Bank (Ohio).
During 1996, FCN intends to consolidate the banking operations of NBD
Illinois with those of FNBC and ANB.
The executive offices of FCN are located at One First National Plaza,
Chicago, Illinois, 60670 and its telephone number is (312) 732-4000.
Barrington Bancorp, Inc.
Barrington Bancorp is a Delaware corporation formed at the direction
of First Federal Savings Bank of Barrington ("First Federal") in December
1993 for the purpose of owning all of the outstanding stock of First
Federal issued upon the conversion of First Federal from the mutual to
stock form of ownership on May 10, 1994.
First Federal is a federally chartered stock savings bank originally
chartered in 1934 and headquartered in Barrington, Illinois. Its deposits
are insured up to the applicable limits by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC"). First Federal's primary market area covers Barrington, Illinois
and the contiguous communities of North Barrington, Lake Barrington, South
Barrington, Barrington Hills, Tower Hills and a portion of Inverness,
Illinois, which markets are serviced through First Federal's main office
located in Barrington. At December 31, 1995, First Federal had total
assets of $70.2 million, deposits of $57.3 million, and stockholders'
equity of $11.6 million.
<PAGE>
First Federal is a community-oriented financial institution offering a
variety of financial services to meet the needs of the communities it
serves. First Federal attracts deposits from the general public and uses
such deposits to originate one- to four-family residential mortgage loans
and, to a much lesser extent, construction and commercial real estate
loans. First Federal also invests in U.S. Government and agency
obligations and other permissible investments.
The executive offices of Barrington Bancorp are located at 120 S.
Hough Street, Barrington, Illinois 60010, and the telephone number at that
address is (847) 381-4242. See "Business of Barrington Bancorp."
The Annual Meeting
Barrington Bancorp Annual Meeting
Meeting Date. The Annual Meeting will be held on June 5, 1996 at the
main office of Barrington Bancorp located at 120 S. Hough Street,
Barrington, Illinois, at 2:00 p.m., local time, and any and all
adjournments or postponements thereof. See "The Meeting--Barrington
Bancorp Annual Meeting."
Record Date. Only holders of record of Barrington Bancorp Common
Stock at the close of business on May 2, 1996 (the "Barrington Bancorp
Record Date") are entitled to notice of and to vote at the Annual Meeting
and any and all adjournments or postponements thereof. See "The Meeting--
Barrington Bancorp Annual Meeting."
Matters to be Considered. At the Annual Meeting, holders of shares of
Barrington Bancorp Common Stock will vote on the following proposals: (i)
the approval and adoption of the Merger Agreement and the transactions
contemplated thereby, including the Merger of Barrington Bancorp with and
into FCN; (ii) the election of two directors of Barrington Bancorp (the
"Election of Directors") to serve until completion of the Merger or, in the
event the Merger is not consummated, until the expiration of their three-
year term or until their respective successors are elected and qualified;
and (iii) the ratification of the appointment of KPMG Peat Marwick LLP as
the auditors of Barrington Bancorp for the fiscal year ending December 31,
1996 (the "Ratification of Auditors"), in the event the Merger is not
consummated. Barrington Bancorp stockholders will also consider and vote
upon such other matters as may properly be brought before the Annual
Meeting. See "The Meeting--Barrington Bancorp Annual Meeting."
Vote Required. Approval of the Merger Agreement at the Annual Meeting
will require the affirmative vote of the holders of a majority of the
outstanding shares of Barrington Bancorp Common Stock. The Election of
Directors requires a plurality of the votes of the shares present in person
or represented by proxy and entitled to vote on the Election of Directors.
The Ratification of Auditors requires the affirmative vote of a majority of
shares present in person or represented by proxy at the meeting and
entitled to vote on the matter. As of the Barrington Bancorp Record Date,
there were 661,250 shares of Barrington Bancorp Common Stock outstanding.
The affirmative vote of a majority of the shares represented at the Annual
Meeting may authorize the adjournment of the meeting. Any proxy for the
Annual Meeting given pursuant to this solicitation will be revocable. See
"The Meeting--Barrington Bancorp Annual Meeting--Proxies."
Approval of the Merger Agreement by the stockholders of Barrington
Bancorp is a condition to, and required for, consummation of the Merger.
See "The Merger--Conditions to the Merger."
Security Ownership. At May 2, 1996, no persons or entities, other than
the Barrington Bancorp Employee Stock Ownership Plan (52,900 shares or
8.00%) and, Hugh H. Palmer, the President and Chief Executive Officer of
Barrington Bancorp (46,705 shares or 7.06%), were known by management to
beneficially own more than 5% of the then outstanding shares of Barrington
Bancorp Common Stock. As of such date, directors and executive officers of
Barrington Bancorp and their affiliates were beneficial owners of 156,609
shares, or 23.68% of the then outstanding shares of Barrington Bancorp
Common Stock. The directors and executive officers of Barrington Bancorp
have indicated that they intend to vote such shares of Barrington Bancorp
Common Stock for approval and adoption of the Barrington Bancorp proposals
at the Annual Meeting. As of May 2, 1996, FCN was not aware that
2
<PAGE>
any of its directors or executive officers were beneficial owners of
Barrington Bancorp Common Stock. See "The Meeting -- Barrington Bancorp
Annual Meeting."
The Proposed Merger
The following summary is qualified in its entirety by reference to the
full text of the Merger Agreement, which is attached hereto as Appendix I
and incorporated by reference herein.
General
The stockholders of Barrington Bancorp are being asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement, pursuant to
which Barrington Bancorp will be merged with and into FCN, with FCN being
the surviving entity. See "The Merger--General."
Recommendation of the Board of Directors
The Barrington Bancorp Board of Directors (the "Barrington Bancorp
Board") has unanimously approved and adopted the Merger Agreement and the
transactions contemplated thereby and has determined that the Merger is
fair to, and in the best interests of, Barrington Bancorp and its
stockholders.
THE BARRINGTON BANCORP BOARD THEREFORE RECOMMENDS A VOTE FOR APPROVAL OF
---
THE MERGER AGREEMENT.
For a discussion of the factors considered by the Barrington Bancorp
Board and the FCN Board of Directors (the "FCN Board") in reaching their
decisions to approve the Merger Agreement and the transactions contemplated
thereby, see "The Merger--Background of the Merger" and "--Reasons for the
Merger."
Merger Consideration
Subject to the terms, conditions and procedures set forth in the
Merger Agreement, each share of Barrington Bancorp Common Stock issued and
outstanding immediately prior to the Merger (other than shares of
Barrington Bancorp Common Stock (i) owned by FCN, Barrington Bancorp and
their respective subsidiaries other than in a fiduciary capacity and (ii)
held by holders who perfect dissenters' rights) will be converted into the
right to receive and be exchangeable into a number of shares of FCN Common
Stock (rounded to the nearest thousandth of a share) equal to a fraction
(which shall be rounded to the nearest thousandth of a share), the
numerator of which shall be equal to $25.85 and the denominator of which
shall be equal to the average closing price per share of FCN Common Stock
(as reported on the New York Stock Exchange Composite Transactions Tape
(the "NYSE Tape")) for the ten consecutive trading days ending on the fifth
trading day prior to the Effective Time (as defined herein) as reported in
the Wall Street Journal, Midwest Edition (the "Merger Consideration"). See
"The Merger--Merger Consideration." Each share of FCN Common Stock issued
and outstanding at the Effective Time will remain outstanding and unchanged
as a result of the Merger.
Opinion of Financial Advisor
Barrington Bancorp. Barrington Bancorp has retained Hovde Financial,
Inc. ("Hovde") as its financial advisor in connection with the transactions
contemplated by the Merger Agreement and to evaluate the financial terms of
the Merger. Hovde rendered its oral opinion on January 25, 1996, which was
subsequently confirmed in writing, that as of the date of such opinion, the
consideration to be paid to Barrington Bancorp stockholders pursuant to the
Merger was fair, from a financial point of view, to the holders of
Barrington Bancorp Common Stock. The opinion was confirmed on the date of
this Proxy Statement/Prospectus. A copy of the opinion of Hovde dated as
of January 25, 1996 is attached hereto as Appendix II and should be read in
its entirety with respect to the assumptions made, limitations on reviews
undertaken and other matters. See "The Merger--Opinion of Barrington
3
<PAGE>
Bancorp's Financial Advisor" for information regarding, among other things,
the selection of Hovde and its compensation for services rendered in
connection with the Merger and its rendering of such opinion.
Effective Time and Closing Date
The Merger shall become effective at the time and on the date
specified in the certificate of merger to be filed with the Secretary of
State of Delaware (the "Effective Time"). The Effective Time will occur
only after the receipt of all required regulatory approvals, approval of
the Merger Agreement by the requisite vote of Barrington Bancorp's
stockholders and the satisfaction or waiver of all other conditions to the
Merger. The closing of the Merger shall occur on a date mutually agreed
upon by FCN and Barrington Bancorp (the "Closing Date"). In the absence of
such agreement, the Closing Date shall be on the tenth business day after
the last to occur of: (i) the receipt of all consents and approvals of
government regulatory authorities as legally required to consummate the
Merger and the expiration of all statutory waiting periods; and (ii) the
requisite approval of the Merger by the stockholders of Barrington Bancorp.
See "The Merger--Effective Time and Closing Date."
Appraisal Rights
Under Delaware law, each holder of Barrington Bancorp Common Stock may
dissent from the Merger and receive payment of the appraised value of his
or her shares of stock, provided the stockholder does not vote in favor of
the Merger and complies with certain statutory procedures set forth in
Section 262 of the Delaware General Corporation Law (the "DGCL"), the text
of which is attached hereto as Appendix III. The value determined in such
appraisal could be more than, the same as, or less than the value of the
consideration to be received under the Merger Agreement by holders of
Barrington Bancorp Common Stock who do not dissent from the Merger. A
holder of Barrington Bancorp Common Stock who returns an executed proxy
which does not indicate either a vote against the Merger or an abstention
will be deemed to have voted in favor of the Merger and therefore will have
waived his or her appraisal rights. See "The Merger--Appraisal Rights" and
Appendix III to this Proxy Statement/Prospectus.
Interests of Certain Persons in the Merger
Certain members of Barrington Bancorp's management and Barrington
Bancorp's Board may be deemed to have certain interests in the Merger in
addition to their interests as stockholders of Barrington Bancorp
generally. These include, among others, provisions in the Merger Agreement
relating to (i) indemnification and maintenance of director and officer
liability insurance coverage, (ii) the formation of an advisory board of
directors, (iii) the assumption by FCN of awards granted under the
Barrington Bancorp 1994 Stock Option and Incentive Plan (the "Barrington
Bancorp Stock Option Plan") and the First Federal Savings and Loan
Association of Barrington Recognition and Retention Plan (the "First
Federal RRP"), and (iv) certain employment and employee benefit matters.
The Barrington Bancorp Board was aware of these interests and considered
them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby. See "The Merger--Interests of Certain
Persons in the Merger."
Conditions to the Merger
The respective obligations of the parties to consummate the Merger are
subject to the fulfillment or waiver of certain conditions specified in the
Merger Agreement, including, among other things, the receipt of the
requisite regulatory and stockholder approvals, the accuracy of the
representations and warranties contained therein, the performance of all
obligations imposed thereby, the receipt by FCN and Barrington Bancorp of
certain legal opinions and certain other conditions customary in
transactions of this nature. See "The Merger--Conditions to the Merger."
Regulatory Approvals
The Merger is subject to the approval of the Board of Governors of the
Federal Reserve System (the "FRB") and the Office of Thrift Supervision
(the "OTS"). It is also a condition to the Merger that the proposed
4
<PAGE>
merger of First Federal with and into FNBC, with FNBC surviving the merger
(the "Subsidiary Bank Merger"), be approved by the Office of the
Comptroller of the Currency (the "OCC") prior to the Effective Time. FCN
filed applications for approval of the Merger with the FRB and the OTS on
February 29 and March 7, 1996, respectively. FCN filed an application with
the OCC for approval of the Subsidiary Bank Merger on March 1, 1996. FCN
received the approval of the FRB and the OCC, respectively on April 1 and
April 17, 1996, and anticipates obtaining the approval of the OTS during
the second quarter of 1996. There can be no assurance that the OTS will
approve the Merger or the Subsidiary Bank Merger, or the timing of the
receipt of any such approval. It is a condition to the consummation of the
Merger that the OCC, FRB and OTS approvals be obtained and shall be in full
force and effect and all related waiting periods required by law shall have
expired.
In addition, under federal law, the United States Department of
Justice (the "Department of Justice") may file objections to the Merger
under the federal antitrust laws. The Department of Justice could take
such action under the antitrust laws as it deems necessary or desirable in
the public interest, including seeking to enjoin the Merger. While FCN
believes that the likelihood of such action by the Department of Justice is
remote in this case, there can be no assurance that the Department of
Justice will not initiate such a proceeding. See "The Merger--Conditions
to the Merger" and "--Regulatory Approvals."
Waiver and Amendment; Termination
To the extent permitted under applicable law, the Merger Agreement may
be amended at any time by written agreement of the parties whether before
or after the vote by stockholders. Under certain circumstances such
amendment may be made without further approval of Barrington Bancorp's
stockholders. However, after approval of the Merger Agreement by the
stockholders of Barrington Bancorp, the Merger Agreement may not be amended
in a manner which modifies either the value or form of the Merger
Consideration. In addition, FCN and Barrington Bancorp may amend the
Merger Agreement without the approval of their respective Board of
Directors to the extent such amendments constitute technical changes to the
Merger Agreement not inconsistent with the Merger Agreement to effect
regulatory approval of the Merger Agreement or facilitate any regulatory or
governmental filing required in order to consummate the transactions
contemplated by the Merger Agreement.
Any term, provision or condition to the Merger Agreement (other than
Barrington Bancorp stockholder approval of the Merger Agreement) may be
waived in writing by the party which is entitled to the benefits
thereunder. The failure of FCN or Barrington Bancorp to require the
performance of any provision in the Merger Agreement will not affect either
party's right at a later time to enforce such provision.
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether prior to or after approval of the matters presented
herein by Barrington Bancorp stockholders: (i) by mutual written consent of
the Boards of Directors of FCN and Barrington Bancorp; (ii) at any time
prior to the Effective Time by FCN or Barrington Bancorp if there is a
final judicial or regulatory determination that any material provision of
the Merger Agreement is illegal, invalid or unenforceable or denying any
regulatory application required to consummate the Merger; (iii) at any time
on or prior to December 31, 1996 in the event that any of the conditions
precedent to the obligations of either party are impossible to be satisfied
or fulfilled by such date; (iv) if the required approval of the Barrington
Bancorp stockholders is not obtained; (v) by the non-breaching party if the
other party has materially breached any representations, warranties,
covenants or other agreements contained in the Merger Agreement, which
breach would result in a failure to satisfy the closing conditions set
forth in the agreement and which cannot be or is not cured within 30 days
after written notice of such breach has been provided by the non-breaching
party; and (vi) by FCN or Barrington Bancorp on or after December 31, 1996,
in the event the Merger has not been consummated by such date. For
additional information regarding FCN and Barrington Bancorp's rights to
terminate the Merger, see "The Merger--Waiver and Amendment; Termination."
Stock Option Agreement
As an inducement to FCN to enter into the Merger Agreement, FCN and
Barrington Bancorp entered into the Barrington Bancorp Stock Option
Agreement dated as of January 25, 1996 (the "Stock Option Agreement"),
pursuant to which Barrington Bancorp granted FCN an option to purchase from
Barrington Bancorp up to an
5
<PAGE>
aggregate of 131,500 shares of Barrington Bancorp Common Stock, or
approximately 19.9% of the currently outstanding Barrington Bancorp Common
Stock, at a price of $20.50 per share (the "Barrington Bancorp Option").
FCN may exercise the Barrington Bancorp Option only upon the
occurrence of certain events described therein (none of which has occurred
as of the date hereof). Depending on the number of shares purchased,
exercise of the option may be subject to the prior approval of certain
government regulatory authorities.
The Stock Option Agreement is intended to increase the likelihood that
the Merger will be consummated in accordance with the terms set forth in
the Merger Agreement. Consequently, certain aspects of the Stock Option
Agreement may have the effect of discouraging persons who might now or
prior to the Effective Time be interested in acquiring all or a significant
interest in Barrington Bancorp from considering or proposing such an
acquisition. See "The Merger--Stock Option Agreement."
Accounting Treatment
The Merger is expected to qualify as a "purchase" for accounting and
financial reporting purposes. See "The Merger--Accounting Treatment."
Conduct of Business Pending the Merger
Barrington Bancorp has agreed to conduct its business
prior to the Effective Time in accordance with certain guidelines set forth
in the Merger Agreement. See "The Merger--Conduct of Business Pending the
Merger."
Expenses
All expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby are to be paid by the party incurring
such expenses, provided that the expenses of printing and mailing this
Proxy Statement/Prospectus and filing and other fees paid to the SEC in
connection with the Merger shall be shared equally by FCN and Barrington
Bancorp. See "The Merger--Expenses."
Certain Federal Income Tax Consequences of the Merger
The Merger is expected to qualify for federal income tax purposes as a
tax-free reorganization. It is a condition to the consummation of the
Merger that Barrington Bancorp and FCN each receive an opinion of counsel
to the effect that the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). See "The Merger--Certain Federal Income Tax
Consequences of the Merger" and "--Conditions to the Merger."
BARRINGTON BANCORP STOCKHOLDERS SHOULD READ CAREFULLY THE DISCUSSION
SET FORTH UNDER THE "THE MERGER--CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER." HOLDERS OF BARRINGTON BANCORP COMMON STOCK SHOULD CONSULT
THEIR TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE
MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL
AND FOREIGN INCOME AND OTHER TAX LAWS.
Effects of the Merger on Rights of Stockholders
As a result of the Merger, holders of Barrington Bancorp Common Stock
who receive shares of FCN Common Stock will become stockholders of FCN.
For a comparison of the certificate of incorporation and by-law provisions
of FCN and Barrington Bancorp governing the rights of FCN and Barrington
Bancorp stockholders, see "Comparison of the Common Stock of FCN and
Barrington Bancorp."
6
<PAGE>
Resales of FCN Common Stock by Affiliates
The shares of FCN Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable under
the Securities Act, except for shares issued to any stockholder who may be
deemed to be an "affiliate" of Barrington Bancorp for purposes of Rule 145
under the Securities Act as of the date of the Barrington Bancorp Annual
Meeting. Affiliates of Barrington Bancorp may not sell their shares of FCN
Common Stock acquired in connection with the Merger except pursuant to an
effective registration statement under the Securities Act covering such
shares or in compliance with Rule 145 or another applicable exemption from
the registration requirements of the Securities Act. For additional
information on resales of FCN Common Stock by affiliates of Barrington
Bancorp, see "The Merger--Resales of FCN Common Stock by Affiliates."
Liquidation Account
In connection with its conversion from mutual to stock form of
ownership, First Federal was required to establish a "liquidation account"
for the benefit of savings account holders at the time of the conversion.
The liquidation account grants such savings account holders who have
continued to maintain their savings accounts at First Federal the right to
a priority distribution from the liquidation account before any
distribution is made with respect to Barrington Bancorp Common Stock in the
event of a complete liquidation of First Federal. Neither the Merger nor
the Subsidiary Bank Merger constitutes a complete liquidation and will not
trigger a distribution from the liquidation account. Upon consummation of
the Merger and the Subsidiary Bank Merger, the liquidation account will be
maintained by FNBC.
7
<PAGE>
COMPARATIVE UNAUDITED PER SHARE AND PRO FORMA DATA
The unaudited information set forth in the following tables reflects
certain comparative per common share data related to earnings per share, cash
dividends declared per share and book value per share (i) on a historical basis
for FCN and Barrington Bancorp; (ii) on a pro forma combined basis per share of
FCN Common Stock assuming consummation of the Merger; and (iii) on an equivalent
pro forma combined basis per share of Barrington Bancorp Common Stock assuming
consummation of the Merger.
The information shown below should be read in conjunction with the
consolidated historical financial statements of FCN and Barrington Bancorp,
including the respective notes thereto, which, in the case of FCN, are
incorporated by reference in this Proxy Statement/Prospectus and, in the case of
Barrington Bancorp, are presented herein. The pro forma data is presented for
comparative purposes only and is not necessarily indicative of the combined
financial position or results of operations which would have been realized had
the Merger been consummated during the periods or as of the dates for which the
pro forma data is presented.
See "Incorporation of Certain Documents by Reference," "Barrington Bancorp
and Subsidiary Consolidated Financial Statements" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
FCN Common Stock
Full Year First Quarter
1995 1996
--------- -------------
<S> <C> <C>
Earnings per share - primary:
Historical............................... $ 3.45 $ 1.04
Pro forma(1)............................. 3.44 1.04
Earnings per share - fully diluted:
Historical............................... $ 3.41 $1.03
Pro forma(1)............................. 3.40 1.02
Cash dividends declared per share:
Historical............................... $ 1.35 $ 0.36
Book value per share - end of period:
Historical............................... $25.25 $25.70
Pro forma(2)............................. 25.27 25.72
Pro forma - after stock repurchase(3).... 25.25 25.70
<CAPTION>
Barrington Bancorp Common Stock
Earnings per share - primary:
Historical............................... $ 0.57 $ 0.06
Pro forma(4)............................. 2.22 0.67
Earnings per share - fully diluted:
Historical............................... $ 0.57 $ 0.06
Pro forma(4)............................. 2.20 0.66
Cash dividends declared per share:
Historical............................... $ 0.28 $ 0.07
Pro forma(4)............................. 0.87 0.23
Book value per share - end of period:
Historical............................... $17.49 $17.56
Pro forma(4)............................. 16.32 16.62
Pro forma - after stock repurchase (4)... 16.31 16.60
</TABLE>
8
<PAGE>
(1) Gives effect to the Merger as if it had occurred at the beginning of
the period presented and assumes a $40 per share price of FCN Common Stock.
In calculating pro forma earnings per share, no adjustments to the pro
forma amounts have been made to reflect potential expense reductions or
revenue enhancements which may result from the Merger.
(2) Pro forma book value per share gives effect to the Merger as if it had
occurred at the end of the period presented and reflects the addition of
$17 million of common equity through the issuance of 427,000 shares of FCN
Common Stock. The actual number of shares of FCN Common Stock to be issued
in the Merger may be more or less than 427,000.
(3) Pro forma book value per share - after stock repurchase assumes the
repurchase by FCN of an equivalent number of shares of FCN Common Stock as
is issued in connection with the Merger, at a $40 per share price.
(4) Gives effect to the exchange of one share of Barrington Bancorp Common
Stock for 0.646 of a share of FCN Common Stock. These pro forma amounts
would decrease if the per share price of FCN Common Stock used to calculate
the Merger Consideration exceeds $40 per share.
9
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDEND INFORMATION
FCN Common Stock is quoted on the NYSE Tape under the symbol "FCN."
Barrington Bancorp Common Stock is quoted on The Nasdaq SmallCap Market under
the symbol "BABC." FCN Common Stock is also quoted on the Chicago and Pacific
Stock Exchanges.
The following table sets forth the comparative high and low sales prices
for FCN Common Stock and Barrington Bancorp Common Stock for the periods
indicated, as quoted on the NYSE Tape in the case of FCN and as quoted on The
Nasdaq SmallCap Market (bid prices) in the case of Barrington Bancorp, and the
quarterly cash dividends per share declared, for the periods indicated. The
stock prices do not include retail mark-ups, mark-downs or commissions.
Barrington Bancorp Common Stock began trading on May 10, 1994. FCN Common Stock
began trading under the symbol "FCN" on December 1, 1995; prior to that date, it
traded under the symbol "NBD".
<TABLE>
<CAPTION>
FCN Barrington Bancorp
Common Stock Common Stock
--------------------------- --------------------------------------
High Low Dividends High Low Dividends
------- ------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1994 Calendar Year
First Quarter...... $30 3/4 $27 1/4 $ .30 $ N/A $ N/A $ N/A
Second Quarter..... 32 27 3/8 .30 15.50/(1)/ 10.75/(1)/ ---
Third Quarter...... 33 28 3/8 .30 17.50 14.75 ---
Fourth Quarter..... 31 26 3/4 .33 17.75 14.50 ---
1995 Calendar Year
First Quarter...... 32 7/8 27 3/8 .33 19.50 14.50 .07
Second Quarter..... 33 1/4 30 1/8 .33 20.25 18.50 .07
Third Quarter...... 39 1/4 31 1/2 .33 20.00 19.00 .07
Fourth Quarter..... 42 1/2 36 1/2 .36 20.00 18.50 .07
1996 Calendar Year
First Quarter...... 44 1/4 34 3/4 .36 24.75 18.50 .07
</TABLE>
/(1)/ Reflects the period from May 10, 1994 through June 30, 1994.
The following table sets forth the closing sales price of FCN Common Stock
and the closing bid price of Barrington Bancorp Common Stock on January 25, 1996
(the last trading day prior to the public announcement of the proposed Merger)
and May 2, 1996 (the latest practicable trading day before the printing of this
Proxy Statement/Prospectus).
<TABLE>
<CAPTION>
FCN Common Barrington Bancorp Pro Forma Equivalent
Stock Common Stock Per Share(1)
---------- ------------------ --------------------
<S> <C> <C> <C>
Market value per share:
January 25, 1996 ....... $38.25 $18.75 $25.85
May 2, 1996 ............ 40.00 25.50 25.85
</TABLE>
(1) The equivalent market value per share of Barrington Bancorp Common Stock is
assumed to be $25.85 based upon the formula specified in the Merger
Agreement for calculating the Merger Consideration. The actual equivalent
market value per share may be more or less than $25.85 because the Merger
Consideration is calculated based upon the average closing price of FCN
Common Stock over a ten trading day period ending on the fifth day before
the Effective Time.
Stockholders are advised to obtain current market quotations for FCN
Common Stock and Barrington Bancorp Common Stock. No assurance can be given
as to the market price of FCN Common Stock or Barrington Bancorp Common
Stock at the Effective Time.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF FIRST CHICAGO NBD CORPORATION
The following table sets forth certain unaudited selected historical
consolidated financial information for FCN. The information is qualified in its
entirety by the consolidated financial statements and notes thereto of FCN which
are incorporated herein by reference. See "Available Information" and
"Incorporation of Certain Documents by Reference" and "Recent Financial
Developments--FCN Recent Developments."
<TABLE>
<CAPTION>
At March 31, At December 31,
-------------------- --------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- --------- --------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Millions, Except Per Share Data)
Summary of Income
- -----------------
Net interest income........................ $ 885 $ 794 $ 3,208 $ 2,956 $ 2,784 $ 2,692 $ 2,418
Provision for credit losses................ 175 85 510 276 390 653 606
Provision for assets held for accelerated
disposition/(1)/.......................... --- --- --- --- --- 625 ---
Noninterest income......................... 626 603 2,591 2,393 2,769 2,018 1,703
Merger-related charges..................... --- --- 267 --- --- 76 ---
Other noninterest expense.................. 828 799 3,268 3,220 3,161 3,084 2,867
Income before cumulative effect of changes
in accounting principles................. 340 336 1,150 1,221 1,290 224 478
Net income................................. 340 336 1,150 1,221 1,290 394 478
Earnings Per Share
- ------------------
Primary:
Income before cumulative effect of
changes in accounting principles......... $ 1.04 $ 1.01 $ 3.45 $ 3.62 $ 3.91 $ 0.60 $ 1.56
Net income............................... 1.04 1.01 3.45 3.62 3.91 1.17 1.56
Fully diluted:
Income before cumulative effect of
changes in accounting principles......... 1.03 0.99 3.41 3.58 3.79 0.60 1.55
Net income............................... 1.03 0.99 3.41 3.58 3.79 1.17 1.55
Period-End Balances
- -------------------
Total assets............................... $115,465 $119,915 $122,002 $112,763 $93,140 $90,011 $87,573
Long-term debt............................. 8,011 7,639 8,163 7,246 5,250 4,175 3,822
Total stockholders' equity................ 8,624 8,159 8,450 7,809 7,499 6,323 5,660
Common Share Data
Dividends declared......................... $ 0.36 $ 0.33 $ 1.35 $ 1.23 $ 1.08 $ 1.04 $ 0.95
Book value, period-end..................... 25.70 23.54 25.25 22.60 21.25 18.27 18.06
Market price, period-end................... 41 1/2 32 1/2 39 1/2 27 3/8 29 3/4 32 3/4 29 3/4
Capital Ratios/(2)/
- --------------
Common equity-to-assets ratio.............. 7.3% 6.7% 6.9% 6.8% 7.6% 6.5% 6.0%
Regulatory leverage ratio(3)............... 7.3 7.3 6.9 7.3 7.8 6.6 6.5
Risk-based capital(3)
Tier 1 ratio............................. 8.0 8.4 7.8 8.6 9.0 7.4 6.5
Total capital ratio...................... 12.2 12.7 11.8 13.0 13.6 11.3 9.8
</TABLE>
11
<PAGE>
(1) Of the total provision, $491 million relates to loans and $134 million
relates to other real estate held for accelerated disposition.
(2) Net of investment in First Chicago Capital Markets, Inc., FCN's wholly-
owned subsidiary authorized to underwrite, trade and deal in securities.
(3) Ratios as of March 31, 1996 are estimated.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF BARRINGTON BANCORP, INC.
Set forth below are selected historical consolidated financial and other
data of Barrington Bancorp. This financial data is derived in part from, and
should be read in conjunction with, the Consolidated Financial Statements and
Notes to the Consolidated Financial Statements presented elsewhere in this Proxy
Statement/Prospectus. See also "Recent Financial Developments--Barrington
Bancorp Recent Developments."
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------
1991(1) 1992(1) 1993(1) 1994(2) 1995
---------- ---------- ---------- ---------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
- ---------------------------------
Total assets................................... $63,319 $67,826 $63,041 $68,015 $70,204
Loans receivable, net.......................... 42,695 49,428 45,158 50,340 52,725
Loans held for sale............................ --- --- 349 --- ---
Interest-bearing deposits...................... 9,693 2,038 687 1,399 4,198
Investment securities held to maturity......... 9,056 10,023 7,220 7,122 5,024
Securities available for sale.................. --- --- 4,012 1,956 2,005
Mortgage-backed securities held
to maturity................................... --- 3,901 2,926 4,191 2,997
Savings deposits............................... 58,495 62,254 55,811 53,476 57,276
Borrowed funds................................. --- --- 1,500 3,000 1,000
Stockholders' equity........................... 4,586 5,090 5,378 11,126 11,565
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------
1991(1) 1992(1) 1993(1) 1994(2) 1995
------- ------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected Operations Data:
- ------------------------
Total interest income......................... $ 5,389 $ 4,725 $ 4,042 $ 3,953 $ 4,874
Total interest expense........................ 3,885 2,909 2,298 2,088 2,744
------- ------- ------- ------- -------
Net interest income........................ 1,504 1,816 1,744 1,865 2,130
Provision for loan losses..................... --- 128 172 10 6
------- ------- ------- ------- -------
Net interest income after pro-
vision for loan losses....................... 1,504 1,688 1,572 1,855 2,124
Noninterest income:
Annuity commissions.......................... --- --- --- 96 11
Gain on sales of investment securities....... --- 200 --- --- ---
Other noninterest income..................... 24 30 30 27 30
------- ------- ------- ------- -------
Total noninterest income...................... 24 230 30 123 41
Total noninterest expense..................... 1,117 1,124 1,130 1,326 1,594
------- ------- ------- ------- -------
Earnings before income taxes and
cumulative effect of change
in accounting principle...................... 411 794 472 652 572
Income tax expense........................... 108 290 165 221 208
------- ------- ------- ------- -------
Earnings before cumulative effect
of change in accounting principle............ 303 504 307 431 364
Cumulative effect of change in
accounting for income taxes.................. --- --- (25) --- ---
------- ------- ------- ------- -------
Net earnings.................................. $ 303 $ 504 $ 282 $ 431 $ 364
======= ======= ======= ======= =======
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1991(1) 1992(1) 1993(1) 1994(2) 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
- ----------------------------------------
Performance ratios:
Return on average assets......................... .48% .77% .43% .66% .53%
Interest rate spread during period............... 2.07 2.59 2.54 2.64 2.58
Net interest margin (3).......................... 2.44 2.86 2.76 3.00 3.25
Net interest income to noninterest expenses...... 1.35x 1.62x .54x 1.41x 1.33x
Ratio of noninterest expenses to average
total assets.................................... 1.77% 1.71% 1.73% 2.04% 2.33%
Ratio of average interest-earning assets
to average interest-bearing liabilities......... 1.06x 1.06x 1.06x 1.11x 1.16x
Asset Quality Ratios:
Non-performing assets to total assets............ 1.89 1.69 1.73 1.07 .54
Allowance for loan losses to non-performing
loans at end of period.......................... 3.35 14.70 31.22 51.24 94.18
Non-performing loans to total gross loans........ 2.76 2.24 2.32 1.30 .68
Allowance for loan losses to total
gross loans..................................... .09 .33 .72 .67 .64
Capital Ratios:
Stockholders' equity to total assets............. 7.24 7.50 8.53 16.36 16.47
Regulatory leverage capital(4)................... 7.24 7.50 8.53 13.86 12.69
Regulatory core capital (4)...................... 7.24 7.50 8.53 13.86 12.69
Regulatory risk-based capital(4)................. 17.21 17.40 20.50 31.66 28.58
Average stockholders' equity to average assets... 7.05 7.46 8.11 12.96 16.64
Return on average stockholders' equity........... 6.80 10.31 5.33 5.11 3.20
Number of full service offices..................... 1 1 1 1 1
</TABLE>
- ---------------
/(1)/ Includes First Federal only.
/(2)/ Includes Barrington Bancorp since May 10, 1994.
/(3)/ Net interest income before provision for loan losses
divided by average interest earning assets.
/(4)/ Regulatory capital ratios represent those at First Federal
only.
15
<PAGE>
RECENT FINANCIAL DEVELOPMENTS
FCN Recent Developments
The material set forth in "FCN Recent Developments" contains selected
financial data for FCN at and for the periods indicated. Financial data as of
March 31, 1995 and 1996 are unaudited. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation have been included. The results of operations and other data for
any interim period are not necessarily indicative of the results that can be
expected for the entire year.
FCN reported net income of $340 million for the first quarter of 1996, up
from $336 million for the first quarter of 1995. Earnings per share of FCN
Common Stock were $1.03, a 4% increase from $0.99 per share in the year-ago
quarter. Return on common stockholders' equity was 16.6%.
<TABLE>
<CAPTION>
FCN Key Ratios
--------------
Three Months Three Months Three Months
Ended March 31, Ended December Ended March 31,
1996 31, 1995* 1995
--------------- -------------- ---------------
<S> <C> <C> <C>
Earnings per common share $1.03 $0.96 $0.99
Return on common equity 16.6% 15.4% 17.7%
Return on assets 1.13% 1.02% 1.16%
Adjusted net interest margin 4.23% 3.93% 3.96%
Operating efficiency 53.8% 54.0% 56.3%
</TABLE>
*operating results
Highlights
. FCN has made significant progress toward its target of reducing securities
and short-term assets by $25 billion. As of March 31, 1996, asset
reductions totaled almost $12 billion for those targeted asset categories,
compared with the related average balance for the first half of 1995.
. During the first quarter, FCN completed an important merger objective of
consolidating its international network under FNBC. FCN now has 14 offices
in 11 countries outside the United States.
. Managed credit card outstandings were $17.3 billion at quarter-end,
compared with $13.0 billion at March 31, 1995, and $17.5 billion at year-
end 1995. The securitized portion of the managed portfolio was $7.6
billion at the end of the first quarter. The net charge-off rate for the
managed portfolio increased to 4.8%, versus 4.4% in the fourth quarter and
3.8% one year ago.
. Tier 1 and total risk-based capital ratios were approximately 8.0% and
12.2%, respectively, at quarter-end. These ratios remain significantly
higher than the "well-capitalized" regulatory guidelines.
. Book value per share of FCN Common Stock was $25.70 at March 31, 1996, up
from $23.54 in the year-ago quarter and $25.25 at year-end 1995.
Net Interest Income
Net interest income on a tax-equivalent basis was $913 million, up 12% from
the year-ago quarter. Average loans increased to $63.8 billion from $56.1
billion in the 1995 first quarter. Growth in both the credit card and regional
banking businesses accounted for much of this increase. Average earning assets
were $104.6 billion for the quarter.
Net interest margin on a reported basis was 3.51%, versus 3.22% one year
ago and 3.23% in the fourth quarter. Adjusting for credit card securitizations
and the activities of First Chicago Capital Markets, Inc., FCN's subsidiary
engaged in permissible investment banking activities, net interest margin was
4.23% for the quarter, compared with 3.96% in the 1995 first quarter and 3.93%
in the fourth quarter.
16
<PAGE>
NONINTEREST INCOME
Noninterest income for the first quarter was $626 million, an increase of
4% over the $603 million year-ago figure.
Market-driven revenue of $107 million was down slightly from a year
earlier. The decline in trading profits to $36 million was mostly attributable
to lackluster performance in foreign exchange. Equity security gains were $49
million and investment securities gains were $22 million for the quarter.
Fiduciary and investment management fees were $100 million, credit card
fees were $207 million, and service charges and commissions were $189 million in
the first quarter.
NONINTEREST EXPENSE
Noninterest expense was $828 million for the first quarter, up 4% from the
year-ago quarter but essentially flat with fourth-quarter operating levels. FCN
expects to realize at least $200 million in merger-related cost savings by the
end of 1997. Furthermore, at least half of the total savings are anticipated in
1996.
CREDIT QUALITY
The provision for credit losses was $175 million, up substantially from the
1995 first quarter due to growth in credit card receivables and charge-offs. The
provision related to the commercial portfolio equaled $39 million, while the
consumer portion was $136 million.
The allowance for credit losses was $1.4 billion at March 31, representing
354% of total nonperforming loans. The allowance related to credit card
outstandings was approximately $342 million. In addition, reserves of
approximately $277 million were held on the balance sheet for securitized credit
card assets.
Total net charge-offs in the first quarter were $145 million, of which $97
million was related to credit card receivables. Net charge-offs on the
securitized credit cards were $109 million. The net charge-off rate for total
managed credit cards was 4.8% for the quarter, compared with 3.8% for the first
quarter of last year.
OTHER RECENT DEVELOPMENTS
. In the first quarter, the Ohio branch network of FCN was sold to Fifth
Third Bancorp and such sale generated an after-tax gain of $7.5 million.
. FCN's retail brokerage services were merged into First NBD Investment
Services during the first quarter. Additionally, the retail mortgage
businesses were combined into First Chicago NBD Mortgage Company.
. FCN announced the planned construction of a new credit card facility in
Springfield, Missouri, scheduled for occupancy in mid-1997. This location
will be the fifth operating site for the rapidly growing credit card
business.
17
<PAGE>
First Chicago NBD Corporation and Subsidiaries
Comparative Summary
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1996 1995 Change
-------- -------- --------
<S> <C> <C> <C>
(Dollars in millions, except per share data)
Net interest income-tax equivalent basis.. $ 913 $ 815 +12%
Provision for credit losses............... 175 85 --
Noninterest income........................ 626 603 + 4
Noninterest expense....................... 828 799 + 4
Net income................................ 340 336 + 1
Earnings per share
Primary
Net income............................ $1.04 $1.01 + 3
Average common and common-equivalent
shares (in millions)................. 319.2 324.1 - 2
Fully diluted
Net income............................ $1.03 $0.99 + 4
Average shares, assuming full dilution
(in millions)........................ 326.2 331.2 - 2
Average balances
Loans................................... $ 63,790 $ 56,127 +14%
Earning assets.......................... 104,629 102,771 + 2
Total assets............................ 120,708 117,172 + 3
Common stockholders' equity............. 8,053 7,458 + 8
Stockholders' equity.................... 8,543 8,069 + 6
Net interest margin....................... 3.51% 3.22% + 9%
Return on assets.......................... 1.13 1.16 - 3
Return on common stockholders' equity..... 16.6 17.7 - 6
</TABLE>
<TABLE>
<CAPTION>
At March 31,
----------------------------------
1996 1995 Change
-------- -------- --------
<S> <C> <C> <C>
Assets.................................... $115,465 $119,915 - 4%
Loans..................................... 64,253 57,744 +11
Deposits.................................. 64,243 63,752 + 1
Common stockholders' equity............... 8,135 7,548 + 8
Stockholders' equity...................... 8,624 8,159 + 6
</TABLE>
Barrington Bancorp Recent Developments
The following table sets forth selected financial data of Barrington
Bancorp at and for the periods indicated. Financial data as of March 31, 1995
and 1996 are unaudited. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
have been included. The results of operations and other data for the three
months ended March 31, 1996 are not necessarily indicative of the results of
operations for the fiscal year ending December 31, 1996 or any other interim
period.
<TABLE>
<CAPTION>
At December 31, At March 31,
1995 1996
--------------- --------------
(In Thousands) (In Thousands)
Selected Financial Condition Data:
- ---------------------------------
<S> <C> <C>
Total assets.................................... $70,204 $69,720
Loans receivable, net........................... 50,916 52,997
Loans held for sale............................. --- ---
Interest-bearing deposits....................... 791 4,780
Investment securities held to maturity.......... 1,984 3,010
Securities available for sale................... 4,152 2,002
Mortgage-backed securities held
to maturity.................................... 53,490 2,689
Savings deposits................................ 3,000 57,974
Borrowed funds.................................. --- ---
Stockholders' equity............................ 11,274 11,612
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1996
------- ------
(In Thousands)
<S> <C> <C>
Selected Operations Data:
- -------------------------
Total interest income.............................. $ 1,193 $1,228
Total interest expense............................. 635 707
------- ------
Net interest income............................. 558 521
Provision for loan losses.......................... 3 ---
------- ------
Net interest income after pro-
vision for loan losses............................ 555 521
Noninterest income:
Annuity commissions............................... 4 1
Gain on sales of investment securities............ --- ---
Other noninterest income.......................... 9 7
------- ------
Total noninterest income........................... 13 8
Total noninterest expense.......................... 356 472
------- ------
Earnings before income taxes and
cumulative effect of change
in accounting principle.......................... 212 57
Income tax expense................................ 77 21
------- ------
Earnings before cumulative effect
of change in accounting principle................. 135 36
------- -------
Cumulative effect of change in
accounting for income taxes...................... --- ---
------- ------
Net earnings....................................... $ 135 $ 36
======= ======
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
At or for the Three
Months Ended
March 31,
1995 1996
------- ------
<S> <C> <C>
Selected Financial Ratios and Other Data:
- ----------------------------------------
Performance ratios:
Return on average assets.............................. .79% .21%
Interest rate spread during period.................... 2.78 2.48
Net interest margin /(1)/............................. 3.38 3.13
Net interest income to noninterest expenses........... 1.56x 1.10x
Ratio of noninterest expenses to average
total assets......................................... 2.09% 2.72%
Ratio of average interest-earning assets
to average interest-bearing liabilities.............. 1.16x 1.15x
Asset Quality Ratios:
Non-performing assets to total assets................. .90% .61%
Allowance for loan losses to non-performing
loans at end of period............................... 57.30 83.76
Non-performing loans to total gross loans............. 1.16 .77
Allowance for loan losses to total
gross loans.......................................... .67 .65
Capital Ratios:
Stockholders' equity to total assets.................. 16.53 16.65
Regulatory leverage capital/(2)/...................... 14.09 13.02
Regulatory core capital /(2)/......................... 14.09 13.02
Regulatory risk-based capital/(2)/.................... 31.91 28.65
Average stockholders' equity to average assets........ 16.41 16.65
Return on average stockholders' equity................ 4.81 1.26
Number of full service offices.......................... 1 1
</TABLE>
- -------------
/(1)/ Net interest income before provision for loan losses divided
by average interest earning assets.
/(2)/ Regulatory capital ratios represent those at First Federal
only.
Management's Discussion of Recent Results
Financial Condition. Total assets decreased to $69.7 million at March 31,
1996, from $70.2 million at December 31, 1995. Loans receivable increased from
$52.7 million at December 31, 1995 to $53.0 million at March 31, 1996. Savings
deposits increased to $58.0 million at March 31, 1996, from $57.3 million at
December 31, 1995. There were no borrowed funds at March 31, 1996 compared to
$1.0 million at December 31, 1995.
Net Interest Income. Net interest income before provision for loan losses
was $521,000 for the quarter ending March 31, 1996, compared to $558,000 for the
comparable prior period. Spread, or the difference between yield on earning
assets and cost on paying liabilities, decreased to 2.48% for the quarter ended
March 31, 1996, versus 2.78% for the quarter ended March 31, 1995.
Provision for Loan Losses. The provision for loan losses was $3,000 for the
three months ended March 31, 1995, and there was no provision for the comparable
1996 period. The 1995 provision was based on a review of the Bank's allowance
for loan losses and took into account an increase in loans receivable and a
decrease in non performing loans during the period. There was no provision for
the 1996 period because of nominal changes in non performing loans and loans
receivable.
20
<PAGE>
Noninterest Income. Noninterest income decreased $5,000 to $8,000 for the
quarter ended March 31, 1996. This decrease was a result of a lower level of
commissions earned on the sale of annuity products during the 1996 period.
Noninterest Expense. Noninterest expense increased $117,000, or 32.9%,
from $356,000 for the quarter ended March 31, 1995, to $473,000 for the quarter
ended March 31, 1996. The primary reasons for this increase were increased
professional fees associated with the proposed acquisition of Barrington
Bancorp and increased occupancy and equipment expense, which resulted from the
upgrading of Barrington Bancorp's office facility.
OTHER RECENT DEVELOPMENTS
The deposits of savings associations such as First Federal are presently
insured by the SAIF, which along with the Bank Insurance Fund ("BIF"), comprise
the two insurance funds administered by the FDIC. Financial institutions that
are members of the BIF have an insurance premium schedule which ranges from 0%
to .27% (with a minimum $2,000 annual assessment) of insured deposits (as
compared to the current range of .23% to .31% of insured deposits for members of
SAIF), so that well capitalized and healthy BIF members pay significantly lower
premiums than comparable SAIF insured institutions. The disparity is due to the
BIF having reached its statutory reserve ratio of 1.25% of insured deposits,
while the SAIF is not anticipated to reach its statutory reserve ratio until
2002, absent a substantial increase in premium rates or the imposition of
special assessments or other significant developments, such as the merger of the
SAIF and the BIF. As a result of this disparity, SAIF members have been placed
at a significant, competitive disadvantage to BIF members with respect to
pricing of loans and deposits and the ability to achieve lower operating costs.
A recapitalization plan being considered by the U.S. Congress provides for
a special assessment of .80% to .90% of SAIF insured deposits held as of March
31, 1995 and would be payable in 1996. If the proposed assessment of 0.80% to
0.90% were effected based on deposits of First Federal as of March 31, 1995 (as
proposed), First Federal's special assessment would amount to approximately
$427,900 to $481,400, before taxes. Should this occur, First Federal would
remain a well capitalized institution. No assurance can be given, however, as to
whether the proposed recapitalization plan will be implemented or as to the
nature or extent of any competitive disadvantage which may be experienced by
SAIF-member institutions. Accordingly, this special assessment would
significantly increase non-interest expense and adversely effect the results of
operations.
THE MEETING
Barrington Bancorp Annual Meeting
Place, Time and Date. The Barrington Bancorp Annual Meeting will be held
at the main office of Barrington Bancorp located at 120 S. Hough Street,
Barrington, Illinois, at 2:00 p.m. local time on June 5, 1996. This Proxy
Statement/Prospectus is being sent to holders of Barrington Bancorp Common Stock
and accompanies a form of proxy (the "Proxy"), which is being solicited by the
Barrington Bancorp Board for use at the Annual Meeting and at any and all
adjournments or postponements thereof.
Matters to Be Considered. At the Barrington Bancorp Annual Meeting, holders
of Barrington Bancorp Common Stock will vote upon (i) approval of the Merger
Agreement; (ii) the Election of Directors; and (iii) Ratification of Auditors.
See "The Merger," "Proposal II--Election of Directors" and "Proposal III--
Ratification of Appointment of Auditors."
Holders of Barrington Bancorp Common Stock will also consider and vote upon
such other matters as may properly be brought before the Barrington Bancorp
Annual Meeting. As of the date hereof, the Barrington Bancorp Board knows of no
business that will be presented for consideration at the Barrington Bancorp
Annual Meeting, other than the matters described in this Proxy
Statement/Prospectus.
21
<PAGE>
Barrington Bancorp Record Date; Vote Required. The Barrington Bancorp Board
has fixed the Barrington Bancorp Record Date, May 2, 1996, as the date for
determining holders of Barrington Bancorp Common Stock who will be entitled to
notice of, and to vote at, the Barrington Bancorp Annual Meeting. Only holders
of record of Barrington Bancorp Common Stock at the close of business on the
Barrington Bancorp Record Date will be entitled to notice of and to vote at the
Annual Meeting and any and all adjournments or postponements thereof. As of the
Barrington Bancorp Record Date, there were outstanding and entitled to vote at
the Annual Meeting 661,250 shares of Barrington Bancorp Common Stock.
Each holder of record of Barrington Bancorp Common Stock on the
Barrington Bancorp Record Date will be entitled to cast one vote per share on
the proposal to ratify the Merger Agreement at the Barrington Bancorp Annual
Meeting. The presence, in person or by properly executed Barrington Bancorp
proxies, of the holders of one-third of the outstanding shares of Barrington
Bancorp Common Stock entitled to vote at the Barrington Bancorp Annual Meeting
is necessary to constitute a quorum. The affirmative vote of a majority of the
shares represented at the Barrington Bancorp Annual Meeting may authorize the
adjournment of the meeting. Barrington Bancorp proxies returned with a vote
against the Merger Agreement, however, may not be voted by the holders thereof
for adjournment of the Annual Meeting pursuant to such holder's discretionary
authority. Abstentions and broker non-votes (i.e., proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owners or other persons as to certain proposals on which such
beneficial owners or persons are entitled to vote their shares but with respect
to which the brokers or nominees have no discretionary power to vote without
such instructions) will be treated as shares present at the Barrington Bancorp
Annual Meeting for purposes of determining a quorum.
Approval of the Merger Agreement at the Barrington Bancorp Annual Meeting
will require the affirmative vote of the holders of a majority of the
outstanding shares of Barrington Bancorp Common Stock entitled to vote at the
Barrington Bancorp Annual Meeting. Abstentions and broker non-votes will have
the same effect as votes against the Merger Agreement. The Election of Directors
requires a plurality of the votes of the shares present in person or represented
by proxy and entitled to vote on the Election of Directors. The Ratification of
Auditors requires the affirmative vote of a majority of shares present in person
or represented by proxy at the Annual Meeting and entitled to vote on the
matter. Proxies marked to abstain with respect to the Ratification of Auditors
have the same effect as votes against the proposal. Broker non-votes have no
effect on the vote.
As of May 2, 1996, the directors and executive officers of Barrington
Bancorp and their affiliates beneficially owned in the aggregate 156,609 shares
of Barrington Bancorp Common Stock, or 23.68% of the then outstanding shares of
Barrington Bancorp Common Stock entitled to vote at the Annual Meeting. The
directors and executive officers of Barrington Bancorp have indicated their
intention to vote such shares for the Merger at the Annual Meeting. As of May 2,
1996, FCN was not aware that any of its directors or executive officers or their
affiliates were beneficial owners of Barrington Bancorp Common Stock.
Information with respect to beneficial ownership of Barrington Bancorp Common
Stock by entities owning more than 5% of such stock, and by the directors and
executive officers of Barrington Bancorp, is set forth below under "Voting
Securities and Certain Holders Thereof."
Proxies. Shares of Barrington Bancorp Common Stock represented by properly
executed Barrington Bancorp Proxies received prior to or at the Annual Meeting
will, unless such proxies have been revoked, be voted at the Annual Meeting and
any adjournments or postponements thereof in accordance with the instructions
indicated in the Barrington Bancorp Proxies. If no instructions are indicated on
a properly executed Barrington Bancorp Proxy, the shares will be voted FOR the
election of all directors and each of the Barrington Bancorp proposals.
Any Barrington Bancorp Proxy given pursuant to this solicitation or
otherwise may be revoked by the person giving it at any time before it is voted
by delivering to the Secretary of Barrington Bancorp at 120 S. Hough Street,
Barrington, Illinois 60010 on or before the taking of the vote at the Annual
Meeting, a written notice of revocation bearing a later date than the Barrington
Bancorp Proxy or a later dated Barrington Bancorp Proxy relating to the same
shares of Barrington Bancorp Common Stock or by attending the Annual Meeting and
voting in person. Attendance at the Annual Meeting will not in itself constitute
the revocation of the Barrington Bancorp Proxy.
22
<PAGE>
If any other matters are properly presented at the Annual Meeting for
consideration, the persons named in the Barrington Bancorp Proxy or acting
thereunder will have discretion to vote on such matters in accordance with their
best judgment. As of the date hereof, the Barrington Bancorp Board knows of no
such other matters.
In addition to solicitation by mail, directors, officers, and employees of
Barrington Bancorp, who will not be specifically compensated for such services,
may solicit Barrington Bancorp Proxies from the stockholders of Barrington
Bancorp, personally or by telephone, telegram or other forms of communication.
Brokerage houses, nominees, fiduciaries and other custodians will be requested
to forward soliciting materials to beneficial owners and will be reimbursed for
their reasonable expenses incurred in sending proxy material to beneficial
owners. Barrington Bancorp will bear its own expenses in connection with the
solicitation of proxies for the Barrington Bancorp Annual Meeting. See "The
Merger--Expenses."
HOLDERS OF BARRINGTON BANCORP COMMON STOCK ARE REQUESTED TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO BARRINGTON BANCORP IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
HOLDERS OF BARRINGTON BANCORP COMMON STOCK SHOULD NOT FORWARD STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
Voting Securities and Certain Holders Thereof. As of May 2, 1996,
Barrington Bancorp had 661,250 shares of Barrington Bancorp Common Stock issued
and outstanding. The following table sets forth, as of May 2, 1996, information
regarding share ownership of: (i) those persons or entities know by management
to beneficially own more than 5% of Barrington Bancorp Common Stock; (ii) the
executive officer named in the Summary Compensation Table on page 119 hereof;
and (iii) all directors and executive officers as a group. See "Proposal II -
Election of Directors."
<TABLE>
<CAPTION>
Number of Shares of Common
Stock Beneficially Owned Percent of
More than 5% Beneficial Owner at May 2, 1996 Class
- ----------------------------- -------------------------- -----------
<S> <C> <C>
Barrington Bancorp, Inc. Employee 52,900 8.00%
Stock Ownership Plan/(1)/
120 S. Hough Street
Barrington, Illinois 60010
Directors
- ---------
Hugh H. Palmer, President and 46,705 7.06
Chief Executive Officer/(2)/
All directors and executive 156,609 23.68
officers of Barrington Bancorp
and First Federal as a group
(eight persons)/(3)/
</TABLE>
/(1)/ The amount reported represents shares held by the Employee Stock
Ownership Plan ("ESOP"), including shares allocated to accounts of
participants. Participants in the ESOP are entitled to instruct the
trustee as to the voting of shares allocated to their accounts under the
ESOP. Unallocated shares held in the ESOP's suspense account or allocated
shares for which no voting instructions are received are voted by the
trustee in the same proportion as allocated shares voted by participants.
/(2)/ Includes 22,900 shares held directly, 6,500 shares held by Mr.
Palmer's spouse, 9,500 shares held by Mr. Palmer's spouse as custodian for
minor children and 3,176 shares allocated to the account of Mr. Palmer
under the ESOP and shares subject to options granted pursuant to the
Barrington Bancorp Stock Option Plan, which options are exercisable within
60 days of May 2, 1996. Also included are shares awarded pursuant to the
Barrington Bancorp RRP which shares vest within 60 days of May 2, 1996.
/(3)/ Amount includes shares held directly, as well as shares held jointly
with family members, shares allocated to the ESOP accounts of the group
members, shares held in a fiduciary capacity or by certain family members,
with respect to which shares the group members may be deemed to have sole
voting and/or investment power. Amounts include shares subject to options
granted pursuant to the Barrington Bancorp Stock Option Plan, which
options are exercisable within 60 days of May 2, 1996 as well as shares
granted pursuant to the Barrington Bancorp RRP which shares vest within
60 days of May 2, 1996.
23
<PAGE>
THE MERGER
The information in this Proxy Statement/Prospectus concerning the terms of
the Merger includes a summary of all material provisions of the Merger
Agreement, and is qualified in its entirety by reference to the full text of the
Merger Agreement, which is attached hereto as Appendix I and incorporated herein
by reference. All stockholders are urged to read the Merger Agreement in its
entirety.
General
Pursuant to the Merger Agreement, Barrington Bancorp will be merged with
and into FCN, with FCN being the surviving entity. As soon as possible after the
conditions to consummation of the Merger described below have been satisfied or
waived, and unless the Merger Agreement has been terminated as provided below,
FCN and will file a certificate of merger with the Secretary of State of
Delaware. The Merger will become effective at the time specified in the
certificate of merger accepted for filing by the Secretary of State of Delaware.
In addition, it is also intended that immediately following the Merger, First
Federal will merge with and into, FNBC.
Upon consummation of the Merger, the separate existence and corporate
organization of Barrington Bancorp shall cease and the stockholders of
Barrington Bancorp shall be entitled to receive the Merger Consideration
following exchange of their shares of Barrington Bancorp Common Stock and shall
cease to be stockholders of Barrington Bancorp. FCN shall succeed to all the
rights and property of Barrington Bancorp. The members of the FCN Board
immediately prior to the Effective Time shall be the members of the FCN Board
immediately after the Effective Time.
Background of the Merger
Barrington Bancorp. Since the conversion of First Federal from mutual to
stock form of organization in May 1994, Barrington Bancorp has continuously
reviewed its strategic alternatives in light of its relatively small size, the
increasing consolidation of the financial services industry and other relevant
considerations. The Barrington Bancorp Board explored techniques of enhancing
Barrington Bancorp's stockholder value and competitive position but concluded
that, with only one office, 15 full time employees and four part time employees,
the pursuit of growth opportunities would require hiring additional personnel
and/or adding new loan and deposit products. Accordingly, the Barrington Bancorp
Board came to believe that the pursuit of potential growth strategies would mean
additional expense without the guarantees of enhancing operating results.
In view of the limited prospects for growth without significant additional
non-interest expense, pending legislative initiatives to eliminate the thrift
charter and the continued consolidation of the financial services industry, the
Barrington Bancorp Board decided in June of 1995 to explore a sale of Barrington
Bancorp. After making a preliminary review of the current merger environment,
the Barrington Bancorp Board decided to retain the services of an investment
banker to advise it regarding these matters and, if appropriate, to conduct a
confidential solicitation of interest among prospective acquirors. In July 1995,
after considering the selection of several different investment bankers, the
Barrington Bancorp Board engaged Hovde to advise Barrington Bancorp on enhancing
shareholder value and in obtaining an acquisition or merger partner.
In its discussions with Hovde, the Barrington Bancorp Board reviewed
Barrington Bancorp's current strategic position. One of the items focused on was
the relatively low number of other financial institutions having offices in
Barrington, Illinois, its primary market area, and the persistent rumors that
other institutions were considering the establishment of branch offices in
Barrington. After extensive discussion and research, the Board agreed that, if
Barrington Bancorp were to pursue a merger, it would be in the best interests of
shareholders to do so as quickly as reasonably possible because, as additional
financial institutions opened offices in Barrington, the value of First
Federal's franchise would likely decline and the interest level of potential
purchasers would also likely decline. The Board also discussed what appeared to
be a gradually weakening sales market for small thrift institutions. Based on
the above as well as the Board's overall review of First Federal's future
operating prospects, the Board concluded that the pursuit of a sales transaction
was in the best interest of stockholders.
24
<PAGE>
With the assistance of Hovde, the Barrington Bancorp Board identified
certain thrift and bank holding companies that might be desirable merger
partners. Based on discussions with the Barrington Bancorp Board, in November
1995, Hovde contacted eight thrift and bank holding companies which were
considered potential appropriate acquirors. Of the parties that were
contacted, eight companies indicated interest in receiving financial
information; after being informed of the minimum price expectations of
Barrington Bancorp, four of those companies, including FCN, chose to submit a
financial indication of interest outlining the general terms and conditions,
including a preliminary proposed price or range of proposed prices, for an
acquisition of Barrington Bancorp. After a thorough review by the Barrington
Bancorp Board of such indications of interest including introductory
presentations from each company, the Barrington Bancorp Board decided to invite
three companies to proceed to conduct a due diligence review of Barrington
Bancorp.
After completing the due diligence process, each of the three parties
indicated their revised proposed prices and forms of consideration and continued
discussions with regard to a variety of operational issues. In consultation with
Hovde and following extensive negotiation with FCN, the Barrington Bancorp Board
concluded that the FCN proposal presented the best opportunity for Barrington
Bancorp stockholders.
The Barrington Bancorp Board evaluated numerous factors that related to the
ultimate value of the consideration. The FCN offer represented a multiple of
38.4 times the trailing four quarter earnings of Barrington Bancorp of $464,000
for the twelve months ended September 30, 1995 and 154.9% of Barrington
Bancorp's fully diluted book value per share. The Barrington Bancorp Board also
evaluated such other factors as FCN's historical and prospective earnings, the
pro forma financial impact on FCN and any earnings per share implications of
acquiring Barrington Bancorp, FCN's ability to achieve cost savings through
certain economies of scale, the pro forma impact on the stockholders of
Barrington Bancorp with respect to earnings and dividends per share, the
liquidity of FCN's Common Stock, the benefits of affiliating with a larger
financial institution and other relevant considerations. Hovde rendered its
opinion to the Barrington Bancorp Board that, as of January 25, 1996, the Merger
Consideration was fair from a financial point of view. See "The Merger--Opinion
of Barrington Bancorp's Financial Advisor." After thoroughly reviewing and
evaluating all of the relevant considerations, the Barrington Bancorp Board
concluded that the proposed merger with FCN represented the best opportunity for
the stockholders of Barrington Bancorp and agreed to accept FCN's offer, subject
to negotiation of a definitive agreement.
Reasons for the Merger
Barrington Bancorp. Among the factors considered by the Barrington Bancorp
Board in deciding to approve and recommend the terms of the Merger were the
following material factors: (i) the consideration to be paid to Barrington
Bancorp's stockholders in relation to the market value, book value, earnings per
share, and dividend rates of the Barrington Bancorp Common Stock and the FCN
Common Stock; (ii) information concerning the financial condition, results of
operations, capital levels, asset quality and prospects of FCN and Barrington
Bancorp; (iii) expanded consumer lending and retail banking products and
services to Barrington Bancorp's customers which should result from the Merger;
(iv) the general structure of the transaction and the compatibility of
management and business philosophy; (v) the likelihood of receiving the
requisite regulatory approvals in a timely manner; (vi) the general tax-free
nature of the Merger to the stockholders of Barrington Bancorp; (vii) the
ability of the combined enterprise to compete in its market; (viii) industry and
economic conditions, including trends in the consolidation of the financial
services industry; (ix) recent changes in the regulatory environment, in tax and
other laws and regulations, and in accounting principles, recent volatility in
the capital markets and general levels of interest rates, and the circumstances
affecting the thrift industry generally (see "Conditions to the Merger"); (x)
the impact of the Merger on the depositors, employees, customers of and
communities served by Barrington Bancorp; and (xi) the opinion of Barrington
Bancorp's financial advisor as to the fairness, from a financial point of view,
of the consideration to be paid to Barrington Bancorp's stockholders. See "--
Opinion of Barrington Bancorp's Financial Advisor." In making its determination,
the Barrington Bancorp Board did not ascribe relative weights to the factors
considered in reaching its determination. The Barrington Bancorp Board reviewed
the financial information, projections and assumptions used by Hovde in arriving
at the Hovde opinion and found Hovde's reliance thereon not unreasonable.
The Barrington Bancorp Board also considered that the structure of the
Merger was not designed to exclude a third party from submitting a bona fide
offer to acquire Barrington Bancorp, and that under the Merger Agreement the
Barrington Bancorp Board retains the right (i) to negotiate with and furnish
non-public information to third
25
<PAGE>
parties if the Barrington Bancorp Board determines, after consultation with
legal counsel, that the board has a fiduciary duty to do so and (ii) to decline
to recommend to its stockholders the approval of the Merger, or withdraw,
modify, or change such recommendation, in accordance with its fiduciary
obligation. In this regard, the Barrington Bancorp Board was aware that the
Merger Agreement provides for Barrington Bancorp and FCN to enter into the Stock
Option Agreement pursuant to which FCN will have the right to acquire up to
131,500 shares of Barrington Bancorp Common Stock at $20.50 per share under
certain circumstances. The Barrington Bancorp Board, however, also was aware
that the Stock Option Agreement was specifically bargained for by FCN and was a
necessary inducement for FCN to enter into the Merger Agreement. In addition,
although the Merger Agreement prohibits Barrington Bancorp from soliciting or
encouraging submission of third-party acquisition proposals, the Barrington
Bancorp Board did not believe this was an unacceptable limitation. Specifically,
the Merger Agreement would be publicly announced promptly after signing and be
well known to financial institutions, their holding companies and the investment
community generally, and would be promptly reported to the SEC and the OTS in
publicly available filings. As a result, any party interested in making an offer
or proposal to Barrington Bancorp would have full access to the terms of the
Merger.
FCN. The FCN Board has carefully considered the proposed Merger and the
terms of the Merger Agreement and has concluded that the transaction is in the
best interests of FCN and its stockholders. The Merger should further strengthen
FCN's metropolitan Chicago franchise, extending FCN's retail branch network
further into the growing northwestern suburbs and augmenting its existing Cook
and Lake County operations. FCN's existing customers should benefit from the
added convenience of being able to conduct a full array of banking transactions
at FNBC's new Barrington location.
Consummation of the Subsidiary Bank Merger will result in a significant
increase in the types of services to be offered to the current First Federal
customers, as well as a dramatic increase in the number of available branch
facilities at which First Federal customers can conduct their banking business
in the Chicago metropolitan area, following completion of the consolidation of
FCN's Illinois banking operations currently underway. The Subsidiary Bank Merger
will allow FCN, from a convenient location in downtown Barrington, to introduce
its expansive credit card, retail (including investment management), middle
market, and corporate and institutional banking services to First Federal
customers. FCN offers a diverse and sophisticated array of financial products to
consumers and businesses of all sizes. FCN believes there is a strong need for a
complete line of sophisticated financial products and services in these areas.
While other financial institutions located in or in close proximity to First
Federal's markets provide, in certain cases, similar products and services, FCN
believes its greater availability of expertise and capacity for the development
of specialized products and services tailored to the communities it serves will
provide an attractive alternative to the customers in Barrington Bancorp's
markets.
Recommendation of the Board of Directors
The Barrington Bancorp Board has unanimously adopted and approved the
Merger Agreement and the transactions contemplated thereby and has determined
that the Merger is fair to, and in the best interests of, Barrington Bancorp and
its stockholders.
THE BARRINGTON BANCORP BOARD THEREFORE RECOMMENDS A VOTE FOR APPROVAL OF
---
THE MERGER AGREEMENT.
For a discussion of the factors considered by the Barrington Bancorp Board
in reaching its decision to approve the Merger Agreement, see "--Background of
the Merger" and "--Reasons for the Merger."
Merger Consideration
Subject to the terms, conditions and procedures set forth in the Merger
Agreement, each share of Barrington Bancorp Common Stock issued and outstanding
immediately prior to the Merger (other than (i) shares of Barrington Bancorp
Common Stock owned by FCN, Barrington Bancorp and their respective subsidiaries
other than in a fiduciary capacity and (ii) shares held by holders who perfect
dissenters' rights) will be converted into the right to receive and be
exchangeable into a number of shares of FCN Common Stock (rounded to the nearest
thousandth of a share) equal to a fraction (which shall be rounded to the
nearest thousandth of a share), the numerator of which
26
<PAGE>
shall be equal to $25.85 and the denominator of which shall be equal to the
average closing price per share of FCN Common Stock (as reported on the NYSE)
for the ten consecutive trading days ending on the fifth trading day prior to
the Effective Time (as defined herein) as reported in the Wall Street Journal,
Midwest Edition (the "Merger Consideration").
Each share of FCN Common Stock issued and outstanding at the Effective Time
will remain outstanding and unchanged as a result of the Merger. No fractional
shares of FCN Common Stock will be issued in the Merger, and Barrington Bancorp
stockholders who otherwise would be entitled to receive a fractional share of
FCN Common Stock will receive a cash payment in lieu thereof.
Opinion of Barrington Bancorp's Financial Advisor
Hovde has delivered to the Barrington Bancorp Board its opinion that, based
upon and subject to the various considerations set forth in its written opinion
dated January 25, 1996, the Merger Consideration is fair from a financial point
of view to the stockholders of Barrington Bancorp as of such date. In requesting
Hovde's advice and opinion, no limitations were imposed by Barrington Bancorp
upon Hovde with respect to the investigations made or procedures followed by it
in rendering its opinion.
The full text of the opinion of Hovde, dated January 25, 1996, which
describes the procedures followed, assumptions made, matters considered and
limitations on the review undertaken, is attached hereto as Appendix II.
Stockholders of Barrington Bancorp should read this opinion in its entirety.
HOVDE'S OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE MERGER CONSIDERATION, AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY STOCKHOLDER OF BARRINGTON BANCORP AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT
THE BARRINGTON BANCORP ANNUAL MEETING. THE SUMMARY OF THE OPINION OF HOVDE SET
FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
The following is a brief summary of the analyses performed by Hovde in
connection with its fairness opinion:
During the course of its engagement, and as a basis for arriving at its
opinion, Hovde reviewed and analyzed material bearing upon the financial and
operating condition of FCN and Barrington Bancorp and material prepared in
connection with the Merger, including, among other things, the following:
(i) the Merger Agreement; (ii) certain publicly available information concerning
Barrington Bancorp and FCN, including the consolidated financial statements of
Barrington Bancorp for each of the three years ended December 31, 1994, the
three subsequent quarterly periods ended March 31, June 30 and September 30,
1995 and preliminary balance sheets and income statements as of December 31,
1995; (iv) the nature and terms of recent acquisition and merger transactions
involving thrift institutions and thrift holding companies that Hovde considered
reasonably similar to Barrington Bancorp in size, financial character, operating
character, historical performance and geographic market; and (v) financial and
other information provided to Hovde by the management of FCN and Barrington
Bancorp. Hovde conducted meetings with members of senior management of
Barrington Bancorp for purposes of reviewing the future prospects of Barrington
Bancorp. Hovde also took into account its experience in other transactions, as
well as its knowledge of the commercial banking and thrift industries and its
general experience in securities valuations.
In rendering its opinion, Hovde assumed, without independent verification,
the accuracy and completeness of the financial and other information and has
relied upon the accuracy of the representations of the parties contained in the
Merger Agreement. Hovde has not made any independent evaluation or appraisal of
any properties, assets or liabilities of Barrington Bancorp. Hovde assumed and
relied upon the accuracy and completeness of the publicly available and other
financial and other information provided to it, relied upon the representations
and warranties of FCN and Barrington Bancorp made pursuant to the Merger
Agreement, and did not independently attempt to verify any of such information.
27
<PAGE>
In connection with its opinion, Hovde performed various analyses with
respect to Barrington Bancorp. The following is a brief summary of such
analyses, certain of which were presented to the Barrington Bancorp Board by
Hovde on or before January 25, 1996.
Analysis of the Merger Consideration. Hovde reviewed the value of the
Merger Consideration to be received by each Barrington Bancorp stockholder.
Hovde calculated that the Merger Consideration equated to approximately 154.9%
of Barrington Bancorp's fully diluted tangible book value at September 30, 1995,
a multiple of approximately 38.4 times Barrington Bancorp's earnings for the
12 months ended September 30, 1995, and a premium to core deposits of
approximately 11.52%.
Summary of Proposals. Hovde summarized the sales process, the parties
contacted and the level of interest expressed by each party, including the value
of the aggregate consideration offered to the stockholders of Barrington
Bancorp.
Hovde also compared the significant terms of the FCN proposal to that of
the other bidders submitting proposals, including the value of the consideration
offered. This analysis showed, among other things, that the value of the FCN
proposal of $25.85 per share of Barrington Bancorp Common Stock, especially
given that this was in the form of an all stock, tax-deferred exchange, was
considerably higher than the value per share offered by the other bidders. Hovde
examined the trading price and volume for FCN Common Stock and the relationship
between the trading characteristics of FCN Common Stock and the trading
characteristics of the common stocks of the other companies, as well as to a
peer group of comparable companies.
Analysis of Selected Mergers. As part of its analysis, Hovde reviewed
three sets of mergers: (i) selected mergers involving thrifts headquartered
anywhere in the United States announced between January 1, 1991 and December 31,
1995 in which the total assets of the seller were between $25 million and $250
million and the tangible equity/asset ratio was greater than 12% (the
"Nationwide Mergers"); (ii) selected mergers involving thrifts headquartered in
the Midwest announced between January 1, 1991 and December 31, 1995 in which the
total deal value was between $10 million and $25 million (the "Midwestern
Mergers"); and (iii) all mergers involving thrifts headquartered in Illinois
announced between January 1, 1993 and December 31, 1995 in which the total
assets of the seller were less than $250 million (the "Illinois Mergers"). The
Nationwide Mergers consisted of 36 mergers involving thrifts headquartered
anywhere in the United States; the Midwestern Mergers consisted of 34 mergers of
thrifts headquartered in the Midwest; and the Illinois Mergers consisted of ten
thrifts headquartered in Illinois. For each transaction, Hovde calculated the
multiple of the offer value to the acquired company's: (i) earnings per share
("EPS") for the twelve months preceding ("LTM") the announcement date of the
transaction; (ii) book value per share; (iii) tangible book value per share; and
(iv) the tangible book premium to core deposits.
The calculations for the Nationwide Mergers yielded a range of multiples of
offer value to LTM EPS of 11.2 times to 38.4 times, with an average of 21.1
times and median of 19.8 times; a range of multiples of offer value to book
value of 0.81 times to 1.62 times, with an average of 1.28 times and median of
1.27 times; a range of multiples of offer value to tangible book value of 0.81
times to 1.62 times, with an average of 1.28 times and a median of 1.27 times;
and a range of tangible book premium to core deposits of 3.19% to 15.49%, with
an average of 6.61% and a median of 6.38%.
The calculations for the Midwestern Mergers yielded a range of multiples of
offer value to LTM EPS of 5.3 times to 38.4 times, with an average of 15.9 times
and a median of 14.6 times; a range of multiples of offer value to book value of
0.82 times to 1.98 times, with an average of 1.34 times and a median of 1.31
times; a range of multiples of offer value to tangible book value of 0.82 times
to 2.0 times, with an average of 1.37 times and a median of 1.33 times; and a
range of multiples of tangible book premium to core deposits of -1.41% to
15.49%, with an average of 5.14% and a median of 5.45%.
The calculations of the Illinois Mergers yielded a range of multiples of
offer value to LTM EPS of 6.0 times to 29.2 times, with an average of 14.3 times
and a median of 12.9 times; a range of multiples of offer value to book value of
0.97 times to 1.87 times, with an average of 1.40 times and a median of 1.46
times; a range of multiples of offer value to tangible book value of 0.97 times
to 1.99 times, with an average of 1.42 times and a median of 1.46
28
<PAGE>
times; and a range of tangible book premium to core deposits of -0.63% to 6.36%,
with an average of 3.26% and a median of 3.31%.
Hovde compared these multiples with the corresponding multiples for the
Merger, valuing the shares of FCN Common Stock that would be received pursuant
to the Merger Agreement at $25.85 per share of Barrington Bancorp Common Stock.
In calculating the multiples for the Merger, Hovde used Barrington Bancorp's EPS
for the 12 months ended September 30, 1995, book value per share and
tangible book value per share as of September 30, 1995, and Hovde calculated
that Barrington Bancorp's LTM EPS, book value per share, tangible book value per
share and tangible book premium to core deposits were 38.4 times, 1.55 times,
1.55 times, and 11.52% respectively.
No company or transaction used in the above analysis as a comparison is
identical to Barrington Bancorp, FCN or 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 facts that could affect the public
trading value of the companies to which they are being compared.
Contribution Analysis. Hovde prepared a contribution analysis showing
percentages of assets, deposits, common equity, and 1994, 1995, and estimated
1996 net income contributed to the combined company on a pro forma basis by
Barrington Bancorp and FCN. This analysis showed, assuming FCN's stock price was
at $36.875 per share, that Barrington Bancorp, as of December 31, 1995, would
contribute 0.06% of pro forma consolidated total assets, 0.08% of deposits,
0.14% of common equity, 0.04% of 1994 net income, 0.03% of 1995 net income and
0.04% of estimated 1996 net income. The stockholders of Barrington Bancorp would
own approximately 0.15% of the pro forma common shares outstanding of FCN,
assuming FCN's stock price was at $36.875 per share.
Financial Implications to Barrington Bancorp Stockholders. Hovde prepared
an analysis of the financial implications of the FCN offer to a Barrington
Bancorp stockholder. This analysis indicated that on a pro forma equivalent
basis, at a $25.85 price per share of Barrington Bancorp Common Stock with FCN
trading at $36.875 per share, a stockholder of Barrington Bancorp would achieve
an increase in earnings per share, an increase in per share dividends and an
increase in fully diluted book value per share as a result of the consummation
of the Merger.
Comparative Stockholder Returns. Hovde presented an analysis of
comparative theoretical stockholder returns in several scenarios, including
Barrington Bancorp remaining independent, Barrington Bancorp being acquired in
2000 and Barrington Bancorp being acquired by FCN at $25.85 per share. This
analysis, which was based on the net present value of projected dividend streams
and projected 1996 common stock valuations (using current price-to-earnings
multiples), indicated total shareholder returns of 7.48% if Barrington Bancorp
remained independent, 12.25% for a merger in 2000 on the terms specified in the
following paragraphs, and 33.83% based on the acceptance of the offer from FCN
at $25.85 per share with the FCN Common Stock trading at an assumed price of
$36.875 per share.
Discounted Cash Flow Analysis. Hovde performed a discounted cash flow
analysis to determine a range of present values per share of Barrington Bancorp
Common Stock assuming Barrington Bancorp continued to operate as a stand-alone
entity and was acquired at a later date. This range was determined by projecting
Barrington Bancorp's after-tax net income for the five years ended December 31,
1996 through 2000. Projected net income was determined through consultation with
Barrington Bancorp's management and generally included aggressive growth in
assets (ranging from 6% in 1996 to 8% in 2000), as well as progressively higher
net income as a percent of average assets (increasing from 0.73% for 1996 to
0.97% for the twelve months ended December 31, 2000). "Terminal values" per
share of Barrington Bancorp Common Stock were determined by applying ranges of
price to earnings multiples (ranging from 25 times to 27.5 times), against
Barrington Bancorp's projected earnings at December 31, 2000. Present values of
the terminal values were then determined using annual discount rates of 13% and
14%. The above calculations resulted in a present value per fully diluted share
of Barrington Bancorp Common Stock ranging from $18.06 (based upon a sale in
five years at 25 times estimated earnings using a discount rate of 14%) to
$20.61 (based upon a sale in five years at 27.5 times estimated earnings using a
discount rate of 13%). The majority of the net present values per share of
Barrington Bancorp Common Stock were in the range of approximately $19.00 to
$20.00.
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Although the summary set forth above does not purport to be a complete
description of the analysis performed by Hovde, the material analysis performed
by Hovde in rendering its opinion has been summarized above. However, the
preparation of a fairness opinion is not necessarily susceptible to partial
analysis or summary description. Hovde believes that its analysis and the
summary set forth above must be considered as a whole and that selecting
portions of its analysis, without considering all factors and analysis, would
create an incomplete view of the process underlying the analysis by which Hovde
reached its opinion. In addition, Hovde may have given various analyses more or
less weight than other analyses, but no analysis was given materially more
weight than any other analysis. Also, Hovde may have deemed various assumptions
more or less probable than other assumptions so that the ranges of valuations
resulting from any particular analysis described above should not be taken to be
Hovde's view of the actual value of Barrington Bancorp or the combined company.
In performing its analysis, Hovde made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Barrington Bancorp and FCN. The
analysis performed by Hovde is not necessarily indicative of actual value or
actual future results, which may be significantly more or less favorable than
suggested by such analysis. Such analysis was prepared solely as part of Hovde's
analysis of the fairness of the Merger Consideration, from a financial point of
view, to the holders of Barrington Bancorp Common Stock. The analysis does not
purport to be an appraisal or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future. Hovde used in its analysis various
projections of future performance prepared by the management of Barrington
Bancorp. The projections are based on numerous variables and assumptions which
are inherently unpredictable and must be considered not certain of occurrence as
projected. Accordingly, actual results could vary significantly from those
assumed in the projections and any related analysis. Hovde's opinion does not
address the relative merits of the Merger as compared to any other business
combination in which Barrington Bancorp might engage. In addition, as described
above, Hovde's opinion to the Barrington Bancorp Board was one of many factors
taken into consideration by the Barrington Bancorp Board in making its
determination to approve the Merger Agreement.
Based upon the foregoing analyses and other investigations and assumptions
set forth in its opinions, without given specific weightings to any one factor
or comparison, Hovde determined that the Merger Consideration was fair from a
financial point of view to the stockholders of Barrington Bancorp. Hovde's
fairness opinion does not take into account any adjustment to the Merger
Consideration that may be provided for in the Merger Agreement.
THE SUMMARY OF THE PRESENTATION BY HOVDE TO THE BARRINGTON BANCORP BOARD AS
SET FORTH ABOVE DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH
PRESENTATION. THE PREPARATION OF A FAIRNESS OPINION INVOLVES VARIOUS
DETERMINATIONS AS TO THE MOST APPROPRIATE AND RELEVANT METHODS OF FINANCIAL
ANALYSES AND THE APPLICATION OF THOSE METHODS TO THE PARTICULAR CIRCUMSTANCES,
AND, THEREFORE, SUCH AN OPINION IS NOT READILY SUSCEPTIBLE TO SUMMARY
DESCRIPTION. FURTHERMORE, IN ARRIVING AT ITS OPINION, HOVDE DID NOT ATTRIBUTE
ANY PARTICULAR WEIGHT TO ANY ANALYSIS OR FACTOR CONSIDERED BY IT, BUT RATHER
MADE QUALITATIVE JUDGMENTS AS TO THE SIGNIFICANCE AND RELEVANCE OF EACH ANALYSIS
AND FACTOR. ACCORDINGLY, HOVDE BELIEVES THAT ITS ANALYSES AND THE SUMMARY SET
FORTH ABOVE MUST BE CONSIDERED AS A WHOLE AND THAT SELECTING PORTIONS OF ITS
ANALYSES, WITHOUT CONSIDERING ALL FACTORS AND ANALYSES, COULD CREATE AN
INCOMPLETE VIEW OF THE PROCESS UNDERLYING THE ANALYSES SET FORTH IN ITS REPORT
TO THE BARRINGTON BANCORP BOARD AND ITS FAIRNESS OPINION. IN PERFORMING ITS
ANALYSES, HOVDE MADE NUMEROUS ASSUMPTIONS WITH RESPECT TO INDUSTRY PERFORMANCE,
GENERAL BUSINESS AND ECONOMIC CONDITIONS AND OTHER MATTERS, MANY OF WHICH ARE
BEYOND THE CONTROL OF FCN OR BARRINGTON BANCORP. THE ANALYSES PERFORMED BY HOVDE
ARE NOT NECESSARILY INDICATIVE OF ACTUAL VALUES OR ACTUAL FUTURE PERFORMANCE.
Hovde will receive a fee of approximately $200,000 for services rendered in
connection with advising Barrington Bancorp regarding the Merger Agreement,
including the fairness opinion and financial advisory services provided to
Barrington Bancorp since the completion of Barrington Bancorp's initial public
offering, plus
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reimbursement of out of pocket expenses. As of the date of this Proxy
Statement/Prospectus, Hovde has received $25,000 of such fee.
Effective Time and Closing Date
The Merger shall become effective at the time and on the date specified in
the certificate of merger to be filed with the Secretary of State of Delaware.
Such filing will occur only after the receipt of all requisite regulatory
approvals and the approval of the Merger Agreement by the requisite vote of
Barrington Bancorp's stockholders and the satisfaction or waiver of all other
conditions to the Merger. The closing of the Merger shall occur on the Closing
Date.
Appraisal Rights
Pursuant to Section 262 of the DGCL, any holder of Barrington Bancorp
Common Stock who does not wish to accept the Merger Consideration may dissent
from the Merger and elect to have the fair value of his or her shares (exclusive
of any element of value arising from the accomplishment or expectation of the
Merger) judicially determined and paid in cash, provided that such stockholder
complies with the provisions of Section 262.
The following is a brief summary of the statutory procedures to be followed
by a holder of Barrington Bancorp Common Stock in order to dissent from the
Merger and perfect appraisal rights under the DGCL. This summary is not intended
to be complete and is qualified in its entirety by reference to Section 262, the
text of which is attached as Appendix III to this Proxy Statement/Prospectus and
incorporated by reference herein.
If any holder of Barrington Bancorp Common Stock elects to exercise his or
her right to dissent from the Merger and demand appraisal, such stockholder must
satisfy each of the following conditions:
(i) such stockholder must deliver a written demand for appraisal
of his or her shares to Barrington Bancorp before the stockholder vote with
respect to the Merger Agreement (the written demand for appraisal must be
in addition to and separate from any proxy or vote against the Merger
Agreement; neither voting against, abstaining from voting nor failing to
vote on the Merger Agreement will constitute a demand for appraisal within
the meaning of Section 262);
(ii) such stockholder must not vote in favor of the Merger
Agreement (a failure to vote will satisfy this requirement, but a vote in
favor of the Merger Agreement, by proxy or in person, or the return of a
signed proxy which does not specify a vote against approval and adoption of
the Merger Agreement or a direction to abstain, will constitute a waiver of
such stockholder's right of appraisal and will nullify any previously filed
written demand for appraisal); and
(iii) such stockholder must continuously hold such shares from
the date of the making of the demand through the Effective Time.
If any holder of Barrington Bancorp Common Stock fails to comply with any
of these conditions and the Merger occurs, he or she will be entitled to receive
the Merger Consideration and will have no appraisal rights with respect to his
or her shares of Barrington Bancorp Common Stock.
All written demands for appraisal should be addressed to Barrington
Bancorp, Inc., 120 S. Hough Street, Barrington, Illinois, 60010, Attention: Hugh
H. Palmer, President, before the taking of the vote concerning the Merger
Agreement at the Barrington Bancorp Annual Meeting, and should be executed by,
or on behalf of, the holder of record. Such demand must reasonably inform
Barrington Bancorp of the identity of the stockholder and that such stockholder
is thereby demanding appraisal of his or her shares.
To be effective, a demand for appraisal must be executed by or for the
stockholder of record who held such shares on the date of making such demand,
and who continuously holds such shares through the Effective Time, fully and
correctly, as such stockholder's name appears on his stock certificate(s) and
cannot be made
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by the beneficial holder if he or she does not also hold the shares of record.
The beneficial holder, in such case, must have the registered owner submit the
required demand in respect of such shares.
If Barrington Bancorp Common Stock is owned of record in a fiduciary
capacity, as by a trustee, guardian or custodian, execution of a demand for
appraisal should be made in such capacity. If Barrington Bancorp Common Stock is
owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by or for all joint owners. An authorized
agent, including one of two or more joint 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 executing the
demand, he or she is acting as agent for the record owner. A record owner, such
as a broker, who holds Barrington Bancorp Common Stock as a nominee for others
may exercise his or her right of appraisal with respect to the shares held for
one or more beneficial owners, while not exercising such right for other
beneficial owners. In such case, the written demand should set forth the number
of shares as to which the record owner dissents. Where no number of shares is
expressly mentioned, the demand will be presumed to cover all shares of
Barrington Bancorp Common Stock in the name of such record owner.
Within ten days after the Effective Time, FCN (as the surviving corporation
in the Merger) must give written notice that the Merger has become effective to
each former Barrington Bancorp stockholder who so filed a written demand for
appraisal and who did not vote in favor of the Merger Agreement. Any such
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from FCN the appraisal of his or her
shares of Barrington Bancorp Common Stock. Within 120 days after the Effective
Time, but not thereafter, either FCN or any holder of shares of Barrington
Bancorp Common Stock who has complied with the requirements of Section 262, may
file a petition in the Delaware Court of Chancery (the "Court of Chancery")
demanding a determination of the value of the shares of Barrington Bancorp
Common Stock held by all stockholders entitled to appraisal. FCN does not
presently intend to file such a petition. Inasmuch as FCN 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 FCN), any stockholder who has
demanded appraisal has the right to withdraw the demand and to accept payment of
the Merger Consideration.
Within 120 days after the Effective Time, any stockholder who has complied
with the provisions of Section 262 to that point in time will be entitled to
receive from FCN, upon written request, a statement setting forth the aggregate
number of shares of Barrington Bancorp Common Stock not voted in favor of the
Merger Agreement and with respect to which demands for appraisal have been
received along with the aggregate number of holders of such shares. FCN must
mail such statement to the stockholder within ten days of receipt of such
request.
If a petition for appraisal is duly filed by a stockholder and a copy
thereof is delivered to FCN, FCN will then be obligated within 20 days to
provide the Court of Chancery with a duly verified list containing the names and
addresses of all stockholders who have demanded an appraisal of their shares and
with whom agreement as to the value of such shares has not been reached. After
notice to such stockholders, the Court of Chancery 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 thereunder. The
Court of Chancery may require the stockholders who demanded payment for their
shares to submit their stock certificates 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 of Chancery may
dismiss the proceedings as to such stockholder.
After determination of the stockholders entitled to an appraisal, the Court
of Chancery will appraise the shares of Barrington Bancorp Common Stock,
determining their fair value exclusive of any element of value arising from the
accomplishment or expectation of the Merger. When the value is so determined,
the Court will direct the payment by FCN of such value, with interest thereon,
simple or compound, if the Court so determines, to the stockholders entitled to
receive the same, upon surrender to FCN by such stockholders of the certificates
representing such Barrington Bancorp Common Stock.
In determining fair value, the Court of Chancery will take into account all
relevant factors, and may consider proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court. Under Delaware law, the Court of Chancery must
consider market value, asset
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value, dividends, earnings prospects, the nature of the enterprise and any other
facts which could be ascertained as of the date of the Merger that throw any
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 construed Section 262 to mean 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 are not the product of
speculation, may be considered." Stockholders who are considering seeking an
appraisal should bear in mind that the fair value of their shares of Barrington
Bancorp Common Stock determined under Section 262 could be more than, the same
as or less than the Merger Consideration, and that an opinion of an investment
banking firm as to fairness is not an opinion as to fair value under Section
262.
Costs of the appraisal proceeding may be assessed against the parties
thereto (i.e., FCN and the stockholders participating in the appraisal
proceeding) by the Court of Chancery as the court deems equitable in the
circumstances. Upon the application of any stockholder, the Court of Chancery
may determine the amount of interest, if any, to be paid upon the value of the
stock of stockholders entitled thereto. 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 attorneys' fees and the fees and expenses of experts, to be charged
pro rata against the value of all shares entitled to appraisal. Any stockholder
who has demanded appraisal rights will not be entitled, after the Effective
Time, to vote the stock subject to such demand for any purpose or to receive
payment of dividends or any other distribution with respect to such shares
(other than dividends or distributions, if any, payable to holders of record as
of a record date prior to the Effective Time) or to receive the payment of the
Merger Consideration. However, if no petition for an appraisal is filed within
120 days after the Effective Time or if such stockholder delivers to FCN a
written withdrawal of his demand for an appraisal and an acceptance of the
Merger, either within 60 days after the Effective Time or thereafter with the
written approval of FCN, then the right of such stockholder to an appraisal will
cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery will be dismissed as to any stockholder without the approval of the
court, and such approval may be conditioned upon such terms as the court deems
just.
Failure to comply strictly with these procedures may cause the stockholder
to lose his or her appraisal rights. Consequently, any stockholder who desires
to exercise his or her appraisal rights is urged to consult a legal advisor
before attempting to exercise such rights.
Fractional Shares
No certificates or scrip representing fractional shares of FCN Common Stock
will be issued upon the surrender for exchange of certificates representing
Barrington Bancorp Common Stock, no dividend or distribution of FCN will relate
to any fractional shares, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a shareholder of FCN. Each
stockholder of Barrington Bancorp who would be entitled to a fractional share in
the Merger will receive a cash payment (without interest) determined by
multiplying (i) the fractional share interest to which the holder would
otherwise be entitled pursuant to the terms of the Merger Agreement by (ii) the
closing price of FCN Common Stock on the NYSE on the trading day immediately
preceding the Effective Time, as reported in the Wall Street Journal, Midwest
Edition, rounded to the nearest cent.
Exchange of Certificates
After the Effective Time, holders of certificates of Barrington Bancorp
Common Stock shall cease to have rights with respect to such certificates and
their sole rights shall be to exchange such certificates for the Merger
Consideration.
As soon as practicable after the Effective Time, FCN will deliver to each
Barrington Bancorp holder of record of a certificate or certificates, which
immediately prior to the Effective Time represented outstanding shares of
Barrington Bancorp Common Stock (the "Certificates"), a transmittal letter and
instructions to be used in surrendering the Certificates in exchange for (i)
certificates representing the number of shares of FCN Common Stock into which
their shares of Barrington Bancorp Common Stock are to be converted pursuant to
the Merger Agreement, and (ii) a check representing the amount of cash in lieu
of fractional shares, if any, and unpaid dividends and
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distributions, if any, which such stockholder has the right to receive in
respect of the Certificates surrendered in connection with the Merger. No
interest will be paid or accrued on the cash in lieu of fractional shares or on
the unpaid dividends and distributions, if any, payable to holders of Barrington
Bancorp Common Stock.
BARRINGTON BANCORP STOCKHOLDERS SHOULD NOT FORWARD THEIR BARRINGTON BANCORP
STOCK CERTIFICATES UNTIL THEY RECEIVE THE TRANSMITTAL LETTER AND INSTRUCTIONS.
Until such surrender for the Merger Consideration and subject to the
effect, if any, of applicable law, the Certificates will thereafter represent
the right to exchange and receive the number of shares of FCN Common Stock into
which such shares are convertible in the Merger, and the holders will be
entitled to all rights and privileges of holders of FCN Common Stock, except
that holders of Certificates will not be entitled to vote or to receive
dividends or any other distributions declared by FCN until the Certificates are
so surrendered. Following surrender of the Certificates in accordance with the
terms of the Merger Agreement, the holders of newly-issued FCN certificates will
be paid, without interest, any dividends or other distributions (for which the
record date is after the Effective Time) with respect to the shares of FCN
Common Stock (less any taxes that may have been imposed thereon).
After the Effective Time, holders of unsurrendered Certificates shall not
be entitled to vote at any meeting of FCN stockholders at which holders of FCN
Common Stock are eligible to vote, unless such holders have exchanged their
Certificates. Any Certificate representing shares of FCN Common Stock to be
issued in a name other than that in which the Certificate is registered must be
properly endorsed and otherwise in proper form for transfer, and the holder
requesting such exchange must pay to FCN, or its designated exchange agent, in
advance, any transfer or other taxes in connection therewith.
In the event any Certificate has been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the holder of such Certificate and the
posting of any bond required by FCN or its exchange agent, FCN, or its exchange
agent, will issue for such lost, stolen or destroyed Certificate, the shares of
FCN Common Stock and deliver cash in lieu of fractional shares due to the holder
of such Certificate under the terms of the Merger Agreement.
After the Effective Time, there will be no further registration or transfer
on the records of Barrington Bancorp of the Certificates and, if such
Certificates are presented to FCN for transfer, they will be cancelled against
delivery of certificates for FCN Common Stock.
Interests of Certain Persons in the Merger
Certain directors and executive officers of Barrington Bancorp have certain
interests in the Merger in addition to their interests as stockholders of
Barrington Bancorp generally. The Barrington Bancorp Board was aware of these
interests and considered them in approving the Merger Agreement and the
transactions contemplated thereby.
Indemnification; Insurance. Pursuant to the Merger Agreement, after the
Effective Time, FCN shall maintain all rights of indemnification, including
rights regarding the payment of advances and expenses existing immediately prior
to the Effective Time in favor of employees, agents, officers and directors of
Barrington Bancorp and First Federal pursuant to the Certificate of
Incorporation, Charter, Bylaws, or otherwise. FCN agrees that persons serving as
directors and officers of Barrington Bancorp immediately prior to the Effective
Time shall be covered for a period of three years from the Effective Time by the
directors' and officers' liability insurance policy presently maintained by
Barrington Bancorp and First Federal with respect to acts or omissions occurring
prior to the Effective Time; provided, that FCN may substitute policies
containing terms and conditions which are not materially less advantageous than
the current policy maintained by Barrington Bancorp and First Federal.
Advisory Board. At the Effective Time, FCN will form a Barrington, Illinois
Advisory Board (the "Advisory Board"), which will be maintained by FCN at least
through May 10, 2000. Each current member of the Barrington Bancorp Board
specified in the Merger Agreement shall, at the time he or she no longer is a
Director of Barrington Bancorp, be entitled to immediately become a member of
the Advisory Board for a term specified in the Merger Agreement. The Advisory
Board shall meet at least once every six months at such time selected and
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designated by FCN, and each member of the Advisory Board shall receive
compensation of $250 per meeting attended.
Existing Employment Agreements. Pursuant to the Merger Agreement,
Barrington Bancorp will enter into employment agreements with its President,
Hugh Palmer, and two other executive officers, Vice President and Secretary
Georgeanna Smalarz and Vice President and Treasurer Peter Fidler, to
commence on the effective date. Under the terms of the agreements, in exchange
for the performance of administrative and management services, Mr. Palmer,
Ms. Smalarz and Mr. Fidler will receive annual salaries of $104,940, 64,542
and $63,120, for terms specified in the respective agreements. In addition, the
officers will be entitled to continued participation in the ESOP.
Upon termination of Mr. Palmer's agreement, FCN will pay to Mr. Palmer the
difference between (i) $314,820 and (ii) the FCN salary theretofore paid to Mr.
Palmer. In addition, FCN will continue to provide Mr. Palmer with life and
health insurance equal to that offered to other employees of FCN for a period of
12 months after termination of the Agreement.
At the Effective Time, FCN will honor these agreements.
Employee Severance Compensation Plan. At the Effective Time, FCN will
assume all of the obligations of First Federal under the Employee Severance
Compensation Plan (the "Employee Severance Plan"). The rights of existing
employees under the Employee Severance Plan will be deemed to be vested
contractual rights at the Effective Time. See "Proposal II -Election of
Directors--Benefit Plans."
Stock Options and Restricted Stock. At the Effective Time, each option
issued pursuant to the Barrington Bancorp Stock Option Plan to acquire
Barrington Bancorp Common Stock that is outstanding and unexercised immediately
prior thereto shall by virtue of the Merger be assumed by FCN and thereafter be
deemed to constitute either (i) an option to acquire, on the same terms and
conditions as were applicable under the Barrington Bancorp Stock Option Plan
immediately prior to the Effective Time, at an exercise price (rounded to the
nearest cent) equal to the original option exercise price divided by the
Exchange Ratio, the number of shares of FCN Common Stock equal to the product of
the number of shares of Barrington Bancorp Common Stock subject to the original
option and the Exchange Ratio, subject to certain limitations and qualifications
as further described in the Merger Agreement, or (ii) the right to receive cash
in lieu of the Barrington Bancorp stock options as described in the Merger
Agreement.
At the Effective Time all Shares of Barrington Bancorp Common Stock subject
to restrictions under the First Federal RRP shall by virtue of the Merger be
either (i) exchanged for certificates of FCN Common Stock with the same
restrictions or (ii) converted into the right to receive cash in lieu of
Barrington Bancorp restricted stock equal to the product of (A) the number of
shares of restricted stock held by or for the account of the director or
employee under the First Federal RRP and (B) $25.85, net of any cash which must
be withheld under federal and state income and employment tax requirements.
At May 2, 1996, directors and executive officers of Barrington Bancorp
beneficially owned 20,944 shares of restricted stock under the First Federal
RRP. In addition, at such date, directors and executive officers of Barrington
Bancorp had options to purchase a total of 48,599 shares of Barrington Bancorp
Common Stock at an exercise price of $10.00.
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Employee Stock Ownership Plan. After the Effective Time, the ESOP shall
remain in effect for the benefit of the ESOP participants immediately prior to
the Effective Time.
The Merger Agreement provides that at or immediately prior to the Effective
Time, the ESOP will be amended to provide, among other things, that a
participant need not be employed on the last day of the plan year to receive
allocations under the ESOP, all accounts thereunder shall be fully vested and
nonforfeitable, and FCN Common Stock shall become a qualifying employer security
for purposes of the ESOP. From and after the Effective Time through December 31,
1997, FCN shall make the maximum annual contributions to the ESOP permitted
under the Code so as to maximize payments on the ESOP loan as promptly as
practical. Upon payment of the ESOP loan in full on December 31, 1997, FCN shall
cause the ESOP to be terminated or merged into another FCN tax qualified plan.
If the ESOP loan has not been fully retired as of December 31, 1997, FCN shall
apply to the appropriate district office of the Internal Revenue Service (the
"IRS") for approval to covert to cash a sufficient amount of FCN Common Stock in
the ESOP to retire the ESOP loan in full. Upon receipt of a favorable
determination letter from the IRS, FCN shall cause the ESOP to make a
distribution of benefits in a manner consistent with the determination letter.
In the event that certain persons identified in the Merger Agreement are
employed by Barrington Bancorp or First Federal immediately prior to the
Effective Time, then as soon as practical following the calendar year of the
termination of employment of such person, or, if earlier, upon the termination
or merger of the ESOP, such persons shall be paid by FCN the amount provided for
in the Merger Agreement with respect to such persons' interest in the ESOP.
Notwithstanding the foregoing, FCN shall apply to the IRS for a determination
letter or ruling relating to a proposed termination of the ESOP as of the
Effective Time providing for the conversion to cash of a sufficient number of
shares of FCN Common Stock to fully retire the ESOP loan without any amount
being subject to limitation on allocation under Section 415 of the Code. In the
event a favorable determination letter is received prior to December 31, 1996,
then the ESOP may be terminated by FCN with distribution of assets being made as
soon as practicable thereafter. If a favorable determination letter is not
received by December 31, 1996, FCN shall pay certain officers and employees of
Barrington Bancorp a cash payment with respect to their ESOP accounts calculated
in accordance with the Merger Agreement.
FCN has agreed that no action will be taken with respect to the ESOP which
would cause the assets of the ESOP to be used for any purpose other than for the
exclusive benefit of current plan participants unless such action is required to
retain the qualified status of the ESOP.
Representations and Warranties
In the Merger Agreement, Barrington Bancorp and FCN have each made certain
customary representations and warranties relating to, among other things, the
parties' respective organization, capitalization, qualification to do business
and compliance with applicable law, authority relative to the Merger Agreement,
the timely filing of all regulatory reports, reliability of financial
statements, taxes, employee benefit plans, environmental matters, Community
Reinvestment Act compliance, the truth and accuracy of information prepared and
provided by them in connection with the Merger, the absence of certain legal
proceedings and other events, including material adverse changes in the parties'
business, financial condition, operations or properties. For detailed
information on such representations and warranties, see the Merger Agreement
attached hereto as Appendix I.
Conditions to the Merger
The respective obligations of Barrington Bancorp and FCN to consummate the
Merger are subject to the fulfillment at or prior to the Effective Time of the
following conditions: (i) no preliminary or permanent injunction or other order
by any federal or state court which prevents the consummation of the Merger
shall have been issued and shall remain in effect; nor shall there be any third
party proceeding pending to prevent the consummation of the Merger; (ii) FCN
shall have received all applicable regulatory approvals and consents to
consummate the transactions contemplated in the Merger Agreement and all
required waiting periods shall have expired; (iii) the Registration Statement
shall have been declared effective under the Securities Act and no stop orders
shall be in effect and no proceedings for such purpose shall be pending or
threatened by the SEC; (iv) each party shall have received the tax opinion
addressed to it, as further described under "--Certain Federal Income Tax
Consequences of the Merger"
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herein; (v) the FCN Common Stock shall have been approved for listing on the
NYSE subject to official notice of issuance; and (vi) the Barrington Bancorp
stockholders shall have approved the Merger.
In addition, the obligation of FCN to consummate the Merger is subject to
the satisfaction by Barrington Bancorp or waiver by FCN of the following
conditions: (i) the representations and warranties of Barrington Bancorp
contained in the Merger Agreement shall be true and correct in all material
respects on the date of the Merger Agreement and as of the Effective Time; (ii)
Barrington Bancorp shall have performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to the
Effective Time; (iii) there shall not have been any action taken or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any federal or state government or government agency or
instrumentality or court, which would prohibit FCN's ownership or operation of
all or a material portion of the business or assets of Barrington Bancorp or any
Barrington Bancorp subsidiary, or would compel FCN to dispose of all or a
material portion of the business or assets of First Federal, as a result of the
Merger Agreement, or which would render FCN or Barrington Bancorp unable to
consummate the transactions contemplated by the Merger Agreement; (iv) since the
date of the Merger Agreement, Barrington Bancorp shall not have suffered a
"Material Adverse Effect" (as defined in the Merger Agreement) ; (v) FCN shall
have received an opinion from Silver, Freedman & Taff, L.L.P. as provided in the
Merger Agreement; (vi) FCN shall have received a certificate of Hugh H. Palmer
certifying conditions as set forth in the Merger Agreement; (vii) all regulatory
approvals and consents to consummate the Subsidiary Bank Merger shall have been
received and all required waiting periods expired; and (viii) the consolidated
stockholders' equity of Barrington Bancorp as of the end of the month
immediately prior to the closing date and as adjusted in accordance with the
Merger Agreement shall not be less than $11.3 million, subject to certain
adjustments.
In addition, the obligation of Barrington Bancorp to consummate the Merger
is subject to the satisfaction by FCN or waiver by Barrington Bancorp of the
following conditions: (i) the representations and warranties of FCN contained in
the Merger Agreement shall be true and correct in all material respects on the
date of the Merger Agreement and as of the Effective Time; (ii) FCN shall have
performed in all material respects all obligations required to be performed by
it under the Merger Agreement at or prior to the Effective Time; (iii)
Barrington Bancorp shall have received the opinion of Sherman I. Goldberg,
Executive Vice President and General Counsel to FCN, as provided in the Merger
Agreement; and (iv) Barrington Bancorp shall have received a certificate signed
by an Executive Vice President or more senior officer of FCN certifying
conditions as set forth in the Merger Agreement.
Regulatory Approvals
The Merger is subject to the approval of the FRB and the OTS. FCN filed an
application for approval of the Merger with the FRB and the OTS on February 29,
1996 and March 7, 1996, respectively. It is also a condition to the Merger that
the Subsidiary Bank Merger be approved by the OCC prior to the Effective Time.
FCN filed an application with the OCC for approval of the Subsidiary Bank Merger
on March 1, 1996. FCN received the approval of the FRB and the OCC,
respectively, on April 1 and April 17, 1996, and anticipates obtaining the
approval of the OTS during the second quarter of 1996. There can be no assurance
that the OTS will approve the Merger or the Subsidiary Bank Merger, or the
timing of the receipt of any such approval.
It is a condition to the consummation of the Merger that these regulatory
approvals be obtained and be in full force and effect and all related waiting
periods required by law shall have expired; provided, however, that the
foregoing shall not be deemed satisfied if any such approvals are conditioned or
restricted in a manner that could reasonably be expected to have a Material
Adverse Effect (as defined in the Merger Agreement) on FCN. There can be no
assurance that any such approval will not contain terms, conditions or
requirements which may cause such approval to fail to satisfy such conditions to
the consummation of the Merger.
In addition, under federal law, the Department of Justice may file
objections to the Merger under the federal antitrust laws. The Department of
Justice could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the Merger unless
divestiture of an acceptable number of branches to a competitively suitable
purchaser could be made. While FCN believes that the likelihood of such action
by the Department of Justice is remote in this case, there can be no assurance
that the Department of Justice will not initiate such a proceeding.
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The foregoing approvals are not to be interpreted as the opinion of these
regulatory authorities that the Merger is favorable to the stockholders of
Barrington Bancorp or FCN from a financial point of view or that those
regulatory authorities have considered the adequacy of the terms of the Merger.
An approval by such regulatory authorities in no way constitutes an endorsement
or a recommendation of the Merger by such regulatory agencies.
FCN and Barrington Bancorp are not aware of any other governmental
approvals or actions that are required for consummation of the Merger except as
described above. Should any such approval or action be required, it is presently
contemplated that such approval or action would be sought. There can be no
assurance that any such approval or action, if needed, could be obtained, that
it would not delay consummation of the Merger or that it would not be
conditioned in a manner that would cause FCN to abandon the Merger. In the event
the Merger is not consummated on or before December 31, 1996, the Merger
Agreement may be terminated by either FCN or Barrington Bancorp. See "--Waiver
and Amendment; Termination."
Waiver and Amendment; Termination
Pursuant to the Merger Agreement, any term, provision or condition of the
Merger Agreement (other than the requirement of stockholders' approval) may be
waived in writing at any time by the party which is entitled to the benefits
hereof. The failure of either party at any time or times to require performance
of any provision of the Merger Agreement shall in no manner affect such party's
right at a later time to enforce the same. No waiver by any party of a condition
or of the breach of any term, covenant, representation or warranty contained in
the Merger Agreement, whether by conduct or otherwise, in any one or more
instances shall be deemed to be or construed as a further or continuing waiver
of any such condition or breach or a waiver of any other condition or of the
breach of any other term, covenant, representation or warranty of the Merger
Agreement. No investigation, review or audit by FCN or Barrington Bancorp prior
to or after the date hereof shall estop or prevent either party from exercising
any right under the Merger Agreement or be deemed to be a waiver of any such
right.
Prior to the Effective Time, the FCN Board and the Barrington Bancorp Board
may, by written action, (i) extend the time for performance of any obligations
or other acts required by the Merger Agreement; (ii) waive any inaccuracies in
the representations and warranties contained in the Merger Agreement or in any
document delivered pursuant to the Merger Agreement; and (iii) waive compliance
with any agreements or conditions contained in the Merger Agreement. Subject to
applicable law, any of the provisions of the Merger Agreement may be amended or
modified by action of the FCN Board and Barrington Bancorp Board at any time
before or after approval of the Merger Agreement by Barrington Bancorp
stockholders. The DGCL, governing mergers between Delaware corporations,
provides, among other things, that the merger agreement may confer upon the
respective boards of directors of the constituent corporations the authority to
amend the agreement at any time prior to the effective time of the transaction,
provided that any amendment effected after approval by the stockholders of any
constituent corporation may not alter the value or kind of consideration to be
received by such stockholders in exchange for their own shares or otherwise
adversely affect such stockholders.
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether prior to or after approval of the matters presented herein by
Barrington Bancorp stockholders: (i) by mutual written consent of the FCN Board
and the Barrington Bancorp Board; (ii) if there is a final judicial or
regulatory determination that any material provision of the Merger Agreement is
illegal, invalid or unenforceable or denying any regulatory application required
to consummate the Merger; (iii) at any time on or prior to December 31, 1996 in
the event that any of the conditions precedent to the obligations of either
party are impossible to be satisfied or fulfilled by such date; (iv) if the
required approval of the Barrington Bancorp stockholders is not obtained; (v) by
the non-breaching party if the other party has materially breached any
representations, warranties, covenants or other agreements contained in the
Merger Agreement, which breach would result in a failure to satisfy the closing
conditions set forth in the agreement and which cannot be or is not cured within
30 days after written notice of such breach has been provided by the non-
breaching party; and (vi) on or after December 31, 1996, in the event the Merger
has not been consummated by such date.
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Stock Option Agreement
The following description of the Stock Option Agreement is qualified in its
entirety by reference to the Stock Option Agreement. A COPY OF THE STOCK OPTION
AGREEMENT WILL BE PROVIDED WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN REQUEST TO HUGH H. PALMER,
PRESIDENT OF BARRINGTON BANCORP, OR FCN, AT THEIR RESPECTIVE ADDRESSES INDICATED
UNDER "AVAILABLE INFORMATION."
At the time of execution of the Merger Agreement, Barrington Bancorp and
FCN entered into the Stock Option Agreement pursuant to which Barrington Bancorp
granted FCN the Barrington Bancorp Option covering up to 131,500 shares of
Barrington Bancorp Common Stock, or approximately 19.9% of the then outstanding
shares of Barrington Bancorp Common Stock, at a price per share of $20.50,
exercisable only upon the happening of certain events that in general would
indicate that a third party is attempting to acquire control of Barrington
Bancorp. The Barrington Bancorp Option is exercisable only if FCN has complied
with the terms of the Merger Agreement at the time of exercise; provided, that
FCN may exercise the Barrington Bancorp Option (assuming it is otherwise
exercisable) if FCN is in breach of the Merger Agreement and such breach is in
response, or subsequent, to a material breach of the Merger Agreement by
Barrington Bancorp or First Federal. Depending upon the number of shares
purchased, the exercise of the Barrington Bancorp Option may be subject to the
approval of certain government regulatory authorities. The Stock Option
Agreement is intended to increase the likelihood that the Merger will be
consummated in accordance with the terms set forth in the Merger Agreement.
Consequently, certain aspects of the Stock Option Agreement may have the effect
of discouraging persons who might now or prior to the Effective Time be
interested in acquiring all or a significant interest in Barrington Bancorp from
considering or proposing such an acquisition.
If the conditions to exercise the Barrington Bancorp Option have been met,
the Barrington Bancorp Option may be exercised by FCN in whole or in part at any
time prior to the Effective Time.
FCN may exercise the Barrington Bancorp Option only if any of the following
events has occurred:
(i) On or after the fifth day preceding the scheduled initial expiration
date of a bona fide tender or exchange offer for 20% or more of the then
outstanding shares of Barrington Bancorp by any person, entity, corporation or
group other than FCN or any of its subsidiaries (a "Person");
(ii) the execution by Barrington Bancorp of a letter of intent or other
agreement whereby a Person would have the right to acquire control of Barrington
Bancorp or any of its subsidiaries or all or substantially all the assets of
Barrington Bancorp or any of its subsidiaries;
(iii) withdrawal by the Barrington Bancorp Board of its recommendation to
its stockholders of the approval of the Merger or the acceptance by the
Barrington Bancorp Board of, or the recommendation by the Barrington Bancorp
Board that Barrington Bancorp stockholders accept, an offer from any Person to
merge or consolidate with or acquire 20% or more of the then outstanding shares
or all or substantially all the assets of Barrington Bancorp or any of its
subsidiaries;
(iv) the acquisition by any Person of 20% or more of the then outstanding
shares of Barrington Bancorp; or
(v) any of the events described in paragraphs (b) or (c) above occur within
180 days after the Merger Agreement is terminated in whole or in part because of
a breach by Barrington Bancorp of any of the terms and provisions of the Merger
Agreement.
The Stock Option Agreement provides FCN with the right to require
Barrington Bancorp to purchase all, but not less than all, of the shares issued
pursuant to the Stock Option Agreement (or the option itself if it has not been
exercised). In addition, after the exercise of the Barrington Bancorp Option,
FCN shall have the right for two years after such exercise to require that
Barrington Bancorp file a registration statement under the Securities Act to
register the shares issued pursuant to the exercise of the Barrington Bancorp
Stock Option.
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The Barrington Bancorp Option terminates upon the earliest of (i) the
expiration of one year after the occurrence of an event which causes the
Barrington Bancorp Option to become exercisable; (ii) the termination of the
Merger Agreement in accordance with its terms (other than if terminated by FCN
due to the breach of the Merger Agreement by Barrington Bancorp or for certain
other events); (iii) one year after the termination of the Merger Agreement by
FCN due to the breach of the Merger Agreement by Barrington Bancorp or for
certain other events; or (iv) consummation of the Merger.
Conduct of Business Pending the Merger
Without the prior written consent of FCN, Barrington Bancorp and First
Federal shall not declare or pay any dividend or make any other distribution
with respect to their capital stock or ownership interests whether in cash,
stock or other property after the date of the Merger Agreement, except that
Barrington Bancorp will be permitted to declare and pay its regular quarterly
dividend in an amount not to exceed the amount of the most recent quarterly cash
dividend paid by Barrington Bancorp prior to the date of the Merger Agreement;
provided, however, that FCN and Barrington Bancorp agree that Barrington Bancorp
shall coordinate the declaration of dividends on Barrington Bancorp Common
Stock, and the record and payment dates relating thereto, with the dividend
record and payment dates for FCN Common Stock so that the holders of Barrington
Bancorp Common Stock shall not receive two dividends, or fail to receive one
dividend, for any quarter with respect to their shares of Barrington Bancorp
Common Stock.
Barrington Bancorp has agreed that Barrington Bancorp and First Federal
shall continue to carry on, after the date of the Merger Agreement, their
respective businesses and the discharge or incurrence of obligations and
liabilities, only in the usual, regular and ordinary course of business in
accordance with past practices. Barrington Bancorp and First Federal shall not,
without the prior written consent of FCN: (i) issue, sell or pledge any capital
stock or any options, warrants, or other rights to subscribe for or purchase
capital stock or any securities convertible into or exchangeable for any capital
stock, except pursuant to options outstanding on the date of the Merger
Agreement under the Barrington Bancorp Stock Option Plan or the Stock Option
Agreement; (ii) directly or indirectly redeem, purchase or otherwise acquire any
capital stock or ownership interests of Barrington Bancorp or First Federal;
(iii) effect a reclassification, recapitalization, split-up, exchange of shares,
readjustment or other similar change in or to any capital stock or otherwise
reorganize or recapitalize; (iv) change its Charter, Certificate of
Incorporation, or Bylaws; (v) enter into, adopt or amend any employment
agreement, severance agreement, change of control agreement, or plan relative to
the foregoing; or grant any increase (other than ordinary and normal increases
consistent with past practices) in the compensation payable or to become payable
to directors, officers or employees, including vacation compensation, or except
as required by law, pay or agree to pay any bonus, or adopt or make any change
in any bonus, insurance, pension, or "Benefit Plan" (as defined in the Merger
Agreement) or grant or award any additional shares under the First Federal RRP;
(vi) except in the ordinary course of business consistent with past practices,
borrow or agree to borrow any funds, including but not limited to repurchase
transactions, or indirectly guarantee or agree to guarantee any obligations of
others; (vii) make or commit to make any new loan or letter of credit or any new
or additional discretionary advance under any existing line of credit, in a
principal amount in excess of $500,000 or that would increase the aggregate
credit outstanding to any one borrower (or group of affiliated borrowers) to
more than $500,000 (excluding for this purpose any accrued interest on
overdrafts), without the prior written consent of FCN; (viii) enter into, modify
or extend any agreement, contract or commitment out of the ordinary course of
business; (ix) except in the ordinary course of business, place on any of its
assets or properties any mortgage, pledge, lien, charge, or other encumbrance;
(x) place on any of its real estate assets or properties any mortgage, pledge,
lien, change or encumbrance; (xi) cancel any material indebtedness owing to it
or any claims which it may possess or waive any rights of material value; (xii)
sell or otherwise dispose of any real property or any material amount of
tangible or intangible personal property other than properties acquired in
foreclosure or otherwise in the ordinary collection of indebtedness owed to
Barrington Bancorp; (xiii) knowingly or willfully commit any act or fail to
commit any act which will cause a material breach of any agreement, contract or
commitment; (xiv) violate any law, statute, rule, governmental regulation or
order, which violation might have a Material Adverse Effect (as defined in the
Merger Agreement) on Barrington Bancorp; (xv) purchase any real or personal
property, deposit liabilities or make any capital expenditure where the amount
paid or committed therefor is in excess of $50,000, except for previously
outstanding commitments ; (xvi) engage in any activity or transaction outside
the ordinary course of business; (xvii) enter into or acquire any derivatives
contract or structured note; (xviii) enter into any new, or modify, amend or
extend the terms of any existing, contracts relating to the purchase or sale
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of financial or other futures, or any put or call option relating to cash,
securities or commodities or any interest rate swap agreements or other
agreements relating to the hedging of interest rate risk; or (xix) settle any
claim, action or proceeding involving monetary damages, except in the ordinary
course of business consistent with past practice. Barrington Bancorp and First
Federal shall not, without the prior written consent of FCN, voluntarily engage
in any transaction or take any action that would render untrue any of the
representations and warranties of Barrington Bancorp contained in the Merger
Agreement, if such representations and warranties were given as of the date of
such transaction or action.
Under the terms of the Merger Agreement, Barrington Bancorp has agreed that
it will, and will cause First Federal to, use their best efforts to maintain
their respective properties and assets in their present state of repair, order
and condition, reasonable wear and tear excepted, and to maintain and keep in
full force and effect all policies of insurance presently in effect, including
the insurance of accounts with the FDIC. Barrington Bancorp has also agreed that
it will, and will cause First Federal to, take all requisite action (including
without limitation the making of claims and the giving of notices) pursuant to
its directors' and officers' liability insurance policy or policies in order to
preserve all rights thereunder with respect to all matters known by Barrington
Bancorp which could reasonably give rise to a claim prior to the Effective Time.
Without the prior consent of FCN, which consent will not be unreasonably
withheld, Barrington Bancorp has agreed that it will not, and will not permit
First Federal to, enter into, increase or renew any loan or credit commitment
(including letters of credit) to any executive officer or director of Barrington
Bancorp or First Federal, any five percent stockholder of Barrington Bancorp, or
any entity controlled, directly or indirectly, by any of the foregoing or engage
in transactions with any of the foregoing.
Expenses
All expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby are to be paid by the party incurring such
expenses, provided that the expenses of printing and mailing this Proxy
Statement/Prospectus and filing and other fees paid to the SEC in connection
with the Merger shall be shared equally by FCN and Barrington Bancorp.
Accounting Treatment
The Merger will be accounted for as a purchase and certain adjustments will
have to be made with respect to the acquired assets and liabilities of
Barrington Bancorp based upon estimated fair market values. The actual
adjustments will be made on the basis of appraisals or evaluations as of the
date of consummation of the Merger.
Resales of FCN Common Stock by Affiliates
The shares of FCN Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable, except for
shares issued to any stockholder who may be deemed to be an "affiliate" of
Barrington Bancorp for purposes of Rule 145 under the Securities Act as of the
date of the Barrington Bancorp Annual Meeting. Affiliates may not sell their
shares of FCN Common Stock acquired in connection with the Merger except
pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act. Persons who
may be deemed to be affiliates of Barrington Bancorp generally include
individuals or entities that control, are controlled by or under common control
with Barrington Bancorp, and may include certain officers and directors of
Barrington Bancorp as well as principal stockholders of Barrington Bancorp.
Barrington Bancorp has agreed in the Merger Agreement to use its best
efforts to cause each director, executive officer and other person who may be
deemed an affiliate of Barrington Bancorp for purposes of Rule 145 to execute
and deliver a written agreement intended to ensure compliance with the
Securities Act.
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Certain Federal Income Tax Consequences of the Merger
The following is a summary description of the anticipated material federal
income tax consequences of the Merger to FCN, Barrington Bancorp and holders of
Barrington Bancorp Common Stock. The summary is not a complete description of
the federal income tax consequences of the Merger. Each stockholder's individual
circumstances may affect the tax consequences of the Merger to such stockholder.
The discussion is based upon the Code, Treasury regulations, IRS rulings,
and judicial and administrative decisions in effect as of the date hereof, all
of which are subject to change at any time, possibly with retroactive effect.
This discussion assumes that Barrington Bancorp Common Stock is held as a
"capital asset" within the meaning of Section 1221 of the Code (i.e., property
generally held for investment). In addition, this discussion does not address
all of the tax consequences that may be relevant to a holder of Barrington
Bancorp Common Stock in light of his or her particular circumstances or to
holders subject to special rules, such as foreign persons, financial
institutions, tax-exempt organizations or insurance companies. The opinions of
counsel referred to in this section will be based on facts existing at the
Effective Time, and in rendering such opinions, such counsel may require and
rely upon representations contained in certificates of officers of FCN,
Barrington Bancorp and others.
HOLDERS OF BARRINGTON BANCORP COMMON STOCK SHOULD CONSULT THEIR TAX
ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM DUE TO THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
Pursuant to a condition to the obligation of FCN and Barrington Bancorp to
consummate the Merger, FCN and Barrington Bancorp have received an opinion from
Silver, Freedman & Taff, L.L.P., based on customary reliance and subject to
customary qualifications, substantially to the effect that:
(i) the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code;
(ii) no gain or loss will be recognized by any holder of Barrington
Bancorp Common Stock whose shares of Barrington Bancorp Common Stock are
exchanged solely for FCN Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in FCN
Common Stock);
(iii) the aggregate tax basis of the FCN Common Stock received by a holder
of Barrington Bancorp Common Stock in the Merger will be the same as the
aggregate tax basis of the Barrington Bancorp Common Stock surrendered in
exchange therefor (subject to any adjustment required as the result of
receipt of cash in lieu of a fractional share of FCN Common Stock);
(iv) the holding period of the shares of FCN Common Stock received by a
holder of Barrington Bancorp Common Stock in the Merger will include the
period during which the shares of Barrington Bancorp Common Stock
surrendered in exchange therefor were held (provided that such shares of
Barrington Bancorp Common Stock were held as capital assets at the
Effective Time); and
(v) based upon the current ruling position of the IRS, cash received by a
holder of Barrington Bancorp Common Stock in lieu of a fractional share
interest in FCN Common Stock will be treated as having been received as a
distribution in full payment in exchange for the fractional share interest
of FCN Common Stock, and gain or loss will be recognized for federal income
tax purposes, measured by the difference between the amount of cash
received and the portion of the basis of the share of Barrington Bancorp
Common Stock allocable to such fractional share interest. Such gain or
loss should be long-term capital gain or loss if such share of Barrington
Bancorp Common Stock was a capital asset and has been held for more than
one year at the Effective Time.
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DESCRIPTION OF FCN CAPITAL STOCK
Common Stock. FCN is authorized to issue 750,000,000 shares of FCN Common
Stock. As of December 31, 1995, there were outstanding 315,241,109 shares of FCN
Common Stock.
Holders of FCN's Common Stock are entitled to receive dividends when, as
and if declared by the FCN Board out of any funds legally available therefor,
and are entitled upon liquidation, after claims of creditors and preferences of
FCN's outstanding preferred stock and any other series of preferred stock
hereafter authorized, to receive pro rata the net assets of FCN.
The holders of the FCN Common Stock are entitled to one vote for each share
held and are vested with all of the voting power except as the FCN Board has
provided with respect to the outstanding shares of FCN's preferred stock or may
provide, in the future, with respect to any other series of preferred stock
which it may hereafter authorize.
The shares of FCN Common Stock have non-cumulative voting rights, which
means that the holders of more than 50% of the shares of FCN Common Stock voting
for the election of directors can elect 100% of the directors standing for
election at any meeting if they choose to do so and, in such event, the holders
of the remaining shares voting for the election of directors will not be able to
elect any person or persons to the FCN Board at that meeting.
FCN's Certificate of Incorporation (the "FCN Certificate") contains
specific provisions with respect to the election of directors, which include the
provision that the FCN Board is divided into three classes, each having a number
of directors as nearly equal as possible, and each class being elected for a
three-year term, with one class being elected each year. The FCN Certificate
includes specific provisions with respect to mergers and other business
combinations. In general, these provisions require that, in the case of a
proposed merger or other business combination involving FCN and an Interested
Stockholder (as defined therein), the approving vote of the holders of at least
a majority of the voting power of all shares of voting stock held by persons who
are not Interested Stockholders or persons affiliated with Interested
Stockholders is required, unless the business combination has been approved by a
majority of directors not affiliated with the Interested Stockholder or unless
certain conditions regarding minimum price and procedural protections are met
with respect to each class of FCN 's then outstanding voting stock. The
provisions of the FCN Certificate also require that the FCN Board will not
approve a proposal for a business combination or a tender offer until the FCN
Board has evaluated the proposal in light of its effect on the stockholders and
employees of FCN and the communities served by FCN. These provisions of the FCN
Certificate could be used to make more difficult a change in control of FCN.
The holders of FCN Common Stock do not have any preemptive rights to
subscribe for additional shares of capital stock of FCN . The holders of FCN
Common Stock have no conversion rights, the FCN Common Stock is not subject to
redemption by either FCN or a stockholder, and there is no restriction on the
purchase by FCN of shares of FCN Common Stock except for certain regulatory
limits.
FCN Common Stock is listed on the New York, Chicago and Pacific Stock
Exchanges. First Chicago Trust Company of New York is the transfer agent,
registrar and dividend disbursing agent for the FCN Common Stock.
Other Capital Stock. The FCN Board has the authority, without further
stockholder action, to issue from time to time a maximum of 10,000,000 shares of
preferred stock, without par value, in one or more series and for such
consideration as may be fixed from time to time by the FCN Board, and to fix
before the issuance of any shares of preferred stock of a particular series, the
designation of such series, the redemption price or prices, if any, and the
terms and conditions of the redemption, the liquidation price, the voting
rights, if any, any sinking fund provisions of the redemption or purchase of the
shares of such series, the terms and conditions upon which the shares are
convertible, if they are convertible, and any other relative rights, preferences
and limitations pertaining to such series.
As of December 31, 1995, there were issued and outstanding 1,191,000 share
of FCN's Preferred Stock with Cumulative and Adjustable Dividends, Series B
($100 stated value) (the "Series B Preferred Stock"), 713,800 shares of FCN's
Preferred Stock with Cumulative and Adjustable Dividends, Series C ($100 stated
value) (the "Series C
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Preferred Stock"), 160,000 shares of FCN's 8.45% Cumulative Preferred Stock,
Series E ($625 stated value) (the "Series E Preferred Stock"), and 39,774 shares
of FCN's 5 3/4% Cumulative Convertible Preferred Stock, Series B ($5,000 stated
value) (the "Series B Convertible Preferred Stock") (collectively, the "Existing
Preferred Stock"). In addition, FCN has issued 6,000,000 preferred share
purchase units ("Preferred Purchase Units") which may require the holder of
which to purchase, no later than 2023, FCN's 7 1/2% Cumulative Preferred Stock
(the "7 1/2% Preferred Stock").
The FCN preferred stock ranks prior to the FCN Common Stock, both as to
dividends and upon liquidation, but has no general voting rights except as
described in the next succeeding paragraph. Each series of FCN preferred stock
ranks pari passu with each other series of FCN preferred stock with respect to
dividends and liquidation rights. Dividends on the currently outstanding FCN
preferred stock are cumulative.
Except as set forth herein, or as expressly required by applicable law, the
holders of the FCN preferred stock are not entitled to vote. If the equivalent
of six quarterly dividend payments on any series of FCN preferred stock are in
default, the number of directors of FCN will be increased by two and the holders
of all outstanding series of the FCN preferred stock, voting as a single class
without regard to series, will be entitled to elect such additional two
directors until all dividends in default have been paid or declared and set
aside for payment.
The dividend rate on the Series B Preferred Stock and Series C Preferred
Stock is adjusted quarterly, based on a formula that considers the interest
rates for selected short-and long-term U.S. Treasury securities prevailing at
the time the rate is set. The Series B Convertible Preferred Stock and the
Series E Preferred Stock have fixed dividend rates.
The Series B Preferred Stock is subject to a minimum and maximum annual
dividend rate of 6.00 percent and 12.00 percent, respectively. The annualized
dividend rate for the quarterly period ended May 31, 1996, is 6.00 percent.
Shares of this series are redeemable, at the option of FCN, at their stated
value of $100 per share plus accrued and unpaid dividends. Shares of this series
are not convertible into other securities of FCN.
The Series C Preferred Stock is subject to a minimum and maximum annual
dividend rate of 6.50 percent and 12.50 percent, respectively. The annualized
dividend rate for the quarterly period ended May 31, 1996, is 6.50 percent.
Shares of this series are redeemable, at the option of FCN, at their stated
value of $100 per share plus accrued and unpaid dividends. Shares of this series
are not convertible into other securities of FCN.
The Series E Preferred Stock is represented by depositary shares with each
depositary share representing a one-twenty-fifth interest in a share of Series E
Preferred Stock. The Series E Preferred Stock has an annual dividend rate equal
to $52.8125 ($2.1125 per depositary share), or 8.45 percent, which was fixed at
the date of issue. Shares of this series are redeemable, at the option of FCN,
at any time on or after November 16, 1997, at a redemption price of $625 per
share ($25 per depositary share) plus accrued and unpaid dividends. Shares of
this series are not convertible into other securities of FCN.
The Series B Convertible Preferred Stock is represented by depositary
shares with each depositary share representing a one-hundredth interest in a
share of Series B Convertible Preferred Stock. The Series B Convertible
Preferred Stock has an annual dividend rate equal to $287.50 ($2.875 per
depositary share), or 5 3/4 percent, which was fixed at the date of issue.
Shares of FCN's Series B Convertible Preferred Stock may be converted into
shares of FCN Common Stock at a conversion price of $29.6271 per share of FCN
Common Stock (equivalent to a conversion rate of 1.6876 shares of FCN Common
Stock for each depositary share) at the option of the stockholder at any time.
Resultant fractional interests are paid in cash. The conversion rate is subject
to adjustment for certain stock dividends, subdivisions, splits and
combinations, certain distributions of assets and debt to holders of FCN Common
Stock, certain reclassifications of FCN Common Stock into other securities and
certain distributions of rights or warrants to purchase FCN Common Stock at a
price per share less than the FCN Common Stock's then market value. Shares of
this series are redeemable, at the option of FCN, on or after April 1, 1997,
through March 30, 2003, at an original redemption price of $5,172.50 ($51.7250
per depositary share), declining over such period to $5,028.75 ($50.2875 per
depositary share), and thereafter at their stated value of $5,000 per share
($50.00 per depositary share) plus accrued and unpaid dividends.
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<PAGE>
The shares of the outstanding FCN preferred stock (or with respect to the
Series E Preferred Stock and the Series B Convertible Preferred Stock, the
outstanding depositary shares representing such stock), are listed on the New
York Stock Exchange. First Chicago Trust Company of New York serves as transfer
agent, registrar and dividend disbursing agent for shares of the FCN preferred
stock and the depositary shares representing such stock. FNBC also serves as a
depositary for the shares of preferred stock represented by depositary shares.
In addition, on May 11, 1993, FCN issued 6,000,000 Preferred Purchase Units
each of which consisted of a 30-year subordinated debenture and a purchase
contract requiring the purchase by the holder thereof on May 10, 2023 (or
earlier at FCN's election) of FCN's 7 1/2% Preferred Stock at a purchase price
of $25 per share. FCN may redeem any or all of the Preferred Purchase Units at
any time after May 10, 1998, at par, and, as a result, some or all of the 7 1/2%
Preferred Stock may not be issued by FCN. The 7 1/2% Preferred Stock would rank
prior to the FCN Common Stock, but would have no voting rights except if the
Preferred Purchase Units were in default or the FCN Certificate was proposed to
be amended in a manner adverse to the holders of the 7 1/2% Preferred Stock. The
7 1/2% Preferred Stock would rank pari passu with each other series of FCN
preferred stock with respect to dividends and liquidation rights. The 7 1/2%
Preferred Stock, if issued, would not be convertible into other securities of
FCN. The shares of preferred stock which could be issued pursuant to the
purchase contracts have been reserved by FCN on its stock records.
COMPARISON OF THE COMMON STOCK OF FCN AND BARRINGTON BANCORP
General
As a result of the Merger, holders of Barrington Bancorp Common Stock,
whose rights are presently governed by Delaware law and the Barrington Bancorp
Certificate of Incorporation (the "Barrington Bancorp Certificate") and the
Barrington Bancorp Bylaws, will become stockholders of FCN, also a Delaware
corporation. Accordingly, their rights will be governed by the DGCL, the FCN
Certificate and the FCN By-laws. Certain differences in the rights of
stockholders arise from distinctions between the Barrington Bancorp Certificate
and Barrington Bancorp Bylaws, on the one hand, and the FCN Certificate and FCN
By-laws, on the other hand. The following is a brief description of these
material differences. This description does not purport to be a complete
statement of all differences between the rights of stockholders of Barrington
Bancorp and FCN, and the identification of specific differences is not meant to
indicate that other differences do not exist. However, Barrington Bancorp and
FCN believe that all of the material differences are discussed below. The
following summary is qualified in its entirety by reference to the Barrington
Bancorp Certificate, the Barrington Bancorp Bylaws, the FCN Certificate and the
FCN By-laws.
Each Barrington Bancorp stockholder should carefully consider these
differences, including provisions of the FCN Certificate and FCN By-laws that
may have an anti-takeover effect, in connection with the decision to vote for or
against the adoption and approval of the Merger Agreement.
Anti-Takeover and Supermajority Provisions
Delaware law contains an anti-takeover provision that prevents buyers who
acquire 15% or more of a target company's stock from completing a hostile
takeover for three years. A takeover can, however, be completed if the buyer,
while acquiring this 15% interest, acquires at least 85% of the
outstanding stock. The 85% excludes shares owned by directors who are also
officers and certain shares held under certain employee stock plans. The
takeover can also be completed if it is approved by the target company's board
of directors prior to the date the buyer became a 15% or more stockholder or
after the date the buyer became a 15% or more stockholder if it is approved by
the target company's board of directors and two-thirds of the shares voting at
an annual or special meeting of stockholders, excluding shares held by the
buyer. The anti-takeover provision applies automatically to Delaware
corporations except those corporations with less than 2,000 stockholders of
record or those that do not have voting stock listed on a national securities
exchange or listed for quotation with a registered national securities
association. Such a corporation may, if it wishes, "opt in" by amending its
certificate of incorporation to adopt the provision. Any corporation may decide
to "opt out" of the statute at any time, by action of its stockholders.
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<PAGE>
Under the Barrington Bancorp Certificate, an affirmative vote of 80% of the
then outstanding shares of stock of Barrington Bancorp entitled to vote in the
election of directors ("Barrington Bancorp Voting Stock") is required to approve
certain business combination transactions with a beneficial owner of 10% or more
of the Barrington Bancorp Voting Stock when the combination has not been
approved by the Barrington Bancorp Board.
The FCN Certificate also contains specific provisions with respect to
mergers and other business combinations. See "Description of FCN Capital Stock."
Capitalization
Barrington Bancorp is authorized to issue 1,100,000 shares of Common Stock,
$.01 par value. At May 2, 1996, there were 661,250 shares of Barrington
Bancorp Common Stock outstanding, held of record by approximately 262 holders.
Barrington Bancorp is authorized to issue 100,000 shares of preferred
stock, $.01 par value ("Barrington Bancorp Preferred Stock"). The Barrington
Bancorp Board is authorized to provide for the issuance of Barrington Bancorp
Preferred Stock in series, to establish from time to time the number of shares
to be included in each such series, and to fix the designation, powers,
preferences and rights of the shares of each such series and any qualifications,
limitations, or restrictions thereof. There are currently no shares of
Barrington Bancorp Preferred Stock outstanding.
For a discussion of the capitalization of FCN see "Description of FCN
Capital Stock."
Board of Directors
Both the Barrington Bancorp Certificate and FCN Certificate provide for a
classified board of directors. The classification of directors could be used to
make it more difficult to change the membership of the board of directors since
at least two annual stockholder meetings would be required to effect a change in
a majority of the directors.
Under the FCN Certificate, FCN's directors may only be removed from office
for cause and only upon the vote of holders of a majority of the voting power of
the capital stock of FCN entitled to vote, voting as a single class. The
Barrington Bancorp Certificate provides that directors may only be removed from
office for cause and only by the affirmative vote of holders of not less than 80
percent of the Barrington Bancorp Voting Stock.
Both the Barrington Bancorp Bylaws and FCN Certificate contain procedures
for nominations by stockholders of candidates for election as a director.
Notices containing prescribed information on nominations by stockholders of
candidates for election as a director of FCN must be appropriately delivered at
least 60 days but not more than 90 days prior to the anniversary date of the
immediately preceding FCN annual meeting of stockholders. The specified written
notice for nominations by stockholders of candidates for a Barrington Bancorp
director must be appropriately delivered generally not less than 30 days prior
to the date of the annual meeting; provided, however, in the event that less
than 40 days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholders must be received not
later than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made.
Action by Stockholders
Both the Barrington Bancorp Certificate and FCN Certificate prohibit
stockholder action by written consent and require that any stockholder action be
taken at a meeting of stockholders. Also, under the Barrington Bancorp
Certificate and FCN Certificate, stockholders are not permitted to call a
special meeting of stockholders.
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Voting Limitation
The Barrington Bancorp Certificate contains a provision limiting the voting
rights of any person who beneficially owns more than 10% of the then-outstanding
shares of Barrington Bancorp Common Stock (the "Limit"). A person who
beneficially owns Barrington Bancorp Common Stock in excess of the Limit shall
not be entitled or permitted to any vote in respect of the shares held in excess
of the Limit. The Limit will not apply to (i) any offer made with a view toward
public resale made to Barrington Bancorp or any underwriter acting on behalf of
Barrington Bancorp in connection with the public offering of Barrington Bancorp
stock, (ii) to an acquisition of shares, or to an offer to acquire shares, of
Barrington Bancorp stock that has been approved in advance by the affirmative
vote of two-thirds of the Barrington Bancorp Board or (iii) to shares owned by
any employee stock benefit plan of Barrington Bancorp. The provision of the
Barrington Bancorp Certificate relating to the Limit is a five-year provision
which expires on December 31, 1999, but may be renewed by a vote of Barrington
Bancorp stockholders prior to such time.
There is no comparable limitation in the FCN Certificate or FCN By-laws.
Indemnification
The Barrington Bancorp Certificate provides that a director or officer
(collectively, "Indemnitee") of Barrington Bancorp shall be indemnified by
Barrington Bancorp to the fullest extent authorized by the DGCL against all
expenses, liability and loss reasonably incurred or suffered by such Indemnitee
in connection with his or her activities as a director or officer or as a
director or officer of another company, if the Indemnitee held such position at
the request of Barrington Bancorp. Delaware law requires that an Indemnitee, in
order to be indemnified, must have acted in good faith and in a manner
reasonably believed to be not opposed to the best interests of Barrington
Bancorp, and, with respect to any criminal action or proceeding, did not have
reasonable cause to believe his conduct was unlawful. The FCN Certificate
includes employees and agents in the class of Indemnitees described above.
The Barrington Bancorp Certificate, the FCN Certificate and the DGCL also
provide that the indemnification provisions of such certificates and the statute
are not exclusive of any other right which a person seeking indemnification may
have or later acquire under any statute, provision of the Certificates of
Incorporation and By-laws of Barrington Bancorp or FCN, agreement, vote of
stockholders or disinterested directors or otherwise.
In addition, the Barrington Bancorp Certificate, the FCN Certificate and
the DGCL also provide that the companies may maintain insurance, at their
expense, to protect themselves and any officer, employee or agent of such
company or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not Barrington
Bancorp or FCN has the power to indemnify such person against such expense,
liability or loss under the DGCL.
Amendment to Certificate of Incorporation and By-laws
Amendments to the Barrington Bancorp Certificate must be approved by a
majority of the Barrington Bancorp Board and also by a majority of the
outstanding shares of the voting stock of Barrington Bancorp, provided, however,
that approval by at least 80% of the outstanding voting stock is generally
required for certain provisions of the Barrington Bancorp Certificate (i.e.,
provisions relating to number, classification, election and removal of
directors; amendment of by-laws; call of special stockholder meetings; offers to
acquire and acquisitions of control; certain business combinations; and
amendments to provisions relating to the foregoing).
The FCN Certificate provides that any amendment, alteration or repeal of
Article Twelfth thereof (relating to action by the stockholders), Article
Eleventh thereof (relating to directors) or Article Thirteenth thereof
(relating to business combinations with Interested Stockholders) requires the
affirmative vote of the holders of at least 80% of the voting power of all the
shares of FCN entitled to vote generally in the election of directors, voting
together as a single class.
The Barrington Bancorp Bylaws may be amended by a majority vote of the
Barrington Bancorp Board or the affirmative vote of at least 80% of the total
votes eligible to be voted at a duly constituted meeting of its
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<PAGE>
stockholders. The FCN By-laws may be altered, amended or repealed by a
majority vote of the FCN Board, provided that any such amendments are not
inconsistent with any provision of the FCN Certificate.
Board Review of Certain Transactions
The FCN Certificate prohibits the FCN Board of Directors from approving,
adopting or recommending any proposal to enter into a business combination with
Interested Stockholders or any tender or exchange offer for any capital stock in
FCN until the FCN Board establishes a procedure for evaluating and evaluates and
determines that such proposal or offer complies with all applicable laws and is
in the best interests of FCN and its stockholders. The FCN Certificate requires
that, in making this determination, the FCN Board consider (among other factors)
the adequacy of the consideration to be received by FCN and/or its stockholders,
the business competence of the acquiring person or entity and the potential
social and economic impact of the plan on the communities in which FCN operates.
In addition, the FCN Certificate provides that the FCN Board may not
approve, adopt or recommend any offer of any person, other than FCN, to make a
tender or exchange offer for any capital stock of FCN in which the fair market
value per share of the consideration to be received by one or more stockholders
is substantially more than the fair market value per share of the consideration
to be received by other stockholders holding shares of the same class and
series, or any tender or exchange offer the consummation of which is reasonably
likely, in the good faith determination of the FCN Board, in one transaction or
a series of transactions, to have that result.
Neither the Barrington Bancorp Certificate nor the Barrington Bancorp
Bylaws contains any similar provision or provisions.
BUSINESS OF BARRINGTON BANCORP
General
Barrington Bancorp, a Delaware corporation, was organized in 1993 to act as
the holding company for First Federal upon completion of First Federal's
conversion from the mutual to the stock form of organization (the "Conversion").
The Company received approval from the OTS to acquire all of the common stock of
First Federal to be outstanding upon completion of the Conversion. The
Conversion was completed on May 10, 1994.
The executive offices of Barrington Bancorp are located at 120 S. Hough
Street, Barrington, Illinois 60010, and its telephone number at that address is
(847) 381-4242.
The Company and First Federal are subject to comprehensive regulation,
examination and supervision by the OTS and by the FDIC. The Bank is a member of
the Federal Home Loan Bank ("FHLB") System, and its deposits are backed by the
full faith and credit of the United States Government and are insured by the
SAIF to the maximum extent permitted by the FDIC. See "Supervision and
Regulation." Unless otherwise indicated, all activities discussed below are of
First Federal.
As a community-oriented financial institution, First Federal seeks to serve
the financial needs of the families and community businesses in its primary
market area. First Federal's business involves attracting deposits from the
general public and using such deposits to originate one-to four-family
residential mortgages and, to a much lesser extent, construction, commercial
real estate, land and deposit loans in its primary market area. The Bank also
invests in interest-bearing deposits, investment securities (consisting
primarily of U.S. government and U.S. government agency obligations), mortgage-
backed securities and various types of short-term liquid assets.
Market Area
First Federal has been (and if the Merger is not consummated, intends to
continue to be), a community-oriented financial institution offering a variety
of financial services to meet the needs of the communities it serves. First
Federal's only office is located in the Village of Barrington, Illinois.
Barrington is located approximately 35 miles northwest of downtown Chicago and
15 miles from the Chicago O'Hare Airport. Barrington and the contiguous
communities of North Barrington, Lake Barrington, South Barrington, Barrington
Hills, Tower Lakes and
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a portion of Inverness, Illinois, an area of approximately 90 miles, are
included in First Federal's deposit market area. The estimated population
of First Federal's market area is 40,000. First Federal lends in its
deposit area as well as in the contiguous communities.
The Village of Barrington is the commercial center of First Federal's
market area, with the majority of retail and service-related businesses being
located within its boundaries. The surrounding communities in First Federal's
market area consist of affluent bedroom communities in a suburban/country
environment with little commercial development. Much of the working populace
consists of professional or "white collar" workers who commute into Chicago and
its surrounding suburbs. First Federal's success as a home lender has been due,
in part, to its market area's favorable population, housing and income
demographics.
Lending Activities
General. The principal lending activity of First Federal is originating for
its portfolio first mortgage loans secured by owner-occupied one- to four-family
residential properties located in its primary market areas. In addition, in
order to serve the financial needs of families and the community in First
Federal's primary market area, First Federal also originates, to a much lesser
extent, construction, commercial real estate, land, equity lines of credit and
consumer loans. See "--Originations, Purchases and Sales of Loans."
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<PAGE>
Loan Portfolio Composition. The following table sets forth information
----------------------------
concerning the composition of First Federal's real estate loan and consumer loan
portfolios and mortgage-backed securities portfolio in dollar amounts and in
percentages as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
----------------- ----------------- ----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
- ------------------
One- to four-family............ $40,928 94.50% $47,030 92.74% $42,937 91.32% $46,605 89.00% $48,086 87.03%
Commercial..................... 947 2.19 502 0.99 497 1.06 471 0.90 436 0.79
Land........................... 59 0.14 551 1.09 516 1.10 659 1.26 551 1.00
Equity lines of credit......... --- --- --- --- --- --- --- --- 734 1.33
Construction................... 1,207 2.79 2,500 4.93 2,997 6.37 4,562 8.71 5,330 9.65
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans.... 43,141 99.62 50,583 99.75 46,947 99.85 52,297 99.87 55,137 99.80
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Consumer Loans-Deposit
- ----------------------
Accounts...................... 166 0.38 126 0.25 69 0.15 68 0.13 112 0.20
-------- ------ ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans receivable, 43,307 100.00% 50,709 100.00% 47,016 100.00% 52,365 100.00% 55,249 100.00%
gross..................... ------- ====== ------- ====== ------- ====== ------- ====== ------- ------
Less:
- -----
Loans in process............... 530 1,437 1,491 1,644 2,132
Deferred fees.................. 42 49 27 31 36
Allowances for loan losses..... 40 168 340 350 356
------- ------- ------- ------- -------
Total loans receivable, net.... $42,695 $49,055 $45,158 $50,340 $52,725
======= ======= ======= ======= =======
Mortgage-backed securities:
- ---------------------------
FNMA........................... --- 1,901 48.73% 1,325 45.28% 930 22.19% 610 20.35%
FHLMC.......................... --- 1,959 50.22 1,569 53.62 3,228 77.02 2,364 78.88
------- ------- ------ ------- ------ ------- ------ ------- ------
Total mortgage-backed
securities, gross............ --- 3,860 98.95 2,894 98.90 4,158 99.21 2,974 99.23
Net premiums.................. --- 41 1.05 32 1.10 33 0.79 23 .77
------- ------- ------ ------- ------ ------- ------ ------- ------
Total mortgage-backed
securities.................... $ --- $ 3,901 100.00% $ 2,926 100.00% $ 4,191 100.00% $ 2,997 100.00%
======= ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
The following schedule illustrates the interest rate sensitivity of First
Federal's loan and mortgage-backed securities portfolio at December 31, 1995.
Mortgages and mortgage-backed securities which have adjustable or renegotiable
interest rates are shown as maturing in the period during which the contract is
due. The schedule does not reflect the effects of possible prepayments or
enforcement of due-on-sale clauses.
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<PAGE>
<TABLE>
<CAPTION>
Real Estate
----------------------------------------------------------
Total Gross Mortgage-
One- to Equity Lines Loans backed
four-family Commercial Land Construction of Credit Consumer Receivable Securities Total
----------- ---------- ----- ------------ ------------ -------- ----------- --------------- ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts Due:
- -----------------
Within 1 year...... $ 1,233 $ 26 $ 8 $2,977 $ --- $ 112 $ 4,356 $ 34 $ 4,390
1 to 3 years....... 2,473 50 16 763 --- --- 3,302 75 3,377
3 to 5 years....... 2,605 38 17 40 734 --- 3,434 88 3,522
5 to 10 years...... 7,046 78 56 131 --- --- 7,311 287 7,598
10 to 20 years..... 15,990 115 98 462 --- --- 16,665 1,036 17,701
Over 20 years...... 18,739 129 356 957 --- --- 20,181 1,454 21,635
------- ---- ---- ------ ------- ----- ------- ------ -------
Total Amounts
Due............... $48,086 $436 $551 $5,330 $ 734 $ 112 $55,249 $2,974 $58,223
======= ==== ==== ====== ======= ===== ======= ====== =======
</TABLE>
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<PAGE>
At December 31, 1995, the total amount of loans due after December 31, 1996
which had pre-determined interest rates was $7.0 million, while the total amount
of loans due after such date which have floating or adjustable interest rates
was $46.8 million.
Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), the aggregate amount of loans that First Federal is permitted
to make to any one borrower is generally limited to 15% of unimpaired capital
and surplus (25% if the security for such loan has a "readily ascertainable"
value or 30% for certain residential development loans). At December 31, 1995,
based on the above, First Federal's regulatory loan-to-one borrower limit was
approximately $1.4 million. On the same date First Federal had no borrowers with
outstanding balances in excess of this amount with the exception of a builder of
residential homes. First Federal sought and received approval from the OTS to
loan up to $2.5 million to this builder. At December 31, 1995 First Federal had
extended credit of $2.4 million for such purposes.
Loan applications are initially considered and approved by First Federal
officers with various levels of lending authority depending on the collateral
type and loan amount. Loans are then referred to the Loan Committee for
approval. Approval by the Loan Committee requires a majority vote of the members
in attendance at the Loan Committee Meeting. No loan is approved with less than
the approval of two members of the Loan Committee. Loans greater than $500,000
must be approved by the First Federal Board of Directors after review and
preliminary approval by the Loan Committee.
The loan officer processing the respective applications ensure that all
documentation is obtained prior to the submission of the application to the Loan
Committee. In addition, the loan officer verifies that the application meets
First Federal's underwriting guidelines described below. Also, each application
is assigned to a reviewing officer who reviews the file to assure its accuracy
and completeness.
All of First Federal's lending is subject to its written underwriting
standards and to loan origination procedures. First Federal is an equal
opportunity lender. Decisions on loan applications are made on the basis of
detailed applications and property valuations (consistent with First Federal's
written appraisal policy) by a qualified independent appraiser. The loan
applications are designed primarily to determine the borrower's ability to repay
and the more significant items on the application are verified through use of
credit reports, financial statements, tax returns and/or confirmations.
Generally, First Federal requires title insurance on its mortgage loans as
well as fire and extended coverage casualty insurance in amounts at least equal
to the principal amount of the loan or the value of improvements on the
property, depending on the type of loan. First Federal also requires flood
insurance to protect the property securing its interest when the property is
located in a flood plain.
One- to Four-Family Residential Real Estate Lending
The cornerstone of First Federal's lending program is the origination of
adjustable-rate loans secured by mortgages on owner-occupied one- to four-family
residences. At December 31, 1995, $44.0 million, or 79.7% of First Federal's
loan portfolio, consisted of ARMs on one- to four-family residences. At that
date, the average outstanding residential loan balance was $77,300 and the
largest outstanding residential loan balance was $555,040. Most of the
residential loans originated by First Federal are secured by properties located
in First Federal's primary lending area, with the balance located elsewhere in
the northwestern suburbs of Chicago.
Historically, First Federal originated for 30-year fixed-rate loans secured
by one- to four-family residential real estate for retention in its own
portfolio . Beginning in the early 1980's, in order to reduce its exposure to
changes in interest rates, First Federal began to originate primarily ARMs,
subject to market conditions and consumer preference. All ARMs originated by
First Federal are retained and serviced by First Federal. First Federal also
occasionally makes fixed rate or balloon loans with terms of 10 years or less.
Since 1985, First Federal has not actively sought to originate fixed-rate loans
for retention in its portfolio. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Asset/Liability Management."
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<PAGE>
First Federal currently offers one-year ARM loans at a margin (generally
250 basis points) over the yield on the one year U.S. Treasury Security Constant
Maturity Index. The current ARM loans provide for up to a 200 basis point annual
interest rate change cap and a lifetime cap generally between 500 and 700 basis
points over the initial rate. First Federal's loans do not contain floors. First
Federal's ARMs do not permit negative amortization of principal and are not
convertible into a fixed rate loan. First Federal also originates ARMs with
initial interest rates which are fixed for a period of up to five years. On
occasion, First Federal originates ARMs that reprice at three year intervals. At
December 31, 1995, the total balance of one- to four-family ARMs was $44.0
million (including $18.4 million with fixed initial interest rates with a
remaining term of more than one year), or 79.7% of First Federal's gross loan
portfolio.
In underwriting one- to four-family residential real estate loans, First
Federal evaluates both the borrower's ability to make principal, interest and
escrow payments and the value of the property that will secure the loan. First
Federal originates residential mortgage loans with loan-to-value ratios up to
95%. On any mortgage loan exceeding an 80% loan-to-value ratio at the time of
origination, First Federal will generally require private mortgage insurance in
an amount intended to reduce First Federal's exposure to 80% or less of the
appraised value of the underlying property.
As of December 31, 1995, First Federal had 54 one- to four-family
residential mortgage loans having an aggregate balance of $15.6 million with
current balances in excess of the current FHLMC maximum of $203,150 ("jumbo
loans"). First Federal's delinquency experience on its jumbo residential loans
has been similar to its delinquency experience on other residential loans.
From time to time, First Federal originates second mortgage loans for home
improvement and other purposes. Such loans are originated in accordance with
First Federal's normal residential loan guidelines including loan to value
ratios.
In order to provide its customers with a broader array of residential
lending products and to increase First Federal's non-interest income, First
Federal has entered into a correspondent relationship with a third party
institution to originate fixed rate loans for sale to such institution on a
servicing released basis. All such sales are anticipated to be made pursuant to
formal purchase commitments. In addition, depending on future market conditions,
First Federal may originate long term fixed rate residential loans for retention
in its portfolio.
Construction and Land Lending
As a result of the relatively higher level of construction activity in
First Federal's principal lending area, First Federal makes construction and
land loans to individuals for the construction of their primary or secondary
residences and loans to builders.
First Federal makes loans to individuals for the construction of their
residences. Typically, the borrower pays interest only during the construction
period with terms for six to twelve months after which the loan converts to a
permanent mortgage loan with a term up to 30 years. Residential construction
loans are generally underwritten pursuant to the same guidelines used for
originating permanent residential loans. At December 31, 1995, First Federal had
$1.6 million of one- to four-family residential construction loans to borrowers
intending to live in the properties upon completion of construction. Subject to
future market conditions, First Federal intends to continue its construction
lending activities to persons intending to be owner occupants.
First Federal originates construction loans to builders for the
construction of one- to four-family residences in First Federal's primary market
area. Construction loans to builders of one- to four-family residences generally
carry terms of up to 18 months and generally do not permit the payment of
interest from loan proceeds. At December 31, 1995, First Federal had
approximately $3.7 million in construction loans to builders. At December 31,
1995, the largest loan to any one builder was $2.4 million.
Construction loans are generally made in amounts of up to a maximum
loan-to-value ratio of 75%. Prior to making a commitment to fund a construction
loan, First Federal requires an appraisal of the property. First
53
<PAGE>
Federal obtains personal guarantees from builders for substantially all of
its construction loans. Personal financial statements of guarantors are
also generally obtained as part of First Federal's loan underwriting.
Construction lending generally affords First Federal an opportunity to
receive interest at rates higher than those obtainable from residential lending
and to receive higher origination and other loan fees. In addition, such loans
are generally made for relatively short terms. Nevertheless, construction
lending to persons other than owner-occupants is generally considered to involve
a higher level of credit risk than one- to four-family residential lending due
to the concentration of principal in a limited number of loans and borrowers. In
addition, the nature of these loans is such that they are more difficult to
evaluate and monitor. First Federal's risk of loss on a construction loan is
dependent largely upon the accuracy of the initial estimate of the residence's
value upon completion and the estimated cost, including interest. If the
estimate of value proves to be inaccurate, First Federal may be confronted, at
or prior to the maturity of the loan, with a residence with a value which is
insufficient to assure full repayment and/or the possibility of having to make
substantial investments to complete and sell the residence.
First Federal makes loans on the security of vacant residential lots up to
75% of appraised value and for a maximum term of 18 months. These loans are made
to builders and individuals intending to construct their personal residences. At
December 31, 1995, First Federal had land loans totaling $550,844.
Home Equity Lines of Credit
Beginning in 1995, First Federal began offering home equity lines of credit
secured by one-to-four family residential real estate. Home equity lines of
credit offered by First Federal have terms of up to 60 months and are offered at
amounts which may exceed $100,000.
All home equity lines of credit for up to $50,000 are offered at prime plus
1%. Home equity lines of credit between $50,000 to $100,000 are offered at prime
plus .5% and home equity lines of credit in excess of $100,000 are offered at
prime. First Federal does not originate any home equity lines of credit in
excess of 80% of the value of the appraised property.
Commercial Real Estate Lending
First Federal occasionally makes commercial real estate loans in its
primary market area. At December 31, 1995, First Federal had $435,821 in
commercial real estate loans, representing .79% of First Federal's total loan
portfolio.
First Federal's commercial real estate portfolio consists of loans on
a variety of non-residential properties including a YMCA and a few small
office buildings.
Most current commercial real estate originations have interest rates which
adjust 300 basis points over the one year U.S. Treasury Security Constant
Maturity Index. Commercial real estate loans are generally underwritten in
amounts of up to 75% of the appraised value of the underlying property.
Appraisals on properties serving commercial real estate loans originated by
First Federal are performed by a qualified appraiser at the time the loan is
made. In addition, First Federal's underwriting procedures generally require
verification of the borrower's credit history, income and financial statements,
banking relationships, references and income projections for the property.
At December 31, 1995, First Federal's largest commercial real estate loan
totalled $122,799. At that date, First Federal had eight commercial loans
totalling $435,821. All of these loans are performing.
Commercial real estate loans generally present a higher level of risk than
loans secured by one- to four-family residences. This greater risk is due to
several factors, including the concentration of principal in a limited number of
loans and borrowers, the effects of general economic conditions on income
producing properties and the increased difficulty of evaluating and monitoring
these types of loans. Furthermore, the repayment of loans secured by multi-
family residential and non-residential real estate is typically dependent upon
the successful operation of the
54
<PAGE>
related real estate project. If the cash flow from the project is reduced
(for example, if leases are not obtained or renewed), the borrower's
ability to repay the loan may be impaired. At December 31, 1995, there
were no commercial real estate loans which were 90 days or more delinquent.
Consumer Lending
First Federal also offers consumer loans secured by deposit accounts.
These loans totalled $111,844 as of December 31, 1995.
Mortgage-Backed Securities
In recent periods, First Federal purchased mortgage-backed securities to
supplement residential loan production. The type of securities purchased is
based upon First Federal's asset/liability management strategy and balance sheet
objectives. For instance, all of the mortgage-backed securities purchased by
First Federal over the last three years have had adjustable interest rates. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Asset/Liability Management".
All of First Federal's mortgage-backed securities at December 31, 1995, are
backed by federal government sponsored agencies. Accordingly, management
believes that First Federal's mortgage-backed securities are generally resistant
to credit problems.
First Federal began purchasing mortgage-backed securities in 1992 in order
to reinvest excess liquidity resulting from the lack of ARM loan demand as
borrowers have preferred fixed rate mortgage loans during a period of declining
interest rates. Since federal agency mortgage-backed securities generally carry
a yield approximately 50 to 100 basis points below that of the corresponding
type of residential loan (due to the implied Federal agency guarantee fee and
the retention of a servicing spread by the loan servicer), in the event that the
proportion of First Federal's assets consisting of mortgage-backed securities
increases, First Federal's asset yields could be somewhat adversely affected.
However, due to the existence of the federal agency guarantee for First
Federal's mortgage-backed securities and the availability of adjustable rate
mortgage-backed securities, First Federal's interest rate risk and credit risk
would not necessarily be increased by a future increase in mortgage-backed
securities volume. First Federal will evaluate mortgage-backed securities
purchases in the future based on its asset/liability objectives, market
conditions and its alternative investment opportunities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Asset/Liability Management." First Federal's mortgage-backed securities are
classified as held to maturity and accordingly are included in its consolidated
financial statements at amortized cost.
Originations, Purchases and Sales of Loans
Real estate loans are generally originated by First Federal's staff of
salaried loan officers. Loan applications are taken and processed in the office
of First Federal.
55
<PAGE>
The following table shows the loan origination, mortgage-backed securities
purchases, and repayment activities of First Federal for the periods indicated.
<TABLE>
<CAPTION>
For the Year Ended December 31,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
(In Thousands)
Loans receivable (gross):
- -------------------------
At beginning of period........................................ $51,082 $47,016 $52,365
Originations by type:
- ---------------------
Adjustable rate:
Real estate - one- to four-family/1/......................... $ 7,207 $14,098 $11,100
- commercial..................................... 100 --- ---
- construction................................... 1,066 1,185 1,840
Equity lines of credit....................................... --- --- 3,707
------- ------- -------
Total adjustable-rate................................. 8,373 15,283 16,647
Fixed rate:
Real estate - one- to four-family............................ 397 267 1,041
- commercial..................................... --- --- ---
- construction................................... 1,570 4,147 3,701
------- ------- -------
Non-real estate - consumer................................... 242 228 224
Total fixed-rate...................................... 2,209 4,642 4,966
------- ------- -------
Total loans originated....................................... 10,582 19,925 21,613
------- ------- -------
Repayments:
- -----------
Real estate - one- to four-family............................ 12,105 10,554 10,768
- commercial..................................... 105 26 35
- construction................................... 2,139 3,767 4,773
Equity lines of credit....................................... --- --- 2,973
Non-real estate - consumer................................... 299 229 180
------- ------- -------
Total repayments............................................. 14,648 14,576 18,729
------- ------- -------
Net increase (decrease)............................... (4,066) 5,349 2,884
------- ------- -------
At end of period.............................................. $47,016 $52,365 $55,249
======= ======= =======
Mortgage-backed securities:
- ---------------------------
At beginning of period....................................... $ 3,901 $ 2,926 $ 4,191
Purchases.................................................... --- 2,061 ---
Sales........................................................ --- --- ---
Principal repayments......................................... (966) (788) (1,184)
Amortization of premiums..................................... (9) (8) (10)
------- ------- -------
At end of period............................................. $ 2,926 $ 4,191 $ 2,997
======= ======= =======
</TABLE>
- ------------------------
/1/ Amounts include land loans.
56
<PAGE>
Delinquencies and Non-Performing Assets
Delinquency Procedures. When a borrower fails to make a required payment on
a loan, First Federal attempts to cause the delinquency to be cured by
contacting the borrower. In the case of loans, a late notice is sent on all
loans over 30 days delinquent. Additional written and verbal contacts are made
with the borrower 90 days after the due date.
All loans 60 or more days delinquent are submitted to the Board of
Directors for their review. The First Federal Board of Directors determines the
appropriate course of action for those loans where collection efforts are
unsuccessful. Their options include modification of the loan, forbearance, deeds
in lieu of foreclosure or foreclosure.
Accrual of delinquent interest on loans is discontinued after 90 days, at
which time interest previously accrued is reserved as a reduction of interest
income. Loans are returned to accrual status when they become less than 90 days
delinquent, at which time interest previously reserved is included in interest
income.
Real estate acquired by First Federal as a result of foreclosure or by deed
in lieu of foreclosure is classified as real estate owned until it is sold. When
property is acquired, it is recorded at the lower of cost or estimated fair
value, less the estimated cost of disposition. After acquisition, all costs
incurred in maintaining the property are expensed. Costs relating to the
development and improvement of the property, however, are capitalized to the
extent of net realizable value.
The following table sets forth First Federal's loan delinquencies by type,
by amount and by percentage of type at December 31, 1995.
<TABLE>
<CAPTION>
At December 31, 1995 Total Delinquent Loans
------------------------------------------------------------ ---------------------------
60-89 Days 90 Days and Over 60 Days and Over
----------------------------- ---------------------------- ---------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family...... 4 $ 240 100.00% 10 $ 378 100.00% 14 $ 618 100.00%
Commercial............... --- --- --- --- --- --- --- --- ---
Construction............. --- --- --- --- --- --- --- --- ---
Equity liens of credit... --- --- --- --- --- --- --- --- ---
Consumer................... --- --- --- --- --- --- --- --- ---
------ ------ -------- ------ ------ -------- ------ ------ --------
Total...................... 4 $ 240 100.00% 10 $ 378 100.00% 14 $ 618 100.00%
====== ====== ======== ====== ====== ======== ====== ====== ========
Delinquent loans to
total gross loans......... .43% .68% 1.12%
</TABLE>
57
<PAGE>
Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: Substandard,
Doubtful and Loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that First Federal will sustain
some loss if the deficiencies are not corrected. Doubtful assets have the
weaknesses of Substandard assets, with the additional characteristics that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified Loss is considered uncollectible and of
such little value that continuance as an asset on the balance sheet of the
institution is not warranted. Assets classified as Substandard or Doubtful
require the institution to establish prudent general allowances for loan losses.
If an asset or portion thereof is classified as Loss, the institution must
either establish specific allowances for loan losses in the amount of 100% of
the portion of the asset classified Loss, or charge off such amount. If an
institution does not agree with an examiner's classification of an asset, it may
appeal this determination to the District Director of the OTS. On the basis of
management's review of its assets, at December 31, 1995, First Federal had
classified a total of $378,000 of its loans, as follows:
<TABLE>
<CAPTION>
One- to Four- Commercial Equity lines
Family Construction Real Estate Land of Credit Consumer
--------------- --------------- -------------- ------- --------------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Substandard.......... $378 $ --- $ --- $ --- $ --- $ ---
Doubtful............. --- --- --- --- --- ---
Loss................. --- --- --- --- --- ---
---- ------ ------ ------ ------ ------
$378 $ --- $ --- $ --- $ --- $ ---
==== ====== ====== ====== ====== ======
</TABLE>
First Federal's classified assets consist of the non-performing loans and
loans and other assets of concern if applicable. As of the date hereof, these
asset classifications are consistent with those of the OTS and FDIC.
Non-Performing Assets. The following table sets forth the amounts and
categories of non-performing assets in First Federal's loan portfolio. Loans are
reviewed quarterly and any loan whose collectibility is doubtful is placed on
non-accrual status. Loans are placed on nonaccrual status when either principal
or interest is 90 days or more past due, unless, in the judgment of management,
the loan is well-collateralized and in the process of collection. Interest
accrued and unpaid at the time a loan is placed on non-accrual status is charged
against interest income. Subsequent payments are either applied to the
outstanding principal balance or recorded as interest income, depending on the
assessment of the ultimate collectibility of the loan. For all years presented,
First Federal has had no troubled debt restructurings (which involved forgiving
a portion of interest or principal on any loans or making loans at a rate
materially less than that of market rates).
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1991 1992 1993 1994 1995
----------- ----------- ------------- ----------- --------
<S> (Dollars in Thousands)
<C> <C> <C> <C> <C>
Non-performing assets:
Loans:
One- to four-family.......................... $ 1,194 $ 1,143 $ 1,089 $ 683 $ 378
Commercial real estate....................... --- --- --- --- ---
Construction................................. --- --- --- --- ---
Consumer..................................... --- --- --- --- ---
Equity lines of credit....................... --- --- --- --- ---
------- ------- ------- ------ -----
Total non-performing loans................. 1,194 1,143 1,089 683 378
------- ------- ------- ------ -----
Real estate owned............................. --- --- --- 47 ---
------- ------- ------- ------ -----
Total non-performing assets...................... $ 1,194 $ 1,143 $ 1,089 $ 730 $ 378
====== ====== ====== ====== =====
Non-performing assets to total
assets.......................................... 1.89% 1.69% 1.73% 1 .07% .54%
====== ====== ====== ====== =====
</TABLE>
58
<PAGE>
For the year ended December 31, 1995 gross interest income which would have
been recorded had the non-accruing loans been current in accordance with their
original terms amounted to approximately $17,000. For the year ended December
31, 1995, First Federal did not record any interest income on non-accrual loans.
Other Loans of Concern. In addition to the non-performing assets set forth
in the table above, as of December 31, 1995, there were no loans with respect to
which known information about the possible credit problems of the borrowers or
the cash flows of the security properties have caused management to have
concerns as to the ability of the borrowers to comply with present loan
repayment terms and which may result in the future inclusion of such items in
the non-performing asset categories.
Management has considered First Federal's non-performing and "of concern"
assets in establishing its allowance for loan losses.
59
<PAGE>
The following table sets forth an analysis of First Federal's allowance for
loan losses.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------
1991 1992 1993 1994 1995
---------- ---------- ---------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period................ $ 40 $ 40 $ 168 $ 340 $ 350
Charge-offs................................... --- --- --- --- ---
Recoveries.................................... --- --- --- --- ---
Provision for loan losses..................... --- 128 172 10 6
----- ------ ------ ------ ------
Balance at end of period...................... $ 40 $ 168 $ 340 $ 350 $ 356
===== ====== ====== ====== ======
Ratio of allowance for loan losses to
non-performing loans at end of period........ 3.35% 14.70% 31.22% 51.24% 94.18%
===== ====== ====== ====== ======
</TABLE>
60
<PAGE>
The allowance for loan losses is established through a provision for loan
losses charged to earnings based on management's evaluation of the risk inherent
in its entire loan portfolio and changes in the nature and volume of its loan
activity. Such evaluation, which includes a review of all loans of which full
collectibility may not be reasonably assured, considers the estimated net
realizable value of the underlying collateral, economic conditions, historical
loan loss experience and other factors that warrant recognition in providing for
an adequate allowance for loan losses. In determining the general reserves under
these policies, historical charge-offs and recoveries, changes in the mix and
levels of the various types of loans, collateral values, the current loan
portfolio and current economic conditions are considered. First Federal also
requires additional reserves for classified loans as well as a percentage of
performing loans. First Federal has no loans which it considers to be impaired
at December 31, 1995.
While management believes that it uses the best information available to
determine the allowance for loan losses, unforeseen market conditions could
result in adjustments to the allowance for loan losses, and net earnings could
be significantly affected, if circumstances differ substantially from the
assumptions used in making the final determination.
The distribution of First Federal's allowance for losses on loans at the
dates indicated is summarized as follows:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Unallocated........ $ 40 $ 168 $ 340 $ 350 $ 356
----- ----- ----- ----- -----
Total.......... $ 40 $ 168 $ 340 $ 350 $ 356
===== ===== ===== ===== =====
</TABLE>
Investment Activities
As part of its asset/liability management strategy, First Federal invests
in short- or medium-term U.S. government and agency obligations. Currently,
First Federal's investment policy does not permit investments in corporate or
municipal securities. Depending on market conditions, First Federal may amend
its investment policy to permit the purchase of such securities in the future.
At December 31, 1995, First Federal did not own any securities of a single
issuer which exceeded 10% of First Federal's stockholders' equity, other than
U.S. government or federal agency obligations. For additional information
regarding First Federal's accounting for investment activities, see "Barrington
Bancorp and Subsidiary Consolidated Financial Statements--Notes to Consolidated
Financial Statements."
First Federal is required by federal regulations to maintain a minimum
amount of liquid assets that may be invested in specified securities and is also
permitted to make certain other securities investments. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." Cash flow projections are regularly reviewed
and updated to assure that adequate liquidity is provided. As of December 31,
1995, First Federal's liquidity ratio (liquid assets as a percentage of net
withdrawable savings and current borrowings) was 21.1% compared to the OTS
requirement of 5%.
61
<PAGE>
The following table sets forth the composition of First Federal's
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1994 1995
-------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- ------
(In Thousands)
<S> <C> <C> <C> <C>
Interest-bearing deposits with banks........ $1,399 $1,399 $4,198 $4,198
====== ====== ====== ======
Securities Held to Maturity:
U.S. Government Treasury securities....... 6,065 5,882 4,005 3,993
U.S. Government Agency securities......... 1,057 1,008 1,019 1,014
------ ------ ------ ------
Total securities held to maturity......... $7,122 $6,890 $5,024 $5,007
====== ====== ====== ======
Securities Available For Sale:
U.S. Government Agency .................. $1,999 $1,956 $2,000 $2,005
====== ====== ====== ======
FHLB stock.................................. $ 447 $ 447 $ 485 $ 485
====== ====== ====== ======
</TABLE>
The maturities and yields of First Federal's investment securities held to
maturity and securities available for sale portfolio at December 31, 1995 are
indicated in the following table.
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over Total Investment
1 Year Years Years 10 Years Securities
---------- --------- --------- --------- ---------------------
Carrying Carrying Carrying Carrying Carrying
Value Value Value Value Value Fair Value
---------- --------- --------- --------- --------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government
obligations held to
maturity...................................... $5,024 $ --- $ --- $ --- $5,024 $5,007
====== ======== ======== ======== ====== ==========
U.S. government
obligations available
for sale...................................... $2,005 --- --- --- $2,005 $2,005
====== ======== ======== ======== ====== ==========
Weighted average yield......................... 6.22% ---% ---% ---% 6.22%
====== ======== ======== ======== ======
</TABLE>
Sources of Funds
General. First Federal's primary sources of funds are deposits,
scheduled amortization and prepayment of loan and mortgage-backed
securities, maturities of investment securities, short-term investments,
borrowings and funds provided from operations.
Deposits. First Federal offers a variety of deposits accounts having
a wide range of interest rates and terms. First Federal's deposits consist
of passbook accounts, NOW accounts, and money market and certificate
accounts. First Federal relies primarily on competitive pricing policies
and customer service to attract and retain these deposits. The flow of
deposits is influenced significantly by general economic conditions,
changes in money market and prevailing interest rates and competition.
62
<PAGE>
The variety of deposit accounts offered by First Federal has allowed it to
be competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. As customers have become more interest rate conscious, First
Federal has become more susceptible to short-term fluctuations in deposit flows.
First Federal manages the pricing of its deposits in keeping with its
asset/liability management, profitability and growth objectives. Based on its
experience, First Federal believes that its passbook and NOW accounts are
relatively stable sources of deposits. However, the ability of First Federal to
attract and maintain certificate deposits, and the rates paid on these deposits,
has been and will continue to be significantly affected by market conditions.
The following table sets forth the savings deposit flows at First Federal
during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1993 1994 1995
------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Opening balance.............. $62,254 $55,811 $ 53,476
Deposits..................... 91,105 64,917 105,676
Withdrawals.................. 99,416 69,277 104,239
Interest credited............ 1,868 2,025 2,363
-------- ------- --------
Ending balance............... $ 55,811 $53,476 $ 57,276
======== ======= ========
Net increase
(decrease)................. $ (6,443) $(2,335) $ 3,800
======== ======= ========
Percent increase
(decrease).................. (10.35)% (4.18)% 7.11%
======== ======= ========
</TABLE>
63
<PAGE>
The following table sets forth the dollar amount of savings deposits and
the stated or weighted average rates in the various types of deposit programs
offered by First Federal at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------------
1993 1994 1995
------------------------------ ------------------------------- -----------------------------
Stated or Stated or Stated or
weighted weighted weighted
Percent average Percent average Percent average
Amount of Total rate Amount of Total rate Amount of Total rate
------- --------- ---------- -------- --------- ---------- ------- --------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts............ $10,676 19.13% 2.55% $10,096 18.88% 3.10% $ 8,389 14.65% 3.10%
NOW accounts................. 3,879 6.95 1.63 3,965 7.42 2.01 3,891 6.79 1.91
Money market accounts........ 6,623 11.87 2.48 5,339 9.98 3.82 4,839 8.45 3.93
------- ------ ---- ------- ------ ---- ------- ------ ----
Total non-certificate
accounts.................... 21,178 37.95 2.36 19,400 36.28 3.08 17,119 28.89 3.06
------- ------ ---- ------- ------ ---- ------- ------ ----
Certificate accounts:
- --------------------
0.00 - 3.99%................ 19,197 34.06 3.32 2,186 4.09 3.68 217 0.38 3.77
4.00 - 5.99%................ 11,436 20.49 4.74 27,965 52.29 4.90 24,509 42.79 5.44
6.00 - 7.99%................ 3,135 5.95 6.62 3,661 6.85 6.40 15,136 26.43 6.46
8.00 - 9.99%................ 865 1.55 8.26 264 .49 8.20 295 .51 8.00
------- ------ ---- ------- ------ ---- ------- ------ ----
Total certificate accounts... 34,633 62.05 4.23 34,076 63.72 5.01 40,157 70.11 5.84
------- ------ ---- ------- ------ ---- ------- ------ ----
Total savings deposits....... $55,811 100.00% 3.52% $53,476 100.00% 4.31% $57,276 100.00% 5.01%
======= ====== ==== ======= ====== ==== ======= ====== ====
</TABLE>
64
<PAGE>
The following table shows rate and maturity information for First Federal's
certificate accounts as of December 31, 1995.
<TABLE>
<CAPTION>
0.00- 4.00- 6.00- 8.00- Percent
3.99% 5.99% 7.99% 9.99% Total of Total
------ ------- ------- ------ ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts maturing
in quarter ending:
- -----------------
March 31, 1996............................................. $ 51 $ 9,474 $ 2,755 $ --- $12,280 30.58%
June 30, 1996.............................................. 166 4,809 3,507 --- 8,482 21.12
September 30, 1996......................................... --- 1,573 961 --- 2,534 6.31
December 31, 1996.......................................... --- 2,912 2,251 --- 5,163 12.86
------ ------- ------- ------ ------- ------
Total within 1 year........................................ 217 18,768 9,474 --- 28,459 70.87
------ ------- ------- ------ ------- ------
March 31, 1997............................................. --- 1,239 54 --- 1,293 3.22
June 30, 1997.............................................. --- 864 316 --- 1,180 2.94
September 30, 1997......................................... --- 304 483 --- 787 1.96
December 31, 1997.......................................... --- 170 1,560 --- 1,730 4.31
------ ------- ------- ------ ------- ------
Total 1 to 2 years......................................... --- 2,577 2,413 --- 4,990 12.43
------ ------- ------- ------ ------- ------
March 31, 1998............................................. --- 635 136 --- 771 1.92
June 30, 1998.............................................. --- 1,168 --- --- 1,168 2.91
September 30, 1998......................................... --- 352 90 --- 442 1.10
December 31, 1998.......................................... --- 56 156 --- 212 .53
------ ------- ------- ------ ------- ------
Total 2 to 3 years......................................... --- 2,211 382 --- 2,593 6.46
------ ------- ------- ------ ------- ------
Thereafter................................................. --- 953 2,867 295 4,115 10.24
------ ------- ------- ------ ------- ------
Total................................................... $ 217 $24,509 $15,136 $ 295 $40,157 100.00%
====== ======= ======= ====== ======= ======
Percent of total........................................ 0.54% 61.03% 37.69% 0.74% 100.00%
====== ======= ======= ====== =======
</TABLE>
65
<PAGE>
The following table indicates the amount of First Federal's certificate
accounts by time remaining until maturity as of December 31, 1995.
<TABLE>
<CAPTION>
Maturity
---------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
-------- ------ ------- --------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificate accounts less than
$100,000:
Customer accounts.............. $ 8,302 $5,051 $7,184 $ 9,991 $30,528
Public funds accounts.......... 98 20 39 --- 157
Certificates of $100,000 and
over:
Customer accounts.............. 3,779 3,304 473 1,707 9,263
Public funds accounts.......... 100 109 --- --- 209
------- ------ ------ ------- -------
Total certificate accounts........ $12,279 $8,484 $7,696 $11,698 $40,157
======= ====== ====== ======= =======
</TABLE>
Borrowings. First Federal's other available sources of funds include
advances from the FHLB of Chicago and other borrowings. As a member of the FHLB
of Chicago, First Federal is required to own capital stock in the FHLB of
Chicago and is authorized to apply for advances from the FHLB of Chicago. Each
FHLB credit program has its own interest rate, which may be fixed or variable,
and range of maturities. The FHLB of Chicago may prescribe the acceptable uses
for these advances, as well as limitations on the size of the advances and
repayment provisions. First Federal has utilized FHLB advances from time to time
to extend the term to maturity of its liabilities.
The following table sets forth information regarding borrowed funds, all of
which consisted of FHLB advances, for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1993 1994 1995
------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C>
Average balance outstanding....... $ 462 $1,192 $2,076
Maximum amount outstanding
at any month-end during the
period........................... 1,500 3,000 3,000
Balance outstanding at end
of period........................ 1,500 3,000 1,000
Weighted average interest
rate during the period........... 3.25% 4.70% 6.40%
Weighted average interest
rate at end of period............ 3.24 6.35 5.31
</TABLE>
Competition
First Federal faces strong competition both in originating real estate
loans and in attracting deposits. Competition in originating loans comes
primarily from mortgage bankers, other savings institutions, credit unions, and
commercial banks who also make loans secured by real estate located in First
Federal's primary market area.
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First Federal competes for loans principally on the basis of the interest
rates and loan fees it charges, the types of loans it originates and the
quality of services it provides to borrowers.
Competition for those deposits is principally from other savings
institutions, commercial banks, money market and mutual funds, securities firms,
and credit unions located in the same communities. The ability of First Federal
to attract and retain deposits depends on its ability to provide an investment
opportunity that satisfies the requirements of investors as to rate of return,
liquidity, risk, convenient locations and other factors. First Federal competes
for these deposits by offering a variety of deposit accounts at competitive
rates, convenient business hours and a customer oriented staff.
The authority to offer money market deposits, and expanded lending and
other powers authorized for savings institutions by federal legislation has
resulted in increased competition for both deposits and loans between savings
institutions and other financial institutions such as commercial banks.
Employees
At December 31, 1995, First Federal had a total of 15 full-time employees
and four part-time employees. None of First Federal's employees are represented
by any collective bargaining group. Management considers its employee relations
to be good.
Service Corporations
First Federal had no active service corporations at December 31, 1995.
SUPERVISION AND REGULATION
General
First Federal is a federally chartered savings bank, the deposits of which
are federally insured and backed by the full faith and credit of the United
States Government. Accordingly, First Federal is subject to broad federal
regulation and oversight extending to all its operations. First Federal is a
member of the FHLB of Chicago and is subject to certain limited regulation by
the FRB. As the savings and loan holding company of First Federal, Barrington
Bancorp also is subject to federal regulation and oversight. The purpose of the
regulation of Barrington Bancorp and other holding companies is to protect
subsidiary savings associations. First Federal is a member of the SAIF and the
deposits of First Federal are insured by the FDIC. As a result, the FDIC has
certain regulatory and examination authority over First Federal.
Certain of these regulatory requirements and restrictions are discussed below
or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, First Federal is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. The last regular OTS and FDIC examinations of First Federal were
as of February 28, 1995 and March 21, 1992, respectively. Under agency
scheduling guidelines, it is likely that another examination will be initiated
in the near future. When these examinations are conducted by the OTS and the
FDIC, the examiners may require First Federal to provide for higher general or
specific loan loss reserves. All savings associations are subject to a semi-
annual assessment, based upon the savings association's total assets, to fund
the operations of the OTS. First Federal's OTS assessment for the fiscal year
ended December 31, 1995, was $22,901.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including First Federal and Barrington
Bancorp. This enforcement authority includes, among other things, the ability to
assess civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely
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reports filed with the OTS. Except under certain circumstances, public
disclosure of final enforcement actions by the OTS is required.
In addition, the investment, lending and branching authority of First
Federal is prescribed by federal laws and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by non-
residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings associations are also generally authorized
to branch nationwide. First Federal is in compliance with the noted
restrictions.
First Federal's general permissible lending limit for loans-to-one-borrower
is equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
December 31, 1995, First Federal's lending limit under this restriction was $1.4
million. First Federal is in compliance with the loans-to-one-borrower
limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a compliance plan. A
failure to submit a plan or to comply with an approved plan will subject the
institution to further enforcement action. The OTS and the other federal banking
agencies have also proposed additional guidelines on asset quality and earnings
standards. No assurance can be given as to whether or in what form the proposed
regulations will be adopted.
Insurance of Accounts and Regulation by the FDIC
First Federal is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the FDIC. The FDIC
also has the authority to initiate enforcement actions against savings
associations, after giving the OTS an opportunity to take such action, and may
terminate the deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.
For the first six months of 1995, the assessment schedule for Bank Insurance
Fund ("BIF") members and SAIF members ranged from .23% to .31% of deposits.
The FDIC is authorized to increase assessment rates, on a semiannual basis,
if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
As is the case with the SAIF, the FDIC is authorized to adjust the
insurance premium rates for banks that are insured by the BIF of the FDIC in
order to maintain the reserve ratio of the BIF at 1.25% of BIF insured deposits.
As a result of the BIF reaching its statutory reserve ratio the FDIC revised the
premium schedule for BIF
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insured institutions to provide a range of .04% to .31% of deposits. The
revisions became effective in the third quarter of 1995. In addition, the BIF
rates were further revised, effective January 1996, to provide a range of 0% to
.27% with a minimum annual assessment of $2,000. The SAIF rates, however, were
not adjusted. As a result of these revisions, BIF members will generally pay
lower premiums.
The SAIF is not expected to attain the designated reserve ratio until the
year 2002 due to the shrinking deposit base for SAIF assessments and the
requirement that SAIF premiums be used to make the interest payments on bonds
issued by the Financing Corporation ("FICO") in order to finance the costs of
resolving thrift failures in the 1980s. As a result, SAIF members will generally
be subject to higher deposit insurance premiums than BIF members until, all
things being equal, the SAIF attains the required reserve ratio.
The effect of this disparity on First Federal and other SAIF members is
uncertain at this time. It may have the effect of permitting BIF insured
institutions to offer loan and deposit products on more attractive terms than
SAIF members due to the cost savings achieved through lower deposit premiums,
thereby placing SAIF members at a competitive disadvantage. In order to
eliminate this disparity a number of proposals to recapitalize the SAIF have
been recently considered by the United States Congress. The plan under current
consideration provides for a one-time assessment, anticipated to range from .80%
to .90%, to be imposed on all deposits assessed at the SAIF rates as of March
31, 1995, including those held by commercial banks, and for BIF deposit
insurance premiums to be used to pay the FICO bond interest on a pro rata basis
together with SAIF premiums. The Special Assessment would result in a one-time
charge to First Federal of approximately $290,000 to $307,000, net of related
income taxes. The BIF and SAIF would be merged into one fund as soon as
practicable, but no later than January 1, 1998. There can be no assurance that
any particular proposal will be enacted or that premiums for either BIF or SAIF
members will not be adjusted in the future by the FDIC or by legislative action.
See also "Recent Developments."
Regulatory Capital Requirements
Federally insured savings associations, such as First Federal, are required
to maintain a minimum level of regulatory capital. The OTS has established
capital standards, including a tangible capital requirement, a leverage ratio
(or core capital) requirement and a risk-based capital requirement applicable to
such savings associations. These capital requirements must be generally as
stringent as the comparable capital requirements for national banks. The OTS is
also authorized to impose capital requirements in excess of these standards on
individual associations on a case-by-case basis.
First Federal's reconciliation from GAAP capital to regulatory capital is
as follows:
<TABLE>
<CAPTION>
Tangible Core Risk-based/(1)/
-------- ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
GAAP capital................ $8,901 $8,901 $8,901
Allowance for loan losses... --- --- 356
------ ------ ------
Regulatory capital.......... $8,901 $8,901 $9,257
====== ====== ======
Required capital............ 1,052 2,104 2,592
Excess capital.............. 7,849 6,797 6,665
====== ====== ======
Actual capital ratio........ 12.69% 12.69% 28.58%
Required capital ratio...... 1.5 3.00 8.00
Excess capital ratio........ 11.19% 9.69% 20.58%
</TABLE>
/(1)/ First Federal had risk-weighted assets of $32.4 million on December 31,
1995.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
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<PAGE>
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital.
At December 31, 1995, First Federal had tangible capital of $8.9 million,
or 12.69% of adjusted total assets, which is approximately $7.8 million above
the minimum requirement of 1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio.
At December 31, 1995, First Federal had core capital equal to $8.9 million,
or 12.69% of adjusted total assets, which is $6.8 million above the minimum
leverage ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires savings associations to have total
capital of at least 8% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At December 31, 1995, First Federal
had $356,000 of general loss reserves, which was less than 1.25% of risk-
weighted assets.
Certain exclusions from capital and assets are required to be made for the
purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. First Federal had no such
exclusions from capital and assets at December 31, 1995.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight, ranging
from 0% to 100%, based on the risk inherent in the type of asset. For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days delinquent
and having a loan to value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by the FNMA or FHLMC.
The OTS has adopted a final rule that requires every savings association
with more than normal interest rate risk exposure to deduct from its total
capital, for purposes of determining compliance with such requirement, an amount
equal to 50% of its interest-rate risk exposure multiplied by the present value
of its assets. This exposure is a measure of the potential decline in the net
portfolio value of a savings association, greater than 2% of the present value
of its assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and off-
balance sheet contracts. The rule provides for a two quarter lag between
calculating interest rate risk and recognizing any deduction from capital. The
rule will not become effective until the OTS evaluates the process by which
savings associations may appeal an interest rate risk deduction determination.
It is uncertain as to when this evaluation may be completed. Any savings
association with less than $300 million in assets and a total capital ratio in
excess of 12% is exempt from this requirement unless the OTS determines
otherwise.
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<PAGE>
On December 31, 1995, First Federal had total capital of $8.9 million and
risk-weighted assets of $32.4 million; or total capital of 28.58% of risk-
weighted assets. This amount was $6.7 million above the 8% requirement in effect
on that date.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1 risked-
based capital ratio or an 8% risk-based capital ratio). Any such association
must submit a capital restoration plan and until such plan is approved by the
OTS may not increase its assets, acquire another institution, establish a branch
or engage in any new activities, and generally may not make capital
distributions. The OTS is authorized to impose the additional restrictions that
are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any company
controlling an undercapitalized association must agree that it will enter into a
limited capital maintenance guarantee with respect to the institution's
achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on First
Federal may have a substantial adverse effect on First Federal's operations and
profitability. Company shareholders do not have preemptive rights, and
therefore, if Barrington Bancorp is directed by the OTS or the FDIC to issue
additional shares of Barrington Bancorp Common Stock, such issuance may result
in the dilution in the percentage of ownership of Barrington Bancorp.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations with
respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion.
Generally, savings associations, such as First Federal, that before and
after the proposed distribution meet their capital requirements, may make
capital distributions during any calendar year equal to the greater of 100% of
net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However, an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority restricted by the OTS. First Federal may
pay dividends in accordance with this general authority.
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<PAGE>
Savings associations proposing to make any capital distribution need only
submit written notice to the OTS 30 days prior to such distribution. Savings
associations that do not, or would not meet their current minimum capital
requirements following a proposed capital distribution, however, must obtain OTS
approval prior to making such distribution. The OTS may object to the
distribution during that 30-day notice period based on safety and soundness
concerns. See "--Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association may make a
capital distribution without notice to the OTS (unless it is a subsidiary of a
holding company) provided that it has a CAMEL 1 or 2 rating, is not of
supervisory concern, and would remain adequately capitalized (as defined in the
OTS prompt corrective action regulations) following the proposed distribution.
Savings associations that would remain adequately capitalized following the
proposed distribution but do not meet the other noted requirements must notify
the OTS 30 days prior to declaring a capital distribution. The OTS stated it
will generally regard as permissible that amount of capital distributions that
do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Liquidity
All savings associations, including First Federal, are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what First Federal
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
This liquid asset ratio requirement may vary from time to time (between 4% and
10%) depending upon economic conditions and savings flows of all savings
associations. At the present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time deposits,
certain bankers acceptances and short-term United States Treasury obligations)
currently must constitute at least 1% of the association's average daily balance
of net withdrawable deposit accounts and current borrowings. Penalties may be
imposed upon associations for violations of either liquid asset ratio
requirement. At December 31, 1995, First Federal was in compliance with both
requirements, with an overall liquid asset ratio of 21.1% and a short-term
liquid assets ratio of 17.6%.
Accounting
An OTS policy statement applicable to all savings associations clarifies
and re-emphasizes that the investment activities of a savings association must
be in compliance with approved and documented investment policies and
strategies, and must be accounted for in accordance with Generally Accepted
Accounting Principles ("GAAP"). Under the policy statement, management must
support its classification of and accounting for loans and securities (i.e.,
whether held for investment, sale or trading) with appropriate documentation.
First Federal is in compliance with these amended rules.
The OTS has adopted an amendment to its accounting regulations, which may
be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS.
Qualified Thrift Lender Test
All savings associations, including First Federal, are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly average for nine out of every
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<PAGE>
12 months on a rolling basis. Such assets primarily consist of residential
housing related loans and investments. At December 31, 1995, First Federal met
the test and has always met the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "-Company Regulation."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of First
Federal, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by First
Federal. An unsatisfactory rating may be used as the basis for the denial of an
application by the OTS.
The federal banking agencies, including the OTS, have recently revised the
CRA regulations and the methodology for determining an institution's compliance
with the CRA. Due to the heightened attention being given to the CRA in the past
few years, First Federal may be required to devote additional funds for
investment and lending in its local community. First Federal was examined for
CRA compliance in 1996 and received a rating of satisfactory.
Transactions with Affiliates
Generally, transactions between a savings association or its subsidiaries
and its affiliates are required to be on terms as favorable to the association
as transactions with non-affiliates. In addition, certain of these transactions,
such as loans to an affiliate, are restricted to a percentage of the
association's capital. Affiliates of First Federal include Barrington Bancorp
and any company which is under common control with First Federal. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of most
affiliates.
Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
Company Regulation
Barrington Bancorp is a unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, Barrington Bancorp is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over
Barrington Bancorp and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association.
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As a unitary savings and loan holding company, Barrington Bancorp generally
is not subject to activity restrictions. If Barrington Bancorp acquires control
of another savings association as a separate subsidiary, it would become a
multiple savings and loan holding company, and the activities of Barrington
Bancorp and any of its subsidiaries (other than First Federal or any other SAIF-
insured savings association) would become subject to such restrictions unless
such other associations each qualify as a QTL and were acquired in a supervisory
acquisition.
If First Federal fails the QTL test, Barrington Bancorp must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure Barrington Bancorp must register as, and will
become subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "--Qualified Thrift Lender Test."
Barrington Bancorp must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law
Barrington Bancorp Common Stock is registered with the SEC under the
Exchange Act. Barrington Bancorp is subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the SEC
under the Exchange Act.
Barrington Bancorp Common Stock held by persons who are affiliates
(generally officers, directors and principal stockholders) of Barrington Bancorp
may not be resold without registration or unless sold in accordance with certain
resale restrictions. If Barrington Bancorp meets specified current public
information requirements, each affiliate of Barrington Bancorp is able to sell
in the public market, without registration, a limited number of shares in any
three-month period.
Federal Reserve System
The FRB requires all depository institutions to maintain non-interest
bearing reserves at specified levels against their transaction accounts
(primarily checking, NOW and Super NOW checking accounts). At December 31, 1995,
First Federal was in compliance with these reserve requirements. The balances
maintained to meet the reserve requirements imposed by the FRB may be used to
satisfy liquidity requirements that may be imposed by the OTS.
See "--Liquidity."
Savings associations are authorized to borrow from the FRB "discount
window," but FRB regulations require associations to exhaust other reasonable
alternative sources of funds, including FHLB borrowings, before borrowing from
the FRB.
Federal Home Loan First Federal System
First Federal is a member of the FHLB of Chicago, which is one of 12
regional FHLBs that administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal Housing Finance Board. All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to provide funds for residential home
financing.
As a member, First Federal is required to purchase and maintain stock in
the FHLB of Chicago. At December 31, 1995, First Federal had $484,900 in FHLB
stock, which was in compliance with this requirement.
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In past years, First Federal has received substantial dividends on its FHLB
stock. Over the past five calendar years such dividends have averaged 6.06% and
were 6.55% for calendar year 1995.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of First Federal's FHLB stock may result in a corresponding
reduction in First Federal's capital.
For the year ended December 31, 1995, dividends paid by the FHLB of Chicago
to First Federal totaled $31,408, which constitute a $3,984 increase in the
amount of dividends received in calendar year 1994. The $8,555 dividend received
for the quarter ended December 31, 1995, reflects an annualized rate of 7.00%,
or .45% above the rate for calendar 1994.
Federal and State Taxation
Savings associations such as First Federal that meet certain definitional
tests relating to the composition of assets and other conditions prescribed by
the Code, are permitted to establish reserves for bad debts and to make annual
additions thereto which may, within specified formula limits, be taken as a
deduction in computing taxable income for federal income tax purposes. The
amount of the bad debt reserve deduction for "non-qualifying loans" is computed
under the experience method. The amount of the bad debt reserve deduction for
"qualifying real property loans" (generally loans secured by improved real
estate) may be computed under either the experience method or the percentage of
taxable income method (based on an annual election).
Under the experience method, the bad debt reserve deduction is the greater
of (a) an amount determined under a formula based generally upon the bad debts
actually sustained by the savings association over a period of years or (b) an
amount necessary to increase the applicable reserve for losses on loans at the
close of the taxable year to the lower of the balance at the close of the base
year or a recalculated base year amount if the loans at the close of the taxable
year are less than loans at the close of the base year.
The percentage of specially computed taxable income that is used to compute
a savings association's bad debt reserve deduction under the percentage of
taxable income method (the "percentage bad debt deduction") is 8%. The
percentage bad debt deduction thus computed is reduced by the amount permitted
as a deduction for non-qualifying loans under the experience method. The
availability of the percentage of taxable income method permits qualifying
savings associations to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction).
If an association's specified assets (generally, loans secured by
residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
association may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period. No representation
can be made as to whether First Federal will meet the 60% test for subsequent
taxable years.
Under the percentage of taxable income method, the percentage bad debt
deduction cannot exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year or the greater of (i) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for "non-qualifying loans" equals the amount by
which 12% of the amount comprising savings accounts at year-end exceeds the sum
of surplus, undivided profits and reserves at the beginning of the year. At
December 31, 1995, the 6% and 12% limitations did not restrict the percentage
bad debt deduction available to First Federal. It is not expected that these
limitations would be a limiting factor in the foreseeable future.
In addition to the regular income tax, corporations, including savings
associations such as First Federal, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on
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alternative minimum taxable income, which is the sum of a corporation's regular
taxable income (with certain adjustments) and tax preference items, less any
available exemption. The alternative minimum tax is imposed to the extent it
exceeds the corporation's regular income tax and net operating losses can offset
no more than 90% of alternative minimum taxable income. For taxable years
beginning after 1986 and before 1996, corporations, including savings
associations such as First Federal, are also subject to an environmental tax
equal to 0.12% of the excess of alternative minimum taxable income for the
taxable year (determined without regard to net operating losses and the
deduction for the environmental tax) over $2 million.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a stockholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of December 31, 1995, First Federal's Excess for tax purposes
totaled approximately $1.9 million.
Barrington Bancorp files consolidated federal income tax returns using the
accrual method of accounting with First Federal. Savings associations, such as
First Federal, that file federal income tax returns as part of a consolidated
group are required by applicable Treasury regulations to reduce their taxable
income for purposes of computing the percentage bad debt deduction for losses
attributable to activities of the non-savings association members of the
consolidated group that are functionally related to the activities of the
savings association member.
First Federal and its consolidated subsidiaries have been audited by the
IRS with respect to consolidated federal income tax returns through December 31,
1983. With respect to years examined by the IRS, either all deficiencies have
been satisfied or sufficient reserves have been established to satisfy asserted
deficiencies. In the opinion of management, any examination of still open
returns (including returns of subsidiaries and predecessors of, or entities
merged into, First Federal) would not result in a deficiency which could have a
material adverse effect on the financial condition of First Federal and its
consolidated subsidiaries.
Illinois Taxation. First Federal files Illinois income tax returns. For
Illinois income tax purposes, First Federal is taxed at an effective rate equal
to 7.18% of Illinois taxable income. For these purposes, "Illinois Taxable
Income" generally means federal taxable income, subject to certain adjustments
(including the addition of interest income on state and municipal obligations
and the exclusion of interest income on United States Treasury obligations). The
exclusion of income on United States Treasury obligations has not had the effect
of eliminating Illinois taxable income for First Federal.
Delaware Taxation. As a Delaware holding company, Barrington Bancorp is
exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. Barrington Bancorp
is also subject to an annual franchise tax imposed by the State of Delaware.
Executive Officers of Barrington Bancorp
The executive officers of Barrington Bancorp, each of whom is currently an
executive officer of First Federal, are identified below. The executive officers
of Barrington Bancorp are elected annually by the Barrington Bancorp Board.
<TABLE>
<CAPTION>
Name Age/1/ Position With Company
- ------------------------- -------- -------------------------------------
<S> <C> <C>
Hugh H. Palmer 51 President and Chief Executive Officer
Peter Fidler 47 Vice President and Treasurer
Georgeanna Smalarz 43 Vice President and Secretary
</TABLE>
- ---------------
/1/ As of December 31, 1995.
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Executive Officers of Barrington Bancorp who are not Directors
Peter S. Fidler. Mr. Fidler, age 47, joined First Federal as the
Comptroller in 1972. Currently serving as Vice President and Treasurer, Mr.
Fidler is responsible for the establishment and supervision of First Federal's
accounting activities.
Georgeanna Smalarz. Ms. Smalarz, age 43, has held various positions since
joining First Federal in 1982, including Savings Counselor and Assistant Vice
President. In her current capacity as Vice President and Secretary, Ms. Smalarz
manages First Federal's loan and savings departments and serves as First
Federal's compliance officer.
Properties
First Federal owns its office building including parking facilities located
at 120 S. Hough Street, Barrington, Illinois. At December 31, 1995, the net book
value of First Federal's investment in its premises totalled $881,647.
First Federal completed upgrading its facilities in 1995. Total costs were
approximately $500,000.
First Federal's depositor and borrower customer files are maintained by
an independent data processing company. The net book value of the data
processing and computer equipment utilized by First Federal at December 31,
1995 was approximately $63,000.
Legal Proceedings
From time to time, Barrington Bancorp and First Federal are involved as
plaintiff or defendant in various legal proceedings arising in the normal course
of their businesses. While the ultimate outcome of these various legal
proceedings cannot be predicted with certainty, it is the opinion of management
that the resolution of these legal actions should not have a material effect on
First Federal or Barrington Bancorp's financial position or results of
operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Barrington Bancorp was formed in December 1993 and is the holding company
and owner of 100% of the common stock of First Federal, a federally-chartered
stock savings institution. In this discussion and analysis, reference to the
operations and financial condition of Barrington Bancorp includes the operations
and financial condition of First Federal.
On May 10, 1994, First Federal completed its conversion from a mutual to a
stock savings institution. On that date, Barrington Bancorp issued and sold
661,250 shares of Common Stock at $10.00 per share to complete the conversion of
First Federal from mutual to stock form ("Conversion"). Net proceeds to
Barrington Bancorp were approximately $6.1 million after deducting conversion
expenses of approximately $533,000. Barrington Bancorp used approximately $3.6
million of the net proceeds to acquire all of the issued and outstanding stock
of First Federal.
Barrington Bancorp's business currently consists of the business of First
Federal. As a consumer-oriented financial institution, Barrington Bancorp offers
a range of retail banking services to residents of its primary market area.
Barrington Bancorp is principally engaged in the business of attracting deposits
from the general public and investing those deposits, along with funds generated
from operations and borrowings, by originating residential loans in its primary
market area. Barrington Bancorp also originates construction and land loans, and
invests in short-term liquid securities, certificates of deposit, and mortgage-
related securities.
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General
Barrington Bancorp's results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
its loan, investment and mortgage-backed security portfolios and its cost of
funds, consisting of interest paid on its deposits and to a much lesser degree
borrowings from the FHLB of Chicago. Barrington Bancorp's noninterest expenses
principally consist of employee compensation, occupancy expenses, federal
insurance premiums, data processing, professional fees and other general and
administrative expenses. Barrington Bancorp's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
Barrington Bancorp attracts all of its deposits from its sole office in
Barrington, from depositors primarily residing in the greater Barrington
community. The Village of Barrington is the commercial center of Barrington
Bancorp's market area, with the majority of retail and service-related
businesses being located within its boundaries. The surrounding communities in
Barrington Bancorp's market area consist of affluent bedroom communities in a
suburban/country environment with little commercial development. The
unemployment rate for Barrington Bancorp's primary market area is approximately
4.0% compared to 5.1% for the state of Illinois and 5.5% for the United States
in general. The major employers in Barrington Bancorp's primary market area are
concentrated in the financial and insurance industries as well as the service-
related industries. The population in Barrington's primary market area has
remained steady over the past three years at approximately 40,000. As a result,
in part of Barrington Bancorp's market area's favorable population, and
employment demographics, Barrington Bancorp has been able to maintain its
positive operating results.
Barrington Bancorp's basic objective is to be a community-oriented
financial institution serving customers in its primary market area. The
Barrington Bancorp Board has sought to accomplish this objective through the
adoption of a strategy designed to maintain a strong capital position and high
asset quality, while minimizing, to the extent practicable, Barrington Bancorp's
vulnerability to changes in interest rates. This strategy has been effected by
(i) emphasizing adjustable-rate one- to four-family residential mortgage
lending, (ii) limiting its investment in other types of loans which could
increase cost or credit risk, (iii) maintaining a substantial portfolio of
short-or medium-term investment securities and (iv) controlling operating
expenses.
Financial Condition
Total assets of Barrington Bancorp increased to $70.2 million at December
31, 1995 from $68.0 million at December 31, 1994. Cash and interest-bearing
deposits increased $2.6 million from $2.8 million at December 31, 1994, to $5.4
million at December 31, 1995. Borrowings from the FHLB of Chicago decreased from
$3.0 million at December 31, 1994 to $1.0 million at December 31, 1995.
Investment securities held to maturity decreased from $7.1 million at
December 31, 1994 to $5.0 million at December 31, 1995 as a result of $2.0
million of investment securities held to maturity maturing in 1995. Securities
available for sale remained relatively unchanged at $2.0 million at December 31,
1995 and 1994.
Mortgage-backed securities held to maturity decreased $1.2 million from
$4.2 million at December 31, 1994, to $3.0 million at December 31, 1995. The
decrease was a result of $1.2 million of principal repayments during the year
ended December 31, 1995.
Loans receivable were $50.3 million at December 31, 1994, and $52.7 million
at December 31, 1995, an increase of $2.4 million, or 4.8%. Loans originated
during the year were $21.6 million. Principal repayments were $19.2 million
during that period.
Savings deposits increased $3.8 million, or 7.1%, from $53.5 million at
December 31, 1994, to $57.3 million at December 31, 1995. The increase in
deposits was primarily attributable to expanded marketing efforts by First
Federal.
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Total stockholder's equity increased $439,000 from $11.1 million at
December 31, 1994 to $11.6 million at December 31, 1995. This increase was
primarily a result of net earnings of $364,000, credits from employee stock
plans and a reduction in unrealized loss on securities available for sale of
$32,000, which was partially offset by dividends paid on common stock of
$185,000.
Results of Operations
Barrington Bancorp's results of operations depend primarily on the level of
its net interest income and its control of noninterest expenses. Net interest
income depends upon the volume of interest-earning assets and interest-bearing
liabilities and interest rates earned or paid on them.
Comparison of Operating Results for the Years Ended December 31, 1995 and
December 31, 1994
General. Net earnings for the year ended December 31, 1995 totaled
$364,000, a decrease of $67,000, or 15.5%, from the year ended December 31,
1994. The primary factors for this decrease were an increase in noninterest
expense of $268,000 and a decrease in noninterest income of $82,000, which was
partially offset by an increase in net increase income before provision for loan
losses of $265,000.
Interest Income. Interest income for the year ended December 31, 1995
increased $921,000 from the year ended December 31, 1994. An increase of
$654,000 in interest income resulted from higher average yield of total interest
earning assets which increased to 7.44% for the year ended December 31, 1995
from 6.36% for the prior year. An increase of $267,000 in interest income
resulted from higher average interest earning assets during 1995 than 1994.
Interest on loans receivable increased $864,000 during the year ended
December 31, 1995 to $4.1 million from $3.2 million for the year ended December
31, 1994. The increase in interest on loans receivable was attributable to an
increase in the average yield on the loan portfolio from 6.87% for 1994 to 7.98%
for 1995, and, to a lesser degree, higher average balances of loans receivable
during the year ended December 31, 1995, when compared to the year ended
December 31, 1994. Interest income on mortgage-backed securities increased
$43,000 from $187,000 for the year ended December 31, 1994 to $230,000 for the
year ended December 31, 1995. This increase was due primarily to an increase in
average yield from 5.28% in 1994 to 6.17% in 1995.
Interest income on investment securities held to maturity and securities
available for sale decreased $14,000 to $382,000 when comparing the years ended
December 31, 1995 and 1994. This decrease primarily was a result of lower
average balances of investment securities in 1995. Earnings on interest bearing
deposits were $148,000 for the year ended December 31, 1995 which was $24,000,
or 19.2% more than for the comparable period in 1994. This increase was
primarily attributable to average yields increasing from 1994 to 1995.
Interest Expense. Interest expense is affected by the composition of
Barrington Bancorp's deposit accounts, the level of market interest rates and,
to a lesser degree, the rates charged for borrowings. Interest expense increased
$656,000, or 31.4% to $2.7 million for the year ended December 31, 1995,
compared to $2.1 million for the year ended December 31, 1994. This increase was
due primarily to an increase in the average rates paid on deposits and
borrowings from 3.72% in 1994 to 4.86% in 1995.
Net Interest Income. Net interest income before provision for loan losses
increased $265,000 to $2.1 million for the year ended December 31, 1995, when
compared to 1994. Of this increase, $173,000 is a result of the average volume
of interest paying liabilities increasing only $345,000 from $56.1 million for
the year ended December 31, 1994, to $56.4 million for the year ended December
31, 1995, while the average volume of interest earnings assets increased $3.3
million to $65.5 million for the year ended December 31, 1995. Also, an overall
higher level of interest rates in 1995 compared to 1994 resulted in an
additional $92,000 increase in net interest income. Spread, or the difference
between the yield on interest earning assets and the cost of interest paying
liabilities decreased from 2.64% for the year ended December 31, 1994, to 2.58%
for the year ended December 31, 1995. The interest rate spread at December 31,
1995 and 1994 was 2.47%.
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Provision for Loan Losses. Barrington Bancorp's provision for losses on
loans during the year ended December 31, 1994, was $10,000 versus a provision of
$6,000 during the comparable period in 1995. The 1994 provision for loan losses
was based on a review of First Federal's allowance for loan losses as well as
management's concerns at that time regarding uncertainties in the national and
local economies and real estate markets. The 1995 provision for losses on loans
of $6,000, which was based on quarterly evaluations, was a result of an increase
of $2.4 million in loans receivable from $50.3 million at December 31, 1994, to
$52.7 million at December 31, 1995, offset by a decrease in nonperforming loans
and an apparent stabilization of national and local economies and real estate
markets. Although Barrington Bancorp maintains its allowance for loan losses at
a level which it considers to be adequate, future additions to the allowance for
loan losses are dependent upon the performance of Barrington Bancorp's loan
portfolio, the economy, changes in real estate values and interest rates and the
views of regulatory authorities regarding adequate reserve levels and inflation.
Barrington Bancorp did not charge off any loans during the periods ending
December 31, 1995 and 1994. Barrington Bancorp charges off a loan when it
determines that all, or a portion of the loan, is considered to be
uncollectible.
Noninterest Income. Noninterest income decreased $82,000 from $123,000 for
the year ended December 31, 1994, to $41,000 for the year ended December 31,
1995. This decrease is attributable to a substantially lower level of fees
earned from the sale of annuity products in 1995 compared to 1994. Barrington
Bancorp began offering and marketing new annuity products during the year ended
December 31, 1994 and had anticipated the fees earned from the sale of these
products would not continue at the high level experienced in 1994.
Noninterest Expense. Noninterest expense increased $268,000 to $1.6 million
for the year ended December 31, 1995, compared to $1.3 million for the
comparable period in 1994. Compensation and employee benefit costs increased
$116,000, or 15.1% to $886,000 for the year ended December 31, 1995 as compared
to $770,000 for the year ended December 31, 1994. This increase is primarily a
result of the expense of the ESOP and the First Federal RRP. Occupancy and
equipment expense increased $26,000 when comparing the years ended December 31,
1995 and 1994. The increase was a result of the investment of $500,000 to
upgrade First Federal's office facility. Professional fees were $175,000 and
$84,000 for the years ended December 31, 1995 and 1994, respectively, an
increase of $91,000, or 108.3%. This increase is related primarily to
professional fees associated with the proposed acquisition of Barrington
Bancorp.
Income Tax Expense. Federal and state income tax expense decreased $14,000
to $208,000 for the year ended December 31, 1995, compared to December 31, 1994,
due primarily to a decrease in earnings before taxes of $81,000 to $572,000 for
the year ended December 31, 1995. The effective income tax rate for the year
ended December 31, 1995 was 36.3% compared to 34.0% for the year ended December
31, 1994.
Comparison of Operating Results for the Years Ended December 31, 1994 and
December 31, 1993
General. Net earnings for the year ended December 31, 1994 totaled
$431,000, an increase of $149,000, or 52.8%, from the year ended December 31,
1993. The primary factors were an increase in net interest income before
provision for loan losses of $121,000, a decrease in the provision for loan
losses of $162,000 and an increase in noninterest income of $93,000. These
increases in income were partially offset by an increase in noninterest expenses
of $196,000 and an increase in income tax expense of $56,000.
Interest Income. Interest income for the year ended December 31, 1994
decreased $89,000 from the year ended December 31, 1993. A decrease of $34,000
in interest income resulted from a reduction in average yield of total interest
earnings assets which decreased to 6.36% from 6.41%. A decrease of $55,000 in
interest income resulted from lower average interest earnings assets during 1994
versus 1993.
Interest on loans receivable decreased $68,000 during the year ended
December 31, 1994 to $3.2 million from $3.3 million for the year ended December
31, 1993. The decrease in interest on loans receivable was attributable to a
decrease in the average yield on the loan portfolio, and to a lesser degree,
lower average balances of loans receivable during the year ended December 31,
1994, when compared to the year ended December 31, 1993. Interest income on
mortgage-backed securities increased $14,000 from $173,000 for the year ended
December 31,
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1993 to $187,000 for the year ended December 31, 1994. This increase was due
primarily to an increase in average yield from 4.81% in 1993 to 5.28% in 1994.
Interest income on investment securities and securities available for sale
decreased $79,000, or 16.6%, when comparing the years ended December 31, 1994
and 1993. The average balance of investment securities decreased from $9.4
million for the year ended December 31, 1993 to $8.9 million for the year ended
December 31, 1994, and the average yield decreased from 5.05% to 4.47% for the
comparable periods. Earnings on interest bearing deposits were $124,000 for the
year ended December 31, 1994 which was $48,000, or 63.2% more than for the
comparable period in 1993. This increase was primarily attributable to average
yields increasing from 3.19% in 1993 to 5.01% in 1994.
Interest Expense. Interest expense is affected by the composition of
Barrington Bancorp's deposit accounts, the level of market interest rates and,
to a much lesser degree, the rates charged for borrowings. Interest expense
decreased $210,000, or 9.1% to $2.1 million for the year ended December 31,
1994, compared to $2.3 million for the year ended December 31, 1993. This
decrease was due primarily to a decline in the average balances of deposits from
$59.0 million in 1993 to $54.9 million in 1994, which resulted from customers
using funds on deposit with First Federal to purchase shares of common stock in
the initial public offering of Barrington Bancorp on May 10, 1994. To a lesser
degree, the decrease was a result of a decrease in the average rates paid on
deposits from 3.87% in 1993 to 3.72% in 1994 (although deposit rates rose
sharply in the last part of 1994). These decreases were partially offset by an
increase of $41,000 in interest expense on borrowed funds resulting from a
higher average balance of borrowings during the year ended December 31, 1994
compared to the comparable period in 1993.
Net Interest Income. Net interest income increased $121,000 to $1.9 million
for the year ended December 31, 1994, when compared to 1993. Of this increase,
$106,000 is a result of the average volume of interest paying liabilities
decreasing $3.3 million from $59.4 million for the year ended December 31, 1993,
to $56.1 million for the year ended December 31, 1994. This decrease in the
average volume of interest paying liabilities was only partially offset by a
decrease in the average volume of interest earning assets of $927,000 to $62.2
million for the year ended December 31, 1994, as compared to $63.1 million for
the year ended December 31, 1993. Spread, or the difference between the yield on
interest earning assets and the cost of interest paying liabilities increased
from 2.54% for the year ended December 31, 1993, to 2.64% for the year ended
December 31, 1994, resulting in an increase in net interest income of $15,000
when comparing the years ended December 31, 1993 and 1994.
The interest rate spread at December 31, 1994 was 2.47% compared to 2.71%
at December 31, 1993. This decrease in spread is a result of rising interest
rates during the later half of 1994.
Provision for Loan Losses. Barrington Bancorp's provision for losses on
loans during the year ended December 31, 1993, was $172,000 versus a provision
of $10,000 during the comparable period in 1994. The 1993 provision for loan
losses was based on a review of First Federal's allowance for loan losses as
well as management's concerns at that time regarding uncertainties in the
national and local economies and real estate markets. The 1994 provision for
losses on loans of $10,000, which was based on quarterly evaluations, was a
result of an increase of $5.1 million in loans receivable from $45.2 million at
December 31, 1993, to $50.3 million at December 31, 1994, offset by a decrease
in nonperforming loans and an apparent stabilization of national and local
economies and real estate markets. Although Barrington Bancorp maintains its
allowance for loan losses at a level which it considers to be adequate, future
additions to the allowance for loan losses are dependent upon the performance of
Barrington Bancorp's loan portfolio, the economy, changes in real estate values
and interest rates and the views of regulatory authorities regarding adequate
reserve levels and inflation.
Barrington Bancorp did not charge off any loans during the periods ending
December 31, 1994 and 1993. Barrington Bancorp charges off a loan when it
determines that all, or a portion of the loan, is considered to be
uncollectible.
Noninterest Income. Noninterest income increased $93,000 from $30,000 for
the year ended December 31, 1993, to $123,000 for the year ended December 31,
1994. This increase is attributable to Barrington Bancorp offering and marketing
new annuity products during the year ended December 31, 1994. Barrington Bancorp
had
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no annuity commissions during the year ended December 31, 1993, compared to
$96,000 in 1994 and does not anticipate the fees earned from the sale of these
products will continue at the high level experienced in 1994.
Noninterest Expense. Noninterest expense increased $196,000 to $1.3 million
for the year ended December 31, 1994, compared to $1.1 million for the
comparable period in 1993. Compensation and employee benefit costs increased
$107,000, or 16.1% to $770,000 for the year ended December 31, 1994 as compared
to $663,000 for the year ended December 31, 1993. This increase is primarily a
result of the expense of the ESOP and the First Federal RRP. Federal deposit
insurance premiums increased $31,000, or 32.6%, when comparing the years ended
December 31, 1994 and 1993. The increase was a result of a final distribution of
a Secondary Reserve balance due to First Federal by the FDIC. The amount of the
distribution was $42,000 and directly reduced Federal deposit insurance premiums
for the year ended December 1993. Professional fees were $84,000 and $48,000 for
the years ended December 31, 1994 and 1993, respectively, an increase of
$36,000, or 75.0%. This increase is related to professional fees associated with
operations of a publicly owned company. Other operating expenses increased
$25,000 to $99,000 for the year ended December 31, 1994, primarily as a result
of increased marketing expenses.
Management believes noninterest expense may increase in the future as a
result of the investment of approximately $450,000 to upgrade Barrington
Bancorp's office facility and the planned modest increase in loan and deposit
marketing activities.
Income Tax Expense. Federal and state income tax expense increased $56,000
or 33.9%, to $221,000 for the year ended December 31, 1994, compared to December
31, 1993, due primarily to an increase in earnings before taxes of $180,000 to
$652,000 for the year ended December 31, 1994. The effective income tax rate for
the year ended December 31, 1994 was 34.0% compared to 35.0% for the year ended
December 31, 1993.
82
<PAGE>
Average Balances, Interest Rates and Yields. The following table presents
the average yield on interest earning assets and the average cost on average
interest bearing liabilities. No tax equivalent adjustments were made. All
average balances are monthly average balances. The interest earned includes fees
which are considered adjustments to yield. Non-performing loans have been
included in the average balances.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
1993 1994 1995
----------------------------- ---------------------------- ---------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
--------- -------- -------- -------- -------- -------- -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net(4)................. $47,193 $3,287 6.97% $46,841 $3,219 6.87% $51,189 $4,083 7.98%
Mortgage-backed securities............... 3,596 173 4.81 3,543 187 5.28 3,726 230 6.17
Investment securities(1)................. 9,415 475 5.05 8,854 396 4.47 7,984 382 4.78
Interest bearing deposits................ 2,381 76 3.19 2,476 124 5.01 2,120 148 6.98
FHLB stock............................... 521 31 5.95 465 27 5.81 475 31 6.55
------- ------ ---- ------- ------ ---- ------- ------
Total interest-earning assets............ 63,106 4,042 6.41 62,179 3,953 6.36 65,492 4,874 7.44
Non interest-earning assets.............. 2,094 2,886 2,852
------- ------- -------
Total assets............................. 65,200 65,065 68,344
======= ======= =======
Interest-bearing liabilities:
Passbook accounts........................ 10,233 296 2.89 10,862 301 2.77 8,684 280 3.22
NOW and Money Market accounts............ 10,276 244 2.37 10,354 233 2.29 9,031 266 2.95
Certificate accounts..................... 38,441 1,743 4.53 33,673 1,498 4.45 36,635 2,065 5.64
Borrowed funds........................... 462 15 3.25 1,192 56 4.70 2,076 133 6.40
------- ------ ---- ------- ------ ---- ------- ------
Total interest-bearing liabilities...... 59,412 2,298 3.87 56,081 2,088 3.72 56,426 2,744 4.86
Noninterest-bearing liabilities.......... 501 553 543
------- ------- -------
Total liabilities........................ 59,913 56,634 56,969
Stockholders' equity..................... 5,286 8,431 11,375
------- ------- -------
Total liabilities and stockholders'...... 65,200 65,065 68,344
equity.................................. ======= ======= =======
Net interest income/interest rate........ 1,744 2.54% 1,865 2.64% 2,130 2.58%
spread(2)............................... ====== ==== ====== ==== ====== ====
Net earning assets/net yield on average
interest-earning- assets(3)............. 3,694 2.76% 6,098 3.00% 9,066 3.25%
======= ==== ======= ==== ======= ====
Ratio of interest-earning assets
to interest bearing liabilities......... 106.22% 110.87% 116.07%
======= ======= =======
</TABLE>
(1) Includes securities available for sale.
(2) Calculated net of deferred loan fees, loans in process and the allowance
for loan losses.
(3) Represents net interest income divided by average interest earning assets.
(4) Includes loans held for sale.
83
<PAGE>
The following table sets forth the weighted average yields on Barrington
Bancorp's interest-earning assets, the weighted average interest rates on
interest-bearing liabilities and the interest rate spread between the weighted
average yields and rates at the dates indicated. Non-accruing loans have been
included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
At December 31,
------------------------------
1993 1994 1995
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Weighted average yield on:
Loans receivable.......................... 6.42% 7.28% 7.85%
Loans held for sale....................... 6.74 --- ---
Mortgage-backed securities
held to maturity......................... 5.54 5.62 7.57
Investment securities held
to maturity.............................. 5.57 5.65 6.37
Securities available for sale............. 6.45 5.87 5.86
Interest-bearing deposits................. 2.79 5.92 4.86
FHLB stock................................ 4.41 6.55 7.00
---- ---- ----
Combined weighted average
yield on interest-earning
assets................................. 6.22 6.92 7.48
---- ---- ----
Weighted average rate paid on:
Passbook accounts......................... 2.55 3.10 3.10
NOW accounts.............................. 1.63 2.01 1.91
Money market accounts..................... 2.48 3.82 3.93
Certificate accounts...................... 4.23 5.01 5.84
Borrowed funds............................ 3.24 6.35 5.31
---- ---- ----
Combined weighted average rate paid on
interest-bearing liabilities........... 3.51 4.45 5.01
---- ---- ----
Spread........................................... 2.71% 2.47% 2.47%
==== ==== ====
</TABLE>
84
<PAGE>
The following schedule presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the increase related to
changes in outstanding balances and that due to changes in interest rates. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable of (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume have been allocated proportionately to the
change due to volume and the change due to rate.
<TABLE>
<CAPTION>
1993 vs. 1994 1994 vs. 1995
-------------------------------------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
--------------- Incease -------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------- ------ ---------- ------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net /(1)/......... $ (25) $(43) $ (68) $317 $547 $ 864
Mortgage-backed securities.......... (3) 17 14 10 33 43
Investment securities.............. (27) (52) (79) (40) 26 (14)
Interest-bearing deposits.......... 3 45 48 (20) 44 24
FHLB stock......................... (3) (1) (4) --- 4 4
----- ---- ----- ---- ---- -----
Total interest-earning assets.... $ (55) $(34) $ (89) $267 $654 $ 921
===== ==== ===== ==== ==== =====
Interest-bearing liabilities:
Passbook accounts.................. 18 (13) 5 (66) 45 (21)
NOW and money market accounts...... 2 (13) (11) (32) 65 33
Certificate accounts............... (213) (32) (245) 140 427 567
Borrowed funds..................... $ 32 $ 9 $ 41 $ 52 $ 25 $ 77
----- ---- ----- ---- ---- -----
Total interest-bearing
liabilities..................... $(161) $(49) $(210) $ 94 $562 $ 656
----- ---- ----- ---- ---- -----
Net change in net interest income... $ 106 $ 15 $ 121 $173 $ 92 $ 265
===== ==== ===== ==== ==== =====
</TABLE>
(1) Calculated net of deferred loan fees, loans in process and allowance for
loan losses.
85
<PAGE>
Asset/Liability Management
In an attempt to manage its exposure to changes in interest rates,
management closely monitors Barrington Bancorp's interest rate risk. Management
has an asset/liability committee consisting of the President and three Directors
of Barrington Bancorp which meets quarterly and reviews Barrington Bancorp's
interest rate risk position and makes recommendations for adjusting such
position. In addition, the Barrington Bancorp Board reviews on a quarterly basis
Barrington Bancorp's asset/liability position, including simulations of the
effect on Barrington Bancorp's capital and income of various interest rate
scenarios.
In recent years Barrington Bancorp has attempted to significantly reduce
its interest rate risk and has taken a number of steps to restructure its assets
and liabilities. First, Barrington Bancorp has focused its lending program on
the origination of ARMs. At December 31, 1995, approximately $47.9 million, or
86.7% of Barrington Bancorp's loan portfolio consisted of ARMs. Second, to
supplement ARM production, Barrington Bancorp invests in mortgage-backed
securities carrying adjustable interest rates. Third, Barrington Bancorp's
investment portfolio consists solely of short- and medium-term securities.
The table below sets forth, as of December 31, 1995, the estimated changes
in the market value of Barrington Bancorp's portfolio equity ("MVPE") which
would result from the designated instantaneous changes in the U.S. Treasury
yield curve. The table uses assumptions of the OTS as of December 31, 1995
regarding interest rates, loan prepayment rates, deposit decay rates and the
value of certain assets under the various interest rate scenarios. It is assumed
that delinquency rates will not change as a result of interest rate changes. In
the event that interest rates do change in the designated amounts, there can be
no assurance that Barrington Bancorp's assets and liabilities would perform as
set forth in this analysis. In addition, a change in Treasury rates in the
designated amounts accompanied by a change in the shape of the Treasury yield
curve would cause significantly different changes to the MVPE than indicated
below.
<TABLE>
<CAPTION>
Estimated Value
Change As A
Interest Rates Estimated Percentage Amount of
(basis points) Value of Assets Change Percent
- ---------------- --------- ---------------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
+400 $ 8,487 12.10% $(1,527) (15.25)%
+300 9,183 13.09 (831) (8.30)
+200 9,697 13.82 (318) (3.18)
+100 9,977 14.22 (37) (.03)
0 10,014 14.27 --- ---
-100 9,977 14.22 (37) (.03)
-200 9,994 14.24 (20) (.02)
-300 10,118 14.42 104 1.04
-400 10,313 14.70 298 2.98
</TABLE>
86
<PAGE>
Liquidity and Capital Resources
Barrington Bancorp's primary sources of funds are deposits, proceeds from
principal and interest payments on loans and mortgage-backed and investment
securities and, to a much lesser extent, borrowings. While maturities and
scheduled amortization of loans and mortgage-backed securities are a predictable
source of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition.
The primary investing activities of Barrington Bancorp are the origination
of loans, the purchase of investment securities and securities available for
sale, and the purchase of mortgage-backed securities. During the years ended
December 31, 1993, 1994 and 1995, Barrington Bancorp originated loans of $10.6
million, $19.9 million and $21.6 million, respectively. Loan volume increased in
1995 from 1994 as a result of an increase in ARM originations resulting from
consumer preference for ARM loans in an increasing interest rate environment.
During the years ended December 31, 1993 and 1994, Barrington Bancorp purchased
investment securities and securities available for sale which totalled $7.3
million and $2.0 million, respectively. No purchases of investment securities
were made during 1995. Other investing activities included the purchase of $2.1
million of mortgage-backed securities during the year ended December 31, 1994.
There were no purchases of mortgage-backed securities held to maturity during
the years ended December 31, 1993 and 1995.
These activities were funded primarily by principal repayment on loans, the
maturity or sale of investment securities and securities available for sale and
borrowings. During the years ended December 31, 1993, 1994 and 1995, principal
repayments on loans were $14.6 million, $14.6 million and $18.7 million,
respectively, and the maturity or sale of investment securities and securities
available for sale totalled $6.0 million, $4.0 million and $2.0 million,
respectively. Borrowings decreased from $3.0 million at December 31, 1994, to
$1.0 million at December 31, 1995.
In the year ended December 31, 1993, the major use of cash from financing
activities was a decrease in savings deposits of $6.4 million. In the year ended
December 31, 1994, the major source of cash from financing activities was the
net proceeds from the sale of common stock of $5.6 million. In the year ended
December 31, 1995, the major source of cash from financing activities was an
increase in savings deposits of $3.8 million.
Barrington Bancorp is required to maintain minimum levels of liquid assets
as defined by OTS regulations. This requirement, which may be varied at the
direction of the OTS depending upon economic conditions, and deposit flows, is
based upon a percentage of deposits and short-term borrowings. The required
ratio at December 31, 1993, 1994 and 1995 was 5.0%. Barrington Bancorp's
regulatory liquidity ratios were 24.1%, 20.9% and 21.1% at December 31, 1993,
1994 and 1995, respectively.
Barrington Bancorp's most liquid assets are cash and interest-bearing
deposits. The levels of these assets are dependent on Barrington Bancorp's
operating, financing, lending, and investing activities during any given period.
At December 31, 1993, 1994 and 1995, these liquid assets totalled $1.8 million,
$2.8 million and $5.4 million, respectively.
Liquidity management for Barrington Bancorp is both a daily and long-term
function of Barrington Bancorp's management strategy. Excess funds are generally
invested in short-term investments such as daily investments deposits at the
FHLB of Chicago. In the event Barrington Bancorp should require funds beyond its
ability to generate them internally, additional source of funds are available
through the use of FHLB of Chicago advances, and securities available for sale.
At December 31, 1995, Barrington Bancorp had outstanding advances of $1.0
million, and securities available for sale of $2.0 million.
At December 31, 1995, Barrington Bancorp had outstanding commitments to
originate loans of $1.0 million. These loans are to be secured by properties
located in or contiguous to its primary market area. Barrington Bancorp
anticipates that it will have sufficient funds available to meet its current
loan commitments. Certificates of deposit which are scheduled to mature in one
year or less from December 31, 1995 totalled $28.5 million. Management believes
that a significant portion of such deposits will remain in Barrington Bancorp.
87
<PAGE>
At December 31, 1995, Barrington Bancorp exceeded all of its capital
requirements on a fully phased-in-basis.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP which generally measures financial
position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of
Barrington Bancorp's operations. Unlike most industrial companies, nearly all
the assets and liabilities of Barrington Bancorp are monetary in nature. As a
result, interest rates have a greater impact on Barrington Bancorp's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the price of
goods and services.
Significant Accounting Policies
The significant accounting policies used by Barrington Bancorp are
described in "Barrington Bancorp and Subsidiary Consolidated Financial
Statements--Notes to Consolidated Financial Statements." The following includes
information about the initial selection of and changes in accounting policies
and their application.
In December 1991, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 107 (Statement 107), "Disclosures about
Fair Value of Financial Instruments". Statement 107 is effective for entities
with less than $150 million in total assets for financial statements issued for
fiscal years ending after December 15, 1995. Statement 107 extends existing fair
value disclosure practices for some financial instruments by requiring all
entities to disclose fair value of financial instruments, both assets and
liabilities recognized and not recognized in the statement of financial
position, for which it is practicable to estimate fair value. Barrington Bancorp
adopted the provisions of Statement 107 for the year ending December 31, 1995.
In June 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 114 (Statement 114), "Accounting by Creditors
for Impairment of a Loan." Statement 114 is effective for financial statements
for fiscal years beginning after December 15, 1994. Statement 114 requires that
impaired loans be measured based on the present value of expected future cash
flows or at the loans observable market price or the fair value of the
collateral if the loan is collateral dependent. Statement 114 also narrows the
application of the concept of in-substance foreclosure to situations where the
creditor has received physical possession of the debtor's collateral regardless
of whether formal foreclosure proceedings have taken place. Barrington Bancorp
adopted the provisions of Statement 114 effective January 1, 1995. The effect of
adopting Statement 114 had no effect on Barrington Bancorp's consolidated
financial statements.
In October 1994, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 118 (Statement 118), "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures".
Statement 118 amends Statement 114 and is effective for financial statements for
fiscal years beginning after December 15, 1994. Statement 118 eliminates the
income recognition provisions that had been included in Statement 114. Creditors
are permitted to use existing methods for recognizing interest income on
impaired loans. Statement 118 acknowledges that certain existing methods can
result in the recorded investment in an impaired loan being less than the
present value of expected future cash flows. These methods include cost
recovery, cash basis or some combination. Also, creditors are not precluded from
using either of the two methods that had been described in Statement 114.
Because there is no specified accounting for interest income on impaired
loans, Statement 118 requires that an entity disclose its policy for recognizing
interest income on impaired loans, including how cash receipts are recorded.
Additionally, Statement 118 revises and clarifies certain disclosures of
Statement 114 and requires disclosure of additional items for each period for
which results of operation are presented. Barrington Bancorp adopted the
provisions of Statement 118 effective January 1, 1995. The effect of adopting
Statement 118 had no effect on Barrington Bancorp's consolidated financial
statements.
88
<PAGE>
Statement of Position 94-6 (SOP 94-6), "Disclosure of Certain Significant
Risks and Uncertainties." SOP 94-6 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 the
entities operations, (b) the necessary use of estimates in the preparation of
financial statements, and (c) significant concentrations in certain aspects of
the entities operations. SOP 94-6 is effective for financial statements issued
for fiscal years ending after December 15, 1995. Barrington Bancorp adopted the
provisions of SOP 94-6 for the year ended December 31, 1995.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121 (Statement 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
Statement 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Statement 121 is effective for financial statements for
fiscal years beginning after December 15, 1995. The adoption of Statement 121 is
not expected to have a significant impact on the financial position or results
of operations of Barrington Bancorp.
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 122 (Statement 122), "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65". Statement 122 requires
that a mortgage banking enterprise recognize as separate assets the right to
service mortgage loans for others, however those servicing rights are acquired.
Statement 122 applies prospectively in fiscal years beginning after December 15,
1995 to transactions in which a financial institution sells or securitizes
mortgage loans with servicing rights retained and to impairment evaluations of
all amounts capitalized as mortgage servicing rights, including those purchased
before the adoption of Statement 122. The adoption of Statement 122 is not
expected to have a significant impact on Barrington Bancorp's financial position
or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123 (Statement 123), "Accounting for Stock
Based Compensation". Statement 123 establishes financial accounting and
reporting standards for stock based employee compensation plans. Those plans
include all arrangements by which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. Examples are
stock purchase plans, stock options, restricted stock, and stock appreciation
rights. Statement 123 defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all their employee stock compensation
plans. Statement 123 allows companies to retain the accounting currently
prescribed by APB Opinion No. 25 with footnote disclosure of the impact of
Statement 123 had it been adopted.
The accounting requirements of Statement 123 are effective for transactions
entered into in fiscal years that begin after December 15, 1995. As Barrington
Bancorp plans to retain the accounting for stock based competition under APB
Opinion No. 25, the adoption of Statement 123 is not expected to have a
significant impact on Barrington Bancorp's financial position or results of
operations.
89
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
Independent Auditors' Report
The Board of Directors
Barrington Bancorp, Inc.
Barrington, Illinois:
We have audited the accompanying consolidated statements of financial
condition of Barrington Bancorp, Inc. and subsidiary as of December 31, 1995
and 1994, and the related consolidated statements of operations, 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 consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Barrington
Bancorp, Inc. and subsidiary as of 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.
As discussed in note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes," in
1993.
KMPG Peat Marwick LLP
February 2, 1996
90
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1994 and 1995
<TABLE>
<CAPTION>
==========================================================================================
Assets 1994 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 1,443,281 1,178,626
Interest-bearing deposits 1,399,444 4,197,829
- ------------------------------------------------------------------------------------------
Total cash and cash equivalents 2,842,725 5,376,455
- ------------------------------------------------------------------------------------------
Investment securities held to maturity (note 2) 7,121,874 5,024,179
Securities available for sale (note 3) 1,956,260 2,005,000
Mortgage-backed securities held to maturity (note 4) 4,191,320 2,996,938
Loans receivable, net of allowance for loan losses of
$350,000 in 1994 and $356,000 in 1995 (note 5) 50,340,093 52,724,752
Foreclosed real estate 47,009 --
Accrued interest receivable (note 6) 387,478 404,155
Stock in Federal Home Loan bank of Chicago 447,400 484,900
Office properties and equipment, net (note 7) 640,214 1,075,335
Prepaid expenses and other assets 40,884 112,758
- ------------------------------------------------------------------------------------------
Total assets 68,015,257 70,204,472
==========================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------
Liabilities:
Savings deposits (note 8) 53,475,692 57,275,901
Borrowed funds (note 9) 3,000,000 1,000,000
Accrued expenses and other liabilities 413,948 363,675
- ------------------------------------------------------------------------------------------
Total liabilities 56,889,640 58,639,576
- ------------------------------------------------------------------------------------------
Stockholders' equity (notes 11 and 12):
Preferred stock, $.01 par value,
authorized 100,000 shares; none outstanding -- --
Common stock, $01 par value, authorized
1,100,000 shares; 661,250 issued and outstanding
at December 31, 1994 and 1995 6,613 6,613
Additional paid-in capital 6,100,064 6,188,513
Retained earnings - substantially restricted 5,801,841 5,980,705
Common stock purchased by:
Recognition and Retention Plan (267,486) (211,227)
Employee Stock Ownership Plan (487,070) (403,162)
Unrealized gain (loss) on securities available for sale,
net of income taxes (28,345) 3,454
- ------------------------------------------------------------------------------------------
Total stockholders' equity 11,125,617 11,564,896
Commitments and contingencies (note 14)
- ------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 68,015,257 70,204,472
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
91
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
- - Years ended December 31, 1993, 1994, and 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1993 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans receivable $ 3,287,278 3,219,063 4,083,551
Interest-bearing deposits 75,887 124,030 147,871
Investment securities held to maturity 474,855 301,662 263,555
Securities available for sale -- 94,349 118,060
Mortgage-backed securities held to
maturity 172,894 186,994 229,999
Dividends on FHLB stock 30,657 27,424 31,408
- --------------------------------------------------------------------------------
Total interest income 4,041,571 3,953,522 4,874,444
- --------------------------------------------------------------------------------
Interest expense:
Interest on savings deposits 2,283,128 2,032,401 2,610,485
Interest on borrowed funds 14,630 55,827 133,486
- --------------------------------------------------------------------------------
Total interest expense 2,297,758 2,088,228 2,743,971
- --------------------------------------------------------------------------------
Net interest income before provision for
loan losses 1,743,813 1,865,294 2,130,473
Provision for loan losses 172,000 10,000 6,000
- --------------------------------------------------------------------------------
Net interest income after provision for loan
losses 1,571,813 1,855,294 2,124,473
Noninterest income:
Annuity commissions -- 95,892 10,941
Other noninterest income 29,782 27,516 30,408
- --------------------------------------------------------------------------------
Total noninterest income 29,782 123,408 41,349
- --------------------------------------------------------------------------------
Noninterest expense:
Compensation and employee benefits 663,353 769,564 885,653
Occupancy and equipment 194,653 185,834 211,384
Federal deposit insurance premiums 94,595 126,046 124,011
Data processing 55,409 61,928 79,806
Professional fees 47,993 83,632 175,389
Other operating expenses 73,960 99,439 117,889
- --------------------------------------------------------------------------------
Total noninterest expense 1,129,963 1,326,443 1,594,132
- --------------------------------------------------------------------------------
Earnings before income taxes and cumulative
effect of change in accounting principle 471,632 652,259 571,690
Income tax expense 165,000 221,675 207,678
- --------------------------------------------------------------------------------
Earnings before cumulative effect of change
in accounting principle 306,632 430,584 364,012
Cumulative effect of change in accounting
for income taxes 25,000 -- --
- --------------------------------------------------------------------------------
Net earnings $ 281,632 430,584 364,012
================================================================================
Earnings per share:
Primary $ N/A 0.68 0.57
Fully diluted N/A 0.68 0.57
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
92
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Years ended December 31, 1993, 1994, and 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Common Common Unrealized
stock stock gain (loss) on
Additional purchased purchased securities
Preferred Common paid-in Retained by by available
stock stock capital earnings RRP ESOP for sale, net Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ - - - 5,089,625 - - - 5,089,625
Net earnings - - - 281,632 - - - 281,632
Cumulative effect of change in
accounting for investment
securities, net of income
taxes - - - - - - 6,473 6,473
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 - - - 5,371,257 - - 6,473 5,377,730
Net earnings - - - 430,584 - - - 430,584
Net proceeds from common stock
issued in conversion, 661,250
shares - 6,613 6,073,060 - - - - 6,079,673
Additional compensation expense
based on fair value of ESOP
shares allocated - - 22,975 - - - - 22,975
Tax benefits from RRP - - 4,029 - - - - 4,029
Acquisition of common stock by
ESOP, 52,900 shares - - - - - (529,000) - (529,000)
Purchase of common stock
by RRP, 26,450 shares - - - - (306,669) - - (306,669)
Contribution to fund ESOP,
4,193 shares allocated - - - - - 41,930 - 41,930
Amortization of RRP - - - - 39,183 - - 39,183
Change in unrealized gain (loss)
on securities available for
sale, net of income taxes - - - - - - (34,818) (34,818)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 - 6,613 6,100,064 5,801,841 (267,486) (487,070) (28,345) 11,125,617
Net earnings - - - 364,012 - - - 364,012
Dividends paid - - - (185,148) - - - (185,148)
Additional compensation expense
based on fair value of ESOP
shares allocated - - 74,470 - - - - 74,470
Tax benefits from RRP - - 13,979 - - - - 13,979
Contribution to fund ESOP,
8,390 shares allocated - - - - - 83,908 - 83,908
Amortization of RRP - - - - 56,259 - - 56,259
Change in unrealized gain (loss)
on securities available for
sale, net of income taxes - - - - - - 31,799 31,799
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ - 6,613 6,188,513 5,980,705 (211,227) (403,162) 3,454 11,564,896
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
93
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1993, 1994, and 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1993 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 281,632 430,584 364,012
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Amortization of RRP -- 39,183 56,259
ESOP compensation expense -- 64,905 158,378
Depreciation 58,567 62,464 78,076
Deferred income tax expense (benefit) (40,295) 13,266 67,874
Amortization of discounts and
premiums, net 67,341 108,736 107,179
Deferred loan fees, net of
amortization 22,394 3,891 5,252
Gain on sale of foreclosed real
estate -- -- (3,206)
Provision for loan losses 172,000 10,000 6,000
Loans originated for sale, net of
deferred fees (349,219) (150,336) --
Proceeds from sale of foreclosed real
estate -- -- 50,215
Proceeds from sale of loans held for
sale -- 499,555 --
Changes in assets and liabilities:
Decrease (increase) in accrued
interest receivable 43,563 (28,952) (16,677)
Decrease (increase) in prepaid
expenses and other assets (74,538) 17,944 (71,874)
Increase (decrease) in accrued
expenses and other liabilities, net (94,393) 71,100 (120,549)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 87,052 1,142,340 680,939
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Decrease (increase) in loans receivable 4,075,236 (5,195,924) (2,395,911)
Principal repayments on mortgage-backed
securities 965,633 787,820 1,184,338
Proceeds from maturity of investment
securities 6,000,000 -- --
Proceeds from maturity of securities
available for sale -- 4,000,000 2,000,000
Purchase of investment securities (7,257,813) -- --
Purchase of securities available for sale -- (1,998,880) --
Purchase of mortgage-backed securities
held to maturity -- (2,061,593) --
Purchase of FHLB stock (8,300) -- (37,500)
Redemption of FHLB stock -- 75,900 --
Purchase of office properties and
equipment (39,862) (135,834) (513,197)
- --------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 3,734,894 (4,528,511) 237,730
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in savings deposits (6,442,588) (2,335,568) 3,800,209
Proceeds from borrowed funds 1,500,000 3,000,000 --
Repayment of borrowed funds -- (1,500,000) (2,000,000)
Net proceeds from sale of common stock,
net of ESOP -- 5,550,673 --
Purchase of common stock by RRP -- (306,669) --
Dividends paid -- -- (185,148)
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (4,942,588) 4,408,436 1,615,061
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (1,120,642) 1,022,265 2,533,730
Cash and cash equivalents at beginning of
year 2,941,102 1,820,460 2,842,725
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,820,460 2,842,725 5,376,455
- --------------------------------------------------------------------------------
</TABLE>
(Continued)
94
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1993 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 2,298,149 2,069,601 2,745,342
Income taxes 349,464 192,000 249,900
Noncash activities during the year:
Transfer of loans to foreclosed real
estate -- 47,009 --
Transfer of investment securities held
for investment to investment
securities held to maturity 7,220,058 -- --
Transfer of investment securities held
for investment to investment
securities available for sale, net of
taxes 4,009,014 -- --
Transfer of mortgage-backed securities
held for investment to mortgage-
backed securities held to maturity 2,925,885 -- --
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
95
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1993, 1994, and 1995
================================================================================
(1) General Information and Summary
of Significant Accounting Policies
Barrington Bancorp, Inc. (Company) was incorporated in December 1993 as
a holding company to purchase 100% of the common stock of First Federal
Savings Bank of Barrington (Bank). The Bank converted from a mutual to
stock form institution, and the Company completed its initial public
offering on May 10, 1994, at which time it purchased all of the
outstanding stock of the Bank.
The accounting and reporting policies of the Company and its subsidiary
conform to generally accepted accounting principles and to general
practice within the thrift industry. The following is a description of
the more significant accounting policies which the Company follows in
preparing its consolidated financial statements.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, First Federal Savings Bank of
Barrington. All significant intercompany balances and transactions have
been eliminated in consolidation.
The Company is a one thrift holding company, principally engaged in the
business of attracting deposits and investing these funds, together
with borrowings and other funds, to originate primarily one-to-four
family residential mortgage and construction loans, and purchase
investment securities. The Bank conducts its activities from one office
in Barrington, Illinois.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
these estimates.
(c) Investment Securities and Mortgage-backed Securities
Held to Maturity and Securities Available for Sale
The Company accounts for investment and mortgage-backed securities
under the provisions of the Financial Accounting Standards Board
Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (Statement 115). Statement 115 establishes the
accounting and reporting for investments in equity and debt securities
that have readily determinable fair values. Under Statement 115,
investments which the entity has the positive intent and ability to
hold to maturity are classified as held to maturity and measured at
amortized cost. Investments purchased for the purpose of being sold are
classified as trading securities and measured at fair value with any
changes in fair value included in earnings. All other investments that
are not classified as held to maturity or trading are classified as
available for sale. Investments classified as available for sale are
measured at fair value with any changes in fair value reflected as a
separate component of stockholders' equity, net of income taxes.
(Continued)
96
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
Management determines the classification of securities at the time of
purchase as either held to maturity or available for sale. Amortization
of premiums and discounts are recognized in interest income using the
effective interest method over the period to maturity. Gains and losses
on the sales of securities are determined using the specific
identification method.
(d) Loans Receivable
Loans receivable are stated at unpaid principal balances less deferred
loan fees, loans in process, and allowance for loan losses. Loan
origination fees and certain direct costs associated with loan
originations are deferred. Deferred loan fees are accreted to income
using the interest method over the period to maturity. Interest income
on loans receivable is recognized using the simple interest method on
principal amounts outstanding over the term of the loan.
The allowance for loan losses is increased by charges to operations and
decreased by charge-offs (net of recoveries). Loans are charged to the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely. Management's periodic
evaluation of the adequacy of the allowance is based on past loan loss
experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, estimated
value of underlying collateral, and current and prospective market
conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about
information available to them at the time of their examination. In the
opinion of management, the allowance, when taken as a whole, is
adequate to absorb known and foreseeable losses.
Accrual of delinquent interest on loans is discontinued after 90 days,
at which time interest previously accrued is reserved as a reduction of
interest income. Loans are returned to accrual status when they become
less than 90 days delinquent, at which time interest previously
reserved is included in interest income.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition Disclosures," effective January 1, 1995. SFAS No. 114
requires that impaired loans be measured at the present value of
expected future cash flows discounted at the loan's effective interest
rate, or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral
dependent. SFAS No. 118 eliminates the provisions in SFAS No. 114 that
describe how a creditor should report interest income on an impaired
loan and allows a creditor to use existing methods to recognize,
measure, and display interest income on an impaired loan. At December
31, 1995, the Company identified no loans that were considered impaired
as defined in SFAS No. 114.
(Continued)
97
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(e) Foreclosed Real Estate
Real estate properties acquired through foreclosure are initially
recorded at the lower of the related loan balance, less any specific
allowance for loss, or fair value less costs to dispose at the date of
foreclosure. Valuations are periodically performed by management and an
allowance for loss is established by a charge to operations if the
carrying value of a property exceeds its estimated fair value less
costs to dispose.
(f) Office Properties and Equipment
Office properties and equipment are carried at cost. Depreciation of
office properties and equipment is computed over the estimated useful
lives of the related assets using the straight-line method. The cost of
maintenance and repairs is charged to expense as incurred.
(g) Income Taxes
The Company and the Bank file a consolidated Federal income tax return
and a combined state income tax return. The Bank provides for income
taxes on a separate return basis and remits to the Company the amounts
determined to be currently payable.
Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
(temporary differences).
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which the
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Effective January 1, 1993, the Bank adopted Statement 109 on a
prospective basis. The cumulative effect of the change in method of
accounting for income taxes as of January 1, 1993 decreased earnings by
$25,000 and is reported separately in the consolidated statement of
operations for the year ended December 31, 1993.
(h) Earnings Per Share
Earnings per share for the year ended December 31, 1995 were determined
by dividing net income for the year by 641,588, the weighted average
number of primary and fully-diluted shares of common stock and common
stock equivalents outstanding. Earnings per share for the year ended
December 31, 1994 were computed as if the Company completed its initial
public offering on January 1, 1994, instead of May 10, 1994, by
dividing net earnings for the year by the weighted average number of
shares outstanding for the same period.
(Continued)
98
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
Net earnings for 1994 were adjusted for additional income which could
have been earned had the proceeds from the offering been available for
investment on January 1, 1994. Primary and fully-diluted weighted
average shares outstanding for the year ended December 31, 1994 were
633,716 and 635,803, respectively. Stock options are regarded as common
stock equivalents in calculating both primary and fully-diluted
earnings per share. ESOP shares are only considered outstanding for
earnings per share calculations when they are committed to be released.
Common stock equivalents are computed using the treasury stock method.
Earnings per share information is not being presented for the year
ended December 31, 1993 because the Company did not complete its
initial public offering until May 10, 1994.
(i) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
defines cash and cash equivalents as cash and interest-bearing deposits
with original maturities of three months or less.
(2) Investment Securities Held to Maturity
The amortized cost and estimated fair value of investment securities
held to maturity are summarized as follows:
<TABLE>
<CAPTION>
===========================================================================================================================
1994
--------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 6,064,631 -- 182,131 5,882,500
U.S. Government agency
securities 1,057,243 -- 49,433 1,007,810
- ---------------------------------------------------------------------------------------------------------------------------
$ 7,121,874 -- 231,564 6,890,310
===========================================================================================================================
1995
--------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
<S> <C> <C> <C> <C>
U.S. Treasury securities 4,005,098 -- 11,758 3,993,340
U.S. Government agency
securities 1,019,081 -- 4,981 1,014,100
- ---------------------------------------------------------------------------------------------------------------------------
$ 5,024,179 -- 16,739 5,007,440
===========================================================================================================================
</TABLE>
There were no sales of investment securities held to maturity
during 1993, 1994, or 1995.
(Continued)
99
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
The amortized cost and estimated fair value of investment securities
held to maturity at December 31, 1994 and 1995 by contractual maturity
are summarized below. Actual maturities may differ from contractual
maturities because the borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
================================================================================
<TABLE>
<CAPTION>
1994 1995
--------------------------- ---------------------------
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
<S> <C> <C> <C> <C>
===========================================================================================================================
Due in one year or less $ 2,000,489 1,976,880 5,024,179 5,007,440
Due after one yer through five years 5,121,385 4,913,530 -- --
- ---------------------------------------------------------------------------------------------------------------------------
$ 7,121,874 6,890,310 5,024,179 5,007,440
===========================================================================================================================
</TABLE>
(3) Securities Available for Sale
The amortized cost and estimated fair value of securities available for
sale by contractual maturity are summarized as follows. Actual
maturities may differ from contractual maturities because the borrowers
may have the right to call or prepay obligations with or without
prepayment penalties.
<TABLE>
<CAPTION>
===========================================================================================================================
1994
----------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Due within one year -
U.S. Government agency
securities $ 1,999,207 -- 42,947 1,956,260
===========================================================================================================================
<CAPTION>
1995
----------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Due within one year-
U.S. Government agency
securities $ 1,999,767 5,233 -- 2,005,000
===========================================================================================================================
</TABLE>
There were no sales of securities available for sale during 1993, 1994,
or 1995.
(Continued)
100
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(4) Mortgage-backed Securities Held to Maturity
The amortized cost and estimated fair value of mortgage-backed
securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
===================================================================================================================
1994
----------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal National Mortgage
Association $ 939,943 -- 22,433 917,510
Federal Home Loan Mortgage
Corporation 3,251,377 -- 115,728 3,135,649
- -------------------------------------------------------------------------------------------------------------------
Total $ 4,191,320 -- 138,161 4,053,159
===================================================================================================================
<CAPTION>
1995
----------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal National Mortgage
Association $ 616,146 8,208 -- 624,354
Federal Home Loan Mortgage
Corporation 2,380,792 39,197 -- 2,419,989
- -------------------------------------------------------------------------------------------------------------------
Total $ 2,996,938 47,405 -- 3,044,343
===================================================================================================================
</TABLE>
There were no sales of mortgage-backed securities held to maturity during 1993,
1994, or 1995.
(Continued)
101
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(5) Loans Receivable
Loans receivable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
===========================================================================================================================
1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans:
One-to-four family $ 46,605 48,086
Construction 4,562 5,330
Equity lines of credit -- 734
Land 659 551
Commercial 471 436
- ---------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 52,297 55,137
Consumer loans 68 112
- ---------------------------------------------------------------------------------------------------------------------------
Total loans receivable 52,365 55,249
Less:
Allowance for loan losses (350) (356)
Loans in process (1,644) (2,132)
Deferred loan fees (31) (36)
- ---------------------------------------------------------------------------------------------------------------------------
$ 50,340 52,725
===========================================================================================================================
Weighted average interest rate 7.28% 7.85
===========================================================================================================================
</TABLE>
(Continued)
102
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
===========================================================================================================================
1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 168,000 340,000 350,000
Provision for loan losses 172,000 10,000 6,000
Charge-offs -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 340,000 350,000 356,000
===========================================================================================================================
</TABLE>
Loans receivable delinquent 90 days or more at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
===========================================================================================================================
Percentage
Number of total
of Principal loans
loans balance receivable
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1993 14 $ 1,089,000 2.32%
1994 10 683,000 1.30
1995 10 378,000 0.68
===========================================================================================================================
</TABLE>
The amount of interest income that would have been recorded had the
loans delinquent 90 days or more been current would have been $58,500,
$83,000, and $17,000 for the years ended December 31, 1993, 1994, and
1995, respectively. The Bank did not recognize any interest income on
loans delinquent 90 days or more for the years ended December 31, 1993,
1994, and 1995, respectively.
At December 31, 1994 and 1995, the Bank had extended loans to certain
directors and executive officers of the Company of $301,305 and
$195,999, respectively. Presented below is a summary of activity with
respect to such loans for the year ended December 31, 1995:
<TABLE>
===========================================================================================================================
<S> <C>
Beginning of year $ 301,305
New loans --
Repayments (105,306)
- ---------------------------------------------------------------------------------------------------------------------------
End of year $ 195,999
===========================================================================================================================
</TABLE>
In the opinion of management, these related party loans were made on
substantially the same terms, including interest rates and collateral
requirements, as those terms prevailing at the date these loans were
made.
(Continued)
103
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(6) Accrued Interest Receivable
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
===========================================================================================================================
1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loans receivable $ 204,132 265,966
Investment securities held to maturity and
securities available for sale 154,980 114,955
Mortgage-backed securities held to maturity 28,366 23,234
- ---------------------------------------------------------------------------------------------------------------------------
$ 387,478 404,155
===========================================================================================================================
</TABLE>
(7) Office Properties and Equipment
Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
===========================================================================================================================
1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 214,609 214,609
Office building and improvements 547,284 1,018,426
Furniture, fixtures, and equipment 677,259 719,314
Automobiles 24,330 24,330
- ---------------------------------------------------------------------------------------------------------------------------
1,463,482 1,976,679
Less accumulated depreciation 823,268 901,344
- ---------------------------------------------------------------------------------------------------------------------------
$ 640,214 1,075,335
===========================================================================================================================
</TABLE>
(Continued)
104
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(8) Savings Deposits
Savings deposits are summarized as follows (in thousands):
================================================================================
<TABLE>
<CAPTION>
1994 1995
-------------------------------------------- ---------------------------------------
Stated or Stated or
weighted weighted
average average
Amount Percent rate Amount Percent rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Passbook $ 10,096 18.9% 3.10 $ 8,389 14.6% 3.10
NOW accounts 3,965 7.4 2.01 3,891 6.8 1.91
Money market deposits 5,339 10.0 3.82 4,839 8.4 3.93
- ------------------------------------------------------------------------------------------------------------------------------------
19,400 36.3 3.08 17,119 29.8 3.06
- ------------------------------------------------------------------------------------------------------------------------------------
Certificate accounts:
Under 12 months 24,431 45.7 -- 23,523 41.1 --
12 months to
36 months 5,910 11.0 -- 7,644 13.4 --
Over 36 months 3,735 7.0 -- 8,990 15.7 --
- ------------------------------------------------------------------------------------------------------------------------------------
34,076 63.7 5.01 40,157 70.2 5.84
- ------------------------------------------------------------------------------------------------------------------------------------
$ 53,476 100.0% 4.31 $ 57,276 100.0% 5.01
====================================================================================================================================
</TABLE>
The aggregate amount of certificate accounts of $100,000 or more
approximated $7,234,000 and $9,472,000 at December 31, 1994 and 1995,
respectively.
Interest expense on savings deposits is summarized as follows:
<TABLE>
<CAPTION>
===========================================================================================================================
1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Passbook $ 295,935 301,004 280,119
NOW accounts and money market
deposits 244,498 233,440 265,550
Certificate accounts 1,742,695 1,497,957 2,064,816
- ---------------------------------------------------------------------------------------------------------------------------
$ 2,283,128 2,032,401 2,610,485
===========================================================================================================================
</TABLE>
(Continued)
105
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(9) Borrowed Funds
Borrowed funds are summarized as follows:
<TABLE>
<CAPTION>
===========================================================================================================================
Weighted
interest rate Amount
--------------------- ------------------------
Maturity 1994 1995 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advances from the Federal Home
Loan Bank of Chicago Open line 6.35% 5.31% $3,000,000 1,000,000
===========================================================================================================================
</TABLE>
The Bank adopted a collateral pledge agreement and agreed to at all
times keep on hand, free of all other pledges, liens, and encumbrances,
performing first mortgages with unpaid principal balances aggregating
no less than 167.67% of the outstanding secured advances from the
Federal Home Loan Bank of Chicago. The carrying value of the collateral
at December 31, 1994 and 1995 is $45,921,000 and $47,708,000,
respectively. All stock in the Federal Home Loan Bank of Chicago is
also pledged as additional collateral for advances.
(10) Income Taxes
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
============================================================================================================
1993 1994 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 205,295 197,865 138,420
State -- 13,200 1,384
- ------------------------------------------------------------------------------------------------------------
205,295 211,065 139,804
- ------------------------------------------------------------------------------------------------------------
Deferred:
Federal (35,365) 8,151 59,302
State (4,390) 2,459 8,572
- -----------------------------------------------------------------------------------------------------------
(40,295) 10,610 67,874
- -----------------------------------------------------------------------------------------------------------
$ 165,000 221,675 207,678
===========================================================================================================
</TABLE>
Income tax expense amounted to $165,000, $221,675, and $207,678 for the
years ended December 31, 1993, 1994, and 1995, respectively. The
effective tax rates were 35.0%, 34.0%, and 36.3%, respectively. The
reasons for the difference between the effective tax rate and the
corporate Federal income tax rate are shown on the following page:
(Continued)
106
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
============================================================================================================
1993 1994 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 34.0% 34.0 34.0
Items affecting Federal income tax rate:
Tax-exempt interest (.4) -- --
State income tax -- 1.2 1.7
Other, net 1.4 (1.2) .6
- ------------------------------------------------------------------------------------------------------------
Effective income tax rate 35.0% 34.0 36.3
============================================================================================================
</TABLE>
Effective January 1, 1993, the Bank adopted the provisions of Statement
109 prospectively. The cumulative effect of the change in the method of
accounting for income taxes decreased earnings by $25,000 for the year
ended December 31, 1993 and is reported separately in the consolidated
statement of operations.
The tax effects of existing temporary differences that give rise to
significant portions of the deferred tax liabilities and deferred tax
assets at December 31, 1994 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
===========================================================================================================================
1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Deferred compensation $ 55,866 42,091
Deferred loan fees 11,875 --
Employee benefit plan expense 15,179 26,986
Uncollected interest on nonperforming loans 32,153 6,586
General allowance for losses on loans 137,621 137,910
State net operating loss carryforward 1,431 --
Unrealized loss on investment securities available for sale 14,602 --
- ---------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 268,727 213,573
Valuation allowance (1,431) --
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 267,296 213,573
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred loan fees -- 15,527
Dividends received in stock, not recognized for tax purposes 30,805 30,805
Tax depreciation in excess of book depreciation 63,222 56,699
Excess of tax bad debt reserve over base year 147,517 167,514
Unrealized gain on investment securities available for sale -- 1,779
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 241,544 272,324
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 25,752 (58,751)
===========================================================================================================================
</TABLE>
(Continued)
107
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
The Company believes it is more likely than not that the deferred tax
assets will be realized, based on historical taxable income levels and
anticipated future earnings and taxable income levels.
Retained earnings at December 31, 1995 include approximately $1,578,000
for which no provision for Federal or state income tax has been made.
These amounts represent the allocation of income to bad debt deductions
for tax purposes only. Reduction of amounts so allocated for purposes
other than tax bad debt losses will create income for tax purposes
only, which will be subject to the then current Federal and state
corporate income tax rate.
(11) Stockholders' Equity
On May 10, 1994, the Company issued 661,250 shares of $.01 par value
common stock at $10 per share, and became the parent company of the
Bank. Net proceeds, after deducting conversion expenses and
underwriters' fees of approximately $533,000, were approximately $6.1
million and are reflected as common stock and additional paid-in
capital in the accompanying consolidated statements of financial
condition.
As part of the conversion, the Bank established a liquidation account
for the benefit of eligible depositors as of January 31, 1994, the
eligibility record date, who continue to maintain deposits in the Bank
following the conversion. The initial balance of the liquidation
account was equal to the retained earnings of the Bank as of May 10,
1994. The balance in this account decreases each year in which deposit
balances of eligible depositors decline. In the unlikely event of a
complete liquidation, each eligible depositor who has continued to
maintain deposits in the Bank following the conversion will be entitled
to receive a liquidation distribution from the liquidation account
prior to any distributions to stockholders. Dividends cannot be paid
from retained earnings allocated to the liquidation account.
The payment of Bank dividends is also restricted by Office of Thrift
Supervision (OTS) capital distribution regulations which provide that,
based on the Bank's compliance with its fully phased-in regulatory
capital requirements, dividends of up to 100% of its net income earned
during the current calendar year plus 50% of its capital surplus over
its fully phased-in capital requirements at the beginning of the
calendar year may be paid by the Bank to the Company, subject to
notifying the OTS in advance of such dividend payment. In addition, the
OTS prompt corrective action regulations provide additional
restrictions on capital distributions by the Bank.
Unlike the Bank, the Company is not subject to these regulatory
restrictions on the payment of dividends to its stockholders. However,
the source of such dividends will be primarily dependent upon dividends
from the Bank.
(Continued)
108
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(12) Employee Benefit Plans
Pension Plan
The Bank was formerly a member of a multi-employer retirement plan
covering substantially all full-time employees over 21 years of age
with one year of service. Participation in this plan was terminated
effective December 31, 1993. Pension expense was $11,304 for the year
ended December 31, 1993. The Bank has no further obligations related to
this plan.
Employee Stock Ownership Plan (ESOP)
In conjunction with the Bank's conversion, the Company formed an ESOP
for the benefit of the employees of the Bank. The ESOP covers all full-
time employees with more than one year of employment who have attained
the age of 21. The ESOP borrowed $529,000 from the Company and
purchased 52,900 common shares of the Company in the conversion. The
loan is payable in 40 quarterly installments of $13,325 plus interest
at 7% with a final maturity of May 10, 2004. Contributions to the ESOP
by the Bank are made to fund the principal and interest payments on the
debt. For the years ended December 31, 1994 and 1995, total
contributions to the ESOP were $56,967 and $111,676, respectively. ESOP
shares are allocated to participants based on principal and interest
contributions. Compensation expense is recognized based on the fair
value of ESOP shares allocated. Compensation expense was $64,905 and
$158,378 for the years ended December 31, 1994 and 1995, respectively.
The fair value of unearned ESOP shares at December 31, 1994 and 1995 is
approximately $731,000 and $756,000, respectively.
Stock Option and Incentive Plan
The Board of Directors has a stock option and incentive plan (Option
Plan) for the benefit of employees and directors of the Company or its
subsidiaries under the Option Plan. The number of shares of common
stock authorized under the Option Plan is 66,125, equal to 10% of the
total number of shares issued in the Company's initial stock offering.
Options granted will vest at a rate of 20% per year beginning one year
following the date of grant. The option exercise price must be at least
100% of the fair market value of the common stock on the date of grant,
and the option term cannot exceed 10 years.
Upon conversion, 52,896 stock options were granted at $10.00 per share.
No additional stock options were granted during 1994. During the year
ended December 31, 1995, 2,000 options were granted under the Option
Plan at a price of $19.50 per share. No stock options were exercised or
canceled during 1994 and 1995. As of December 31, 1995, 3,306 shares
are exercisable under the Option Plan.
(Continued)
109
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
The Option Plan also provides for the grant of Stock Appreciation
Rights (SAR), which may be related to an option or may be granted
independently. SARs generally will be subject to the same terms and
conditions and exercisable to the same extent as stock options. At
December 31, 1994 and 1995, no SARs have been granted or exercised.
Management has no present intention to grant any SARs.
Recognition and Retention Plan
In conjunction with the Bank's conversion, the Company formed a
Recognition and Retention Plan (RRP) for the benefit of directors and
employees of the Bank as a method of providing such persons a
proprietary interest in the Company and to encourage such persons to
remain with the Bank. The Bank contributed $306,669 to the RRP to
purchase 4% or 26,450 shares of common stock subsequent to the
conversion at an average cost of $11.59 per share.
Awards of common shares become vested at a rate of 20% per year. Upon
conversion, 22,861 shares of common stock were awarded. No additional
shares were awarded during 1994 and 1995. The aggregate purchase price
of the common shares awarded is amortized to compensation expense and
the unamortized cost is reflected as a reduction to stockholders'
equity.
(13) Regulatory Capital Requirements
Regulatory agencies currently require institutions to have a minimum
regulatory tangible capital ratio equal to 1.5% of total assets, a
minimum 3% core capital ratio, and an 8% risk-based capital ratio. The
Bank is in compliance with its regulatory capital requirements at
December 31, 1994 and 1995.
(14) Concentrations of Credit Risk and Financial
Instruments with Off-balance-sheet Risk
The Company is a party to transactions and financial instruments with
off-balance sheet risk in the normal course of its business. The
financial instruments include commitments to originate loans and
involve credit and interest rate risk in excess of the amount
recognized in the statements of financial condition. All loan
commitments at December 31, 1995 are at variable rates ranging from
7.125% to 7.5%. The Company had commitments to originate loans of
approximately $1,017,000 at December 31, 1995. Because the
creditworthiness of each customer is reviewed prior to the extension of
the commitment, the Company believes it adequately controls its credit
risk on these commitments, as it does for loans recorded on the
consolidated statements of financial condition.
The Company is located in Barrington, Illinois, which is a northwest
suburb of Chicago. The Company conducts substantially all of its
lending activities in and around the community of Barrington.
(Continued)
110
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(15) Parent Company Only Financial Information
The parent company information as of and for the year ended December
31, 1994 and 1995 is presented below and should be read in conjunction
with the notes to consolidated financial statements. Parent company
information for 1993 has been omitted since the conversion was not
completed until May 10, 1994.
<TABLE>
<CAPTION>
===========================================================================================================================
Statement of Financial Condition
- ---------------------------------------------------------------------------------------------------------------------------
1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 1,536,645 1,632,590
Equity in net assets of subsidiary 8,619,426 8,904,903
ESOP loan receivable from Bank 495,203 429,303
Due from Bank 474,343 544,955
Other Assets -- 79,394
- ---------------------------------------------------------------------------------------------------------------------------
$ 11,125,617 11,591,145
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity:
Liabilities - accrued expenses and other liabilities -- 26,249
Stockholders' equity:
Common stock 6,613 6,613
Additional paid-in capital 6,100,064 6,188,513
Retained earnings 5,801,841 5,980,705
Common stock purchased by:
Recognition and retention plan (267,486) (211,227)
Employee stock ownership plan (487,070) (403,162)
Unrealized gain (loss) on securities available for sale,
net of income taxes (28,345) 3,454
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 11,125,617 11,564,896
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 11,125,617 11,591,145
===========================================================================================================================
</TABLE>
(Continued)
111
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
===========================================================================================================================
Statement of Earnings
- ---------------------------------------------------------------------------------------------------------------------------
1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Equity in undistributed earnings of Bank $ 435,229 25,062
Interest income on ESOP loan receivable from Bank 23,169 33,276
Dividends from Bank -- 435,229
Noninterest expense (43,100) (190,437)
- ---------------------------------------------------------------------------------------------------------------------------
Net income before taxes 415,298 303,130
Income tax benefit 15,286 60,882
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 430,584 364,012
===========================================================================================================================
Statement of Cash Flows
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 430,584 364,012
Adjustments to reconcile net income to net cash
from operating activities:
Decrease in ESOP loan receivable from Bank 33,797 65,900
Net increase in other assets and liabilities (474,343) (558,986)
Equity in earnings of the Bank (435,229) (25,062)
Dividends received from Bank -- 435,229
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (445,191) 281,093
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities - investment in subsidiary (3,568,837) --
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) financing activities:
Net proceeds from sale of common stock 5,550,673 --
Dividends paid to stockholders -- (185,148)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 5,550,673 (185,148)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,536,645 95,945
Cash and cash equivalents at beginning of year -- 1,536,645
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,536,645 1,632,590
===========================================================================================================================
</TABLE>
(Continued)
112
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(16) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (Statement No. 107), requires the
disclosure of estimated fair values of all asset, liability, and off-
balance sheet financial instruments. The estimated fair value amounts
under Statement No. 107 have been determined as of a specific point in
time utilizing various available market information, assumptions, and
appropriate valuation methodologies. Accordingly, the estimated fair
values presented herein are not necessarily representative of the
underlying value of the Company. Rather the disclosures are limited to
reasonable estimates of the fair value of only the financial
instruments of the Company. The use of assumptions and various
valuation techniques, as well as the absence of secondary markets for
certain financial instruments, will likely reduce the comparability of
fair value disclosures between financial institutions. The Company does
not plan to sell its assets or settle its liabilities at these fair
values. The estimated fair values of the financial instruments of the
Company as of December 31, 1995 are set forth in the following table.
<TABLE>
<CAPTION>
=========================================================================================
Carrying Fair
amount value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash and due from banks $1,178,626 1,178,626
Interest-bearing deposits 4,197,829 4,197,829
Investment securities 7,029,179 7,012,440
Mortgage-backed securities 2,996,938 3,044,343
Loans receivable 52,724,752 53,957,671
Accrued interest receivable 404,155 404,155
Stock in Federal Home Loan Bank of Chicago 484,900 484,900
Financial liabilities:
Passbook, NOW, and Money Market 17,118,887 17,118,887
Certificate accounts 40,157,014 40,409,409
Borrowed funds 1,000,000 1,000,000
Accrued interest payable 46,901 46,901
=========================================================================================
</TABLE>
The following methods and assumptions are used by the Company in
estimating the fair value for its financial instruments.
(a) Cash and due from Banks, and Interest-bearing Deposits
The carrying value of cash and due from banks, and interest-bearing
deposits approximates fair value due to the short period of time
between origination of the instruments and their expected realization.
(Continued)
113
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(b) Investment Securities, Mortgage-backed Securities,
and Stock in Federal Home Loan Bank of Chicago
The fair value of investment securities and mortgage-backed securities
was estimated using quoted market prices. The fair value of stock in
Federal Home Loan Bank of Chicago is based on its redemption value.
(c) Loans Receivable
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as one-to-
four family residential and multi-family. Each loan category is further
segmented into fixed and adjustable rate interest terms and by
performing and nonperforming categories.
The fair value of performing loans is calculated using assumptions
regarding credit risk, cash flows, and discount rates judgmentally
determined using available market information and specific borrower
information.
(d) Accrued Interest Receivable and Payable
The carrying value of accrued interest receivable and payable
approximates fair value due to the relatively short period of time
between accrual and expected realization.
(e) Deposits
The fair value of deposits with no stated maturity, such as passbook
savings, NOW accounts, and money market accounts, are disclosed as the
amount payable on demand. The fair value of fixed-maturity deposits is
based on the discounted value of contractual cash flows. The discount
rate is estimated using the rates currently being offered for deposits
with similar remaining terms to maturity. The fair value estimates do
not include the benefit that results from the low-cost funding provided
by the deposit liabilities compared to the cost of borrowing funds in
the market.
(f) Borrowed Funds
The carrying value of FHLB advances approximates fair value as the
advances reprice to market interest rates within 90 days.
(g) Commitments to Extend Credit
The fair value of commitments to extend credit approximates the
commitment amount due to the short-term nature of the commitment
period.
(Continued)
114
<PAGE>
BARRINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
================================================================================
(17) Subsequent Event
On January 26, 1996, the Company signed a definitive agreement with
First Chicago NBD Corporation (First Chicago) in which First Chicago
would acquire all of the outstanding shares of Barrington Bancorp for
stock of First Chicago with an aggregate purchase price of $17,825,000.
The agreement is subject to stockholder and regulatory approval. The
agreement is expected to be consummated in the second quarter of 1996.
115
<PAGE>
PROPOSAL II - ELECTION OF DIRECTORS
The Barrington Bancorp Board is composed of six members, each of whom is
also a director of First Federal. Generally, one-third of the directors are
elected annually. Directors of Barrington Bancorp are generally elected to serve
for a three-year term or until their respective successors shall have been
elected and shall qualify.
The table below sets forth certain information regarding the Barrington
Bancorp Board, including their terms of office. It is intended that the proxies
solicited on behalf of the Barrington Bancorp Board (other than proxies in which
the vote is withheld as to one or more nominees) will be voted at the Annual
Meeting for the election of the nominees identified below. If any nominee is
unable to serve, the shares represented by all such proxies will be voted for
the election of such substitute as the Board of Directors may recommend. At this
time, the Barrington Bancorp Board knows of no reason why any of the nominees
might be unable to serve, if elected. Except as described herein, there are no
arrangements or understandings between any director or nominee and any other
person pursuant to which such director or nominee was selected.
<TABLE>
<CAPTION>
Shares of Common
Term Stock Beneficially Percent
Director to Owned at of
Name Age Position(s) Held Since/(1)/ Expire May 2, 1996/(2)/ Class
- ------------------- --- -------------------------- ---------- ------ ------------------- --------
NOMINEES
--------
<S> <C> <C> <C> <C> <C> <C>
Hugh H. Palmer 51 President, Chief 1981 1999 46,905 7.09%
Executive
Officer and Director
Carol M. Beese 65 Director 1985 1999 10,027 1.51
DIRECTORS CONTINUING IN OFFICE
------------------------------
Norman D. Zilmer 68 Chairman of the Board 1971 1998 17,927 2.71
Derald M. Schultz 69 Director 1980 1998 17,527 2.65
Gary C. Hines 46 Director 1986 1997 11,376 1.72
Charles W. Sweet 52 Director 1985 1997 26,717 4.04
</TABLE>
- ---------------------------------
/(1)/ Includes service as a director of First Federal.
/(2)/ Includes shares held directly, shares allocated to Mr. Palmer's
account pursuant to the ESOP, shares granted pursuant to the First Federal
RRP, which shares vest on May 10, 1996, and shares subject to stock
options which vest on May 9, 1996 (amount excludes RRP shares and shares
subject to stock options which vest subsequently), as well as shares held
in retirement accounts, held by certain members of the named individuals'
families, or held by trusts of which the named individual is a trustee or
substantial beneficiary, with respect to which shares the named
individuals may be deemed to have sole or shared voting and dispositive
power.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
NOMINEES LISTED ABOVE.
The business experience of each director nominee is set forth below. All
directors have held their present positions for at least the past five years,
except as otherwise indicated. All directors and executive officers of
Barrington Bancorp have held their positions with Barrington Bancorp since its
incorporation in December, 1993.
Norman D. Zilmer. Mr. Zilmer has served as Chairman of the Board since
1985. Mr. Zilmer owned Esh Pharmacy, Inc., from 1961 to 1982, and practiced
pharmacy part-time from 1982 until his retirement in 1992.
Derald M. Schultz. Mr. Schultz has been retired for seven years. Prior to
his retirement, Mr. Schultz served as Vice President - Information Systems for
Ameritech Services located in Schaumburg, Illinois.
Gary C. Hines. Mr. Hines is the owner and operator of Chuck Hines of
Barrington, Inc., a retail clothing store in Barrington. Mr. Hines has also
served on the board of directors of Four Squires, Inc., a wholesale clothing
distributor located in Elgin, Illinois since 1987.
Hugh H. Palmer. Mr. Palmer has served as President and Chief Executive
Officer of First Federal since 1989. Since joining First Federal in 1976, Mr.
Palmer has held various positions including Vice President and Executive Vice
President.
116
<PAGE>
Carol M. Beese. Ms. Beese is the President of the Barrington Area Chamber
of Commerce, a position she has held since 1968.
Charles W. Sweet. Mr. Sweet is a Vice President of A.T. Kearney, Inc., a
consulting firm located in Chicago, Illinois, and President of A.T. Kearney,
Inc.'s Executive Search Division, a position he has held for nine years.
Board of Directors' Meetings and Committees
Board and Committee Meetings of Barrington Bancorp. Meetings of the
Barrington Bancorp Board are generally held on a quarterly basis. The Barrington
Bancorp Board held twelve meetings during the year ended December 31, 1995. No
incumbent director attended fewer than 75% of the total number of meetings held
by the Board of Directors and by all committees of the Board of Directors on
which such director served during the year.
The Barrington Bancorp Board has standing Audit, Compensation, Investment,
Executive and Nominating Committees.
The Audit Committee of Barrington Bancorp reviews audit reports and related
matters to ensure effective compliance by Barrington Bancorp with internal
policies and procedures. Directors Beese, Hines and Sweet are members of this
committee. The Audit Committee met once during fiscal 1995.
The Compensation Committee of Barrington Bancorp is responsible for
administration of the First Federal RRP and Stock Option Plan. The current
members of the Compensation Committee are Directors Schultz, Hines and Sweet.
This committee met two times during fiscal 1995.
The Investment Committee of Barrington Bancorp meets as needed to ensure
that all investment activities are consistent with Board policy. The Company
also monitors the performance of the investment managers. The Investment
Committee is composed of Directors Sweet, Palmer and Hines and did not meet
during the year ended December 31, 1995.
The Executive Committee of Barrington Bancorp acts on issues arising
between regular Board meetings. The Executive Committee is comprised of
Directors Zilmer, Schultz and Palmer. The Executive Committee did not meet
during fiscal 1995.
The Barrington Bancorp Board acts as the Nominating Committee of Barrington
Bancorp and meets annually to nominate persons to serve on the Barrington
Bancorp Board. While the Barrington Bancorp Board will consider nominees
recommended by stockholders, the committee has not actively solicited such
nominations. Pursuant to Barrington Bancorp's Bylaws, nominations by
stockholders must be delivered in writing to the Secretary of Barrington Bancorp
at least 30 days before the date of the Annual Meeting.
Board and Committee Meetings of First Federal. During the year ended
December 31, 1995, the Board of Directors of First Federal held 15 meetings. No
director attended fewer than 75% of the total meetings of the Board of Directors
and committees on which such Board member served during this period. The Board
of Directors of First Federal has standing Executive, Compensation,
Asset/Liability, Loan, Investment, Audit Compliance and Nominating Committees.
The Executive Committee meets on an as needed basis to assist the Board of
Directors in the Board's deliberations on items that are both unusual in nature
and exceptional in importance. In addition, the Executive Committee possesses
the powers of the full Board of Directors between meetings of the Board. The
members of the Executive Committee are Chairman Zilmer and Directors Schultz and
Palmer. This committee did not meet in 1995.
The Compensation Committee meets to review salaries and the performance of
officers, and recommends compensation adjustments and promotions of officers.
This committee is comprised of Directors Schultz, Hines and Sweet. The
Compensation Committee met three times during 1995.
The Asset/Liability Committee meets quarterly consists of Directors Sweet,
Schultz, Hines and Palmer. The committee meets quarterly to establish and review
short and long range asset/liability objectives in accordance with Board policy.
The Committee also monitors the performance and coordinates the activities of
the Loan and Investment Committee to appropriately manage interest rate risk
exposure. This committee met three times in 1995.
117
<PAGE>
The Loan Committee meets on an as needed basis to approve loans, set rates
and fees for loans, and make recommendations to the Board of Directors regarding
new loan products, appraisers, the establishment of loss reserves, and asset
clarifications. The Loan Committee consists of Directors Beese, Hines, Schultz
and Palmer. The Loan Committee met approximately 40 times during 1995.
The Investment Committee consists of Directors Sweet, Palmer and Hines. The
committee ensures that all investment activities are consistent with Board
policy. The Investment Committee also assists, directs and monitors the
performance of the investment manager. This committee met three times in 1995.
The Audit Committee meets on an as-needed basis to review First Federal's
annual audit report prepared by First Federal's independent auditors. The review
includes a detailed discussion with the auditors before and after the issuance
of the annual audit report, and a recommendation to the full Board concerning
any action to be taken with respect to the audit. Only outside directors may be
members of the Audit Committee, and Directors Beese, Mann and Sweet currently
comprise the committee. This committee met two times in 1995.
The Compliance Committee meets to ensure that First Federal's compliance
program is effectively and efficiently maintained. The Committee performs a
variety of functions including the monitoring of corrective measures taken to
cure deficiencies noted in prior compliance examinations. The Compliance
Committee consists of Directors Schultz, Beese and Palmer. This committee met
three times in 1995.
The entire Board of Directors acts as the Nominating Committee of First
Federal and meets annually to nominate persons to serve on the Board of
Directors of First Federal. While the Board of Directors will consider nominees
recommended by stockholders, the committee has not actively solicited such
nominations. Pursuant to First Federal's Bylaws, nominations by stockholders
must be delivered in writing to the Secretary of Barrington Bancorp at least 30
days before the date of the Annual Meeting.
Compensation Committee Interlocks and Insider Participation
During 1995, First Federal's Compensation Committee was comprised of
Directors Schultz, Hines and Sweet.
Director Compensation
Cash Compensation. Each member of the Board of Directors of First Federal
is paid $600 per Board meeting, except for the Chairman who is paid $900 per
meeting. Directors do not receive any additional compensation for committee
meetings attended or for attendance at meetings of the Barrington Bancorp Board.
Executive Compensation
Barrington Bancorp has not paid any compensation to its executive officers
since its formation. Barrington Bancorp does not presently anticipate paying any
compensation to such persons until it becomes actively involved in the operation
or acquisition of businesses other than First Federal.
The following table sets forth the compensation paid or accrued by First
Federal during the fiscal years indicated for services rendered by the Chief
Executive Officer. No other executive officer of First Federal received cash
compensation in excess of $100,000 during 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
--------------------
Awards
- ----------------------------------------------------------------------------------------------------------------------------------
Restricted
Other Annual Stock All Other
Salary Bonus Compensation Award(s) Options Compensation
Name and Principal Position Year ($)/(1)/ ($) ($)/(2)/ ($)/(3)/ (#)/(4)/ ($)/(5)/
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hugh H. Palmer, President, Chief 1995 $99,900 $17,000 --- --- --- $38,870
Executive Officer and Director 1994 97,200 20,500 --- 76,633 16,531 16,541
1993 93,600 18,000 --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
/(1)/ Includes directors' fees of $7,100 for 1993 and $7,200 for 1994 and 1995.
118
<PAGE>
/(2)/ During 1993, 1994 and 1995, Mr. Palmer did not receive any benefits or
perquisites which, in the aggregate, exceeded the lesser of 10% of his
salary and bonus, or $50,000.
/(3)/ Pursuant to the First Federal RRP, Barrington Bancorp has granted to
Mr. Palmer 6,612 restricted shares of Barrington Bancorp Common Stock.
Such shares vest over a five year period in equal annual installments
with the first installment vesting on May 10, 1996. At December 31,
1995, these restricted shares had a value of $123,975.
/(4)/ Pursuant to the Stock Option Plan, Barrington Bancorp has granted to
Mr. Palmer options to purchase 16,531 shares of Barrington Bancorp
Common Stock at an exercise price of $10.00 per share.
/(5)/ Includes the dollar value of allocated ESOP shares allocated to
Mr. Palmer for the fiscal years ended December 31, 1994 and 1995.
The following table provides information as to the value of the options
held by the Barrington Bancorp's Chief Executive Officer on December 31, 1995,
none of which have been exercised. No stock appreciation rights were granted as
of such date.
<TABLE>
<CAPTION>
======================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION VALUES
- ------------------------------------------------------------------------------------------------------
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#)/(1)/ FY-End ($)/(2)/
-----------------------------------------------------------
Shares
Acquired
on Value
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hugh H. Palmer --- $--- --- 16,531 $--- $146,713
======================================================================================================
</TABLE>
- -----------------
/(1)/ The option vests in five equal annual installments. The first
installment will vest on May 9, 1996, with the remaining installments
to vest equally on May 9, 1997, 1998, 1999 and 2000.
/(2)/ Represents the aggregate market value (market price of Barrington
Bancorp Common Stock less the exercise price) of the option granted
based upon the average of the closing bid and the asked price of $18.875
per share of Barrington Bancorp Common Stock as reported on the Nasdaq
Small-Cap Market on December 31, 1995.
Benefit Plans
General. First Federal currently provides insurance benefits to its
employees, including health, life, accidental death and dismemberment and long-
term disability and major medical insurance, subject to certain deductibles and
copayments by employees.
Employee Severance Compensation Plan. First Federal maintains the
Employee Severance Compensation Plan (the "Employee Severance Plan") which
provides certain employees with severance pay benefits in the event of a change
in control of First Federal or Barrington Bancorp. Management personnel with
employment agreements are not eligible to participate in the Employee Severance
Plan. The purpose of the Employee Severance Plan is to recognize the valuable
services and contributions of First Federal's officers and the uncertainties
relating to continuing employment, reduced employee benefits, management changes
and relocations in the event of a change in control. The Employee Severance Plan
vests in each participant a contractual right to the benefits such participant
is entitled to thereunder. Under the Employee Severance Plan, in the event of a
change in control as defined in the Employee Severance Plan, eligible employees
who are terminated or who voluntarily terminate employment (for reasons
specified under the Employee Severance Plan), within one year of a change in
control will be entitled to receive a severance payment. Payments pursuant to
the Employee Severance Plan are equal to the product of two weeks Annual
Compensation (as defined) times the number of years of service up to a maximum
of twelve years in the case of officers with the title of Vice President or
above or seven years in the case of other employees. Such payments may tend to
discourage takeover attempts by increasing costs to be incurred by First Federal
in the event
119
<PAGE>
of a takeover. The Employee Severance Plan may be amended or terminated by the
Board of Directors by a majority vote at any time prior to a change in control
but may not be amended or terminated thereafter.
Certain Transactions
First Federal currently does not grant loans to eligible directors,
officers, employees and members of their immediate families. Under its former
policy, all loans to directors, officers, employees and their family members
were required to be made in the ordinary course of business and on the same
terms, including collateral and interest rates, as those prevailing at the time
for comparable transactions and could not involve more than the normal risk of
collectibility at the time of origination. At December 31, 1995, First Federal's
loans to directors, officers, employees and members of their immediate families
totaled approximately $196,000, or 1.69% of stockholders' equity. All of these
loans were current at December 31, 1995.
PROPOSAL III - RATIFICATION OF APPOINTMENT OF AUDITORS
The Barrington Bancorp Board has appointed KPMG Peat Marwick LLP
independent accountants to be Barrington Bancorp's auditors for the fiscal year
ending December 31, 1996. Representatives of KPMG Peat Marwick LLP are expected
to attend the Annual Meeting to respond to appropriate questions and to make a
statement if they so desire.
THE BARRINGTON BANCORP BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996 IN THE EVENT THE MERGER IS
NOT CONSUMMATED.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in Barrington Bancorp's proxy
materials for the next Annual Meeting of Stockholders in the event the Merger is
not consummated, any stockholder proposal to take action at such meeting must be
received at Barrington Bancorp's office located at 120 S. Hough Street,
Barrington, Illinois 60010, no later than December 22, 1996. Any such proposal
shall be subject to the requirements of the proxy rules adopted under the
Exchange Act.
LEGAL MATTERS
Certain legal matters in connection with the Merger will be passed upon
for Barrington Bancorp by Silver, Freedman & Taff, L.L.P., Washington, D.C.,
including an opinion concerning certain federal income tax consequences of the
Merger. The legality of the FCN Common Stock offered hereby and certain other
matters with respect to the Merger will be passed upon for FCN by Sherman I.
Goldberg, Executive Vice President, General Counsel and Secretary of FCN. As of
March 31, 1996, Sherman I. Goldberg was the record and beneficial owner of
163,377 shares of FCN Common Stock and held options to purchase 250,264 shares
of FCN Common Stock.
EXPERTS
The consolidated financial statements of FCN incorporated by reference
in the Annual Report on Form 10-K for the year ended December 31, 1995,
incorporated herein by reference, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated herein by reference in reliance upon the authority
of said firm as experts in accounting and auditing in giving said report.
120
<PAGE>
The consolidated financial statements of Barrington Bancorp, Inc. as of
December 31, 1995 and 1994 and for each of the years in the three-year period
ended December 31, 1995, have been included herein and elsewhere in this Proxy
Statement/Prospectus in reliance upon the report of KPMG Peat Marwick LLP
independent certified public accountants (appearing elsewhere herein) and upon
the authority of said firm as experts in accounting and auditing.
By order of the
Board of Directors of
Barrington Bancorp, Inc.
/s/ Hugh H. Palmer
-----------------------------------
Hugh H. Palmer,
President and Chief
Executive Officer
Barrington, Illinois
May 7, 1996
121
<PAGE>
Appendix I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
FIRST CHICAGO NBD CORPORATION
AND
BARRINGTON BANCORP, INC.
DATED AS OF JANUARY 25, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
ARTICLE I.
THE MERGER............................................................ 1
Section 1.01 Effects of the Merger................................... 1
---------------------
Section 1.02 Conversion of Stock..................................... 2
-------------------
Section 1.03 Time and Place of Closing............................... 3
-------------------------
Section 1.04 Exchange of BBI Common Stock............................ 4
----------------------------
Section 1.05 Conversion and/or Merger of First Federal Savings
Bank of Barrington...................................... 5
------------------
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF FCN................................. 6
Section 2.01 Organization............................................ 6
------------
Section 2.02 Authorization........................................... 7
-------------
Section 2.03 Conflicts............................................... 7
---------
Section 2.04 Anti-takeover Provisions Inapplicable................... 7
-------------------------------------
Section 2.05 Capitalization.......................................... 8
--------------
Section 2.06 FCN Financial Statements; Material Changes.............. 8
------------------------------------------
Section 2.07 FCN Subsidiaries........................................ 8
----------------
Section 2.08 FCN Filings............................................. 9
-----------
Section 2.09 FCN Reports............................................. 9
-----------
Section 2.10 Compliance with Laws.................................... 9
--------------------
Section 2.11 Disclosure............................................. 10
----------
Section 2.12 Litigation............................................. 10
----------
Section 2.13 Taxes.................................................. 10
-----
Section 2.14 FCN Benefit Plans...................................... 11
-----------------
Section 2.15 Compliance With Environmental Laws..................... 11
----------------------------------
Section 2.16 Contracts and Commitments.............................. 11
-------------------------
Section 2.17 Undisclosed Liabilities................................ 11
-----------------------
Section 2.18 Assets................................................. 12
------
I-i
<PAGE>
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF BBI................................ 12
Section 3.01 Organization........................................... 12
------------
Section 3.02 Authorization.......................................... 13
-------------
Section 3.03 Conflicts.............................................. 13
---------
Section 3.04 Anti-takeover Provisions Inapplicable.................. 13
-------------------------------------
Section 3.05 Capitalization......................................... 14
--------------
Section 3.06 BBI Financial Statements; Material Changes............. 14
------------------------------------------
Section 3.07 BBI Subsidiaries....................................... 15
----------------
Section 3.08 BBI Filings............................................ 15
-----------
Section 3.09 BBI Reports............................................ 16
-----------
Section 3.10 Compliance With Laws................................... 16
--------------------
Section 3.11 Disclosure............................................. 17
----------
Section 3.12 Litigation............................................. 17
----------
Section 3.13 Licenses............................................... 17
--------
Section 3.14 Taxes.................................................. 17
-----
Section 3.15 Insurance.............................................. 18
---------
Section 3.16 BBI Benefit Plans...................................... 18
-----------------
Section 3.17 Compliance with Environmental Laws..................... 20
----------------------------------
Section 3.18 Contracts and Commitments.............................. 21
-------------------------
Section 3.19 Defaults............................................... 23
--------
Section 3.20 Corporate Records...................................... 23
-----------------
Section 3.21 Undisclosed Liabilities................................ 23
-----------------------
Section 3.22 Assets................................................. 23
------
Section 3.23 Indemnification........................................ 24
---------------
ARTICLE IV.
COVENANTS OF FCN AND BBI............................................. 24
Section 4.01 Business in Ordinary Course............................ 24
---------------------------
Section 4.02 Certain Actions........................................ 27
---------------
ARTICLE V.
ADDITIONAL AGREEMENTS................................................ 28
Section 5.01 Inspection of Records; Confidentiality................. 28
--------------------------------------
Section 5.02 Registration Statement; Stockholder Approval........... 29
--------------------------------------------
Section 5.03 Affiliate Letters...................................... 30
-----------------
Section 5.04 Brokers................................................ 30
-------
Section 5.05 Cooperation............................................ 30
-----------
Section 5.06 Regulatory Applications................................ 30
-----------------------
Section 5.07 Financial Statements and Reports....................... 31
--------------------------------
Section 5.08 Notice................................................. 31
------
I-ii
<PAGE>
Section 5.09 Press Releases......................................... 31
--------------
Section 5.10 Delivery of Supplements to Disclosure Schedules........ 31
-----------------------------------------------
Section 5.11 Litigation Matters..................................... 32
------------------
Section 5.12 Options; RRP; BBI Employee Stock Ownership Plan;
Employment Agreements; Benefits and Related Matters.... 32
---------------------------------------------------
Section 5.13 Extent of Knowledge.................................... 35
-------------------
Section 5.14 Tax Treatment.......................................... 36
-------------
Section 5.15 Stock Exchange Listing................................. 36
----------------------
Section 5.16 Directors' and Officers' Indemnification Insurance..... 36
--------------------------------------------------
Section 5.17 Reservation of Shares.................................. 36
---------------------
Section 5.18 Data Processing and Contracts.......................... 36
-----------------------------
ARTICLE VI.
CONDITIONS........................................................... 37
Section 6.01 Conditions to the Obligations of FCN................... 37
------------------------------------
Section 6.02 Conditions to the Obligations of BBI................... 38
------------------------------------
Section 6.03 Conditions to the Obligations of the Parties........... 39
--------------------------------------------
ARTICLE VII.
TERMINATION; EXPENSES; AMENDMENT; WAIVER............................. 40
Section 7.01 Termination............................................ 40
-----------
Section 7.02 Expenses............................................... 41
--------
Section 7.03 Survival of Agreements................................. 41
----------------------
Section 7.04 Amendment.............................................. 41
---------
Section 7.05 Waiver................................................. 42
------
ARTICLE VIII.
GENERAL PROVISIONS................................................... 42
Section 8.01 Survival............................................... 42
--------
Section 8.02 Notices................................................ 42
-------
Section 8.03 Applicable Law......................................... 44
--------------
Section 8.04 Headings............................................... 44
--------
Section 8.05 Severability........................................... 44
------------
Section 8.06 Entire Agreement; Binding Effect; Non-Assignment;
Counterparts; No Third-Party Beneficiaries............. 44
------------------------------------------
I-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") being made and entered
into as of the 25th day of January 1996, by and between First Chicago NBD
Corporation, a Delaware corporation ("FCN"), and Barrington Bancorp, Inc., a
Delaware corporation ("BBI").
WITNESSETH THAT:
WHEREAS, FCN is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended ("BHC");
WHEREAS, BBI is a registered savings and loan holding company under the
Home Owner's Loan Act, as amended (HOLA");
WHEREAS, the Boards of Directors of FCN and BBI deem it advisable and in
the best interests of the stockholders of FCN and BBI that FCN and BBI become
affiliated by causing BBI to be merged with and into, and under the charter of,
FCN in accordance with the applicable corporation law of the State of Delaware
("Corporate Law") with FCN deemed to be the continuing and surviving entity (the
"Merger"), pursuant to which the stockholders of BBI will receive shares of
common stock, $1.00 par value per share, of FCN ("FCN Common Stock") as provided
herein in exchange for their shares of common stock, $.01 par value per share,
of BBI ("BBI Common Stock"); and
WHEREAS, FCN and BBI desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also desire to set
forth various conditions precedent to the Merger.
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements herein contained, the parties agree as follows:
ARTICLE I.
THE MERGER
Section 1.01 Effects of the Merger.
---------------------
(a) Surviving Corporation. Subject to the terms and conditions of
---------------------
this Agreement, BBI shall be merged with and into, and under the charter of, FCN
at the Effective Time (as defined below) in accordance with the Corporate Law
with FCN being the continuing and surviving corporation (sometimes referred to
hereinafter as the "Surviving Corporation"), and the separate existence of BBI
shall cease.
I-1
<PAGE>
(b) Effective Time. The Merger shall become effective at the date
--------------
and time specified in the Certificate of Merger accepted for filing by the
Secretary of State of the State of Delaware (the "Effective Time"). The parties
shall execute, acknowledge and file, in accordance with the Corporate Law, the
Certificate of Merger upon the satisfaction of all conditions precedent to the
consummation of the transactions contemplated by this Agreement.
(c) Rights and Liabilities. The Surviving Corporation shall be
----------------------
called "First Chicago NBD Corporation", and shall possess all of the properties,
privileges, immunities, powers, franchises and rights of a public as well as a
private nature and be subject to all of the liabilities, restrictions and duties
of FCN and BBI and be governed by the laws of the State of Delaware.
(d) Restated Certificate of Incorporation. The Restated Certificate
-------------------------------------
of Incorporation of FCN shall be the Restated Certificate of Incorporation of
the Surviving Corporation until amended in accordance with the provisions
thereof and the applicable Corporate Law.
(e) Bylaws. The Bylaws of FCN in effect immediately prior to the
------
Effective Time shall be the Bylaws of the Surviving Corporation until altered,
amended or repealed as provided therein, or in the Restated Certificate of
Incorporation of the Surviving Corporation or the applicable Corporate Law.
(f) Directors and Officers. The directors of the Surviving
----------------------
Corporation shall be the persons who were directors of FCN immediately prior to
the Effective Time. The officers of the Surviving Corporation shall be the
persons who were officers of FCN immediately prior to the Effective Time.
(g) Advisory Directors. The directors and employees of BBI named on
------------------
Exhibit 1.01(g) hereto shall be entitled to become a member of the Barrington,
Illinois Advisory Board (to be established by FCN upon the Effective Time) for
such terms set forth on such Exhibit. Meetings of the Barrington, Illinois
Advisory Board shall be held at least once every six months, and each member of
the Barrington, Illinois Advisory Board shall receive compensation of $250 per
meeting attended.
(h) Accounting. For accounting purposes, it is intended that the
----------
Merger shall be accounted for as a purchase.
Section 1.02 Conversion of Stock. At the Effective Time:
-------------------
(a) FCN Common Stock. Each share of FCN Common Stock which is
----------------
issued immediately prior thereto (whether then outstanding or held in the
treasury of FCN) shall continue to be issued without any change therein and
shall continue as one share of Common Stock of the Surviving Corporation.
I-2
<PAGE>
(b) BBI Common Stock. Each share of BBI Common Stock which is issued
----------------
and outstanding immediately prior to the Effective Time (other than "Excluded
Shares," which shall mean (i) shares of BBI Common Stock held by BBI, FCN and
their respective subsidiaries, which shall be canceled, but not those held in a
fiduciary capacity or in satisfaction of debts previously contracted, and (ii)
Dissenting Shares as defined in Section 1.02(d) hereof) shall, by virtue of the
Agreement and without any action on the part of the holder thereof, be converted
into and represent the right to receive and be exchangeable into a number of
shares of FCN Common Stock (rounded to the nearest thousandth of a share) equal
to a fraction, the numerator of which shall be equal to $25.85, and the
denominator of which shall be equal to the average closing price per share of
FCN Common Stock (as reported on the New York Stock Exchange Composite Tape
(the"NYSE Tape")) for the ten consecutive trading days ending on the fifth
trading day prior to the Effective Time as reported in the Wall Street Journal,
Midwest Edition (such fraction being the "Exchange Ratio", which shall be
rounded to the nearest thousandth of a share), subject to the payment of cash in
lieu of fractional shares in accordance with Section 1.04 hereof.
(c) Actions Affecting FCN Common Stock. If, prior to the Effective
----------------------------------
Time, shares of FCN Common Stock shall be changed into a different number of
shares or a different class of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment, or
there occurs a distribution of warrants or rights with respect to FCN Common
Stock, or a stock dividend or stock split is declared with a record date prior
to the Effective Time, then in any such event the Exchange Ratio shall be
appropriately adjusted.
(d) Dissenting Shares. Any shares of BBI Common Stock held by a
-----------------
holder who dissents from the Merger in accordance with the Corporate Law and
becomes entitled to obtain payment for the fair value of such shares of BBI
Common Stock pursuant to the applicable provisions of the Corporate Law shall be
herein called "Dissenting Shares." Notwithstanding any other provision of this
Agreement, any Dissenting Shares shall not, after the Effective Time, be
entitled to vote for any purpose or receive any dividends or other distributions
and shall be entitled only to such rights as are afforded in respect of
Dissenting Shares pursuant to the Corporate Law.
Section 1.03 Time and Place of Closing.
-------------------------
(a) Closing; Closing Date. The closing of the transactions
---------------------
contemplated by this Agreement (the "Closing") will be held on a date mutually
agreed upon by FCN and BBI (the "Closing Date"). In the absence of such
agreement, the Closing shall be held on the tenth business day after the last to
occur of: (i) the receipt of all consents and approvals of government
regulatory authorities as legally required to consummate the Merger and the
expiration of all statutory waiting periods; and (ii) the requisite approval of
the Merger by the stockholders of BBI.
(b) Closing Location. The closing shall take place at the offices
----------------
of FCN or such other place as FCN and BBI may mutually agree prior to the
Closing Date.
I-3
<PAGE>
Section 1.04 Exchange of BBI Common Stock.
----------------------------
(a) Exchange Procedures. As soon as practicable after the Effective
-------------------
Time, the Exchange Agent, which shall be First Chicago Trust Company of New
York, or such other exchange agent as shall be selected by FCN and reasonably
acceptable to BBI, shall mail to each holder of record of a certificate or
certificates (other than certificates representing Excluded Shares) which as of
the Effective Time represented outstanding shares of BBI Common Stock (the
"Certificates"): (i) a form 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 (or a lost
certificate affidavit and bond in a form reasonably acceptable to the Exchange
Agent); and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration (as herein defined). The
"Merger Consideration" shall mean the number of whole shares of FCN Common Stock
into which the BBI Common Stock shall have been converted by virtue of the
Merger as provided above and the cash value of any fraction of a share of FCN
Common Stock as provided below. Upon surrender of a Certificate for
cancellation to the Exchange Agent (or a lost certificate affidavit and bond in
a form reasonably acceptable to the Exchange Agent), together with such letter
of transmittal, duly executed, the holder of such Certificate shall be entitled
to receive as soon as reasonably practical thereafter the Merger Consideration
and the Certificate so surrendered shall forthwith be cancelled. In the event
of a transfer of ownership of BBI Common Stock which is not registered in the
transfer records of BBI, the Merger Consideration may be issued to a transferee
if the Certificate representing such BBI Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by any applicable stock transfer and other taxes. No interest
shall be payable on or with respect to the cash in lieu of fractional shares.
(b) Delivery of Merger Consideration to Exchange Agent. At or prior
--------------------------------------------------
to the Effective Time, FCN shall deliver to the Exchange Agent the aggregate
Merger Consideration to be paid for all of the issued and outstanding shares of
BBI Common Stock other than Excluded Shares. On an as-required basis, FCN shall
promptly and timely tender to the Exchange Agent additional cash funds required
for the payment of cash in lieu of fractional shares. The Merger Consideration
remaining in the hands of the Exchange Agent for non-surrendered Certificates
shall be returned to FCN at the expiration of one year from the Effective Time
as provided in Section 1.04(c) below.
(c) Failure to Exchange BBI Common Stock. No dividends or other
------------------------------------
distributions declared with respect to FCN Common Stock payable to the holders
of record thereof on or after the Effective Time shall be paid to the holder of
any non-surrendered Certificate with respect to FCN Common Stock represented
thereby until the holder of record shall surrender such Certificate. Subject to
the effect, if any, of applicable law, after the subsequent surrender and
exchange of a Certificate, the holder thereof shall be entitled to receive any
such dividends or distributions, without interest thereon, which theretofore
became payable with respect to the FCN Common Stock represented by such
Certificate. All dividends or other distributions declared with respect to the
FCN Common Stock and payable to the holders of
I-4
<PAGE>
record thereof on or after the Effective Time which are payable to the holder of
a Certificate not theretofore surrendered and exchanged for FCN Common Stock
pursuant to this Section 1.04 shall either, at the option of the Surviving
Corporation, be paid or delivered by the Surviving Corporation to the Exchange
Agent in trust either at the option of the Surviving Corporation, for the
benefit of such holders or held by the Surviving Corporation in trust for the
benefit of such holders. All such dividends and distributions held by the
Exchange Agent for payment or delivery to the holders of non-surrendered
Certificates unclaimed at the end of one year from the Effective Time shall be
repaid or redelivered by the Exchange Agent to the Surviving Corporation after
which time any holder of Certificates who has not theretofore surrendered such
Certificates to the Exchange Agent, subject to applicable law, shall look as a
general creditor only to the Surviving Corporation for payment or delivery of
such dividends or distributions, as the case may be. Any Merger Consideration
delivered or made available to the Exchange Agent pursuant to this Section 1.04
and not exchanged for Certificates within one year after the Effective Time
pursuant to this Section 1.04 shall be returned by the Exchange Agent to the
Surviving Corporation which shall thereafter act as Exchange Agent subject to
the rights of holders of non-surrendered Certificates.
(d) Full Payment. All shares of FCN Common Stock issued upon the
------------
surrender for exchange of BBI Common Stock shall thereupon be validly issued and
outstanding, fully paid and non-assessable, and shall not be liable to any
further call, nor shall the holder thereof be liable for any further payments
with respect thereto.
(e) Fractional Shares. No certificates or scrip representing
-----------------
fractional shares of FCN Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution of the Surviving
Corporation shall relate to any factional share, and such fractional share
interests will not entitle the owner thereof to vote or to any other rights of a
stockholder of the Surviving Corporation. In lieu of any fractional share, the
Exchange Agent or the Surviving Corporation, as the case may be, shall pay to
each holder of shares of BBI Common Stock who otherwise would be entitled to
receive a fractional share of FCN Common Stock an amount of cash (without
interest) equal to the product achieved when such fraction is multiplied by the
closing price of FCN Common Stock on the New York Stock Exchange ("NYSE") on the
trading day immediately preceding the Effective Time, as reported in the Wall
Street Journal, Midwest Edition, rounded to the nearest cent.
(f) List of BBI Stockholders. At the Effective Time, BBI shall
------------------------
deliver a certified copy of a list of its stockholders to the Exchange Agent,
after which there shall be no further registrations or transfers on the stock
transfer books of BBI of the shares of BBI Common Stock that were outstanding
immediately prior thereto. If, after the Effective Time, Certificates
representing such shares are presented to BBI or FCN, they shall be canceled and
exchanged as provided in this Article I.
Section 1.05 Conversion and/or Merger of First Federal Savings Bank of
---------------------------------------------------------
Barrington. The parties understand that it is the present intention of FCN to
- ----------
convert First Federal Savings Bank of Barrington ("BBI Bank"), a wholly owned
subsidiary of BBI, into a
I-5
<PAGE>
national banking association at or after the Effective Time and/or to merge BBI
Bank into one of FCN's national bank Subsidiaries (retaining BBI Bank's existing
office as a branch) at or after the Effective Time (collectively, the "Bank
Merger"). BBI shall take all such actions as are reasonably requested by FCN so
that FCN may accomplish such conversion and merger as aforesaid. Nothing
contained in this Section 1.05 is intended to impose an obligation on FCN to
alter the manner in which FCN or any FCN Subsidiary conducts business; provided,
however, that FCN, to the extent required by law, shall cause its national bank
Subsidiary into which BBI Bank is merged to assume BBI Bank's liquidation
account.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF FCN
FCN represents and warrants to BBI that:
Section 2.01 Organization. (a) FCN is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware
and has all requisite power and authority, corporate and otherwise, to own,
operate and lease its assets, properties and business and to carry on its
business substantially as it has been and is now being conducted. FCN is duly
qualified to do business and is in good standing in each jurisdiction where the
character of the assets or properties owned or leased by it or the nature of the
business transacted by it requires that it be so qualified, except where the
failure to so qualify would not have a Material Adverse Effect (as herein
defined) on FCN or its ability to consummate the transactions contemplated
herein. FCN has all requisite corporate power and authority to enter into this
Agreement and, subject to the receipt of all requisite regulatory approvals and
the expiration of applicable waiting periods, to consummate the transactions
contemplated hereby. FCN is duly registered as a bank holding company under BHC.
(b) As used in this Agreement, the term "Material Adverse Effect" with
respect to an entity means any condition, event, change or occurrence that has
or may reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), properties, business, operations or results of
operations, of such entity and its Subsidiaries taken as a whole; it being
understood that a Material Adverse Effect shall not include: (i) a change with
respect to, or effect on, such entity and its Subsidiaries resulting from a
change in law, rule, regulation, generally accepted accounting principles or
regulatory accounting principles, including, but not limited to, a change that
would require the bad debt reserve of a thrift institution to be restored to
income; (ii) a change with respect to, or effect on, such entity and its
Subsidiaries resulting from expenses (such as legal, accounting and investment
bankers' fees) incurred in connection with this Agreement; (iii) a change with
respect to, or effect on, such entity and its Subsidiaries resulting from any
other matter affecting depository institutions generally including, without
limitation, changes in general economic conditions and changes in prevailing
interest and deposit rates; or (iv) any one-time special insurance premium
assessed
I-6
<PAGE>
by the Federal Deposit Insurance Corporation ("FDIC") on deposits insured by the
Savings Association Insurance Fund ("SAIF").
Section 2.02 Authorization. The execution, delivery and performance of
-------------
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of FCN. This
Agreement has been duly executed and delivered by FCN and, subject to receipt of
such approvals of regulatory authorities as may be required by statute or
regulation, constitutes the valid and binding obligation of FCN and is
enforceable against FCN (except to the extent that enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles or doctrines).
Section 2.03 Conflicts. Subject to the second sentence of this
---------
Section 2.03, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict with or
result in any violation, breach or termination of, or default or loss of a
material benefit under, or permit the acceleration of any obligation under, or
result in the creation of any material lien, charge or encumbrance on any of the
property or assets under, any provision of the Restated Certificate of
Incorporation or Bylaws of FCN or similar documents of any FCN Subsidiary (as
defined in Section 2.07 hereof) or any mortgage, indenture, lease, agreement or
other instrument, permit, concession, grant, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to FCN or
any FCN Subsidiary or their respective properties, other than those which (i)
will be cured or waived prior to the Effective Time; (ii) which will not have a
Material Adverse Effect on FCN; or (iii) are disclosed in Section 2.03 of that
certain confidential writing delivered by FCN to BBI within two business days
prior to the date hereof (the "FCN Disclosure Schedule"). No consent, approval,
order or authorization of, or registration, declaration or filing with, any
federal or state governmental authority is required by or with respect to FCN in
connection with the execution and delivery of this Agreement or the consummation
by FCN of the transactions contemplated hereby except for: (a) the filing of
all applicable regulatory applications by FCN, BBI and/or their respective
Subsidiaries for approval of the execution and delivery of this Agreement and
the consummation of the transactions contemplated by this Agreement; (b) the
filing by FCN of the registration statement relating to the FCN Common Stock to
be issued pursuant to this Agreement (the "Registration Statement") with the SEC
and various blue sky authorities, which Registration Statement shall include the
prospectus/proxy statement for use in connection with the BBI Stockholders'
Meeting (the "Proxy Statement"); (c) the filing of the Certificate of Merger
with respect to the Merger with the Secretary of State of the State of Delaware;
(d) any filings, approvals or no-action letters with or from state securities
regulators; (e) any anti-trust filings, consents, waivers or approvals; and (f)
the approval of this Agreement and the transactions contemplated hereby by the
shareholders of BBI.
Section 2.04 Anti-takeover Provisions Inapplicable. No "business
-------------------------------------
combination," "moratorium," "control share" or other state anti-takeover statute
or regulation (i) prohibits or restricts FCN's ability to perform its
obligations under this Agreement or its ability to consummate the transactions
contemplated hereby, (ii) would have the effect of invalidating or
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<PAGE>
voiding this Agreement or any provision hereof, or (iii) would subject BBI to
any material impediment or condition in connection with the exercise of any of
its rights under this Agreement.
Section 2.05 Capitalization. As of the date hereof, the authorized
--------------
capital stock of FCN consists of (i) 750,000,000 shares of FCN Common Stock,
$1.00 par value per share, of which, as of December 31, 1995, 315,241,109 shares
were issued and outstanding, and (ii) 10,000,000 shares of preferred stock,
without par value, of which, as of December 31, 1995, 2,104,574 were issued and
outstanding. All of the issued and outstanding shares of FCN Common Stock have
been, and all of the shares of FCN Common Stock to be issued in the Merger will
be, at the Effective Time, duly and validly authorized and issued, and are or
will be, as the case may be, fully paid and non-assessable. None of the
outstanding shares of FCN Common Stock has been issued in violation of any
preemptive rights of the current or past stockholders of FCN and none of the
outstanding shares of FCN Common Stock is or will be entitled to any preemptive
rights in respect of the Merger or any of the other transactions contemplated by
this Agreement.
Section 2.06 FCN Financial Statements; Material Changes. FCN has
------------------------------------------
heretofore delivered to BBI its audited supplemental consolidated financial
statements contained in its Form 8-K Report dated December 4, 1995 (the "FCN
Financial Statements"). The FCN Financial Statements (x) are true and correct
in all material respects; (y) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto, and except in the
case of unaudited consolidated financial statements for the absence of footnotes
and for normal recurring year-end adjustments which are not material); and (z)
fairly present the consolidated financial position of FCN as of the dates
thereof and the consolidated results of its operations, stockholders' equity,
cash flows and changes in financial position for the periods then ended. Since
September 30, 1995 to the date hereof, FCN has not undergone or suffered any
changes in its condition (financial or otherwise), which would have a Material
Adverse Effect on FCN except as disclosed in Section 2.06 of the FCN Disclosure
Schedule or in the FCN Financial Statements or, for purposes of Section 6.02
hereof, as disclosed by FCN in its documents filed with the SEC on or prior to
the second business day before the start of the ten consecutive trading day
period referenced in Section 1.02(b) hereof.
Section 2.07 FCN Subsidiaries. (a) Except for directors' qualifying
----------------
shares, FCN owns directly or indirectly all of the issued and outstanding shares
of capital stock of the FCN Significant Subsidiaries. All of the shares of
capital stock of each FCN Significant Subsidiary held by FCN or a FCN
Significant Subsidiary are fully paid and non-assessable and are owned free and
clear of any claim, lien or encumbrance, except as disclosed on Section 2.07 of
the FCN Disclosure Schedule.
(b) Each FCN Significant Subsidiary is either a bank or a corporation
and is duly organized, validly existing and in good standing under the laws of
the jurisdiction in which it is incorporated or organized, and is duly qualified
to do business and in good standing in each
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jurisdiction where the character of the assets or properties owned or leased by
it or the nature of the business transacted by it requires it to be so
qualified, except where the failure to so qualify, either individually or in the
aggregate, would not have a Material Adverse Effect on FCN or the ability of FCN
to consummate the transactions contemplated herein. Each FCN Significant
Subsidiary has the corporate power and authority necessary for it to own,
operate or lease its assets, properties and business and to carry on its
business as it has been and is now being conducted.
(c) For purposes of this Agreement, an "FCN Subsidiary" or a
"Subsidiary" of FCN shall mean each corporation, financial institution and other
entity which is consolidated with FCN for financial reporting purposes;
provided, however, there shall not be included any such entity acquired in good
faith through foreclosure, or any such entity to the extent that the equity
securities of such entity are owned or controlled in a bona fide fiduciary
capacity; and an "FCN Significant Subsidiary" or "Significant Subsidiary" of FCN
shall mean any Significant Subsidiary within the meaning of Rule 1-02 of
Regulation S-X of the SEC.
Section 2.08 FCN Filings. FCN has previously made available, or will
-----------
make available prior to the Effective Time, to BBI true and correct copies of
(i) proxy statements of NBD Bancorp, Inc. ("NBD") and First Chicago Corporation
("FCC"), the predecessor corporations to FCN, relating to all meetings of their
respective stockholders (whether special or annual) during calendar years 1994
and 1995 and (ii) all other reports, as amended, or filings, as amended,
required to be filed under the Securities and Exchange Act of 1934, as amended
(the "Securities Exchange Act") by FCC, NBD or FCN with the SEC since January 1,
1994, including without limitation, all reports on Forms 10-K, 10-Q and 8-K.
Section 2.09 FCN Reports. Since January 1, 1994, each of NBD, FCC and
-----------
FCN, and the FCN Significant Subsidiaries, has filed, and will continue to file,
all reports and statements, together with any amendment required to be made with
respect thereto, that it was, or will be required to file with the SEC, the
Federal Reserve Board, the Office of the Comptroller of the Currency ("OCC"),
the FDIC, the NASD and other applicable banking, securities and other regulatory
authorities except where the failure to make such filing has not or will not
have a Material Adverse Effect on FCN. There is no unresolved violation,
criticism or exception by the SEC, Federal Reserve Board, OCC, FDIC or other
agency, commission or entity with respect to any report or statement referred to
herein that is likely to have a Material Adverse Effect on FCN.
Section 2.10 Compliance with Laws. (a) Except as disclosed in Section
--------------------
2.10 of the FCN Disclosure Schedule, the businesses of FCN and the FCN
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any governmental entity, including, without limitation, any laws
affecting financial institutions (including those pertaining to the Bank Secrecy
Act, the investment of funds, the lending of money, the collection of interest
and the extension of credit), federal and state securities laws, laws and
regulations relating to financial statements and reports, truth-in-lending,
truth-in-savings, usury, fair credit reporting, consumer protection,
occupational safety, fair employment practices, fair labor standards and
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laws and regulations relating to employee benefits, and any statutes or
ordinances relating to the properties occupied or used by FCN or any FCN
Subsidiary, except for possible violations which either singly or in the
aggregate do not and, insofar as reasonably can be foreseen in the future, will
not have a Material Adverse Effect on FCN.
(b) Except as disclosed in Section 2.10 of the FCN Disclosure
Schedule, no investigation or review by any governmental entity with respect to
FCN or any FCN Subsidiary is pending or, to the best knowledge of FCN,
threatened, nor has any governmental entity indicated to FCN an intention to
conduct the same, other than normal regulatory examinations or those the outcome
of which will not have a Material Adverse Effect on FCN.
(c) FCN and each of the FCN Subsidiaries, where applicable, is in
substantial compliance with the applicable provisions of the Community
Reinvestment Act of 1977 and the regulations promulgated thereunder. As of the
date of this Agreement, FCN has not been advised of the existence of any fact or
circumstance or set of facts or circumstances which, if true, would cause FCN or
any of the FCN Subsidiaries to fail to be in substantial compliance with such
provisions. No FCN Subsidiary that is a financial institution has a Community
Reinvestment Act rating from an applicable regulatory authority which is less
than "satisfactory."
Section 2.11 Disclosure. None of the written information supplied by
----------
FCN for inclusion in the Proxy Statement relating to the BBI Stockholders'
Meeting or the information relating to FCN and the FCN Subsidiaries in the
Registration Statement, will, in the case of the Proxy Statement or any
amendments thereof or supplements thereto, at the time of the BBI Stockholders'
Meeting or, in the case of the Registration Statement, at the time it becomes
effective and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Registration Statement will comply as to form in all
material respects with the provisions of the Securities Act of 1933, as amended,
and the rules and regulations thereunder (the "Securities Act").
Section 2.12 Litigation. Except as disclosed in Section 2.12 of the
----------
FCN Disclosure Schedule, there is no suit, action, investigation or proceeding,
legal, quasi-judicial, administrative or otherwise, pending or, to the best
knowledge of FCN, threatened, against or affecting FCN or any FCN Subsidiary, or
any of their respective officers, directors, employees or agents, in their
capacities as such, which in the reasonable judgment of FCN is likely to have a
Material Adverse Effect on FCN or materially adversely affect the ability of FCN
to consummate the transactions contemplated herein or which is seeking to enjoin
consummation of the transactions provided for herein.
Section 2.13 Taxes. Except as disclosed in Section 2.13 of the FCN
------
Disclosure Schedule, FCN and the FCN Significant Subsidiaries have each timely
filed all tax and information returns required to be filed, except for such
failures to file as cannot be reasonably expected to have a Material Adverse
Effect on FCN. FCN and its Significant Subsidiaries have
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<PAGE>
duly and timely paid, or established adequate reserves for the payment of, or is
contesting in good faith, all taxes required to be paid in respect of the
periods covered by such returns.
Section 2.14 FCN Benefit Plans. Each of the FCN benefit plans that is
-----------------
qualified under Section 401(a) of the Code ("FCN Qualified Plans") has been
determined by the Internal Revenue Service to qualify under Section 401(a) of
the Code, or an application for determination of such qualification has been
timely made to the Internal Revenue Service prior to the end of the applicable
remedial amendment period under Section 401(b) of the Code, and, to the best of
FCN's knowledge, there exist no circumstances likely to materially adversely
affect the qualified status of any such FCN Qualified Plan. All such FCN
Qualified Plans established or maintained by FCN or any of the FCN Subsidiaries
or to which FCN or any of the FCN Subsidiaries contribute are in compliance in
all material respects with all applicable requirements of ERISA, and are in
compliance in all material respects with all applicable requirements (including
qualification and non-discrimination requirements in effect as of the Effective
Time) of the Code for obtaining the tax benefits the Code thereupon permits with
respect to such FCN Qualified Plans.
Section 2.15 Compliance With Environmental Laws. Except as set forth in
----------------------------------
Section 2.15 of the FCN Disclosure Schedule, all real property owned or occupied
by FCN or any of its Subsidiaries (the "FCN Real Property"), is in compliance
with all applicable environmental laws and regulations, except for such non-
compliance as cannot be reasonably expected to have a Material Adverse Effect on
FCN. To the knowledge of FCN, there are no outstanding citations, notices of
violation, or orders of noncompliance issued to FCN or any of its Significant
Subsidiaries, nor have FCN or any of its Significant Subsidiaries been advised
that any such citation, notice of violation or order of noncompliance is
contemplated, pursuant to any environmental law or regulation relating to any
such FCN Real Property owned or occupied by FCN or any of its Significant
Subsidiaries or relating to any real property no longer owned or occupied by FCN
or any of its Significant Subsidiaries where the failure to cure the subject of
such citation, notice of violation or order of noncompliance could reasonably be
expected to have a Material Adverse Effect on FCN. To the knowledge of FCN,
there are no liens against such FCN Real Property imposed pursuant to any
environmental law or regulation which would have a Material Adverse Effect on
FCN.
Section 2.16 Contracts and Commitments. Section 2.16 of the FCN
-------------------------
Disclosure Schedule contains (and shall be supplemented by FCN, as required by
Section 5.10 hereof, so as to contain at the Closing Date) copies of the
Restated Certificate of Incorporation and Bylaws of FCN, certified by an officer
of FCN to be true and correct copies of such documents on the dates of such
certificates.
Section 2.17 Undisclosed Liabilities. All of the obligations or
-----------------------
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due, and regardless of when asserted) arising out of
transactions or events heretofore entered into, or any action or inaction,
including taxes with respect to or based upon transactions or events heretofore
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<PAGE>
occurring, that are required to be reflected, disclosed or reserved against in
audited consolidated financial statements of FCN in accordance with generally
accepted accounting principles ("Liabilities") have been so reflected, disclosed
or reserved against in the FCN Financial Statements or in the notes thereto, and
FCN and the FCN Subsidiaries have no other Liabilities except (a) Liabilities
incurred since September 30, 1995 in the ordinary course of business or (b)
Liabilities that, either alone or when combined with all similar liabilities,
reasonably could not be expected to have a Material Adverse Effect on FCN.
Section 2.18 Assets. (a) FCN and the FCN Subsidiaries have good and
------
marketable title to their real properties, including leaseholds, and their other
assets and properties, all as reflected as owned or held by FCN in the FCN
Financial Statements, and those acquired since the date of the FCN Financial
Statements, except for assets and properties (i) disposed of since such date or
(ii) the failure to have good and marketable title with respect to which is not
reasonably expected to have a Material Adverse Effect on FCN.
(b) All leases pursuant to which FCN or any FCN Subsidiary, as lessee,
leases real or personal property which are material to the business of FCN on a
consolidated basis are, to the best knowledge of FCN, valid, effective, and
enforceable against the lessor in accordance with their respective terms except
where their invalidity, ineffectiveness or unenforceability is not reasonably
expected to have a Material Adverse Effect on FCN.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF BBI
BBI represents and warrants to FCN that:
Section 3.01 Organization. BBI is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority, corporate and otherwise, to own, operate and
lease its assets, properties and business and to carry on its business
substantially as it has been and is now being conducted. BBI is duly qualified
to do business and is in good standing in each jurisdiction where the character
of the assets or properties owned or leased by it or the nature of the business
transacted by it requires that it be so qualified, except where the failure to
so qualify would not have a Material Adverse Effect on BBI or its ability to
consummate the transactions contemplated herein. BBI has all requisite
corporate power and authority to enter into this Agreement and, subject to the
approval of this Agreement and the Merger by its stockholders and the receipt of
all requisite regulatory approvals and the expiration of any applicable waiting
periods, to consummate the transactions contemplated hereby. BBI is duly
registered as a savings and loan holding company under HOLA.
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<PAGE>
Section 3.02 Authorization. The execution, delivery and performance of
-------------
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of BBI. This
Agreement has been duly executed and delivered by BBI and, subject to receipt of
such approvals of regulatory authorities as may be required by statute or
regulation, constitutes the valid and binding obligation of BBI and is
enforceable against BBI (except to the extent that enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles or doctrines).
Section 3.03 Conflicts. Subject to the second sentence of this
---------
Section 3.03, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict with or
result in any violation, breach or termination of, or default or loss of a
material benefit under, or permit the acceleration of any obligation under, or
result in the creation of any material lien, charge or encumbrance on any
property or assets under, any provision of the Certificate of Incorporation or
Bylaws of BBI or similar documents of any BBI Subsidiary (as defined in Section
3.07 hereof), or any mortgage, indenture, lease, agreement or other instrument,
permit, concession, grant, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to BBI or BBI Bank or their
respective properties, other than those which (i) will be cured or waived prior
to the Effective Time; (ii) which will not have a Material Adverse Effect on BBI
or BBI Bank; or (iii) are disclosed in Section 3.03 of that certain confidential
writing delivered by BBI to FCN within two business days prior to the date
hereof (the "BBI Disclosure Schedule"). No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal or
state governmental authority is required by or with respect to BBI or BBI Bank
in connection with the execution and delivery of this Agreement or the
consummation by BBI of the transactions contemplated hereby, including the Bank
Merger, except for: (a) the filing of all applicable regulatory applications by
FCN, BBI and/or their respective Subsidiaries for approval of the execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement; (b) the filing by FCN of the Registration Statement with the
SEC and various blue sky authorities; (c) the filing of the Certificate of
Merger with respect to the Merger with the Secretary of State of the State of
Delaware; (d) any filings, approvals or non-action letters with or from state
securities regulators; (e) any anti-trust filings, consents, waivers or
approvals; and (f) the approval of this Agreement and the transactions
contemplated hereby by the shareholders of BBI.
Section 3.04 Anti-takeover Provisions Inapplicable. No "business
-------------------------------------
combination," "moratorium," "control share" or other state anti-takeover statute
or regulation, (i) prohibits or restricts BBI's ability to perform its
obligations under this Agreement or its ability to consummate the transactions
contemplated hereby, (ii) would have the effect of invalidating or voiding this
Agreement or any provision hereof, or (iii) would subject FCN to any material
impediment or condition in connection with the exercise of any of its right
under this Agreement.
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<PAGE>
Section 3.05 Capitalization. (a) As of the date hereof, the authorized
--------------
capital stock of BBI consists of (i) 1,100,000 shares of BBI Common Stock, $0.01
par value, of which 661,250 shares were issued and outstanding and no shares
were held as treasury shares as of December 31, 1995 and (ii) 100,000 shares of
preferred stock, $0.01 par value, of which none are issued and outstanding. All
of the issued and outstanding shares of BBI Common Stock have been duly and
validly authorized and issued, and are fully paid and non-assessable. None of
the outstanding shares of BBI Common Stock has been issued in violation of any
preemptive rights of current or past stockholders or are subject to any
preemptive rights of the current or past stockholders of BBI. All of the issued
and outstanding shares of BBI Common Stock will be entitled to vote to approve
this Agreement and the Merger.
(b) As of December 31, 1995, BBI had 66,125 shares of BBI Common Stock
reserved for issuance under the BBI 1993 Stock Option and Incentive Plan (the
"BBI Stock Option Plan") for the benefit of employees and directors of BBI and
BBI Bank, pursuant to which options covering 54,896 shares of BBI Common Stock
were outstanding as of such date (the "BBI Stock Options"). As of December 31,
1995, 22,861 shares of BBI Common Stock were outstanding under BBI Bank's
Recognition and Retention Plan and Trust (the "RRP"). As of December 31, 1995,
52,900 shares of BBI Common Stock were outstanding under the BBI Employee Stock
Ownership Plan ("ESOP"). Except as set forth in this Section, there are no
shares of capital stock or other equity securities of BBI outstanding and no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of BBI or BBI
Bank, or contracts, commitments, understandings, or arrangements by which
either BBI or BBI Bank is or may be bound to issue additional shares of its
capital stock or options, warranties, or rights to purchase or acquire any
additional share of its capital stock. Each BBI Stock Option has an exercise
price of $10.00 per share, except that one participant under the BBI Stock
Option Plan has a BBI Stock Option, covering 2,000 shares of BBI Common Stock,
with an exercise price of $19.50 per share. Neither the execution or delivery
of this Agreement, the approval of the Merger and this Agreement by the BBI
stockholders nor the consummation of the transactions contemplated herein will
accelerate the vesting or exercisability of any BBI Stock Options or BBI Common
Stock issued or outstanding pursuant to the BBI Stock Option Plan or RRP.
Section 3.06 BBI Financial Statements; Material Changes. BBI has
------------------------------------------
heretofore delivered to FCN its audited, consolidated financial statements for
fiscal years ended December 31, 1994 and December 31, 1993 and its unaudited
consolidated financial statements for the quarters ended March 31, 1995, June
30, 1995 and September 30, 1995 (together the "BBI Financial Statements"). The
BBI Financial Statements (x) are true and correct in all material respects; (y)
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto, and except in the case of the unaudited
consolidated financial statements for the absence of footnotes and for normal
and recurring year-end adjustments which are not material); and (z) fairly
present the consolidated financial position of BBI as of the dates thereof and
the consolidated results of its operations, stockholders' equity, cash flows and
changes in financial
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<PAGE>
position for the periods then ended. Since December 31, 1994 to the date
hereof, BBI and its Subsidiary have not undergone or suffered any changes in
their respective condition (financial or otherwise), properties, business or
operations which have been, in any case or in the aggregate, materially adverse
to BBI on a consolidated basis except as disclosed in Section 3.06 of the BBI
Disclosure Schedule.
Section 3.07 BBI Subsidiaries. (a) The only Subsidiary of BBI is BBI
----------------
Bank. BBI owns directly or indirectly all of the issued and outstanding shares
of capital stock of BBI Bank. As of the date hereof, the authorized capital
stock of BBI Bank consists of (i) 1,100,000 shares of common stock, $.01 par
value, of which as of December 31, 1995, 661,250 shares were issued and
outstanding and no shares were held as treasury shares and (ii) 100,000 shares
of preferred stock with no par value, of which, as of December 31, 1995, none
were issued and outstanding. Except as set forth in Section 3.07 of the BBI
Disclosure Schedule, neither BBI nor BBI Bank owns directly or indirectly any
debt or equity securities, or other proprietary interest in any other
corporation, joint venture, partnership, entity, association or other business.
All of the shares of capital stock of BBI Bank held by BBI are fully paid and
non-assessable and are owned free and clear of any claim, lien or encumbrance,
except as disclosed in Section 3.07 of the BBI Disclosure Schedule.
(b) BBI Bank is a federally-chartered stock savings institution and is
duly organized and validly existing under the laws of the United States. BBI
Bank has the corporate power and authority necessary for it to own, operate or
lease its assets, properties and business and to carry on its business
substantially as it has been and is now being conducted.
(c) For purposes of this Agreement, a "BBI Subsidiary" or a
"Subsidiary" of BBI shall mean each corporation, savings bank, association, and
other entity in which BBI owns or controls directly or indirectly 10% or more of
the outstanding equity securities; provided, however, there shall not be
included any such entity acquired in good faith through foreclosure, or any such
entity to the extent that the equity securities of such entity are owned or
controlled in a bona fide fiduciary capacity.
(d) BBI Bank is a member in good standing of the Federal Home Loan
Bank System. All eligible deposit accounts issued by BBI Bank are insured by
the FDIC through the SAIF to the full extent permitted under applicable law.
BBI Bank is, and at all times since June 1, 1990 has been, a "domestic building
and loan association" as defined in Section 7701(a)(19) of the Code and a
"qualified thrift lender" as defined in Section 10(m) of HOLA. The liquidation
account established by BBI Bank in connection with its conversion from mutual to
stock form has been maintained since its establishment in accordance with
applicable laws and the records with respect to said account are complete and
accurate in all material respects.
Section 3.08 BBI Filings. BBI has previously made available, or will
-----------
make available prior to the Effective Time, to FCN true and complete copies of
the (i) proxy statements relating to all meetings of stockholders (whether
special or annual) of BBI during calendar years 1993, 1994 and 1995 and (ii) all
other reports, as amended, or filings, as amended, required to be filed
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<PAGE>
under the Securities Exchange Act by BBI with the SEC since January 1, 1994,
including without limitation, all reports on Forms 10-KSB, 10-QSB and 8-K.
Section 3.09 BBI Reports. Since January 1, 1994, each of BBI and BBI
-----------
Bank has filed, and will continue to file, all reports and statements, together
with any amendment required to be made with respect thereto, that it has, or
will be, required to file with the SEC, the OTS, the FDIC, the NASD and other
applicable banking, securities and other regulatory authorities. As of their
respective dates (and without giving effect to any amendments or modifications
filed after the date of this Agreement with respect to reports and documents
filed before the date of this Agreement), each of such reports and documents,
including the financial statements, exhibits, and schedules thereto, complied in
all material respects with all of the statutes, rules and regulations enforced
or promulgated by the authority with which they were filed and did not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Except for normal
examinations conducted by the Internal Revenue Service, state and local taxing
authorities, the OTS or the FDIC in the regular course of the business of BBI or
BBI Bank, no federal, state or local governmental agency, commission or other
entity has initiated any proceeding or, to the best knowledge of BBI,
investigation into the business or operations of BBI or BBI Bank within the past
two years except as set forth in Section 3.09 of the BBI Disclosure Schedule.
There is no unresolved violation, criticism or exception by the SEC, OTS, FDIC
or other agency, commission or entity with respect to any report or statement
referred to herein that is material to BBI or BBI Bank.
Section 3.10 Compliance With Laws. (a) Except as disclosed in Section
--------------------
3.10 of the BBI Disclosure Schedule, the businesses of BBI and BBI Bank are
being conducted, in all material respects, in compliance with all laws,
ordinances or regulations of governmental authorities, including without
limitation, laws affecting financial institutions (including those pertaining to
the Bank Secrecy Act, the investment of funds, the lending of money, the
collection of interest and the extension of credit), federal and state
securities laws, laws and regulations relating to financial statements and
reports, truth-in-lending, truth-in-savings, usury, fair credit reporting,
consumer protection, occupational safety, fair employment practices, fair labor
standards and laws and regulations relating to employee benefits, and any
statutes or ordinances relating to the properties occupied or used by BBI or BBI
Bank.
(b) Except as disclosed in Section 3.10 of the BBI Disclosure
Schedule, no investigation or review by any governmental entity with respect to
BBI or BBI Bank is pending or, to the best knowledge of BBI, threatened, nor has
any governmental entity indicated to BBI an intention to conduct the same, other
than normal thrift regulatory examinations and those the outcome of which will
not have a Material Adverse Effect on BBI.
(c) BBI and BBI Bank, where applicable, is in substantial compliance
with the applicable provisions of the Community Reinvestment Act of 1977 and the
regulations promulgated thereunder. As of the date of this Agreement, BBI has
not been advised of the existence of any fact or circumstance or set of facts or
circumstances which, if true, would cause
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BBI or BBI Bank to fail to be in substantial compliance with such provisions.
BBI Bank does not have a Community Reinvestment Act rating from an applicable
regulatory authority which is less than "satisfactory."
Section 3.11 Disclosure. None of the information supplied by BBI for
----------
inclusion in the Proxy Statement or in the Registration Statement, will, in the
case of the Proxy Statement or any amendments thereof, at the time of the BBI
Stockholders' Meeting or, in the case of the Registration Statement, at the time
it becomes effective and at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
Section 3.12 Litigation. Except as disclosed in Section 3.12 of the
----------
BBI Disclosure Schedule, there is no suit, action, investigation or proceeding,
legal, quasi-judicial, administrative or otherwise, pending or, to the best
knowledge of BBI, threatened, against or affecting BBI or BBI Bank or any of
their respective officers, directors, employees or agents, in their capacities
as such, which is seeking equitable relief or damages against BBI, BBI Bank, or
any of their respective officers, directors, employees or agents, in their
capacities as such, in excess of $50,000, or which would materially affect the
ability of BBI to consummate the transactions contemplated herein or which is
seeking to enjoin consummation of the transactions provided for herein or to
obtain other relief in connection with this Agreement or the transactions
contemplated hereby, nor is there any judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency, instrumentality
or arbitrator outstanding against BBI or BBI Bank or any of their respective
officers, directors, employees or agents, in their capacities as such, having,
or which, insofar as reasonably can be foreseen in the future, would have any
such effect.
Section 3.13 Licenses. BBI and BBI Bank hold all licenses, certificates,
--------
permits, franchises and all patents, trademarks, service marks, trade names,
copyrights or right thereto, and required authorizations, approvals, consents,
licenses, clearances and orders or registrations with all appropriate federal,
state or other authorities that are material to the conduct of their respective
businesses as now conducted and as presently proposed to be conducted.
Section 3.14 Taxes. (a) Except as disclosed in Section 3.14 of the BBI
-----
Disclosure Schedule, BBI and BBI Bank have each timely filed all tax and
information returns required to be filed, except for such failures to file as
cannot be reasonably expected to have a Material Adverse Effect on BBI. BBI and
BBI Bank have paid (or BBI has paid on behalf of BBI Bank), or have accrued on
their respective books and set up an adequate reserve for the payment of, all
taxes reflected on such returns as required to be paid in respect of the periods
covered by such returns and have accrued on their respective books and set up an
adequate reserve for the payment of all income and other taxes anticipated to be
payable in respect of periods through the end of the calendar month next
preceding the date hereof. Neither BBI nor BBI Bank is delinquent in the
payment of any tax, assessment or governmental charge. No deficiencies for any
taxes have been proposed, asserted or assessed against BBI or BBI Bank that
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have not been resolved or settled and no requests for waivers of the time to
assess any such tax are pending or have been agreed to. The income tax returns
of BBI and BBI Bank have not been audited by the Internal Revenue Service,
state, municipal or other taxing authority since 1994. Neither BBI nor BBI Bank
is a party to any action or proceeding by any governmental authority for the
assessment or the collection of taxes. Deferred taxes of BBI and BBI Bank have
been accounted for in accordance with generally accepted accounting principles.
(b) BBI has not filed any consolidated federal income tax return with
an "affiliated group" (within the meaning of Section 1504 of the Code) where BBI
was not the common parent of the group. Neither BBI nor BBI Bank is, or has
been, a party to any tax allocation agreement or arrangement pursuant to which
it has any contingent or outstanding liability to anyone other than BBI or BBI
Bank.
(c) BBI and BBI Bank have each withheld amounts from its employees,
stockholders, or holders of public deposit accounts in compliance with the tax
withholding provisions of applicable federal, state and local laws, have filed
all federal, state and local returns and reports for all periods for which such
returns or reports would be due with respect to income tax withholding, social
security, unemployment taxes, income and other taxes and all payments or
deposits with respect to such taxes have been timely made.
Section 3.15 Insurance. BBI and BBI Bank maintain insurance with
---------
insurers which in the best judgment of management of BBI are sound and
reputable, on their respective assets, and upon their respective businesses and
operations, against loss or damage, risks, hazards and liabilities as in their
judgment they deem appropriate. BBI and BBI Bank maintain in effect all
insurance required to be carried by law or by any agreement by which they are
bound. All material claims under all policies of insurance maintained by BBI
and BBI Bank have been filed in due and timely fashion.
Section 3.16 BBI Benefit Plans. (a) Section 3.16 of the BBI Disclosure
-----------------
Schedule contains a list and a true and correct copy (or, a description with
respect to any oral employee benefit plan, practice, policy or arrangement),
including all amendments thereto, of each compensation, consulting, employment,
termination or collective bargaining agreement, and each stock option, stock
purchase, stock grant, stock appreciation right, ESOP, life, health, accident or
other insurance, bonus, deferred or incentive compensation, severance or
separation agreement or any agreement providing any payment or benefit resulting
from a change in control, profit sharing, retirement, or other employee benefit
plan, practice, policy or arrangement of any kind, oral or written, covering
employees, former employees, directors or former directors of BBI or BBI Bank or
their respective beneficiaries, including, but not limited to, any employee
benefit plans within the meaning of Section 3(3) of ERISA, which BBI or BBI Bank
maintains, to which BBI or BBI Bank contributes, or under which any employee,
former employee, director or former director of BBI or BBI Bank is covered or
has benefit rights and pursuant to which any liability of BBI or BBI Bank
exists or is reasonably likely to occur (the "BBI Benefit Plans"). Except as
set forth in Section 3.16 of the BBI Disclosure Schedule, BBI and BBI Bank
neither maintain nor have entered into any BBI Benefit Plan or other document,
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<PAGE>
plan or agreement which contains any change in control provisions which would
cause an increase or acceleration of benefits or benefit entitlements to
employees or former employees of BBI or BBI Bank or their respective
beneficiaries, or other provisions, which would cause an increase in the
liability of BBI or BBI Bank or to FCN or any FCN Subsidiary as a result of the
transactions contemplated by this Agreement or any related action thereafter (a
"Change in Control Benefit"). The term "BBI Benefit Plans" as used herein
refers to all plans contemplated under the preceding sentences of this Section
3.16, provided that the term "Benefit Plan" or "Benefit Plans" is used in this
Agreement for convenience only and does not constitute an acknowledgment that a
particular arrangement is an employee benefit plan within the meaning of Section
3(3) of ERISA. No Benefit Plan is a multi-employer plan within the meaning of
Section 3(37) of ERISA.
(b) Each of the BBI Benefit Plans that is intended to be a pension,
profit sharing, stock bonus, thrift or savings plan that is qualified under
Section 401(a) of the Code ("BBI Qualified Plans") has been determined by the
Internal Revenue Service to qualify under Section 401(a) of the Code, or an
application for determination of such qualification has been timely made to the
Internal Revenue Service prior to the end of the applicable remedial amendment
period under Section 401(b) of the Code (a copy of each such determination
letter or pending application is included in Section 3.16 of the BBI Disclosure
Schedule) and, to the best of BBI's knowledge, there exist no circumstances
likely to materially adversely affect the qualified status of any such BBI
Qualified Plan. All such BBI Qualified Plans established or maintained by BBI
or any of BBI Bank or to which BBI or BBI Bank contribute are in compliance in
all material respects with all applicable requirements of ERISA, and are in
compliance in all material respects with all applicable requirements (including
qualification and non-discrimination requirements in effect as of the Effective
Time) of the Code for obtaining the tax benefits the Code thereupon permits with
respect to such BBI Qualified Plans. Neither BBI nor BBI Bank is a plan sponsor
of, or contributes to, a defined benefit pension plan which is subject to Title
IV of ERISA. All accrued contributions and other payments required to be made
by BBI or BBI Bank to any BBI Benefit Plan through December 31, 1995, have been
made or reserves adequate for such purposes as of December 31, 1995, have been
set aside therefor and will be reflected in the BBI Financial Statements, dated
as of December 31, 1995. Neither BBI nor BBI Bank is in material default in
performing any of its respective contractual obligations under any of the BBI
Benefit Plans or any related trust agreement or insurance contract, and there
are no material outstanding liabilities of any such Plan other than liabilities
for benefits to be paid to participants in such Plan and their beneficiaries in
accordance with the terms of such Plan.
(c) There is no pending or, to the best knowledge of BBI, threatened
litigation or pending claim (other than benefit claims made in the ordinary
course) by or on behalf of or against any of the BBI Benefit Plans (or with
respect to the administration of any such Plans) now or heretofore maintained by
BBI or BBI Bank which allege violations of applicable state or federal law which
are reasonably likely to result in a liability on the part of BBI or BBI Bank or
any such Plan.
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(d) BBI and BBI Bank and all other persons having fiduciary or other
responsibilities or duties with respect to any BBI Benefit Plan are and have
since the inception of each such Plan been in substantial compliance with, and
each such Plan is and has been operated in substantial accordance with, its
provisions and in substantial compliance with the applicable laws, rules and
regulations governing such Plan, including, without limitation, the rules and
regulations promulgated by the Department of Labor, the PBGC and the Internal
Revenue Service under ERISA, the Code or any other applicable law.
Notwithstanding the foregoing, no representation is made with respect to
compliance by a third party insurance company. No "reportable event" (as
defined in Section 4043(b) of ERISA) has occurred with respect to any BBI
Benefit Plan. No BBI Benefit Plan has engaged in or been a party to a
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975(c)
of the Code). All BBI Benefit Plans that are group health plans have been
operated in compliance with the group health plan continuation requirements of
Section 4980B of the Code and Section 601 of ERISA.
(e) Neither BBI nor BBI Bank has made any payments, or is or has been
a party to any agreement or any BBI Benefit Plan, that under any circumstances
could obligate it to make payments that are or will not be deductible because of
Sections 162(m) or 280G of the Code.
(f) Section 3.16 of the BBI Disclosure Schedule describes any
obligation that BBI or BBI Bank has to provide health or welfare benefits to
retirees or other former employees, directors or their dependents (other than
rights under Section 4980B of the Code or Section 601 of ERISA), including
information as to the number of retirees, other former employees or directors
and dependents entitled to such coverage and their ages.
(g) Section 3.16 of the BBI Disclosure Schedule lists: (i) each
employment, compensation, consulting, severance or termination agreement to
which BBI or BBI Bank is a party; (ii) each BBI Stock Option, showing the holder
thereof, the number of shares, the exercise price per share, the vesting dates
thereof, and a copy of the option agreements relating thereto; and (iii) each of
the RRP participants, showing the number of outstanding shares of BBI Common
Stock credited to each participant and the vesting dates thereof.
(h) BBI and BBI Bank have filed or caused to be filed, and will
continue to file or cause to be filed, in a timely manner all filings pertaining
to each BBI Benefit Plan with the Internal Revenue Service and the Department of
Labor, as prescribed by the Code or ERISA, or regulations issued thereunder.
All such filings, as amended, were complete and accurate in all material
respects as of the dates of such filings, and there were no misstatements or
omissions in any such filing which would be material to the financial condition
of BBI on a consolidated basis. Notwithstanding the foregoing, no
representation is made with respect to filings by a third party insurance
company.
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(i) None of the actions taken or contemplated to be taken in
accordance with Section 5.12(c) of this Agreement will violate or conflict with
any agreement or understanding with the ESOP trustee.
Section 3.17 Compliance with Environmental Laws. (a) Except as set
----------------------------------
forth in Section 3.17 of the BBI Disclosure Schedule, all real property owned or
occupied by BBI or BBI Bank (the "BBI Real Property"), is in compliance with all
applicable environmental laws and regulations, except for such non-compliance as
cannot be reasonably expected to have a Material Adverse Effect on BBI. To the
knowledge of BBI, there are no outstanding citations, notices of violation, or
orders of noncompliance issued to BBI or BBI Bank, nor have BBI or BBI Bank been
advised that any such citation, notice of violation or order of noncompliance is
contemplated, pursuant to any environmental law or regulation relating to any
such BBI Real Property owned or occupied by BBI or relating to any real property
no longer owned or occupied by BBI or BBI Bank where the failure to cure the
subject of such citation, notice of violation or order of noncompliance could
reasonably be expected to have a Material Adverse Effect on BBI. To the
knowledge of BBI, there are no liens against such BBI Real Property imposed
pursuant to any environmental law or regulation which would have a Material
Adverse Effect on BBI.
Section 3.18 Contracts and Commitments. Section 3.18 of the BBI
-------------------------
Disclosure Schedule contains (and shall be supplemented by BBI, as required by
Section 5.10 hereof, so as to contain at the Closing Date) copies of each of the
following documents, certified by an officer of BBI to be true and correct
copies of such documents on the dates of such certificates:
(a) A list and description of each outstanding loan agreement,
mortgage, pledge agreement or other similar document or commitment to extend
credit to any officer or director of BBI or BBI Bank.
(b) A list and description of each outstanding letter of credit and
each commitment to issue a letter of credit in excess of $50,000 to which BBI or
BBI Bank is a party and/or under which it may (contingently or otherwise) have
any liability.
(c) A list and description of each contract or agreement (not
otherwise included in the BBI Disclosure Schedule or specifically excluded
therefrom in accordance with the terms of this Agreement) involving goods,
services or occupancy and which (i) has a term of more than six months; (ii)
cannot be terminated on thirty days (or less) written notice without penalty;
and (iii) involves an annual expenditure by BBI or BBI Bank in excess of
$25,000.
(d) The Certificate of Incorporation, Charter and Bylaws of BBI and
BBI Bank.
(e) A list and description of all powers of attorney granted by BBI or
BBI Bank which are currently in force.
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(f) A list of all policies of insurance currently maintained by BBI or
BBI Bank and a list of all unsettled or outstanding claims of BBI or BBI Bank
which have been, or to the best knowledge of BBI, will be, filed with the
companies providing insurance coverage for BBI or BBI Bank (except for routine
claims for health benefits).
(g) Each lease or license with respect to real or personal property,
whether as lessor, lessee, licensor or licensee, with annual rental or other
payments due thereunder in excess of $50,000 to which BBI or BBI Bank is a
party, which does not expire within six months from the date hereof and cannot
be terminated upon 30 days (or less) written notice without penalty.
(h) All employment, consulting, advisory and professional services
contracts or arrangements to which BBI or BBI Bank is a party, including an
estimate of the fees and expenses paid or payable thereunder.
(i) All judgments, orders, injunctions, court decrees or settlement
agreements arising out of or relating to the labor and employment practices or
decisions of BBI or BBI Bank which, by their terms, continue to bind or affect
BBI or BBI Bank.
(j) All orders, decrees, or other agreements with regulatory agencies
binding upon or affecting the current operations of BBI or BBI Bank or any of
their directors of officers in their capacities as such.
(k) All trademarks, trade names, service marks, patents, or
copyrights, whether registered or the subject of an application for
registration, which are owned by BBI or BBI Bank or licensed from a third party.
(l) All contracts, agreements, commitments and understandings with any
labor union or guild (including any collective bargaining agreement).
(m) Each other agreement to which BBI or BBI Bank is a party (which
does not expire within six months from the date hereof and cannot be terminated
upon 30 days (or less) written notice without penalty) which individually during
its term could commit BBI or BBI Bank to an expenditure (either individually or
through a series of installments) in excess of $50,000 or which creates a
material right or benefit to receive payments, goods or services not referred to
elsewhere in this Section 3.18 including without limitation:
(i) each agreement of guaranty or indemnification running to
any person;
(ii) each agreement containing any covenant limiting the right
of BBI or BBI Bank to engage in any line of business or to
compete with any person;
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(iii) each agreement with respect to any license, permit and
similar matter that is necessary to the operations of BBI
or BBI Bank;
(iv) each agreement that requires the consent or approval of any
other party in order to consummate the Merger;
(v) each agreement relating to the servicing of loans and each
mortgage forward commitment and similar agreement pursuant
to which BBI or BBI Bank sells to others mortgages which it
originates;
(vi) each contract relating to the purchase or sale of financial
or other futures, or any put or call option relating to
cash, securities or commodities and each interest rate swap
agreement or other agreement relating to the hedging of
interest rate risks; and
(vii) each contract or agreement (with the exception of the
Federal National Mortgage Association or Federal Home Loan
Mortgage Corporation Seller's Guide), including but not
limited to each contract or agreement pursuant to which BBI
or BBI Bank has sold, transferred, assigned or agreed to
service any loan, which provides for any recourse or
indemnification obligation on the part of BBI or BBI Bank.
Section 3.19 Defaults. There has not been any default in any material
--------
obligation to be performed by BBI or BBI Bank under any material contract or
commitment, and neither BBI or BBI Bank has waived, and will not waive prior to
the Effective Time, any material right under any material contract or
commitment. To the best knowledge of BBI, no other party to any material
contract or commitment is in default in any material obligation to be performed
by such party.
Section 3.20 Corporate Records. The corporate record books, transfer
-----------------
books and stock ledgers of BBI and BBI Bank are complete and accurate in all
material respects and reflect all meetings, consents and other material actions
of the organizers, incorporators, stockholders, Boards of Directors and
committees of the Boards of Directors of BBI and BBI Bank and all transactions
in their respective capital stocks, since their respective inceptions.
Section 3.21 Undisclosed Liabilities. All of the Liabilities have, in
-----------------------
the case of BBI and BBI Bank, been reflected, disclosed or reserved against in
the BBI Financial Statements or in the notes thereto, and BBI and BBI Bank have
no other Liabilities except (a) Liabilities incurred since September 30, 1995 in
the ordinary course of business or (b) as disclosed in Section 3.21 of the BBI
Disclosure Schedule.
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Section 3.22 Assets. (a) BBI and BBI Bank have good and marketable
------
title to their real properties, including any leaseholds and ground leases, and
their other assets and properties, all as reflected as owned or held by BBI or
BBI Bank in the BBI Financial Statements dated as of September 30, 1995, and
those acquired since such date, except for (i) assets and properties disposed of
since such date in the ordinary course of business and (ii) liens (except taxes
which are a lien but not yet payable and easements, rights-of-way and other non-
monetary restrictions which are not material) none of which, in the aggregate,
except as set forth in Section 3.22 of the BBI Disclosure Schedule, are material
to the assets of BBI on a consolidated basis. All buildings, structures,
fixtures and appurtenances comprising part of the real properties of BBI and BBI
Bank (whether owned or leased) are in good operating condition and have been
well maintained, reasonable wear and tear excepted. Title to all real property
owned by BBI and BBI Bank, including its main office at 120 S. Hough Street,
Barrington, Illinois, is held in fee simple, except as otherwise noted in the
BBI Financial Statements as of September 30, 1995, or as set forth in Section
3.22 of the BBI Disclosure Schedule. BBI or BBI Bank have title or other rights
to their respective assets sufficient in all material respects for the conduct
of their respective businesses as presently conducted, and except as set forth
in the BBI Financial Statements as of September 30, 1995 or in Section 3.22 of
the BBI Disclosure Schedule, free, clear and discharged of and from any and all
liens, charges, encumbrances, security interests and/or equities which are
material to BBI or BBI Bank.
(b) All leases pursuant to which BBI or BBI Bank as lessee, leases
real or personal property which are material to the business of BBI on a
consolidated basis are, to the best knowledge of BBI, valid, effective, and
enforceable against the lessor in accordance with their respective terms. There
is not under any of such leases any existing default, or any event which with
notice or lapse of time or both would constitute a default, with respect to
either BBI or BBI Bank, or to the best knowledge of BBI, the other party.
Except as disclosed in Section 3.22 of the BBI Disclosure Schedule, none of such
leases contains a prohibition against assignment by BBI or BBI Bank, by
operation of law or otherwise, or any other provision which would preclude the
Surviving Corporation or BBI Bank from possessing and using the leased premises
for the same purposes and upon the same rental and other terms upon the
consummation of the Merger as are applicable to the use by BBI or BBI Bank as of
the date of this Agreement.
Section 3.23 Indemnification. To the best knowledge of BBI, except as
---------------
set forth in Section 3.23 of the BBI Disclosure Schedule, no action or failure
to take action by any director, officer, employee or agent of BBI or any BBI
Subsidiary has occurred which would give rise to a claim or a potential claim by
any such person for indemnification from BBI or any BBI Subsidiary under any
corporate indemnification provisions of BBI or any BBI Subsidiary in effect on
the date of this Agreement (whether contained in BBI's or BBI Bank's Certificate
of Incorporation, Charter or Bylaws or arising by virtue of any contract,
resolution or other agreement or document).
ARTICLE IV.
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<PAGE>
COVENANTS OF FCN AND BBI
Section 4.01 Business in Ordinary Course.
---------------------------
(a) During the period from the date of this Agreement to the Effective
Time, BBI shall, and shall cause its Subsidiary to, conduct its business only in
the ordinary and usual course consistent with past practices and shall, and
shall cause such Subsidiary to, use its best efforts to maintain and preserve
its business organization, employees and advantageous business relationships and
retain the services of its officers and key employees.
(b) Without the prior written consent of FCN, BBI shall not declare,
set aside or pay any dividend or make any other distribution with respect to its
capital stock whether in cash, stock or other property, after the date of this
Agreement, except for the declaration and payment of regular quarterly cash
dividends on the BBI Common Stock in an amount not to exceed the amount of the
most recent quarterly cash dividend paid by BBI prior to the date of this
Agreement; provided, however, that the parties agree that BBI shall coordinate
the declaration of dividends on BBI Common Stock, and the record date and
payment dates relating thereto, with the dividend record and payment dates for
FCN Common Stock so that the holders of BBI Common Stock shall not receive two
dividends, or fail to receive one dividend, for any quarter with respect to
their shares of BBI Common Stock.
(c) Except as expressly provided herein, during the period from the
date hereof to the Effective Time, BBI and BBI Bank will not, without the prior
written consent of FCN, and except as set forth in Schedule 4.01 of the BBI
Disclosure Schedule:
(i) issue, sell or pledge any capital stock or any options,
warrants, or other rights to subscribe for or purchase
capital stock or any securities convertible into or
exchangeable for any capital stock, except pursuant to
options outstanding on the date hereof under the BBI
Stock Option Plan or pursuant to the exercise of the
Stock Option Agreement dated of even date hereof, between
FCN and BBI (the "FCN Stock Option Agreement") in
accordance with its terms;
(ii) directly or indirectly redeem, purchase or otherwise
acquire any capital stock or ownership interests of BBI
or BBI Bank (except for the acquisition of shares held in
a fiduciary capacity or in satisfaction of debts
previously contracted);
(iii) effect a reclassification, recapitalization, split-up,
exchange of shares, readjustment or other similar change
in or to any capital stock or otherwise merge, liquidate,
reorganize or recapitalize;
(iv) change its Charter, Certificate of Incorporation or
Bylaws;
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<PAGE>
(v) enter into, adopt or amend any employment agreement,
severance agreement, change of control agreement or
similar agreement or plan relative to the foregoing; or
grant any increase (other than ordinary and normal
increases consistent with past practices) in the
compensation payable or to become payable to directors,
officers or employees; or except as required by law, pay
or agree to pay any bonus, or adopt or make any change
in any bonus, insurance, pension, or other BBI Benefit
Plan or grant or award any additional shares of BBI
Common Stock under the RRP;
(vi) except in the ordinary course of its business consistent
with past practice, borrow or agree to borrow any funds,
including but not limited to repurchase transactions, or
indirectly guarantee or agree to guarantee any
obligations of others;
(vii) make or commit to make any new loan or letter of credit
or any new or additional discretionary advance under any
existing line of credit, in a principal amount in excess
of $500,000 or that would increase the aggregate credit
outstanding to any one borrower (or group of affiliated
borrowers) to more than $500,000 (excluding for this
purpose any accrued interest or overdrafts) (except for
new loans, letters of credit or advances in an aggregate
principal amount up to $2,500,000 to Raintree Homes
Inc.), without the prior written consent of FCN , which
approval or rejection shall be given on a timely basis
after delivery by BBI to FCN of the complete loan
package;
(viii) enter into, modify or extend any agreement, contract or
commitment out of the ordinary course of business, other
than letters of credit, loan agreements, deposit
agreements, and other lending, credit and deposit
documents made in the ordinary course of business;
(ix) except in the ordinary course of business, place on any
of its assets or properties any mortgage, pledge, lien,
charge, or other encumbrance;
(x) place on any of its real estate assets or properties any
mortgage, pledge, lien, charge or other encumbrance;
(xi) cancel any material indebtedness owing to it or any
claims which it may possess or waive any rights of
material value;
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(xii) sell or otherwise dispose of any real property or any
material amount of tangible or intangible personal
property other than properties acquired in foreclosure
or otherwise in the ordinary collection of indebtedness
owed to BBI Bank;
(xiii) knowingly or wilfully commit any act or fail to commit
any act which will cause a material breach of any
agreement, contract or commitment;
(xiv) violate any law, statute, rule, governmental
regulation, or order, which violation might have a
Material Adverse Effect on BBI;
(xv) purchase or commit to purchase any real or personal
property, deposit liabilities or make any capital
expenditure where the amount paid or committed therefor
is in excess of $50,000, except for outstanding
commitments set forth in Section 3.19 of the BBI
Disclosure Schedule;
(xvi) engage in any activity or transaction outside the
ordinary course of business;
(xvii) enter into or acquire any derivatives contract or
structured note;
(xviii) enter into any new, or modify, amend or extend the
terms of any existing, contracts relating to the
purchase or sale of financial or other futures, or any
put or call option relating to cash, securities or
commodities or any interest rate swap agreements or
other agreements relating to the hedging of interest
rate risk; or
(xix) settle any claim, action or proceeding involving
monetary damages, except in the ordinary course of
business consistent with past practice.
(d) BBI and BBI Bank shall not, without the prior written consent of
FCN, wilfully engage in any transaction or wilfully take any action that would
render untrue any of the representations and warranties of BBI contained in
Article III hereof, if such representations and warranties were given as of the
date of such transaction or action.
(e) BBI will, and will cause BBI Bank to, use their best efforts to
maintain their respective properties and assets in their present state of
repair, order and condition, reasonable wear and tear excepted, and to maintain
and keep in full force and effect all policies of insurance presently in effect,
including the insurance of accounts with the FDIC. BBI will, and will cause BBI
Bank to, take all requisite action (including without limitation the making of
claims and the giving of notices) pursuant to its directors' and officers'
liability insurance policy
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or policies in order to preserve all rights thereunder with respect to all
matters known by BBI which could reasonably give rise to a claim prior to the
Effective Time.
(f) BBI and BBI Bank will as soon as possible following the execution
of this Agreement, but in no event later than the Effective Time, (i) amend the
First Federal Savings Bank of Barrington Employee Severance Compensation Plan
(the "Employee Severance Compensation Plan") to provide that such plan shall
terminate one year following the Effective Time and (ii) amend the federal stock
charter of BBI Bank to repeal Section 8(A) effective no later than the Effective
Time.
Section 4.02 Certain Actions. (a) Neither BBI (nor BBI Bank) (i) shall
---------------
solicit, initiate, participate in discussions of, or encourage or take any other
action, directly or indirectly, to facilitate (including by way of the
disclosing or furnishing of any information that it is not legally obligated to
disclose or furnish) any inquiry or the making of any proposal relating to any
Acquisition Transaction (as defined below) or a potential Acquisition
Transaction with respect to itself or BBI Bank or (ii) shall (A) solicit,
initiate, participate in discussions of, or encourage or take any other action,
directly or indirectly, to facilitate any inquiry or proposal, or (B) enter into
any agreement, arrangement, or understanding (whether written or oral) regarding
any proposal or transaction providing for or requiring it to abandon, terminate
or fail to consummate this Agreement, or compensating it or BBI Bank under any
of the instances described in this clause. BBI shall immediately instruct and
otherwise use its best efforts to cause its directors, officers, employees,
agents, advisors (including, without limitation, any investment banker,
attorney, or accountant retained by it or BBI Bank), consultants and other
representatives to comply with such prohibitions. BBI shall immediately cease
any existing activities, discussions, or negotiations with any parties conducted
heretofore with respect to such activities. Notwithstanding the foregoing, BBI
and BBI Bank may provide information at the request of, and/or enter into
negotiations with, a third party with respect to an Acquisition Transaction if
and only if the Board of Directors of BBI shall be advised in a written opinion
of Silver, Freedman & Taff, L.L.P., or other firm of outside counsel reasonably
acceptable to FCN, that such action is advisable in order for the Board of
Directors of BBI to act in a manner which is consistent with its fiduciary
obligations under Delaware law. BBI shall promptly notify FCN orally and in
writing in the event it receives any such inquiry or proposal and shall provide
reasonable detail of all relevant facts relating to such inquiries. This
Section shall not prohibit compliance with Rules 14d-9 and 14e-2 under the
Securities Exchange Act (or with any other applicable laws, regulations or
directives of any public authorities) and shall not prohibit accurate disclosure
by BBI in any document (including the Proxy Statement and the Registration
Statement) or other disclosure under applicable law if, in the reasonable
judgement of the Board of Directors of BBI, upon advice of counsel, disclosure
is appropriate under applicable law.
(b) "Acquisition Transaction" shall, with respect to BBI, mean any of
the following: (i) a merger or consolidation, or any similar transaction (other
than the Merger), of any company with either BBI or BBI Bank, (ii) a purchase,
lease or other acquisition of all or substantially all the assets of either BBI
or BBI Bank, (iii) a purchase or other acquisition of "beneficial ownership" by
any "person" or "group" (as such terms are defined in Section
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13(d)(3) of the Securities Exchange Act) (including by way of merger,
consolidation, share exchange, or otherwise) which would cause such person or
group to become the beneficial owner of securities representing 20% or more of
the voting power of either BBI or BBI Bank , but excluding the acquisition of
beneficial ownership by any employee benefit plan maintained or sponsored by BBI
or (iv) a tender or exchange offer to acquire securities representing 20% or
more of the voting power of BBI.
ARTICLE V.
ADDITIONAL AGREEMENTS
Section 5.01 Inspection of Records; Confidentiality. (a) FCN and BBI
--------------------------------------
shall each afford to the other and to the other's accountants, counsel and other
representatives (and their Subsidiaries) reasonable access during normal
business hours during the period prior to the Effective Time to all of their
respective properties, books, contracts, commitments and records, including all
attorneys' responses to auditors' requests for information, and accountants'
work papers, developed by either of them or their respective Subsidiaries or
their respective accountants or attorneys, and will permit each other and their
respective representatives to discuss such information directly with each
other's officers, directors, employees, attorneys and accountants. FCN and BBI
shall each use their best efforts to furnish to the other all other information
concerning its business, properties and personnel as such other party may
reasonably request. Any failure to comply with this covenant shall be
disregarded if promptly corrected without material adverse consequences to the
other party. The availability or actual delivery of information shall not
affect the representations, warranties, covenants, and agreements of the party
providing such information that are contained in this Agreement or in any
certificates or other documents delivered pursuant hereto.
(b) In the event that this Agreement is terminated, each party
shall return all non-public documents furnished hereunder, shall destroy all
documents or portions thereof prepared by such other party that contain non-
public information furnished by the other party pursuant hereto and, in any
event, shall hold all non-public information confidential unless or until such
information is or becomes a matter of public knowledge or is or becomes known to
the party receiving the information through persons other than the party
providing such information.
Section 5.02 Registration Statement; Stockholder Approval. As soon as
--------------------------------------------
practicable after the date hereof, FCN shall file the Registration Statement
with the SEC, and BBI and FCN shall use their best efforts to cause the
Registration Statement to become effective under the Securities Act. FCN will
take any action required to be taken under the applicable blue sky or securities
laws in connection with the issuance of the shares of FCN Common Stock in the
Merger. Each party shall furnish all information concerning it and the holders
of its capital stock as the other party may reasonably request in connection
with such action. BBI shall call the BBI Stockholders' Meeting as soon as
reasonably practicable after the date of this Agreement for the purpose of
voting upon this Agreement and the Merger. In connection with the BBI
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Stockholders' Meeting, (i) BBI, with the cooperation of FCN, shall prepare the
Proxy Statement as part of the Registration Statement and BBI shall mail the
Proxy Statement to its stockholders and (ii) the Board of Directors of BBI shall
recommend to its stockholders as in the best interests of the stockholders the
approval of this Agreement and the Merger provided, however, that such
recommendation may be withdrawn, modified or amended, or not made at all, after
the receipt by BBI of an offer to effect an Acquisition Transaction (as defined
in Section 4.02 hereof) with BBI if and only if the Board of Directors of BBI
shall be advised in a written opinion of Silver, Freedman & Taff, L.L.P., or
other firm of outside counsel reasonably acceptable to FCN, that such action is
advisable in order for the Board of Directors of BBI to act in a manner which is
consistent with its fiduciary obligations under Delaware law.
Section 5.03 Affiliate Letters. BBI shall use best efforts to obtain and
-----------------
deliver to FCN as promptly as practicable after (and shall use its reasonable
best efforts to obtain and deliver within five business days after) the date
hereof a signed representation letter substantially in the form of Exhibit 5.03
hereto from each executive officer and director of BBI and each stockholder of
BBI or other person who BBI reasonably believes is an "affiliate" of BBI within
the meaning of such term as used in Rule 145 under the Securities Act and shall
use its best efforts to obtain and deliver to FCN a signed representation letter
substantially in the form of Exhibit 5.03 from any person who becomes an
executive officer or director of BBI or any stockholder who becomes such an
"affiliate" after the date hereof as promptly as practicable after (and shall
use its reasonable best efforts to obtain and deliver within five business days
after) such person achieves such status. For a period of at least two years
after the Effective Time, FCN shall file on a timely basis all reports required
to be filed by it pursuant to Section 13 of the Securities Exchange Act, so that
the public information provisions of Rule 144(c) under the Securities Act are
satisfied and the resale provisions of paragraphs (d)(1) and (2) are therefore
available to such affiliates in the event they desire to transfer shares of FCN
Common Stock issued to them in the Merger.
Section 5.04 Brokers. Each of FCN and BBI represents, as to itself and
-------
its Subsidiaries, that no agent, broker, investment banker or other firm or
person or officer or director of either is or will be entitled to any broker's
or finder's fee or any other commission, bonus or similar fee in connection with
any of the transactions contemplated by this Agreement, other than Hovde
Financial, Inc., which has provided advice to BBI at its request in connection
with the Merger and whose fee for such services (which is set forth in Schedule
5.04 of the Disclosure Schedule) shall be paid by BBI.
Section 5.05 Cooperation. Each party covenants that it will use its
-----------
best efforts to bring about the transactions contemplated by this Agreement as
soon as practicable, unless this Agreement is terminated as provided herein.
Subject to the terms and conditions herein provided, each of the parties hereto
agrees to use all reasonable efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement at the earliest practicable time.
In case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the
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proper officers and/or directors of FCN or BBI, as the case may be, shall take
all such necessary action. Each party shall use its reasonable best efforts to
preserve for itself and the other party each available legal privilege with
respect to the confidentiality of their negotiations and related communications,
including the attorney-client privilege. Notwithstanding the foregoing, the
obligations of BBI and its Subsidiary set forth in this Section 5.05 shall be
subject to the fiduciary obligations of the Board of Directors of BBI set forth
in Sections 4.02(a) and 5.02 herein.
Section 5.06 Regulatory Applications. FCN, BBI and/or their respective
-----------------------
Subsidiaries shall, as soon as reasonably practicable, file all necessary
applications relating to the Merger, the Bank Merger, and other transactions
contemplated or this Agreement with all applicable regulatory authorities, and
shall use their best efforts to respond as promptly as practicable to all
inquiries received concerning said applications. In the event of an adverse or
unfavorable determination by any regulatory authority, or in the event the
Merger is challenged or opposed by any administrative or legal proceeding,
whether by the United States Department of Justice or otherwise, the
determination of whether and to what extent to seek appeal or review,
administrative or otherwise, or other appropriate remedies shall be made by FCN.
The party filing an application shall deliver a copy thereof to the other party
in advance of filing with a reasonable opportunity for such other party to
review the application, and copies of all responses from or written
communications from regulatory authorities relating to the Merger or this
Agreement (to the extent permitted by law), and the filing party shall also
deliver a final copy of each regulatory application to the other party promptly
after it is filed with the appropriate regulatory authority. Each party shall
advise the other party periodically of the status of each regulatory
application.
Section 5.07 Financial Statements and Reports. From the date of this
--------------------------------
Agreement and prior to the Effective Time: (a) each party will deliver to the
other, not later than ninety 90 days after the end of any fiscal year, its
Annual Report on Form 10-K or 10-KSB as the case may be (and all schedules and
exhibits thereto) for the fiscal period then ended prepared in conformity with
generally accepted accounting principles; (b) BBI will deliver to FCN not later
than 30 days after the end of any fiscal quarter, the Reports of Condition and
Income filed by each of its Subsidiaries that is a financial institution with
its primary regulator which shall be prepared in accordance with all applicable
rules and regulations; (c) each party will deliver to the other not later than
45 days after the end of each quarter, its Report on Form 10-Q or 10-QSB, as the
case may be, for such quarter as filed with the SEC which shall be prepared in
conformity with generally accepted accounting principles and the rules and
regulations of the SEC; and (d) BBI will deliver to FCN any and all other
material reports filed by BBI or BBI Bank with the SEC, the Federal Reserve
Board, the OCC, the FDIC, the OTS, or any other regulatory agency within three
business days of the filing of any such report.
Section 5.08 Notice. At all times prior to the Effective Time, each
------
party shall promptly notify the other in writing of the occurrence of any event
which will or may result in the failure to satisfy any of the conditions
specified in Sections 6.01 or 6.02 hereof. In the event that either party
becomes aware of the occurrence or impending occurrence of any event which
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would constitute or cause a breach by it of any of its representations and
warranties, covenants or agreements herein in any material respect, or would
have constituted or caused a breach by it of its representations and warranties,
covenants or agreements herein in any material respect, had such an event
occurred or been known prior to the date hereof, said party shall immediately
give detailed and written notice thereof to the other party, and shall, unless
the same has been waived in writing by the other party, use its reasonable
efforts to remedy the same, provided that such efforts, if not successful, shall
not be deemed to satisfy any condition precedent to the Merger.
Section 5.09 Press Releases. Except as provided in Section 4.02(a) or as
--------------
otherwise reasonably determined by a party upon advice of counsel to comply with
its legal obligations, at any time prior to the Effective Time, each party shall
mutually agree with the other prior to the issuance of any press release or
other information to the press or any third party for general circulation with
respect to this Agreement or the transactions contemplated hereby.
Section 5.10 Delivery of Supplements to Disclosure Schedules. Five
-----------------------------------------------
business days prior to the Effective Time, each party will supplement or amend
its Disclosure Schedule with respect to any matter hereafter arising which, if
existing or occurring at or prior to the date of this Agreement, would have been
required to be set forth or described in such Disclosure Schedule or which is
necessary to correct any information in the Disclosure Schedule or in any
representation and warranty made by the disclosing party which has been rendered
inaccurate thereby. For purposes of determining the accuracy of the
representations and warranties of FCN and BBI contained, respectively, in
Articles II and III hereof in order to determine the fulfillment of the
conditions set forth in Section 6.01(a) and 6.02(a) hereof as of the date of
this Agreement, the Disclosure Schedule of each party shall be deemed to include
only that information contained therein on the date it is initially delivered to
the other party.
Section 5.11 Litigation Matters. BBI will consult with FCN about any
------------------
proposed settlement, or any disposition of, any litigation involving amounts in
excess of $50,000.
Section 5.12 Options; RRP; BBI Employee Stock Ownership Plan; Employment
-----------------------------------------------------------
Agreements; Benefits and Related Matters.
----------------------------------------
(a) BBI Stock Option Plan. The BBI Stock Option Plan and each BBI
---------------------
Stock Option outstanding on the date hereof and remaining outstanding
immediately prior to the Effective Time shall, at the Effective Time, be assumed
by FCN and each such option shall be converted automatically into an option to
purchase shares of FCN Common Stock in an amount and at an exercise price
determined as provided below and (otherwise subject to, the terms of BBI's Stock
Option Plan):
(i) The number of shares of FCN Common Stock to be subject to the
substituted option shall be equal to the product of the number of shares of BBI
Common Stock subject to the original option and the Exchange Ratio, provided
that any fractional shares of
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FCN Common Stock resulting from such multiplication shall be rounded to the
nearest share; and
(ii) The exercise price per share of FCN Common Stock under the
substituted option shall be equal to the exercise price per share of BBI Common
Stock under the original option divided by the Exchange Ratio, provided that
such exercise price shall be rounded to the nearest cent.
The adjustment provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Code) shall be and
is intended to be effected in a manner which is consistent with Section 424(a)
of the Code. The duration and other terms of the new option shall be the same
as the original option, except that all references to BBI shall be deemed to be
references to FCN.
Notwithstanding the foregoing, each director of BBI and each employee
of BBI named on Exhibit 5.12(a) hereto and who is a holder of a BBI Stock Option
pursuant to the BBI Stock Option Plan outstanding on the date hereof and
remaining outstanding at the Effective Time shall receive from FCN, as soon as
reasonably practical after the Effective Time, whether or not the BBI Stock
Option is then exercisable, a cash payment in an amount equal to the product of
(i) the number of shares of BBI Common Stock subject to such option listed on
Exhibit 5.12(a) and (ii) the excess, if any, of $25.85 over the exercise price
per share of such option, net of any cash which must be withheld under federal
and state income and employment tax requirements; provided, however, the amount
herein payable to a director or employee shall be subject to a cut-back, if
necessary, so that FCN is not obligated to make a payment in respect of a BBI
Stock Option that will not be deductible, because of Section 280G of the Code.
Such cash payments shall be in consideration for, and shall result in, the
settlement and cancellation of such options only to the extent of the shares
subject to such option listed on Exhibit 5.12(a). The portion of the options
that shall be settled and cancelled shall be the portion scheduled to vest at
the latest dates. As a condition to the receipt of a cash payment in
cancellation of options, each option holder shall execute and deliver to FCN a
cancellation agreement in form and substance reasonably satisfactory to FCN.
(b) RRP. The RRP and each RRP agreement issued thereunder outstanding
---
on the date hereof and remaining outstanding immediately prior to the Effective
Time shall, at the Effective Time, be assumed by FCN. Any shares of FCN Common
Stock ("FCN Restricted Stock") to be issued pursuant to this Agreement in
exchange for shares of BBI Common Stock that are subject to forfeiture
restrictions ("Restricted Stock") under the RRP shall remain subject to the same
forfeiture restrictions formerly applicable to the BBI Common Stock, an
appropriate legend may be made on the certificates for FCN Restricted Stock
issued in the exchange indicating the applicable restrictions and any related
agreement(s) that apply to the vesting or forfeiture of such shares (and the FCN
Restricted Stock shall otherwise be subject to the terms of the RRP) and the
certificates for FCN Restricted Stock may be held in safekeeping by or on behalf
of FCN pending expiration of the forfeiture restrictions.
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Notwithstanding the foregoing, each director of BBI and each employee
of BBI named on Exhibit 5.12(b) hereto and who is a holder of Restricted Stock
pursuant to the RRP outstanding on the date hereof and remaining outstanding at
the Effective Time shall receive from FCN, as soon as reasonably practical after
the Effective Time, whether or not the Restricted Stock is then exercisable, a
cash payment in an amount equal to the product of (i) the number of shares of
Restricted Stock held by or for the account of such director or employee and
listed on Exhibit 5.12(b) and (ii) $25.85, net of any cash which must be
withheld under federal and state income and employment tax requirements;
provided, however, the amount herein payable to a director or employee shall be
subject to a cut-back, if necessary, so that FCN is not obligated to make a
payment in respect of Restricted Stock that will not be deductible, because of
Section 280G of the Code. Such cash payments shall be in consideration for, and
shall result in, the settlement and cancellation of such Restricted Stock only
in respect of the shares of Restricted Stock listed on Exhibit 5.12(b). The
shares of Restricted Stock that shall be deemed settled and cancelled shall be
the shares of Restricted Stock scheduled to vest at the latest dates. As a
condition to the receipt of a cash payment in cancellation of Restricted Stock,
each holder shall execute and deliver to FCN a cancellation agreement in form
and substance reasonably satisfactory to FCN.
(c) BBI Employee Stock Ownership Plan.
---------------------------------
From and after the date of this Agreement through the Effective Time, BBI
and its Subsidiary may make such contributions to the ESOP as BBI and its
Subsidiary shall reasonably determine to maximize repayment of the ESOP loan;
provided, however, that all such contributions shall be deductible by BBI or the
BBI Subsidiary under Section 404 of the Code and otherwise in compliance with
Section 415 of the Code. At or immediately prior to the Effective Time, the
ESOP shall be amended to provide that (i) a participant shall not be required to
be employed on the last day of the plan year to receive allocations thereunder,
(ii) the definition of compensation for all purposes of the ESOP including
allocations under Section 415 of the Code shall be W-2 wages limited, however,
to the amount of W-2 wages received in calendar year 1995, (iii) all accounts
thereunder shall be fully vested and nonforfeitable and (iv) the FCN Common
Stock issued upon the conversion of the BBI Common Stock in the Merger shall
become the qualifying employer security for purposes of the ESOP subject to the
following provisions of this paragraph. From and after the Effective Time
through December 31, 1997, FCN shall make, or shall cause a FCN Subsidiary to
make such maximum annual contributions to the ESOP, as permitted by Sections 404
and 415 of the Code, so as to maximize payments on the ESOP loan as promptly as
practicable and to maintain the ESOP as a separate plan for the benefit of those
persons who are ESOP participants immediately prior to the Effective Time, it
being the intention of the parties that through December 31, 1997 the ESOP will
be maintained exclusively for the benefit of those persons employed by BBI or a
BBI Subsidiary prior to the Effective Time and during such period allocations of
benefits shall be made to them to the maximum extent permitted by law. Upon
payment in full of the ESOP loan on December 31, 1997, FCN shall cause the ESOP
to be terminated or merged into another tax-qualified plan of FCN as soon as
practicable thereafter. FCN, at its expense, may in its discretion file one or
more Applications for Determination with the appropriate district office of the
Internal Revenue
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Service (the"Key District Office") relating to the amendment and termination or
merger of the ESOP and the distribution of the assets of the ESOP to
participants, former participants and their beneficiaries and the requirements
of this paragraph shall be subject to any requirements imposed by the Internal
Revenue Service as a condition for determining that the ESOP continues to be
qualified under Section 401(a) and 4975 of the Code. If the ESOP loan has not
been fully retired as of December 31, 1997, then the Application for
Determination will include a request for the conversion to cash of a sufficient
amount of FCN Common Stock to retire the ESOP loan. Upon receipt of a favorable
Determination Letter from the Key District Office in response to the Application
for Determination, FCN shall cause the ESOP to make distribution of benefits
from the ESOP at the earliest practicable time in a manner consistent with the
favorable Determination Letter. In this regard participants, former
participants, and their beneficiaries will be offered the ability to transfer to
or to make a tax-free rollover, to the extent permitted by law, to an individual
retirement account at their election. In the event that a person listed on the
attached Exhibit 5.12(c) is employed by BBI or a BBI Subsidiary immediately
prior to the Effective Time, then such person shall as soon as practicable
following the calendar year of his termination of employment, or if earlier upon
the termination or merger of the ESOP be paid by FCN or an FCN Subsidiary an
amount equal to the aggregate of (i) the cash amount set forth opposite his/her
name on Exhibit 5.12(c) plus (ii) $25.85 divided by the Exchange Ratio (as
adjusted for recapitalizations, stock splits and the like but not stock
dividends) multiplied by the difference between (x) the amount of shares listed
opposite his/her name on Exhibit 5.12(c) multiplied by the Exchange Ratio (as
adjusted for recapitalizations, stock splits, stock dividends and the like) and
(y) the number of shares of FCN Common Stock allocated to his/her account under
the ESOP as of the end of the calendar year following such employment
termination plus (iii) the amount of the cash dividends on the number of shares
of FCN Common Stock resulting from (x)-(y) above with record dates on or after
the Effective Time through the date of termination of employment; provided,
however, that FCN shall not be obligated to make any such cash payment under any
circumstances in which such payments are or will not be deductible because of
Section 280G of the Code and provided further, that the amount specified in
Exhibit 5.12(c) shall be subject to verification and confirmation by FCN prior
to payment. Notwithstanding the forgoing, BBI shall make an application to the
Key District Office for a determination letter or ruling relating to the
proposed termination of the ESOP as of the Effective Time providing for the
conversion to cash of a sufficient number of FCN Common Stock received in the
Merger with respect to unallocated employer securities to fully retire the ESOP
loan with all remaining unallocated employer securities (or proceeds) being
allocated as ESOP earnings to participants or former participants of the ESOP
without any amount thereof being subject to limitation on allocation under
Section 415 of the Code. In the event that a favorable determination letter or
ruling is received by BBI prior to December 31, 1996 relating to the matters set
forth in the preceding sentence and allocations to participants consistent with
such favorable determination letter or ruling will result in the same or
substantially the same economic value to the persons listed on Exhibit 5.12(c)
as would be received by such persons had the ESOP been continued through
December 31, 1997, then the ESOP may be terminated by FCN with distribution of
assets being made as soon as practicable thereafter with recipients being given
the opportunity for transfer or tax-free rollover to individual retirement
accounts.
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(d) Written Agreements with Employees. As soon as practicable
---------------------------------
following the execution of this Agreement, BBI and/or BBI Bank will enter into
new employment agreements with Messrs. Hugh H. Palmer and Peter S. Fidler and
Ms. Georgeanna Smalarz in a form reasonably acceptable to BBI and FCN for the
periods set forth in the next sentence, in exchange for the cancellation and
termination of their existing severance agreements as of the Effective Time.
FCN agrees to continue to employ Messrs. Hugh H. Palmer and Peter S. Fidler and
Ms. Georgeanna Smalarz at their same compensation currently in effect as of the
Effective Time for a period of 24 months, 18 months and 18 months, respectively.
FCN shall assume all of the obligations of BBI Bank under the Employee Severance
Plan. The rights of BBI or BBI Bank employees under the Employee Severance Plan
shall be deemed for all purposes of this Agreement to be vested contractual
rights of such employees and the obligation of FCN with respect thereto shall
survive the Effective Time.
(e) Continuing Employees. To the extent permitted by applicable
--------------------
law, from and after the Effective Time, the former employees of BBI and BBI Bank
who are continuing employees of FCN or any FCN Subsidiary after the Effective
Time (the "Continuing Employees") shall be entitled to participate in the
applicable FCN benefit plans and receive full credit for their prior employment
with BBI and BBI Bank as if they were then employed by FCN or an FCN Subsidiary
for purposes of eligibility to participate in, vesting and benefits (but not
accrual of benefits under any FCN defined benefit plans); except, however, any
Continuing Employee shall not participate in any FCN defined contribution
retirement plan for plan years prior to 1998 during which they received
allocations under the ESOP and any Continuing Employee who terminates employment
for any reason after the Effective Time and receives severance payments pursuant
to or calculated based upon the Employee Severance Plan shall not be entitled to
severance or other benefits under the FCN Reduction in Workforce Policy or any
successor FCN severance or reduction policy or plans. The Continuing Employees
will not be subject to any exclusion or penalty for pre-existing conditions that
were covered under the BBI health plan immediately prior to the Effective Time
or any waiting period relating to coverage under the FCN health plan. Effective
one year following the Effective Time, Continuing Employees rights under the
Employee Severance Plan shall terminate.
Section 5.13 Extent of Knowledge. For purposes of this Agreement and any
-------------------
other certificate or document delivered by one party to the other pursuant
hereto, the "best knowledge" of FCN or BBI shall be limited to matters actually
known to any of its executive officers.
Section 5.14 Tax Treatment. Neither BBI or BBI Bank, nor FCN or any of
-------------
the FCN Subsidiaries, shall voluntarily take any action which would disqualify
the transaction contemplated in this Agreement as a "reorganization" pursuant to
Section 368(a) of the Code.
Section 5.15 Stock Exchange Listing. FCN shall use its best efforts to
----------------------
list on the NYSE subject to official notice of issuance, the shares of FCN
Common Stock to be issued in the Merger.
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Section 5.16 Directors' and Officers' Indemnification Insurance. FCN
--------------------------------------------------
agrees that the Merger shall not affect or diminish any of BBI's or BBI Bank's
duties and obligations of indemnification existing immediately prior to the
Effective Time in favor of employees, agents, directors, or officers of BBI or
BBI Bank arising by virtue of the Certificate of Incorporation, Charter or
Bylaws of BBI and BBI Bank in the form in effect at the date of this Agreement
or arising by operation of law or arising by virtue of any contract, resolution
or other agreement or document existing at the date of this Agreement, and such
duties and obligations shall continue in full force and effect for so long as
they would (but for the Merger) otherwise survive and continue in full force and
effect. FCN shall cause the persons serving as officers and directors of BBI
and BBI Bank immediately prior to the Effective Time to be covered for a period
of three years from the Effective Time by the directors' and officers' liability
insurance policy maintained by BBI and BBI Bank (provided that FCN may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are not materially less advantageous than
such policy) 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.
Section 5.17 Reservation of Shares. FCN shall take all corporate action
---------------------
necessary to reserve for issuance a sufficient number of shares of FCN Common
Stock for delivery pursuant to the plans referred to in Section 5.12(a) hereof.
As soon as practicable after the Effective Time, FCN shall file an appropriate
registration statement or registration statements (which may be done by means of
an amendment to the Registration Statement) with respect to such shares and
shall use its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as necessary to cover
issuance of such shares pursuant to such plans.
Section 5.18 Data Processing and Contracts. To the extent permitted by
-----------------------------
applicable regulatory requirements:
(a) Commencing on the date hereof and continuing through the Effective
Time, BBI agrees to provide reasonable access to its facilities, personnel,
files and equipment, and the facilities, personnel, files and equipment of its
Subsidiary, and agrees to use its reasonable best efforts to provide such access
to third parties providing services or equipment to BBI or its Subsidiary, to
officers, employees, agents and representatives of FCN and its Subsidiaries for
the purpose of FCN effecting a conversion (the "Conversion") of the data
processing and operating systems of BBI and its Subsidiary to the data
processing and operating systems of FCN and its Subsidiaries at the Effective
Time or as soon as possible thereafter as FCN may determine. Such access, which
shall include, without limitation, the right of FCN and its Subsidiaries to
install and test on the premises of BBI and its Subsidiary all equipment and
systems necessary or appropriate to effect the Conversion, the right to train
officers, employees, agents and representatives of BBI and its Subsidiary, and
the right to maintain without cost or expense to FCN or its Subsidiaries
adequate working space on site at BBI and its Subsidiary. Such access and
Conversion activities shall be designed and implemented to the extent reasonably
practicable to limit interference with the normal business of BBI and its
Subsidiary.
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Immediately upon execution of this Agreement and through the Effective Time, BBI
agrees to make available and cause its Subsidiary to make available, Georgeanna
Smalarz, Vice President and Sandy Wilson, Assistant Vice President and any other
officer, employee or agent who BBI management reasonably believes has the
appropriate training and expertise in data processing and operations to work
with FCN and its Subsidiaries in order to effectuate the Conversion. BBI and FCN
agree to jointly review and approve all external communications relating to the
Conversion.
(b) From the effective date of this Agreement through the Effective Time,
BBI agrees that neither it nor its Subsidiary will, except with respect to
loans, extensions of credit and deposit taking activities, enter into, renew,
extend, modify or terminate any contract or other agreement with an aggregate
value in excess of $25,000 (i) without consulting with FCN or (ii) if FCN
advises against such action, unless, in the case of (ii), BBI reasonably
believes such action is in the best interests of BBI and will not unduly
restrict, delay or materially increase the expenses of the Conversion. BBI and
its Subsidiary will use their reasonable efforts to implement prior to the
Effective Time the joint decision of BBI and FCN with respect to any such
agreement.
ARTICLE VI.
CONDITIONS
Section 6.01 Conditions to the Obligations of FCN. Notwithstanding any
------------------------------------
other provision of this Agreement, the obligations of FCN to consummate the
Merger are subject to the following conditions precedent (except as to those
which FCN may chose to waive):
(a) All of the representations and warranties made by BBI in this
Agreement and in any documents or certificates provided by BBI in accordance
with this Agreement shall have been true and correct in all material respects as
of the date of this Agreement and as of the Effective Time as though made on and
as of the Effective Time except for information contained in a subsequent
Disclosure Schedule of BBI relating to any event or series of events arising
after the date hereof which does not have a Material Adverse Effect on BBI or as
otherwise contemplated by this Agreement;
(b) BBI shall have performed in all material respects all obligations
and shall have complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
prior to or at the Effective Time;
(c) There shall not have been any action taken or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any federal or state government or governmental agency or
instrumentality or court, which would prohibit FCN's ownership or operation of
all or a material portion of the business or assets of BBI or BBI Bank, or would
compel FCN to dispose of all or a material portion of the business or assets
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<PAGE>
of BBI Bank, as a result of this Agreement, or which would render FCN or BBI
unable to consummate the transactions contemplated by this Agreement;
(d) Since the date hereof, BBI shall not have suffered Material
Adverse Effect;
(e) FCN shall have received the opinion of Silver, Freedman & Taff,
L.L.P., counsel to BBI, in the form of the attached Exhibit 6.01(e);
(f) FCN shall have received a certificate signed by the President and
Chief Executive Officer of BBI, dated as of the Effective Time, certifying that
based upon his best knowledge, the conditions set forth in Sections 6.01(a),
(b), (c) and (d) hereof have been satisfied; and
(g) All regulatory approvals and consents to consummate the Bank
Merger shall have been received and all required waiting periods shall have
expired.
(h) As of the end of the month ending prior to the Closing Date, the
consolidated stockholders' equity of BBI shall not be less than $11.3 million.
In computing such amount, the determination shall be made in accordance with
generally accepted accounting principles as in effect on the date hereof and
applied consistently with prior periods and there shall be added back the
following expenses, charges and similar amounts which are paid or accrued by BBI
or its Subsidiary: (i) all Merger related expenses for executive compensation,
investment banker fees and expenses, legal fees and expenses, accounting fees
and expenses, expenses of the Stockholder Meeting, expenses for the preparation,
printing and mailing of the proxy statement, and expenses for the preparation of
regulatory applications and the registration statement; (ii) expenses requested
or required in writing by FCN; (iii) any one-time special insurance premium
assessed by the FDIC on deposits insured by the SAIF; (iv) charges related to
any change in generally accepted accounting principles or regulatory accounting
principles that would require the bad debt reserve of a thrift institution to be
restored to income; (v) charges, fees and expenses related to any change with
respect to, or effect on, BBI resulting from any other matter affecting
depository institutions generally, including, without limitation, changes in
general economic conditions and changes in prevailing interest and deposit
rates; and (vi) any other items of expense which are mutually agreed to by BBI
and FCN.
Section 6.02 Conditions to the Obligations of BBI. Notwithstanding any
------------------------------------
other provision of this Agreement, the obligations of BBI to consummate the
Merger are subject to the following conditions precedent (except as to those
which BBI may chose to waive):
(a) All of the representations and warranties made by FCN in this
Agreement and in any documents or certificates provided by FCN in accordance
with this Agreement shall have been true and correct in all material respects as
of the date of this Agreement and as of the Effective Time as though made on and
as of the Effective Time except for information contained in a subsequent
Disclosure Schedule of FCN relating to any event or series of events arising
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<PAGE>
after the date hereof which does not have a Material Adverse Effect on FCN or as
otherwise contemplated by this Agreement;
(b) FCN shall have performed in all material respects all obligations
and shall have complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
prior to or at the Effective Time;
(c) BBI shall have received the opinion of Sherman I. Goldberg,
Executive Vice President, General Counsel and Secretary, to FCN, in the form
attached hereto as Exhibit 6.02(d); and
(d) BBI shall have received a certificate signed by any Executive Vice
President or more senior officer of FCN, dated as of the Effective Time, that
based upon his best knowledge, the conditions set forth in Sections 6.02(a), (b)
and (c) have been satisfied.
Section 6.03 Conditions to the Obligations of the Parties.
--------------------------------------------
Notwithstanding any other provision of this Agreement, the obligations of FCN on
the one hand, and BBI on the other hand, to consummate the Merger are subject to
the following conditions precedent (except as to those which FCN or BBI may
chose to waive):
(a) No preliminary or permanent injunction or other order by any
federal or state court which prevents the consummation of the Merger shall have
been issued and shall remain in effect;
(b) The parties shall have received all applicable regulatory
approvals and consents to consummate the transactions contemplated in this
Agreement and all required waiting periods shall have expired;
(c) The Registration Statement shall have been declared effective
under the Securities Act and no stop orders shall be in effect and no
proceedings for such purpose shall be pending or threatened by the SEC;
(d) Each party shall have received, in form and substance reasonably
satisfactory it, an opinion, dated as of the Effective Time, from its counsel
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)(1)(A) of the Code and FCN and BBI will each
be a party to the reorganization;
(ii) No gain or loss will be recognized by FCN or BBI as a
result of the Merger;
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<PAGE>
(iii) No gain or loss will be recognized by the stockholders of
BBI who exchange their BBI Common Stock solely for FCN
Common Stock pursuant to the Merger (except with respect to
cash received in lieu of a fractional share interest in FCN
Common Stock);
(iv) The tax basis of the FCN Common Stock received by
stockholders who exchange all of their BBI Common Stock
solely for FCN Common Stock in the Merger will be the same
as the tax basis of the BBI Common Stock 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 FCN Common Stock received by
stockholders of BBI in the Merger will include the period
during which the shares of BBI Common Stock surrendered in
exchange therefor were held; provided, such BBI Common
Stock was held as a capital asset by the holder of such BBI
Common Stock at the Effective Time.
In rendering such opinion, counsel may require and rely upon
representations contained in certificates of officers of FCN, BBI and others.
(f) The FCN Common Stock to be issued to holders of BBI Common Stock
shall have been approved for listing on the NYSE subject to official notice of
issuance; and
(g) The Merger shall have been approved by the requisite vote of the
holders of BBI Common Stock.
ARTICLE VII.
TERMINATION; EXPENSES; AMENDMENT; WAIVER
Section 7.01 Termination. This Agreement may be terminated at any time
-----------
prior to the Effective Time:
(a) By the mutual written consent of the Boards of Directors of FCN
and BBI;
(b) At any time prior to the Effective Time, by FCN or BBI if there
shall have been a final judicial or regulatory determination (as to which all
periods for appeal shall have expired and no appeal shall be pending) that any
material provision of this Agreement is illegal, invalid or unenforceable
(unless the enforcement thereof is waived by the affected party) or denying any
regulatory application the approval of which is a condition precedent to either
party's obligations hereunder;
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<PAGE>
(c) At any time on or before the date specified in 7.01(f)
hereof, by FCN or BBI in the event that any of the conditions precedent to the
obligations of such party to the Merger are rendered impossible to be satisfied
or fulfilled by said date (other than by reason of a breach by the party seeking
to terminate);
(d) By either party at any time after the stockholders of BBI
fail to approve this Agreement and the Merger by the required vote at the BBI
Stockholders' Meeting;
(e) By FCN or BBI, in the event of a material breach by the other
party of any representation, warranty, covenant or agreement contained herein or
in any schedule or document delivered pursuant hereto, which breach would result
in the failure to satisfy the closing condition set forth in Section 6.01(a) or
6.01(b), in the case of FCN, or Section 6.02(a) or 6.02(b), in the case of BBI,
and which breach cannot be or is not cured within 30 days after written notice
of such breach is given by the non-breaching party to the party committing such
breach; or
(f) By either party on or after December 31, 1996, in the event
the Merger has not been consummated by such date (provided that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein).
In the event either party elects to effect any termination
pursuant to Section 7.01(b) through 7.01(f) above, it shall give written notice
to the other party hereto specifying the basis for such termination.
Section 7.02 Expenses. Each of the parties shall bear its own costs,
--------
fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby; provided, however the costs of expenses of
printing and mailing the proxy statement and printing the Registration Statement
and all filing and other fees paid to the SEC in connection with the Merger
shall be borne equally by FCN and BBI.
Section 7.03 Survival of Agreements. In the event of termination of this
----------------------
Agreement by either FCN or BBI as provided in Section 7.01, this Agreement shall
forthwith become void and have no effect except that (i) the agreements
contained in Sections 5.01(b), 5.05 and 7.02 hereof shall survive the
termination hereof and (ii) nothing contained in this Section 7.03 shall relieve
any party thereto from any liability for any willful and material breach of this
Agreement.
Section 7.04 Amendment. 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 hereof by the stockholders of BBI but, after
such approval, no amendment shall be made which changes the form of
consideration or the value of the consideration to be received by the
stockholders of BBI without the approval of the stockholders of BBI. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto. FCN and BBI may, without approval of their
respective Boards of Directors, make such
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<PAGE>
technical changes to this Agreement, not inconsistent with the purposes hereof,
as may be required to effect or facilitate any regulatory approval or acceptance
of the Merger or of this Agreement or to effect or facilitate any regulatory or
governmental filing or recording required for the consummation of any of the
transactions contemplated hereby.
Section 7.05 Waiver. Any term, provision or condition of this Agreement
------
(other than the requirement of BBI stockholder approval) may be waived in
writing at any time by the party which is entitled to the benefits hereof. Each
and every right granted to any party hereunder, or under any other document
delivered in connection herewith or therewith, and each and every right allowed
it by law or equity, shall be cumulative and may be exercised from time to time.
The failure of either party at any time or times to require performance of any
provision hereof shall in no manner affect such party's right at a later time to
enforce the same. No waiver by any party of a condition or of the breach of any
term, covenant, representation or warranty contained in this Agreement, whether
by conduct or otherwise, in any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition or of the breach of any other term, covenant,
representation or warranty of this Agreement. No investigation, review or audit
by FCN of BBI or BBI of FCN prior to or after the date hereof shall estop or
prevent either party form exercising any right hereunder or be deemed to be a
waiver of any such right.
ARTICLE VIII.
GENERAL PROVISIONS
Section 8.01 Survival. All representations, warranties, covenants and
--------
agreements of the parties in this Agreement or in any instrument delivered by
the parties pursuant to this Agreement (other than the agreements, covenants and
obligations set forth herein which are contemplated to be performed after the
Effective Time) shall not survive the Effective Time, provided that no such
representations, warranties or covenants shall be deemed to be terminated or
extinguished so as to deprive FCN or BBI (or any of their respective directors,
officers, employees or agents) of any defense in law or equity which otherwise
would be available against the claims of any person, including, without
limitation, any stockholder or former stockholder of either FCN of BBI, the
aforesaid representations, warranties, and covenants being material inducements
to consummation by FCN, BBI and the Surviving Corporation of the transactions
contemplated hereby.
Section 8.02 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given if delivered personally, by
facsimile transmission or by registered or certified mail to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice) and shall be deemed to be delivered on the date so delivered:
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<PAGE>
(a) if to FCN:
First Chicago NBD Corporation
One First National Plaza
Suite 0035
Chicago, Illinois 60670
Attention: Terence C. Wise
copy to:
First Chicago NBD Corporation
One First National Plaza
Suite 0292
Chicago, Illinois 60670
Attention: Daniel P. Cooney
(b) if to BBI:
Barrington Bancorp, Inc.
120 S. Hough Street
Barrington, Illinois 60010
copy to: Hugh H. Palmer
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Suite 700
Washington, D.C. 20005
Attention: Christopher R. Kelly, P.C.
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<PAGE>
Section 8.03 Applicable Law. This Agreement shall be construed and
--------------
interpreted according to the laws of the State of Delaware without regard to
conflicts of laws principles thereof, except to the extent that the federal laws
of the United States apply.
Section 8.04 Headings. The article headings and section headings
---------
contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.
Section 8.05 Severability. If any term, provision, covenant, or
------------
restriction contained in this Agreement is held by a final and unappealable
order of a court of competent jurisdiction to be invalid, void, or
unenforceable, then the remainder of the terms, provisions, covenants, and
restrictions contained in this Agreement shall remain in full force and effect,
and shall in no way be affected, impaired, or invalidated unless the effect
would be to cause this Agreement to not achieve its essential purposes.
Section 8.06 Entire Agreement; Binding Effect; Non-Assignment;
-------------------------------------------------
Counterparts; No Third-Party Beneficiaries. Except as otherwise expressly
- ------------------------------------------
provided herein, this Agreement (including the documents and instruments
referred to herein) and the FCN Option Agreement constitute the entire agreement
between the parties hereto and supersede all other prior agreements and
undertakings, both written and oral, between the parties, with respect to the
subject matter hereof. This Agreement shall be binding upon and inure to the
benefit of the parties named herein and their respective successors. Neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any party hereto without the prior written consent of the other
party hereto. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement. Except for provisions of Sections
5.12 and 5.16 hereof, neither this Agreement nor the FCN Option Agreement is
intended to confer upon any person other than the parties thereto any rights or
remedies thereunder.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
FIRST CHICAGO NBD CORPORATION
By:
-----------------------------------
BARRINGTON BANCORP, INC.
By:
-----------------------------------
Hugh H. Palmer
President
I-46
<PAGE>
Appendix II
Hovde Financial, Inc.
January 25, 1996
Board of Directors
Barrington Bancorp, Inc.
120 South Hough Street
Barrington, Illinois 60010
Members of the Board:
Barrington Bancorp, Inc. ("Barrington") and First Chicago NBD Corporation
("FCN") have entered into an Agreement and Plan of Merger, dated as of January
25, 1996 (the "Agreement") pursuant to which Barrington will merge
with and into FCN (the "Merger"). As set forth in the Agreement, at the
effective time of the Merger, all of the outstanding shares of Barrington common
stock (collectively "Barrington Common Stock") will be exchanged for that number
of shares of FCN common stock ("FCN Common Stock") equal to $25.85 per share as
determined pursuant to Section 1.02(b) of the Agreement (the "Exchange Ratio")
and subject to certain adjustments and limitations as provided by the Agreement.
Further, at the effective time of the Merger, as set forth in Section 5.12 of
the Agreement, (i) certain outstanding options granted pursuant to the
Barrington Stock Option Plan shall be canceled in consideration of cash equal to
the product of (A) the number of shares of Barrington Common Stock subject to
such options and (B) the excess of $25.85 over the aggregate exercise price of
such options and (ii) certain such outstanding options shall be converted into
options to purchase FCN Common Stock in amounts and at exercise prices
determined pursuant to such Section 5.12. In connection therewith, you have
requested our opinion as to the fairness, from a financial point of view, of the
Exchange Ratio to the shareholders of Barrington.
Hovde Financial, Inc. ("Hovde") specializes in providing investment banking
and financial advisory services to commercial bank and thrift institutions. Our
principals are experienced in the independent valuation of securities in
connection with negotiated underwritings, subscription and community offerings,
private placements, merger and acquisition transactions and recapitalizations.
We are familiar with Barrington, having entered into a consulting agreement with
Barrington pursuant to which we have acted as its financial advisor in
connection with, and having participated in the negotiations leading to, the
Agreement.
Pursuant to this consulting agreement, we have received and will receive
compensation from Barrington in connection with our services, a significant
portion of which is contingent upon the consummation of the Merger. At your
direction, we solicited the interest of third parties regarding a possible
business combination with Barrington. The Agreement is the result of this
solicitation.
II-1
<PAGE>
Board of Directors
Barrington Bancorp, Inc.
January 25, 1996
Page 2
During the course of our engagement, we reviewed and analyzed material
bearing upon the financial and operating conditions of Barrington and FCN and
material prepared in connection with the proposed transaction, including the
following: the Agreement; certain publicly available business and financial
information concerning Barrington, FCN, First Chicago Corporation ("First
Chicago") and NBD Bancorp, Inc. ("NBD"); certain unaudited financial information
as of December 31, 1995 for Barrington and FCN; the terms of recent merger and
acquisition transactions involving thrifts and thrift holding companies that we
considered relevant; historical market prices and trading volumes for Barrington
Common Stock and FCN Common Stock; and certain financial and other information
provided to us by the managements of Barrington and FCN. We also compared
Barrington and FCN from a financial point of view with certain other companies
we deemed to be relevant.
In addition, we have conducted meetings with members of the senior
management of Barrington and FCN for the purpose of reviewing the future
prospects of Barrington and FCN. We also evaluated the pro forma ownership of
FCN Common Stock by Barrington's shareholders relative to the pro forma
contribution of Barrington's assets, liabilities, equity and earnings to the pro
forma company, and conducted such other studies, analyses and examinations as we
deemed appropriate. We also took into account our assessment of general
economic, market and financial conditions and our experience in other
transactions, as well as our knowledge of the bank and thrift industries and our
general experience in securities valuations.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information and representations that were provided or made available to us
by Barrington, FCN and their respective representatives and of the publicly
available information reviewed by us. We also relied upon FCN's management as
to the reasonableness and achievability of the certain anticipated financial and
operating targets provided to us (and the assumptions and bases therefor) with
regard to the recently completed merger of First Chicago with and into NBD. In
that regard, we assumed that such targets including without limitation projected
cost savings and revenue enhancements resulting from this merger, reflected the
best currently available estimates and judgments of FCN's management and that
such targets would be realized in the amounts and in the time periods currently
estimated by FCN's management. We did not independently verify and have relied
on and assumed that the aggregate allowances for loan losses set forth in the
balance sheets of each of Barrington and FCN at December 31, 1995 were adequate
to cover potential losses and complied fully with applicable law, regulatory
policy and sound banking practices as of the date of such financial statements.
We were not retained to and did not conduct a physical inspection of any of the
properties or facilities of Barrington or FCN, nor did we make any independent
evaluation or appraisal of the assets, liabilities or prospects of Barrington or
FCN; we were not furnished with any such evaluation or appraisal. In addition,
we were not retained to and did not review any individual credit files.
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<PAGE>
Board of Directors
Barrington Bancorp, Inc.
January 25, 1996
Page 3
We have assumed that the Merger is, and will be, in compliance with all
laws and regulations that are applicable to Barrington and FCN. In rendering
this opinion, we have been advised by Barrington and FCN and we have assumed
that there are no factors that would impede any necessary regulatory or
governmental approval for the Merger and we have further assumed that in the
course of obtaining the necessary regulatory and governmental approvals, no
restriction will be imposed on FCN as the surviving corporation that would have
a material adverse effect on FCN or the contemplated benefits of the Merger. We
have also assumed that there would not occur any change in the applicable law or
regulation that would cause a material adverse change in the prospects or
operations of FCN as the surviving corporation after the Merger.
Our opinion is based solely upon the information available to us and the
economic, market and other circumstances as they exist as of the date hereof.
Events occurring after and/or information that becomes available after the date
hereof could materially affect the assumptions and analyses used in preparing
this opinion. We have not undertaken to reaffirm or revise this opinion or
otherwise comment upon any events occurring or information that becomes
available after the date hereof.
We are not expressing any opinion herein as to the prices at which shares
of FCN Common Stock issued in the Merger may trade if and when they are issued
or at any future time, nor does our opinion constitute a recommendation to any
holder of Barrington Common Stock as to how such holder should vote with respect
to the Agreement at any meeting of holders of Barrington Common Stock.
This letter is solely for the information of the Board of Directors and
stockholders of Barrington and is not to be used, circulated, quoted or
otherwise referred to for any other purpose, nor is it to be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in each case in accordance with
our prior written consent which shall not be unreasonably withheld; provided,
however, that we hereby consent to the inclusion and reference to this letter in
any registration statement, proxy statement, information statement or tender
offer document to be delivered to the holders of Barrington Common Stock in
connection with the Merger if and only if this letter is quoted in full or
attached as an exhibit to such document and this letter has not been withdrawn
prior to the date of such document.
II-3
<PAGE>
Board of Directors
Barrington Bancorp, Inc.
January 25, 1996
Page 4
Subject to the foregoing and based on our experience as investment bankers,
our activities and assumptions as described above, and other factors we have
deemed relevant, we are of the opinion as of the date hereof that the Exchange
Ratio is fair, from a financial point of view, to the shareholders of
Barrington.
Sincerely,
HOVDE FINANCIAL, INC.
By: /s/ Steven Hovde
------------------------------
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<PAGE>
Appendix III
Section 262 of the
Delaware General Corporation Law
(S) 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 (S) 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.
(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 (S) 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, 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 stockholders; 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 (S) 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 (S) (S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation;
b. Shares of stock of any other corporation which at the effective
date of the merger or consolidation will be either listed on a national
securities
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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 stockholders;
c. Cash in lieu of fractional shares of the corporations described
in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and cash in lieu of
fractional shares 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 (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(3) 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
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<PAGE>
(2) If the merger or consolidation was approved pursuant to (S) 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 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
III-3
<PAGE>
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
III-4
<PAGE>
entitled to vote such stock for any purpose or to receive payment of dividends
or other distributions on the stock (except dividends or other distributions
payable to stockholders of record at a date which is prior to the effective date
of the merger or consolidation); provided, however, that if no petition for an
appraisal shall be filed within the time provided in subsection (e) of this
section, or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the corporation, then
the right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
III-5
<PAGE>
PART II. INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 20. Indemnification of Directors and Officers
Article Eighth of the Registrant's Restated Certificate of Incorporation,
as amended, provides for indemnification of directors and officers. The
provision provides that any person shall be indemnified and reimbursed by the
Registrant for expenses and liabilities imposed upon the person in connection
with any action, suit or proceeding, civil or criminal, or threat thereof, in
which the person may be involved by reason of the person being or having been a
director, officer, employee or agent of the Registrant, or of any corporation or
organization which the person served in any capacity at the request of the
Registrant, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the person's conduct was unlawful; provided,
however, that no indemnification shall be made in respect of any matter as to
which such person have been adjudged to be liable for negligence or misconduct
in the performance of the person's duty to the Registrant unless the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that such person is fairly and reasonably entitled to
indemnity.
The directors and officers of the Registrant are covered by an insurance
policy, indemnifying them against certain civil liabilities, including
liabilities under the federal securities laws, which might be incurred by them
in such capacity.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers or persons controlling the registrant pursuant to the foregoing
provisions, the Registrant has been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Item 21. Exhibits and Financial Statement Schedules
(a) This Registration Statement includes the following Exhibits:
Exhibit
Number Description of Exhibits
------ -----------------------
2 Agreement and Plan of Merger, dated as of January 25, 1996,
between Barrington Bancorp, Inc. and First Chicago NBD
Corporation (included in Part I of this Registration Statement as
Appendix I to the Proxy Statement/Prospectus).
3(a) Restated Certificate of Incorporation of the Registrant
(incorporated by reference herein to Exhibit 3(A) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
3(b) By-laws of the Registrant (incorporated by reference herein to
Exhibit 3(B) to
<PAGE>
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
5 Opinion of Counsel to the Registrant as to the legality of the
securities being issued.
8 Opinion of Silver, Freedman & Taff, L.L.P. as to federal
income tax matters.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of KPMG Peat Marwick LLP.
23(c) Consent of Counsel to the Registrant (included in Exhibit 5
hereof).
23(d) Consent of Silver, Freedman & Taff, L.L.P.
23(e) Consent of Hovde Financial, Inc. (included in Part I of this
Registration Statement as Appendix II to the Proxy
Statement/Prospectus).
24 Powers of Attorney.
99(a) Form of Proxy for Barrington Bancorp, Inc.
99(b) Stock Option Agreement, dated as of January 25, 1996, between
Barrington Bancorp, Inc. and First Chicago NBD Corporation
(incorporated by reference herein to Exhibit B to the
Registrant's Schedule 13D dated February 2, 1996 relating
to Barrington Bancorp, Inc.).
Item 22. Undertakings.
The undersigned Registrant hereby undertakes:
(l) 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 the most recent
post-effective amendment thereof) which, individually or 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 value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end 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 a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and (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.
Provided, however, that paragraph (l)(i) and (l)(ii) do not apply if the
Registration Statement
II-2
<PAGE>
is on Form S-8, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference 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 mean of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of 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 employer 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 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.
(5) To respond to requests for information that is incorporated
by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
Form S-4, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of the Registration Statement through the date of
responding to the request.
(6) 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.
(7) That prior to any public reoffering of the securities
registered hereunder though use of a prospectus which is a part of a
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the Registrant 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.
(8) That every prospectus (i) that is filed pursuant to
paragraph (l) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a 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, 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.
(9) That, insofar as indemnification for liabilities arising
under the
II-3
<PAGE>
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Registrant pursuant to Registrant's indemnification provisions, or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in such Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by 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 proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, First Chicago
NBD Corporation certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing this Registration Statement on Form S-4
and has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
Illinois, on the 3rd day of May, 1996.
FIRST CHICAGO NBD CORPORATION
By /s/ Robert A. Rosholt
---------------------
Robert A. Rosholt
Attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
TERENCE E. ADDERLEY* Director May 3, 1996
- -------------------------------
(Terence E. Adderley)
JAMES K. BAKER* Director May 3, 1996
- -------------------------------
(James K. Baker)
JOHN H. BRYAN* Director May 3, 1996
- -------------------------------
(John H. Bryan)
SIEGFRIED BUSCHMANN* Director May 3, 1996
- -------------------------------
(Siegfried Buschmann)
JAMES S. CROWN* Director May 3, 1996
- -------------------------------
(James S. Crown)
MAUREEN A. FAY, O.P.* Director May 3, 1996
- -------------------------------
(Maureen A. Fay, O.P.)
CHARLES T. FISHER III* Director May 3, 1996
- -------------------------------
(Charles T. Fisher III)
II-5
<PAGE>
DONALD V. FITES* Director May 3, 1996
- -------------------------------
(Donald V. Fites)
VERNE G. ISTOCK* Director and Principal May 3, 1996
- ------------------------------- Executive Officer
(Verne G. Istock)
THOMAS H. JEFFS II* Director May 3, 1996
- -------------------------------
(Thomas H. Jeffs II)
RICHARD A. MANOOGIAN* Director May 3, 1996
- -------------------------------
(Richard A. Manoogian)
SCOTT P. MARKS, JR.* Director May 3, 1996
- -------------------------------
(Scott P. Marks, Jr.)
Director May 3, 1996
- -------------------------------
(William T. McCormick, Jr.)
EARL L. NEAL* Director May 3, 1996
- -------------------------------
(Earl L. Neal)
JAMES J. O'CONNOR* Director May 3, 1996
- -------------------------------
(James J. O'Connor)
THOMAS E. REILLY, JR.* Director May 3, 1996
- -------------------------------
(Thomas E. Reilly, Jr.)
PATRICK G. RYAN* Director May 3, 1996
- -------------------------------
(Patrick G. Ryan)
ADELE SIMMONS* Director May 3, 1996
- -------------------------------
(Adele Simmons)
RICHARD L. THOMAS* Director May 3, 1996
- -------------------------------
(Richard L. Thomas)
DAVID J. VITALE* Director May 3, 1996
- -------------------------------
(David J. Vitale)
II-6
<PAGE>
ROBERT A. ROSHOLT* Principal Financial May 3, 1996
- ---------------------------- Officer
(Robert A. Rosholt)
WILLIAM J. ROBERTS* Principal Accounting May 3, 1996
- ---------------------------- Officer
(William J. Roberts)
- --------------------
The undersigned, by signing his name hereto, does hereby sign this Registration
Statement on Form S-4 on behalf of each of the above-indicated directors and
officers of the Registrant pursuant to a power of attorney signed by such
directors and officers.
/s/ Robert A. Rosholt
-------------------------
Robert A. Rosholt
Attorney-in-Fact
<PAGE>
Exhibit Index
-------------
Exhibit
Number Description of Exhibits
------ -----------------------
2 Agreement and Plan of Merger, dated as of January 25, 1996,
between Barrington Bancorp, Inc. and First Chicago NBD
Corporation (included in Part I of this Registration Statement as
Appendix I to the Proxy Statement/Prospectus).
3(a) Restated Certificate of Incorporation of the Registrant
(incorporated by reference herein to Exhibit 3(A) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
3(b) By-laws of the Registrant (incorporated by reference herein to
Exhibit 3(B) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995).
5 Opinion of Counsel to the Registrant as to the legality of the
securities being issued.
8 Opinion of Silver, Freedman & Taff, L.L.P. as to federal
income tax matters.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of KPMG Peat Marwick LLP.
23(c) Consent of Counsel to the Registrant (included in Exhibit 5
hereof).
23(d) Consent of Silver, Freedman & Taff, L.L.P.
23(e) Consent of Hovde Financial, Inc. (included in Part I of this
Registration Statement as Appendix II to the Proxy
Statement/Prospectus).
24 Powers of Attorney.
99(a) Form of Proxy for Barrington Bancorp, Inc.
99(b) Stock Option Agreement, dated as of January 25, 1996, between
Barrington Bancorp, Inc. and First Chicago NBD Corporation
(incorporated by reference herein to Exhibit B to the
Registrant's Schedule 13D dated February 2, 1996 relating
to Barrington Bancorp, Inc.).
<PAGE>
Exhibits 5 and 23(c)
May 3, 1996
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: First Chicago NBD Corporation
Form S-4 Registration Statement
-------------------------------
Ladies and Gentlemen:
Reference is made to the Registration Statement on Form S-4 of First
Chicago NBD Corporation, a Delaware corporation (the "Company"), concurrently
being filed with the Securities and Exchange Commission (the "Registration
Statement") pursuant to which the Company's common stock, $1 par value per share
(the "Common Stock"), will be issued, or reserved for issuance, pursuant to the
merger of Barrington Bancorp, Inc. into the Company under the
terms of the Agreement and Plan of Merger, dated as of January 25, 1996 (the
"Agreement").
I have examined originals or copies, certified or otherwise identified
to my satisfaction, of such corporate records, certificates of public officials,
and other documents as I have deemed necessary or relevant as a basis for my
opinion set forth herein.
On the basis of the foregoing, it is my opinion that the shares of
Common Stock offered as set forth in the Registration Statement (including the
Proxy Statement/Prospectus constituting a part thereof), when issued in
accordance with their respective terms and the terms of the Agreement, will be
legally issued, fully paid and nonassessable.
I am a member of the Bar of the State of Illinois, and I do not express
any opinion herein concerning any law other than the law of the State of
Illinois, the federal laws of the United States and the Delaware General
Corporation Law.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name whenever it appears in such
Registration Statement, including the applicable Proxy Statement/Prospectus
constituting a part thereof, as originally filed or as subsequently amended.
Very truly yours,
Sherman I. Goldberg
Executive Vice President
General Counsel and Secretary
<PAGE>
LAW OFFICES
Silver, Freedman & Taff, L.L.P.
A LIMITED LIABILITY PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
1100 NEW YORK AVENUE, N.W.
WASHINGTON, D.C. 20005-3934
(202) 414-6100
SIDNEY J. SILVER, P.C. TELECOPIER NUMBER
ROBERT L. FREEDMAN, P.C. (202) 682-0354
BARRY P. TAFF, P.C.
HOWARD J. ROSS, P.C. OF COUNSEL
DAVID B. MYATT, P.C. EARL L. METHENY, P.C.
JAMES S. FLEISCHER, P.C. JOHN B. SELMAN*
JEFFREY M. WERTHAN, P.C. JAMES W. LANCE*
KIP A. WEISSMAN, P.C. NANCY M. STILES
MARTIN L. MEYROWITZ, P.C. SHEILA FOOTER
RICHARD S. GARABEDIAN, P.C. MARTIN J. O'RIORDAN*
RICHARD E. BYER, P.C.
CHRISTOPHER R. KELLY, P.C. WRITER'S DIRECT DIAL NUMBER
DAVE M. MUCHNIKOFF, P.C. (202) 414-6103
JANE K. STORERO, P.C.
STEVEN M. ABRAMSON, P.C.
BRIAN L. ALPERT, P.C.
GARY A. LAX, P.C.
BETH A. FREEDMAN*
MICHAEL S. SADOW
G. SCOTT LESMES*
BRIAN S. TAFF
MICHAEL R. CLAMPITT*
DIANA McKEARNEY*
CRAIG M. SCHEER*
*NOT ADMITTED IN D.C.
May 2, 1996
Board of Directors
Barrington Bancorp, Inc.
120 S. Hough Street
Barrington, Illinois 60010
Re: FEDERAL INCOME TAX CONSEQUENCES ARISING FROM THE MERGER
CONTEMPLATED BY THAT CERTAIN AGREEMENT AND PLAN OF MERGER BY AND
BETWEEN FIRST CHICAGO NBD CORPORATION AND BARRINGTON BANCORP, INC.
DATED JANUARY 25, 1996 ("AGREEMENT").
Gentlemen:
In accordance with your request and to facilitate the filing and
processing of the holding company application with Regulatory Authorities
and the Registration Statement with the SEC relating to the transactions
contemplated by the Agreement, set forth hereinbelow is the opinion of this
firm relating to certain federal income tax consequences of the Merger
pursuant to which Barrington Bancorp, Inc. ("BBI") will be merged into First
Chicago NBD Corporation ("FCN").
Capitalized terms used herein which are not expressly defined herein
shall have the meaning ascribed to them in the Agreement.
The following assumptions have been made in connection with our opinions
hereinbelow:
<PAGE>
Board of Directors
Barrington Bancorp, Inc.
May 2, 1996
Page 2
1. The Merger will be implemented strictly in accordance with the
terms of the Agreement.
2. All conditions precedent contained in the Agreement shall be
performed or waived prior to completion of the Merger.
3. The representations of the parties to be made in their respective
tax representation letters to counsel as of the Effective Time in the form
of Exhibits A and B hereto shall be true and correct.
4. All of the stockholders of BBI are residents of the United States
of America.
OPINION
-------
Based solely on our review of the Agreement and the assumptions set
forth hereinabove and our analysis and examination of federal income tax
laws, rulings, regulations and judicial precedents as of the date hereof, we
render the following opinion.
(1) The Merger will qualify as a "reorganization" under Section
368(a)(1)(A) of the Code and FCN and BBI shall each be a party to the
"reorganization."
(2) No gain or loss will be recognized by FCN and BBI by reason of
the Merger.
(3) Except as provided in paragraph 6 below, no gain or loss will be
recognized by any stockholder of BBI upon the exchange of BBI Common Stock
solely for FCN Common Stock in the Merger.
(4) The basis of the FCN Common Stock received by each stockholder of
BBI who exchanges BBI Common Stock solely for FCN Common Stock in the Merger
will be the same as the basis of the BBI Common Stock surrendered in
exchange therefor (subject to any adjustments required as the result of
receipt of cash in lieu of a fractional share of FCN Common Stock).
(5) The holding period of the FCN Common Stock received by a
stockholder of BBI in the Merger will include the holding period of the BBI
Common Stock surrendered in exchange therefor, provided that such shares of
BBI Common Stock were held as a capital asset by such stockholder at the
Effective Time.
<PAGE>
Board of Directors
Barrington Bancorp, Inc.
May 2, 1996
Page 3
(6) Cash received by a BBI stockholder in lieu of a fractional share
interest of FCN Common Stock as part of the Merger will be treated as having
been received as a distribution in full payment in exchange for the
fractional share interest of FCN Common Stock which such stockholder would
otherwise be entitled to receive and will qualify as capital gain or loss
(assuming the BBI stock was a capital asset in such stockholder's hands at
the Effective Time).
No opinion is expressed as to the tax treatment of the transactions under
the provisions of any of the other sections of the Code and regulations
thereunder which may also be applicable thereto, or to the tax treatment of
any conditions existing at the time of, or effects resulting from, the
transactions which are not specifically covered by the opinions set forth
above. This opinion is subject to withdrawal, modification or update at any
time prior to the Effective Time.
Very truly yours,
SILVER, FREEDMAN & TAFF, L.L.P.
/s/ Silver, Freedman & Taff, L.L.P.
-------------------------------------
<PAGE>
Exhibit 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To First Chicago NBD Corporation:
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated January 16, 1996,
on the consolidated financial statements of First Chicago NBD Corporation,
included in the Form 10-K of First Chicago NBD Corporation for the year ended
December 31, 1995 and to the reference to our Firm under the caption "Experts"
included in this Registration Statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
May 2, 1996
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Barrington Bancorp, Inc.:
We consent to the use of our report dated February 2, 1996, with respect to the
consolidated statements of financial condition of Barrington Bancorp, Inc. and
subsidiary as of December 31, 1995 and 1994, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the years in the three year period ended December 31, 1995, included
herein and to the reference to our firm under the heading "Experts".
Chicago, Illinois
May 2, 1996
<PAGE>
EXHIBIT 23.d
CONSENT OF COUNSEL
We consent to the use of our opinion, to the incorporation by reference
of such opinion as an exhibit to the Form S-4 Registration Statement and to
the reference to our firm under the headings "The Merger - Certain Federal
Income Tax Consequences of the Merger" and "Legal Matters" in the Proxy
Statement/Prospectus included in this Form S-4 Registration Statement. In
giving this consent, we do not admit that we are 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.
SILVER, FREEDMAN & TAFF, L.L.P.
Washington, D.C.
May 2, 1996
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EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard L. Thomas, Verne G. Istock, Thomas H.
Jeffs II, Scott P. Marks, Jr., David J. Vitale, Sherman I. Goldberg, Robert A.
Rosholt and M. Eileen Kennedy, jointly and severally, his attorney-in-fact, each
with power of substitution, for him in any and all capacities to sign a
Registration Statement on Form S-4 relating to common stock of First Chicago NBD
Corporation (the "Corporation") to be issued in connection with the merger of
Barrington Bancorp, Inc. with the Corporation and pursuant to resolutions
adopted by the Board of Directors of the Corporation on December 8, 1995, and
any amendments thereto (including any post-effective amendments) and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Signature Title
--------- -----
/s/ Terence E. Adderley Director
- -------------------------
Terence E. Adderley
/s/ James K. Baker Director
- -------------------------
James K. Baker
/s/ John H. Bryan Director
- -------------------------
John H. Bryan
/s/ Siegfried Buschmann Director
- -------------------------
Siegfried Buschmann
/s/ James S. Crown Director
- -------------------------
James S. Crown
/s/ Maureen A. Fay, O.P. Director
- -------------------------
Maureen A. Fay, O.P.
/s/ Charles T. Fisher III Director
- -------------------------
Charles T. Fisher III
/s/ Donald V. Fites Director
- -------------------------
Donald V. Fites
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Signature Title
--------- -----
/s/ Verne G. Istock Director and Principal Executive Officer
- -------------------------
Verne G. Istock
/s/ Thomas H. Jeffs II Director
- -------------------------
Thomas H. Jeff II
/s/ Richard A. Manoogian Director
- -------------------------
Richard A. Manoogian
/s/ Scott P. Marks, Jr. Director
- -------------------------
Scott P. Marks, Jr.
Director
- -------------------------
William T. McCormick, Jr.
/s/ Earl L. Neal Director
- -------------------------
Earl L. Neal
/s/ James J. O'Connor Director
- -------------------------
James J. O'Connor
/s/ Thomas E. Reilly, Jr. Director
- -------------------------
Thomas R. Reilly, Jr.
/s/ Patrick G. Ryan Director
- -------------------------
Patrick G. Ryan
/s/ Adele Simmons Director
- -------------------------
Adele Simmons
/s/ Richard L. Thomas Director
- -------------------------
Richard L. Thomas
/s/ David J. Vitale Director
- -------------------------
David J. Vitale
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Signature Title
--------- -----
/s/ William J. Roberts Principal Accounting Officer
- -------------------------
William J. Roberts
/s/ Robert A. Rosholt Principal Financial Officer
- -------------------------
Robert A. Rosholt
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Exhibit 99(a)
BARRINGTON BANCORP. INC.
ANNUAL MEETING OF STOCKHOLDERS
JUNE 5, 1996
The undersigned hereby appoints the Board of Directors of Barrington
Bancorp, Inc. ("Barrington Bancorp"), with full powers of substitution, to act
as attorneys and proxies for the undersigned to vote all shares of capital stock
of the Barrington Bancorp which the undersigned is entitled to vote at the
Annual Meeting of Stockholders (the "Annual Meeting") to be held at the main
office of Barrington Bancorp located at 120 South Hough Street, Barrington,
Illinois on June 5, 1996 at 2:00 p.m. and at any and all adjournments and
postponements thereof.
1. The approval of the Merger Agreement pursuant to which Barrington Bancorp
will be merged with and into First Chicago NBD Corporation:
/ / FOR / / AGAINST / / VOTE WITHHELD
2. The election as directors of the nominees listed below (except as marked to
the contrary):
/ / FOR / / VOTE WITHHELD
INSTRUCTION: TO WITHHOLD YOUR VOTE FOR EITHER NOMINEE, STRIKE A LINE
IN THAT NOMINEE'S NAME BELOW.
HUGH H. PALMER CAROL M. BEESE
3. The ratification of the appointment of KPMG Peat Marwick LLP as auditors for
Barrington Bancorp for the fiscal year ending December 31, 1996.
/ / FOR / / AGAINST / / VOTE WITHHELD
In their discretion, the proxies are authorized to vote on any other
business that may properly come before the Annual Meeting or any adjournment or
postponement thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSALS AND EACH OF THE NOMINEES LISTED
ABOVE. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, THIS PROXY WILL
BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT
TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE
ANNUAL MEETING.
The Board of Directors recommends a vote "FOR" the proposals
and the election of the nominees listed above.
(Continued and to be SIGNED on Reverse Side)
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THIS PROXY IS SILICITED ON BEHALF OF THE BOARD OF DIRECTORS
Should the undersigned be present and choose to vote at the Annual Meeting
or at any adjournments or postponements thereof, and after notification to the
Secretary of Barrington Bancorp at the Annual Meeting of the stockholder's
decision to terminate this proxy, then the power of such attorneys or proxies
shall be deemed terminated and of no further force and effect. This proxy may
also be revoked by filing a written notice of revocation with the Secretary of
Barrington Bancorp or by duly executing a proxy bearing a later date.
The undersigned acknowledges receipt from Barrington Bancorp prior to the
execution of this proxy, of Notice of the Annual Meeting and a Proxy
Statement/Prospectus.
Date: _______________, 1996 _____________________________________
Signature of Stockholder
_____________________________________
Signature of Stockholder
Please sign exactly as your name(s)
appear(s) to the left. When signing
as attorney, executor, administrator,
trustee or guardian, please give your
full title. If shares are held jointly,
each holder should sign.
/ / MARK HERE IF YOU PLAN TO
ATTEND THE MEETING.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE
