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Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
FIRST MIDWEST BANCORP, INC.
(Exact name of registrant as specified in its charter)
6022
(Primary Standard Industrial Classification Code Number)
DELAWARE 36-3161078
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
300 PARK BOULEVARD, SUITE 405, ITASCA, ILLINOIS 60143-0459, (708) 875-7450
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
DONALD J. SWISTOWICZ
EXECUTIVE VICE PRESIDENT
FIRST MIDWEST BANCORP, INC.
300 PARK BOULEVARD, SUITE 405, ITASCA, ILLINOIS 60143-0459
(708) 875-7450
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
TIMOTHY M. SULLIVAN
HINSHAW & CULBERTSON
222 NORTH LASALLE STREET
SUITE 300
CHICAGO, ILLINOIS 60601-1081
(312) 704-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon consummation of the Merger as described in the Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE* OFFERING PRICE* FEE
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Common Stock; No Par Value........... 1,439,341 $27.07 $38,964,634 $13,436
Preferred Share Purchase Rights**.... -- -- -- --
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* Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) based upon the average of the bid and asked
price of CF Bancorp, Inc. Common Stock on September 5, 1995.
** The registrant is also registering Preferred Share Purchase Rights which
are evidenced by the Certificates for the Common Stock being registered
in a ratio of one Preferred Share Purchase Right for each share of Common
Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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CROSS REFERENCE SHEET
Item Number Location in Prospectus
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PART I INFORMATION REQUIRED IN THE
PROSPECTUS
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement Cover Page
and Outside Front Cover of
Prospectus
2. Inside Front and Outside Back Cover Inside Cover Page, Outside Back Cover Page
Pages of Prospectus
3. Risk Factors, Ratio of Earnings to SUMMARY
Fixed Charges and Other Information
4. Terms of the Transaction SUMMARY; PROPOSED MERGER
5. Pro Forma Financial Information PROFORMA COMBINING FINANCIAL STATEMENTS
6. Material Contacts with the Company Not Applicable
Being Acquired
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interest of Names Experts and OPINIONS; EXPERTS
Counsel
9. Disclosure of Commission Position Not Applicable
on Indemnification for Securities
Act Liabilities
B. INFORMATION ABOUT THE
REGISTRANT
10. Information with respect to S-3 INCORPORATION BY REFERENCE
Registrants
11. Incorporation of Certain Information INCORPORATION BY REFERENCE
by Reference
12. Information with respect to S-2 Not Applicable
or S-3 Registrants
13. Incorporation of Certain Information Not Applicable
by Reference
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14. Information with respect to Not Applicable
Registrants other than S-2 or
S-3 Registrants
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with respect to S-3 Not Applicable
Companies
16. Information with respect to S-2 INCORPORATION BY REFERENCE
or S-3 Companies
17. Information with respect to Not Applicable
Companies other than S-2 or
S-3 Companies
D. VOTING AND MANAGEMENT INFORMATION
18. Information if proxies, consents SUMMARY; MEETING INFORMATION;
or authorizations are to be PROPOSED MERGER
solicited
19. Information if proxies, consents Not Applicable
or authorizations are not to be
solicited in an exchange offer
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PROSPECTUS
1,439,341 SHARES OF
FIRST MIDWEST BANCORP, INC.
COMMON STOCK
CF BANCORP, INC. FIRST MIDWEST BANCORP, INC.
101 WEST THIRD STREET 300 PARK BOULEVARD
P.O. BOX 4410 SUITE 405
DAVENPORT, IOWA 52808 ITASCA, ILLINOIS 60143-0459
(319) 322-6237 (708) 875-7450
PROXY STATEMENT
FOR THE SPECIAL MEETING
OF CF BANCORP, INC. STOCKHOLDERS
TO BE HELD NOVEMBER 20, 1995
This Proxy Statement/Prospectus is a proxy statement furnished at the
direction of the Board of Directors of CF Bancorp, Inc. ("CF"), in connection
with the solicitation of proxies from its Stockholders to be voted at the
Special Meeting of Stockholders of CF to be held on November 20, 1995 (the
"Special Meeting"), and at any adjournment thereof, for the purpose of (i)
considering and voting upon approval of the Agreement and Plan of Merger, dated
as of May 31, 1995, between First Midwest Bancorp, Inc. ("First Midwest"), and
CF, which is attached to this Proxy Statement/Prospectus as Appendix A, and (ii)
approval and adoption of an amendment to CF's Certificate of Incorporation (the
"Charter Amendment"). This Proxy Statement/Prospectus is first being mailed to
CF Stockholders on or about _______________ ___, 1995.
This Proxy Statement/Prospectus is a prospectus of First Midwest relating
to its offering of shares of its Common Stock, no par value ("First Midwest
Common Stock"), to the holders of the Common Stock of CF, $.01 par value ("CF
Common Stock"), in connection with the proposed Merger of CF into First Midwest.
If the Agreement and Plan of Merger is approved by the requisite vote of CF
Stockholders and if, following satisfaction of certain conditions, the Merger is
consummated, each issued and outstanding share of CF Common Stock will be
converted into and exchanged for 1.4545 shares of First Midwest Common Stock
(the "Exchange Ratio") as described herein and in the Agreement and Plan of
Merger (see "PROPOSED MERGER" - Page 19).
Stifel, Nicolaus & Company, Inc. ("Stifel"), CF's financial advisor, has
rendered its written opinion to the Board of Directors of CF that the Exchange
Ratio contained in the Agreement and Plan of Merger is fair, from a financial
point of view, to the holders of CF Common Stock. (See "PROPOSED MERGER--
Opinion of Financial Advisor to CF" - Page 22.) This opinion, which is attached
to this Proxy Statement/Prospectus as Appendix B, should be read in its entirety
with respect to the assumptions made and other matters considered by Stifel in
rendering such opinion.
Consummation of the Merger of CF into First Midwest and the Charter
Amendment are subject to CF's stockholder and regulatory approvals and certain
other conditions. (See "PROPOSED MERGER--Termination, Amendment and Waiver" -
Page 31.)
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS
IN ANY STATE OR TO ANY PERSON IN WHICH OR TO WHOM IT WOULD BE UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION. THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION INCLUDED HEREIN IS CORRECT AS OF
ANY TIME AFTER ITS DATE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is _______________ ___, 1995.
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AVAILABLE INFORMATION
First Midwest Bancorp, Inc. ("First Midwest") and CF Bancorp, Inc. ("CF") 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 Securities and Exchange
Commission (the "Commission") (File Numbers 0-10967 and 0-20069, respectively).
Such reports, proxy statements and other information can be inspected and copied
at the public reference facilities of the Commission, at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Regional Offices of the Commission at the
following locations: Seven World Trade Center, Suite 1300, New York, New York,
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
This Proxy Statement/Prospectus constitutes a part of a Registration Statement
filed by First Midwest with the Commission under the Securities Act of 1933, as
amended, (the "Securities Act"). This Proxy Statement/Prospectus does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in exhibits to the Registration Statement as
permitted by the rules and regulations of the Commission. Reference is hereby
made to the Registration Statement and to the exhibits thereto for further
information with respect to First Midwest. Any statements contained herein
concerning the provisions of any contract, agreement or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract, agreement or other document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION BY REFERENCE
The following documents which have heretofore been filed by First Midwest or
CF with the Commission are incorporated by reference in this Proxy
Statement/Prospectus.
1. First Midwest's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
2. First Midwest's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995.
3. The description of the Common Stock, no par value, and Preferred Stock
purchase rights associated with the Common Stock of First Midwest, no par
value, as contained in First Midwest's Registration Statement on Form 8-A,
dated February 17, 1989, as amended by subsequently filed reports on Form
10-K.
4. A copy of CF's Annual Report on Form 10-KSB for the year ended June 30,
1995 is attached as Appendix C to this Proxy Statement/Prospectus. This
Proxy Statement/Prospectus incorporates by reference the following
portions of CF's 1995 Annual Report on Form 10-KSB:
Market for Registrant's Common Stock and Related Security Holder
Matters. The information on the market price of and dividends on CF's
Common Stock and other stockholder matters set forth on page 29.
Selected Financial Data. The five-year summary of selected financial
data set forth on pages 30-31.
Consolidated Financial Statements. The Consolidated Balance Sheets,
Statements of Income, Statements of Changes in Stockholders' Equity and
Statements of Cash Flows (including related notes and the report of the
independent auditors) set forth on pages 43-72.
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Supplementary Financial Data. The Supplementary Data set forth on pages
2-17.
Management's Discussion and Analysis of Financial Conditions and Results
of Operations. Management's Discussion and Analysis of Financial
Condition and Results of Operations set forth on pages 31-42.
All documents filed by First Midwest and CF with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Proxy Statement/Prospectus and prior to the termination of the offering
made by this Proxy Statement/Prospectus shall be deemed to be incorporated
herein by reference and to be a part hereof. Any statements 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 or is deemed to be incorporated
by reference herein) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part of this Proxy
Statement/Prospectus, except as so modified or superseded.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCES WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS
TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST. REQUESTS FOR THESE DOCUMENTS SHOULD BE DIRECTED TO 300
PARK BOULEVARD, SUITE 405, ITASCA, ILLINOIS 60143-0459, ATTENTION CORPORATE
COMMUNICATIONS DIRECTOR (708) 875-7450. IN ORDER TO ENSURE TIMELY DELIVERY OF
THESE DOCUMENTS, ANY REQUESTS SHOULD BE MADE BY NOVEMBER 18, 1995.
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FIRST MIDWEST BANCORP, INC.
AND
CF BANCORP, INC.
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
SUMMARY .................................................................. 7
The Parties .......................................................... 7
Agreement and Plan of Merger; Exchange Ratio ......................... 7
The Charter Amendment ................................................ 8
Recommendation of the Board of Directors ............................. 8
Opinion of Financial Advisor ......................................... 8
Dissenters' Rights ................................................... 9
Federal Income Tax Consequences ...................................... 9
Accounting Treatment ................................................. 9
Regulatory Approvals ................................................. 10
Termination .......................................................... 10
Stock Option Agreement ............................................... 10
Resales of First Midwest Common Stock by Affiliates .................. 11
Preferred Share Purchase Rights ...................................... 11
Market and Market Prices ............................................. 11
SELECTED CONSOLIDATED FINANCIAL DATA FOR FIRST MIDWEST ................... 12
SELECTED CONSOLIDATED FINANCIAL DATA OF CF BANCORP ....................... 13
RECENT DEVELOPMENTS ...................................................... 14
Government Regulation -- FDIC Insurance Premiums ..................... 14
Sale of 100,000 Shares of Common Stock by First Midwest .............. 14
COMPARATIVE PER COMMON SHARE DATA ........................................ 15
MEETING INFORMATION ...................................................... 16
General .............................................................. 16
Date, Place and Time ................................................. 16
Record Date .......................................................... 16
Required Vote -- The Merger .......................................... 16
The Charter Amendment ................................................ 16
Voting Agreement ..................................................... 17
Principal Stockholders ............................................... 17
Voting and Revocation of Proxies ..................................... 18
Solicitation of Proxies .............................................. 18
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PROPOSED MERGER .......................................................... 19
Background of the Merger ............................................. 19
CF's Reasons for the Merger and Board Recommendation ................. 20
Opinion of Financial Advisor of CF ................................... 22
Terms of the Merger .................................................. 25
Outstanding Options to Purchase CF Common Stock ...................... 26
Closing Date of the Merger ........................................... 26
Surrender of Certificates ............................................ 27
Conditions to the Merger ............................................. 27
Regulatory Approvals ................................................. 28
Business Pending the Merger .......................................... 29
Dividends ............................................................ 30
Termination, Amendment and Waiver .................................... 31
Operations of CF after the Merger .................................... 31
Interest of Certain Persons in the Merger ............................ 31
Effect on Employee Benefits .......................................... 33
Stock Option Agreement ............................................... 34
Certain Federal Income Tax Consequences of the Merger ................ 35
Accounting Treatment ................................................. 36
Expenses ............................................................. 37
Resale of First Midwest Common Stock ................................. 37
DESCRIPTION OF FIRST MIDWEST COMMON AND PREFERRED STOCK .................. 38
CERTAIN DIFFERENCES IN RIGHTS OF STOCKHOLDERS ............................ 38
Stockholders' Rights Plan ............................................ 38
Stockholder Action Without a Meeting; Amendment of the Bylaws; and
Power to Call Special Meetings ..................................... 39
Stockholder Vote Required to Approve Business Combinations ........... 40
Evaluation of Proposed Offer ......................................... 40
Delaware Law Affecting Business Combinations ......................... 41
Directors ............................................................ 41
Liability of Directors; Indemnification .............................. 41
Dissenters' Rights ................................................... 42
Limitation on Voting Rights of CF Stockholders ....................... 42
PROFORMA COMBINING FINANCIAL STATEMENTS .................................. 43
OPINIONS ................................................................. 46
EXPERTS .................................................................. 46
STOCKHOLDER PROPOSALS .................................................... 46
Appendix A - Agreement and Plan of Merger
Appendix B - Fairness Opinion of Stifel, Nicolaus & Company, Incorporated
Appendix C - CF's Annual Report on Form 10-KSB for the year ended June 30,
1995
Appendix D - Section 262 of the Delaware General Corporation Law
Appendix E - Stock Option Agreement
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SUMMARY
The following is a brief summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. The summary is necessarily incomplete and
selective and is qualified in its entirety by more detailed information
contained herein or incorporated herein by reference.
THE PARTIES: FIRST MIDWEST BANCORP, INC. ("FIRST MIDWEST")
300 PARK BOULEVARD
SUITE 405
ITASCA, ILLINOIS 60143-0459
TELEPHONE: (708) 875-7450
First Midwest is a Delaware corporation that was
incorporated in 1982 for the purpose of becoming a
multi-bank holding company. The subsidiaries
("affiliates") of First Midwest include a
commercial bank that is a national banking
association, four nonbank affiliates that offer
trust, investment advisory, credit life insurance
and mortgage banking related services in the same
markets served by the bank and four inactive
Illinois state-chartered banks. First Midwest is
Illinois' third largest publicly traded bank
holding company with assets of approximately $3.0
billion at June 30, 1995.
CF BANCORP, INC. ("CF")
101 WEST THIRD STREET
P.O. BOX 4410
DAVENPORT, IOWA 52808
TELEPHONE: (319) 322-6237
CF, a Delaware corporation, was formed at the
direction of Citizens Federal Savings Bank
("Citizens Federal") in March, 1992, for the
purpose of owning all of the outstanding stock of
Citizens Federal issued in the conversion of
Citizens Federal from the mutual to the stock form
of ownership. CF acquired all of the outstanding
stock of Citizens Federal on July 1, 1992. At June
30, 1995, CF had total assets of $227 million.
For additional information with respect to First
Midwest and CF refer to Item 1 of First Midwest's
Annual Report on Form 10-K for the year ended
December 31, 1994, and Item 1 of CF's Annual Report
on Form 10-KSB dated June 30, 1995, each of which
is incorporated herein by reference.
AGREEMENT AND PLAN OF MERGER;
EXCHANGE RATIO: First Midwest and CF entered into an Agreement and
Plan of Merger, dated May 31, 1995, providing,
among other things, for the merger of CF with and
into First Midwest (the "Merger"), as a result of
which First Midwest will directly own 100% of the
stock of Citizens Federal. The Merger must be
approved by persons holding a
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majority of the outstanding shares of CF Common
Stock. (See "PROPOSED MERGER" - Page 19.)
Each share of CF Common Stock which is issued and
outstanding immediately prior to the effective time
of the Merger shall be converted into and represent
the right to receive and be exchangeable into
1.4545 shares of First Midwest Common Stock (the
"Exchange Ratio"). Pursuant to the First Midwest's
Stockholders Rights Plan which was adopted on
February 15, 1989 (the "Rights Plan"), each share
of First Midwest Common Stock issued pursuant to
the Agreement and Plan of Merger shall be
accompanied by a Right (as defined in the Rights
Plan). (See "PROPOSED MERGER - Terms of the
Merger" - Page 25 and "Outstanding Options to
Purchase CF Common Stock" - Page 26.)
THE CHARTER AMENDMENT: Under the Agreement and Plan of Merger, adoption of
the Charter Amendment is a condition precedent to
First Midwest's obligations to consummate the
Merger. The Charter Amendment must be approved by
persons holding 80% of the outstanding shares of
CF's Common Stock. The Charter Amendment will
repeal a special charter provision which prohibits
any stockholder who beneficially owns (as defined
in Rule 13d-3 of the Exchange Act) more than 10% of
the outstanding shares of CF's Common Stock from
voting any shares of such Common Stock held in
excess of 10% of the outstanding shares of CF's
Common Stock. This special charter provision is
primarily intended to dissuade third parties from
attempting to acquire control of, or a substantial
equity interest in, CF, without the approval of
CF's Stockholders. If the Charter Amendment is
approved but the Merger is not consummated, CF's
Board of Directors intends to abandon the Charter
Amendment and not repeal the special charter
provisions. (See "MEETING INFORMATION - The Charter
Amendment" - Page 16.)
RECOMMENDATION OF THE BOARD
OF DIRECTORS: THE BOARD OF DIRECTORS OF CF UNANIMOUSLY RECOMMENDS
THAT CF STOCKHOLDERS VOTE FOR APPROVAL OF THE
AGREEMENT AND PLAN OF MERGER AND THE CHARTER
AMENDMENT. CF'S BOARD OF DIRECTORS, AFTER
CONSIDERATION OF THE TERMS AND CONDITIONS OF THE
AGREEMENT AND PLAN OF MERGER AND OTHER FACTORS
DEEMED RELEVANT BY THE BOARD, BELIEVES THAT THE
TERMS OF THE AGREEMENT AND PLAN OF MERGER ARE FAIR,
FROM A FINANCIAL POINT OF VIEW, TO THE STOCKHOLDERS
OF CF AND THAT THE MERGER IS IN THE BEST INTERESTS
OF CF AND ITS STOCKHOLDERS. (SEE "PROPOSED MERGER -
CF'S REASONS FOR THE MERGER AND BOARD
RECOMMENDATION" - PAGE 20.)
OPINION OF FINANCIAL
ADVISOR: Stifel, Nicolaus & Company, Incorporated
("Stifel"), CF's financial advisor, has rendered
its written opinion to the Board of Directors of CF
that the Exchange Ratio contained in the Agreement
and Plan of
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Merger is fair, from a financial point of view, to
the holders of CF Common Stock. This opinion,
which is attached to this Proxy
Statement/Prospectus as Appendix B, should be read
in its entirety with respect to the assumptions
made or other matters considered by Stifel in
rendering such opinion. (See "PROPOSED MERGER -
Background of the Merger" - Page 19.)
DISSENTERS' RIGHTS: Under the provisions of Section 262 of the
Delaware General Corporation Law ("DGCL"),
dissenters' rights are not available to
stockholders of a corporation whose shares are
quoted on the NASDAQ National Market System. Both
CF and First Midwest are incorporated under the
laws of Delaware, and both CF's and First Midwest's
Common Stock are listed and quoted on the NASDAQ
National Market System. As a consequence,
Stockholders of CF do not have dissenters' rights
with respect to the Merger. A copy of Section 262
of the DGCL is attached hereto as Exhibit D.
FEDERAL INCOME TAX
CONSEQUENCES: As a condition precedent to the consummation of the
Merger, First Midwest and CF must each receive an
opinion from First Midwest's counsel regarding the
federal income tax consequences of the Merger. Such
opinion of First Midwest's counsel must be
substantially to the effect, among other matters,
that CF Stockholders will not recognize taxable
income by reason of receiving shares of First
Midwest Common Stock and accompanying Rights in the
Merger, that holders of options to acquire CF
Common Stock will not recognize taxable income by
reason of the conversion of such options as
contemplated by the Agreement and Plan of Merger
and that the shares of First Midwest Common Stock
which CF Stockholders receive in the Merger will
have the same tax basis and holding period as the
respective shares of CF Common Stock surrendered in
exchange therefore. Cash received in lieu of
fractional shares of First Midwest Common Stock
will be taxable. (See "PROPOSED MERGER -Certain
Federal Income Tax Consequences" - Page 35.)
Due to the complexities of federal, state and local
income tax laws, it is strongly recommended that CF
Stockholders consult their own tax advisors
concerning the federal, state and local tax
consequences of the Merger.
ACCOUNTING TREATMENT: The Parties anticipate accounting for the Merger as
a pooling of interests, and as a condition of First
Midwest's obligation to consummate the Merger, it
shall have received a letter from KPMG Peat Marwick
LLP to the effect that the Merger will qualify for
pooling of interests accounting treatment. (See
"PROPOSED MERGER -Accounting Treatment" - Page 36.)
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REGULATORY APPROVALS: The Agreement and Plan of Merger provides that it
is the present intention of First Midwest to take
the following actions at or after the Effective
Time: convert Citizens Federal, a wholly owned
subsidiary of CF, into a national banking
association; relocate Citizens Federal's main
office to Moline, Illinois; and merge Citizens
Federal into First Midwest's national bank
subsidiary, retaining Citizens Federal's existing
offices as branches. Before the Merger is
consummated, the conversion, relocation, merger and
branch retention must be approved by the Office of
the Comptroller of the Currency (the "OCC"). First
Midwest filed the required application with the OCC
on August 24, 1995.
In addition to approval by the OCC, the Merger of
CF with and into First Midwest must be approved by
the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"). First
Midwest filed the required application with the
Federal Reserve Board to approve the Merger on
August 24, 1995.
There are no assurances that all required
regulatory approvals will be obtained or, if
obtained, when such approvals will be granted.
(See "PROPOSED MERGER - Closing Date of the Merger
- Page 26; Conditions to the Merger - Page 27;
Regulatory Approvals" - Page 28.)
TERMINATION: The Agreement and Plan of Merger provides that it
may be terminated, whether before or after approval
of the matters presented in connection with the
Merger by the Stockholders of CF, under certain
conditions. (See "PROPOSED MERGER - Conditions to
the Merger - Page 27; Termination, Amendment and
Waiver" - Page 31.)
STOCK OPTION AGREEMENT: As an inducement to First Midwest to enter into
the Agreement and Plan of Merger, CF executed a
Stock Option Agreement with First Midwest which
provides First Midwest with an option to purchase
227,693 shares of CF Common Stock, subject to
adjustment. The option may be exercised upon the
occurrence of certain events, at an exercise price
of $24.75 per share, subject to adjustment. The CF
Common Stock issuable upon exercise of the option,
if exercised in full, would represent approximately
19.9% of the then outstanding CF Common Stock, on a
fully diluted basis. The issuance and exercise of
the option are not subject to approval by the
Stockholders of CF. The Stock Option Agreement and
the option may discourage offers to acquire CF and
are intended to increase the likelihood that the
Merger will be consummated in accordance with the
terms set forth in the Agreement and Plan of
Merger. (See "PROPOSED MERGER -Stock Option
Agreement" - Page 34.)
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RESALES OF FIRST MIDWEST
COMMON STOCK
BY AFFILIATES: Resales of First Midwest Common Stock issued to
"Affiliates" (as defined by Rule 145 of the Rules
and Regulations of the Commission) of CF in
connection with the Merger have not been registered
under applicable securities laws in connection with
the Merger. Such shares may only be sold (a) under
a separate registration for distribution (which
First Midwest has not agreed to provide); (b)
pursuant to Rule 145 under the Securities Act of
1933 as amended; or (c) pursuant to some other
exemption from registration. Affiliates of CF also
will be subject to prohibitions on sales until
financial results covering at least 30 days post-
Merger combined operations of CF and First Midwest
have been published. (See "PROPOSED MERGER - Resale
of First Midwest Common Stock" - Page 37.)
PREFERRED SHARE PURCHASE
RIGHTS: Pursuant to the Rights Plan, each share of First
Midwest Common Stock, including the First Midwest
Common Stock to be issued in the Merger, entitles
its holder to one Right ("Preferred Share Purchase
Right") to purchase 1/100th of a share of First
Midwest preferred stock under certain limited
circumstances. (See "CERTAIN DIFFERENCES IN RIGHTS
OF STOCKHOLDERS -Stockholders' Rights Plan" - Page
38.)
MARKET AND MARKET PRICES: First Midwest and CF Common Stock are both traded
in the over-the-counter market and are quoted on
the NASDAQ National Market System. First Midwest
Common Stock is traded under the symbol "FMBI". CF
Common Stock is traded under the symbol "CFBC".
The following table sets forth the last sale prices
for First Midwest Common Stock and CF Common Stock
for the periods indicated, and the equivalent per
share value for CF Common Stock giving effect to
the Merger as of the same dates:
<TABLE>
<CAPTION>
======================================================
First
Midwest CF Equivalent
MARKET VALUE PER Common Common Per Share
SHARE AT: Stock Stock Price(2)
------------------------------------------------------
<S> <C> <C> <C>
December 31, 1994 $24.00 $25.00 $34.91
------------------------------------------------------
May 31, 1995 (1) $24.25 $31.00 $35.27
------------------------------------------------------
June 30, 1995 $24.69 $32.35 $35.91
------------------------------------------------------
September 1, 1995 $28.25 $39.75 $41.09
======================================================
</TABLE>
(1) Trading date preceding public announcement of the proposed Merger.
(2) The Equivalent Per Share Price of CF Common Stock is calculated based on the
market value of First Midwest Common Stock, as of the dates indicated,
multiplied by the 1.4545 Exchange Ratio for each share of CF Common Stock.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF FIRST MIDWEST BANCORP, INC.
(dollar amounts in thousands, except per share data; unaudited)
The following table sets forth in summary form certain consolidated
financial data of First Midwest Bancorp, Inc. This summary should be read in
conjunction with the financial review and consolidated financial statements
included in the documents incorporated by reference in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
Six Months
ended June 30, Years ended December 31,
------------------------- -------------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results
Interest income.............. $ 111,005 $ 88,942 $ 190,478 $ 169,925 $ 174,222 $ 207,048 $ 205,456
Interest expense............. 55,743 36,572 82,841 66,233 77,627 113,777 120,575
Net interest income.......... 55,262 52,370 107,637 103,692 96,595 93,271 84,881
Provision for loan losses.... 4,172 3,292 8,486 11,432 15,452 15,492 8,480
Noninterest income........... 13,646 13,891 26,427 29,164 30,880 24,023 19,525
Noninterest expense.......... 45,546 45,159 89,532 90,032 86,562 78,225 65,253
Restructure charge........... - - 3,900 -- -- -- --
Income tax expense........... 6,858 6,693 11,778 10,608 7,553 5,770 8,069
Net income................... $ 12,332 $ 11,117 $ 20,368 (1)$ 20,784 $ 17,908 $ 17,807 $ 22,604
==================================================================================================================================
Per Share Data
Net income................... $ 1.01 $ 0.91 $ 1.67 (1)$ 1.68 $ 1.43 $ 1.42 $ 1.80
Cash dividends declared...... 0.38 0.34 0.68 0.60 0.52 0.52 0.52
Book value at period end..... 17.47 15.66 15.26 16.37 15.15 14.23 13.25
Book value at period end,
as adjusted................. 17.62 (2) 16.52 (2) 16.96 (2) 16.01 (2) 15.15 14.23 13.25
Market value at period end... 24.69 26.75 24.00 25.25 19.50 16.25 14.50
==================================================================================================================================
Performance Ratios
Return on average equity..... 12.48% 11.47% 10.61%(3) 10.78% 9.78% 10.32% 14.25%
Return on average assets..... 0.86% 0.83% 0.74%(3) 0.84% 0.78% 0.76% 1.03%
Net interest margin - tax
equivalent.................. 4.19%(4) 4.28%(4) 4.24%(5) 4.62%(5) 4.71% 4.44% 4.39%
==================================================================================================================================
June 30, December 31,
------------------------- ------------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -------------- ------------ -----------
Balance Sheet Highlights
Total assets................. $ 2,951,665 $ 2,760,573 $ 2,875,101 $ 2,687,317 $ 2,297,220 $ 2,311,402 $ 2,368,306
Loans........................ 1,898,477 1,672,982 1,785,200 1,589,326 1,457,242 1,391,012 1,370,880
Deposits..................... 2,101,370 1,995,757 1,994,408 1,933,996 1,882,368 1,865,374 1,937,450
Stockholders' equity......... 213,823 190,225 186,115 199,947 188,799 178,316 166,174
==================================================================================================================================
June 30, December 31,
------------------------- ------------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -------------- ------------ -----------
Capital Analysis
Tier 1 to risk-based assets.... 9.82% 9.78% 9.57% 9.89% 10.67% 10.08% 9.26%
Total capital to
risk-based assets........... 11.03% 10.91% 10.78% 11.08% 11.92% 11.38% 10.21%
Leverage ratio................. 6.86% 6.74% 6.72% 6.89% 7.51% 7.04% 6.42%
==================================================================================================================================
</TABLE>
(1) Includes $3,900 pretax restructure charge, or $2,379 ($.20 per share) after
tax unrelated to the Merger with CF. For a discussion of the restructure
charge, refer to Management's Discussion and Analysis in First Midwest's
Form 10-K for the year ended December 31, 1994, incorporated herein by
reference, beginning on page 36 in the section entitled "Restructure
Charge."
(2) Excludes the after-tax unrealized net appreciation/depreciation on
securities available for sale existent as of the end of the period
indicated.
(3) Excluding the after-tax effect of the restructure charge of $2,379, return
on average equity and return on average assets would have been 11.85% and
.82%, respectively.
(4) For a discussion of an arbitrage arrangement in effect for the six months
ended June 30, 1995 and 1994 and its affect on net interest margin, refer to
Management's Discussion and Analysis in First Midwest's Form 10-Q for the
quarter ended June 30, 1995, incorporated herein by reference, beginning on
page 12 in the Section entitled "Net Interest Income".
(5) For a discussion of an arbitrage arrangement in effect in 1994 and 1993, and
its affect on net interest margin, refer to Management's Discussion and
Analysis in First Midwest's Form 10-K for the year ended December 31, 1994,
incorporated herein by reference, beginning on page 17 in the Section
entitled '"Net Interest Income".
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF CF BANCORP, INC.
(dollar amounts in thousands, except per share data; unaudited)
The following table sets forth in summary form certain consolidated
financial data of CF Bancorp, Inc. This summary should be read in conjunction
with the financial review and consolidated financial statements included in the
documents incorporated by reference in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Operating Results
Interest income.............. $ 16,437 $ 13,958 $ 13,261 $ 13,940 $ 14,679
Interest expense............. 9,559 6,904 6,551 7,919 10,124
Net interest income.......... 6,878 7,054 6,710 6,021 4,555
Provision for loan losses.... 44 78 104 453 191
Noninterest income........... 2,076 1,990 1,527 1,479 1,275
Noninterest expense.......... 4,773 4,186 4,105 3,851 3,465
Income tax expense........... 1,396 1,747 1,525 1,232 799
Net income................... $ 2,741 $ 3,033 (1) $ 2,503 $ 1,964 $ 1,375
=======================================================================================================
Per Share Data
Net income................... $ 2.85 $ 3.13 (1) $ 2.42 $ * (3)$ * (3)
Cash dividends declared...... 0.88 0.50 0.30 * (3) * (3)
Book value at period end..... 25.52 23.28 19.96 17.37 * (3)
Market value at period end... 32.25 22.75 17.95 (2) 9.09 (2) * (3)
=======================================================================================================
Performance Ratios
Return on average equity..... 12.31% 15.17%(1) 13.76% 22.07% 19.02%
Return on average assets..... 1.22% 1.45%(1) 1.34% 1.30% 0.92%
Net interest margin - tax
equivalent................... 3.22% 3.52% 3.82% 4.25% 3.18%
=======================================================================================================
June 30,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ----------- ------------ ------------ --------------
Balance Sheet Highlights
Total assets................. $ 226,944 $ 223,348 $ 208,196 $ 155,730 $ 147,096
Loans........................ 119,004 114,006 110,851 98,780 98,226
Deposits..................... 135,513 129,215 135,112 130,245 134,450
Stockholders' equity......... 23,390 20,975 18,655 17,387 7,915
=======================================================================================================
June 30,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ----------- ------------ ------------ --------------
Capital Analysis
Tier 1 to risk-based assets.. 8.49% 8.07% 7.95% 9.97% 5.38%
Total capital to
risk-based assets......... 17.61% 17.49% 17.26% 18.96% 10.15%
Leverage ratio............... 8.49% 8.07% 7.95% 9.97% 5.38%
=======================================================================================================
</TABLE>
(1) Excludes the cumulative effect on prior years of change in accounting for
income taxes totaling $435, or $.45 per share.
(2) Adjusted for a 10% stock dividend declared in July, 1993.
(3) Not applicable. CF was formed in March, 1992 in contemplation of the
conversion of Citizens Federal from the mutual to the stock form of
ownership.
13
<PAGE>
RECENT DEVELOPMENTS
GOVERNMENT REGULATION - FDIC INSURANCE PREMIUMS
The savings deposits of First Midwest and CF are insured up to
$100,000 per insured member (as defined by law and regulation) by the FDIC with
such insurance backed by the full faith and credit of the United States
government. First Midwest's deposits are primarily insured by the Bank
Insurance Fund ("BIF") while CF's deposits are insured by the Savings
Association Insurance Fund ("SAIF"), both of which are administered by the FDIC.
As insurer, the FDIC assesses deposit insurance premiums and is
authorized to conduct examinations of, and require reporting by, FDIC-insured
institutions. Deposit insurance premiums are based upon risk classifications
that are determined by the insured institution's capital ratios and the result
of such institution's supervisory examinations. Institutions assigned higher
risk classifications pay deposit insurance premiums at a higher rate than the
institutions assigned lower risk classifications. During the first six months
of 1995, First Midwest and CF were assessed an annual deposit insurance premium
rate of $.23 per $100 of insured deposits, which was the lowest insurance rate
imposed by the FDIC.
The BIF reached its legally required maximum funding in May of 1995
and, as a result of this statutory goal being attained, the FDIC voted on August
8, 1995, to reduce the insurance assessments for "well capitalized" banks from
$.23 to $.04 per $100 of insured deposits. The reduction in insurance
assessments will become effective beginning in June, with refunds and interest
thereon to be reimbursed to Banks having paid premiums through September, 1995
at the higher rate. First Midwest's national bank subsidiary is considered well
capitalized for purposes of insurance and paid assessments of $2.2 million in
the first six months of 1995. Such subsidiary will receive a refund of
approximately $300,000 for overpayment of June, 1995 premiums and estimates that
premium assessments for the last six months of 1995 will total approximately
$400,000 based on $.04 per $100 of insured deposits.
The SAIF is currently undercapitalized. Accordingly, no action was
taken by the FDIC regarding SAIF assessments, which were left unchanged at $.23
per $100 of insured deposits for "well capitalized" thrifts; CF is considered a
"well capitalized" thrift.
Federal banking regulators and lawmakers are believed to be near an
agreement on a plan to bolster the SAIF by the assessment of a special, one-time
charge on SAIF-insured deposits in the range of approximately .85% - .90% of
such deposits. The assessment of such a charge is believed to be sufficient to
recapitalize the SAIF and, at least initially, allow future SAIF-insured deposit
premiums to be lowered to the same average premium applicable to BIF.
Furthermore, after the special assessment is charged, federal banking regulators
and law makers are believed to favor the merging of the BIF and SAIF Funds.
Congressional hearings on the resolution of the BIF and SAIF issues have been
held and future hearings are scheduled. The outcome of such hearings and the
impact on deposit insurance premiums assessed by the BIF and SAIF, the potential
assessment of a one-time charge on SAIF-insurance deposits, as well as the
likelihood of the merger of the BIF and SAIF cannot be determined at this time.
SALE OF 100,000 SHARES OF COMMON STOCK BY FIRST MIDWEST
On August 16, 1995, pursuant to a Form S-3 filed with the Commission,
First Midwest sold 100,000 shares of its Common Stock through a licensed
broker/dealer to certain institutional and accredited investor clients of such
dealer. Net proceeds from the sale of such stock of approximately $2.7 million
will be used by First Midwest for general corporate purposes.
14
<PAGE>
COMPARATIVE PER COMMON SHARE DATA
The following table presents selected comparative unaudited per common
share data for First Midwest Common Stock and CF Common Stock on an historical
and proforma combined basis and for CF Common Stock on a pro forma equivalent
basis giving effect to both the Merger, on a pooling of interests accounting
basis, and to the sale of 100,000 shares of First Midwest Common Stock, as
discussed in the section entitled "RECENT DEVELOPMENTS" - Page 14.
The proforma combined information is not necessarily indicative of the
actual results that would have occurred had the Merger been consummated prior to
the periods indicated, or of the future operations of the combined entity. (See
"Proforma Combining Financial Statements" pages 43 - 45.)
<TABLE>
<CAPTION>
SIX
MONTHS YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
6-30-95 12-31-94 12-31-93 12-31-92
======= ======== ======== ========
<S> <C> <C> <C> <C>
First Midwest-Historical
Net Income........................................ $ 1.01 $ 1.67 $ 1.68 $ 1.43
Cash dividends declared........................... .38 .68 .60 .52
Book value (at period end)........................ 17.47 15.26 16.37 15.15
======= ======== ======== ========
CF-Historical
Net Income/(1)(2)/................................ $ 1.46 $ 2.92 $ 2.99 $ *
Cash dividends declared/(2)/...................... .476 .675 .385 *
Book value (at period end)........................ 25.52 24.38 21.93 20.22
======= ======== ======== ========
First Midwest-Proforma Combined:
Net income /(3)/.................................. $ 1.01 $ 1.70 $ 1.72 $ 1.43
Cash dividends declared/(4)/...................... .38 .68 .60 .52
Book value (at period end)/(5)/................... 17.26 15.19 16.02 14.84
======= ======== ======== ========
CF-Common Stock-Equivalent Proforma Combined/(6)/:
Net income........................................ $ 1.47 $ 2.47 $ 2.50 $ 2.08
Cash dividends declared........................... .55 .99 .87 .76
Book value (at period end)........................ 25.10 22.09 23.30 21.58
======= ======== ======== ========
</TABLE>
(1) CF's net income for the year ended 12-31-93 excludes the cumulative effect
on prior years of change in accounting principles totaling $435 or $.45 per
share of CF Common Stock.
(2) Net income and dividends declared for CF for the year end 12-31-92 are not
applicable. CF was formed in March, 1992 in contemplation of the conversion
of Citizens Federal from the mutual to the stock form of ownership.
(3) The pro forma combined net income per common share (based on weighted
average shares outstanding) is based upon the combined historical net income
for First Midwest and CF, adjusted for interest expense reductions and tax
expense incurred from deployment of the net proceeds of 100,000 shares of
Common Stock sold by First Midwest, divided by the average pro forma common
shares of the combined entity.
(4) The pro forma combined dividends declared assume no changes in historical
dividends per share declared by First Midwest.
(5) The pro forma combined book value per share of First Midwest Common Stock is
based upon the historical total divided by total pro forma common shares of
the combined entity assuming conversion of the CF Common Stock at the 1.4545
Exchange Ratio.
(6) The equivalent pro forma combined income, dividends and book value per share
of CF Common Stock represent the pro forma combined amounts multiplied by
the Exchange Ratio of 1.4545, which is based on the terms of the Agreement
and Plan of Merger (see "PROPOSED MERGER - Terms of the Merger" - Page 25).
15
<PAGE>
MEETING INFORMATION
GENERAL
This Proxy Statement of CF and Prospectus of First Midwest is being furnished
to the Stockholders of CF in connection with the solicitation by the Board of
Directors of CF of proxies to be voted at the Special Meeting of holders of CF
Common Stock to be held on November 20, 1995, and any adjournment thereof. The
purpose of the Special Meeting and of the solicitation is to obtain approval of
the holders of CF Common Stock of the Agreement and Plan of Merger, the Charter
Amendment and the transaction of such other business as may properly come before
the meeting or any adjournments thereof. Each copy of this Proxy
Statement/Prospectus mailed to holders of CF Common Stock is accompanied by a
form of proxy for use at the Special Meeting.
DATE, PLACE AND TIME
The Special Meeting will be held at the main offices of Citizens Federal, 101
West Third Street, Davenport, Iowa, on November 20, 1995, at 2:00 p.m. (local
time).
RECORD DATE
The close of business on _______ ___, 1995 has been fixed by the Board of
Directors of CF as the Record Date for the determination of Stockholders
entitled to notice of, and to vote at, the Special Meeting. On that date there
were outstanding and entitled to vote 916,496 shares of CF Common Stock, of
which 188,136 shares (20.53%), exclusive of options, were held by directors and
executive officers of CF. First Midwest's directors and executive officers do
not own any shares of CF Common Stock. Each outstanding share of CF Common Stock
entitles the record holder thereof to one vote on all matters to be acted upon
at the Special Meeting.
REQUIRED VOTE - THE MERGER
The DGCL requires that the Agreement and Plan of Merger be approved by the
affirmative vote of the holders of a simple majority outstanding shares of CF
Common Stock.
THE CHARTER AMENDMENT
Under the Agreement and Plan of Merger, adoption of the Charter Amendment is a
condition precedent to First Midwest's obligations to consummate the Merger. The
Charter Amendment will repeal a special charter provision, which prohibits any
stockholder who beneficially owns (as defined in Rule 13d-3 of the Exchange Act)
more than 10% of the outstanding shares of CF's Common Stock from voting any
shares of such Common Stock held in excess of 10% of the outstanding shares of
CF's Common Stock. This special charter provision is primarily intended to
dissuade third parties from attempting to acquire control of, or a substantial
equity interest in, CF, without the approval of CF's Stockholders.
The affirmative vote of the holders of at least 80% of the voting power of the
shares of CF's outstanding Common Stock entitled to vote on the Charter
Amendment (after giving effect to the special charter provision) is required to
approve and adopt the Charter Amendment. Since the Charter Amendment is being
proposed only in connection with the Agreement and Plan of Merger and the
Stockholders would lose the benefits of the special charter provision if the
Merger is not consummated, the Board of Directors believes it is in the best
interests of CF and its Stockholders to abandon the Charter Amendment, in
accordance with the DGCL, if the Merger is not consummated. Therefore, if the
Charter Amendment is approved but the Merger is not consummated, the Board of
Directors intends to abandon the Charter Amendment and not repeal the Special
Charter Provisions.
16
<PAGE>
THE BOARD OF DIRECTORS OF CF BELIEVES THAT THE ADOPTION OF THE CHARTER
AMENDMENT IS IN THE BEST INTERESTS OF CF AND ITS STOCKHOLDERS. THE BOARD
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF CF VOTE FOR THE PROPOSAL TO ADOPT
THE CHARTER AMENDMENT.
VOTING AGREEMENT
On May 31, 1995, all directors and certain officers of CF signed an Agreement
of Affiliates (the "Voting Agreement") with First Midwest, pursuant to which
each of them agreed, among other things, to vote all of his or her shares of CF
Common Stock in favor of the Merger and not to support a competing transaction
prior to consummation of the Merger or termination of the Agreement and Plan of
Merger. The signing officers and directors are relieved of their commitment to
vote in favor of the Merger in the event that prior to the approval of the
Merger by CF Stockholders, CF receives a proposal for a competing transaction
which, based upon the advice of counsel, the Board of Directors of CF determines
it must actively consider in fulfillment of its fiduciary duty to such
Stockholders. THE TOTAL NUMBER OF SHARES DIRECTLY OR INDIRECTLY OWNED BY THESE
OFFICERS AND DIRECTORS IS 160,521 OR 17.5% OF THE TOTAL SHARES OUTSTANDING AND
ENTITLED TO VOTE AT THE SPECIAL MEETING.
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning the number of shares of
CF Common Stock held by each Stockholder who is known to CF's management to be
the beneficial owner of more than five percent of the outstanding shares of CF
Common Stock, exclusive of CF's directors and officers (presented below), as of
September 1, 1995:
<TABLE>
<CAPTION>
First Midwest
Amount and Nature Beneficial Stock to be Received
Ownership of CF Common Stock (1) in the Merger
----------------------------------- ------------------------
Sole Voting Total Percent
Name of and Invest- Percent Following of
Beneficial Owner ment Power Total of Class Merger (4) Class (5)
---------------- ----------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
CF Bancorp, Inc.
Employee Stock Ownership
Plan /(2)/............... 54,580 54,580 5.96% 79,387 *
=========== ========= ========= ============ =========
</TABLE>
The following table set for certain information concerning the number of
shares of CF Common Stock held as of September 1, 1995, by each of CF's
directors and by all of CF's directors and executive officers as a group:
<TABLE>
<CAPTION>
First Midwest
Amount and Nature Beneficial Stock to be Received
Ownership of CF Common Stock(1) in the Merger
----------------------------------------------------- ---------------------
Sole Voting Total Percent
and Invest- Stock Percent Following of
Name of Beneficial Owner ment Power Options RRP (3) Total of Class Merger (4) Class (5)
------------------------ ----------- ------- ------- ------ -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Greg Bohac....................... 29,213 15,015 3,542 47,770 5.21% 69,481 *
Paul Eckert...................... 38,449 25,025 7,084 70,558 7.70% 102,627 *
Mark Kilmer...................... 5,858 2,502 -0- 8,360 .91% 12,160 *
Willett Kubec.................... 11,000 2,502 -0- 13,502 1.47% 19,639 *
B. C. O'Brien.................... 11,188 -0- -0- 11,188 1.22% 16,273 *
Margaret Tiedemann............... 11,000 2,502 -0- 13,502 1.47% 19,639 *
=========== ====== ====== ======= ======== =========== =========
All Directors and
Executive Officers............. 177,510 73,079 10,626 261,215 28.50% 379,937 2.77%
=========== ====== ====== ======= ======== =========== =========
</TABLE>
* Less than 1%.
17
<PAGE>
Footnotes to Tables Contained in "Principal Stockholders":
---------------------------------------------------------
(1) The number of shares stated are based on information furnished by the
persons listed and include shares personally owned of record by each person
and shares which under applicable regulations are deemed to be otherwise
beneficially owned by each person including shares allocated to directors
and officers from the Employee Stock Ownership Plan. Under these
regulations, a beneficial owner of a security includes any person who,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise has or shares voting power or investment power
with respect to the security. Voting power includes the power to vote or to
direct the voting of the security. Investment power includes the power to
dispose or to direct the disposition of the security. A person will also be
considered the beneficial owner of a security if the person has a right to
acquire beneficial ownership of the security within 60 days.
(2) Includes 13,330 shares allocated to the individual accounts of employees,
officers and directors with respect to which such individuals are deemed to
have sole voting and no investment power. The trustee of the Employee Stock
Ownership Plan has sole investment and voting power with respect to the
41,250 unallocated shares.
(3) These numbers represent shares awarded to key executive officers under CF's
Recognition and Retention Plans and Trusts. Such shares are non-
transferrable and non-assignable by the holders, who have sole voting and no
investment power.
(4) Based on the Exchange Ratio of 1.4545 shares of First Midwest Common Stock
for each share of CF Common Stock. (See "Comparative Per Share Data" - Page
15.)
(5) This column reflects the percentage of the outstanding shares of First
Midwest Common Stock which the specified person(s) will hold following the
consummation of the Merger. These percentages were computed by reference to
a total of approximately 13,730,000 shares of First Midwest Common Stock
outstanding. This number assumes the issuance of First Midwest Stock
pursuant to the Merger based on a 1.4545 Exchange Ratio in addition to the
sale of 100,000 shares of First Midwest Stock in August, 1995. (See "RECENT
DEVELOPMENTS" - Page 14.)
VOTING AND REVOCATION OF PROXIES
Shares of CF Common Stock represented by a proxy properly signed and received
at, or prior to, the Special Meeting, unless subsequently revoked, will be voted
at the Special Meeting in accordance with the instructions thereon. If a proxy
is signed and returned without indicating any voting instructions, shares of CF
Common Stock represented by the Proxy will be voted "FOR" both the Agreement and
Plan of Merger and the approval and adoption of the Charter Amendment. Because
approval of the Agreement and Plan of Merger requires the affirmative vote of
more than 50%, and approval of the Charter Amendment requires affirmative vote
of at least 80%, respectively, of the outstanding shares of CF Common Stock
entitled to vote at the Special Meeting, both broker nonvotes and abstentions
have the same effect as votes against the Agreement and Plan of Merger and
against the Charter Amendment. Any proxy given pursuant to this solicitation may
be revoked by the person giving it at any time before the proxy is voted by the
filing of an instrument revoking it or of a duly executed proxy bearing a later
date with the Secretary of CF prior to or at the Special Meeting. Attendance at
the Special Meeting will not in and of itself constitute a revocation of a
proxy.
The Board of Directors of CF is not aware of any business to be acted upon at
the Special Meeting other than as described herein. If, however, other matters
are properly brought before the Special Meeting, or any adjournments thereof,
the persons appointed as proxies will have discretion to vote or act thereon
according to their best judgment.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers, and employees of CF,
who will not be specifically compensated for such services, may solicit proxies
from the Stockholders of CF, personally or by telephone or 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. CF, at its discretion, may contract for the
services of a proxy solicitation firm, the fees for which would be born by CF.
HOLDERS OF CF COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO CF IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE.
18
<PAGE>
PROPOSED MERGER
The following description of the Merger is qualified in its entirety by
reference to the Agreement and Plan of Merger, which is attached as Appendix A
to this Proxy Statement/Prospectus and is incorporated herein by reference. All
CF Stockholders are urged to read the Agreement and Plan of Merger in its
entirety.
BACKGROUND OF THE MERGER
Effective July 1, 1992, Citizens Federal converted from a federally chartered
mutual savings bank to a federally chartered stock savings bank. At the same
time, CF was formed as Citizens Federal's holding company. In connection with
the conversion, CF completed an initial public offering of stock, selling
910,000 shares of CF Common Stock at $10.00 per share.
Following the conversion, management of CF focused its attention primarily on
increasing its core business while reviewing, from time to time, its strategic
alternatives in light of its size, the increasing consolidation of the financial
services industry and other relevant considerations. In November 1994, the
Board of Directors determined to maintain an informed position with respect to
its strategic alternatives by, among other things, retaining a financial
advisor.
In December 1994, CF engaged Stifel, Nicolaus & Company, Incorporated
("Stifel"), to serve as its financial advisor on financial and strategic matters
relating to the enhancement of stockholder value, including the possible sale of
CF.
In February 1995, Stifel initiated a marketing process of soliciting offers
from third parties regarding a potential merger with CF. At the start of the
marketing process, Stifel contacted 22 parties that Stifel, along with the Board
of Directors of CF, believed were likely to have a strategic and/or financial
interest in a potential acquisition of CF.
All 22 institutions were provided Confidentiality Agreements and 16 of these
institutions returned signed Confidentiality Agreements. Each institution
returning a signed Confidentiality Agreement was provided certain public and
non-public financial and operating data regarding CF, in the form of a
Confidential Information Memorandum ("CIM"). Four of the 16 institutions
expressed an interest (the "Interested Parties") in further exploration of a
possible acquisition of CF. The Interested Parties were given the opportunity
by Stifel and CF to request further clarification or additional information
regarding the contents of the CIM, and were instructed by Stifel to submit
preliminary indications of value to CF by March 3, 1995.
On or before March 3, 1995, all four of the Interested Parties submitted
preliminary indications of value. Stifel, on behalf of CF, had subsequent
discussions with the Interested Parties for the purpose of maximizing the
indications of value from the Interested Parties. However, none of the
Interested Parties changed their indications of value of CF.
The Board of Directors of CF determined, with the assistance of Stifel, that
First Midwest's indication of value represented the highest value to, and the
best strategic alternative for, CF and its Stockholders. Various factors were
considered in reaching this conclusion including, among other things, the
indicated levels of consideration from each of the four Interested Parties,
prevailing economic, market and monetary conditions, the reasonableness and
achievability of CF's financial and operating forecasts (and the assumptions and
basis therefore) and its future prospects as an independent institution, the
future financial and operating prospects of the four Interested Parties that
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<PAGE>
submitted preliminary indications of value after giving effect to a business
combination involving an acquisition of CF, and the likely structures of the
business combinations contemplated by the preliminary indications of value
submitted by the four Interested Parties.
First Midwest's preliminary indication of interest contemplated that CF would
be merged into First Midwest, and was subject to a number of ordinary and
customary conditions regarding the negotiation of a definitive agreement and the
receipt of all relevant regulatory and stockholder approvals. Subsequent
discussions and negotiations over the next three months between First Midwest,
its counsel and The Chicago Corporation, acting on behalf of First Midwest, and
CF, its counsel and Stifel, acting on behalf of CF, resulted in a formal offer
for CF, as set forth in the Agreement and Plan of Merger.
On May 31, 1995, at a meeting of CF's Board of Directors that included the
participation of Stifel and Silver, Freedman & Taff, L.L.P., CF's outside legal
counsel, CF's Board reviewed the terms of the proposed Merger and unanimously
approved the offer from First Midwest and authorized the execution and delivery
of the Agreement and Plan of Merger.
CF'S REASONS FOR THE MERGER AND BOARD RECOMMENDATION
After careful study and evaluation, CF's Board of Directors has unanimously
approved the Agreement and Plan of Merger and has determined that the Merger is
fair to, and in the best interests of, CF and CF's Stockholders. The Board
believes that the Merger will enable CF Stockholders to realize significant
value on their investment and also will enable them to participate in
opportunities for growth that CF believes the Merger makes possible.
In reaching its determination that the Merger is fair to, and in the best
interests of, CF and CF's Stockholders, the Board carefully considered a variety
of factors with the assistance of its legal and financial advisors. Among the
factors it considered were the following:
(a) CF considered its business, financial condition, results of operations
and prospects, including, but not limited to, its potential growth,
development, productivity and profitability were it to remain independent. In
the Board's opinion, a business combination with a larger bank holding company
such as First Midwest would provide both greater short-term and long-term
value to CF Stockholders than other alternatives available. Such a business
combination would enhance CF's competitiveness and its ability to serve its
depositors, customers and the communities in which it operates. The increased
competitive advantage would result primarily from the ability of CF to offer
new and enhanced products and services already developed and tested by First
Midwest, the cost savings from combining operations and support functions, and
the increased access to capital that First Midwest could provide. Such an
increased competitive advantage would be likely to result in an increase in
the value of Citizens Federal and be reflected in the value of First Midwest
Common Stock that will be received by CF's Stockholders.
(b) The current and prospective environments in which CF operates, including
national and local economic conditions, the current regulatory environment
and the trend toward consolidation in the financial services industry
generally and in the Quad Cities metropolitan market, specifically, were also
factors in the Board's decision. Recent changes in state and federal banking
laws have greatly enhanced expansion opportunities through regulation and the
financial services industry has also increased competition for the products
and services offered by banks. The increases in competition, together with
increased bank regulatory reporting and other requirements, have made it more
difficult for independent community banks such as Citizens Federal to compete
with the banking affiliates of much larger institutions with respect to the
range of products and services offered and the costs which such products and
services can be offered. First Midwest's philosophy of relationship
20
<PAGE>
banking and allowing each of its banking centers to continue to operate as
community banks with their own local markets, focusing on servicing the needs
of their particular communities, should provide an opportunity for Citizens
Federal to compete more effectively with larger institutions but still
maintain its community banking approach. This compatibility of businesses and
management philosophies of CF and First Midwest constituted a significant
additional factor in the Board's decision.
(c) The strategic, competitive advantage that First Midwest will have
through its combination with CF was considered by the Board. As a result of
the Merger of CF and First Midwest, the resulting institution will have the
second largest deposit market share in the Quad Cities area, thereby enhancing
the value of First Midwest's franchise and the potential long term value to
CF's Stockholders.
(d) The Board considered the business, results of operations, financial
condition and asset quality of First Midwest, as well as its future growth
prospects following the Merger. The Merger presents an opportunity for
potential synergies and cost savings by integrating the responsibilities for
functions such as the following: product development; training in product
sales and services which First Midwest has had in place for several years;
internal audit, loan review and compliance training; and stockholder record
keeping and communications. First Midwest's established operational and
training systems are expected to result in cost savings from economies of
scale as well as being able to provide CF employees with a higher level of
training to meet customer needs.
(e) The Board also determined that the Merger offered CF Stockholders the
prospects for higher dividends, and a higher current trading value for their
shares as a result of greater liquidity and better prospects for future growth
than if CF were to remain independent.
(f) Based upon the financial terms of other recent business combinations in
the financial services industry and information concerning the business,
financial condition, results of operations and prospects of First Midwest, the
Board solicited an opinion from Stifel regarding the fairness of a Merger with
First Midwest, from a financial point of view, to the holders of CF's Common
Stock. Based upon the opinion of Stifel, the anticipated tax free nature of
the Merger for federal income tax purposes to CF Stockholders, and the
likelihood that the proposed transaction would be consummated, the Board
determined that the Merger was preferable to other alternatives available to
CF, such as being acquired by a different company or remaining independent and
growing internally.
While each member of the Board individually evaluated each of the foregoing as
well as other factors, the Board collectively did not assign any specific or
relative weights to the factors considered and did not make any determination
with respect to any individual factor. The Board collectively made its
determination with respect to the Merger based on the unanimous conclusion
reached by its members that the Merger, in light of the factors that each
director individually considered as appropriate, is fair and in the best
interests of the CF Stockholders.
In approving the Merger, CF's Board of Directors was aware that (i) the
Agreement and Plan of Merger contains certain provisions prohibiting CF from
soliciting, facilitating or accepting other offers or agreements to acquire CF
and (ii) First Midwest would be able to exercise the Option in certain
circumstances generally relating to a failure of First Midwest to consummate the
Merger because of another offer for CF or a material change or potential
material change in the ownership of CF. However, the Board was also aware that
such terms were specifically bargained for and insisted upon by First Midwest as
inducements to enter into the Agreement and Plan of Merger, and that the Board's
obligations under the Agreement and Plan of Merger to recommend that CF's
Stockholders approve the Agreement and Plan of Merger and to use its reasonable
best efforts to obtain such approval were explicitly made subject to the Board's
fiduciary duties upon advice of counsel to CF. Accordingly, the Agreement and
Plan of Merger expressly permits the Board, in the exercise of its fiduciary
duties, to withdraw or change its
21
<PAGE>
recommendations of the Agreement and Plan of Merger and to suspend or terminate
its efforts to obtain Stockholder approval of the Agreement and Plan of Merger
at the Special Meeting (it should be noted, however, that in such circumstances
First Midwest might still be able to exercise its rights under the Option
Agreement). In addition, in connection with its approval of the proposed
Merger, the Board was advised by Stifel that the indicated value of the Merger
(i) exceeded the upper end of Stifel's range of estimates of CF's stand-alone
value and (ii) was at the upper end of Stifel's range of estimates of CF's
likely value in an acquisition transaction. In presenting this advice, Stifel
stated that these findings were necessarily based upon economic, market,
monetary and other conditions as they existed and could be evaluated at the
time, represented its best business judgment under the circumstances and should
not be construed in any way as a financial fairness or other form of expert
opinion. Stifel's fairness opinion is described below and is included as
Appendix B to this Proxy Statement/Prospectus. (See "PROPOSED MERGER -Opinion
of Financial Advisor to CF" - Page 22.)
THE BOARD OF DIRECTORS OF CF BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS
OF CF AND ITS STOCKHOLDERS. THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
OF CF VOTE FOR THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER.
OPINION OF FINANCIAL ADVISOR OF CF
CF has retained Stifel to act as its financial advisor in connection with
rendering a fairness opinion with respect to the Merger. Stifel is an
investment banking and securities firm with membership on all principal U.S.
securities exchanges. As part of its investment banking activities, Stifel is
regularly engaged in the valuation of businesses and their securities in
connection with merger transactions and other types of acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. Stifel has
rendered its opinion that, based upon and subject to the various considerations
set forth therein, as of May 31, 1995 and the date of this Proxy
Statement/Prospectus, the Merger Consideration to be received for each share of
CF Common Stock resulted in consideration that was fair, from a financial point
of view, to the holders of CF Common Stock. Stifel is familiar with CF, having
acted as its financial advisor in connection with, and having participated in,
the negotiations leading to the Agreement and Plan of Merger. Representatives
of Stifel participated in certain portions of the meeting of CF's Board of
Directors on May 31, 1995 where the proposed Merger was considered and certain
officers of CF were authorized to enter into the Agreement and Plan of Merger.
The full text of Stifel's opinion as of the date hereof, which sets forth the
assumptions made, matters considered and limitations of the review undertaken,
is attached as Appendix B to this Proxy Statement/Prospectus and is incorporated
herein by reference, and should be read in its entirety in connection with this
Proxy Statement/Prospectus. The summary of the opinion of Stifel set forth in
this Proxy Statement/Prospectus is qualified in its entirety by reference to the
full text of such opinion. The May 31, 1995 opinion was substantially identical
to the opinion attached hereto.
Stifel's opinion is directed only to the fairness of the Merger Consideration
from a financial point of view and does not constitute a recommendation to any
holders of CF Common Stock as to how such holders of CF Common Stock should vote
at the Special Meeting or as to any other matter.
In connection with its opinion dated the date hereof, Stifel reviewed and
analyzed material bearing upon the financial and operating condition of CF and
First Midwest and material prepared in connection with the Merger, including
among other things: (a) the Agreement and Plan of Merger and the Stock Option
Agreement; (b) publicly available reports filed with the Commission by CF and by
First Midwest; (c) certain other publicly available financial
22
<PAGE>
and other information concerning CF and First Midwest and the trading markets
for the publicly traded securities of CF and First Midwest; (d) certain other
internal information, including projections for CF and First Midwest, relating
to CF and First Midwest prepared by the managements of CF and First Midwest and
furnished to Stifel for purposes of its analysis; and (e) publicly available
information concerning certain other banks and bank holding companies, savings
banks and savings and loan associations, savings and loan holding companies,
the trading markets for their securities and the nature and terms of certain
other merger and acquisition transactions believed relevant to its inquiry.
Stifel also met with certain officers and representatives of CF and First
Midwest to discuss the foregoing as well as other matters relevant to its
inquiry, including the past and current business operations, results of
regulatory examinations, financial condition and future prospects of CF and
First Midwest, both separately and on a combined basis. In addition, Stifel
reviewed the reported price and trading activity for CF Common Stock and First
Midwest Common Stock, compared certain financial and stock market information
for CF and First Midwest with similar information for certain other companies,
the securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the commercial banking and thrift
industries, and performed such other studies and analyses as it considered
appropriate. Stifel also took into account its assessment of general economic,
market and financial conditions and its experience in other transactions, as
well as its experience in securities valuations and knowledge of the commercial
banking and thrift industries generally.
In conducting its review and arriving at its opinion, Stifel relied upon and
assumed the accuracy and completeness of the financial and other information
provided to it or publicly available and did not attempt independently to verify
the same. Stifel has relied upon the managements of CF and First Midwest as to
the reasonableness and achievability of the projections (and the assumptions and
basis therefore) provided to Stifel, and assumed that such projections,
including, without limitation, projected cost savings and operating synergies
resulting from the Merger, reflected the best currently available estimates and
judgments of such CF management and First Midwest representatives and that such
projections would be realized in the amounts and time periods estimated. Stifel
also assumed, without independent verification, that the aggregate allowances
for loan losses for CF and First Midwest were adequate to cover such losses.
Stifel did not conduct physical inspections of any of the properties or assets
of CF or First Midwest, and Stifel did not make or obtain, and was not furnished
with, any evaluations or appraisals of any properties, assets or liabilities of
CF and First Midwest. Stifel was retained by the CF Board to express an opinion
as to the fairness, from a financial point of view, to the holders of CF Common
Stock of the Merger Consideration.
In connection with rendering its opinion to the CF Board, Stifel performed a
variety of financial analyses that are summarized below. The summary of the
presentations by Stifel to the Board of Directors of CF as set forth herein does
not purport to be a complete description of such presentations. Stifel believes
that its analyses and the summary set forth herein must be considered as a whole
and that selecting portions of such analyses and the factors considered therein,
without considering all factors and analyses, could create an incomplete view of
the analyses and processes underlying its opinions. The preparation of a
fairness opinion is a complex process involving subjective judgments and is not
necessarily susceptible to partial analyses or summary description. In its
analyses, Stifel made numerous assumptions with respect to industry performance,
business and economic conditions, and other matters, many of which are beyond
the control of CF or First Midwest. Any estimates contained in Stifel's
analyses are not necessarily indicative of actual future values or results,
which may be significantly more or less favorable than suggested by such
estimates. Estimates of values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities actually
may be sold. No company or transaction utilized in Stifel's analyses was
identical to CF or First Midwest or the Merger. Accordingly, such analyses are
not based solely on arithmetic calculations; rather, they involve complex
considerations and judgments concerning differences in financial and operating
characteristics of the relevant companies, the timing of the relevant
transactions, and prospective buyer
23
<PAGE>
interest, as well as other factors that could affect the public trading values
of the company or companies to which they are being compared. None of the
analyses performed by Stifel was assigned a greater significance by Stifel than
any other.
The following is a summary of the financial analyses performed by Stifel in
connection with providing its opinion to CF's Board of Directors on May 31,
1995, which was dated as of May 31, 1995.
Contribution Analysis. Stifel reviewed certain historical operating and
financial information including net revenues (before and after provision for
loan losses), net income (before extraordinary items), assets, loans, deposits
and total equity and compared the contribution of CF to the pro forma combined
figures for CF and First Midwest to the percentage of total outstanding First
Midwest Common Stock that would be owned by the CF stockholders as a result of
the Merger. The analysis showed the following percentage contribution of CF to
the pro forma combined equity.
<TABLE>
<CAPTION>
Percentage Contribution
Twelve Months
Ended
December 31, 1994
-----------------------
<S> <C>
Common Stock Ownership 10.6%
Net Revenues /(1)/ (Before Provision for Loan Loss) 9.8
Net Revenues /(1)/ (After Provision for Loan Loss) 12.0
Net Income 12.1
Assets 7.3
Loans 6.1
Deposits 6.5
Total Equity 10.6
====
</TABLE>
----------------
(1) Net Revenues include net interest income plus noninterest income net of
noninterest expense.
Accretion/Dilution Summary. Stifel reviewed certain financial information
for the pro forma combined entity resulting from the Merger for the twelve
months ended December 31, 1994, and the quarter ended March 31, 1995, and
estimated future operating and financial information developed by both CF and
First Midwest for the year ended December 31, 1995. Based on this analysis,
Stifel compared CF's actual per share earnings, book value, tangible book value
and common stock dividends for the quarter ended March 31, 1995 with such
projected figures for the proforma combined entity for the twelve months ended
December 31, 1995. The Merger is projected to be accretive on a proforma basis
with respect to earnings per share, book value per share and common stock
dividends per share of CF Common Stock and generally neutral to slightly
dilative with respect to tangible book value, respectively.
Present Value Analysis. Applying discounted cash flow analysis to the
theoretical future earnings and dividends of CF and First Midwest, Stifel
compared the calculated value of a CF share to the calculated value of a share
of the combined entity receivable in exchange for CF Common Stock pursuant to
the Agreement and Plan of Merger. The analysis was based upon a range of
assumed returns on assets, a range of assumed annual asset growth rates, current
dividend rates, a range of assumed price/earnings ratios, and a 12% discount
rate. Based on this analysis, Stifel concluded that the Merger increases the
calculated value of a share of CF Common Stock.
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Summary Analysis of Thrift Merger Transactions. Stifel analyzed certain
information relating to transactions in the thrift industry, including median
information for 104 acquisitions announced in the U.S. between April 20, 1994
and April 20, 1995, as well as for 37 thrift acquisitions announced in the
Midwest (the "Selected Transactions"). Stifel calculated the following ratios
with respect to the Merger and the Selected Transactions:
<TABLE>
<CAPTION>
CF/First
Midwest U.S. Midwestern
Ratios/(1)/ Merger Median Median
----------- --------- ------- -----------
<S> <C> <C> <C>
Deal Price per share/Book Value 150.1% 152.0% 152.0%
Deal Price per share/Tangible Book
Value 150.1 155.0 153.0
Adjusted Deal Price/6.50% Equity 179.8 174.0 179.0
Deal Price per share/Last 12
months earnings per share 12.2 14.4 15.7
Deal Price/Assets 15.6 13.4 14.7
Premium over Tangible Book
Value/Deposits 8.6 6.0 6.4
Deal Price/Deposits 25.9 16.4 18.8
===== ===== =====
</TABLE>
----------------
(1) Ratios are based on the Exchange Ratio of 1.4545 shares of First Midwest
Common Stock for one share of CF Common Stock and a price for First Midwest
Common Stock of $24.50 per share.
As described above, Stifel's opinion and presentation to the CF Board of
Directors were among the many factors taken in consideration by the CF Board in
making its determination to approve the Merger.
For Stifel's services in connection with the Merger, CF has paid Stifel
$25,000 and will pay Stifel a total fee of 1% of the Merger Consideration (of
which such $25,000 shall be deemed partial payment) upon the closing of the
Merger pursuant to the terms of an engagement letter and has agreed to reimburse
Stifel for certain out-of-pocket expenses. Pursuant to the engagement letter,
CF has agreed to indemnify Stifel, its affiliates and their respective partners,
directors, officers, agents, consultants, employees and controlling persons
against certain liabilities, including liabilities under the federal securities
laws.
In the ordinary course of its business, Stifel actively trades equity
securities of CF and First Midwest for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
TERMS OF THE MERGER
On the Closing Date, subject to the terms and conditions of the Agreement
and Plan of Merger, CF will merge with and into First Midwest, with First
Midwest being the continuing and surviving corporation. The Certificate of
Incorporation and Bylaws of First Midwest in effect at the effective time (as
defined in the section entitled "Closing Date of the Merger" - Page 26) will
govern the surviving corporation until amended or repealed in accordance with
the applicable law. Each share of CF Common Stock which is issued and
outstanding immediately prior to the effective time shall be converted into and
represent the right to receive and be exchangeable
25
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into 1.4545 shares of First Midwest Common Stock. (See "CERTAIN DIFFERENCES IN
RIGHTS OF STOCKHOLDERS - Dissenters' Rights" - Page 42.) Pursuant to First
Midwest's Stockholders Rights Plan, which was adopted on February 15, 1989, each
share of First Midwest Common Stock issued pursuant to the Agreement and Plan of
Merger shall be accompanied by a Right, as defined in the Rights Plan. (See
"CERTAIN DIFFERENCES IN RIGHTS OF STOCKHOLDERS -Stockholders' Rights Plan"
- Page 38.)
The Agreement and Plan of Merger provides that, if between the date of the
Agreement and Plan of Merger and the Effective Time, shares of First Midwest
Common Stock are 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 First Midwest Common Stock, or a stock
dividend, stock split or other general distribution of First Midwest's Common
Stock is declared with a record date prior to the Effective Time, then in any
such event the Exchange Ratio shall be appropriately adjusted.
No fractional shares of First Midwest Common Stock will be issued in the
Merger. Instead, in lieu of any fractional shares which the CF Stockholder
would otherwise be entitled, First Midwest shall pay to each holder of shares of
CF Common Stock an amount of cash, without interest, equal to the product
achieved when such fractional share is multiplied by $36.00.
Simultaneous with the execution of the Agreement and Plan of Merger and as
a condition thereto, First Midwest and CF approved the execution and delivery of
a Stock Option Agreement, which grants to First Midwest an option to acquire up
to 19.9% of the issued and outstanding shares of CF Common Stock upon the
occurrence of certain circumstances. (See "PROPOSED MERGER - Stock Option
Agreement" - Page 10, 34.)
OUTSTANDING OPTIONS TO PURCHASE CF COMMON STOCK
Certain directors and executive officers of CF currently have options
outstanding to purchase 73,079 shares of CF Common Stock. At the Effective
Time, each CF stock option will be converted into and represent an option solely
to purchase shares of First Midwest Common Stock, determined by multiplying (i)
the number of shares of CF Common Stock subject to such CF stock option
immediately prior to the Effective Time by (ii) the Exchange Ratio, at a per
share exercise price achieved by dividing the per share exercise price under
such CF stock option by the Exchange Ratio provided, however, that each CF stock
option shall be exercisable on the same terms and conditions as were applicable
to the CF stock options. First Midwest has agreed to assume and honor the CF
stock options in accordance with their terms.
The shares of First Midwest Common Stock underlying the CF stock options
shall be covered by an effective registration statement filed on Form S-8 with
the Commission and such shares shall be duly authorized, validly issued, fully
paid and nonassessable.
CLOSING DATE OF THE MERGER
The closing date of the Merger will take place on a date mutually agreed
upon by First Midwest and CF. In the absence of such agreement, the closing
shall be held on the 30th 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
(see "Regulatory Approvals" - Page 10, 28); or, (ii) the requisite approval of
the Merger by the Stockholders of CF. The Merger shall become effective when the
Certificate of Merger is 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 governing corporate law, the Certificate of Merger
upon the satisfaction of all conditions precedent to the consummation of the
transaction contemplated by the Agreement and Plan of Merger.
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SURRENDER OF CERTIFICATES
As soon as reasonably practicable after the Closing Date, the Exchange Agent,
to be appointed by First Midwest (the "Exchange Agent"), is required to mail to
each holder of record of CF Common Stock a letter of transmittal and
instructions for use in effecting the surrender of such holder's CF stock
certificates for certificates representing shares of First Midwest Common Stock
("Certificates").
CF STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE
THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM THE EXCHANGE AGENT.
Upon surrender to the Exchange Agent of one or more certificates for CF Common
Stock, together with a properly completed letter of transmittal, there will be
issued and mailed to the holder a Certificate or Certificates to which the
holder is entitled and, where applicable, a check for the amount representing
any fractional share. A Certificate may be issued in a name other than the name
in which the surrendered certificate is registered only if a certificate
representing such CF Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect a transfer to the
new name and by evidence that any applicable stock transfer taxes have been
paid.
No dividends or other distributions declared after the Effective Time with
respect to First Midwest Common Stock payable to the holders of record thereof
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate of CF Common Stock (with respect to First Midwest 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 First Midwest Common
Stock represented by such Certificate. All dividends or other distributions
declared on or after the Effective Time with respect to First Midwest Common
Stock and payable to the holders of record thereof on or after the Effective
Time which are payable to the holder of a Certificate not theretofore
surrendered and exchanged for First Midwest Common Stock shall be paid or
delivered by First Midwest Common Stock to the Exchange Agent, 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 unsurrendered
Certificates unclaimed at the end of one year from the Effective Time shall be
repaid or redelivered by the Exchange Agent to First Midwest 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 First Midwest for payment or delivery of such dividends or
distributions, as the case may be. Any shares of First Midwest Common Stock
delivered or made available to the Exchange Agent and not exchanged for
Certificates within one year after the Effective Time shall be returned by the
Exchange Agent to First Midwest which shall thereafter act as Exchange Agent
subject to the rights of holders of unsurrendered Certificates.
CONDITIONS TO THE MERGER
The Merger will occur only if the Agreement and Plan of Merger and the Charter
Amendment are approved by the requisite votes by the holders of CF Common Stock.
In addition to the condition described in the section entitled "MEETING
INFORMATION - The Charter Amendment" - Page 16, consummation of the Merger is
subject to the satisfaction of certain other conditions unless waived to the
extent waiver is permitted by applicable law. Such conditions include the
following, which constitute all material conditions: (i) the receipt of all
necessary regulatory approvals, including the approval of the Federal Reserve
Board, the OTS, the OCC, the FDIC and any other applicable regulatory authority
required to consummate the Merger, with no material terms or conditions that are
not reasonably acceptable to First Midwest; (ii) An opinion from First Midwest's
counsel regarding the federal income tax consequences of the Merger
substantially to the effect that, among other matters, CF's Stockholders will
not recognize taxable income by reason of receiving shares of First Midwest
Common Stock in the Merger; (iii) effectiveness of the registration and the
absence of a stop order suspending such effectiveness or proceedings seeking a
stop order; (iv) the absence of a preliminary or a permanent injunction or other
order by any federal or state court which prevents the consummation of the
Merger; (v) authorization for listing on the NASDAQ National Market System of
the shares of First Midwest stock issuable in the Merger; (vi) the receipt by
First Midwest of an opinion from KPMG Peat Marwick LLP, First Midwest's
independent auditors, to the effect that the Merger qualifies for
27
<PAGE>
pooling of interests accounting treatment; (vii) the receipt of all consents or
approvals from third parties required under the Agreement and Plan of Merger for
consummation of the Merger other than those agreements for which failure to
obtain such consents or approvals would not have a material adverse effect on
First Midwest; (viii) the absence of any material adverse affect (as defined in
the Agreement and Plan of Merger) since May 31, 1995, in the financial
condition, results of operations or business of First Midwest and CF; (ix) the
continued accuracy of representations and warranties by First Midwest and CF
regarding, among other things, the organization of the parties, financial
statements, capitalization, pending and threatened litigation, enforceability of
the Agreement and Plan of Merger, compliance with law and tax matters; and (x)
an audited, consolidated balance sheet of CF containing an unqualified opinion
of KPMG Peat Marwick LLP, as of the close of business at the end of the month
occurring within 45 days of the Closing Date, wherein the Tier 1 capital of CF
as of the balance sheet date shall not be less than $23,500,000, subject to
certain adjustments, additions to capital, expenses, charges and similar amounts
from May 31, 1995 through the Closing Date (the "Adjusted Tier 1 Capital").
Furthermore, First Midwest shall have received a "comfort" letter from KPMG Peat
Marwick LLP dated no more than five days prior to the Closing Date, in a form
reasonably satisfactory to First Midwest, which states that the Adjusted Tier 1
Capital of CF as of the date of the "comfort" letter is not less than
$23,500,000. (See "Regulatory Approvals" - Page 1028 and "Termination,
Amendment and Waiver" - Page 31.)
In addition, unless waived, each party's obligation to effect the Merger is
subject to performance by the other party of its obligation under the Agreement
and Plan of Merger and the receipt of certain certificates from the other party
and legal opinions.
REGULATORY APPROVALS
The Merger is subject to prior approval by the Federal Reserve Board under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"), which requires
that the Federal Reserve Board take into consideration, among other factors, the
financial and managerial resources and future prospects of the respective
institutions and the convenience and needs of the communities to be served. The
BHC Act prohibits the Federal Reserve Board from approving the Merger if it
would result in a monopoly or be in furtherance of any combination or conspiracy
to monopolize or to attempt to monopolize the business of banking in any part of
the United States, or if its effect in any section of the country may be
substantially to lessen competition or to tend to create a monopoly, or if it
would in any manner be a restraint of trade, unless the Federal Reserve Board
finds that the anticompetitive effects of the Merger are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs of the communities to be served. The Federal Reserve Board
has the authority to deny any application if it concludes that the combined
organization would have an inadequate capital position. Furthermore, the Federal
Reserve Board must also assess the records of the bank subsidiaries of First
Midwest and CF under the Community Reinvestment Act of 1977, as amended (the
"CRA"). The CRA requires that the Federal Reserve Board analyze, and take into
account when evaluating an application, each bank's record of meeting the credit
needs of its local communities, including low-and moderate-income neighborhoods,
consistent with safe and sound operations.
Under the BHC Act, the Merger may not be consummated until up to 30 days
following the date of Federal Reserve Board approval, during which time the
United States Department of Justice may challenge the Merger on antitrust
grounds. The commencement of an antitrust action would stay the effectiveness
of the Federal Reserve Board's approval unless a court specifically orders
otherwise. The BHC Act provides for the publication of notice and public
comment on applications and authorizes the regulatory agency to permit
interested parties to intervene in the proceedings; the requisite notices have
been published.
First Midwest submitted an application for filing with the Federal Reserve
Bank of Chicago (the "Federal Reserve Bank") on August 24, 1995. The Federal
Reserve Bank, if acting under delegated authority from the Federal
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Reserve Board, must, within ten (10) business days, either accept the
application for processing, request additional information, or return the
application to First Midwest if it is substantially incomplete. After
acceptance for filing, the Federal Reserve Bank, under the BHC Act, must act on
the application within thirty (30) calendar days after it has accepted the
application. The Federal Reserve Bank may extend this thirty (30) day period
for fifteen (15) days.
Under certain circumstances, the Federal Reserve Bank may not approve or
disapprove the application under delegated authority from the Federal Reserve
Board. In such circumstances, after acceptance for filing, the Federal Reserve
Bank will send its report and recommendations to the Federal Reserve Board. The
Federal Reserve Board may also request additional information. Under the BHC
Act, the Federal Reserve Board must act on the application within the ninety-one
(91) day period that will begin on the date of submission to the Federal Reserve
Board of the complete record (a period that will be tolled by any public
comments or other circumstances that may trigger further requests for
information from the Federal Reserve Board).
There can be no assurance that the Federal Reserve Bank will approve the
Merger, and if the Merger is approved, there can be no assurance as to the date
of such approval. There can likewise be no assurance that the Department of
Justice will not challenge the Merger or, if such a challenge is made, as to the
result thereof.
The Merger is subject to the parties having received evidence of the OCC's
approval of the conversion of Citizens Federal from a federal savings bank to a
national bank, the relocation of Citizen Federal's main office to Moline,
Illinois and the Merger of Citizen Federal into First Midwest's national bank
subsidiary. Federal banking regulations require that Citizens Federal give
notice to the OTS upon filing its letter of intent to convert to a national bank
with the OCC. It is the present intent of the parties to have Citizens Federal
complete such a charter conversion at or after the effective time. Citizens
Federal filed an application for the charter conversion with the OCC on August
24, 1995 and has provided the required notice to the OTS. There can be no
assurance that the OCC will authorize the charter conversion.
BUSINESS PENDING THE MERGER
Under the Agreement and Plan of Merger, CF is generally obligated to, and to
cause its subsidiary to, carry on its respective businesses in, and only in, the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, maintain their respective books in accordance with
generally accepted accounting principles, conduct their respective businesses
and operations only in accordance with safe and sound banking and business
practices, and, to the extent consistent with such businesses, use all
reasonable efforts to preserve intact their present business organizations, to
generally keep available the services of their present officers and employees
and to preserve their relationships with customers, suppliers and others having
business dealings with them to the end that their respective goodwill and going
business shall be unimpaired at the Effective Time.
In addition, CF is to, and cause its subsidiary to, use its best efforts to
comply promptly with all requirements which federal or state law may impose on
any of them with respect to the Merger and will promptly cooperate with and
furnish information to First Midwest in connection with any such requirements
imposed upon any of them in connection with the Merger.
CF will, and will cause its subsidiary to, use its best efforts to obtain (and
to cooperate with First Midwest in obtaining) any consent, authorization or
approval of, or any exemption by, any governmental authority or agency, or other
third party, required to be obtained or made by any of them in connection with
the Merger or the taking of any action contemplated hereby.
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CF will not, nor will it permit its subsidiary to, knowingly or willfully take
any action that would adversely effect the ability of such party to perform its
obligations under the Agreement and Plan of Merger or the Stock Option Agreement
(see "Stock Option Agreement" - Page 1034). The Agreement and Plan of Merger
also provides that prior to the Effective Time, without First Midwest's prior
written consent, CF may not, and may not allow its subsidiary to, among other
things: (i) sell, lease or otherwise dispose of any assets, except in the
ordinary course of business, which are material, individually or in the
aggregate, to the business or financial conditions of CF on a consolidated
basis; (ii) affect any acquisition; (iii) increase the compensation of
employees, directors or officers, except in accordance with past practice; (iv)
issue or redeem any of its capital stock; (v) incur any material liabilities or
obligations, except in the ordinary course of business; (vi) change retirement
benefits or other benefit plans, except as provided for in the Agreement and
Plan of Merger; (vii) propose or adopt any amendments to its corporate charter
or bylaws; and (viii) change the lending, investment, liability, management and
other material policies concerning the banking business of CF.
In addition, the Agreement and Plan of Merger provides that prior to the
Effective Time neither CF (nor its subsidiary) (i) shall solicit, initiate,
participate in discussions of, or encourage or take any other action to
facilitate any inquiry or the making of any proposal relating to an Acquisition
Transaction (as defined below) or a potential acquisition transaction with
respect to itself or its subsidiary; or (ii) solicit, initiate, participate in
discussions of, or encourage or take any other action to facilitate any inquiry
or proposal or enter into any agreement, arrangement, or understanding,
regarding any proposal or transaction providing for or requiring it to abandon,
terminate or fail to consummate the Agreement and Plan of Merger, or
compensating it or its subsidiary under any of the instances herein described.
"Acquisition Transaction" shall, with respect to CF, mean any of the
following: (i) a merger or consolidation, or any similar transaction of any
company with either CF or a significant subsidiary, as defined by Rule 1.02 of
Regulation S-X of the Commission, of CF; (ii) a purchase, lease or other
acquisition of all or substantially all the assets of either CF or a significant
subsidiary of CF; (iii) a purchase or other acquisition of beneficial ownership
by any person or group which would cause such person or group to become the
beneficial owner of securities representing 24.9% or more of the voting power of
either CF or a significant subsidiary of CF; (iv) a tender or exchange offer to
acquire securities representing 24.9% or more of the voting power of CF; (v) a
public proxy or consent solicitation made to Stockholders of CF seeking proxies
in opposition to any proposal relating to any of the transactions contemplated
by the Agreement and Plan of Merger that has been recommended by the Board of
Directors of CF; (vi) the filing of an application or notice with the Federal
Reserve Board, the OTS, or any other federal or state regulatory authority
seeking approval to engage in one or more of the transactions referenced in (i)
through (iv) above; or (vii) the making of a bona fide proposal to CF or its
Stockholders by public announcement or written communication, that is or becomes
the subject of public disclosure, to engage in one or more of the transactions
referenced in clauses (i) through (v) above.
CF has agreed to, through its Board of Directors, subject to its fiduciary
duty to the Stockholders of CF: (i) recommend to its Stockholders approval of
the Agreement and Plan of Merger; (ii) not withdraw, modify, or amend such
recommendations; and (iii) use its best efforts to obtain Stockholder approval.
DIVIDENDS
Under the Agreement and Plan of Merger, CF will not declare dividends other
than regular quarterly cash dividends at a rate per share of not in excess of
the greater of: (i) $.276; or (ii) the quarterly dividend payable by First
Midwest multiplied by the Exchange Ratio. CF cannot make any changes in its
normal practice of establishing dividend record or dividend payment dates. CF
cannot pay a dividend during the quarter that the Merger is to be consummated if
CF Stockholders would be entitled to receive a dividend from First Midwest
during that quarter.
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<PAGE>
The intent is to provide that the holders of CF Common Stock will receive either
the payment of cash dividends on their shares of CF Common Stock or the payment
of cash dividends as the holders of shares of First Midwest Common Stock
received in the Merger in exchange for the shares of CF Common Stock for the
calendar quarter during which the Effective Time occurs.
TERMINATION, AMENDMENT AND WAIVER
The Agreement and Plan of Merger provides that it may be terminated, whether
before or after approval of the Merger by the Stockholders of CF: (i) by mutual
consent of First Midwest and CF; (ii) by written notice from either party to the
other if (a) the conditions to the Merger contained in the Agreement and Plan of
Merger have not been substantially satisfied or waived by March 31, 1996 (or
April 30, 1996 in the event a protest is filed with bank regulatory authorities
alleging the failure of either party or either party's subsidiaries to comply
with the Community Reinvestment Act of 1977); (b) any warranty or representation
made by the other party in the Agreement and Plan of Merger is discovered to
have become untrue in any material respect or which has not been cured within
thirty (30) days after written notice of such breach is given by the
nonbreaching party to the party committing such breach; or (c) at any time prior
to the Effective Time by First Midwest or CF if there shall have been a final
judicial or regulatory determination that any material provision of the
Agreement and Plan of Merger is illegal, invalid or unenforceable or denying any
regulatory application the approval of which is a condition precedent to either
party's obligation; or (d) by either party at any time after the Stockholders of
CF fail to approve the Agreement and Plan of Merger in a vote taken at a meeting
duly convened for that purpose.
OPERATIONS OF CF AFTER THE MERGER
In the Merger, CF will be merged into First Midwest and the separate corporate
existence of CF will cease. First Midwest will thereby acquire control of
Citizens Federal, which will have been converted to a national bank, at or after
the Effective Time, and will continue to own its two (2) nonbank subsidiaries.
First Midwest will continue as the Surviving Corporation.
At or after the Effective Time, Citizens Federal will be converted into a
national bank, the main office of which will be relocated to Moline, Illinois.
Subsequently, Citizens Federal will be merged into First Midwest's national bank
subsidiary, retaining Citizens Federal's existing offices as branches.
INTEREST OF CERTAIN PERSONS IN THE MERGER
The directors and certain officers of CF hold stock options granted pursuant
to the CF Bancorp, Inc. 1992 Stock Option and Incentive Plan (the"Stock Option
Plan"). In accordance with the terms of the Stock Option Plan and the Agreement
and Plan of Merger, CF will amend the Stock Option Plan immediately prior to the
effective time of the Merger to provide that each option outstanding under the
Stock Option Plan as of the Effective Time of the Merger will be converted into
an option to purchase shares of First Midwest Common stock and shall otherwise
remain subject to the same terms and conditions as in effect prior to the
Effective Time. (See "Outstanding Options to Purchase CF Common Stock" - Page
26.) Set forth below is certain information with respect to the effect of the
Merger on the options held by CF's directors and certain officers under the
Stock Option Plan. The information that follows reflects the number of options
held by such director or certain officer as of September 1, 1995, and assumes no
options will be exercised prior to the Effective Time of the Merger. The
closing price per share of First Midwest Common Stock on September 1, 1995 was
$28.25.
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<TABLE>
<CAPTION>
EQUIVALENT
OPTIONS FOR EQUIVALENT FIRST MIDWEST
SHARES OF CF SHARE OF FIRST MIDWEST AVERAGE PRICE
OUTSIDE DIRECTORS COMMON STOCK COMMON STOCK PER SHARE *
----------------- ------------ ---------------------- -------------
<S> <C> <C> <C>
Mark Kilmer......... 2,502 3,639 $6.25
Willett Kubec....... 2,502 3,639 $6.25
Margaret Tiedemann.. 2,502 3,639 $6.25
OFFICERS
--------
Greg Bohac.......... 15,015 21,839 $6.25
George Boudi........ 5,507 8,009 $6.25
Paul Eckert......... 25,025 36,398 $6.25
Bob Garman.......... 4,507 6,555 $6.25
David Quillen....... 4,507 6,555 $6.25
Jim Paustian........ 4,004 5,823 $6.25
Ken Smerillo........ 3,004 4,369 $6.25
Martha Watters...... 4,004 5,823 $6.25
</TABLE>
* Based on $9.09 CF Option exercise price divided by 1.4545 Exchange Ratio.
Under the CF Management Recognition and Retention Plan and Trust (the "RRP"),
17,710 and 8,855 shares of CF Common Stock, respectively, were previously issued
for the benefit of Messrs. Eckert and Bohac, both directors and officers of CF.
These shares are vested at the rate of 20% per year, commencing March 31, 1992.
It is anticipated that Messrs. Eckert and Bohac will have 7,084 and 3,542 of
such shares of CF Common Stock, respectively, unvested as of the Effective Time
of the Merger. In accordance with the RRP and Agreement and Plan of Merger,
these shares of CF Common Stock will be converted into shares of First Midwest
Common Stock upon the Effective Time of the Merger and will remain subject to
the terms and conditions of the RRP. Because the Merger will constitute a
"change in control" as defined in the RRP, any unvested shares will become
vested upon consummation of the Merger.
CF entered into Special Termination Agreements with certain of its officers in
July of 1993. These Agreements will become effective upon the consummation of
the Merger because the Merger will constitute a "change in control". Under the
Special Termination Agreements, the covered officer will be entitled to certain
benefits in the event of involuntary termination of employment during the 36-
month period following the Merger. The officer's employment will be deemed to
be involuntarily terminated if such termination is (i) employer-initiated
without the officer's consent for reasons other than cause, or (ii) employee-
initiated because of a material diminution of or interference with the officer's
duties, responsibilities and benefits, such as, but not limited to, a change in
the officer's principal workplace location away from the Davenport, Iowa area, a
reduction or adverse change in compensation or benefits not applicable to
employees generally, or a reduction or adverse change in the officer's
reporting relationships. In the event of such involuntary termination, the
officer will be entitled to receive severance compensation in an amount equal to
two times the officer's aggregate salary and incentive compensation for the
preceding fiscal year. The severance compensation will be paid in 24 monthly
installments and will be subject to reduction for any earnings received by the
officer from a third party during such 24 month period. In addition to the
severance compensation, each officer will also be entitled to continued life,
health and disability coverage during such 24 month period, subject to earlier
termination in the event the officer obtains similar coverage from another
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employer. Set forth below are the names of officers of CF who are parties to a
Special Termination Agreement and the estimated aggregate amount of the
severance compensation payments that would be due to the officer in the event of
termination of employment upon the Merger based on current salary and incentive
compensation levels:
<TABLE>
<CAPTION>
ESTIMATED AMOUNT
OF CASH
EXECUTIVE OFFICERS PAYMENT
-------------------- ----------------
<S> <C>
Greg Bohac................. $307,500
George Boudi............... $145,000
Paul Eckert................ $211,700
Bob Garman................. $218,464
David Quillen.............. $196,330
Catherine Vance............ $150,800
</TABLE>
Pursuant to the Agreement and Plan of Merger, First Midwest has agreed to
provide outplacement services to those officers of CF at or above the level of
Vice President whose employment is involuntarily terminated within one year
following the Merger, provided the cost of such services are not to exceed five
percent of such officer's 1994 base salary.
The Agreement and Plan of Merger provides that upon consummation of the
Merger, First Midwest will maintain, except as may be limited by applicable law,
all rights of indemnification currently provided by CF and CF's subsidiary in
favor of their current and former employees, directors', officers' and agents on
terms no less favorable than those provided in the Certificate of Incorporation
or Bylaws of CF or otherwise in effect on the date of the Agreement and Plan of
Merger for a period of not less than four (4) years from the Effective Time with
respect to matters occurring prior to the Effective Time. In addition, First
Midwest has agreed that, prior to or at the Effective Time, it will provide
under its directors and officers liability insurance prior acts and omissions
coverage for current and former employees, officers', directors' and agents of
CF and CF's subsidiary for at least three (3) years.
No director or executive officer of CF owns any shares of First Midwest Common
Stock. No director or executive officer of First Midwest has any personal
interest in the Merger other than by reason of his or her holdings of First
Midwest Common Stock nor do such directors or executive officers own any shares
of CF Common Stock. Except as otherwise described in this Proxy
Statement/Prospectus, there are no material relationships among executive
officers, directors and principal stockholders of CF and the executive officers,
directors and principal stockholders of First Midwest.
EFFECT ON EMPLOYEE BENEFITS
The Agreement and Plan of Merger provides, among other things, that CF and
First Midwest shall cooperate in effecting the following treatment of the CF
benefit plans, except as mutually agreed upon by First Midwest and CF prior to
the Effective Time: (a) at the Effective Time, First Midwest shall be
substituted for CF as a sponsoring employer under those CF benefit plans with
respect to which CF or its subsidiary is a sponsoring employer immediately prior
to the Effective Time, and shall assume and be vested with all of the powers,
including the power to amend or terminate such plans consistent with applicable
law, rights, duties, obligations and liabilities previously vested in CF or its
subsidiary with respect to each such plan; and (b) at or as promptly as
practicable after the Effective Time as First Midwest shall reasonably
determine, First Midwest shall provide, or cause any First Midwest
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subsidiary to provide, to each employee of CF and any CF subsidiary as of the
effective time ("CF Employees") the opportunity to participate in each employee
benefit plan and program maintained by First Midwest or First Midwest's
subsidiaries for similarly situated employees (the "First Midwest Benefit
Plans") provided that with respect to such First Midwest Benefit Plans, CF
Employees shall be given credit for service with CF or any CF subsidiary in
determining eligibility for vesting in benefits thereunder, but not for purposes
of benefit accrual. CF Employees will not be subject to any waiting periods or
pre-existing conditions exclusions under the First Midwest Benefit Plans to the
extent that such periods are longer or restrictions impose a greater limitation
than the periods or limitations imposed under the CF Benefit Plans and will be
given credit under the applicable First Midwest Benefit Plan for any deductibles
and coinsurance payments made by such CF Employees under the CF Benefit Plans in
those situations where the coverage under the First Midwest Benefit Plan
commences after the first day of the plan year.
CF and the CF Subsidiaries maintain the CF Bancorp, Inc. Employee Stock
Ownership Plan (the "ESOP") for the benefit of eligible employees. Under the
ESOP, 13,330 shares of CF Common Stock have been allocated to participant
accounts and 41,250 shares are held in a suspense account to secure a loan made
to the ESOP to acquire shares of CF Common Stock. Pursuant to the Agreement and
Plan of Merger, CF and the CF Subsidiary will, to the extent permitted by
applicable law, maximize the employer contributions to the ESOP for the purpose
of repaying the outstanding loan, thereby causing an allocation of the shares
held in the suspense account to the ESOP participants, prior to the effective
time. To the extent that CF or the CF Subsidiaries are unable to make
contributions sufficient to fully repay the loan prior to the Effective Time,
the Agreement and Plan of Merger requires First Midwest to maintain the ESOP
after the Effective Time solely for the benefit of the CF and CF Subsidiaries
employees and to make the maximum permitted contributions thereto until the loan
is repaid. Such employees will not participate in any of the First Midwest
Benefit Plans which are retirement plans with respect to any period during which
First Midwest is making such contributions to the ESOP. The ESOP will be
amended prior to the Effective Time to provide that all participant accounts not
then vested shall become fully vested upon the Merger and that, following
repayment of the loan and allocation of all of the shares in the suspense
account, the ESOP will be terminated. As soon as practicable after the
Effective Time, First Midwest will apply to the Internal Revenue Service for a
determination letter with respect to the ESOP's continued tax-qualified status
as so amended and terminated, and upon receipt of such letter, liquidating
distributions will be made to the participants.
STOCK OPTION AGREEMENT
As an inducement to First Midwest to enter into the Agreement and Plan of
Merger, CF executed a Stock Option Agreement with First Midwest which provides
First Midwest with an option to purchase 227,693 shares of CF Common Stock,
subject to adjustment. The option may be exercised upon the occurrence of
certain events, described below, at an exercise price of $24.75 per share,
subject to adjustment. The CF Common Stock issuable upon exercise of the
option, if exercised in full, would represent approximately 19.9% of the then
outstanding CF Common Stock, on a fully diluted basis. The issuance and
exercise of the option are not subject to approval by the Stockholders of CF.
The option may not be sold, assigned, transferred or exercised without the
written consent of CF, unless one or more of the following events ("Exercise
Events") has occurred:
(i) Any person, other than First Midwest or its subsidiaries, shall have
commenced any Acquisition Transaction by the making of an appropriate
filing with the SEC relating to a tender offer or appropriate filing with
the OTS or the Federal Reserve Board requesting approval for such persons'
acquisition of shares of CF Common Stock; or has made a written offer to
engage in an Acquisition Transaction that requires approval by the Board
of Directors of CF and which is not rejected by such Board within five (5)
business days after
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<PAGE>
receipt thereof or the Board of Directors of CF shall have recommended
that the Stockholders of CF approval or accept any such offer;
(ii) CF, without having received First Midwest's prior written consent, shall
have entered into an agreement to engage in an Acquisition Transaction
with any person, other than First Midwest or its subsidiaries;
(iii) After a proposal is made by a third party to CF or its Stockholders to
engage in an Acquisition Transaction, CF shall have breached any of its
representations, warranties, covenants or agreements contained in the
Agreement and Plan of Merger which breach would entitle First Midwest to
terminate the Agreement and Plan of Merger and such breach shall have
not been cured prior to the notice of the date First Midwest sends to CF
a written notice of its intention to exercise the option.
Subject to compliance with applicable law, First Midwest may exercise the
option, in whole or part, at any time or from time to time upon the occurrence
or during the continuance of an Exercise Event provided that to the extent the
option shall not have been exercised, it shall terminate and be of no further
force and effect (i) at the Effective Time of the Merger; (ii) upon termination
of the Agreement and Plan of Merger by First Midwest after approval of the
Merger by the CF Stockholders, except a termination by First Midwest caused by a
material breach of the Agreement and Plan of Merger by CF; (iii) upon a
termination of the Agreement and Plan of Merger as a result of a written consent
of the Boards of Directors of First Midwest and CF; (iv) upon termination of the
Agreement and Plan of Merger by CF pursuant to a material breach of the
Agreement and Plan of Merger by First Midwest; (v) upon termination by First
Midwest pursuant to termination clauses relating to environmental investigations
of CF properties; (vi) upon any other termination of the Agreement and Plan of
Merger pursuant to the termination clauses provided in such agreement; or (vii)
on the 270th day after the discontinuance of all purchase events that occurred
or continued during the term of the Agreement and Plan of Merger or during the
post-termination period if a purchase event occurred or continued during any
such period.
The Stock Option Agreement and the option may discourage offers to acquire CF
and are intended to increase the likelihood that the Merger will be consummated
in accordance with the terms set forth in the Agreement and Plan of Merger.
To the best of First Midwest's and CF's knowledge, no Exercise Event giving
rise to First Midwest's right to exercise the option has occurred as of the date
of this Proxy Statement/Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
First Midwest and CF expect that the Merger will qualify as a tax-free
reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, CF and First Midwest will recognize no gain
or loss for federal income tax purposes as a result of the Merger and no gain or
loss will be recognized for federal income tax purposes by any CF Stockholder
upon receipt of First Midwest Common Stock in exchange for CF Common Stock
pursuant to the Merger (except upon the receipt of cash in lieu of fractional
shares of First Midwest Common Stock). The Internal Revenue Service ("Service")
has not been asked to rule upon the tax consequences of the Merger and such
request will not be made. Instead, CF will rely upon the opinion of Hinshaw &
Culbertson as to certain federal income tax consequences of the Merger. The
opinion of Hinshaw & Culbertson is based entirely upon the Code, regulations now
in effect thereunder, current administrative rulings and practice, and judicial
authority, all of which are subject to change. Unlike a ruling from the
Service, an opinion of counsel is not binding on the Service and there can be no
assurance, and none is hereby given, that the Service will not take a position
contrary to one or more positions reflected herein or that the opinion of
counsel will be upheld by the courts if challenged by the Service.
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<PAGE>
EACH STOCKHOLDER OF CF IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL
ADVISORS AS TO THE EFFECT OF SUCH FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
ON HIS OR HER OWN PARTICULAR FACTS AND CIRCUMSTANCES AND ALSO AS TO ANY STATE,
LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES ARISING OUT OF THE MERGER.
Based upon the opinion of Hinshaw & Culbertson, which in turn is based upon
various representations and subject to various assumptions and qualifications,
the following federal income tax consequences to the CF stockholders will result
from the Merger:
(a) the Merger will constitute a tax-free reorganization within the meaning
of Section 368(a) of the Code and First Midwest and CF will each be a party
to the reorganization;
(b) the exchange in the Merger of First Midwest Common Stock for CF Common
Stock will not give rise to the recognition of any income, gain or loss to
First Midwest, or the Stockholders of CF with respect to such exchange,
including the receipt by CF Stockholders of Rights (except, with respect to
the Stockholders of CF to the extent of any cash paid in lieu of fractional
shares);
(c) the adjusted tax basis of the First Midwest Common Stock received by CF
Stockholders who exchange all of their CF Common Stock in the Merger will be
the same as the adjusted tax basis of the shares of the CF Common Stock
surrendered in exchange therefore (reduced by any amount allocable to a
fractional share interest for which cash is received);
(d) the holding period of the shares of the First Midwest Common Stock
received in the Merger will include the period during which the shares of CF
Common Stock surrendered in exchange therefore were held, provided such shares
of CF Common Stock were held as capital assets at the Effective Time; and
(e) no income will be recognized by the holders of CF stock options issued
pursuant to the CF Stock Option Plan by reason of the conversion of such
stock options.
The foregoing is only a general description of certain material federal income
tax consequences of the Merger for CF Stockholders who are citizens or residents
of the United States and who hold their shares as capital assets, without regard
to the particular facts and circumstances of the tax situation of each such
Stockholder. It does not discuss all of the consequences that may be relevant
to CF Stockholders entitled to special treatment under the Code (such as
insurance companies, financial institutions, dealers in securities, tax-exempt
organizations or foreign persons). The summary set forth above does not purport
to be a complete analysis of all potential tax effects of the transactions
contemplated by the Agreement and Plan of Merger or the Merger itself. No
information is provided herein with respect to the tax consequences, if any, of
the Merger under state, local or foreign tax laws.
ACCOUNTING TREATMENT
The parties anticipate accounting for the Merger as a pooling of interests,
and it is a condition to First Midwest's obligation to consummate the Merger
that it shall have received a letter from KPMG Peat Marwick LLP to the effect
that the Merger will qualify for pooling of interests accounting treatment.
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EXPENSES
The Agreement and Plan of Merger provides, in general, that First Midwest and
CF will each pay its own expenses in connection with the Merger and the
transactions contemplated thereby, including fees and expenses of its own
financial or other consultants, investment bankers, accountants and counsel.
First Midwest and CF have agreed to share equally in the expenses of this Proxy
Statement/Prospectus in connection with the printing and mailing of such
document.
RESALE OF FIRST MIDWEST COMMON STOCK
Shares of First Midwest Common Stock issued to Stockholders of CF will be
transferrable without restriction upon disposition, except shares issued to any
person who may be considered an "Affiliate" of CF, as defined by the rules and
regulations of the Commission under the Securities Act. Pursuant to the
Agreement and Plan of Merger, CF has delivered to First Midwest a written
undertaking from each Affiliate of CF to the effect that he or she will not sell
or dispose of First Midwest Common Stock, acquired by him or her in connection
with the Merger, other than in accordance with the Securities Act, except under
(i) a separate registration statement for distribution (which First Midwest has
NOT agreed to provide), or (ii) Rule 145 promulgated thereunder by the
Commission, or (iii) pursuant to some other exemption from registration.
In addition, CF Stockholders who become "Affiliates" of First Midwest will be
subject to similar sale restrictions for as long as they remain "Affiliates" of
First Midwest. Furthermore, Affiliates of CF also will be subject to
prohibitions on sales until financial results covering at least 30 days post-
Merger combined operations of CF and First Midwest have been published.
Generally, persons who are not officers, directors or greater than 10%
Stockholders of CF will not be considered "Affiliates" in the absence of other
factors indicating a controlled relationship.
37
<PAGE>
DESCRIPTION OF FIRST MIDWEST COMMON AND PREFERRED STOCK
The authorized stock of First Midwest is divided into two classes, Preferred
Stock, no par value, of which First Midwest is authorized to issue 1,000,000
shares and Common Stock, no par value, of which First Midwest is authorized to
issue 20,000,000 shares.
Preferred Stock. First Midwest is authorized to issue shares of Preferred
Stock from time to time in one or more series. Preferred Stock may have such
designations, powers, preferences and relative participating, optional or other
rights and such qualifications, limitations or restrictions as may be provided
for the issue of such series by resolution adopted by the First Midwest Board of
Directors. Such Preferred Stock may have priority over First Midwest Common
Stock as to dividends and as to distribution of First Midwest's assets upon any
liquidation, dissolution or winding up of First Midwest. Such Preferred Stock
may be redeemable for cash, property or rights of First Midwest, may be
convertible into shares of First Midwest Common Stock, and may have voting
rights entitling the holder to not more than one vote per share. (See "CERTAIN
DIFFERENCES IN RIGHTS OF STOCKHOLDERS -Stockholders' Rights Plan" - Page 38.)
Common Stock. Holders of First Midwest Common Stock are entitled to dividends
out of funds legally available for that purpose when, as and if declared by the
Board of Directors. The dividend rights of First Midwest Common Stock are
subject to the rights of First Midwest Preferred Stock which has been or may be
issued. Each holder of First Midwest Common Stock is entitle to one vote for
each share held. First Midwest Common Stock has no preemptive rights,
cumulative voting rights, conversion rights or redemption provisions.
In the case of any liquidation, dissolution or winding up of the affairs of
First Midwest, holders of First Midwest Common Stock will be entitled to
receive, pro rata, any assets distributable to common stockholders in respect to
the number of shares held by them. The liquidation rights of First Midwest
Common stock are subject to the rights of holders of First Midwest Preferred
Stock which has been or may be issued.
All outstanding shares of First Midwest Common Stock are, and shares to be
issued pursuant to the Agreement and Plan of Merger will be when issued, fully
paid and nonassessable.
CERTAIN DIFFERENCES IN RIGHTS OF STOCKHOLDERS
Both First Midwest and CF are incorporated under the laws of the State of
Delaware. Stockholders of CF, whose rights are governed by CF's Certificate of
Incorporation and Bylaws will, on consummation of the Merger, become
stockholders of First Midwest. Their rights as First Midwest stockholders will
then be governed by First Midwest's Certificate of Incorporation and Bylaws.
The following is a summary of the material differences between the rights of
Stockholders of CF and the rights of stockholders of First Midwest.
STOCKHOLDERS' RIGHTS PLAN
On February 15, 1989, the Board of Directors of First Midwest adopted a
Stockholder Rights Plan (the "Rights Plan"). The Rights Plan is intended to
ensure that all First Midwest stockholders receive fair treatment in the event
of any proposed acquisition of First Midwest and to guard against partial tender
offers and other abusive tactics aimed at gaining control of First Midwest
without paying all stockholders a full and fair price.
The Rights will expire on February 15, 1999. The Rights are not currently
exercisable and currently certificates evidencing First Midwest Common Stock
also evidence the Rights. When the Rights first become exercisable, a
38
<PAGE>
holder of one Right will be entitled to buy from First Midwest one one-hundredth
of a share of Series A Preferred Stock of First Midwest for $50.00. The Rights
currently trade automatically with the Common Stock. However, approximately ten
days (subject to extension by the Board of Directors) after a person or group
acquires 15% or more of First Midwest Common Stock, or announces an offer to
acquire enough shares to give such person or group ownership of 15% or more of
such shares (an "Acquiring Person"), the Rights will become exercisable and
separate certificates representing the Rights will be distributed. At no time
will the Rights have any voting power.
If any person or group acquires 15% or more of the First Midwest Common Stock,
then 10 days thereafter (or such later date as the Board of Directors may
determine) each Right (other than Rights beneficially owned by holders of 15% or
more of the First Midwest Common Stock or transferees thereof, which Rights
become void) will entitle its holders to purchase, for the exercise price, a
number of shares of Series A Preferred Stock having a market value of twice the
exercise price. If any person or group acquires between 20% and 50% of the
First Midwest Common Stock, the Board of Directors may, at its option, exchange
one one-hundredth of a share of Series A Preferred Stock for each Right. Also,
if at any time prior to the expiration of the Rights, First Midwest is involved
in a merger or other business combination, sells more than 50% of its assets or
earning power, enters into certain defined "self-dealing" transactions or
permits certain transactions at a time when there is a 15% or greater holder of
First Midwest Common Stock, the Rights will entitle a holder of Rights to buy a
number of the acquiring company's common shares having a market value of twice
the exercise price of each right.
First Midwest is permitted to redeem the Rights for $0.01 per Right at any
time prior to the close of business on the tenth day (or such later date as may
be fixed by the Board) following the day of announcement that a person has
become a 15% or greater owner of Common Stock. First Midwest may elect to pay
the $0.01 redemption price in First Midwest Common Stock rather than cash.
Pursuant to the Rights Plan, each share of First Midwest Common Stock issued
to CF Stockholders will also evidence one right (the "Right") under the
Rights Plan.
STOCKHOLDER ACTION WITHOUT A MEETING; AMENDMENT OF THE BYLAWS; AND POWER TO CALL
SPECIAL MEETINGS
The restated Certificate of Incorporation of First Midwest (the "Certificate"
or "Certificate of Incorporation") provides that stockholder action may be taken
only at a meeting of stockholders and that the power of stockholders to take
action by written consent is specifically denied. The Certificate further
provides that special meetings of stockholders may only be called by the Board
of Directors, the Chairman of the Board or the President of First Midwest.
However, the holder of at least 51% of the voting power of the then outstanding
shares of capital stock of First Midwest entitled to vote generally in the
election of directors (the "Voting Stock") may call a special meeting solely for
the purpose of removing a director or directors for cause. The inability of
stockholders to take action by written consent or to call special stockholders'
meetings may make it more difficult to take stockholder action opposed by the
Board of Directors.
The Certificate of Incorporation of CF provides that a special meeting of
stockholders may be called only pursuant to a resolution adopted by a majority
of the Board of Directors. Stockholders are not authorized to call a special
meeting.
The Board of Directors of First Midwest, by resolution adopted by the
affirmative vote of at least a majority of all members thereof, have concurrent
power with the stockholders to adopt, amend or repeal the Bylaws of First
Midwest. The Bylaws of First Midwest may not be adopted, amended or repealed by
the stockholders except by the affirmative vote of the holders of at least 67%
of the Voting Stock, voting together as a single class.
39
<PAGE>
CF's Certificate of Incorporation contains a similar provision.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS
The Certificate of First Midwest requires the affirmative vote of the holders
of not less than 80% of the Voting Stock of First Midwest (the "Vote
Requirement") to authorize a "business combination" with an "interested
stockholder". The definition of "business combination" includes virtually every
significant transaction between an "interested stockholder" and First Midwest or
a subsidiary of First Midwest, as well as reclassifications and
recapitalizations involving First Midwest's Common Stock within two years after
an "interested stockholder" becomes an "interested stockholder". Among the
transactions included in the definition of "business combination" are mergers,
consolidations and sales, leases, exchanges, transfers or other dispositions of
assets having an aggregate fair market value of $5,000,000 or more. Also
included in the definition of business classifications are the issuance or
transfer of any securities of First Midwest or a subsidiary in exchange for
cash, securities or other property which have an aggregate value of $5,000,000
or more, the adoption of any plan or proposal of liquidation or dissolution of
First Midwest or any reclassification or recapitalization of First Midwest.
An "interested stockholder" is generally any person, other than First Midwest
and its subsidiaries, which together with such person's "affiliates" and
"associates", beneficially owns or has owned during the past two years 5% or
more of the Voting Stock. This definition is intended to encompass all forms of
ownership and all types of arrangements that give a person actual or potential
voting or investment rights with respect to First Midwest's stock.
The Vote Requirement does not apply to the following transactions: (i) a
business combination which is approved by a majority of the Disinterested
Directors, as defined (Disinterested Directors, in general, are members of the
Board of Directors who are unaffiliated with the interested stockholder) or (ii)
business combinations in which certain price and procedure requirements have
been met. The transactions described in this Proxy Statement/Prospectus were
approved by a majority of the Disinterested Directors of First Midwest.
CF's Certificate of Incorporation contains a similar provision.
EVALUATION OF PROPOSED OFFER
Under the Certificate, in connection with the exercise of its judgment in
determining what is in the best interests of First Midwest and it stockholders
when evaluating a proposal, by another person to make a tender or exchange offer
for any equity security of First Midwest or any subsidiary, to merge or
consolidate with First Midwest, or any subsidiary or to purchase or otherwise
acquire all or substantially all of the assets of First Midwest or any
subsidiary, the Board of Directors of First Midwest shall, in addition to
considering the adequacy of the amount to be paid in connection with any such
transaction, consider all of the following factors and any other factors which
it deems relevant: (a) the social and economic effects of the transaction on
First Midwest and its subsidiaries, the employees, depositors, loan and other
customers and creditors of First Midwest and its subsidiaries and the other
elements of the communities in which First Midwest and its subsidiaries operate
or are located; (b) the business and financial condition and earnings prospects
of the acquiring person or persons, including, but not limited to, debt service
and other existing or likely financial obligations of the acquiring person or
persons, and the possible effect of such conditions upon First Midwest and its
Subsidiaries and the other elements of the communities in which First Midwest
and its Subsidiaries operate or are located; and (c) the competence, experience,
and integrity of the acquiring person or persons and its or their management.
Certificate of Incorporation does not contain such a provision.
40
<PAGE>
DELAWARE LAW AFFECTING BUSINESS COMBINATIONS
Delaware law prohibits First Midwest from engaging in a business combination
(as defined by Delaware law) with an Interested Stockholder (a person who owns,
directly or indirectly, 15% or more of First Midwest's voting stock) for a three
year period from the date (the "Acquisition Date") the person became an
Interested Stockholder unless: (a) prior to the Acquisition Date, the Board of
Directors approved the business combination or the transaction which resulted in
the stockholder becoming an Interested Stockholder; (b) upon consummation of the
transaction in which the stockholder becomes an Interested Stockholder, the
stockholder owns at least 85% of First Midwest's voting stock (i.e., a non-
interested stockholder must acquire at least 85% of the voting stock in one
transaction), excluding stock held by officers and directors and employee stock
plans in which participants do not have the right to determine confidentially
whether shares held by the plan will be tendered in an exchange offer or a
tender offer; or (c) on or after the Acquisition Date, the business combination
is approved; (i) by the Board of Directors, and (ii) by First Midwest's
stockholders, at a meeting duly called, provided that stockholders owning at
least two-thirds of voting stock approve the business combination. When
determining whether the two-thirds vote requirement has been satisfied, voting
stock held by the Interested Stockholder is not included.
CF is also subject to this provision.
DIRECTORS
First Midwest's Board of Directors consists of 4 directors each in Class I and
Class III and 5 directors in Class II. Directors serve for terms of three
years, staggered by class. A director of First Midwest may be removed only for
cause upon the vote of persons owning 67% of First Midwest's Common Stock.
Since there is no controlling definitions of "cause", the resolution of any
dispute as to what constitutes "cause" may become a matter for the courts.
The Board of Directors of CF is also divided into three classes with directors
serving three year, staggered terms.
LIABILITY OF DIRECTORS; INDEMNIFICATION
The Certificates of Incorporation of both First Midwest and CF provide a
director or officer shall be indemnified by each company to the fullest extent
authorized by the DGCL, against all expenses, liability and loss reasonably
incurred or suffered by such person in connection with his activities as a
director or officer or as a director or officer of another company, if the
director or officer held such position at the request of First Midwest or CF.
The DGCL requires that such director, officer, employee or agent, 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 the company, and, with respect to any
criminal action or proceeding, did not have reasonable cause to believe his
conduct would be unlawful.
The Certificates of Incorporation of First Midwest and CF, and Delaware law,
also provide that the indemnification provisions are not exclusive of any other
right which a person seeking indemnification may have or later acquire under any
statute, provision of the Certificate of Incorporation, Bylaws of the company,
agreement, vote of stockholders or disinterested directors or otherwise.
In addition, the Certificates of Incorporation of First Midwest and CF, and
Delaware law, provide that the company may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the company or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the company has the power
to indemnify such person against such expense, liability or loss under the DGCL.
41
<PAGE>
First Midwest currently provides its directors and certain of its officers
with explicit indemnification agreements as allowed by its Certificate of
Incorporation and Bylaws and maintains insurance on behalf of its directors and
officers. CF maintains directors and officers insurance coverage and customary
indemnification protection as authorized by the DGCL pursuant to CF's Delaware
Charter.
The DGCL permits corporations to limit the personal liability of their
directors in certain circumstances. The Certificates of Incorporation of both
First Midwest and CF provide that directors of the respective corporation shall
not be liable to the corporation or its respective stockholders for monetary
damages for breaches of their fiduciary duties, except to the extent that such a
limitation of liability contravenes the DGCL. These provisions eliminate the
personal liability of directors of First Midwest and CF in their capacity as
directors (but not in their capacity as officers) to the respective corporation
and its stockholders for breaches of their fiduciary duties to the full extent
permitted by the DGCL.
DISSENTERS' RIGHTS
Under Section 262 of the DGCL, a copy of which is attached hereto as Appendix
D, stockholders of a corporation who dissent from a merger or consolidation of
the corporation in the manner provided by the DGCL are entitled to receive
payment of the fair value of their stock, as determined by the Delaware Court of
Chancery. However, such right is not available to stockholders of a corporation
whose shares are listed on a national exchange, quoted on the NASDAQ National
Market System or held of record by more than 2,000 stockholders.
Shares of First Midwest's and CF's Common Stock are listed and quoted on the
NASDAQ National Market System. In addition, First Midwest's Common Stock is
held by more than 2,000 stockholders. As a consequence, stockholders of First
Midwest and CF do not have dissenters' rights.
LIMITATION ON VOTING RIGHTS OF CF STOCKHOLDERS
The Certificate of Incorporation of CF provides that in no event shall
any record owner of any outstanding CF common stock which is beneficially owned,
directly or indirectly, by a person who beneficially owns in excess of 10% of
the then-outstanding shares of CF common stock (the "Limit") be entitled or
permitted to any vote in respect of the shares held in excess of the Limit.
First Midwest's Certificate does not contain a similar provision.
42
<PAGE>
PROFORMA COMBINING FINANCIAL STATEMENTS
The following unaudited proforma condensed statements of condition and
statements of income are based upon the historical results of First Midwest and
CF giving effect to the acquisition to be accounted for as a pooling of interest
and giving effect to the sale of 100,000 shares of First Midwest Common Stock,
as discussed in the section entitled "RECENT DEVELOPMENTS" - Page 14. Proforma
adjustments, and the assumptions in which they are based, are described in the
accompanying footnotes to the proforma combining financial statements. These
financial statements should be read in conjunction with the historical financial
statements of First Midwest and CF incorporated by reference into this Proxy
Statement/Prospectus. The proforma combining financial statements are not
necessarily indicative of the results that actually would have occurred had the
companies constituted a single entity during the respective periods, nor are
they indicative of future results of operations. (Dollar amounts are in
thousands, except per share data):
<TABLE>
<CAPTION>
PROFORMA CONDENSED STATEMENT OF CONDITION (UNAUDITED)
JUNE 30, 1995
--------------------------------------------------------
HISTORICAL
------------------------ PROFORMA PROFORMA
ASSETS FIRST MIDWEST CF ADJUSTMENTS CONSOLIDATED
------------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Cash and due from banks .................................. $ 196,688 $ 5,540 $ 2,665 /(1)/ $ 200,693
(4,200)/(2)/
Funds sold and other short-term investments .............. 26,794 3,592 -- 30,386
Securities available for sale ............................ 463,695 514 -- 464,209
Securities held to maturity .............................. 276,240 94,542 -- 370,782
Loans .................................................... 1,898,477 119,004 -- 2,017,481
Reserve for loan losses .................................. (24,844) (1,057) -- (25,901)
----------- -------- ------- -----------
Net Loans ............................................ 1,873,633 117,947 -- 1,991,580
----------- -------- ------- -----------
Premises, furniture and equipment ........................ 44,174 1,715 -- 45,889
Accrued interest receivable and other assets ............. 70,441 3,094 -- 73,535
----------- -------- ------- -----------
Total Assets ......................................... $ 2,951,665 $226,944 $(1,535) $ 3,177,074
=========== ======== ======= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ................................................. $ 2,101,370 $135,513 $ -- $ 2,236,883
Short-term borrowings .................................... 606,254 63,285 -- 669,539
Accrued interest payable and other liabilities ........... 30,218 4,756 (1,638)/(2)/ 33,336
----------- -------- ------- -----------
Total liabilities .................................... 2,737,842 203,554 (1,638) 2,939,758
----------- -------- ------- -----------
Stockholders' equity ..................................... 215,531 23,283 2,665 /(1)/ 238,917
(2,562)/(2)/
Unrealized net appreciation (depreciation) on securities
available for sale /(3)/ ............................... (1,708) 107 -- (1,601)
----------- -------- ------- -----------
Total Stockholders' Equity ........................... 213,823 23,390 103 237,316
----------- -------- ------- -----------
Total Liabilities and Stockholders' Equity ........... $ 2,951,665 $226,944 $(1,535) $ 3,177,074
=========== ======== ======= ===========
PROFORMA CONDENSED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1995
--------------------------------------------------------
HISTORICAL
------------------------ PROFORMA PROFORMA
INTEREST INCOME FIRST MIDWEST CF ADJUSTMENTS CONSOLIDATED
------------- -------- ----------- ------------
Interest and fees on loans ............................... $ 82,308 $ 5,206 $ -- $ 87,514
Interest on securities ................................... 27,451 3,178 -- 30,629
Interest on funds sold and other short-term investments .. 1,246 160 -- 1,406
----------- -------- ------- -----------
Total interest income ................................ 111,005 8,544 -- 119,549
----------- -------- ------- -----------
INTEREST EXPENSE
Interest on deposits ..................................... 34,751 3,226 -- 37,977
Interest on short-term borrowings ........................ 20,992 1,886 (91)/(4)/ 22,787
----------- -------- ------- -----------
Total interest expense ............................... 55,743 5,112 (91) 60,764
----------- -------- ------- -----------
Net interest income .................................. 55,262 3,432 91 58,785
PROVISION FOR LOAN LOSSES ................................ 4,172 20 -- 4,192
----------- -------- ------- -----------
Net interest income after provision for loan losses .. 51,090 3,412 91 54,593
----------- -------- ------- -----------
NONINTEREST INCOME ....................................... 13,114 762 -- 13,876
SECURITIES TRANSACTIONS, NET ............................. 532 510 -- 1,042
NONINTEREST EXPENSE ...................................... 45,546 2,613 -- 48,159
----------- -------- ------- -----------
Income before income tax expense ..................... 19,190 2,071 91 21,352
INCOME TAX EXPENSE ....................................... 6,858 658 35 /(4)/ 7,551
----------- -------- ------- -----------
NET INCOME ........................................... $ 12,332 $ 1,413 $ 56 $ 13,801
=========== ======== ======= ===========
NET INCOME PER SHARE ................................. $ 1.01 $ 1.01
=========== ===========
AVERAGE SHARES OUTSTANDING ........................... 12,217,828 13,730,008
=========== ===========
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
PROFORMA CONDENSED STATEMENTS OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------
HISTORICAL
--------------------------- PROFORMA PROFORMA
FIRST MIDWEST CF ADJUSTMENTS CONSOLIDATED
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.......................................... $ 140,765 $ 9,541 $ --- $ 150,306
Interest on securities.............................................. 47,996 4,982 --- 52,978
Interest on funds sold and
other short-term investments....................................... 1,717 358 --- 2,075
----------- ------- ----- -----------
Total interest income.............................................. 190,478 14,881 --- 205,359
----------- ------- ----- -----------
INTEREST EXPENSE
Interest on deposits................................................ 56,230 5,311 --- 61,541
Interest on short-term borrowings................................... 26,611 2,640 (122)/(4)/ 29,129
----------- ------- ----- -----------
Total interest expense............................................. 82,841 7,951 (122) 90,670
----------- ------- ----- -----------
Net interest income................................................ 107,637 6,930 122 114,689
PROVISION FOR LOAN LOSSES........................................... 8,486 57 --- 8,543
----------- ------- ----- -----------
Net interest income after provision
for loan losses................................................... 99,151 6,873 122 106,146
----------- ------- ----- -----------
NONINTEREST INCOME.................................................. 25,167 1,334 --- 26,501
SECURITIES TRANSACTIONS, NET........................................ 1,260 439 --- 1,699
NONINTEREST EXPENSE................................................. 93,432 4,275 --- 97,707
----------- ------- ----- -----------
Income before income tax expense................................... 32,146 4,371 122 36,639
INCOME TAX EXPENSE.................................................. 11,778 1,581 47/(4)/ 13,406
----------- ------- ----- -----------
NET INCOME......................................................... $ 20,368 $ 2,790 $ 75 $ 23,233
=========== ======= ===== ===========
NET INCOME PER SHARE............................................... $ 1.67 $ 1.70
=========== ===========
AVERAGE SHARES OUTSTANDING......................................... 12,160,831 13,674,776
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
PROFORMA CONDENSED STATEMENTS OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
--------------------------------------------------------
HISTORICAL
--------------------------- PROFORMA PROFORMA
FIRST MIDWEST CF ADJUSTMENTS CONSOLIDATED
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.......................................... $ 128,696 $ 9,943 $ --- $ 138,639
Interest on securities.............................................. 40,427 3,727 --- 44,154
Interest on funds sold and
other short-term investments....................................... 802 357 --- 1,159
----------- ------- ----- -----------
Total interest income.............................................. 169,925 14,027 --- 183,952
----------- ------- ----- -----------
INTEREST EXPENSE
Interest on deposits................................................ 55,491 5,266 --- 60,757
Interest on short-term borrowings................................... 10,742 1,675 (86)/(4)/ 12,331
----------- ------- ----- -----------
Total interest expense............................................. 66,233 6,941 (86) 73,088
----------- ------- ----- -----------
Net interest income................................................ 103,692 7,086 86 110,864
PROVISION FOR LOAN LOSSES........................................... 11,432 65 --- 11,497
----------- ------- ----- -----------
Net interest income after provision
for loan losses................................................... 92,260 7,021 86 99,367
----------- ------- ----- -----------
NONINTEREST INCOME.................................................. 27,937 1,666 --- 29,603
SECURITIES TRANSACTIONS, NET........................................ 1,227 88 --- 1,315
NONINTEREST EXPENSE................................................. 90,032 4,006 --- 94,038
----------- ------- ----- -----------
Income before income tax expense................................... 31,392 4,769 86 36,247
INCOME TAX EXPENSE.................................................. 10,608 1,760 33/(4)/ 12,401
----------- ------- ----- -----------
NET INCOME......................................................... $ 20,784 $ 3,009/(5)/ $ 53 $ 23,846
=========== ======= ===== ===========
NET INCOME PER SHARE............................................... $ 1.68 $ 1.72
=========== ===========
AVERAGE SHARES OUTSTANDING......................................... 12,369,326 13,881,327
=========== ===========
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
PROFORMA CONDENSED STATEMENTS OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1992
--------------------------------------------------------
HISTORICAL
--------------------------- PROFORMA PROFORMA
FIRST MIDWEST CF ADJUSTMENTS CONSOLIDATED
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.......................................... $ 130,379 $10,292 $ --- $ 140,671
Interest on securities.............................................. 42,671 2,075 --- 44,746
Interest on funds sold and
other short-term investments...................................... 1,172 354 --- 1,526
----------- ------- ----- -----------
Total interest income............................................. 174,222 12,721 --- 186,943
----------- ------- ----- -----------
INTEREST EXPENSE
Interest on deposits................................................ 70,505 6,505 --- 77,010
Interest on short-term borrowings................................... 7,122 115 (98)/(4)/ 7,139
----------- ------- ----- -----------
Total interest expense............................................ 77,627 6,620 (98) 84,149
----------- ------- ----- -----------
Net interest income............................................... 96,595 6,101 98 102,794
Provision for Loan Losses........................................... 15,452 156 --- 15,608
----------- ------- ----- -----------
Net interest income after provision
for loan losses................................................. 81,143 5,945 98 87,186
----------- ------- ----- -----------
NONINTEREST INCOME.................................................. 25,449 1,416 --- 26,865
SECURITIES TRANSACTIONS, NET........................................ 5,431 179 --- 5,610
NONINTEREST EXPENSE................................................. 86,562 4,259 --- 90,821
----------- ------- ----- -----------
Income before income tax expense.................................. 25,461 3,281 98 28,840
INCOME TAX EXPENSE.................................................. 7,553 1,287 37/(4)/ 8,877
----------- ------- ----- -----------
NET INCOME.......................................................... $ 17,908 $ 1,994 $ 61 $ 19,963
=========== ======= ===== ===========
NET INCOME PER SHARE................................................ $ 1.43 $ 1.43
=========== ===========
AVERAGE SHARES OUTSTANDING.......................................... 12,486,228 13,996,684
=========== ===========
</TABLE>
------------------------------------
FOOTNOTES TO PROFORMA COMBINING FINANCIAL STATEMENTS:
/(1)/ Reflects the net proceeds from the sale of 100,000 shares of Common Stock
at $27.00 per share, net of expenses incurred. (See "RECENT
DEVELOPMENTS" - Page 14.)
/(2)/ Reflects the estimated acquisition charge ($4,200) and related tax benefit
($1,638) to be recorded incident to First Midwest's pending acquisition of
CF. Such estimated charge includes severance and related personnel exit
costs, contract termination fees, legal and accountants fees and other
costs necessary to consummate the acquisition.
/(3)/ Represents the difference, after tax, between the amortized cost and
market value of securities available for sale.
/(4)/ Represents interest expense reduction and related tax expense incurred
from deployment of the net proceeds of 100,000 shares of Common Stock
issued by First Midwest; such interest on proceeds was calculated based
upon interest and tax rates in effect for each period presented. (See
"RECENT DEVELOPMENTS" - Page 14.)
/(5)/ CF's net income for the year ended 12/31/93 excludes the cumulative effect
on prior years of change in accounting principles totaling $.45 per share.
45
<PAGE>
OPINIONS
Certain legal matters in connection with the Merger will be passed upon for
CF by Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, 7th Floor,
Washington, D.C. 20005, and for First Midwest by Hinshaw & Culbertson, 222 North
LaSalle Street, Suite 300, Chicago, Illinois 60601-1081.
EXPERTS
The consolidated financial statements of First Midwest as of December 31,
1994 and for each of the years in three-year period ended December 31, 1994 have
been incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, which report is
incorporated by reference herein upon the authority of such firm as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP contains an
explanatory paragraph describing First Midwest's change in the method of
accounting for investments at December 31, 1993 to adopt the provisions of
Financial Accounting Standards Board Statement No. 115 and the change in the
method of accounting for income taxes in 1993 to adopt the provisions of
Financial Accounting Standards Board Statement No. 109.
The consolidated financial statements of CF as of June 30, 1995 and for
each of the years in the three-year period ended June 30, 1995 have been
incorporated by reference herein in reliance upon the report of McGladrey &
Pullen, LLP, independent certified public accountants, which report is
incorporated by reference herein upon the authority of such firm as experts in
accounting and auditing. The report of McGladrey & Pullen, L.L.P. contains an
explanatory paragraph describing CF's change in the method of accounting for
investments at June 30, 1995 to adopt the provisions of Financial Accounting
Standards Board Statement No. 115 and the change in the method of accounting for
income taxes in 1994 to adopt the provisions of Financial Accounting Standards
Board Statement No. 109.
CF expects that representatives of McGladrey and Pullen, LLP will be
present at the Special Meeting with the authority to make a statement if they
desire to do so and will be able to respond to appropriate questions.
STOCKHOLDER PROPOSALS
If the Agreement and Plan of Merger is approved, the other conditions to
the Merger are satisfied and the Merger is effected, stockholders of CF will
become stockholders of First Midwest at the Effective Time. First Midwest
welcomes comments or suggestions from its stockholders. First Midwest's 1996
Annual Meeting of Stockholders will be held on April 17, 1996 (or on such other
date as may be fixed by First Midwest's Board of Directors), and for a
stockholder to bring a matter before the annual meeting or to nominate any
person for election as a director at the meeting, the stockholder must give
First Midwest notice of the matter or nomination not fewer than 14 days nor more
than 50 days prior to such meeting and in accordance with the requirements of
the By-laws.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
FIRST MIDWEST BANCORP, INC.
AND
CF BANCORP, INC.
DATED AS OF MAY 31, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<C> <S> <C>
I. THE MERGER................................................................ 1
1.01 Effects of the Merger............................................... 1
1.02 Conversion of Stock................................................. 2
1.03 Time and Place of Closing........................................... 3
1.04 Exchange of Bancorp Common Stock.................................... 3
1.05 Conversion of Citizens Federal Savings Bank F.S.B................... 5
II. REPRESENTATIONS AND WARRANTIES OF FIRST MIDWEST........................... 6
2.01 Organization........................................................ 6
2.02 Authorization....................................................... 7
2.03 Conflicts........................................................... 7
2.04 Antitakeover Provisions Inapplicable................................ 8
2.05 Capitalization...................................................... 8
2.06 First Midwest Financial Statements; Material Changes................ 8
2.07 First Midwest Subsidiaries.......................................... 9
2.08 First Midwest Filings............................................... 10
2.09 First Midwest Reports............................................... 10
2.10 Compliance With Laws................................................ 11
2.11 Disclosure.......................................................... 12
2.12 Litigation.......................................................... 12
2.13 Licenses............................................................ 12
2.14 Taxes............................................................... 12
2.15 Insurance........................................................... 13
2.16 Loans; Investments.................................................. 14
2.17 Allowance for Possible Loan Losses.................................. 15
2.18 First Midwest Benefit Plans......................................... 16
2.19 Compliance With Environmental Laws.................................. 18
2.20 Disclosure Schedule of First Midwest................................ 19
2.21 Defaults............................................................ 20
2.22 Materiality......................................................... 20
2.23 Operations Since December 31, 1994.................................. 20
2.24 Undisclosed Liabilities............................................. 21
2.25 Assets.............................................................. 21
2.26 Indemnification..................................................... 22
2.27 Insider Interests................................................... 22
2.28 Pooling and Tax..................................................... 22
III. REPRESENTATIONS AND WARRANTIES OF BANCORP................................. 22
3.01 Organization........................................................ 22
3.02 Authorization....................................................... 23
3.03 Conflicts........................................................... 23
3.04 Antitakeover Provisions Inapplicable................................ 24
3.05 Capitalization and Stockholders..................................... 24
3.06 Bancorp Financial Statements; Material Changes...................... 25
</TABLE>
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<TABLE>
<C> <S> <C>
3.07 Bancorp Subsidiaries............................................... 25
3.08 Bancorp Filings.................................................... 27
3.09 Bancorp Reports.................................................... 27
3.10 Compliance With Laws............................................... 28
3.11 Disclosure......................................................... 28
3.12 Litigation......................................................... 29
3.13 Licenses........................................................... 29
3.14 Taxes.............................................................. 29
3.15 Insurance.......................................................... 30
3.16 Loans; Investments................................................. 30
3.17 Allowance for Possible Loan Losses................................. 32
3.18 Bancorp Benefit Plans.............................................. 32
3.19 Compliance with Environmental Laws................................. 35
3.20 Disclosure Schedule of Bancorp..................................... 37
3.21 Defaults........................................................... 40
3.22 Materiality........................................................ 40
3.23 Operations Since June 30, 1994..................................... 41
3.24 Corporate Records.................................................. 42
3.25 Undisclosed Liabilities............................................ 43
3.26 Assets............................................................. 43
3.27 Indemnification.................................................... 43
3.28 Insider Interests.................................................. 44
3.29 Pooling and Tax.................................................... 44
IV. COVENANTS................................................................ 44
4.01 Conduct of Business by Bancorp Until the Effective Time............ 44
4.02 Bancorp Stock Options.............................................. 48
4.03 Environmental Investigation........................................ 48
4.04 Execution of the Stock Option Agreement............................ 49
4.05 Indemnification.................................................... 49
4.06 Capital Stock...................................................... 50
4.07 Certain Actions.................................................... 50
4.08 Title to Real Estate............................................... 51
4.09 Conduct of Business by First Midwest Until the Effective Time...... 51
4.10 Loan Loss Reserve.................................................. 52
V. ADDITIONAL AGREEMENTS.................................................... 52
5.01 Inspection of Records: Confidentiality............................. 52
5.02 Registration Statement; Stockholder Approval....................... 53
5.03 Affiliate Letters.................................................. 54
5.04 Brokers............................................................ 54
5.05 Cooperation........................................................ 55
5.06 Regulatory Applications............................................ 55
5.07 Financial Statements and Reports................................... 55
5.08 Notice............................................................. 56
5.09 Press Releases..................................................... 56
</TABLE>
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<TABLE>
<C> <S> <C>
5.10 Delivery of Supplements to Disclosure Schedules..................... 56
5.11 Litigation Matters.................................................. 56
5.12 Tax Opinions 57
5.13 Resolution of Bancorp Benefit Plans................................. 57
5.14 Extent of Knowledge................................................. 59
5.16 Pooling of Interests; Tax Treatment................................. 60
5.17 Stock Exchange Listing.............................................. 60
5.18 Publication of Combined Financial Results........................... 60
VI. CONDITIONS................................................................ 60
6.01 Conditions to the Obligations of First Midwest...................... 60
6.02 Conditions to the Obligations of Bancorp............................ 63
6.03 Conditions to the Obligations of the Parties........................ 63
VII. TERMINATION; AMENDMENT; WAIVER............................................ 64
7.01 Termination......................................................... 64
7.02 Expenses............................................................ 65
7.03 Survival of Agreements.............................................. 66
7.04 Amendment........................................................... 67
7.05 Waiver.............................................................. 67
VIII. OPINIONS OF COUNSEL....................................................... 67
8.01 Opinion of Bancorp's Counsel........................................ 67
8.02 Opinion of First Midwest's Counsel.................................. 69
XI. GENERAL PROVISIONS........................................................ 71
9.01 Survival............................................................ 71
9.02 Notices............................................................. 72
9.03 Specific Enforceability............................................. 72
9.04 Applicable Law...................................................... 73
9.05 Headings, Etc....................................................... 73
9.06 Severability........................................................ 73
9.07 Entire Agreement; Binding Effect; Non-Assignment; Counterparts...... 73
</TABLE>
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76363
5/31/95
AGREEMENT AND PLAN OF MERGER
____________________________
This AGREEMENT AND PLAN OF MERGER (the "Agreement") being made and
entered into as of the 31st day of May, 1995, by and between FIRST MIDWEST
BANCORP, INC., a Delaware corporation ("First Midwest"), and CF BANCORP, INC., a
Delaware corporation ("Bancorp").
W I T N E S S E T H T H A T:
WHEREAS, First Midwest is a registered bank holding company under the
Bank Holding Company Act of 1956, as amended ("BHC"); and
WHEREAS, Bancorp is a registered savings and loan holding company
under the Home Owner's Loan Act, as amended ("HOLA"); and
WHEREAS, the Boards of Directors of First Midwest and Bancorp deem it
advisable and in the best interests of the stockholders of First Midwest and
Bancorp that First Midwest and Bancorp become affiliated by causing Bancorp to
be merged with and into, and under the charter of, First Midwest in accordance
with the General Corporation Law of the State of Delaware ("GCL") with First
Midwest deemed to be the continuing and surviving entity (the "Merger"),
pursuant to which the stockholders of Bancorp will receive shares of common
stock (no par value per share) of First Midwest (the "First Midwest Common
Stock"), as provided herein in exchange for their shares of common stock (par
value $.01 per share) of Bancorp (the "Bancorp Common Stock"); and
WHEREAS, First Midwest and Bancorp 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:
I.
THE MERGER
1.01 EFFECTS OF THE MERGER.
---------------------
(a) SURVIVING CORPORATION. Subject to the terms and conditions of
this Agreement, Bancorp shall be merged with and into, and under the charter of,
First Midwest at the Effective Time (as defined below) in accordance with the
GCL with First Midwest being the continuing and surviving corporation (sometimes
referred to hereinafter as the "Surviving Corporation"), and the separate
existence of Bancorp shall cease.
<PAGE>
(b) EFFECTIVE TIME. The Merger shall become effective when the
Certificate of Merger shall be 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 Sections 103 and 251 of the GCL, 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 Midwest Bancorp, Inc.", 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 First Midwest and Bancorp and be governed by the laws of the State of
Delaware.
(d) CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
First Midwest shall be the Certificate of Incorporation of the Surviving
Corporation until amended in accordance with the provisions thereof and the GCL.
(e) BY-LAWS. The By-laws of First Midwest in effect immediately prior
to the Effective Time shall be the By-laws of the Surviving Corporation until
altered, amended or repealed as provided therein, or in the Certificate of
Incorporation of the Surviving Corporation or the GCL.
(f) DIRECTORS AND OFFICERS. The directors of First Midwest shall be
the persons who were directors of First Midwest immediately prior to the
Effective Time. The officers of First Midwest shall be the persons who were
officers of First Midwest immediately prior to the Effective Time.
1.02 CONVERSION OF STOCK. At the Effective Time:
-------------------
(a) FIRST MIDWEST COMMON STOCK. Each share of First Midwest Common
Stock which is issued immediately prior thereto (whether then outstanding or
held in the treasury of First Midwest) shall continue to be issued without any
change therein and shall continue as one share of Common Stock of the Surviving
Corporation.
(b) BANCORP TREASURY SHARES. All shares of Bancorp Common Stock which
are held in the treasury of Bancorp immediately prior thereto shall be canceled.
(c) BANCORP COMMON STOCK. Each share of Bancorp Common Stock which is
issued and outstanding immediately prior to the Effective Time (other than
shares of Bancorp Common Stock held by First Midwest which shall be cancelled)
shall be converted into and represent the right to receive and be exchangeable
into 1.4545 shares of First Midwest Common Stock (the "Exchange Ratio").
Pursuant to the First Midwest Shareholder Rights Plan which was adopted on
February 15, 1989 (the "Rights Plan"), each share of First
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Midwest Common Stock issued pursuant to this Section 1.02(c) shall be
accompanied by a Right (as defined in the Rights Plan).
(d) ACTIONS AFFECTING FIRST MIDWEST COMMON STOCK. If, prior to the
Effective Time, shares of First Midwest 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 First Midwest Common Stock, or a stock dividend, stock split or other general
distribution of First Midwest Common Stock is declared with a record date prior
to the Effective Time, then in any such event the Exchange Ratio shall be
appropriately adjusted.
(e) INCREASE IN OUTSTANDING SHARES OF BANCORP COMMON STOCK. In the
event that the number of shares of Bancorp Common Stock outstanding is greater
than 916,496 for any reason whatsoever (whether such increase constitutes a
breach of this Agreement), other than as a result of the exercise of stock
options pursuant to the terms of the Bancorp Stock Option Plans (as defined in
Section 3.05 hereof) or pursuant to the Stock Option Agreement (as defined in
Section 4.04 hereof), then the Exchange Ratio shall be adjusted to that ratio
determined by multiplying the Exchange Ratio by a fraction (1) the numerator of
which shall be 916,496 (the total number of shares of Bancorp Common Stock
issued and outstanding as of the date of this Agreement), and (2) the
denominator of which shall be the total number of shares of Bancorp Common Stock
issued and outstanding as of the Effective Time, excluding any shares issued
after the date of this Agreement pursuant to the Bancorp Stock Option Plans or
the Stock Option Agreement.
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 First Midwest and Bancorp (the "Closing Date"). In the absence
of such agreement, the Closing shall be held on the thirtieth 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 Bancorp.
(b) CLOSING LOCATION. The Closing shall take place at the offices of
First Midwest or such other place as First Midwest and Bancorp may mutually
agree prior to the Closing Date.
1.04 EXCHANGE OF BANCORP COMMON STOCK.
--------------------------------
EXCHANGE PROCEDURES. (A) At the Effective Time, the Exchange Agent,
who shall be appointed by First Midwest, shall mail to each holder of record
(other than Bancorp, or any subsidiary of Bancorp) of a certificate or
certificates which as of the Effective Time
3
<PAGE>
represented outstanding shares of Bancorp 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 (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 Surviving
Corporation Common Stock. 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 provided in Section 1.02(c) hereof) in exchange therefor Surviving
Corporation Common Stock representing the number of shares of Surviving
Corporation Common Stock into which the shares of Bancorp Common Stock,
theretofore represented by the Certificate so surrendered, shall have been
converted pursuant to the provisions of this Article I, plus an amount of cash
for any fractional share of Surviving Corporation Common Stock which such holder
would be entitled to receive pursuant to Section 1.04 (d) hereof and the
Certificate so surrendered shall forthwith be delivered to the Surviving
Corporation for cancellation. In the event of a transfer of ownership of
Bancorp Common Stock which is not registered in the transfer records of Bancorp,
Surviving Corporation Common Stock may be issued to a transferee if the
Certificate representing such Bancorp 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 taxes.
(b) FAILURE TO EXCHANGE BANCORP COMMON STOCK. No dividends or other
distributions declared after the Effective Time with respect to Surviving
Corporation Common Stock payable to the holders of record thereof after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to Surviving Corporation 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 Surviving Corporation Common Stock represented by such
Certificate. All dividends or other distributions declared on or after the
Effective Time with respect to the Surviving Corporation Common Stock and
payable to the holders of record thereof on or after the Effective Time which
are payable to the holder of a Certificate not theretofore surrendered and
exchanged for Surviving Corporation Common Stock pursuant to this Section 1.04
shall be paid or delivered by Surviving Corporation to the Exchange Agent, 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
unsurrendered 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 shares
of Surviving Corporation Common Stock delivered or made available to the
Exchange Agent
4
<PAGE>
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 unsurrendered Certificates
under this Article I.
(c) FULL PAYMENT. All shares of Surviving Corporation Common Stock
issued upon the surrender for exchange of Bancorp Common Stock in accordance
with the terms hereof shall be deemed to have been issued in full satisfaction
of all rights pertaining to such shares of Bancorp Common Stock. The shares of
Surviving Corporation Common Stock for which the shares of Bancorp Common Stock
shall be exchanged 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.
(d) FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of Surviving Corporation Common Stock shall be issued upon the
surrender for exchange of Certificates, no dividend or distribution of Surviving
Corporation shall relate to any fractional share, and such fractional share
interests will not entitle the owner thereof to vote or any rights of a
stockholder of 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 Bancorp Common Stock who otherwise would be entitled to
receive a fractional share of Surviving Corporation Common Stock an amount of
cash (without interest) equal to the product achieved when such fraction is
multiplied by $36.00.
(e) LIST OF BANCORP STOCKHOLDERS. At the Effective Time, Bancorp
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 Bancorp of the shares of Bancorp Common Stock that were
outstanding immediately prior thereto. If, after the Effective Time,
Certificates representing such shares are presented to Bancorp, they shall be
canceled and exchanged as provided in this Article I.
1.05 CONVERSION OF CITIZENS FEDERAL SAVINGS BANK F.S.B. The parties
understand that it is the present intention of First Midwest to convert Citizens
Federal Savings Bank, F.S.B. ("Citizens Federal"), a wholly owned subsidiary of
Bancorp, into a national banking association at or after the Effective Time, to
relocate Citizens Federal's main office to Moline, Illinois, at or after the
Effective Time, and to merge Citizens Federal into one of First Midwest's
national bank subsidiaries (retaining Citizens Federal's existing offices as
branches) at or after the Effective Time. Bancorp shall take all such actions
as are reasonably requested by First Midwest so that First Midwest may
accomplish such conversion, relocation and merger as aforesaid. Nothing
contained in this Section 1.05 is intended to impose an obligation on Bancorp to
alter the manner in which Bancorp or any Bancorp Subsidiary conducts business.
5
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II.
REPRESENTATIONS AND WARRANTIES OF FIRST MIDWEST
First Midwest represents and warrants to Bancorp that:
2.01 ORGANIZATION. (A) First Midwest 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 businesses and to carry on its
businesses substantially as they have been and are now being conducted. First
Midwest is duly qualified to do business and is in good standing in each
jurisdiction where the character of the 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 First Midwest or its ability to consummate the transactions
contemplated herein. First Midwest has all requisite corporate power and
authority to enter into this Agreement and the Stock Option Agreement (as
defined in Section 4.04 hereof) and, upon the approval of all requisite state
and federal regulatory agencies, to consummate the transactions contemplated
hereby and thereby. First Midwest is duly registered as a bank holding company
under the 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, assets, liabilities, business, operations
or results of operations, of such entity on a consolidated basis; it being
understood that a Material Adverse Effect shall not include: (i) a change with
respect to, or effect on, such entity and its consolidated subsidiaries
resulting from a change in law, rule, regulation, generally accepted accounting
principles ("GAAP") or regulatory accounting principles, as such would apply to
the financial statements of such entity on a consolidated basis, unless such
change would cause the entity to reduce its consolidated stockholders' equity by
more than $2,000,000 in the case of First Midwest, or $200,000 in the case of
Bancorp; (ii) a change with respect to, or effect on, such entity and its
consolidated subsidiaries resulting from expenses (such as legal, accounting and
investment bankers fees) incurred in connection with this Agreement or expenses
(such as legal, accounting and investment bankers fees) incurred in connection
with the transactions contemplated by this Agreement; or (iii) a change with
respect to, or effect on, such entity and its consolidated subsidiaries
resulting from any other matter affecting depository institutions generally
(including, without limitation, financial institutions and their holding
companies) including, without limitation, changes in general economic conditions
and changes in prevailing interest and deposit rates, unless such matter would
cause the entity to reduce its consolidated stockholders' equity by more than
$2,000,000 in the case of First Midwest, or $200,000 in the case of Bancorp. As
a condition to First Midwest's obligation to consummate the Merger, if a
Material Adverse Effect or a series of Material Adverse Effects as described in
(i) or (iii) above occurs to Bancorp between the date hereof and
6
<PAGE>
the Effective Time, such Material Adverse Effect (or series of Material Adverse
Effects) shall constitute a basis for First Midwest's refusing to consummate the
Merger pursuant to Section 6.01(d) hereof only if such Material Adverse Effect
(or such series of Material Adverse Effects) would cause Bancorp to fail to
satisfy the Minimum Capital Level (as defined in Section 6.01(g) hereof).
2.02 AUTHORIZATION. The execution, delivery and performance of this
Agreement and the Stock Option Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly and unanimously
approved and authorized by First Midwest's Board of Directors, and no other
corporate action on the part of First Midwest is necessary or required. This
Agreement has been, and the Stock Option Agreement will be, duly executed and
delivered by First Midwest and, subject to the approval of all requisite state
and federal regulatory agencies, constitute the valid and binding obligations of
First Midwest (except to the extent that enforceability thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
or equitable principles and doctrines.
2.03 CONFLICTS. Subject to the second sentence of this Section 2.03,
the execution and delivery of this Agreement and the Stock Option Agreement do
not, and the consummation of the transactions contemplated hereby and thereby,
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 or result in the creation of any material lien, charge or encumbrance
on any of the property or assets under any provision of the Certificate of
Incorporation or By-laws of First Midwest or similar documents of any First
Midwest 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 First Midwest or any First Midwest Subsidiary or their
respective properties, other than any such conflicts, violations or defaults
which (i) individually or in the aggregate do not have a Material Adverse Effect
on First Midwest, (ii) will be cured or waived prior to the Effective Time or
(iii) except as disclosed in the Disclosure Schedule of First Midwest. 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 First Midwest in connection with the execution and delivery of this
Agreement or the Stock Option Agreement or the consummation by First Midwest of
the transactions contemplated hereby or thereby the absence of which would have
a Material Adverse Effect upon First Midwest and except for: (a) the filing by
First Midwest of an application on Form Y-4 with the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") under the BHC for prior
approval of the transactions contemplated by this Agreement; (b) the filing by
First Midwest of an application with the Office of Thrift Supervision ("OTS")
for prior approval of the transactions contemplated by this Agreement; (c) the
filing by First Midwest of the Registration Statement relating to the First
Midwest Common Stock to be issued pursuant to this Agreement (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") and various
blue sky authorities, which Registration Statement shall
7
<PAGE>
include the proxy statement for use in connection with the meeting of the
stockholders of Bancorp (the "Proxy Statement") to be called pursuant to Section
5.02 hereof; (d) the filing of the Certificate of Merger with respect to the
Merger with the Secretary of State of the State of Delaware; (e) the filing by
First Midwest of applications with the Office of the Comptroller of the Currency
(the "OCC") and the FDIC in order to consummate the transactions described in
Section 1.05 hereof; (f) any filings, approvals or no-action letters with or
from state securities authorities; and (g) any anti-trust filings, consents,
waivers or approvals.
2.04 ANTITAKEOVER PROVISIONS INAPPLICABLE. No "business combination,"
"moratorium," "control share" or other state antitakeover statute or regulation
(i) prohibits or restricts First Midwest'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 thereof, or (iii) would subject Bancorp to any material
impediment or condition in connection with the exercise of any of its rights
under this Agreement.
2.05 CAPITALIZATION. (A) As of the date hereof, the authorized capital
stock of First Midwest consists of (i) 20,000,000 shares of First Midwest Common
Stock, no par value per share, of which no more than 12,550,911 shares are
issued and outstanding and 323,071 shares are held as treasury shares (of which
28,841 treasury shares are held for the benefit of a Rabbi Trust) and (ii)
1,000,000 shares of preferred stock, without par value, of which none are issued
and outstanding, 130,000 are reserved for issuance under the terms and
conditions of the Rights Plan and 200,000 will be reserved for issuance under
the terms and conditions of the Rights Plan as of the Effective Time. All of the
issued and outstanding shares of First Midwest Common Stock have been, and all
of the shares of the Surviving Corporation 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 First Midwest Common Stock has been issued in
violation of any preemptive rights of the current or past stockholders of First
Midwest and none of the outstanding shares of First Midwest 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.
(b) As of March 31, 1995, First Midwest had reserved 877,500 shares of
First Midwest Common Stock for issuance under stock option plans for the benefit
of employees of First Midwest, pursuant to which options covering 700,389 shares
of First Midwest Common Stock were outstanding as of March 31, 1995 (the "First
Midwest Stock Option Plans"). Except as set forth in this Section and except as
provided under the Rights Plan, there are no shares of capital stock or other
equity securities of First Midwest 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 First Midwest, or contracts, commitments,
understandings, or arrangements by which First Midwest is or may be bound to
issue
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additional shares of its capital stock or options, warrants, or rights to
purchase or acquire any additional shares of its capital stock.
2.06 FIRST MIDWEST FINANCIAL STATEMENTS; MATERIAL CHANGES. First
Midwest has heretofore delivered to Bancorp its audited consolidated financial
statements for the years ended December 31, 1994, December 31, 1993, and
December 31, 1992 (the "First Midwest Financial Statements"). The First Midwest
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 (z) fairly present the consolidated
financial position of First Midwest as of the dates thereof and the consolidated
results of its operations, stockholders' equity and changes in financial
position for the periods then ended. Since December 31, 1994 to the date
hereof, First Midwest and the First Midwest Subsidiaries have not undergone or
suffered any changes in their respective condition (financial or otherwise),
properties, assets, liabilities, business or operations which have been, in any
case or in the aggregate, materially adverse to First Midwest on a consolidated
basis except as disclosed on the Disclosure Schedule of First Midwest. No facts
or circumstances have been discovered from which it reasonably appears that
there is a significant risk and reasonable probability that First Midwest will
suffer or experience a Material Adverse Effect.
2.07 FIRST MIDWEST SUBSIDIARIES. (A) All of the First Midwest
Subsidiaries as of the date of this Agreement are listed on the Disclosure
Schedule of First Midwest. First Midwest owns directly or indirectly all of the
issued and outstanding shares of capital stock of the First Midwest
Subsidiaries. The Disclosure Schedule of First Midwest accurately identifies
the number of shares of authorized and outstanding capital stock of the First
Midwest Subsidiaries. Except as set forth in the Disclosure Schedule of First
Midwest, neither First Midwest nor the First Midwest Subsidiaries 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. A summary of the investment securities as of April 30, 1995 acquired
in the ordinary course of business will be set forth on the Disclosure Schedule
of First Midwest. No capital stock of any of the First Midwest Subsidiaries is
or may become required to be issued (other than to First Midwest) by reason of
any 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 any First Midwest
Subsidiary. There are no contracts commitments, understandings or arrangements
relating to the rights of First Midwest to vote or to dispose of shares of the
capital stock of any First Midwest Subsidiary. Except as provided in 12 U.S.C.
Section 55 in the case of First Midwest Subsidiaries that are national banks,
all of the shares of capital stock of each First Midwest Subsidiary held by
First Midwest or a First Midwest Subsidiary are fully paid and non-assessable
and are owned by First Midwest free and clear of any claim, lien or encumbrance,
except as disclosed on the Disclosure Schedule of First Midwest.
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(b) Each First Midwest Subsidiary is either a national banking
association, a state 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 jurisdiction where the character of the 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 First Midwest or its
ability to consummate the transactions contemplated herein. Each First Midwest
Subsidiary has the corporate power and authority necessary for it to own,
operate or lease its assets, properties and businesses and to carry on its
business as they have been and are now being conducted.
(c) For purposes of this Agreement, "First Midwest Subsidiaries" shall
mean all those corporations, banks, associations, and other entities of which
First Midwest owns or controls 5% or more of the outstanding equity securities
either directly or through an unbroken chain of entities as to each of which 5%
or more of the outstanding equity securities is owned directly or indirectly by
its parent; 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, through a small business investment corporation, or
otherwise as an investment by an entity that invests in unaffiliated companies
in the ordinary course of business.
(d) Except as set forth on the Disclosure Schedule of First Midwest,
each of the First Midwest Subsidiaries that is a bank is an "insured depository
institution" as defined in the Federal Deposit Insurance Act (the "FDIA Act")
and applicable regulations thereunder, the deposits of which are insured by the
FDIC through the Bank Insurance Fund to the full extent permitted under
applicable law.
2.08 FIRST MIDWEST FILINGS. First Midwest has previously made
available, or will make available prior to the Effective Time, to Bancorp true
and complete copies of its (i) proxy statements relating to all meetings of
stockholders (whether special or annual) during the calendar years 1993, 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 First Midwest with the SEC since January 1,
1992 including without limitation on Forms 10-K, Forms 10-Q and Forms 8-K.
2.09 FIRST MIDWEST REPORTS. Since January 1, 1990, or the date of
acquisition by First Midwest if later, each of First Midwest and the First
Midwest 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 (i) the SEC, including,
but not limited to Forms 10-K, Forms 10-Q, Forms 8-K, and proxy statements, (ii)
the Federal Reserve Board, (iii) the OCC, (iv) the FDIC, (v) any applicable
state banking, insurance, securities, or other regulatory authorities (except
filings which are not material), (vi) the NASD and (vii) the Commissioner of
Banks and Trust Companies of the State of
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Illinois (the "Commissioner"). 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 OCC, the Federal
Reserve Board, the Commissioner or the FDIC in the regular course of the
business of First Midwest or the First Midwest Subsidiaries, no federal, state
or local governmental agency, commission or other entity has initiated any
proceeding or, to the best knowledge of First Midwest, investigation into the
business or operations of First Midwest or the First Midwest Subsidiaries within
the past five (5) years except as set forth on the Disclosure Schedule of First
Midwest. There is no unresolved violation, criticism or exception by the SEC,
the OCC, the Federal Reserve Board, the Commissioner, the FDIC or other agency,
commission or entity with respect to any report or statement referred to herein
that has had or is expected to have a Material Adverse Effect on First Midwest.
2.10 COMPLIANCE WITH LAWS. (A) Except as disclosed in the
Disclosure Schedule of First Midwest, the businesses of First Midwest and the
First Midwest Subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any governmental entity, including, without
limitation, any banking laws (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 First Midwest or any First
Midwest 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 First Midwest.
(b) The policies, programs and practices of First Midwest and the
First Midwest Subsidiaries relating to wages, hours of work, and other terms and
conditions of employment are in compliance in all material respects with
applicable laws, orders, regulations, public policies and ordinances governing
employment and terms and conditions of employment. There are no disputes,
claims, or charges, pending or, to First Midwest's knowledge, threatened,
against First Midwest or any First Midwest Subsidiary alleging breach of any
express or implied employment contract or commitment, or material breach of any
applicable law, order, regulation, public policy or ordinance relating to
employment or terms and conditions of employment, which would be material to the
financial condition of First Midwest on a consolidated basis.
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(c) Except as disclosed in the Disclosure Schedule of First Midwest,
no investigation or review by any governmental entity with respect to First
Midwest or any First Midwest Subsidiary is pending or, to the best of the
knowledge of First Midwest, threatened, nor has any governmental entity
indicated to First Midwest an intention to conduct the same, other than normal
bank regulatory examinations and those the outcome of which will not have a
Material Adverse Effect on First Midwest.
(d) First Midwest and each of the First Midwest 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, First Midwest has not been advised of the
existence of any act or circumstance or set of facts or circumstances which, if
true, would cause First Midwest or any of the First Midwest Subsidiaries to fail
to be in substantial compliance with such provisions. None of the First Midwest
Subsidiaries which are insured depository institutions have received a rating
from the applicable regulatory authority which is less than "satisfactory" since
January 1, 1992.
2.11 DISCLOSURE. None of the information supplied by First Midwest
for inclusion in the Proxy Statement relating to Bancorp's meeting of
stockholders at which the Merger is submitted for consideration, or the
information relating to First Midwest and First Midwest 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 meeting of
Bancorp's stockholders to be held in connection with the Merger 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").
2.12 LITIGATION. Except as disclosed in the Disclosure Schedule of
First Midwest, there is no suit, action, investigation or proceeding, legal,
quasi-judicial, administrative or otherwise, pending or, to the best of the
knowledge of First Midwest, threatened against or affecting First Midwest or any
First Midwest Subsidiary, or any of their respective officers, directors,
employees or agents, in their capacities as such, which, if adversely
determined, would have a Material Adverse Effect on First Midwest or which would
materially affect the ability of First Midwest 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 or thereby, nor is there
any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against First Midwest or any First Midwest Subsidiary 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.
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2.13 LICENSES. First Midwest and the First Midwest Subsidiaries hold
all licenses, certificates, permits, franchises and all patents, trademarks,
service marks, trade names, copyrights or rights thereto, and adequate
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.
2.14 TAXES. (A) Except as disclosed in the Disclosure Schedule of
First Midwest, First Midwest and the First Midwest Subsidiaries have each timely
filed all tax and information returns required to be filed and have paid (or
First Midwest has paid on behalf of its Subsidiaries), 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 First Midwest nor any First Midwest
Subsidiary is delinquent in the payment of any tax, assessment or governmental
charge. No deficiencies for any taxes have been proposed, asserted or assessed
against First Midwest or any First Midwest Subsidiary that 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 First Midwest
have not been audited by either the Internal Revenue Service since 1986 or the
Illinois Department of Revenue since 1991. Neither First Midwest nor any First
Midwest Subsidiary is a party to any action or proceeding by any governmental
authority for the assessment or the collection of taxes. Deferred taxes of
First Midwest have been accounted for in accordance with generally accepted
accounting principles.
(b) First Midwest has not filed any consolidated federal income tax
return with an "affiliated group" (within the meaning of Section 1504 of the
Internal Revenue Code of 1986, as amended (the "Code")), where First Midwest was
not the common parent of the group. Neither First Midwest nor any First Midwest
Subsidiary 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 First Midwest or a First Midwest Subsidiary.
(c) First Midwest and the First Midwest Subsidiaries 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, has filed all federal, state and local returns
and reports for all years for which any such return or report would be due with
respect to employee 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 and, except as set forth in the Disclosure Statement of
First Midwest, has notified all employees, stockholders and holders of public
deposit accounts of their obligations to file all forms, statements and reports
with it in accordance with applicable federal, state and local tax laws and has
taken reasonable steps
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to insure that such employees, stockholders and holders of public deposit
accounts have filed all such forms, statements and reports with it.
(d) For the purposes of this Agreement, the terms "tax" and "taxes"
include without limitation, any federal, state, local or foreign income,
leasing, franchise, excise, gross receipts, sales, use, occupational,
employment, real property, ad valorem, tangible and intangible personal property
and state taxes, payments in lieu of taxes, levies, duties, imposts, business,
operations or financial conditions assessments, fees, charges and withholdings
of any nature whatsoever, together with any related penalties, fines, additions
to tax or interest thereon.
2.15 INSURANCE. First Midwest and the First Midwest Subsidiaries
maintain insurance with an insurer which in the best judgment of management of
First Midwest is sound and reputable, on their respective assets, and upon their
respective businesses and operations, against loss or damage, risks, hazards and
liabilities of the kinds customarily insured against by prudent corporations
engaged in the same or similar businesses. First Midwest and the First Midwest
Subsidiaries 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 First Midwest and the First Midwest
Subsidiaries have been filed in due and timely fashion.
2.16 LOANS; INVESTMENTS. (A) Except as otherwise disclosed in the
Disclosure Schedule of First Midwest, each material loan reflected as an asset
on the First Midwest Financial Statement, dated as of December 31, 1994, is
evidenced by appropriate and sufficient documentation and constitutes, to the
best of the knowledge of First Midwest, the legal, valid and binding obligation
of the obligor named therein, enforceable in accordance with its terms except to
the extent that the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles
or doctrines; to the best of the knowledge of First Midwest, no obligor named
therein is seeking to avoid the enforceability of the terms of any loan under
any such laws or equitable principles or doctrines and no loan is subject to any
defense, offset or counterclaim. All such loans originated by First Midwest or
a First Midwest Subsidiary, and to the best of the knowledge of First Midwest,
all of such loans purchased by First Midwest or a First Midwest Subsidiary, were
made or purchased in accordance with the customary lending standards of First
Midwest and in the ordinary course of business of First Midwest. Except as set
forth in the Disclosure Schedule of First Midwest, all such loans are, and at
the Effective Time will be, free and clear of any security interest, lien,
encumbrance or other charge, and First Midwest and each First Midwest Subsidiary
have complied, and at the Effective Time will have complied, in all material
respects, with all laws and regulations relating to such loans. Except as set
forth in the Disclosure Schedule of First Midwest, there are no loans or other
assets of First Midwest or any First Midwest Subsidiary in excess of $1,000,000
that have been classified by examiners as "Substandard," "Doubtful" or "Loss" as
of March 31, 1995. Set forth on the Disclosure Schedule of First Midwest is a
list of all of First Midwest's OREO as of March 31, 1995.
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(b) All guarantees of indebtedness owed to First Midwest or any First
Midwest Subsidiary, including but not limited to those of the Federal Housing
Administration, the Small Business Administration, and other state and federal
agencies, are, to the best of the knowledge of First Midwest, valid and
enforceable, except to the extent enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles or doctrines and except as would not have a Material
Adverse Effect on First Midwest.
(c) In originating, underwriting, servicing, and discharging loans,
mortgages, land contracts, and contractual obligations relating thereto, either
for their own account or for the account of others, First Midwest and the First
Midwest Subsidiaries have complied with all applicable terms and conditions of
such obligations and with all applicable laws, regulations, rules, contractual
requirements, and procedures with respect to such servicing, except where the
failure to comply would not have a Material Adverse Effect on First Midwest.
(d) All interest rate swaps, caps, floors and option agreements and
other interest rate risk management arrangements to which First Midwest or any
First Midwest Subsidiary is a party or by which any of their properties or
assets may be bound were entered into the ordinary course of business and, to
the best knowledge of First Midwest, in accordance with then customary practice
and applicable rules, regulations and policies of bank regulatory authorities
and with counterparties believed to be financially responsible at the time and
are legal, valid and binding obligations and are in full force and effect.
First Midwest and First Midwest Subsidiaries have duly performed in all material
respects all of their respective obligations thereunder to the extent that such
obligations to perform have accrued, and to the best knowledge of First Midwest,
there are no material breaches, violations or defaults or allegations or
assertions of such by any party thereunder. None of the transactions
contemplated by this Agreement would permit (i) a counterparty under any
interest rate swap, cap, floor and option agreement or any other rate risk
management agreement; or (ii) any party to the mortgage backed security
financing arrangements described in footnote 3 to the First Midwest Financial
Statements, dated December 31, 1994, to accelerate, discontinue, terminate or
otherwise modify any such agreement or arrangement or would require First
Midwest or any First Midwest Subsidiary to recognize any gain or loss with
respect to such arrangement.
(e) Except as set forth in the Disclosure Schedule of First Midwest
and except for pledges to secure public and trust deposits, none of the
investments reflected in the First Midwest Financial Statement, dated as of
December 31, 1994, under the heading "Investment Securities," and none of the
investments made by First Midwest since December 31, 1994, is subject to any
restriction, whether contractual or statutory, which materially impairs the
ability of First Midwest freely to dispose of such investment at any time. With
respect to all material repurchase agreements to which First Midwest or any
First Midwest Subsidiary is a party, First Midwest or such Subsidiary has a
valid, perfected first lien or security interest in the government securities or
other collateral securing each such repurchase agreement, and the value of the
collateral securing each such repurchase
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agreement equals or exceeds the amount of the debt secured by such collateral
under such agreement. Except as set forth in the Disclosure Schedule of First
Midwest and except for transactions aggregating less than $1,000,000, neither
First Midwest nor any First Midwest Subsidiary has sold or otherwise disposed of
any assets in a transaction in which the acquiror of such assets or other person
has the right, either conditionally or absolutely, to require First Midwest or
any First Midwest Subsidiary to repurchase or otherwise reacquire any such
assets.
2.17 ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible
loan losses shown on the First Midwest Financial Statements, dated as of
December 31, 1994 (and as shown on any financial statements to be delivered by
First Midwest to Bancorp pursuant to Section 5.07 hereof), to the best of the
knowledge of First Midwest, as of such date was (and will be as of such
subsequent financial statement dates) adequate in all respects to provide for
possible or specific losses, net of recoveries relating to loans previously
charged off, on loans outstanding, and contained (or will contain) an additional
amount of unallocated reserves for unanticipated future losses at a level
considered adequate under the standards applied by applicable federal and/or
state regulatory authorities and based upon generally accepted accounting
principles applicable to financial institutions. To the best of the knowledge
of First Midwest, the aggregate principal amount of loans contained (or will
contain) in the loan portfolio of First Midwest as of December 31, 1994 (and as
of the dates of any financial statements to be delivered by First Midwest to
Bancorp pursuant to Section 5.07 hereof), in excess of such reserve, was (and
will be) fully collectible.
2.18 FIRST MIDWEST BENEFIT PLANS. (A) The term "First Midwest
Benefit Plans" as used herein refers to all compensation, consulting,
employment, termination or collective bargaining agreements, and each stock
option, stock purchase, stock appreciation right, 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 First Midwest or
any First Midwest Subsidiary or their respective beneficiaries, including, but
not limited to, any employee benefit plans within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which
First Midwest or any First Midwest Subsidiary maintains, to which First Midwest
or any First Midwest Subsidiary contributes, or under which any employee, former
employee, director or former director of First Midwest or any First Midwest
Subsidiary is covered or has benefit rights and pursuant to which any liability
of First Midwest or any First Midwest Subsidiary exists or is reasonably likely
to occur, provided that the term "Plan" or "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 First Midwest Benefit Plan is a multiemployer plan within the meaning
of Section 3(37) of ERISA.
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(b) Each of the First Midwest Benefit Plans that is intended to be a
pension, profit sharing, stock bonus, thrift, savings or employee stock
ownership plan that is qualified under Section 401(a) of the Code ("First
Midwest 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 First Midwest's knowledge, there exist no
circumstances (other than circumstances caused by the transactions contemplated
in this Agreement or any related actions) likely to materially adversely affect
the qualified status of any such First Midwest Qualified Plan. All such First
Midwest Qualified Plans established or maintained by First Midwest or the First
Midwest Subsidiaries or to which First Midwest or the First Midwest Subsidiaries
contribute are in compliance in all material respects with all applicable
requirements of ERISA, where applicable, 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 First
Midwest Qualified Plans. Each First Midwest Qualified Plan that is a defined
benefit pension plan, which is subject to Title IV of ERISA, has assets with an
aggregate value that is not less than the actuarially determined present value
of its liability for accrued benefits as determined on the basis of the
actuarial assumptions used for the most recent valuation of such Plan and no
such Plan has an accumulated funding deficiency within the meaning of Section
412(a) of the Code. All accrued contributions and other payments required to be
made by First Midwest or any First Midwest Subsidiary to any First Midwest
Benefit Plan through December 31, 1994, have been made or reserves adequate for
such purposes as of December 31, 1994, have been set aside therefor and
reflected in the First Midwest Financial Statement, dated as of December 31,
1994. Neither First Midwest nor any First Midwest Subsidiary is in material
default in performing any of its respective contractual obligations under any of
the First Midwest 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 First Midwest,
threatened litigation or pending claim (other than benefit claims made in the
ordinary course) by or on behalf of or against any of the First Midwest Benefit
Plans (or with respect to the administration of any of the such Plans) now or
heretofore maintained by First Midwest or any First Midwest Subsidiary which
allege violations of applicable state or federal law which are reasonably likely
to result in a liability on the part of First Midwest or any First Midwest
Subsidiary or any such Plan, which would be material to the financial condition
of First Midwest on a consolidated basis.
(d) First Midwest and the First Midwest Subsidiaries and all other
persons having fiduciary or other responsibilities or duties with respect to any
First Midwest Benefit Plan are and have since the inception of each such Plan
been in substantial compliance with,
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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 Pension Benefit Guaranty
Corporation ("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 First Midwest Qualified Plan. Neither First Midwest, any First
Midwest Subsidiary nor any First Midwest Benefit Plan has incurred or is
reasonably likely to incur any liability for any "prohibited transactions" (as
defined in Section 406 of ERISA or Section 4975(a) of the Code), or any
liability under Section 601 of ERISA or Section 4980 of the Code that would be
material to the financial condition of First Midwest on a consolidated basis.
(e) Neither First Midwest nor any First Midwest Subsidiary has
incurred, nor to the best knowledge of First Midwest or any First Midwest
Subsidiary is reasonably likely to incur, any liability under Title IV of ERISA
in connection with any Plan subject to the provisions of Title IV of ERISA now
or heretofore maintained or contributed to by it or by any First Midwest
Subsidiary.
(f) First Midwest and the First Midwest Subsidiaries 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 First Midwest Benefit Plan with the
Internal Revenue Service, the PBGC, the Department of Labor, and 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 First Midwest on a
consolidated basis. Notwithstanding the foregoing, no representation is made
with respect to filings by a third party insurance company.
2.19 COMPLIANCE WITH ENVIRONMENTAL LAWS. (A) Except as set forth in
the Disclosure Schedule of First Midwest: (i) to the best of the knowledge of
First Midwest, the operations of First Midwest and each of the First Midwest
Subsidiaries comply in all material respects with all applicable past and
present Environmental Laws (as defined below); (ii) to the best of the knowledge
of First Midwest, none of the operations of First Midwest or any First Midwest
Subsidiary, no assets presently or formerly owned or leased by First Midwest or
any First Midwest Subsidiary and no Mortgaged Premises or a Participating
Facility (as defined below) are subject to any judicial or administrative
proceedings alleging the violation of any past or present Environmental Law, nor
are they the subject of any claims alleging damages to health or property,
pursuant to which First Midwest, any First Midwest Subsidiary or any owner of a
Mortgaged Premises or a Participating Facility would be liable in law or equity;
(iii) none of the operations of First Midwest or any First Midwest Subsidiary,
no assets presently owned or, to the best of the knowledge of First Midwest,
formerly owned by First Midwest or any First Midwest Subsidiary, and, to the
best of the knowledge of First Midwest, no Mortgaged Premises or
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Participating Facility are the subject of any federal, state or local
investigation evaluating whether any remedial action is needed to respond to a
release or threatened release of any Hazardous Substance (as defined below), or
any other substance into the environment, nor has First Midwest or any First
Midwest Subsidiary, or, to the best of the knowledge of First Midwest, any owner
of a Mortgaged Premises or Participating Facility been directed to conduct such
investigation, formally or informally, by any governmental agency, nor have any
of them agreed with any governmental agency or private person to conduct any
such investigation; and (iv) neither First Midwest nor any First Midwest
Subsidiary, nor, to the best of the knowledge of First Midwest, any owner of a
Mortgaged Premises or a Participating Facility has filed any notice under any
Environmental Law indicating past or present treatment, storage or disposal of a
hazardous or toxic waste or reporting a spill or release of a Hazardous
Substance, or any other substance into the environment.
(b) With respect to (i) the real estate owned (other than OREO) or
leased by First Midwest or any First Midwest Subsidiary; (ii) OREO presently or
formerly held by First Midwest; (iii) any real estate formerly owned (other than
OREO) or leased by First Midwest or any First Midwest Subsidiary (the "First
Midwest Premises") to the best of the knowledge of First Midwest: (x) no part of
the First Midwest Premises has been used for the generation, manufacture,
handling, storage, or disposal of Hazardous Substances; (y) except as set forth
in the Disclosure Schedule of First Midwest, the First Midwest Premises do not
contain, and have never contained, an underground storage tank; and (z) the
First Midwest Premises do not contain and are not contaminated by any quantity
of a Hazardous Substance from any source. With respect to any underground
storage tank listed in the Disclosure Statement of First Midwest as an exception
to the foregoing, to the best of the knowledge of First Midwest, such
underground storage tank presently or previously located on the First Midwest
Premises is or has been maintained or removed, as applicable, in compliance with
Environmental Laws, and has not been the source of any release of a Hazardous
Substance into the environment, unless otherwise set forth in the Disclosure
Schedule of First Midwest.
(c) For purposes of this Section, "Mortgaged Premises" shall mean each
(i) real property interest (including without limitation any fee or leasehold
interest) which is encumbered or affected by any mortgage, deed of trust, deed
to secure debt or other similar document or instrument granting to First Midwest
or any First Midwest Subsidiary a lien on or security interest in such real
property interest and (ii) any other real property interest upon which is
situated assets or other property affected or encumbered by any document or
instrument granting to First Midwest or any First Midwest Subsidiary a lien
thereon or security interest therein; provided, however, that the term
"Mortgaged Premises" shall not include one to four unit single family
residences. For purposes of this Section, "Participating Facility" means any
property in which First Midwest or any First Midwest Subsidiary participates in
the management of such property and, where the context requires, includes the
owner or operator of such property. For purposes of this Agreement, "Hazardous
Substance" has the meaning set forth in Section 9601 of the Comprehensive
Environmental Response Compensation and Liability Act of 1980, 42 U.S.C.A.,
(S)9601 et seq., and also
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includes any substance now or hereafter regulated by or subject to any
Environmental Laws (as defined below) and any other pollutant, contaminant, or
waste, including, without limitation, petroleum, asbestos, fiberglass, radon,
and polychlorinated biphenyls. For purposes of this Agreement, "Environmental
Laws" means all laws (civil or common), ordinances, rules, regulations,
guidelines, and orders that: (i) regulate air, water, soil, and solid waste
management, including the generation, release, containment, storage, handling,
transportation, disposition, or management of any Hazardous Substance; (ii)
regulate or prescribe requirements for air, water, or soil quality; (iii) are
intended to protect public health or the environment; or (iv) establish
liability for the investigation, removal, or cleanup of, or damage caused by,
any Hazardous Substance.
2.20 DISCLOSURE SCHEDULE OF FIRST MIDWEST. The Disclosure Schedule
of First Midwest contains, and shall be supplemented by First Midwest, as
required by Section 5.10 hereof, so as to contain at the Closing Date, in
addition to the other instruments, documents, lists and other matters mentioned
herein, copies of each of the following documents, certified by an officer of
First Midwest to be true and correct copies of such documents on the dates of
such certificates.
(a) Complete and correct copies of the Certificate of Incorporation,
Charters and By-laws and specimen certificates of each type of security issued
by First Midwest and each First Midwest Subsidiary.
(b) A list and description of all policies of insurance maintained by
First Midwest or any First Midwest Subsidiary and a list and description of all
unsettled or outstanding material claims of First Midwest or any First Midwest
Subsidiary which have been, or to the best of the knowledge of First Midwest,
will be, filed with the companies providing insurance coverage for First Midwest
or any First Midwest Subsidiary (except for routine claims for health benefits).
(c) All judgments, orders, injunctions, court decrees or settlement
agreements arising out of or relating to the labor and employment practices or
decisions of First Midwest or any First Midwest Subsidiary which, by their
terms, continue to bind or affect First Midwest or any First Midwest Subsidiary.
(d) All orders, decrees, memorandums, agreements or understandings
with regulatory agencies binding upon or affecting the current operations of
First Midwest or any First Midwest Subsidiary or any of their directors or
officers in their capacities as such.
2.21 DEFAULTS. There has not been any material default in any
obligation to be performed by First Midwest or any First Midwest Subsidiary
under any material contract or commitment, and neither First Midwest nor any
First Midwest Subsidiary has waived, and will not waive prior to the Effective
Time, any material right under any material contract or commitment. To the best
of the knowledge of First Midwest, no other party to any
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material contract or commitment is in material default in any material
obligation to be performed by such party.
2.22 MATERIALITY. For purposes of Sections 2.20 and 2.21, a
contract, commitment or agreement is material if it involves the payment by or
liability (contingent or otherwise) of First Midwest or any First Midwest
Subsidiary in any amount in excess of $1,000,000 or if such contract together
with other related contracts involving less than $1,000,000 and not listed in
the Disclosure Schedule of First Midwest for that reason, exceed $1,000,000 in
the aggregate.
2.23 OPERATIONS SINCE DECEMBER 31, 1994. Between December 31, 1994,
and the date hereof, there has not been, except as set forth on the Disclosure
Schedule of First Midwest or on any mutually accepted up-date thereof:
(a) any payment of dividends by First Midwest or any First Midwest
Subsidiary or any distribution by any of them, whether directly or indirectly,
of any assets of any kind whatsoever, on or in redemption or as the purchase
price of, any of their respective capital stocks, or any prepayment of any
indebtedness to any stockholder.
(b) any creation or assumption of indebtedness (including the
extension or renewal of any existing indebtedness, or the increase thereof), by
First Midwest or any First Midwest Subsidiary for borrowed money, or otherwise,
other than in the ordinary course of business, none of which (except those which
are being disputed in good faith) is in default;
(c) the establishment of any new, or increase in the formula for
contributions to or benefits under any existing, retirement, pension, profit
sharing, stock bonus, savings or thrift plan, or any similar plan of deferred
compensation, whether funded or unfunded and whether qualified or unqualified
(within the meaning of the Code) by First Midwest or any First Midwest
Subsidiary;
(d) any change in First Midwest's independent auditors, historic
methods of accounting (other than as required by generally accepted accounting
principles or regulatory accounting principles), or in its system for
maintaining its equipment and real estate; or
(e) any event or condition of any character (other than changes in
legal, economic or other conditions which are not specially or uniquely
applicable to First Midwest or any First Midwest Subsidiary) materially
adversely affecting the business, operations or financial condition of First
Midwest on a consolidated basis.
2.24 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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occurring, that are required to be reflected, disclosed or reserved against in
the audited consolidated financial statements in accordance with GAAP
("Liabilities") have, in the case of First Midwest and the First Midwest
Subsidiaries, been so reflected, disclosed or reserved against in the audited
consolidated financial statements of First Midwest as at December 31, 1994 or in
the notes thereto, and First Midwest and the First Midwest Subsidiaries have no
other liabilities except (a) Liabilities incurred since December 31, 1994 in the
ordinary course of business or (b) as disclosed in the Disclosure Schedule of
First Midwest.
2.25 ASSETS. (a) First Midwest and the First Midwest Subsidiaries
have good, sufficient and marketable title to their real properties, including
leaseholds, and their other assets and properties, all as reflected as owned by
First Midwest or any First Midwest Subsidiary in the First Midwest Financial
Statement, dated as of December 31, 1994, except for (i) assets and properties
disposed of since such date in the ordinary course of business and (ii) liens,
none of which, in the aggregate, except as set forth in the Disclosure Schedule
of First Midwest, are material to the assets of First Midwest on a consolidated
basis. All buildings, structures, fixtures and appurtenances comprising part of
the real properties of First Midwest and the First Midwest Subsidiaries (whether
owned or leased by First Midwest or any First Midwest Subsidiary) are in good
operating condition and have been well maintained, reasonable wear and tear
excepted. Title to all real property listed as being owned by First Midwest and
the First Midwest Subsidiaries on the Disclosure Schedule of First Midwest is
held in fee simple. First Midwest and the First Midwest Subsidiaries have title
or other rights to its assets sufficient in all material respects for the
conduct of their respective businesses as presently conducted, and, except as
set forth in the Disclosure Schedule of First Midwest, free, clear and
discharged of, and from any and all liens, charges, encumbrances, security
interests and/or equities which are material to First Midwest on a consolidated
basis.
(b) All leases pursuant to which First Midwest or any First Midwest
Subsidiary, as lessee, leases real or personal property which are material to
the business of First Midwest on a consolidated basis are, to the best of the
knowledge of First Midwest, 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 First Midwest or any
First Midwest Subsidiary, or to the best knowledge of First Midwest, the other
party.
2.26 INDEMNIFICATION. To the best of the knowledge of First Midwest,
except as set forth in the Disclosure Schedule of First Midwest, no action or
failure to take action by any director, officer, employee or agent of First
Midwest or any First Midwest Subsidiary has occurred which would give rise to a
claim or a potential claim by any such person for indemnification from First
Midwest or any First Midwest Subsidiary under the corporate indemnification
provisions of First Midwest or any First Midwest Subsidiary in effect on the
date of this Agreement.
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2.27 INSIDER INTERESTS. All outstanding loans and other contractual
arrangements (including deposit relationships) between First Midwest or any
First Midwest Subsidiary and any officer, director or employee of First Midwest
or any First Midwest Subsidiary conform to applicable rules and regulations and
requirements of all applicable regulatory agencies which were in effect when
such loans and other contractual arrangements were entered into. No officer,
director or employee of First Midwest or any First Midwest Subsidiary has any
material interest in any property, real or personal, tangible or intangible,
used in or pertaining to the business of First Midwest or any First Midwest
Subsidiary.
2.28 POOLING AND TAX. Except as described in Section 5.16 hereof, to
the best of the knowledge of First Midwest, neither it nor any First Midwest
Subsidiary has engaged in any act that would preclude or adversely affect the
Merger from qualifying for "pooling of interests" accounting treatment or as a
tax-free or deferred reorganization under Section 368(a) of the Code, and First
Midwest knows of no basis or reason why the conditions set forth in Sections
6.01(f) and 6.03(e) will not be satisfied.
III.
REPRESENTATIONS AND WARRANTIES OF BANCORP
Bancorp represents and warrants to First Midwest that:
3.01 ORGANIZATION. Bancorp 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 businesses and to carry on its businesses
substantially as they have been and are now being conducted. Bancorp is duly
qualified to do business and is in good standing in each jurisdiction where the
character of the 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 Bancorp or its ability to
consummate the transactions contemplated herein or in the Stock Option Agreement
(as defined in Section 4.04 hereof). Bancorp has all requisite corporate power
and authority to enter into this Agreement and the Stock Option Agreement (as
defined in Section 4.04 hereof) and, upon the approval of all requisite state
and federal regulatory agencies and in the case of this Agreement, the
stockholders of Bancorp as hereinafter provided, to consummate the transactions
contemplated hereby and thereby. Bancorp is duly registered as a savings and
loan holding company under HOLA.
3.02 AUTHORIZATION. The execution, delivery and performance of this
Agreement and the Stock Option Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly and unanimously
approved and authorized by Bancorp's Board of Directors, and all necessary
corporate action on the part of Bancorp has been taken, subject to the approval
of this Agreement by the stockholders of Bancorp. This Agreement has been, and
the Stock Option Agreement will be, duly executed and delivered by Bancorp
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and, subject to the approval, of all requisite state and federal regulatory
agencies, and, in the case of this Agreement, the approval by the stockholders
of Bancorp, constitute the valid and binding obligations of Bancorp (except to
the extent that enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles
or doctrines).
3.03 CONFLICTS. Subject to the second sentence of this Section 3.03,
the execution and delivery of this Agreement and the Stock Option Agreement do
not, and the consummation of the transactions contemplated hereby and thereby,
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 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 By-laws of Bancorp or similar documents of any Bancorp
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 Bancorp or any Bancorp Subsidiary or their respective properties,
other than any such conflicts, violations or defaults which (i) individually or
in the aggregate do not have a Material Adverse Effect on Bancorp, (ii) will be
cured or waived prior to the Effective Time or (iii) except as disclosed in the
Disclosure Schedule of Bancorp. 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 Bancorp in connection
with the execution and delivery of this Agreement or the Stock Option Agreement
or the consummation by Bancorp of the transactions contemplated hereby or
thereby the absence of which would not have a Material Adverse Effect upon
Bancorp except for: (a) the filing by First Midwest of an application on Form Y-
4 with the Federal Reserve Board under the BHC for prior approval of the
transactions contemplated by this Agreement; (b) the filing by First Midwest of
an application with the OTS for prior approval of the transactions contemplated
by this Agreement; (c) the filing by First Midwest of the Registration Statement
with the SEC; (d) the filing of the Certificate of Merger with respect to the
Merger with the Secretary of State of the State of Delaware; (e) the filing of
applications with the OCC and the FDIC to consummate the transactions described
in Section 1.05 hereof; (f) any filings, approvals or non-action letters with or
from state securities authorities; and (g) any anti-trust filings, consents,
waivers or approvals.
3.04 ANTITAKEOVER PROVISIONS INAPPLICABLE. No "business combination,"
"moratorium," "control share" or other state antitakeover statute or regulation,
(i) prohibits or restricts Bancorp's ability to perform its obligations under
this Agreement or the Stock Option Agreement, or its ability to consummate the
transactions contemplated hereby and thereby, (ii) would have the effect of
invalidating or voiding this Agreement or the Stock Option Agreement, or any
provision hereof or thereof, or (iii) would subject First Midwest to any
material impediment or condition in connection with the exercise of any of its
rights under this Agreement or the Stock Option Agreement. More than two-thirds
of the members of the Board of Directors of Bancorp has approved the execution
of this Agreement in accordance with Section 203 of the GCL and Article EIGHTH
of Bancorp's
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Certificate of Incorporation with the result that Section 203 of the GCL and
Article EIGHTH of Bancorp's Certificate of Incorporation will not apply to the
transactions contemplated herein.
3.05 CAPITALIZATION AND STOCKHOLDERS. (a) As of the date hereof, the
authorized capital stock of Bancorp consists of (i) 4,0000,000 shares of Bancorp
Common Stock, $.01 par value, of which no more than 916,496 shares are issued
and outstanding and 73,082 shares are held as treasury shares and (ii) 1,000,000
shares of preferred stock, no par value, of which none are issued and
outstanding. All of the issued and outstanding shares of Bancorp Common Stock
have been duly and validly authorized and issued, and are fully paid and non-
assessable. None of the outstanding shares of Bancorp Common Stock are subject
to any preemptive rights of the current or past stockholders of Bancorp. Except
as set forth in the Disclosure Schedule of Bancorp, all of the issued and
outstanding shares of Bancorp Common Stock will be entitled to vote to approve
the Agreement. The Bancorp Common Stock is designated as a national market
system security on an interdealer quotation system by the NASD and, as a
consequence, stockholders of Bancorp are not entitled to appraisal rights under
Section 262 of the GCL.
(b) As of April 30, 1995, Bancorp had reserved 100,100 shares of
Bancorp Common Stock for issuance under stock option plans for the benefit of
employees and directors of Bancorp, pursuant to which options ("Bancorp Stock
Options) covering 73,082 shares of Bancorp Common Stock were outstanding as of
March 31, 1995 (the "Bancorp Stock Option Plans). As of April 30, 1995, 10,626
shares of Bancorp Common Stock were outstanding under Bancorp's recognition and
retention plans and trusts. Except as set forth in this Section and except as
provided under the Stock Option Agreement, there are no shares of capital stock
or other equity securities of Bancorp 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 Bancorp, or contracts, commitments,
understandings, or arrangements by which Bancorp is or may be bound to issue
additional shares of its capital stock or options, warrants, or rights to
purchase or acquire any additional shares of its capital stock. Each Bancorp
Stock Option is exercisable as of the date hereof and has an exercise price of
$9.09 per share.
(c) The Disclosure Schedule of Bancorp accurately identifies the names
and addresses of all of the stockholders who, to Bancorp's knowledge,
beneficially own more than 5% of the shares of Bancorp Common Stock and the
number of shares of Common Stock of Bancorp held by each such stockholder and by
each director and senior officer of Bancorp. From the date hereof until the
Effective Time, Bancorp shall, upon request, provide First Midwest with a
complete list of all of its stockholders of record, including the names,
addresses and number of shares of Bancorp Common Stock held by each stockholder.
Without the advance written consent of Bancorp, First Midwest will not disclose
or make use of the information provided by Bancorp pursuant hereto except as may
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be required in connection with regulatory or other filings permitted by this
Agreement, the mailing of the Proxy Statement or as is otherwise specifically
permitted by this Agreement.
3.06 BANCORP FINANCIAL STATEMENTS; MATERIAL CHANGES. Bancorp has
heretofore delivered to First Midwest its audited, consolidated financial
statements for the years ended June 30, 1994, June 30, 1993, and June 30, 1992,
and Bancorp's unaudited consolidated financial statements for the quarters ended
September 30, 1994, and December 31, 1994 (the "Bancorp Financial Statements").
The Bancorp 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 Bancorp as of the dates
thereof and the consolidated results of its operations, stockholders' equity and
changes in financial position for the periods then ended. Since December 31,
1994 to the date hereof, Bancorp and the Bancorp Subsidiaries have not undergone
or suffered any changes in their respective condition (financial or otherwise),
properties, assets, liabilities, business or operations which have been, in any
case or in the aggregate, materially adverse to Bancorp on a consolidated basis
except as disclosed on the Disclosure Schedule of Bancorp. No facts or
circumstances have been discovered from which it reasonably appears that there
is a significant risk and reasonable probability that Bancorp will suffer or
experience a Material Adverse Effect.
3.07 BANCORP SUBSIDIARIES. (a) All of the Bancorp Subsidiaries as
of the date of this Agreement are listed on the Disclosure Schedule of Bancorp.
Bancorp owns directly or indirectly all of the issued and outstanding shares of
capital stock of the Bancorp Subsidiaries. The Disclosure Schedule of Bancorp
accurately identifies the number of shares of authorized and outstanding capital
stock of the Bancorp Subsidiaries. Except as set forth in the Disclosure
Schedule of Bancorp, neither Bancorp nor the Bancorp Subsidiaries 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. A summary of the investment securities acquired in the ordinary
course of business as of April 30, 1995 will be set forth on the Disclosure
Schedule of Bancorp. No capital stock of any of the Bancorp Subsidiaries is or
may become required to be issued (other than to Bancorp) by reason of any
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 any Bancorp Subsidiary. There
are no contracts, commitments, understandings or arrangements relating to the
rights of Bancorp to vote or to dispose of shares of the capital stock of a
Bancorp Subsidiary. All of the shares of capital stock of each Bancorp
Subsidiary held by Bancorp or a Bancorp Subsidiary are fully paid and non-
assessable and are owned by Bancorp free and clear of any claim, lien or
encumbrance, except as disclosed on the Disclosure Schedule of Bancorp.
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(b) Each Bancorp Subsidiary is either a stock savings 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 jurisdiction where
the character of the 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 Bancorp or its ability to consummate the transactions
contemplated herein or in the Stock Option Agreement. Each Bancorp 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 substantially
as they have been and are now being conducted.
(c) For purposes of this Agreement, "Bancorp Subsidiaries" shall mean
all those corporations, banks, savings banks, associations, and other entities
of which Bancorp owns or controls 5% or more of the outstanding equity
securities either directly or through an unbroken chain of entities as to each
of which 5% or more of the outstanding equity securities is owned directly or
indirectly by its parent; 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, through a small business investment corporation,
or otherwise as an investment by an entity that invests in unaffiliated
companies in the ordinary course of business.
(d) The conversion of Citizens Federal from the mutual to stock form
of organization and the concurrent holding company formation (the "Conversion")
was conducted and effectuated in accordance with all applicable laws, rules and
regulations, and pursuant to all terms and conditions of regulatory approvals.
Neither Bancorp nor Citizens Federal incurred any federal or state tax liability
as a result of the Conversion. Set forth on the Disclosure Schedule of Bancorp
is a true and correct copy of the tax opinion issued by Silver, Freedman & Taff,
L.L.P., in connection with the Conversion. Citizens Federal is a member in good
standing of the Federal Home Loan Bank System. All eligible deposit accounts
issued by Citizens Federal are insured by the FDIC through the Savings
Association Insurance Fund ("SAIF") to the full extent permitted under
applicable laws. Citizens Federal is, and at all times since June 1, 1990 has
been, a "qualified thrift lender" (as that term is used in Section 10(m) of
HOLA). The liquidation account established by Citizens Federal in connection
with the Conversion 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. None of the transactions contemplated by
this Agreement would constitute a complete liquidation of Citizens Federal so as
to require the distribution of such liquidation account of Citizens Federal to
any existing or former savings or demand account holders of Citizens Federal.
3.08 BANCORP FILINGS. Bancorp has previously made available, or will
make available prior to the Effective Time, to First Midwest true and complete
copies of its (i)
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proxy statements relating to all meetings of stockholders (whether special or
annual) (of Bancorp or Citizens Federal) during the calendar years 1993, 1994
and 1995 and (ii) all other reports, as amended, or filings, as amended,
required to be filed under the Securities Act by Bancorp with the SEC or the OTS
since January 1, 1992 including without limitation Forms 10-K, Forms 10-Q and
Forms 8-K.
3.09 BANCORP REPORTS. Since January 1, 1990, or the date of acquisition by
Bancorp if later, each of Bancorp and the Bancorp 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 (i) the SEC, including, but not limited to its Registration Statement
on Form S-1, Forms 10-K, Forms 10-Q, Forms 8-K, and proxy statements, (ii) the
OTS, (iii) the Federal Home Loan Bank Board, (iv) the Federal Savings and Loan
Insurance Corporation (v) the FDIC, (vi) any applicable state banking,
insurance, securities, or other regulatory authorities (except filings which are
not material), and (vii) the NASD. 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 Bancorp or the Bancorp Subsidiaries, no
federal, state or local governmental agency, commission or other entity has
initiated any proceeding or, to the best knowledge of Bancorp, investigation
into the business or operations of Bancorp or the Bancorp Subsidiaries within
the past five (5) years except as set forth on the Disclosure Schedule of
Bancorp. There is no unresolved violation, criticism or exception by the SEC,
the OTS, the FDIC or other agency, commission or entity with respect to any
report or statement referred to herein that has or is expected to have a
Material Adverse Effect on Bancorp.
3.10 COMPLIANCE WITH LAWS. (a) Except as disclosed in the Disclosure
Schedule of Bancorp, the businesses of Bancorp and the Bancorp 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 laws and regulations relating to employee
benefits, and any statutes or ordinances relating to the properties occupied or
used by Bancorp or any Bancorp Subsidiary, except for possible violations which
either singly or in the aggregate do not and,
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insofar as reasonably can be foreseen in the future, will not have a Material
Adverse Effect on Bancorp.
(b) The policies, programs and practices of Bancorp and the Bancorp
Subsidiaries relating to wages, hours of work, and other terms and conditions of
employment are in compliance in all material respects with applicable laws,
orders, regulations, public policies and ordinances governing employment and
terms and conditions of employment. There are no disputes, claims, or charges,
pending or, to Bancorp's knowledge, threatened, against Bancorp or any Bancorp
Subsidiary alleging breach of any express or implied employment contract or
commitment, or material breach of any applicable law, order, regulation, public
policy or ordinance relating to employment or terms and conditions of
employment, and, to the best of the knowledge of Bancorp, there is no basis for
any valid claim or charge with regard to such matters.
(c) Except as disclosed in the Disclosure Schedule of Bancorp, no
investigation or review by any governmental entity with respect to Bancorp or
any Bancorp Subsidiary is pending or, to the best of the knowledge of Bancorp,
threatened, nor has any governmental entity indicated to Bancorp an intention to
conduct the same, other than normal bank regulatory examinations and those the
outcome of which will not have a Materially Adverse Effect on Bancorp.
(d) Bancorp and each of the Bancorp 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, Bancorp has not been advised of the existence of any act
or circumstance or set of facts or circumstances which, if true, would cause
Bancorp or any of the Bancorp Subsidiaries to fail to be in substantial
compliance with such provisions. None of the Bancorp Subsidiaries have received
a rating from the applicable regulatory authority which is less than
"satisfactory" since January 1, 1992.
3.11 DISCLOSURE. None of the information supplied by Bancorp for
inclusion in the Proxy Statement or in the Registration Statement, will, in the
case of the Proxy Statement or any amendments thereof or supplements thereto, at
the time of the meeting of Bancorp stockholders to be held in connection with
the Merger 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.
3.12 LITIGATION. Except as disclosed in amendment number 1 to the
Disclosure Schedule of Bancorp (which will be delivered by Bancorp to First
Midwest within thirty (30) days of the date hereof), there is no suit, action,
investigation or proceeding, legal, quasi-judicial, administrative or otherwise,
pending or, to the best of the knowledge of Bancorp, threatened against or
affecting Bancorp or any Bancorp Subsidiary, or any of their respective
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officers, directors, employees or agents, in their capacities as such, which is
seeking damages against Bancorp, any Bancorp Subsidiary, or any of their
respective officers, directors, employees or agents, in their capacities as
such, in excess of $25,000, or which would materially affect the ability of
Bancorp to consummate the transactions contemplated herein or in the Stock
Option Agreement or which is seeking to enjoin consummation of the transactions
provided for herein or in the Stock Option Agreement or to obtain other relief
in connection with this Agreement or the Stock Option Agreement or the
transactions contemplated hereby or thereby, nor is there any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or arbitrator outstanding against Bancorp or any Bancorp
Subsidiary 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.
3.13 LICENSES. Bancorp and the Bancorp Subsidiaries hold all licenses,
certificates, permits, franchises and all patents, trademarks, service marks,
trade names, copyrights or rights thereto, and adequate 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.
3.14 TAXES. (a) Except as disclosed in the Disclosure Schedule of
Bancorp, Bancorp and the Bancorp Subsidiaries have each timely filed all tax and
information returns required to be filed and have paid (or Bancorp has paid on
behalf of its Subsidiaries), 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 Bancorp nor any Bancorp Subsidiary is delinquent in the payment of any
tax, assessment or governmental charge. No deficiencies for any taxes have been
proposed, asserted or assessed against Bancorp or any Bancorp Subsidiary that
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 Bancorp and Citizens Federal have not been audited by either the Internal
Revenue Service, the Illinois Department of Revenue or the Iowa Department of
Revenue for any of the last nine (9) years. Neither Bancorp nor any Bancorp
Subsidiary is a party to any action or proceeding by any governmental authority
for the assessment or the collection of taxes. Deferred taxes of Bancorp have
been accounted for in accordance with generally accepted accounting principles.
(b) Bancorp has not filed any consolidated federal income tax return
with an "affiliated group" (within the meaning of Section 1504 of the Code)
where Bancorp was not the common parent of the group. Neither Bancorp nor any
Bancorp Subsidiary is, or has been, a party to any tax allocation agreement or
arrangement pursuant to which it has
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any contingent or outstanding liability to anyone other than Bancorp or a
Bancorp Subsidiary.
(c) Bancorp and the Bancorp Subsidiaries 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, has filed all federal, state and local returns and reports for all
years for which any such return or report would be due with respect to employee
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 and, except as set forth in the Disclosure Schedule of Bancorp, has
notified all employees, stockholders and holders of public deposit accounts of
their obligations to file all forms, statements or reports with it in accordance
with applicable federal, state and local tax laws and has taken reasonable steps
to insure that such employees, stockholders and holders of public deposit
accounts have filed all such forms, statements and reports with it.
3.15 INSURANCE. Bancorp and the Bancorp Subsidiaries maintain
insurance with an insurer which in the best judgment of management of Bancorp is
sound and reputable, on their respective assets, and upon their respective
businesses and operations, against loss or damage, risks, hazards and
liabilities of the kinds customarily insured against by prudent corporations
engaged in the same or similar businesses. Bancorp and the Bancorp Subsidiaries
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 Bancorp and the Bancorp Subsidiaries have been filed in
due and timely fashion. Neither Bancorp nor any Bancorp Subsidiary has had an
insurance policy cancelled by the issuer of the policy within the past five (5)
years.
3.16 LOANS; INVESTMENTS. (a) Except as otherwise disclosed in the
Disclosure Schedule of Bancorp, each material loan reflected as an asset on the
Bancorp Financial Statement, dated as of December 31, 1994, is evidenced by
appropriate and sufficient documentation and constitutes, to the best of the
knowledge of Bancorp, the legal, valid and binding obligation of the obligor
named therein, enforceable in accordance with its terms except to the extent
that the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles or doctrines;
to the best of the knowledge of Bancorp, no obligor named therein is seeking to
avoid the enforceability of the terms of any loan under any such laws or
equitable principles or doctrines and no loan is subject to any defense, offset
or counterclaim. All such loans originated by Bancorp or a Bancorp Subsidiary,
and to the best of the knowledge of Bancorp, all such loans purchased by Bancorp
or a Bancorp Subsidiary, were made or purchased in accordance with customary
lending standards of Bancorp and in the ordinary course of business of Bancorp.
Except as set forth in the Disclosure Schedule of Bancorp, all such loans are,
and at the Effective Time will be, free and clear of any security interest,
lien, encumbrance or other charge, and Bancorp and each Bancorp Subsidiary have
complied, and at the Effective Time will have complied, in all material
respects, with all
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laws and regulations relating to such loans. Except as set forth in the
Disclosure Schedule of Bancorp, there are no loans or other assets of Bancorp or
any Bancorp Subsidiary in excess of $25,000 that have been classified by
examiners or others as "Other Assets Specially Mentioned," "Substandard,"
"Doubtful" or "Loss" as of March 31, 1995. Set forth on Disclosure Schedule of
Bancorp is a complete list of Bancorp's REO as of March 31, 1995.
(b) All guarantees of indebtedness owed to Bancorp or any Bancorp
Subsidiary, including but not limited to those of the Federal Housing
Administration, the Small Business Administration, and other state and federal
agencies, are, to the best of the knowledge of Bancorp, valid and enforceable,
except to the extent enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable
principles or doctrines and except as would not be material to Bancorp on a
consolidated basis.
(c) In originating, underwriting, servicing, and discharging loans,
mortgages, land contracts, and contractual obligations relating thereto, either
for their own account or for the account of others, Bancorp and the Bancorp
Subsidiaries have complied with all applicable terms and conditions of such
obligations and with all applicable laws, regulations, rules, contractual
requirements, and procedures with respect to such servicing, except where the
failure to comply would not have a Material Adverse Effect on Bancorp.
(d) All interest rate swaps, caps, floors and option agreements and
other interest rate risk management arrangements to which Bancorp or any of
Bancorp Subsidiaries is a party or by which any of their properties or assets
may be bound were entered into in the ordinary course of business and, to the
best knowledge of Bancorp, in accordance with then customary practice and
applicable rules, regulations and policies of bank regulatory authorities and
with counterparties believed to be financially responsible at the time and are
legal, valid and binding obligations and are in full force and effect. Bancorp
and the Bancorp Subsidiaries have duly performed in all material respects all of
their respective obligations thereunder to the extent that such obligations to
perform have accrued, and to the best knowledge of Bancorp, there are no
material breaches, violations or defaults or allegations or assertions of such
by any party thereunder. None of the transactions contemplated by this
Agreement would permit: (i) a counterparty under any interest rate swap, cap,
floor and option agreement or any other interest rate risk management agreement;
or (ii) any party to the mortgage backed security financing arrangements
described in footnote 2 to the Bancorp Financial Statements, dated June 30,
1994, to accelerate, discontinue, terminate or otherwise modify any such
agreement or arrangement or would require Bancorp or any Bancorp Subsidiary to
recognize any gain or loss with respect to such arrangement (exclusive of the
inability of First Midwest to retain the funding of such activities from the
Federal Home Loan Bank).
(e) Except as set forth in the Disclosure Schedule of Bancorp and
except for pledges to secure public and trust deposits, none of the investments
reflected in the Bancorp Financial Statement, dated as of June 30, 1994, under
the heading "Investment
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Securities," and none of the investments made by Bancorp since June 30, 1994, is
subject to any restriction, whether contractual or statutory, which materially
impairs the ability of Bancorp freely to dispose of such investment at any time.
With respect to all material repurchase agreements to which Bancorp or any
Bancorp Subsidiary is a party, Bancorp or such Subsidiary has a valid, perfected
first lien or security interest in the government securities or other collateral
securing each such repurchase agreement, and the value of the collateral
securing each such repurchase agreement equals or exceeds the amount of the debt
secured by such collateral under such agreement. Except as set forth in the
Disclosure Schedule of Bancorp and except for transactions aggregating less than
$25,000, neither Bancorp nor any Bancorp Subsidiary has sold or otherwise
disposed of any assets in a transaction in which the acquiror of such assets or
other person has the right, either conditionally or absolutely, to require
Bancorp or any Bancorp Subsidiary to repurchase or otherwise reacquire any such
assets. Set forth on the Disclosure Schedule of Bancorp is a complete and
accurate list of each investment and debt security, mortgage-backed and related
securities, marketable equity securities and securities purchased under
agreements to resell owned by Bancorp or any Bancorp Subsidiary, showing as of
March 31, 1995, the carrying values and estimated fair values of investment and
debt securities, the gross carrying value and estimated fair value of the
mortgage-backed and related securities and the estimated cost and estimated fair
value of the marketable equity securities.
(f) All United States Treasury securities, obligations of other United
States Government agencies and corporations, obligations of States of the United
States and their political subdivisions, and other investment securities
classified as "held to maturity" and "available for sale" held by Bancorp and
the Bancorp Subsidiaries, as reflected in the Bancorp Financial Statement, dated
December 31, 1994, were classified and accounted for in accordance with F.A.S.B.
115 and the intentions of management.
3.17 ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible
loan losses shown on the Bancorp Financial Statement, dated as of December 31,
1994 (and as shown on any financial statements to be delivered by Bancorp to
First Midwest pursuant to Section 5.07 hereof), to the best of the knowledge of
Bancorp, as of such date was (and will be as of such subsequent financial
statement dates) adequate in all respects to provide for possible or specific
losses, net of recoveries relating to loans previously charged off, on loans
outstanding, and contained an additional amount of unallocated reserves for
unanticipated future losses at a level considered adequate under the standards
applied by applicable federal and/or state regulatory authorities and based upon
generally accepted practices applicable to financial institutions. To the best
of the knowledge of Bancorp, the aggregate principal amount of loans contained
(or will contain) in the loan portfolio of Bancorp as of December 31, 1994 (and
as of the dates of any financial statements to be delivered by Bancorp to First
Midwest pursuant to Section 5.07 hereof), in excess of such reserve, was (and
will be) fully collectible.
3.18 BANCORP BENEFIT PLANS. (a) The Bancorp Disclosure Schedule
contains a list and a true and correct copy (or, a description with respect to
any oral employee benefit
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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 appreciation right,
recognition and retention, 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 Bancorp or any Bancorp Subsidiary or their
respective beneficiaries, including, but not limited to, any employee benefit
plans within the meaning of Section 3(3) of ERISA, which Bancorp or any Bancorp
Subsidiary maintains, to which Bancorp or any Bancorp Subsidiary contributes, or
under which any employee, former employee, director or former director of
Bancorp or any Bancorp Subsidiary is covered or has benefit rights and pursuant
to which any liability of Bancorp or any Bancorp Subsidiary exists or is
reasonably likely to occur (the "Bancorp Benefit Plans"), and current summary
plan description, trust agreement, and insurance contracts and IRS Form 5500 or
5500-C with respect thereto. Except as set forth in the Disclosure Schedule of
Bancorp, Bancorp neither maintains nor has entered into any Bancorp Benefit Plan
or other document, 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 Bancorp or any Bancorp
Subsidiary or their respective beneficiaries, or other provisions, which would
cause an increase in the liability of Bancorp or any Bancorp Subsidiary or to
First Midwest as a result of the transactions contemplated by this Agreement or
any related action thereafter (a "Change in Control Benefit"). The term
"Bancorp Benefit Plans" as used herein refers to all plans contemplated under
the preceding sentences of this Section 3.18, provided that the term "Plan" or
"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. Except as disclosed in the
Disclosure Schedule of Bancorp, no Benefit Plan is a multiemployer plan within
the meaning of Section 3(37) of ERISA. All payments and other compensation paid
or payable by Bancorp or any Bancorp Subsidiary under this Agreement, any
Bancorp Benefit Plan or otherwise, to or for the benefit of any employee or
director of Bancorp or any Bancorp Subsidiary, are in compliance with all
applicable rules, regulations and bulletins promulgated by the OTS.
(b) Each of the Bancorp Benefit Plans that is intended to be a
pension, profit sharing, stock bonus, thrift, savings or employee stock
ownership plan that is qualified under Section 401(a) of the Code ("Bancorp
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
the Disclosure Schedule of Bancorp), and, to the best of Bancorp's knowledge,
there exist no circumstances likely to materially adversely affect the qualified
status of any such Bancorp Qualified Plan. All such Bancorp Qualified Plans
established or maintained by Bancorp or the Bancorp Subsidiaries or to which
Bancorp or the Bancorp Subsidiaries contribute are
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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 Bancorp Qualified Plans. No Bancorp
Qualified Plan is a defined benefit pension plan, which is subject to Title IV
of ERISA. All accrued contributions and other payments required to be made by
Bancorp or any Bancorp Subsidiary to any Bancorp Benefit Plan through December
31, 1994, have been made or reserves adequate for such purposes as of December
31, 1994, have been set aside therefor and reflected in the Bancorp Financial
Statement, dated as of December 31, 1994. Neither Bancorp nor any Bancorp
Subsidiary is in material default in performing any of its respective
contractual obligations under any of the Bancorp 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 and the liabilities of the Bancorp Employee Stock Ownership Plan
related to the loan outstanding thereunder and evidenced by a term note, dated
July 1, 1992, in the principal amount of $500,000 (the "ESOP Loan"). The
Disclosure Schedule of Bancorp includes a true and correct copy of the term note
and all agreements relating thereto.
(c) There is no pending or, to the best knowledge of Bancorp,
threatened litigation or pending claim (other than benefit claims made in the
ordinary course) by or on behalf of or against any of the Bancorp Benefit Plans
(or with respect to the administration of any of such Plans) now or heretofore
maintained by Bancorp or any Bancorp Subsidiary which allege violations of
applicable state or federal law which are reasonably likely to result in a
liability on the part of Bancorp or any Bancorp Subsidiary or any such Plan.
(d) Bancorp and the Bancorp Subsidiaries and all other persons having
fiduciary or other responsibilities or duties with respect to any Bancorp
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
Bancorp Benefit Plan. No Bancorp 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 Bancorp 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 Bancorp nor any Bancorp Subsidiary has incurred, nor to
the best knowledge of Bancorp or any Bancorp Subsidiary is reasonably likely to
incur, any liability under Title IV of ERISA in connection with any Plan subject
to the provisions of
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Title IV of ERISA now or heretofore maintained or contributed to by it or by any
Bancorp Subsidiary.
(f) Neither Bancorp nor any Bancorp Subsidiary has made any payments,
or is or has been a party to any agreement or any Bancorp 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.
(g) The Disclosure Schedule of Bancorp describes any obligation that
Bancorp or any Bancorp Subsidiary 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 coverages and their ages.
(h) The Disclosure Schedule of Bancorp lists: (i) each officer of
Bancorp and any Bancorp Subsidiary and each director of Bancorp who is eligible
to receive a Change in Control Benefit, showing the amount of each such Change
in Control Benefit, estimated compensation for 1995 based upon compensation
received to the date of this Agreement, and the individual's rate of
compensation in effect on the date of this Agreement, the individual's
participation in any bonus or other employee benefit plan, and such individual's
compensation from Bancorp or any Bancorp Subsidiary for each of the calendar
years 1990 through 1994 as reported by Bancorp or a Bancorp Subsidiary on Form
W-2 or Form 1099; (ii) each other employee of Bancorp or the Bancorp
Subsidiaries who may be eligible for a Change in Control Benefit, showing the
number of years of service of each such employee together with his or her
estimated compensation for 1995; (iii) a listing of each Bancorp Stock Option,
showing the holder thereof, the number of shares, the exercise price per share
and a copy of the option agreements relating thereto; and (iv) a listing of each
Recognition and Retention Plan and Trust, and the participants therein, showing
the number of outstanding shares of Bancorp Common Stock credited to each
participant, the vesting dates thereof and the number of unallocated shares of
Bancorp Common Stock held by such trusts and (v) each officer or director for
whom a deferred compensation agreement is maintained, showing the amounts due
thereunder and the payment schedule thereof, and the amounts accrued in the
Bancorp Financial Statement, dated December 31, 1994.
(i) Bancorp and the Bancorp Subsidiaries 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 Bancorp Benefit Plan with the Internal Revenue
Service, the PBGC, 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 Bancorp on a consolidated basis. Notwithstanding
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the foregoing, no representation is made with respect to filings by a third
party insurance company.
3.19 COMPLIANCE WITH ENVIRONMENTAL LAWS. (A) Except as set forth in
the Disclosure Schedule of Bancorp: (i) to the best of the knowledge of Bancorp,
the operations of Bancorp and each of the Bancorp Subsidiaries comply in all
material respects with all applicable past and present Environmental Laws; (ii)
to the best of the knowledge of Bancorp, none of the operations of Bancorp or
any Bancorp Subsidiary, no assets presently or formerly owned or leased by
Bancorp or any Bancorp Subsidiary and no Mortgaged Premises or Participating
Facility (as defined below) are subject to any judicial or administrative
proceedings alleging the violation of any past or present Environmental Law, nor
are they the subject of any claims alleging damages to health or property,
pursuant to which Bancorp, any Bancorp Subsidiary or any owner of a Mortgaged
Premises or a Participating Facility would be liable in law or equity; (iii)
none of the operations of Bancorp or any Bancorp Subsidiary, no assets presently
owned or, to the best of the knowledge of Bancorp, formerly owned by Bancorp or
any Bancorp Subsidiary, and, to the best of the knowledge of Bancorp, no
Mortgaged Premises or a Participating Facility are the subject of any federal,
state or local investigation evaluating whether any remedial action is needed to
respond to a release or threatened release of any Hazardous Substance, or any
other substance into the environment, nor has Bancorp or any Bancorp Subsidiary,
or, to the best of the knowledge of Bancorp, any owner of a Mortgaged Premises
or a Participating Facility been directed to conduct such investigation,
formally or informally, by any governmental agency, nor have any of them agreed
with any governmental agency or private person to conduct any such
investigation; and (iv) neither Bancorp nor any Bancorp Subsidiary, nor, to the
best of the knowledge of Bancorp, any owner of a Mortgaged Premises or a
Participating Facility has filed any notice under any Environmental Law
indicating past or present treatment, storage or disposal of a Hazardous
Substance or reporting a spill or release of a Hazardous Substance, or any other
substance into the environment.
(b) With respect to (i) the real estate owned (other than REO) or
leased by Bancorp or any Bancorp Subsidiary; (ii) to the best of Bancorp's
knowledge, REO presently or formerly held by Bancorp; and (iii) to the best of
Bancorp's knowledge, any real estate formerly owned (other than REO) or leased
by Bancorp or any Bancorp Subsidiary (the "Bancorp Premises"): (x) no part of
the Bancorp Premises has been used for the generation, manufacture, handling,
storage, or disposal of Hazardous Substances; (y) except as disclosed in the
Disclosure Schedule of Bancorp, the Bancorp Premises do not contain, and have
never contained, an underground storage tank; and (z) the Bancorp Premises do
not contain and are not contaminated by any quantity of a Hazardous Substance
from any source. With respect to any underground storage tank listed in the
Disclosure Statement of Bancorp as an exception to the foregoing, to the best of
the knowledge of Bancorp, such underground storage tank presently or previously
located on the Bancorp Premises is or has been maintained or removed, as
applicable, in compliance with Environmental Laws, and
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has not been the source of any release of a Hazardous Substance into the
environment, unless otherwise set forth in the Disclosure Schedule of Bancorp.
(c) For purposes of this Section, "Mortgaged Premises" shall mean each
(i) real property interest (including without limitation any fee or leasehold
interest) which is encumbered or affected by any mortgage, deed of trust, deed
to secure debt or other similar document or instrument granting to Bancorp or
any Bancorp Subsidiary a lien on or security interest in such real property
interest and (ii) any other real property interest upon which is situated assets
or other property affected or encumbered by any document or instrument granting
to Bancorp or any Bancorp Subsidiary a lien thereon or security interest
therein; provided, however, that the term "Mortgaged Premises" shall not include
one to four unit single family residences. For purposes of this Section,
"Participating Facility" means any property in which Bancorp or any Bancorp
Subsidiary participates in the management of such property and, where the
context requires, includes the owner or operator of such property. For purposes
of this Agreement, "Hazardous Substance" has the meaning set forth in Section
9601 of the Comprehensive Environmental Response Compensation and Liability Act
of 1980, 42 U.S.C.A., (S)9601 et seq., and also includes any substance now or
hereafter regulated by or subject to any Environmental Laws (as defined below)
and any other pollutant, contaminant, or waste, including, without limitation,
petroleum, asbestos, fiberglass, radon, and polychlorinated biphenyls. For
purposes of this Agreement, "Environmental Laws" means all laws (civil or
common), ordinances, rules, regulations, guidelines, and orders that: (i)
regulate air, water, soil, and solid waste management, including the generation,
release, containment, storage, handling, transportation, disposition, or
management of any Hazardous Substance; (ii) regulate or prescribe requirements
for air, water, or soil quality; (iii) are intended to protect public health or
the environment; or (iv) establish liability for the investigation, removal, or
cleanup of, or damage caused by, any Hazardous Substance.
3.20 DISCLOSURE SCHEDULE OF BANCORP. The Disclosure Schedule of
Bancorp contains, and shall be supplemented by Bancorp, as required by Section
5.10 hereof, so as to contain at the Closing Date, in addition to the other
instruments, documents, lists and other matters mentioned herein, copies of each
of the following documents, certified by an officer of Bancorp 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 commitments to extend
credit to any officer or director of Bancorp or any Bancorp Subsidiary, as well
as a listing of all deposits or deposit surrogates, including the amount, type
and interest being paid thereon, to which Bancorp or any Bancorp Subsidiary is a
party under which it may (contingently or otherwise) have any liability
involving any officer or director of Bancorp or a Bancorp Subsidiary.
(b) A list and description of each outstanding letter of credit and
each commitment to issue a letter of credit in excess of $25,000 to which
Bancorp or any Bancorp Subsidiary is a party and/or under which it may
(contingently or otherwise) have any liability.
(c) A list and description of each material contract or agreement (not
otherwise included in the Disclosure Schedule of Bancorp or specifically
excluded therefrom
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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 Bancorp or any Bancorp Subsidiary in excess of
$25,000.
(d) A list and description of each contract or commitment (other than
Permitted Liens as defined in Section 3.24(c)) hereof affecting ownership of,
title to, use of, or any interest in real estate which is currently owned by
Bancorp or any Bancorp Subsidiary, and a list and description of all real estate
owned, leased or licensed by Bancorp or any Bancorp Subsidiary.
(e) A list of all fees, salaries, bonuses and other forms of
compensation including but not limited to, country club memberships, automobiles
available for personal use, and credit cards available for personal use,
provided by Bancorp or any Bancorp Subsidiary to any employee, officer, or
director or former employee, officer or director of Bancorp or any Bancorp
Subsidiary who earned in excess of $25,000 in 1994.
(f) A list and description of each material commitment made by Bancorp
or any Bancorp Subsidiary to or with any director, officer or employee of
Bancorp or any Bancorp Subsidiary extending for a period of more than three
months from the date hereof or providing for earlier termination only upon the
payment of a penalty or equivalent thereto.
(g) Complete and correct copies of the Certificate of Incorporation,
Charters and By-laws and specimen certificates of each type of security issued
by Bancorp and each Bancorp Subsidiary.
(h) A list and description of each other contract or commitment
providing for payment based in any manner upon outstanding loans or profits of
Bancorp or any Bancorp Subsidiary.
(i) A list and description of all powers of attorney granted by
Bancorp or any Bancorp Subsidiary which are currently in force.
(j) A list and description of all policies of insurance currently
maintained by Bancorp or any Bancorp Subsidiary and a list and description of
all unsettled or outstanding claims of Bancorp or any Bancorp Subsidiary which
have been, or to the best of the knowledge of Bancorp, will be, filed with the
companies providing insurance coverage for Bancorp or any Bancorp Subsidiary
(except for routine claims for health benefits). A list and description of all
policies of insurance maintained by Bancorp or any Bancorp Subsidiary during the
past five (5) years will be provided to First Midwest by Bancorp in amendment
number 1 to the Disclosure Schedule of Bancorp.
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(k) A copy of any collective bargaining agreement to which Bancorp or
any Bancorp Subsidiary is a party and all affirmative action plans or programs
covering employees of Bancorp or any Bancorp Subsidiary, as well as all employee
handbooks, policy manuals, rules and standards of employment promulgated by
Bancorp or any Bancorp Subsidiary.
(l) 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 $25,000 to which Bancorp or any Bancorp
Subsidiary is a party, which does not expire within six months from the date
hereof and cannot be terminated upon thirty days (or less) written notice
without penalty.
(m) All employment, consulting and professional services contracts to
which Bancorp or any Bancorp Subsidiary is a party.
(n) All judgments, orders, injunctions, court decrees or settlement
agreements arising out of or relating to the labor and employment practices or
decisions of Bancorp or any Bancorp Subsidiary which, by their terms, continue
to bind or affect Bancorp or any Bancorp Subsidiary.
(o) All orders, decrees, memorandums, agreements or understandings
with regulatory agencies binding upon or affecting the current operations of
Bancorp or any Bancorp Subsidiary or any of their directors or officers in their
capacities as such.
(p) All trademarks, trade names, service marks, patents, or
copyrights, whether registered or the subject of an application for
registration, which are owned by Bancorp or any Bancorp Subsidiary or licensed
from a third party (excluding computer software programs, source codes and
related materials, all of which as of the Effective Time will be listed on the
Disclosure Schedule of Bancorp);
(q) All policies formally adopted by the Board of Directors of Bancorp
or any Bancorp Subsidiary as currently in effect and, with respect to
environmental matters, copies of all policies that have been in effect during
the last five (5) years regarding the performance of environmental
investigations of properties accepted as collateral for loans, including the
effective dates of all such policies.
(r) All other agreements to which Bancorp or any Bancorp Subsidiary is
a party (which do not expire within six months from the date hereof and cannot
be terminated upon thirty days (or less) written notice without penalty) which
individually during its term could commit Bancorp or any Bancorp Subsidiary to
an expenditure (either individually or through a series of installments) in
excess of $25,000 or which create a material right or benefit to receive
payments, goods or services not referred to elsewhere in this Section 3.21
including without limitation:
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(i) all agreements of guaranty or indemnification running to
any person;
(ii) all agreements containing any covenant limiting the
right of Bancorp or any Bancorp Subsidiary to engage in any
line of business or to compete with any person;
(iii) all agreements with respect to licenses, permits and
similar matters that are necessary to the operations of
Bancorp or any Bancorp Subsidiary (excluding computer
software programs, source codes and related materials, all
of which as of the Effective Time will be listed on the
Disclosure Schedule of Bancorp);
(iv) all agreements which require the consent or approval of
any other party in order to consummate the Merger;
(v) all agreements relating to the servicing of loans and all
mortgage forward commitments and similar agreements pursuant
to which Bancorp or any Bancorp Subsidiary sells to others
mortgages which it originates;
(vi) all contracts relating to the purchase or sale of
financial or other futures, or any put or call option
relating to cash, securities or commodities and all interest
rate swap agreements or other agreements relating to the
hedging of interest rate risks and all agreements or
arrangements described in Section 3.16 (d) hereof; and
(vii) all contracts or agreements (with the exception of the
Freddie Mac Seller's Guide), including but not limited to
contracts or agreements pursuant to which Bancorp or any
Bancorp Subsidiary has sold, transferred, assigned or agreed
to service any loan, which provide for any recourse or
indemnification obligation on the part of Bancorp or any
Bancorp Subsidiary; the name and address of each person
which might or could be entitled to recourse against or
indemnification from Bancorp or any Bancorp Subsidiary; and
the monetary amount of each actual or potential recourse or
indemnification obligation under each such contract or
agreement.
3.21 DEFAULTS. There has not been any material default in any obligation to
be performed by Bancorp or any Bancorp Subsidiary under any material contract or
commitment, and neither Bancorp nor any Bancorp Subsidiary has waived, and will
not waive prior to the Effective Time, any material right under any material
contract or
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commitment. To the best of the knowledge of Bancorp, no other party to any
material contract or commitment is in material default in any material
obligation to be performed by such party.
3.22 MATERIALITY. For purposes of Sections 3.20 and 3.21, a contract,
commitment or agreement is material if it involves the payment by or liability
(contingent or otherwise) of Bancorp or any Bancorp Subsidiary in any amount in
excess of $25,000 or if such contract together with other related contracts
involving less than $25,000 and not listed in the Disclosure Schedule of
Bancorp for that reason, exceed $25,000 in the aggregate.
3.23 OPERATIONS SINCE JUNE 30, 1994. Between June 30, 1994, and the date
hereof, there has not been, except as set forth on the Disclosure Schedule of
Bancorp or on any mutually accepted up-date thereof:
(a) any increase in the compensation payable or to become payable by
Bancorp or any Bancorp Subsidiary to any executive officer or director;
(b) any payment of dividends by Bancorp or any Bancorp Subsidiary or
any distribution by any of them, whether directly or indirectly, of any assets
of any kind whatsoever, on or in redemption or as the purchase price of, any of
their respective capital stocks, or any prepayment of any indebtedness to any
stockholder.
(c) any mortgage, pledge or subjection to lien, charge or encumbrance
of any kind of or on any asset, tangible or intangible, of Bancorp or any
Bancorp Subsidiary, except the following (each of which, whether arising before
or after the date hereof, is herein referred to as a "Bancorp Permitted Lien"):
(i) liens arising out of judgments or awards in respect of which Bancorp or any
Bancorp Subsidiary is in good faith prosecuting an appeal or proceedings for
review and in respect of which it has secured a subsisting stay of execution
pending such appeal or proceedings; (ii) liens for taxes, assessments, and other
governmental charges or levies, the payment of which is not past due, or as to
which Bancorp or any Bancorp Subsidiary is diligently contesting in good faith
and by appropriate proceedings either the amount thereof or the liability
therefor or both; (iii) deposits, liens or pledges to secure payments of
worker's compensation, unemployment insurance, pensions, or other social
security obligations, or the performance of bids, tenders, leases, contracts
(other than contracts for the payment of money), public or statutory
obligations, surety, stay or appeal bonds, or similar obligations arising in the
ordinary course of business; (iv) zoning restrictions, easements, licenses and
other restrictions on the use of real property or any interest therein, or minor
irregularities in title thereto, which do not materially impair the use of such
property in the operation of the business of Bancorp or any Bancorp Subsidiary
or the merchantability or the value of such property or interest therein for the
purpose of such business; (v) purchase money mortgages or other purchase money
or vendor's liens or security interests (including, without limitation, finance
leases), provided that no such mortgage, lien or security interest shall extend
to or cover any other property of Bancorp or any Bancorp Subsidiary other than
that so purchased; and (vi) pledges and liens given
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to secure deposits and other liabilities of Bancorp or any Bancorp Subsidiary
arising in the ordinary course of banking business;
(d) any creation or assumption of indebtedness (including the
extension or renewal of any existing indebtedness, or the increase thereof), by
Bancorp or any Bancorp Subsidiary for borrowed money, or otherwise, other than
in the ordinary course of business, none of which (except those which are being
disputed in good faith) is in default;
(e) the establishment of any new, or increase in the formula for
contributions to or benefits under any existing, retirement, pension, profit
sharing, stock bonus, savings or thrift plan, or any similar plan of deferred
compensation, whether funded or unfunded and whether qualified or unqualified
(within the meaning of the Code) by Bancorp or any Bancorp Subsidiary;
(f) any action by Bancorp or any Bancorp Subsidiary seeking any
cancellation of, or decrease in the insured limit under, or increase in the
deductible amount or the insured's retention (whether pursuant to coinsurance or
otherwise) of or under, any policy of insurance maintained directly or
indirectly by Bancorp or any Bancorp Subsidiary on any of their respective
assets or businesses, including but not by way of limitation, fire and other
hazard insurance on its assets, automobile liability insurance, general public
liability insurance, and directors and officers liability insurance; and if an
insurer takes any such action, Bancorp shall promptly notify First Midwest.
(g) any change in Bancorp's independent auditors, historic methods of
accounting (other than as required by generally accepted accounting principles
or regulatory accounting principles), or in its system for maintaining its
equipment and real estate;
(h) any purchase, whether for cash or secured or unsecured obligations
(including finance leases), by Bancorp or any Bancorp Subsidiary of any fixed
asset which either (i) has a purchase price individually or in the aggregate in
excess of $25,000 or (ii) is outside of the ordinary course of business;
(i) any sale or transfer of any asset in excess of $25,000 of Bancorp
or any Bancorp Subsidiary or outside of the ordinary course of business with the
exception of loans and marketable securities sold in the ordinary course of
business at market prices;
(j) any cancellation or compromise of any debt to, claim by or right
of, Bancorp any Bancorp Subsidiary except in the ordinary course of business;
(k) any amendment or termination of any material contract or
commitment (as defined in Section 3.22 above) to which Bancorp or any Bancorp
Subsidiary is a party, other than in the ordinary course of business; or
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(l) any event or condition of any character (other than changes in
legal, economic or other conditions which are not specially or uniquely
applicable to Bancorp or any Bancorp Subsidiary) materially adversely affecting
the business, operations or financial condition of Bancorp on a consolidated
basis.
3.24 CORPORATE RECORDS. The corporate record books, transfer books and
stock ledgers of Bancorp or any Bancorp Subsidiary 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 Bancorp and each such Subsidiary, and
all transactions in their respective capital stocks, since their respective
inceptions.
3.25 UNDISCLOSED LIABILITIES. All of the Liabilities have, in the case of
Bancorp and the Bancorp Subsidiaries, been reflected, disclosed or reserved
against in the consolidated financial statements of Bancorp as at June 30, 1994
or in the notes thereto, and Bancorp and the Bancorp Subsidiaries have no other
Liabilities except (a) Liabilities incurred since June 30, 1994 in the ordinary
course of business or (b) as disclosed in the Disclosure Schedule of Bancorp.
3.26 ASSETS. (A) Bancorp and the Bancorp Subsidiaries have good,
sufficient and marketable title to their real properties, including any
leaseholds and ground leases, and their other assets and properties, all as
reflected as owned by Bancorp or any Bancorp Subsidiary in the Bancorp Financial
Statements dated as of December 31, 1994 except for (i) assets and properties
disposed of since such date in the ordinary course of business and (ii) Bancorp
Permitted Liens none of which, in the aggregate, except as set forth in the
Disclosure Schedule of Bancorp, are material to the assets of Bancorp on a
consolidated basis. All buildings, structures, fixtures and appurtenances
comprising part of the real properties of Bancorp and the Bancorp Subsidiaries
(whether owned or leased by Bancorp or any Bancorp Subsidiary) are in good
operating condition and have been well maintained, reasonable wear and tear
excepted. Title to all real property listed as being owned by Bancorp and the
Bancorp Subsidiaries on the Disclosure Schedule of Bancorp is held in fee
simple. Bancorp and the Bancorp Subsidiaries have title or other rights to its
assets sufficient in all material respects for the conduct of their respective
businesses as presently conducted, and, except as set forth in the Disclosure
Schedule of Bancorp, free, clear and discharged of, and from any and all liens,
charges, encumbrances, security interests and/or equities which are material to
Bancorp on a consolidated basis.
(b) All leases pursuant to which Bancorp or any Bancorp Subsidiary, as
lessee, leases real or personal property which are material to the business of
Bancorp on a consolidated basis are, to the best of the knowledge of Bancorp,
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 Bancorp or any Bancorp Subsidiary, or to the
best knowledge of Bancorp, the other party. Except as disclosed in the
Disclosure Schedule of Bancorp, none of such leases contains a prohibition
against assignment by
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Bancorp or any Bancorp Subsidiary, by operation of law or otherwise, or any
other provision which would preclude Bancorp or any Bancorp Subsidiary 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 possession and use by Bancorp or any Bancorp Subsidiary as of the date of
this Agreement. Except as disclosed in the Disclosure Schedule of Bancorp,
neither Bancorp nor any Bancorp Subsidiary has made a prior assignment for
collateral purposes of any such lease.
3.27 INDEMNIFICATION. To the best of the knowledge of Bancorp, except as
set forth in the Disclosure Schedule of Bancorp, no action or failure to take
action by any director, officer, employee or agent of Bancorp or any Bancorp
Subsidiary has occurred which would give rise to a claim or a potential claim by
any such person for indemnification from Bancorp or any Bancorp Subsidiary under
the corporate indemnification provisions of Bancorp or any Bancorp Subsidiary in
effect on the date of this Agreement.
3.28 INSIDER INTERESTS. All outstanding loans and other contractual
arrangements (including deposit relationships) between Bancorp or any Bancorp
Subsidiary and any officer, director or employee of Bancorp or any Bancorp
Subsidiary conform to the applicable rules and regulations and requirements of
all applicable regulatory agencies which were in effect when such loans and
other contractual arrangements were entered into. No officer, director or
employee of Bancorp or any Bancorp Subsidiary has any material interest in any
property, real or personal, tangible or intangible, used in or pertaining to the
business of Bancorp or any Bancorp Subsidiary.
3.29 POOLING AND TAX. Except as described in Section 5.16 hereof, to the
best knowledge of Bancorp, neither it nor any Bancorp Subsidiary has engaged in
any act that would preclude or adversely affect the Merger from qualifying for
pooling of interests accounting treatment or as a tax-free or deferred
reorganization under Section 368(a) of the Code, and Bancorp knows of no basis
or reason why the conditions set forth in Sections 6.01(f) and 6.03(e) will not
be satisfied.
IV.
COVENANTS
4.01 CONDUCT OF BUSINESS BY BANCORP UNTIL THE EFFECTIVE TIME. During the
period commencing on the date hereof and continuing until the Effective Time,
Bancorp agrees (except as expressly contemplated by this Agreement or to the
extent that First Midwest shall otherwise consent in writing which consent shall
not be unreasonably withheld or delayed) that:
(a) Except as contemplated by this Agreement, Bancorp and its
Subsidiaries will carry on their respective businesses in, and only in, the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, maintain their
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respective books in accordance with generally accepted accounting principles,
conduct their respective businesses and operations only in accordance with safe
and sound banking and business practices, and, to the extent consistent with
such businesses, use all reasonable efforts to preserve intact their present
business organizations, to generally keep available the services of their
present officers and employees and to preserve their relationships with
customers, suppliers and others having business dealings with them to the end
that their respective goodwill and going business shall be unimpaired at the
Effective Time.
(b) Bancorp will, and will cause its Subsidiaries to, use their best
efforts to comply promptly with all requirements which federal or state law may
impose on any of them with respect to the Merger and will promptly cooperate
with and furnish information to First Midwest in connection with any such
requirements imposed upon any of them in connection with the Merger.
(c) Bancorp will, and will cause its Subsidiaries to, use their best
efforts to obtain (and to cooperate with First Midwest in obtaining) any
consent, authorization or approval of, or any exemption by, any governmental
authority or agency, or other third party, required to be obtained or made by
any of them in connection with the Merger or the taking of any action
contemplated hereby. Bancorp will not, nor will it permit any of its
Subsidiaries to, knowingly or willfully take any action that would adversely
affect the ability of such party to perform its obligations under this Agreement
or the Stock Option Agreement.
(d) Bancorp will not declare or pay any dividends on or make other
distributions in respect of capital stock, except that Bancorp will be permitted
to declare and pay a regular quarterly dividend per share equal to the greater
of (i) $.276 or (ii) the quarterly dividend payable by First Midwest as adjusted
by the Exchange Ratio. Bancorp shall not make any changes in its normal
practice of establishing dividend record or dividend payment dates. Bancorp
shall not pay a dividend during the quarter that the Merger is to be consummated
if Bancorp's stockholders would be entitled to receive a dividend from First
Midwest during that quarter.
(e) Bancorp will not, and will not permit its Subsidiaries to, sell,
lease or otherwise dispose of any assets, except in the ordinary course of
business, which are material, individually or in the aggregate, to the business
or financial condition of Bancorp on a consolidated basis.
(f) Bancorp will not, and will not permit its Subsidiaries to, acquire
by merging or consolidating with, purchasing substantially all of the assets of
or otherwise, any business or any corporation, partnership, association or other
business organization or division thereof.
(g) Bancorp will not, and will not permit its Subsidiaries to, issue,
sell, authorize or propose the issuance of, or purchase or propose the purchase
of, permit the
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conversion of or otherwise acquire or transfer for any consideration any shares
of their respective capital stocks of any class or securities convertible into,
or rights, warrants or options to acquire, any such shares or other convertible
securities, or to increase or decrease the number of shares of capital stock by
split-up, reclassification, reverse split, stock dividend or change in par or
stated value, except as contemplated herein, in the Stock Option Agreement or
under the Bancorp Stock Option Plans.
(h) Bancorp will not, and will not permit its Subsidiaries to, incur
any indebtedness for money borrowed or issue or sell any debt securities other
than in the ordinary course of business or consistent with past practices as to
inter-company borrowings or permit or suffer the imposition on any shares of
stock held by it or by one of its Subsidiaries of any material lien, charge or
encumbrance.
(i) Bancorp will not, and will not permit any of its Subsidiaries to,
grant to any director, officer or employee any increase in compensation (except
in accordance with past practices or plans or agreements), or pay any bonus
(except in accordance with past practices or plans or agreements) or increase in
any severance or termination pay, or enter into or amend any employment or
severance agreement with any such person, except as contemplated herein and
except for the annual renewal of employment or severance agreements, and, after
consultation with First Midwest, reasonable stay-bonuses for non-executives to
induce continued employment, or as otherwise contemplated herein.
(j) Except as disclosed in the Disclosure Schedule of Bancorp, neither
Bancorp, nor any of its Subsidiaries, will enter into any material lease or
license with respect to any property, whether real or personal, or any other
contract, agreement or commitment for goods or services which has a term of six
months after the date hereof and involves the payment by Bancorp or any Bancorp
Subsidiary of more than $25,000 in the aggregate.
(k) Bancorp will not, and will not permit its Subsidiaries to, adopt
or amend in any material respect any collective bargaining, employee pension,
profit-sharing, retirement, insurance, incentive compensation, severance,
vacation, stock option, or other plan, agreement, trust, fund or arrangement for
the benefit of employees, except as contemplated herein.
(l) Bancorp will, and will cause its Subsidiaries 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. Bancorp will, and
will cause its Subsidiaries 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 Bancorp
which could reasonably give rise to a claim prior to the Effective Time.
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(m) Bancorp will not, and will not permit its Subsidiaries to, amend
their respective Certificates of Incorporation, Charters, or Articles of
Association or by-laws, except as contemplated by this Agreement.
(n) Without first consulting with First Midwest, Bancorp will not, and
will not permit its Subsidiaries to: (i) enter into, renew or increase any loan
or credit commitment (including letters of credit) to, or invest or agree to
invest in any person or entity or modify any of the material provisions or renew
or otherwise extend the maturity date of any existing loan or credit commitment
(collectively, "Lend to") in an amount in excess of $100,000 or in any amount
which, when aggregated with any and all loans or credit commitments of Bancorp
and its Subsidiaries to such person or entity, would be in excess of $150,000;
(ii) Lend to any person or entity in an amount in excess of $100,000 or in any
amount which, or when aggregated with any and all loans or credit commitments of
Bancorp and its Subsidiaries to such person or entity, would be in excess of
$150,000; (iii) Lend to any person other than in accordance with lending
policies as in effect on the date hereof, provided that in the case of clauses
(i) and (iii) Bancorp or any of its Subsidiaries may make any such loan in the
event (A) Bancorp or its Subsidiary has delivered to First Midwest a notice of
its intention to make such loan and such information as First Midwest may
reasonably require in respect thereof and (B) First Midwest shall not have
reasonably objected to such loan by giving written or facsimile notice of such
objection within two business days following the delivery to First Midwest of
the notice of intention and information as aforesaid; or (iv) Lend to any person
or entity any of the loans or other extensions of credit to which or investments
in which are on a "watch list" or similar internal report of Bancorp or any of
its Subsidiaries, in an amount in excess of $25,000; provided, however, that
nothing in this subsection shall prohibit Bancorp or any of its Subsidiaries
from honoring any contractual obligation in existence on the date of this
Agreement.
(o) Without first consulting with First Midwest, Bancorp will not, and
will not permit any of its Subsidiaries to, materially restructure or change its
investment securities portfolio, through purchases, sales or otherwise, or the
manner in which the portfolio is classified or reported, or execute individual
investment transactions of greater than $1,000,000 for U.S. Treasury Securities
and $100,000 for all other investment instruments.
(p) Bancorp will not, and will not permit any of its Subsidiaries to
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 risks.
(q) Bancorp will, and will cause its Subsidiaries to, retain all
depository accounts at each mutual savings association prior to the conversion
of such institution to stock form as they exist as of the date of this
Agreement. Without first consulting with First
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Midwest, Bancorp will not sell any of the equity securities of any savings and
loan or savings and loan holding company presently owned by Bancorp or any
Bancorp Subsidiary.
(r) Bancorp will not, and will not permit any of its Subsidiaries to,
enter into, increase or renew any loan or credit commitment (including letters
of credit) to any executive officer or director of Bancorp or any of its
Subsidiaries, any five percent stockholder of Bancorp, or any entity controlled,
directly or indirectly, by any of the foregoing or engage in any transaction
with any of the foregoing which is of the type of nature sought to be regulated
in 12 U.S.C. 371c and 12 U.S.C. 371c-1. For purposes of this Section, "control"
shall have the meaning associated with that term under 12 U.S.C. 371c.
(s) Bancorp will promptly advise First Midwest orally and in writing
of any event or series of events which has resulted in or is reasonably likely
to result in a Material Adverse Effect on Bancorp or which may adversely affect
the satisfaction of any condition to the consummation of the Merger or the
ability of Bancorp to perform its obligations under this Agreement or the Stock
Option Agreement.
4.02 BANCORP STOCK OPTIONS. (a) At the Effective Time, each Bancorp Stock
Option shall be converted into and represent an option solely to purchase
shares of First Midwest Common Stock, decreased to the nearest full share
determined by multiplying (i) the number of shares of Bancorp Common Stock
subject to such Bancorp Stock Option immediately prior to the Effective Time by
(ii) the Exchange Ratio, at a per share exercise price achieved by dividing the
per share exercise price under such Bancorp Stock Option by the Exchange Ratio
and rounding down to the nearest cent; provided, however, that each Bancorp
Stock Option shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization or other similar transaction subsequent to the Effective Time,
and shall be exercisable on the same terms and conditions as were applicable to
the Bancorp Stock Options. The Board of Directors of Bancorp and the committee
established under the Bancorp Stock Option Plans shall take such actions or make
such determinations as may be required under such plans to effect the provisions
of this Section 4.02. First Midwest agrees to assume and honor the Bancorp
Stock Options in accordance with their terms.
(b) The shares of First Midwest Common Stock covered by the Bancorp
Stock Options shall be covered by an effective registration statement filed on
Form S-8 with the SEC and shall be duly authorized, validly issued and in
compliance with all applicable federal and state securities laws, fully paid and
nonassessable and not subject to or in violation of any preemptive rights.
First Midwest shall at and after the Effective Time have reserved sufficient
shares of First Midwest Common Stock for issuance with respect to such options.
First Midwest shall also take any action required to be taken under any
applicable state blue sky or securities laws in connection with the issuance of
such shares.
4.03 ENVIRONMENTAL INVESTIGATION. (A) First Midwest shall engage a
mutually acceptable environmental consultant to conduct a preliminary ("Phase
I") environmental
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assessment of each of the parcels of real estate used in the operation of the
businesses of Bancorp and any Bancorp Subsidiary and any other real estate owned
by Bancorp. The fees and expenses of the consultant with respect to the Phase I
assessments shall be paid equally by First Midwest and Bancorp. The consultant
shall complete and deliver the Phase I assessments not later than sixty (60)
days after the date of this Agreement. If any environmental conditions are
found, suspected, or would tend to be indicated by the report of the consultant
which may be contrary to the representations and warranties of Bancorp set forth
herein without regard to any exceptions that may be contained in Bancorp's
Disclosure Schedule, then the parties shall obtain from one or more mutually
acceptable consultants or contractors, as appropriate, an estimate of the cost
of any further environmental investigation, sampling, analysis, remediation, or
other follow-up work that may be necessary to address those conditions in
accordance with applicable laws and regulations.
(b) Upon receipt of the estimate of the costs of all follow-up work to
the Phase I assessments or any subsequent investigation phases that may be
conducted, the parties shall attempt to agree upon a course of action for
further investigation and remediation of any environmental condition suspected,
found to exist, or that would tend to be indicated by the report of the
consultant. All post-phase I investigations or assessments (the cost of which
shall be paid equally by the parties), all work plans for any post-Phase I
assessments or remediation, and any removal or remediation actions that may be
performed, shall be mutually satisfactory to First Midwest and Bancorp. If the
work plans or removal or remediation actions would cost more than $175,000
(individually or in the aggregate) to complete, First Midwest and Bancorp shall
discuss a mutually acceptable modification of this Agreement. First Midwest and
Bancorp shall cooperate in the review, approval, and implementation of all work
plans.
(c) If the parties are unable to agree upon a course of action for
further investigation and remediation of an environmental condition or issue
raised by an environmental assessment and/or a mutually acceptable modification
to this Agreement, and the condition or issue is not one for which it can be
determined to a reasonable degree of certainty that the risk and expense to
which the Surviving Corporation and its Subsidiaries would be subject as owner
of the property involved can be quantified, in good faith, and limited to an
amount less than $175,000, then First Midwest may abandon this Agreement by the
earlier to occur of (i) 120 days after the receipt of the Phase I assessments,
or (ii) 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.
4.04 EXECUTION OF THE STOCK OPTION AGREEMENT. Simultaneously with the
execution of this Agreement and as a condition thereto, First Midwest and
Bancorp have approved the execution and delivery of the Stock Option Agreement,
which grants to First Midwest an option to acquire up to 19.9% of the issued and
outstanding shares of Bancorp Common Stock upon the occurrence of certain
circumstances, substantially in the form attached hereto as Exhibit 4.04.
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4.05 INDEMNIFICATION. Except as may be limited by applicable law, First
Midwest hereby agrees to maintain all rights of indemnification currently
provided by Bancorp and the Bancorp Subsidiaries in favor of their current and
former employees, directors, officers and agents on terms no less favorable
than those provided in the Certificate of Incorporation or By-Laws of Bancorp or
otherwise in effect on the date of this Agreement for a period of not less than
four (4) years from the Effective Time with respect to matters occurring prior
to the Effective Time. In the event First Midwest or any of its successors or
assigns (i) reorganizes or consolidates with or merges into or enters into
another business combination transaction with any other person or entity and is
not the resulting, continuing, or surviving corporation or entity of such
reorganization, consolidation, merger, or transaction, or (ii) liquidates,
dissolves, or transfers all or substantially all of its properties and assets to
any person or entity, then, and in each such case, proper provision will be made
so that such surviving corporation or transferee and its successors and assigns
assume the obligations set forth in this Section 4.05. First Midwest agrees
that, prior to or at the Effective Time, it will provide under its directors'
and officers' liability insurance prior acts and omissions coverage for current
and former employees, officers, directors and agents of Bancorp and the Bancorp
Subsidiaries for at least three (3) years.
4.06 CAPITAL STOCK. Except for or as otherwise permitted in or
contemplated by this Agreement, or the Stock Option Agreement, without the prior
written consent of First Midwest, from the date of this Agreement to the earlier
of the Effective Time or the termination of this Agreement, Bancorp shall not,
and shall not enter into any agreement to, issue, sell or otherwise permit to
become outstanding any additional shares of Bancorp Common Stock, preferred
stock, or any other capital stock of Bancorp, or any stock appreciation rights,
or any option, warrant, conversion or other right to acquire any such stock, or
any security convertible into any such stock, other than pursuant to the Bancorp
Stock Option Plans, the aggregate number of shares of Bancorp Common Stock
covered by all existing grants being no more than 73,082 shares. No additional
shares of Bancorp Common Stock shall become subject to new grants of employee
stock options, stock appreciation rights or similar stock based employee
compensation rights.
4.07 CERTAIN ACTIONS. (a) Neither Bancorp (nor any of its respective
Subsidiaries) (i) shall solicit, initiate, participate in discussions of, or
encourage or take any other action 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 an
Acquisition Transaction (as defined below) or a potential Acquisition
Transaction with respect to itself or any of its Subsidiaries or (ii) shall (A)
solicit, initiate, participate in discussions of, or encourage or take any other
action 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 any of its Subsidiaries under
any of the instances described in this clause. Bancorp 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 any of
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its Subsidiaries), consultants and other representatives to comply with such
prohibitions. Bancorp shall immediately cease and cause to be terminated any
existing activities, discussions, or negotiations with any parties conducted
heretofore with respect to such activities. Notwithstanding the foregoing,
Bancorp may provide information at the request of or enter into negotiations
with a third party with respect to an Acquisition Transaction if the Board of
Directors of Bancorp determines, in good faith, that the exercise of its
fiduciary duties to Bancorp's stockholders under applicable law, as advised in a
written opinion issued by Silver, Freedman & Taff, L.L.P., requires it to take
such action, and, provided further, that Bancorp may not, in any event, provide
to such third party any information which it has not provided to First Midwest.
Bancorp shall promptly notify First Midwest 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, along with a summary of the
written opinion of Silver, Freedman & Taff, L.L.P. This Section shall not
prohibit accurate disclosure by Bancorp in any document (including the Proxy
Statement and the Registration Statement) or other disclosure to the extent
required by applicable law if in the opinion of the Board of Directors of
Bancorp, disclosure is required under applicable law as to transactions
contemplated hereby.
(b) "Acquisition Transaction" shall, with respect to Bancorp, mean any
of the following: (i) a merger or consolidation, or any similar transaction
(other than the Merger) of any company with either Bancorp or any significant
subsidiary (as defined in Rule 1.02 of Regulation S-X of the SEC) (a
"Significant Subsidiary") of Bancorp, (ii) a purchase, lease or other
acquisition of all or substantially all the assets of either Bancorp or any
Significant Subsidiary of Bancorp, (iii) a purchase or other acquisition of
"beneficial ownership" by any "person" or "group" (as such terms are defined in
Section 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 24.9% or more of
the voting power of either Bancorp or any Significant Subsidiary of Bancorp, but
excluding the acquisition of beneficial ownership by any employee benefit plan
maintained or sponsored by Bancorp, (iv) a tender or exchange offer to acquire
securities representing 24.9% or more of the voting power of Bancorp, (v) a
public proxy or consent solicitation made to stockholders of Bancorp seeking
proxies in opposition to any proposal relating to any of the transactions
contemplated by this Agreement that has been recommended by the Board of
Directors of Bancorp, (vi) the filing of an application or notice with the
Federal Reserve Board, the OTS, or any other federal or state regulatory
authority (which application has been accepted for processing) seeking approval
to engage in one or more of the transactions referenced in clauses (i) through
(iv) above, or (vii) the making of a bona fide proposal to Bancorp or its
stockholders by public announcement or written communication, that is or becomes
the subject of public disclosure, to engage in one or more of the transactions
referenced in clauses (i) through (v) above.
4.08 TITLE TO REAL ESTATE. As soon as practical after the date hereof, but
in any event no later than sixty (60) days after the date hereof, Bancorp, at
its own expense, shall obtain and deliver to First Midwest, with respect to all
real estate owned or held pursuant
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to a ground lease by Bancorp and its Subsidiaries, an owner's preliminary report
of title covering a date subsequent to the date hereof, issued by Chicago Title
Company or such other title insurance company as is reasonably acceptable to
First Midwest, showing fee simple title in Bancorp or its Subsidiaries in such
real estate or the appropriate leasehold interest of Bancorp or its Subsidiaries
subject only to (i) the standard exceptions to title customarily contained in a
policy on ALTA 1970 Owner's Form B; (ii) liens of current state and local
property taxes which are not delinquent or subject to penalty; and (iii) other
liens, encumbrances, restrictions and conditions of record that do not
materially adversely affect the value or use of such real estate.
4.09 CONDUCT OF BUSINESS BY FIRST MIDWEST UNTIL THE EFFECTIVE TIME. During
the period commencing on the date hereof and continuing until the Effective
Time, First Midwest agrees (except as expressly contemplated by this Agreement
or to the extent that Bancorp shall otherwise consent in writing which consent
shall not be unreasonably withheld or delayed) that:
(a) Except as contemplated by this Agreement, First Midwest and its
Subsidiaries will carry on their respective businesses in, and only in, the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, maintain their respective books in accordance with
generally accepted accounting principles, conduct their respective businesses
and operations only in accordance with safe and sound banking and business
practices, and, to the extent consistent with such businesses, use all
reasonable efforts to preserve intact their present business organizations, to
generally keep available the services of their present officers and employees
and to preserve their relationships with customers, suppliers and others having
business dealings with them to the end that their respective goodwill and going
business shall be unimpaired at the Effective Time.
(b) First Midwest will, and will cause its Subsidiaries to, use their
best efforts to comply promptly with all requirements which federal or state law
may impose on any of them with respect to the Merger and will promptly cooperate
with and furnish information to Bancorp in connection with any such requirements
imposed upon any of them in connection with the Merger.
(c) First Midwest will, and will cause its Subsidiaries to, use their
best efforts to obtain (and to cooperate with Bancorp in obtaining) any consent,
authorization or approval of, or any exemption by, any governmental authority or
agency, or other third party, required to be obtained or made by any of them in
connection with the Merger or the taking of any action contemplated hereby.
First Midwest will not, nor will it permit any of its Subsidiaries to, knowingly
or willfully take any action that would adversely affect its ability to perform
its obligations under this Agreement or the Stock Option Agreement.
(d) First Midwest shall cooperate with Bancorp to coordinate the
record and payment dates of their cash dividends for the quarter the Merger is
consummated as provided in Section 4.01(d) hereof.
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(e) First Midwest will promptly advise Bancorp orally and in writing
of any event or series of events which has resulted in or is reasonably likely
to result in a Material Adverse Effect on First Midwest or which may adversely
affect the satisfaction of any conditions to the consummation of the Merger or
the ability of First Midwest to perform its obligations under this Agreement or
the Stock Option Agreement.
4.10 LOAN LOSS RESERVE. If the consolidated loan loss reserve of Bancorp
as of the calendar month end immediately preceding the Effective Time is less
than 1% of total loans net of unearned discount, deferred fees and loans in
process, then Bancorp shall at the request of First Midwest immediately before
the Effective Time adjust its consolidated loan loss reserve to the 1% level or
such other lower level that is agreeable to First Midwest.
V.
ADDITIONAL AGREEMENTS
5.01 INSPECTION OF RECORDS: CONFIDENTIALITY. (a) First Midwest and
Bancorp shall each afford to the other and to the other's accountants, counsel
and other representatives, full 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. During such period, First Midwest and
Bancorp shall each use their best efforts to furnish promptly 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. Nothing contained
herein shall be construed as prohibiting one party from terminating this
Agreement if there is a material change as of the date of this Agreement to the
information disclosed in the other party's initial Disclosure Schedule.
(b) In the event that this Agreement is terminated, each party shall
return all nonpublic documents furnished hereunder, shall destroy all documents
or portions thereof prepared by such other party that contain nonpublic
information furnished by the other party pursuant hereto and, in any event,
shall hold all nonpublic information received pursuant hereto in the same degree
of confidence with which it maintains its own like information 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. No investigation by either First Midwest or
Bancorp shall
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affect the representations and warranties of the other party and each such
representation and warranty shall survive any such investigation.
(c) Bancorp shall allow a representative of First Midwest to attend as
an observer (i) all meetings of the Board of Directors of Bancorp and its
Subsidiaries, (ii) all meetings of the committees of each such Board, including
without limitation the audit and executive committees thereof, and (iii) any
other meeting of Bancorp officials at which policy is being made, except for any
such meeting if and to the extent that any amendment to this Agreement or the
merits of any Acquisition Transaction described in Section 4.07 hereof is
discussed. Bancorp shall give reasonable notice to First Midwest of any such
meeting and, if known, the agenda for or business to be discussed at such
meeting. Bancorp shall provide to First Midwest all information provided to the
directors on all such Boards and committees in connection with all such meetings
or otherwise provided to the directors, and shall provide any other financial
reports or other analysis prepared for senior management of Bancorp. It is
understood by the parties that First Midwest's representative will not have any
voting rights with respect to matters discussed at these meetings and that First
Midwest is not managing the business or affairs of Bancorp. All information
obtained by First Midwest at these meetings shall be treated in confidence as
provided in Section 5.01(b) hereof.
5.02 REGISTRATION STATEMENT; STOCKHOLDER APPROVAL. As soon as practicable
after the date hereof, First Midwest shall file the Registration Statement with
the SEC, and Bancorp and First Midwest shall use their best efforts to cause the
Registration Statement to become effective under the Securities Act. First
Midwest 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 First
Midwest 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. Bancorp shall call a
Stockholders' Meeting to be held 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 Stockholders' Meeting, (i) First Midwest and
Bancorp shall jointly prepare the Proxy Statement as part of the Registration
Statement and Bancorp shall mail the Proxy Statement to its stockholders, (ii)
the Board of Directors of Bancorp shall recommend to its 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 Bancorp of an offer to effect an Acquisition Transaction (as
defined in Section 4.07 hereof) with Bancorp to the extent the Board of
Directors of Bancorp reasonably determines that, in the exercise of its
fiduciary obligations, it is required to do so; provided, further than such
determination must be based on a signed written opinion of Silver, Freedman &
Taff, L.L.P.; (iii) the Board of Directors of Bancorp shall recommend to its
stockholders that they amend Article FOURTH, Paragraph C, of Bancorp's
Certificate of Incorporation by eliminating such provision if required by law to
submit such amendment to the stockholders of Bancorp, and (iv) the Board of
Directors of Bancorp shall otherwise use its best efforts to the extent
consistent with its fiduciary duties to obtain such stockholders' approval.
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5.03 AFFILIATE LETTERS. Bancorp shall use best efforts to obtain and
deliver to First Midwest as promptly as practicable after (and shall use its
reasonable best efforts to obtain and deliver within five (5) 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 Bancorp and
each stockholder of Bancorp who may reasonably be deemed an "affiliate" of
Bancorp within the meaning of such term as used in Rule 145 under the Securities
Act and for purposes of qualifying for pooling of interests accounting treatment
for the Merger, and shall use best efforts to obtain and deliver to First
Midwest a signed representation letter substantially in the form of Exhibit 5.03
from any person who becomes an executive officer or director of Bancorp 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.
First Midwest shall deliver to Bancorp within five (5) business days after the
date hereof a certified copy of the minutes of a meeting of the Board of
Directors of First Midwest at which the restrictions on resales of First Midwest
Common Stock under the pooling of interests method of accounting rules were
discussed.
5.04 BROKERS. Each of First Midwest and Bancorp represents, as to itself,
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 Stifel, Nicholaus &
Company, Incorporated, which has provided advice to Bancorp at its request in
conjunction with the Merger and whose fee for these services shall be paid by
Bancorp, and The Chicago Corporation which has provided advice to First Midwest
at its request in conjunction with the Merger and whose fees for these services
shall be paid by First Midwest.
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 and that it
will not willfully or intentionally breach this Agreement. 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. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and/or directors of First Midwest or Bancorp, as
the case may be, shall take all such necessary action. Each party shall use its
reasonable best efforts to preserve for itself and each other party each
available legal privilege with respect to confidentiality of their negotiations
and related communications including the attorney-client privilege.
5.06 REGULATORY APPLICATIONS. First Midwest shall, as soon as practicable,
file an application on Form Y-4 with the Federal Reserve Board, an application
with the OTS and appropriate applications with the OCC and the FDIC and First
Midwest shall use its best
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efforts to respond as promptly as practicable to all inquiries received
concerning said applications; provided, however, that First Midwest shall have
no obligation to accept non-standard conditions or restrictions with respect to
the aforesaid approvals of governmental authorities if it shall reasonably
determine that such conditions or restrictions would have a Material Adverse
Effect on the Surviving Corporation or would be materially burdensome to the
Surviving Corporation and its Subsidiaries taken as a whole. 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
First Midwest. First Midwest shall deliver a copy of all regulatory
applications to Bancorp in advance of filing them 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 First Midwest
shall deliver a final copy of all regulatory applications to Bancorp promptly
after they are filed with the appropriate regulatory authority. First Midwest
shall advise Bancorp periodically of the status of its regulatory applications.
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 (and all schedules and exhibits thereto) for the fiscal period then
ended prepared in conformity with generally accepted accounting principles; (b)
each party will deliver to the other not later than thirty (30) days after the
end of any fiscal quarter, in the case of First Midwest, the Reports of
Condition and Income as filed with the OCC by any First Midwest Subsidiary that
is a bank which shall be prepared in accordance with the rules and regulations
of the OCC and, in the case of Bancorp, the Reports of Condition and Income
filed with the OTS by any Bancorp Subsidiary that is a thrift which shall be
prepared in accordance with the rules and regulations of the OTS; (c) each party
will deliver to the other not later than forty-five (45) days after the end of
each quarter, its Report on Form 10-Q 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) each party will
deliver to the other any and all other material reports filed with the SEC, the
FDIC, the Federal Reserve Board, the OTS, the OCC or the Commissioner or any
other regulatory agency within three (3) business days of the filing of any such
report.
5.08 NOTICE. At all time 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, 6.02 or 6.03 hereof. In the event that either party becomes aware
of the occurrence or impending occurrence of any event which would constitute or
cause a breach by it of any of the representations and warranties or covenants
herein in any material respect, or would have constituted or caused a breach by
it of the representations and warranties or covenants herein in any material
respect, had such an event occurred or been known prior to the date hereof, said
party shall
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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.
5.09 PRESS RELEASES. Except as provided in Section 4.07(a), at all times
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.
5.10 DELIVERY OF SUPPLEMENTS TO DISCLOSURE SCHEDULES. Five (5) 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 First Midwest and Bancorp 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 Schedules of each party shall be
deemed to include only that information contained therein on the date it is
initially delivered to the party.
5.11 LITIGATION MATTERS. Bancorp will consult with First Midwest about any
proposed settlement, or any disposition of, any litigation involving amounts in
excess of $25,000.
5.12 TAX OPINIONS. First Midwest and Bancorp agree to use their reasonable
efforts to obtain (i) a written opinion of Hinshaw & Culbertson addressed to
First Midwest and Bancorp, dated the Closing Date, subject to the customary
representations and assumptions referred to therein, and substantially to the
effect that (a) the Merger will constitute a tax-free reorganization within the
meaning of Section 368(a) of the Code and that First Midwest and Bancorp will
each be a party to the reorganization, (b) the exchange in the Merger of First
Midwest Common Stock for Bancorp Common Stock will not give rise to the
recognition of any income, gain or loss to First Midwest, Bancorp, or the
stockholders of Bancorp with respect to such exchange (except, with respect to
the stockholders of Bancorp, to the extent of any cash paid in lieu of
fractional shares), (c) the adjusted tax basis of the First Midwest Common Stock
received by Bancorp stockholders who exchange all of their Bancorp Common Stock
in the Merger will be the same as the adjusted tax basis of the shares of the
Bancorp Common Stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is received), (d) the
holding period of the shares of the Surviving Corporation Common Stock received
in the Merger will include the period during which the shares of Bancorp Common
Stock surrendered in exchange therefor were held, provided such shares of
Bancorp
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Common Stock were held as capital assets at the Effective Time, and (e) no
income will be recognized by the holders of Bancorp stock options issued
pursuant to the Bancorp Stock Option Plans by reason of the conversion of such
stock options in accordance with and pursuant to Section 4.02 hereof.
5.13 RESOLUTION OF BANCORP BENEFIT PLANS. Bancorp and First Midwest shall
cooperate in effecting the following treatment of the Bancorp Benefit Plans,
except as mutually agreed upon by First Midwest and Bancorp prior to the
Effective Time:
(a) At the Effective Time, First Midwest shall be substituted for
Bancorp as the sponsoring employer under those Bancorp Benefit Plans with
respect to which Bancorp or any of its Subsidiaries is a sponsoring employer
immediately prior to the Effective Time, and shall assume and be vested with all
of the powers, rights, duties, obligations and liabilities previously vested in
Bancorp or its Subsidiary with respect to each such plan. Except as otherwise
provided herein, each such plan and any Bancorp Benefit Plan sponsored by
Bancorp or any Bancorp Subsidiary shall be continued in effect by First Midwest
or any applicable First Midwest Subsidiary after the Effective Time without a
termination or discontinuance thereof as a result of the Merger, subject to the
power reserved to First Midwest or any applicable First Midwest Subsidiary under
each such plan to subsequently amend or terminate the plan, which amendments or
terminations shall comply with applicable law. Bancorp, each Bancorp
Subsidiary, and First Midwest will use all reasonable efforts (i) to effect said
substitutions and assumptions, and such other actions contemplated under this
Agreement, and (ii) to amend such plans as to the extent necessary to provide
for said substitutions and assumptions, and such other actions contemplated
under this Agreement.
(b) At or as promptly as practicable after the Effective Time as First
Midwest shall reasonably determine, First Midwest shall provide, or cause any
First Midwest Subsidiary to provide, to each employee of Bancorp and any Bancorp
Subsidiary as of the Effective Time ("Bancorp Employees") the opportunity to
participate in each employee benefit plan and program maintained by First
Midwest or the First Midwest Subsidiaries for similarly-situated employees (the
"First Midwest Benefit Plans") provided that with respect to such First Midwest
Benefit Plans, Bancorp Employees shall be given credit for service with Bancorp
or any Bancorp Subsidiary in determining eligibility for and vesting in benefits
thereunder, but not for purposes of benefit accrual; provided further that
Bancorp Employees shall not be subject to any waiting periods or pre-existing
condition exclusions under the First Midwest Benefit Plans to the extent that
such periods are longer or restrictions impose a greater limitation than the
periods or limitations imposed under the Bancorp Benefit Plans; and provided
further that to the extent that the initial period of coverage for Bancorp
Employees under any First Midwest Benefit Plan that is an "employee welfare
benefit plan" as defined in Section 3(1) of ERISA is not a full 12-month period
of coverage, Bancorp Employees shall be given credit under the applicable First
Midwest Benefit Plans for any deductibles and co-insurance payments made by such
Bancorp Employees under the Bancorp Benefit Plans during the balance of such 12-
month period of coverage. Nothing in the preceding sentence shall obligate
First Midwest to provide or cause to be provided any benefits duplicative to
those provided under any Bancorp Benefit Plan continued
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pursuant to subparagraph (a) above, including, but not limited to, extending
participation in any First Midwest Benefit Plan which is an "employee pension
benefit plan" under ERISA with respect to any year during which allocations are
made to Bancorp Employees under the Bancorp Employee Stock Ownership Plan
("ESOP"). Except as otherwise provided in this Agreement, the power of First
Midwest or any Bancorp or First Midwest Subsidiary to amend or terminate any
benefit plan or program, including any Bancorp Benefit Plan shall not be altered
or affected. Moreover, this Agreement shall not confer upon any Bancorp
Employee any rights or remedies hereunder and shall not constitute a contract of
employment or create any rights, to be retained or otherwise, in employment at
First Midwest, any Bancorp Subsidiary or any First Midwest Subsidiary.
(c) From and after the date of this Agreement through the Effective
Time, Bancorp and/or Bancorp Subsidiaries may make such contributions to the
ESOP as Bancorp shall reasonably determine to repay the ESOP Loan in full prior
to the Effective Time; provided, however, that all such contributions shall be
deductible by Bancorp or the Bancorp Subsidiary under Section 404 of the Code
and otherwise in compliance with Section 415 of the Code. Upon the earlier of
the repayment of the ESOP Loan or the Effective Time, the ESOP shall be amended
to provide that all accounts thereunder shall be fully vested and nonforfeitable
and that the First Midwest Common Stock issued upon the conversion of the
Bancorp Common Stock in the Merger shall become the qualifying employee security
for purposes of the ESOP. From and after the Effective Time, First Midwest
shall make, or shall cause a First Midwest Subsidiary to make such maximum
annual contributions to the ESOP, as permitted by Sections 404 and 415 of the
Code, so as to repay the ESOP Loan as promptly as practicable and to maintain
the ESOP as a separate plan for the benefit of the Bancorp Employees, it being
the intention of the parties that in no event will benefits under the ESOP be
allocated to persons other than those persons employed by Bancorp or a Bancorp
Subsidiary prior to the Effective Time. Upon payment in full of the ESOP Loan
but not prior to the Effective Time, Bancorp or First Midwest, whichever is
applicable, shall cause the ESOP to be terminated. As soon as is reasonably
practicable thereafter, First Midwest, at its expense, shall file an Application
for Determination upon Termination with the appropriate district office of the
Internal Revenue Service (the "Key District Office") relating to the termination
of the ESOP and the distribution of the assets of the ESOP to participants,
former participants and their beneficiaries. Upon receipt of a favorable
Determination Letter from the Key District Office in response to the Application
for Determination, First Midwest shall cause the ESOP to make distribution of
benefits from the ESOP in a manner consistent with the favorable Determination
Letter. Notwithstanding the foregoing, and subject to the written consent of
First Midwest, which consent shall not be unreasonably withheld or delayed,
Bancorp may prior to the Effective Time make amendments to the ESOP, conditioned
upon the receipt of a favorable Determination Letter from the Key District
Office or private letter ruling from the National Office of the Internal Revenue
Service, and in connection therewith, file an Application for Determination upon
Termination with the Key District Office and/or a request for private letter
ruling with the National Office of the Internal Revenue Service with respect to
the termination of the ESOP as of the Effective Time but after the full payment
of the ESOP Loan from employer contributions, or alternatively, if the ESOP Loan
will not be paid in full as of the Effective Time (i) converting a portion of
the
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First Midwest Common Stock received in the Merger (after the publication of
thirty (30) days combined financial results by First Midwest) to cash to pay in
full any outstanding ESOP Loan balance, and (ii) allocating unallocated shares
to the accounts of ESOP participants in proportion to their account balances or,
in each case, in a manner that otherwise complies with the Code and maintains
the qualified status of the ESOP under Sections 401(a) and 4975 of the Code. In
the event that Bancorp (or First Midwest as its successor in interest) receives
a favorable Determination Letter from the Key District Office or favorable
private letter ruling from the National Office of the Internal Revenue Service,
then the ESOP shall be terminated and allocations and distributions shall be
made in accordance with such favorable Determination Letter or private letter
ruling. In the event that First Midwest determines that such maintenance of the
ESOP as a separate plan cannot be continued without causing the ESOP or any
other First Midwest Benefit Plan to lose its qualifying status, then First
Midwest shall take such other action as it may in its sole discretion determine,
provided that in no event shall any assets of the ESOP revert to First Midwest
or any First Midwest Subsidiary unless required by applicable law.
(d) First Midwest agrees to honor the Recognition and Retention Plan
and Trusts and all written agreements with employees according to their terms.
5.14 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 of the knowledge" of First Midwest or Bancorp shall be limited to matters
actually known to each officer holding the position of Senior Vice President or
above of such party. Such term shall expressly exclude matters which any such
person should know but does not actually know and matters which should be within
such person's knowledge and belief but actually are not.
5.15 OUT PLACEMENT SERVICES. From and after the Effective Time, First
Midwest shall provide, at its sole cost and expense, out placement services for
employees at the level of Vice President and above of Bancorp and its
Subsidiaries (to the extent similarly situated employees and executives of First
Midwest would be eligible to receive such services) whose jobs are eliminated or
who are otherwise involuntarily terminated in connection with or within one year
following completion of the Merger. In no event shall the cost and expense of
such out placement service exceed 5% of the employee's or the executive's 1994
base salary. The placement services shall be available for a period of six (6)
months from the date of termination for such executives noted above.
5.16 POOLING OF INTERESTS; TAX TREATMENT. Neither Bancorp or any of the
Bancorp Subsidiaries nor First Midwest or any of the First Midwest Subsidiaries
shall voluntarily take any action which would disqualify the Merger as a
"pooling of interests" for accounting purposes or as a "reorganization" that
would be tax free or deferred to the Stockholders of Bancorp pursuant to Section
368(a) of the Code; provided, however, that either party, after consultation
with the other, may acquire additional treasury shares, provided that the
acquiring party acquires and disposes of such shares in a manner that does not
disqualify the Merger from being accounted for on a "pooling of interests"
method of accounting. The exercise by First Midwest of its rights under the
Stock Option Agreement shall not be
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deemed to be a violation of this Section or a breach of the representation made
by First Midwest in Section 2.28 hereof. First Midwest and Bancorp each
acknowledge that each holds a sufficient number of treasury shares which,
because such shares were acquired within the last two years, could disqualify
the Merger from being accounted for on the "pooling of interests" method of
accounting. Each party covenants that it will use its best efforts, after
consulting with the other party, to cause the Merger to qualify as a "pooling of
interests" for accounting purposes by disposing of some or all of such treasury
shares.
5.17 STOCK EXCHANGE LISTING. First Midwest shall use its best efforts to
list on the NASDAQ/NMS, subject to official notice of issuance, the shares of
First Midwest Common Stock to be issued in the Merger.
5.18 PUBLICATION OF COMBINED FINANCIAL RESULTS. First Midwest shall use
its reasonable best efforts to publish as soon as practicable, and shall publish
no later than 90 days after the Effective Time, at least 30 days of post-Merger
combined operations, combined sales and net income figures and any other
financial information necessary as contemplated by and in accordance with the
terms of SEC Accounting Series Release No. 135 and any related accounting rules.
VI.
CONDITIONS
6.01 CONDITIONS TO THE OBLIGATIONS OF FIRST MIDWEST. Notwithstanding any
other provision of this Agreement, the obligations of First Midwest to
consummate the Merger are subject to the following conditions precedent (except
as those which First Midwest may chose to waive):
(a) All of the representations and warranties made by Bancorp in this
Agreement and in any documents or certificates provided by Bancorp 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 Bancorp
relating to an event or series of events arising after the date hereof which
does not have a Material Adverse Effect on Bancorp or as otherwise contemplated
by this Agreement.
(b) Bancorp 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 First Midwest's ownership or
operation of all or a material portion of
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Bancorp's business or assets, or would compel First Midwest to dispose of or
hold separate all or a material portion of Bancorp's business or assets, as a
result of this Agreement, or which would render First Midwest or Bancorp unable
to consummate the transactions contemplated by this Agreement.
(d) Since the date hereof, Bancorp shall not have suffered a Material
Adverse Effect.
(e) To the extent any material lease, license, loan, or financing
agreement or other contract or agreement to which Bancorp or any of its
Subsidiaries, as the case may be, is a party requires the consent of or waiver
from the other party thereto as a result of the transactions contemplated by
this Agreement, such consent or waiver shall have been obtained, unless the
failure to obtain such consent or waiver would not have a Material Adverse
Effect on Bancorp.
(f) First Midwest shall have received an opinion paid for by First
Midwest from KPMG Peat Marwick to the effect that the Merger shall be accounted
for on the "pooling of interests" method of accounting.
(g) First Midwest shall have received, as of the close of business as
of the end of the month occurring within 45 days of the closing (the "Balance
Sheet Date"), an audited consolidated balance sheet of Bancorp containing an
unqualified opinion of KPMG Peat Marwick (the "Balance Sheet"). Bancorp shall
cooperate and use its best efforts to cause its principal accountants to
cooperate in preparing the Balance Sheet.
The Tier I capital of Bancorp as of the Balance Sheet Date, shall not
be less than $23,500,000 subject to the reduction of $200,000 for each month or
fraction thereof that the Effective Time is prior to December 31, 1995, and
subject to an increase of $200,000 for each month or fraction thereof that the
Effective Time is after January 1, 1996 (the "Minimum Capital Level"); provided,
however, that the Tier I capital may be adjusted by subtracting the following
additions to capital and by adding back the following expenses, charges and
similar amounts which are paid or accrued by Bancorp or any of its Subsidiaries,
in anticipation of the Merger (the "Adjusted Tier I Capital"):
(i) Additions to capital arising from the issuance of Bancorp Common
Stock so that the Merger will be accounted for on the "pooling of
interests" method of accounting or under the Bancorp Stock Option
Plans or the Stock Option Agreement from the date hereof through
the Effective Time;
(ii) Expenses requested or required in writing by First Midwest;
(iii) Expenses paid or accrued by Bancorp up to $175,000 in
implementing Section 4.03 hereof;
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(iv) Expenses paid or accrued to third parties such as investment
banker fees and expenses, legal fees and expenses, accounting
fees and expenses, expenses for the preparation, printing and
mailing of the Proxy Statement prepared in conjunction with the
Merger and expenses for the preparation of regulatory
applications and the Registration Statement prepared in
conjunction with the Merger ;
(v) Other expenses paid or accrued which are mutually agreed to in
writing by Bancorp and First Midwest; and
(vi) Charges, fees and expenses related to any special assessment
imposed against Citizens Federal as a member of SAIF.
If the Adjusted Tier I Capital of Bancorp as of the Balance Sheet Date
is less than the Minimum Capital Level, First Midwest and Bancorp shall discuss
a mutually acceptable modification of this Agreement. If they are unable to
agree upon a mutually acceptable modification of this Agreement, then First
Midwest may terminate this Agreement.
(h) Unless waived by First Midwest, First Midwest shall have received
a "comfort" letter from KPMG Peat Marwick dated no more than five days prior to
the date of the Closing in form and substance customary for transactions of this
type and size, and reasonably satisfactory to First Midwest, which "comfort"
letter shall state that the Adjusted Tier I Capital level of Bancorp as of the
date of the "comfort" letter is not less than the Minimum Capital Level as of
the Balance Sheet Date.
(i) Bancorp shall have demonstrated to First Midwest's reasonable
satisfaction that it holds proper licenses for all computer software programs,
source codes and related materials which are used in the business of Bancorp or
any Bancorp Subsidiary.
(j) First Midwest shall have received a certificate signed by the
President and Chief Executive Officer of Bancorp, dated as of the Effective
Time, certifying that based upon their best knowledge, the conditions set forth
in Sections 6.01(a), (b), (d) and (e) hereof have been satisfied.
6.02 CONDITIONS TO THE OBLIGATIONS OF BANCORP. Notwithstanding any other
provision of this Agreement, the obligations of Bancorp to consummate the Merger
are subject to the following conditions precedent (except as those which Bancorp
may chose to waive):
(a) All of the representations and warranties made by First Midwest in
this Agreement and in any documents or certificates provided by First Midwest
shall have been true and correct in all material respects as of the date of this
Agreement and as of the
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Effective Time as though made on and as of the Effective Time, except for
information contained in a subsequent Disclosure Schedule of First Midwest
relating to an event or series of events arising after the date hereof which
does not have a Material Adverse Effect on First Midwest or as otherwise
contemplated by this Agreement.
(b) First Midwest 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) Since the date hereof, First Midwest shall not have suffered a
Material Adverse Effect.
(d) Within five days prior to mailing the Proxy Statement to the
stockholders of Bancorp, Bancorp shall have received a written opinion in a form
reasonably acceptable to Bancorp from Stifel, Nicholaus and Company,
Incorporated (or another investment banking firm reasonably acceptable to
Bancorp) to the effect that the Exchange Ratio is fair from a financial point of
view to the holders of Bancorp Common Stock.
(e) Bancorp shall have received a certificate signed by the President
and Chief Executive Officer of First Midwest, dated as of the Effective Time,
that based upon their best knowledge, the conditions set forth in Sections
6.02(a) and (b) have been satisfied.
6.03 CONDITIONS TO THE OBLIGATIONS OF THE PARTIES. Notwithstanding any
other provision of this Agreement, the obligations of First Midwest on the one
hand, and Bancorp on the other hand, to consummate the Merger are subject to the
following conditions precedent (except as those which First Midwest or Bancorp
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) This Agreement and the Merger shall have been duly approved by the
requisite vote of the stockholders of Bancorp at a meeting duly called and held
for such purpose and the amendment to Article FOURTH, Paragraph C of Bancorp's
Certificate of Incorporation eliminating said provision (if such amendment is
required by law) shall have been duly approved by the requisite vote of the
stockholders of Bancorp at said meeting. Section EIGHT of the Citizens Federal
federal stock charter shall have been amended (if such amendment is required by
law) in form and substance satisfactory to the parties.
(c) First Midwest shall have received the approval of the Federal
Reserve Board, the OTS, the OCC, the FDIC and any other applicable regulatory
authority to acquire Bancorp and to consummate the transactions described in
Section 1.05 hereof
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(provided First Midwest at its sole option elects to proceed with the
transactions described in Section 1.05 hereof) and all required waiting periods
shall have expired.
(d) 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.
(e) Each party shall have received the tax opinion addressed to it
referred to in Section 5.12 of this Agreement.
(f) The First Midwest Common Stock to be issued to holders of Bancorp
Common Stock shall have been approved for listing on NASDAQ/NMS subject to
official notice of issuance.
VII.
TERMINATION; AMENDMENT; WAIVER
7.01 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time:
(a) By mutual written consent of the Board of Directors of First
Midwest and the Board of Directors of Bancorp; or
(b) At any time prior to the Effective Time, by First Midwest or
Bancorp 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; or
(c) At any time on or before the date specified in 7.01(g) hereof, by
First Midwest or Bancorp in the event that any of the conditions precedent to
the obligations of the other 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); or
(d) By either party at any time after the stockholders of Bancorp fail
to approve this Agreement and the Merger in a vote taken at a meeting duly
convened for that purpose; or
(e) By First Midwest or Bancorp, 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
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First Midwest, or Section 6.02(a) or 6.02(b), in the case of Bancorp, and which
breach cannot be or is not cured within thirty (30) days after written notice
of such breach is given by the non-breaching party to the party committing such
breach; or
(f) By First Midwest in the manner provided and within the time
specified in Section 4.03 hereof; or
(g) By either party on or after March 31, 1996 (or April 30, 1996 in
the event a protest is filed with bank regulatory authorities alleging the
failure of either party or either party's Subsidiaries to comply with the
Community Reinvestment Act of 1977), 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(g) above, it shall give written notice to the other party
hereto specifying the basis for such termination and certifying that such
termination has been approved by the vote of a majority of the members of its
Board of Directors.
7.02 EXPENSES. (a) Except as provided elsewhere herein and in Section
7.02(b) hereof, First Midwest and Bancorp shall each bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial or
other consultants, investment bankers, accountants, and counsel, except that
First Midwest on the one hand, and Bancorp, on the other hand, shall bear and
pay one-half of the costs incurred in connection with the printing and mailing
the Registration Statement and the Proxy Statement.
(b) Notwithstanding the foregoing, a party (the "Expense Paying
Party") shall pay all of the costs and expenses incurred by the other party (the
"Reimbursed Party") (without duplication pursuant to this Agreement or any other
agreement or instrument) in connection with this Agreement and the transactions
contemplated hereunder, including fees and expenses of such Reimbursed Party's
financial or other consultants, investment bankers, accountants, and counsel,
if:
(i) the Reimbursed Party terminates this Agreement pursuant to Section
7.01(e) hereof by reason of material breach by the Expense Paying Party,
and the Expense Paying Party is at the time of the termination not also
entitled to terminate this Agreement pursuant to Section 7.01(e) hereof by
reason of a material breach by the Reimbursed Party; or
(ii) a Repurchase Event occurs (as defined in the Stock Option
Agreement) prior to Bancorp's stockholders' meeting to vote on the Merger
and this Agreement and thereafter the stockholders of Bancorp fail to
approve the Merger and this Agreement and if Bancorp is the Expense Paying
Party, and the Merger has not
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been, or thereafter is not, consummated for any reason other than a
termination pursuant to Section 7.01(e) hereof because of a material breach
by the Reimbursed Party.
Nothing contained in this Section 7.02 shall constitute or shall be deemed to
constitute liquidated damages for the breach by a party of the terms of this
Agreement or otherwise limit the rights of the nonbreaching party to pursue the
breaching party for the breach of any representation warranty, covenant or
agreement.
(c) Final settlement with respect to payment of fees and expenses by
the parties pursuant to this Section shall be made within thirty (30) days of
the termination of this Agreement.
(d) In the event one of the parties hereto files suit to enforce this
Section or a suit seeking to recover costs and expenses or damages for breach of
this Agreement, the costs, fees, charges and expenses (including attorneys' fees
and expenses) of the prevailing party in such litigation (and any related
litigation) shall be borne by the losing party.
7.03 SURVIVAL OF AGREEMENTS. In the event of termination of this Agreement
by either First Midwest or Bancorp 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, 5.05, 5.06 and 7.02 hereof shall survive the
termination hereof; (ii) the Stock Option Agreement shall be governed by its own
termination provisions; and (iii) a termination pursuant to Sections 7.01(c) or
7.01(e) hereof shall not relieve a breaching party from any liability for any
breach giving rise to such termination.
7.04 AMENDMENT. This Agreement may be amended by the parties hereto by
action taken by their respective Boards of Directors at any time before or after
approval hereof by the stockholders of Bancorp but, after such approval, no
amendment shall be made which changes the form of consideration or adversely
affects or decreases the value of the consideration to be received by the
stockholders of Bancorp or which in any other way adversely affects the rights
of such stockholders without the further approval of such stockholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto. First Midwest and Bancorp may, without approval
of their respective Boards of Directors, make such technical changes to this
Agreement, not inconsistent with the purposes hereof and thereof, as may be
required to effect or facilitate any governmental approval of acceptance of the
Merger or of this Agreement or to effect or facilitate any filing or recording
required for the consummation of any of the transactions contemplated hereby.
7.05 WAIVER. Any term, provision or condition of this Agreement (other
than the requirement of stockholders' approval) may be waived in writing at any
time by the party which is, or the stockholders of which are, 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
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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 First Midwest
of Bancorp or Bancorp of First Midwest prior to or after the date hereof shall
estop or prevent either party from exercising any right hereunder or be deemed
to be a waiver of any such right.
VIII.
OPINIONS OF COUNSEL
Opinions of counsel shall be delivered at the Effective Time as set forth
in this Article VIII. In rendering such opinions, each such counsel may rely as
to factual matters on information received from their client, its officers or
directors, or government officials, or any thereof, and upon such other evidence
as such counsel may deem necessary or desirable.
8.01 OPINION OF BANCORP'S COUNSEL. As a condition precedent to First
Midwest's obligations hereunder, Bancorp shall cause to be delivered to First
Midwest an opinion of Silver, Freedman & Taff, L.L.P., counsel for Bancorp, in
form and substance reasonably satisfactory to First Midwest's counsel and dated
as of the Effective Time, substantially to the following effect:
(a) Bancorp is duly organized, validly existing and in good standing
under the laws of the State of Delaware and is qualified to do business and is
in good standing under the laws of the State of Iowa. Bancorp (i) to counsel's
best knowledge and belief after reasonable inquiry, is not required to be
qualified as a foreign corporation in any other state by reason of the nature of
its business or its ownership or use of property, and (ii) to counsel's best
knowledge and belief after reasonable inquiry, has full corporate power and all
necessary and material licenses and permits to carry on its businesses and to
own and operate its properties and assets now owned or operated by it. Bancorp
is a registered savings and loan holding company under HOLA.
(b) Citizens Federal is duly organized, validly existing and in good
standing under the laws of the United States. Citizens Federal (i) to counsel's
best knowledge and belief after reasonable inquiry, is not required to be
qualified as a foreign corporation in any state by reason of the nature of its
business or its ownership or use of property, and (ii) to counsel's best
knowledge and belief after reasonable inquiry, has full corporate power and all
necessary and material licenses and permits to carry on its businesses and to
own and operate its properties and assets now owned or operated by it. Citizens
Federal is a federally chartered savings bank.
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(c) The authorized capital stock of Bancorp as of the close of
business on the day preceding the Closing consists of (i) the number of shares
of Bancorp Common Stock, $.01 par value, specified in the opinion of which the
number of shares specified in the opinion are then legally issued and
outstanding, fully paid, and non-assessable, and that the number of shares that
are then reserved for issuance under the Bancorp Stock Option Plans is as
specified in the opinion; and (ii) 1,000,000 shares of Preferred Stock, $.01 par
value, of which, as of the close of business as of the day preceding the
Closing, no such shares are then issued and outstanding. Except as disclosed in
such opinion, to counsel's best knowledge: (a) since the date and time of the
execution of this Agreement, no additional shares of Bancorp Common Stock or
Bancorp Preferred Stock have been authorized for issuance or issued by Bancorp,
except for shares issued upon the exercise of stock options; and (b) there are
no other outstanding subscriptions, options, warrants, or rights to acquire any
capital stock of Bancorp, or agreements to which Bancorp is a party or by which
it is bound to issue capital stock, except as set forth in the Bancorp
Disclosure Schedule or in such opinion.
(d) Bancorp or a Bancorp Subsidiary is the owner of record of all of
the issued and outstanding shares of Common Stock of the wholly owned Bancorp
Subsidiaries. To the best of counsel's knowledge, there are no outstanding
subscriptions, options, warrants, or rights to acquire any capital stock of any
of the Bancorp Subsidiaries, or agreements to which Bancorp or any Bancorp
Subsidiaries is a party or by which any of them is bound requiring any of them
to issue capital stock of any Bancorp Subsidiary, except as set forth in the
Bancorp Disclosure Schedule or in such opinion.
(e) Said counsel knows of no corporate proceedings required by law or
by the provisions of this Agreement to be taken by Bancorp in connection with
the transactions provided for by this Agreement which have to said counsel's
knowledge not been duly and validly taken.
(f) The execution and delivery of this Agreement by Bancorp and the
performance of its obligations hereunder have been duly authorized by all
requisite corporate action on the part of Bancorp and its stockholders and this
Agreement constitutes the legal, valid and binding obligation of Bancorp
enforceable in accordance with its terms (except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles and
doctrines).
(g) The execution and delivery of this Agreement by Bancorp and the
performance of its obligations hereunder will not violate the Certificate of
Incorporation, or By-laws of Bancorp or any Bancorp Subsidiary, or any law,
rule, regulation or, to counsel's best knowledge and belief after reasonable
inquiry, order to which any of them is subject or, to counsel's best knowledge
and belief after reasonable inquiry, any material agreement to which any of them
is a party or by which any of them is bound (including the agreements and
arrangements referenced in Section 3.16 (d) hereof), except as disclosed in the
Disclosure Schedule of Bancorp.
70
<PAGE>
(h) Such counsel, after reasonable inquiry, does not know of any
material litigation, proceedings or governmental investigation pending or
threatened against or relating to Bancorp or any Bancorp Subsidiary or any of
their respective properties or businesses or which challenges the Merger, except
as disclosed in the Disclosure Schedule of Bancorp.
(i) To the best of such counsel's knowledge and belief after
reasonable inquiry, the consummation of the transactions contemplated by this
Agreement will not result in a breach of any of the provisions of, nor will it
constitute a default under, nor will it invalidate or give any party a right to
cancel or terminate, or otherwise alter in any manner materially adverse to the
interests of First Midwest, any material agreement or material instrument to
which Bancorp or any Bancorp Subsidiary is a party, except as set forth in the
Disclosure Schedule of Bancorp.
(j) Except as made or received prior to the date hereof, no notice to,
filing with, exemption or review by or authorization, consent or approval of,
any public body or authority is required to be made by Bancorp for the
consummation by Bancorp of the Merger as contemplated by this Agreement which
has not been made or received by Bancorp other than Certificate of Merger.
(k) None of the transactions contemplated by this Agreement (including
those described in Section 1.05 hereof) would constitute a complete liquidation
of Citizens Federal so as to require the distribution of the liquidation account
of Citizens Federal to any existing or former savings or demand account holders
of Citizens Federal.
8.02 OPINION OF FIRST MIDWEST'S COUNSEL. As a condition precedent to
Bancorp's obligations hereunder, First Midwest shall cause to be delivered to
Bancorp an opinion of Hinshaw & Culbertson, counsel for First Midwest, in form
and substance reasonably satisfactory to Bancorp's counsel and dated as of the
Effective Time, substantially to the following effect:
(a) First Midwest is duly organized, validly existing and in good
standing under the laws of the State of Delaware and is qualified to do business
and is in good standing under the laws of the State of Illinois. First Midwest
(i) is not required to be qualified as a foreign corporation in any other state
by reason of the nature of its business or its ownership or use of property, and
(ii) to counsel's best knowledge and belief after reasonable inquiry, has full
corporate power and all necessary and material licenses and permits to carry on
its businesses and to own and operate its properties and assets now owned or
operated by it.
(b) The authorized capital stock of First Midwest as of the close of
business on the day preceding the Closing consists of (i) the number of shares
of First Midwest Common Stock, no par value, specified in the opinion of which
the number of shares specified in the opinion are then legally issued and
outstanding, fully paid, and non-
71
<PAGE>
assessable, and that the number of shares that are then reserved for issuance
under the First Midwest Stock Option Plans is as specified in the opinion; and
(ii) 1,000,000 shares of Preferred Stock, of no par value, of which, as of the
close of business as of the day preceding the Closing, 200,000 shares are
reserved for issuance under the Rights Plan. Except as disclosed in such
opinion, to counsel's best knowledge: (a) since the date and time of execution
of this Agreement, no additional shares of First Midwest Common Stock or First
Midwest Preferred Stock have been authorized for issuance or issued by First
Midwest, except shares issued upon the exercise of stock options; and (b) there
are no other outstanding subscriptions, options, warrants, or rights to acquire
any capital stock of First Midwest, or agreements to which First Midwest is a
party or by which it is bound to issue capital stock, except as set forth in the
First Midwest Disclosure Schedule or in such opinion.
(c) Said counsel knows of no corporate proceedings required by law or
by the provisions of this Agreement to be taken by First Midwest in connection
with the transactions provided for by this Agreement which have to said
counsel's knowledge not been fully and validly taken.
(d) The execution and delivery of this Agreement by First Midwest and
the performance of its obligations hereunder have been duly authorized by all
requisite corporate actions on the part of First Midwest and its stockholders
and this Agreement constitutes the legal, valid and binding obligation of First
Midwest enforceable in accordance with its terms (except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles and
doctrines).
(e) The execution and delivery of this Agreement by First Midwest and
the performance of its obligations hereunder will not violate the Certificate of
Incorporation (charter) or by-laws of First Midwest or any First Midwest
Subsidiary, any law, rule, regulation, or to counsel's best knowledge and belief
after reasonable inquiry, order to which any of them is subject or, to counsel's
best knowledge and belief after reasonable inquiry, any material agreement to
which any of them is a party or by which any of them is bound, except as
disclosed in the Disclosure Schedule of First Midwest.
(f) Such counsel, after reasonable inquiry, does not know of any
material litigation, proceedings or governmental investigation pending or
threatened against or relating to First Midwest or its Subsidiaries or any of
their properties or businesses except as disclosed in the Disclosure Schedule of
First Midwest, except as disclosed in the Disclosure Schedule of First Midwest.
(g) To the best of such counsel's knowledge and belief after
reasonable inquiry, the consummation of the transactions contemplated in this
Agreement will not result in a breach of any of the provisions of, nor will it
constitute a default under, nor will it invalidate or give any party a right to
cancel or terminate, or otherwise alter in any manner
72
<PAGE>
materially adverse to the interests of Bancorp, any material agreement or
material instrument to which First Midwest or any First Midwest Subsidiary is a
party, except as disclosed in the Disclosure Schedule of Bancorp.
(h) The Registration Statement has been declared effective and, to the
best of such counsel's knowledge and belief after reasonable inquiry, no stop
order suspending the effectiveness thereof has been issued by the SEC.
(i) The shares of First Midwest Common Stock to be issued pursuant to
Section 1.02(c) hereof will be validly issued, fully paid and nonassessable.
(j) Except as made or received prior to the date hereof, no notice to,
filing with, exemption or review by or authorization, consent or approval of,
any public body or authority is required to be made by First Midwest for the
consummation by First Midwest of the Merger as contemplated by this Agreement
which has not been made or received by First Midwest other than Certificate of
Merger.
XI.
GENERAL PROVISIONS
9.01 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 First Midwest or Bancorp (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
First Midwest or Bancorp, the aforesaid representations, warranties, and
covenants being material inducements to consummation by First Midwest, Bancorp
and the Surviving Corporation of the transactions contemplated hereby.
9.02 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:
(a) if to First Midwest: Donald J. Swistowicz
Senior Vice President
First Midwest Bancorp, Inc.
73
<PAGE>
184 Shuman Boulevard Suite 310
Naperville, Illinois 60563
copy to: Timothy M. Sullivan
Hinshaw & Culbertson
222 North LaSalle Street
Suite 300
Chicago, IL 60601-1081
(b) if to Bancorp: Paul L. Eckert
Chairman
CF Bancorp, Inc.
101 West Third Street
Davenport, Iowa 52801
(c) copies to: Martin Meyrowitz or Barry Taff
Silver, Freedman & Taff
1100 New York Avenue
7th Floor
Washington, D.C. 20005
9.03 SPECIFIC ENFORCEABILITY. The parties recognize and hereby acknowledge
that it is impossible to measure in money the damages that would result to a
party by reason of the failure of either of the parties to perform any of the
obligations imposed on it by this Agreement and that in any event damages would
be an inadequate remedy in this instance. Accordingly, if any party should
institute an action or proceeding seeking specific enforcement of the
provisions hereof, the party against which such action or proceeding is brought
hereby waives the claim or defense that the party instituting such action or
proceeding has an adequate remedy at law and hereby agrees not to assert in any
such action or proceeding the claim or defense that such a remedy at law exists
and shall waive or not assert any requirement to post bond in connection with
seeking specific performance.
9.04 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.
9.05 HEADINGS, ETC. 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.
9.06 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,
74
<PAGE>
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.
9.07 ENTIRE AGREEMENT; BINDING EFFECT; NON-ASSIGNMENT; COUNTERPARTS.
Except as otherwise expressly provided herein, this Agreement (including the
documents and instruments referred to herein) (a) constitutes the entire
agreement between the parties hereto and supersedes all other prior agreements
and undertakings, both written and oral, between the parties, with respect to
the subject matter hereof; and (b) is not intended to confer upon any other
person any rights or remedies hereunder except as specifically provided herein.
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.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
FIRST MIDWEST BANCORP, INC.
By DONALD J. SWISTOWICZ
---------------------------------
Senior Vice President
ALAN R. MILASIUS
------------------------
Secretary
CF BANCORP, INC.
By PAUL L. ECKERT
---------------------------------------
President
GREG I. BOHAC
-------------------------
Secretary
75
<PAGE>
APPENDIX B
500 NORTH BROADWAY
ST. LOUIS, MISSOURI 63102
314-342-2000
Stifel, Nicolaus
-------------------------------
& COMPANY, INCORPORATED
May 31, 1995
Board of Directors
CF Bancorp, Inc.
101 West Third Street
Davenport, IA 52801
Members of the Board:
We understand that CF Bancorp, Inc. ("CFBC") is contemplating entering
into an Agreement and Plan of Merger (the "Agreement") by and between First
Midwest Bancorp, Inc. ("FMBI") to be executed not later than May 31, 1995.
As is set forth in the Agreement each outstanding share of common stock of
FMBI will be exchanged for 1.4545 common shares of FMBI ("Merger
Consideration"). In connection therewith, you have requested our opinion
as to the fairness of the Merger Consideration, from a financial point of
view, to the shareholders of CFBC.
Stifel, Nicolaus & Company, Incorporated is an investment banking and
securities firm with membership on all principal U.S. securities exchanges.
As part of our investment banking services, we are regularly engaged in the
independent valuation of securities in connection with negotiated
underwritings, private placements, merger and acquisition transactions and
recapitalizations.
During the course of our engagement, we reviewed and analyzed material
bearing upon the financial and operating condition of CFBC and FMBI and
material prepared in connection with the proposed transaction, including
among other things, the following: the Agreement; certain publicly
available information concerning CFBC and FMBI, including financial
statements and Consolidated Reports of Condition and Income for each of the
six years ended December 31, 1994, and for the quarter ended March 31,
1995, for FMBI and each of the six years ended June 30, 1994, and for the
nine months ended March 31, 1995, for CFBC; the nature and terms of recent
sale and merger transactions involving banks, thrifts and holding companies
for such institutions that we consider relevant; historical and current
market data for CFBC and FMBI common stock, and financial and other
information provided to us by management of CFBC and FMBI. In addition, we
have conducted meetings with members of the senior management of CFBC and
FMBI. We evaluated the pro forma ownership of FMBI common stock by CFBC
stockholders, relative to the pro forma contribution of CFBC's assets,
liabilities, equity and earnings to the pro forma combined entity. We also
took into account our experience in other transactions, as well as our
knowledge of the banking and thrift industry and our general experience in
securities valuations.
Over a Century of Knowledge and Service
--------------------------------------------------------------------------------
MEMBER SIPC AND MEMBERS, NEW YORK STOCK EXCHANGE, INC., CHICAGO AND AMERICAN
STOCK EXCHANGES
B-1
<PAGE>
In rendering this opinion, we have assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations provided to us by CFBC and FMBI. With
respect to the financial forecasts of CFBC provided to us by CFBC's
management, we assumed for purposes of our opinion that they were
reasonably prepared on bases reflecting the best available estimates and
judgments of CFBC's management at the time of preparation as to the future
financial performance of CFBC and that they provided a reasonable basis
upon which we could form our opinion. We also assumed that there were no
material changes in CFBC's or FMBI's assets, financial condition, results
of operations, business or prospects since the date of the last financial
statements made available to us. We relied on advice of counsel to CFBC as
to all legal matters with respect to CFBC, the Merger, the Merger Agreement
and the transactions and other matters contained or contemplated therein.
In addition, we did not make or obtain an independent evaluation, appraisal
or physical inspection of the assets, individual properties or liabilities
of CFBC or FMBI, nor were we furnished with any such appraisal. Further,
our opinion is based on economic, monetary, market and other conditions
existing as of the date hereof. No opinion is expressed as to the prices at
which any securities of CFBC or FMBI, including the CFBC Common Stock or
FMBI Common Stock, might trade in the future.
Based on the foregoing and our experience as investment bankers, we are
of the opinion that, as of the date hereof, the Merger Consideration to be
received by the stockholders of CFBC, as described in the Agreement, is
fair to the stockholders of CFBC from a financial point of view.
Sincerely,
STIFEL, NICOLAUS & COMPANY, INCORPORATED
B-2
<PAGE>
APPENDIX C
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED] For the Fiscal Year Ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED] For the transition period from
________________ to ________________
COMMISSION FILE NUMBER 0-20069
CF BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 42-1384713
(State or Other Jurisdiction of Organization) (I.R.S. Employer Identification
Incorporation or Number)
101 W. THIRD STREET, DAVENPORT, IOWA 52801
(Address of Principal Executive Offices) Zip Code
Registrant's telephone number, including area code: (319) 322-6237
--------------
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)
Indicate by check mark whether the Registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days. YES X NO .
--- ---
Check if there is no disclosure of delinquent files in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year: $18.5 million
As of August 4, 1995 the Registrant had 916,496 shares of Common Stock
issued and outstanding.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the average of the bid and asked
price of such stock as of August 8, 1995 was $33,910,000. (The exclusion from
such amount of the market value of the shares owned by any person shall not be
deemed an admission by the Registrant that such person is an affiliate of the
Registrant.)
DOCUMENTS INCORPORATED BY REFERENCE
Part II of Form 10-KSB - Annual Report to Stockholders for the fiscal year
ended June 30, 1995.
Part III of Form 10-KSB - Proxy Statement for 1995 Annual Meeting of
Stockholders.
Transitional Small Business Disclosure format (check one): Yes No X
--- ---
<PAGE>
PART I
------
ITEM 1. BUSINESS
GENERAL
THE COMPANY. CF Bancorp, Inc. (the "Corporation", the "Company" or the "Holding
Company") was formed at the direction of Citizens Federal Savings Bank
("Citizens Federal" or the "Bank") in March 1992, for the purpose of owning all
of the outstanding stock of Citizens Federal issued in the conversion of the
Bank from the mutual to the stock form (the "Conversion"). The Corporation
acquired all of the outstanding stock of Citizens Federal on July 1, 1992. At
June 30, 1995, the Corporation had total assets of $226.9 million, deposits of
$135.5 million and stockholders' equity of $23.4 million.
The Corporation is incorporated under the laws of the State of Delaware and
generally is authorized to engage in any activity that is permitted by the
Delaware General Corporation Law. The holding company structure provides the
Corporation with greater flexibility than the Bank has to diversify its business
activities, through existing or newly formed subsidiaries, or through
acquisitions or mergers of both mutual and stock thrift institutions as well as
other companies.
On May 31, 1995, the Corporation and First Midwest Bancorp, Inc. ("FMBI")
entered into a definitive agreement to merge the Corporation into FMBI. FMBI, an
approximately $3.0 billion bank holding company, is headquartered in Itasca,
Illinois. Under the terms of the agreement, FMBI will exchange 1.4545 shares of
FMBI's common stock in exchange for each share of the Corporation's outstanding
common stock in a tax free exchange. FMBI's stock options will be exchanged for
the Corporation stock options at the same exchange ratio as the outstanding
common stock. The transaction, which is subject to approval by regulatory
authorities and stockholders of the Corporation, is expected to be completed
during the second or third quarters of fiscal 1996 and will be accounted for
using the pooling-of-interest method of accounting.
The activities of the Corporation itself have been limited to investments in
marketable equity securities and interest-bearing deposits at financial
institutions. Gains on the sale of marketable equity securities provided
$655,000, $383,000 and $53,000 for the years ended June 30, 1995, 1994 and 1993,
respectively. Unless otherwise indicated, all activities discussed below are of
the Bank and its subsidiaries.
CITIZENS FEDERAL. The principal business of the Bank consists of attracting
retail deposits from the general public and investing those funds primarily in
first mortgages on owner-occupied, single family residential loans, consumer
loans and residential construction loans. The Bank also purchases mortgage-
backed securities. In addition, the Bank has originated multi-family residential
and commercial real estate loans, but only in an extremely limited amount since
fiscal 1985.
The Bank's revenues are derived principally from interest on mortgage loans and
mortgage-backed securities, interest on consumer loans, interest and dividends
on investment securities, loan origination and servicing fee income, and income
from checking account service charges and credit insurance sales.
MARKET AREA. The executive offices of the Bank are located in Davenport, Iowa.
Through its network of 4 offices, Citizens Federal currently serves the "Quad
Cities" metropolitan area of Davenport and Bettendorf in eastern Iowa and Moline
and Rock Island in western Illinois.
The Quad Cities area has a population of approximately 400,000 and a diverse
economy with a manufacturing emphasis. In recent periods the Bank's market area
has been below national averages in population growth and personal income and is
currently experiencing a below average unemployment rate. Some of the nation's
largest farm implement and heavy machinery firms have substantial operations in
the Quad Cities area, including John Deere Corporation (headquartered in Moline)
and J.I. Case Corporation. Alcoa Corporation operates the world's largest
aluminum sheet and plate rolling mill outside Bettendorf, Iowa and Lee
Enterprises, a large newspaper publishing firm, is headquartered in Davenport.
In addition, a major federal weapons manufacturing operation is located in Rock
Island, Illinois.
LENDING ACTIVITIES
GENERAL. Historically, the Bank originated fixed-rate mortgage loans. Since the
early 1980's, however, the Bank has emphasized the origination and holding of
adjustable rate mortgage ("ARM") loans and loans with shorter terms to maturity
than traditional 30 year, fixed rate loans. Management's strategy has been to
increase the percentage of assets in its portfolio with more frequent repricing
or shorter maturities than fixed-rate mortgage loans. In response to customer
demand, however, the Bank continues to originate fixed rate mortgages, primarily
for sale in the secondary market. The Bank underwrites these mortgage loans
under secondary market guidelines allowing them to be saleable to the Federal
Home Loan Mortgage Corporation ("FHLMC").
2
<PAGE>
The Bank's primary focus in lending activities is on the origination of loans
secured by first mortgages on owner-occupied, one- to four-family residences.
The Bank also originates consumer and, to a much lesser extent, residential
construction loans. A limited amount of loans secured by multi-family
residential and commercial real estate have also been originated since fiscal
1985. See "- Origination, Purchases, Sales and Servicing of Loans and Mortgage-
Backed Securities." At June 30, 1995, the Bank's net loan and mortgage-backed
securities portfolio totaled $204.0 million.
All mortgage loans, and consumer loan commitments of more than $30,000, must be
approved by a committee comprised of senior officers of the Bank. Consumer loan
applications up to $30,000 are initially approved by the Senior Vice President
in charge of consumer lending. All loan approvals are ratified by the Board of
Directors.
The aggregate amount of loans that the Bank is permitted to make under
applicable federal regulations to any one borrower, including related entities,
or the aggregate amount that the Bank can have invested in any one real estate
project is generally the greater of 15% of unimpaired capital and surplus or
$500,000. See "Regulation - Federal Thrift Regulation." At June 30, 1995, the
maximum amount which the Bank could have lent to any one borrower and the
borrower's related entities was approximately $3.0 million. At June 30, 1995,
the Bank had no borrowers with outstanding balances in excess of this amount. At
June 30, 1995 the principal balance of the largest amount outstanding to any one
borrower, or group of related borrowers, was $2.2 million. This group of loans
was current as of that date and has never been classified by the Bank.
3
<PAGE>
Loan Portfolio Composition. The following information concerning the composition
of the Bank's loan and mortgage-backed securities portfolios in dollar amounts
and in percentages (before deductions for loans in process, deferred fees, and
discounts and allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------ ------------------- ------------------ ------------------ ------------------
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 and
---------------------
Mortgage-Backed Securities:
--------------------------
One- to four-family.......... $ 58,971 28.50% $ 60,515 29.26% $ 60,539 31.79% $ 47,413 35.89% $ 47,240 34.41%
Multi-family and commercial.. 2,757 1.33 3,497 1.69 5,339 2.80 6,197 4.69 8,133 5.92
Residential construction..... 6,515 3.15 9,034 4.37 8,470 4.45 9,040 6.84 5,511 4.01
Mortgage-backed securities... 85,915 41.53 88,682 42.88 74,190 38.96 28,812 21.81 35,169 25.62
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total real estate loans
and mortgage-backed
securities................ $154,158 74.51% $161,728 78.20% $148,538 78.00% $ 91,462 69.23% $ 96,053 69.96%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Other Loans:
-----------
Consumer Loans:
Home equity................. $ 31,013 14.99% $ 26,631 12.88% $ 23,922 12.56% $ 23,137 17.51% $ 24,482 17.83%
Mobile home................. 12,174 5.88 9,663 4.67 7,877 4.14 7,274 5.50 6,692 4.87
Auto........................ 5,591 2.70 4,805 2.32 4,616 2.42 4,105 3.11 4,305 3.14
Recreational................ 2,295 1.11 2,517 1.22 2,876 1.51 2,853 2.16 3,173 2.31
Other....................... 1,675 .81 1,465 .71 2,601 1.37 3,287 2.49 2,600 1.89
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer loans....... $ 52,748 25.49% $ 45,081 21.80% $ 41,892 22.00% $ 40,656 30.77% $ 41,252 30.04%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans and mortgage-
backed securities......... $206,906 100.00% $206,809 100.00% $190,430 100.00% $132,118 100.00% $137,305 100.00%
====== ====== ====== ====== ======
Less:
----
Loans in process............. 1,792 3,834 3,447 3,888 2,731
Deferred fees and discounts.. 55 127 369 557 1,035
Allowance for losses......... 1,057 1,094 1,110 1,102 807
-------- -------- -------- -------- --------
Total loans and mortgage-
backed securities, net.... $204,002 $201,754 $185,504 $126,571 $132,732
======== ======== ======== ======== ========
</TABLE>
4
<PAGE>
The following table shows the composition of the Bank's loan and mortgage-
backed securities portfolios by fixed- and adjustable-rate categories at the
dates indicated.
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------- ------------------- ------------------- ------------------- ------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- --------- -------- --------- -------- --------- -------- --------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans and
Mortgage-Backed
Securities:
Real Estate Loans:
One- to four-family...... $ 8,666 4.19% $ 10,320 4.99% $ 12,610 6.62% $ 14,720 11.14% $ 15,797 11.51%
Multi-family and
commercial.............. 1,996 .97 3,007 1.45 4,759 2.50 5,262 3.98 6,989 5.09
Residential construction. 6,480 3.13 8,992 4.35 8,415 4.42 9,026 6.84 5,442 3.96
Mortgage-backed
securities.............. 4,516 2.18 5,279 2.55 2,157 1.13 1,890 1.43 24,839 18.09
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total fixed-rate real
estate loans and
mortgage-backed
securities............. $ 21,658 10.47% $ 27,598 13.34% $ 27,941 14.67% $ 30,898 23.39% $ 53,067 38.65%
Consumer.................. 50,066 24.20 44,465 21.50 41,159 21.62 39,599 29.97 40,210 29.28
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total fixed-rate loans
and mortgage-backed
securities............. $ 71,724 34.67% $ 72,063 34.84% $ 69,100 36.29% $ 70,497 53.36% $ 93,277 67.93%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Adjustable-Rate Loans and
Mortgage-Backed Securities:
Real estate:
One- to four-family...... $ 50,305 24.31% $ 50,195 24.27% $ 47,929 25.16% $ 32,693 24.74% $ 31,443 22.90%
Multi-family and
commercial.............. 761 .36 490 .24 580 .31 935 .71 1,144 .84
Residential construction. 35 .02 42 .02 55 .03 14 .01 69 .05
Mortgage-backed
securities.............. 81,399 39.34 83,403 40.33 72,033 37.83 26,922 20.38 10,330 7.52
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total adjustable-rate
real estate loans and
mortgage-backed
securities $132,500 64.03% $134,130 64.86% $120,597 63.33% $ 60,564 45.84% $ 42,986 31.31%
Consumer................... 2,682 1.30 616 .30 733 .38 1,057 .80 1,042 .76
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total adjustable-rate
loans and mortgage-
backed securities...... $135,182 65.33% $134,746 65.16% $121,330 63.71% $ 61,621 46.64% $ 44,028 32.07%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans and
mortgage-backed
securities............. $206,906 100.00% $206,809 100.00% $190,430 100.00% $132,118 100.00% $137,305 100.00%
====== ====== ====== ====== ======
Less:
Loans in process.......... 1,792 3,834 3,447 3,888 2,731
Deferred fees and
discounts................ 55 127 369 557 1,035
Allowance for loan losses. 1,057 1,094 1,110 1,102 807
-------- -------- -------- -------- --------
Total loans and
mortgage-backed
securities, net......... $204,002 $201,754 $185,504 $126,571 $132,732
======== ======== ======== ======== ========
</TABLE>
5
<PAGE>
The following schedule illustrates the interest rate sensitivity of the Bank's
loan and mortgage-backed securities portfolio at June 30, 1995. Mortgages which
have adjustable or renegotiable interest rates are shown in their respective
maturity date categories rather than dates at which they reprice. The schedule
does not reflect the effects of possible prepayments or enforcement of due-on-
sale clauses.
<TABLE>
<CAPTION>
Real Estate
------------------------------------------
Multi-Family Mortgage-
Due During One- to and Residential Total Backed
Years Ending June 30, Four-Family Commercial Construction Consumer Loans Securities
----------------------- ----------- ------------- ------------ -------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
1996................... $ 296 $ 441 $6,480 $ 9,901 $ 17,118 $ --
1997 - 1998............ 808 80 -- 18,479 19,367 1,168
1999 - 2000............ 436 70 -- 18,986 19,492 3,246
2001 and following..... 57,431 2,166 35 5,382 65,014 81,501
------- ------ ------ ------- -------- -------
$58,971 $2,757 $6,515 $52,748 $120,991 $85,915
======= ====== ====== ======= ======== =======
</TABLE>
----------------------
As of June 30, 1995, the total amount of loans due or repricing after June 30,
1996 which had predetermined interest rates was $50.1 million while the total
amount of loans due or repricing after such date which had floating, adjustable
or renegotiable interest rates was $53.8 million. Mortgage-backed securities
due after June 30, 1996 which had predetermined interest rates was $4.5 million
while the total amount of mortgage-backed securities which had floating or
adjustable interest rates was $81.4 million.
One- to Four-Family Residential Mortgage Lending. Residential loan originations
are generated by the Bank's marketing efforts, its present customers, walk-in
customers, and referrals from real estate brokers and builders. The Bank has
focused its lending efforts primarily on the origination of loans secured by
first mortgages on owner-occupied, single family residences in the Quad Cities
area. At June 30, 1995, the Bank's one- to four-family residential mortgage
loans, excluding mortgage-backed securities, totaled $59.0 million, or 28.50% of
the Bank's loan and mortgage-backed securities portfolio, and had a yield of
7.97%.
The Bank currently makes adjustable-rate one- to four-family residential
mortgage loans in amounts up to 95% of the appraised value of the secured
property. Substantially all of these loans are underwritten to conform to FHLMC
secondary market standards. For all loans with a loan-to-value ratio in excess
of 80%, the Bank requires private mortgage insurance to reduce exposure levels
below the 80% level. The Bank currently offers one year ARM loans at rates
determined in accordance with market and competitive factors for a term of up to
30 years. The loans provide for a 2% annual cap, and a 6% lifetime cap on
interest rate increases over the rate in effect at the date of origination. The
Bank's residential ARM loans generally do not contain lifetime interest rate
floors. However, more recently the Bank's residential ARM loans have contained
annual floors that do not adjust below the initial rate. These loans' annual
and lifetime caps on interest rate increases, and the absence in most cases of
any lifetime limitation on interest rate decreases, reduces the extent to which
they can help protect the Bank against interest rate risk. Some ARM loans that
qualify for sale to FHLMC are convertible to fixed-rate loans after the first
anniversary of the loan, but no later than the fifth anniversary, for a
predetermined fee at then-current secondary market rates. Once an ARM loan is
converted to a fixed-rate mortgage it is sold in the secondary market.
The Bank also originates 15- and 30-year fixed-rate mortgage loans, primarily
for sale in the secondary market. Interest rates charged on these fixed-rate
loans are competitively priced according to market conditions.
In underwriting residential real estate loans, the Bank evaluates both the
borrower's ability to make monthly payments and the value of the property
securing the loan. Potential borrowers are qualified for fixed-rate loans based
upon the stated rate of the loan. On ARM loans, the borrower is qualified on
the maximum second year rate.
6
<PAGE>
An appraisal of the security property is obtained on most loan applications from
pre-approved independent fee appraisers. The Bank will use the de minimis
appraisal rules when possible if substantial equity in the property is evident.
The senior management loan review committee, comprised of the President, the Sr.
Vice President of Mortgage Lending, the Sr. Vice President of Servicing and the
Sr. Vice President of Consumer Lending, reviews each loan application and
establishes the terms and conditions of each approved loan. The approval of
three of the four members of the committee is required to approve any loan. The
Bank is represented by outside legal counsel at all mortgage loan closings. The
Bank generally requires, in connection with the origination of residential real
estate loans, title insurance (for all properties located in Illinois) or an
opinion of counsel (for all properties located in Iowa), and fire and casualty
insurance coverage, as well as flood insurance where appropriate, to protect the
Bank's interest. The cost of this insurance coverage is paid by the borrower.
The Bank's residential mortgage loans customarily include due-on-sale clauses
giving the Bank the right to declare the loan immediately due and payable in the
event, among other things, the borrower sells or otherwise disposes of the
property subject to the mortgage and the loan is not repaid. The Bank has
enforced due-on-sale clauses in its mortgage contracts for the purpose of
increasing its loan portfolio yield. The yield increase is obtained through the
authorization of assumptions of existing loans at higher rates of interest and
the imposition of assumption fees. ARM loans may be assumed provided home buyers
meet the Bank's underwriting standards and the loan terms are modified, to the
extent necessary, to conform with present yield and maturity requirements.
Multi-family Residential and Commercial Real Estate Lending. Prior to fiscal
1984, the Bank originated a limited amount of multi-family residential and
commercial real estate loans in its market area. This type of lending was
discontinued until fiscal 1992, when the Bank approved restrictive underwriting
guidelines for the origination of loans secured by multi-family residential
property of up to 12 units. Under the Bank's current policies, such loans are
originated in amounts of up to 60% of the appraised value of the property
securing the loan. The Bank generally requires borrowers to provide personal
guarantees on multi-family residential and commercial real estate loans. While
in the past it has been the Bank's policy to originate multi-family residential
and commercial real estate loans with fixed rates, it is the current policy to
originate such loans with adjustable rates, which adjust to a rate based upon a
margin above the prime rate of interest as quoted in the Wall Street Journal.
At June 30, 1995, the Bank had $2.8 million in multi-family residential and
commercial real estate loans, representing 1.33% of the Bank's loan and
mortgage-backed securities portfolio. The Bank's multi-family residential and
commercial real estate loan portfolio includes loans secured by multi-family
residential property, office buildings, retail stores, and other non-residential
buildings, all of which are located in the Bank's market area.
The Bank's largest amount of multi-family residential and commercial real estate
loans outstanding at June 30, 1995, to one borrower was $207,000. This loan was
secured by one property located in the Iowa Quad Cities area and was current as
of June 30, 1995, and has never been classified by the Bank. The Bank has no
other multi-family residential and commercial real estate loans to one borrower
which has an existing net balance in excess of $206,000.
The Bank has an outstanding commitment as of June 30, 1995 of $559,000 for the
financing of a hotel being built in the Iowa Quad Cities.
Multi-family residential and commercial real estate lending affords the Bank an
opportunity to receive interest at rates higher than those generally available
from residential lending. Nevertheless, loans secured by such properties are
generally larger and involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by multi-family
residential and commercial real estate properties are often dependent on the
successful operation or management of the properties, repayment of such loans
may be subject to adverse conditions in the real estate market or the economy.
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.
The Bank attempts to minimize these risks through its underwriting standards and
by lending primarily on existing income-producing properties.
Residential Construction Lending. The Bank originates a limited number of loans
to finance the construction of single family residences. At June 30, 1995, the
Bank had loans to finance the construction of single family residences totaling
$6.5 million, or 3.13% of the Bank's loan and mortgage-backed securities
portfolio. The Bank deals only with a few experienced local builders in the
single family construction business, and has received regulatory approval to
lend up to 30% of its capital to one borrower for the purpose of constructing
single family homes that do not exceed a $500,000 selling price. This approval
will continue in effect as long as the Bank continues to meet the requirements
of the original approval.
7
<PAGE>
Builders eligible for residential construction loans from the Bank are pre-
approved annually by the Board of Directors, following a recommendation by
senior management. This recommendation follows a review of the builder's
activity with the Bank during the prior year and a review of the builder's
financial statements. An interim watch on the builder's performance and
financial condition is maintained by the Bank's loan committee. In addition, the
application process for a particular loan includes a submission to Citizens
Federal of plans, specifications and costs of the project to be
constructed/developed. The Bank also reviews the borrower's existing financial
condition and total debt outstanding. Loans are based on the appraised value of
the underlying collateral, as completed.
Citizens Federal generally lends to residential home builders at the maximum
rate of three speculative homes per builder at a time. In addition, builders may
borrow for homes which are presold by the builder prior to the start of
construction, subject to the Bank's loans-to-one-borrower limit. The Bank
generally underwrites the end buyer of the home to determine salability and the
buyer's qualifications. However, the buyer is not required to obtain an end loan
from the Bank. Each loan is separately underwritten and secured.
Residential construction loans are generally made for a six-month term.
Construction lending is generally considered to involve a higher level of credit
risk than permanent one- to four-family residential lending, due to the
concentration of principal in a limited number of loans and borrowers and/or the
effects of general economic conditions on development projects, real estate
developers, managers or homebuilders. In addition, the nature of these loans is
such that they are more difficult to evaluate and monitor. The Bank's risk of
loss on a construction loan is dependent largely upon the accuracy of the
initial estimate of the property's value upon completion of the project and the
estimated cost (including interest) of the project. If the estimate of
construction cost proves to be inaccurate, Citizens Federal may be required to
advance funds beyond the amount originally committed in order to permit
completion of the project. If the estimate of value proves to be inaccurate, the
Bank may be confronted, at or prior to the maturity of the loan, with a project
having a value which is insufficient to assure full repayment. When loan
payments become due, borrowers may experience cash flow from the property which
is not adequate to service total debt. In such cases, the Bank may be required
to modify the terms of the loan. The Bank has suffered no losses on this
portfolio during the last five years.
Mortgage-Backed Securities. The Bank has significant investments in mortgage-
backed securities and has utilized such investments to complement its mortgage
lending activities. At June 30, 1995, mortgage-backed securities totaled $85.9
million, or 41.53% of the Bank's loan and mortgage-backed securities portfolio,
and had a yield of 7.11%. At such date, $81.4 million of the Bank's mortgage-
backed securities carried adjustable rates of interest. For information
regarding the carrying and fair values of Citizens Federal's mortgage-backed
securities portfolio, see Note 2 of the Notes to Consolidated Financial
Statements.
The Bank currently purchases only adjustable-rate mortgage-backed securities in
order to supplement the Bank's originations of ARM loans. Under the OTS' risk-
based capital requirements, Government National Mortgage Association ("GNMA")
mortgage-backed securities have a zero percent risk weighting and Federal
National Mortgage Association ("FNMA"), FHLMC and AA-rated mortgage-backed
securities have a 20% risk weighting, in contrast to the 50% risk weighting
carried by one- to four-family performing residential mortgage loans.
Consumer Lending. Management considers consumer lending to be an important
component of its strategic plan. Specifically, consumer loans generally have
shorter terms to maturity (thus reducing Citizens Federal's exposure to changes
in interest rates) and carry higher rates of interest than do one- to four-
family residential mortgage loans. In addition, management believes that the
offering of consumer loan products helps to expand and create stronger ties to
its existing customer base, by increasing the number of customer relationships
and providing cross-marketing opportunities. At June 30, 1995, the Bank's
consumer loan portfolio totaled $52.7 million, or 25.49% of its loan and
mortgage-backed securities portfolio. Under applicable federal law, the Bank is
authorized to invest up to 30% of its assets in consumer loans. The yield on the
Bank's consumer loan portfolio as of June 30, 1995 was 10.17%.
Citizens Federal offers a variety of secured consumer loans, including home
equity loans, mobile home loans, auto loans and loans secured by savings
deposits. The Bank also offers a limited amount of unsecured loans. The Bank
currently originates all of its consumer loans in its market area, and purchases
most of its mobile home loans from Cedar Rapids and Iowa City, Iowa. The Bank's
home equity loans comprised approximately 58.80% of the Bank's total consumer
loan portfolio. These loans are generally originated in amounts, together with
the amount of the existing first mortgage, of up to 80% of the appraised value
of the property securing the loan. The Bank also originates home improvement and
home equity loans up to 100% of the appraised value of the property under a
special program whereby the entire loan is insured against default by an
independent insurer. The term to maturity on such loans may be up to 15 years.
Other consumer loan terms vary according to the type of collateral, length of
contract and creditworthiness of the borrower. The Bank's consumer loans
generally have a fixed-rate of interest. However, for most loans with a maturity
of greater than five years, a call option is generally placed on the loan,
enabling the Bank to adjust the interest rate at the fifth anniversary date and
annually thereafter.
8
<PAGE>
The Bank originates loans on an indirect basis (i.e., where loan contracts are
purchased from retailers of goods or services which have extended credit to
their customers) for mobile home loans. Approximately 70% of these mobile home
loans have been dealer originated and are located in the Cedar Rapids and Iowa
City areas. The Bank has purchased most of its indirect mobile home loans from
only one dealer since the inception of its program in fiscal 1983. In addition,
most of these purchased loans are secured by used mobile homes and have initial
terms of ten years or less. The Bank prefers financing used mobile homes because
it believes that the initial depreciation risk has been reduced and the yield
opportunity is better than for new mobile homes. In 1993, the Bank commenced
purchasing indirect loans from selected home improvement dealers. Most of these
loans are secured by property located in the Bank's primary market area and are
100% insured against default by an outside insurer.
The underwriting standards employed by the Bank for consumer loans include a
determination of the applicant's payment history on other debts and an
assessment of the ability to meet existing obligations and payments on the
proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
Consumer loans may entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured, such as checking
account overdraft privilege loans, or are secured by rapidly depreciable assets,
such as automobiles. In such cases, any repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment of the outstanding
loan balance as a result of the greater likelihood of damage, loss or
depreciation. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
affected by adverse personal circumstances. Furthermore, the application of
various federal and state laws, including bankruptcy and insolvency laws, may
limit the amount which can be recovered on such loans. Although the level of
delinquencies in the Bank's consumer loan portfolio has generally been low there
can be no assurance that delinquencies will not increase in the future.
ORIGINATIONS, PURCHASES, SALES AND SERVICING OF LOANS AND MORTGAGE-BACKED
SECURITIES
As described above, the Bank originates real estate loans through marketing
efforts, the Bank's customer base, walk-in customers, and referrals from real
estate brokers and builders. The Bank originates both adjustable-rate and fixed-
rate loans. Its ability to originate loans is dependent upon the relative
customer demand for fixed-rate or ARM loans in the origination market, which is
affected by the term structure (short-term compared to long-term) of interest
rates as well as the current and expected future level of interest rates.
Substantially all of the Bank's fixed-rate one- to four-family loans are
originated in accordance with criteria which permit their sale in the secondary
market, and substantially all of such loans are being sold. The Bank sells loans
in the secondary market to reduce the risk that the interest rates it pays
depositors will escalate while the Bank is holding long-term, fixed-rate loans
in its portfolio. This also allows the Bank to continue to make loans during
periods when savings flows decline or funds are not otherwise available for
lending purposes. The Bank may sell loans on either a servicing released or
servicing retained basis. In the case of servicing retained sales, the Bank
retains the servicing of the loans (i.e., collection of principal and interest
payment and escrow administration), for which the Bank receives a fee payable
monthly ranging from 1/4% to 1/2% per annum of the unpaid balance of each loan.
At June 30, 1995, the Bank serviced $45.3 million of loans for others.
During fiscal 1995, 1994 and 1993, the Bank recorded gains of $43,000, $236,000
and $112,000, respectively, from the sale of loans. The decrease in gains for
fiscal 1995 was due to a significant decrease in refinancing activity due to
rising interest rates.
From time to time, Citizens Federal purchases whole loans and mortgage-backed
securities, in accordance with its ongoing asset/liability management
objectives.
9
<PAGE>
The following table sets forth the loan origination, purchase, sale and
repayment activities of the Bank for the periods indicated:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------
1995 1994 1993
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Originations by type:
Adjustable rate:
One- to four-family................. $ 6,627 $ 13,489 $24,813
Residential construction............ -- -- 29
Consumer............................ 2,315 -- --
------- -------- -------
Total adjustable-rate.. $ 8,942 $ 13,489 $24,842
------- -------- -------
Fixed rate:
One- to four-family................. $ 4,198 $ 19,995 $ 7,827
Residential construction............ 7,036 14,559 13,485
Consumer............................ 28,975 30,537 26,118
------- -------- -------
Total fixed-rate........ $40,209 $ 65,091 $47,430
------- -------- -------
Total loans originated.. $49,151 $ 78,580 $72,272
------- -------- -------
Purchases:
Mortgage-backed securities............. $ -- $ 59,938 $59,767
------- -------- -------
Sales:
Real estate loans...................... $ 3,282 $ 21,187 $ 8,351
Principal repayments................... 45,772 100,952 65,376
------- -------- -------
Total reductions........ $49,054 $122,139 $73,727
------- -------- -------
Net increase............ $ 97 $ 16,379 $58,312
======= ======== =======
</TABLE>
NON-PERFORMING ASSETS
When a borrower fails to make a required payment on a loan, the Bank attempts to
cause the delinquency to be cured by contacting the borrower. In the case of
residential loans, a late notice is sent 15 days after the due date. If the
delinquency is not cured by the 30th day, contact with the borrower is made by
phone. Additional written and verbal contacts are made with the borrower
between 30 and 90 days after the due date. If the delinquency continues for a
period of 90 days, the Bank usually institutes appropriate action to foreclose
on the property. Interest income on loans at this point is reduced by the full
amount of accrued and uncollected interest. If foreclosed, the property is sold
at public auction and may be purchased by the Bank. Delinquent consumer loans
are handled in a generally similar manner, except that initial contacts are made
when the payment is 10 days past due and appropriate action may be taken to
collect any loan payment that is delinquent for more than 60 days. The Bank's
procedures for repossession and sale of consumer collateral are subject to
various requirements under Iowa consumer protection laws.
10
<PAGE>
Delinquent Loans. The following table sets forth information concerning
delinquent loans at June 30, 1995, in dollar amounts and as a percentage of the
Bank's total loan and mortgage-backed securities portfolio. The amounts
presented represent the total remaining principal balances of the related loans,
rather than the actual payment amounts which are overdue.
<TABLE>
<CAPTION>
Real Estate
--------------------------------------------------------------------------
One- to Four-family Multi-family
and Mortgage-backed Residential Residential
Securities and Commercial Construction Consumer
----------------------- ----------------------- ----------------------- -----------------------
Number Amount Percent Number Amount Percent Number Amount Percent Number Amount Percent
------ ------ ------- ------ ------ ------- ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Loans delinquent for:
30-59 days................ 1 $ 88 .04% - - $ - - - -% - - $ - - - -% 32 $316 .15%
60-89 days................ 1 64 .03 - - - - - - - - - - - - 5 13 .01
90 days and over.......... 4 230 .11 - - - - - - - - - - - - 8 103 .05
- ---- --- ------ ------ ------- ------ ------ ---- -- ---- ---
6 $382 .18% - - $ - - - -% - - $ - - - -% 45 $432 .21%
Total delinquent loans.. = ==== === ====== ====== ======= ====== ====== ==== == ==== ===
</TABLE>
11
<PAGE>
The table below sets forth the amounts and categories of non-performing assets
in the Bank's loan portfolio. Mortgage loans are placed on non-accrual status
when the loan becomes 90 days delinquent. All other loans are placed on non-
accrual status when the collection of principal and/or interest become doubtful.
For all years presented, the Bank has had no troubled debt restructurings (which
involve forgiving a portion of interest or principal on any loans or making
loans at a rate materially less than that of market rates). Foreclosed assets
include assets acquired in settlement of loans. All amounts are net of specific
reserves.
<TABLE>
<CAPTION>
At June 30,
---------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-Performing Assets
Non-accruing loans:
One- to four-family........... $ 247 $ 88 $ 177 $ 116 $ 97
Consumer...................... 56 76 80 129 164
----- ----- ----- ----- ------
Total...................... 303 164 257 245 261
----- ----- ----- ----- ------
Accruing loans delinquent more
than 90 days:
Consumer...................... 103 158 61 114 94
----- ----- ----- ----- ------
Total...................... 103 158 61 114 94
----- ----- ----- ----- ------
Foreclosed assets:
One- to four-family........... 89 -- 119 107 200
Multi-family and commercial
real estate.................. 25 -- 279 279 437
Residential construction...... 288 -- -- -- 198
Consumer...................... 56 37 18 28 42
----- ----- ----- ----- ------
Total...................... 458 37 416 414 877
----- ----- ----- ----- ------
Total non-performing assets..... $ 864 $ 359 $ 734 $ 773 $1,232
===== ===== ===== ===== ======
Total as a percentage of total
assets.................. .38% .16% .35% .50% .84%
===== ===== ===== ===== ======
</TABLE>
For the year ended June 30, 1995 gross interest income which would have been
recorded had the non-accruing loans been current in accordance with their
original terms amounted to $10,000. The amount that was included in interest
income on such loans was $1,000 for the year ended June 30, 1995.
Other Loans of Concern. As of June 30, 1995, there were no material loans of
concern of which management was aware. Management believes that the present
loss reserves are adequate to provide for any foreseeable future losses which
may arise. See "Allowance for Loan Losses."
Classified Assets. Federal regulations provide for the classification of loans
and other assets, such as debt and equity securities considered by the OTS to be
of lesser quality, as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
12
<PAGE>
When an insured institution classifies problem assets as either substandard or
doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances
which have been established to recognize the inherent risk associated with
lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the institution's Principal Supervisory Agent, who may
order the establishment of additional general or specific loss allowances.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Bank regularly reviews
the problem loans in its portfolio to determine whether any loans require
classification in accordance with applicable regulations. Total classified
assets at June 30, 1995 were $738,000.
Allowance for Loan Losses. The allowance for loan losses is established through
a provision for loan losses based on management's evaluation of the risk
inherent in its 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 among other matters, 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 loan allowance. Although management
believes it uses the best information available to make such determinations,
future adjustments to reserves may be necessary, and net income could be
significantly affected, if circumstances differ substantially from the
assumptions used in making the initial determination. At June 30, 1995, the
Bank had an allowance for loan losses of $1.1 million.
The following table sets forth an analysis of the Bank's allowance for loan
losses at the dates indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period...... $1,094 $1,110 $1,102 $ 807 $ 826
------ ------ ------ ------ -----
Charge-offs:
Real estate........................ - - (2) (30) (68) (97)
Consumer and other................. (93) (115) (81) (106) (122)
------ ------ ------ ------ -----
(93) (117) (111) (174) (219)
------ ------ ------ ------ -----
Recoveries.......................... 12 23 15 16 9
------ ------ ------ ------ -----
Net charge-offs..................... (81) (94) (96) (158) (210)
Additions charged to operations..... 44 78 104 453 191
------ ------ ------ ------ -----
Balance at end of period............ $1,057 $1,094 $1,110 $1,102 $ 807
====== ====== ====== ====== =====
Ratio of net charge-offs during
the period to average loans
outstanding during the period.. .04% .08% .09% .16% .22%
====== ====== ====== ====== =====
</TABLE>
When the Bank repossesses property it is thereafter classified as other real
estate owned. Any gains or losses (realized or reserved for) thereafter are
treated as other real estate owned activity, not mortgage loan activity.
Therefore, the Bank does not have recoveries on mortgage loan charge-offs.
13
<PAGE>
The distribution of the Bank's allowance for losses on loans at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------------- ----------------- ----------------- ----------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
Real estate $ 294 56.4% $ 341 61.8% $ 410 63.5% $ 482 60.6% $373 59.6%
Consumer 763 43.6 753 38.2 700 36.5 620 39.4 434 40.4
------ ----- ------ ----- ------ ----- ------ ----- ---- -----
Total $1,057 100.0% $1,094 100.0% $1,110 100.0% $1,102 100.0% $807 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ==== =====
</TABLE>
INVESTMENT ACTIVITIES
Citizens Federal must maintain minimum levels of investments that qualify as
liquid assets under OTS regulations. Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on investments
in relation to the return on loans. Historically, the Bank has maintained liquid
assets at levels above the minimum requirements imposed by the OTS regulations
and at levels believed adequate to meet the requirements of normal operations,
including repayments of maturing debt and potential deposit outflows. Cash flow
projections are regularly reviewed and updated to assure that adequate liquidity
is maintained. At June 30, 1995, the Bank's liquidity ratio (liquid assets as a
percentage of net withdrawable savings deposits and current borrowings) was
6.83%. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and "Regulation -
Liquidity".
Federally chartered savings institutions have the authority to invest in various
types of liquid assets, including United States Treasury obligations, securities
of various federal agencies, certain certificates of deposit of insured banks
and savings institutions, certain bankers' acceptances, repurchase agreements
and federal funds. Subject to various restrictions, federally chartered savings
institutions may also invest their assets in commercial paper, investment grade
corporate debt securities and mutual funds whose assets conform to the
investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally, the investment policy of the Bank is to invest funds among various
categories of investments and maturities based upon the Bank's asset/liability
management policies, investment quality and marketability, liquidity needs and
performance objectives.
At June 30, 1995, Citizens Federal's interest-bearing deposits with banks
totaled $3.6 million, or 1.6% of total assets, and its investment securities
totaled $5.0 million, or 2.2% of total assets. It is the Bank's general policy
to purchase investment securities which are U.S. Government securities and
federal agency obligations and other issues that are rated investment grade or
have credit enhancers. At June 30, 1995, the average term to maturity or
repricing of the investment securities portfolio was 3.12 years.
14
<PAGE>
The following table sets forth the composition of the Bank's investment
portfolio at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------
1995 1994 1993
---------------- ---------------- ----------------
Book % Of Book % Of Book % Of
Value Total Value Total Value Total
------- ------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing
deposits with banks.... $3,592 100.00% $1,432 100.00% $6,303 100.00%
====== ====== ====== ====== ====== ======
Investment securities:
Federal agency
obligations........... $5,000 58.91% $5,000 55.04% $1,000 12.89%
Certificates of
deposit............... -- -- 598 6.58 3,765 48.55
------ ------ ------ ------ ------ ------
Subtotal................ $5,000 58.91% $5,598 61.62% $4,765 61.44%
FHLB stock.............. 3,487 41.09 3,487 38.38 2,991 38.56
------ ------ ------ ------ ------ ------
Total investment
securities and
FHLB stock........ $8,487 100.00% $9,085 100.00% $7,756 100.00%
====== ====== ====== ====== ====== ======
Average remaining
life or term to
repricing,
excluding FHLB
stock.................. 3.12 years 3.68 years .08 years
</TABLE>
Federal agency obligations are due between March 1997 and April 2001 and have a
fair value of $4.96 million.
The Bank's investment securities portfolio at June 30, 1995 contained neither
tax-exempt securities nor securities of any issuer with an aggregate book value
in excess of 10% of the Bank's retained income, excluding securities issued by
the United States Government or its agencies.
At June 30, 1995, the Bank held $86.1 million of mortgage-backed securities for
investment and $5.0 million of investment securities, which had a market value
of $85.75 million and $4.96 million respectively.
SOURCES OF FUNDS
General. The Bank's primary sources of funds are deposits, amortization and
prepayment of loan principal (including mortgage-backed securities), borrowings,
sales or maturities of investment securities and short-term investments, and
funds provided from operations.
Borrowings, predominantly from the FHLB of Des Moines, may be used on a short-
term basis to compensate for seasonal reductions in deposits or deposit inflows
at less than projected levels, and may be used on a longer-term basis to support
expanded lending or investing activities. At June 30, 1995, the Bank had $63.3
million in borrowings outstanding.
Deposits. Citizens Federal offers a variety of deposit accounts having a wide
range of interest rates and terms. The Bank's deposits consist of passbook
accounts, NOW and non-interest bearing checking accounts, and money market and
certificate accounts. The Bank relies primarily on advertising, competitive
pricing policies and customer service to attract and retain these deposits.
Citizens Federal solicits deposits from its market area only, and does not use
brokers to obtain deposits.
15
<PAGE>
The flow of deposits is influenced significantly by general economic conditions,
changes in money market and prevailing interest rates and competition. The level
of the Bank's non-interest bearing deposits and cash may also vary significantly
due to several factors. As the Bank's base of retail customers grows, the Bank
may receive significant deposits from payroll deposits. In addition,
compensating balance requirements fluctuate with interest rates, with larger
balances required as rate levels decline. The Bank has been required to maintain
higher levels in these accounts consistent with the lower interest rate levels
in recent periods.
The variety of deposit accounts offered by the Bank has allowed it to be
competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. The Bank has become more susceptible to short-term fluctuations
in deposit flows, as customers have become more interest rate conscious. The
Bank manages the pricing of its deposits in keeping with its asset/liability
management and profitability objectives. Based on its experience, the Bank
believes that its passbook, NOW and non-interest-bearing checking accounts are
relatively stable sources of deposits. However, the ability of the Bank 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.
During fiscal 1995, the Bank experienced a decrease in certificates of $6.7
million and a corresponding increase of $18.1 million in money management
accounts which is largely attributable to the pricing of the money management
accounts and the customers desire to maintain liquidity.
The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by the Bank at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------
1995 1994 1993
------------------- ------------------- -------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
-------- --------- -------- --------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificates:
------------
0.00 - 4.99%......... $ 18,155 13.40% $ 51,171 39.60% $ 53,369 39.50%
5.00 - 6.99%......... 47,499 35.05 20,228 15.65 19,089 14.13
7.00 - 8.99%......... 7,350 5.42 7,568 5.86 11,448 8.47
9.00 - 10.99%......... -- -- 723 .56 1,137 .84
11.00 - 11.99%......... -- -- -- -- 13 .01
-------- ------ -------- ------ -------- --------
Total Certificates..... 73,004 53.87 79,690 61.67 85,056 62.95
-------- ------ -------- ------ -------- --------
Other Accounts:
--------------
Money Market Accounts.. 37,745 27.86 19,662 15.22 17,763 13.15
Passbook Accounts...... 10,326 7.62 15,685 12.14 18,263 13.52
Checking Accounts...... 14,438 10.65 14,178 10.97 14,030 10.38
-------- ------ -------- ------ -------- --------
Total Other Accounts... 62,509 46.13 49,525 38.33 50,056 37.05
-------- ------ -------- ------ -------- --------
Total Deposits......... $135,513 100.00% $129,215 100.00% $135,112 100.00%
======== ====== ======== ====== ======== ========
</TABLE>
The following table sets forth the savings flows at the Bank during the periods
indicated. Net increase (decrease) refers to the amount of deposits during a
period less the amount of withdrawals during the period. Deposit flows at
savings institutions may also be influenced by external factors such as
governmental credit policies and other sources of disintermediation such as
mutual funds.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------
1995 1994 1993
--------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Opening balance.............. $129,215 $135,112 $130,245
Deposits (withdrawals)....... 1,092 (9,893) 231
Interest credited............ 5,206 3,996 4,636
-------- -------- --------
Ending balance............... $135,513 $129,215 $135,112
======== ======== ========
Net increase (decrease)...... $ 6,298 $ (5,897) $ 4,867
======== ======== ========
Percent increase (decrease).. 4.87% (4.36)% 3.74%
======== ======== ========
</TABLE>
16
<PAGE>
The following table indicates the amount of the Bank's certificates of
deposit by time remaining until maturity as of June 30, 1995.
<TABLE>
<CAPTION>
Maturity
------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over 12
or Less Months Months Months Total
-------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less
than $100,000................ $18,509 $11,386 $15,240 $19,551 $64,686
Certificates of deposit of
$100,000 or more............. 1,710 1,400 2,256 2,952 8,318
------- ------- ------- ------- -------
Total certificates of
deposit...................... $20,219 $12,786 $17,496 $22,503 $73,004
======= ======= ======= ======= =======
</TABLE>
Borrowings. Although deposits are the Bank's primary source of funds, the
Bank's policy has been to utilize borrowings when they are a less costly
source of funds or can be invested at a positive rate of return. In
addition, the Bank has relied upon selected borrowings for short-term
liquidity needs.
The only borrowings utilized by the Bank in recent periods have been
advances from the FHLB of Des Moines. Citizens Federal obtains advances
from the FHLB of Des Moines upon the security of its capital stock of the
FHLB of Des Moines certain of its mortgage loans, and specific asset
pledges. Such advances are made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities.
At June 30, 1995, the Bank had $63,285,000 in borrowings outstanding.
The following table sets forth the maximum month-end balance and average
balance of FHLB advances and securities sold under agreements to repurchase
at the dates indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
(In Thousands)
Maximum Balance:
---------------
FHLB advances........... $68,739 $69,739 $57,500
Average Balance:
---------------
FHLB advances........... $63,065 $52,259 $31,385
</TABLE>
The following table sets forth certain information as to the Bank's FHLB
advances and other borrowings at the dates indicated. See also,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Comparison of Operating Results for the years ending June 30,
1995 and 1994".
<TABLE>
<CAPTION>
June 30,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
(Dollars in Thousands)
FHLB advances........... $63,285 $68,739 $49,471
Weighted average interest
rate of FHLB advances.. 6.14% 4.40% 3.26%
</TABLE>
SUBSIDIARY AND OTHER ACTIVITIES
As a federally chartered savings bank, Citizens Federal is permitted by OTS
regulations to invest up to 2% of its assets, or $4.4 million at June 30,
1995, in the stock of, or unsecured loans to, service corporation
subsidiaries. As of such date, the net book value of Citizens Federal's
investment in and unsecured loans to its service corporations was
$1,066,000. Citizens Federal may invest an additional 1% of its assets in
service corporations where such additional funds are used for inner-city or
community development purposes.
Citizens Federal has three wholly owned subsidiaries, engaged in short term
lending, insurance and portfolio management. The following is a description
of the subsidiaries' principal activities.
17
<PAGE>
Citizens Service Corporation ("CSC"). CSC makes short term bridge loans and
other short term loans. Bridge loans may be provided when an individual is
purchasing a new house, but has not yet closed on his existing home. A loan is
made using the equity from the old home so that the new home loan can close. A
security lien is generally taken by CSC on both properties. At June 30, 1995,
the Bank had an equity investment in CSC of $618,000 and $393,000 outstanding in
unsecured loans.
Citizens Federal Insurance Agency ("CFIA"). CFIA is engaged in the sale of tax-
deferred annuities and credit insurance on consumer loans. In fiscal 1995, CFIA
paid a $69,000 dividend to the Bank. At June 30, 1995, the Bank had an equity
investment in CFIA of $10,000, with $45,000 due from CFIA to Citizens Federal
for expenses.
CF Investments, Inc. ("CFI"). CFI, a Nevada corporation, managed the investment
and mortgage-backed securities portfolio for Citizens Federal. CFI began
operations on January 1, 1995 and ceased operations on June 30, 1995. There were
no intercompany investments or payables at June 30, 1995.
REGULATION
GENERAL. Citizens 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, Citizens Federal is subject to broad
federal regulation and oversight extending to all its operations. The Bank is a
member of the FHLB of Des Moines and is subject to certain limited regulation by
the Board of Governors of the Federal Reserve System ("Federal Reserve Board").
As the savings and loan holding company of Citizens Federal, the Holding Company
is also subject to Federal regulation and oversight. The purpose of the
regulation of the Holding company and other holding companies is to protect
subsidiary savings associations. The Bank is a member of the Savings Association
Insurance Fund ("SAIF") and the deposits of the Bank are insured by the FDIC. As
a result, the FDIC has certain regulatory and examination authority over the
Bank. 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, Citizens
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 examination
of the Bank was as of November 30, 1993. The last regular FDIC examination of
the Bank was as of December 31, 1991. Under agency scheduling guidelines, it is
likely that another examination will be initiated in the near future. When
examinations are conducted by the OTS and the FDIC, the examiners may require
the Bank to provide for higher general or specific loan loss reserves.
The OTS has established a schedule for the assessment of fees upon all savings
associations to fund the operations of the OTS. The general assessment, to be
paid on a semi-annual basis, is computed upon the savings association's total
assets, including consolidated subsidiaries, as reported in the association's
latest quarterly thrift financial report. Savings associations (unlike the Bank)
that are classified as "troubled" (i.e., having a supervisory rating of "4" or
"5" or subject to a conservatorship) are required to pay a 50% premium over the
standard assessment. The Bank's OTS assessment for the semi-annual period ended
June 30, 1995, based upon total assets of $219.1 million, was $32,000.
The OTS also has extensive enforcement authority over all savings institutions
and their holding companies, including Citizens Federal and the Holding Company.
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 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 the Bank is
prescribed by federal laws and regulations, and it is prohibited from engaging
in any activities not permitted by such laws and regulations. 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. At June 30,
1995, Citizens Federal was in compliance with each of these restrictions.
The Bank'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 June 30, 1995,
the Bank's lending limit under this restriction was $3.0 million. Citizens
Federal is in compliance with the loans-to-one-borrower limitation.
18
<PAGE>
The OTS, as well as the other federal banking agencies, has adopted guidelines
establishing safety and soundness standards on matters such 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 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. Citizens 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 ranging from .23% to .31% of
deposits, based upon their level of capital and supervisory evaluation. Under
the system, institutions classified as well capitalized (e.g., 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 premiums while institutions
that are less than adequately capitalized (e.g., core capital ratio of less than
4% or a risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern would pay the highest premiums. Risk classification of all
insured institutions will be made by the FDIC for each semi-annual assessment
period.
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 Bank Insurance Fund (the "BIF")
of the FDIC in order to maintain the reserve ratio of the BIF at 1.25% of BIF
insured deposits. The FDIC has proposed that the premium schedule be revised to
provide a range of .04% to .31% of deposits so that well-capitalized and healthy
banks would pay the lowest premiums. This action was taken because the FDIC
anticipates that the BIF will reach the required reserve ratio in mid-1995 as a
result of the decrease in bank failures in the past few years. The revisions are
expected to take effect in the third quarter of 1995.
The FDIC also noted that 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 resulting thrift failures in the 1980s. As a result, SAIF
insured members will generally be subject to higher deposit insurance premiums
than banks until, all things being equal, the SAIF attains the required reserve
ratio.
The effect of this potential disparity on the Bank and other SAIF members is
uncertain at this time. It may have the effect of permitting BIF-insured banks
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. No assurance can be given as to
whether or in what form the FDIC proposal will be adopted. A number of proposals
are being considered to recapitalize the SAIF in order to eliminate this
disparity. One proposal plan being considered by the Treasury Department, the
FDIC and the Congress provides for a one-time assessment of .85% to .90% to be
imposed on all SAIF-insured deposits, 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 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 implemented or
that premiums for either BIF or SAIF members will not be adjusted in the future
by the FDIC or by legislative action.
19
<PAGE>
REGULATORY CAPITAL REQUIREMENTS. Federally insured savings associations, such as
the Bank, 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.
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 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. At June 30, 1995, Citizens Federal had no unamortized purchased
mortgage servicing rights or other intangible assets.
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. All subsidiaries
of the Bank are includable subsidiaries.
At June 30, 1995, the Bank had tangible capital of $18.85 million, or 8.49% of
adjusted total assets, which is approximately $15.52 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 June 30, 1995, the Bank
had no intangible assets which were subject to these tests.
At June 30, 1995, the Bank had core capital equal to $18.85 million, or 8.49% of
adjusted total assets, which is $12.18 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 June 30, 1995, Citizens Federal
had no capital instruments that qualify as supplementary capital and $1.0
million 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. At June 30, 1995,
Citizens Federal had $70,000 of equity investments subject to exclusion from
capital and assets.
20
<PAGE>
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 risks inherent in the type of assets. 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.
On June 30, 1995, the Bank had total capital of $19.8 million (including $18.8
million in core capital and $1.0 million in qualifying supplementary capital)
and risk-weighted assets of $112.4 million (no converted off-balance sheet
assets were included); or total capital of 17.61% of risk-weighted assets. This
amount was $10.8 million above the 8% risk-based capital requirement in effect
on that date.
The OTS has adopted a final rule that requires every savings association with
more than normal interest rate risk exposure to deduct from total capital for
purposes of determining compliance with such requirement, an amount equal to 50%
of its interest-rate risk exposure multiplied by the market 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 OTS and the FDIC are authorized and, under certain circumstances required,
to take certain actions against 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 an
association with less than 4% core and Tier 1 risk-based capital ratios and less
than 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. In addition, an undercapitalized association generally may not make
capital distributions and the OTS is authorized to impose the additional
restrictions, discussed below, 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., its capital level is significantly below
the required levels as defined by the OTS) must be made subject to one or more
of the 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 appointment of a conservator
or receiver.
The OTS is also generally authorized to reclassify an association into a lower
capital category and impose 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 the Bank may
have a substantial adverse effect on the Bank's operations and profitability and
the value of the Company's common stock. Company shareholders do not have
preemptive rights, and therefore, if the Company is directed by the OTS or the
FDIC to issue additional shares of common stock, such issuance may result in the
dilution in the percentage of ownership of the Company shareholders.
21
<PAGE>
LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. OTS regulations impose
various restrictions or requirements on associations with respect to their
ability to pay dividends or make other distributions of capital. OTS regulations
prohibit an association from declaring or paying any dividends or from
repurchasing any of its stock if, as a result, the regulatory (or total) 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.
The OTS utilizes a three-tiered approach to permit associations, based on their
capital level and supervisory condition, to make capital distributions which
include dividends, stock redemptions or repurchases, cash-out mergers, and other
transactions charged to the capital account. See "- Regulatory Capital
Requirements."
Generally, Tier 1 associations, which are associations that before and after the
proposed distribution meet or exceed their fully phased-in capital requirements,
may make capital distributions during any calendar year equal to 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 fully phased-in
capital requirement for such capital component as measured at the beginning of
the calendar year or the amount authorized for a Tier 2 association. However, a
Tier 1 association deemed to be in need of more than normal supervision by the
OTS may be downgraded to a Tier 2 or Tier 3 association as a result of such a
determination. Citizens Federal meets the requirements for a Tier 1 association
and has not been notified of a need for more than normal supervision. Tier 2
associations, which are associations that before and after the proposed
distribution meet or exceed their current minimum capital requirements, may make
capital distributions up to 75% of their net income for the most recent four
quarter period.
Tier 3 associations (which are associations that do not meet current minimum
capital requirements) that propose to make any capital distribution and Tier 2
associations that propose to make a capital distribution in excess of the noted
safe harbor levels must obtain OTS approval prior to making such distributions.
Tier 2 associations proposing to make a capital distribution within the safe
harbor provisions and Tier 1 associations proposing to make any capital
distribution need only submit written notice to the OTS 30 days prior to such
distribution. As a subsidiary of the Corporation, the Bank will also be required
to give the OTS 30 days' notice prior to declaring any dividend on its stock.
The OTS may object to the distribution during that 30-day period based on safety
and soundness concerns. See "Regulatory Capital Requirements".
The OTS has proposed regulations that would revise the current capital
distribution restrictions. The proposal eliminates the current tiered structure
and the safe-harbor percentage limitations. 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 in troubled condition (as defined by regulation) 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 Citizens 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 the Bank
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 June 30, 1995, the Bank was in compliance with both
requirements, with an overall liquid asset ratio of 6.83% and a short-term
liquid assets ratio of 2.62%.
22
<PAGE>
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 the Bank, 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 the Bank. 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, has 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, the Bank may be required to devote additional funds for investment and
lending in its local community. The Bank was examined for CRA compliance in
1994 and received a rating of satisfactory.
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 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. The Bank 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 the Bank, are
required to meet a qualified thrift lender ("QTL") test to avoid certain
restrictions on their operations. At June 30, 1995, the Bank met the test and
has always met the test since its effectiveness.
The 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 in nine out of every 12 months on a rolling basis.
Loans and mortgage-backed securities secured by domestic residential housing and
FHLB stock, as well as certain obligations of the FSLIC, the FDIC and certain
other related entities may be included in qualifying thrift investments without
limit. FHLMC and FNMA stock and certain other housing-related and non-
residential real estate loans and investments, including loans to develop
churches, nursing homes, hospitals and schools, and consumer loans and
investments in subsidiaries engaged in housing-related activities may also be
included, in varying amounts, to the extent of 20% of portfolio assets.
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 Bank Insurance Fund. If an association that fails the test has not yet
requalified and has not 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 "- Holding Company Regulation."
23
<PAGE>
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 Citizens
Federal include the Holding Company and any company which is under common
control with the Bank. 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. The Bank's subsidiaries are not
deemed affiliates, however, the OTS may deem any subsidiary of a savings
association as an affiliate on a case-by-case basis.
Certain of these transactions are also subject to conflict of interest
regulations enforced by the OTS. These regulations cover transactions by the
Bank and its subsidiaries with affiliated persons involving the sale, purchase
or lease of property. Affiliated persons include officers, directors and
controlling stockholders. These conflict of interest regulations and other
statutes also impose restrictions on loans to affiliated persons. Among other
things, such loans must be made on terms substantially the same as for loans to
unaffiliated individuals.
HOLDING COMPANY REGULATION. The Corporation is a unitary savings and loan
holding company subject to regulatory oversight by the OTS. As such, the
Corporation is registered and files reports with the OTS and is subject to
regulation and examination by the OTS. In addition, the OTS has enforcement
authority over the Corporation 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.
As a unitary savings and loan holding company, the Corporation generally is not
subject to activity restrictions. If the Corporation acquires control of
another savings association as a separate subsidiary, it would become a multiple
savings and loan holding company, and the activities of the Corporation and any
of its subsidiaries (other than the Bank 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 the Bank fails the QTL test, the Corporation 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 the Corporation 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."
The Corporation 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. The stock of the Corporation is registered with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Corporation is subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.
Corporation stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Corporation may not be resold
without registration or unless sold in accordance with certain resale
restrictions. If the Corporation meets specified current public information
requirements, each affiliate of the Corporation is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board 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) and non-personal time deposits. At June 30, 1995, the Bank
was in compliance with these reserve requirements. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve Board may be used
to satisfy liquidity requirements that may be imposed by the OTS. See "-
Liquidity."
Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require associations to
exhaust other reasonable alternative sources of funds, including FHLB
borrowings, before borrowing from the Federal Reserve Bank.
24
<PAGE>
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of Des Moines
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. These policies
and procedures are subject to the regulation and 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, Citizens Federal is required to purchase and maintain stock in the
FHLB of Des Moines. At June 30, 1995, Citizens Federal had $3.49 million in
FHLB stock, which was in compliance with this requirement. In past years, the
Bank has received substantial dividends on its FHLB stock. Over the past five
years such dividends have averaged 8.11% and were 7.75% for the year ended June
30, 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 the
Bank's FHLB stock may result in a corresponding reduction in Citizens Federal's
capital.
For the fiscal year ended June 30, 1995, dividends paid by the FHLB of Des
Moines to Citizens Federal totalled approximately $270,000 which constituted an
increase of approximately $17,000 over the amount of dividends received in
fiscal year 1994.
FEDERAL AND STATE TAXATION. Savings associations such as the Bank that meet
certain definitional tests relating to the composition of assets and other
conditions prescribed by the Internal Revenue Code of 1986, as amended (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 an amount
determined under a formula based generally upon the bad debts actually sustained
by the savings association over a period of years.
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 and exclusive of any minimum tax or environmental tax).
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 the Bank 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 deposits or withdrawable accounts at year-end exceeds
the sum of surplus, undivided profits and reserves at the beginning of the year.
At June 30, 1995, the 6% and 12% limitations did not restrict the percentage bad
debt deduction available to the Bank. It is not expected that these limitations
would be a limiting factor in the foreseeable future.
25
<PAGE>
In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a tax rate of 20% on 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 excess of the bad debt reserve deduction using the percentage of taxable
income method over the deduction that would have been allowable under the
experience method is treated as a preference item for purposes of computing the
corporate minimum tax. 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 the Bank, 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 shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). Distribution of a cash dividend by a savings association to a
shareholder is treated as made: first out of the association's current and post-
1951 accumulated earnings and profits; second out of the Excess; and third out
of such other accounts as may be proper. As of June 30, 1995, the Bank's excess
for tax purposes totaled approximately $2.0 million.
The Corporation files consolidated federal income tax returns with the Bank and
its subsidiaries using the accrual method of accounting. Savings associations,
such as the Bank, 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.
The Bank and its consolidated subsidiaries have been audited by the IRS with
respect to consolidated federal income tax returns through December 31, 1985.
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, the Bank) would not result in a deficiency which could have a
material adverse effect on the financial condition of the Bank and its
consolidated subsidiaries.
Iowa Taxation. The Bank currently files an Iowa franchise tax return, and the
Corporation and the Bank's subsidiaries file an Iowa corporation tax return on a
fiscal-year basis.
Iowa imposes a franchise tax on the taxable income of both mutual and stock
savings banks. The tax rate is 5%, which may effectively be increased, in
individual cases, by application of a minimum tax provision. Taxable income
under the franchise tax is generally similar to taxable income under the federal
corporate income tax, except that, under the Iowa franchise tax, no deduction is
allowed for Iowa franchise tax payments and taxable income includes interest on
state and municipal obligations. Interest on U.S. obligations is taxable under
the Iowa franchise tax and under the federal corporate income tax.
Taxable income under the Iowa corporate income tax is generally similar to
taxable income under the federal corporate income tax, except that, under the
Iowa tax, no deduction is allowed for Iowa income tax payments; interest from
state and municipal obligations is included in income; interest from U.S.
obligations is excluded from income; and 50% of federal corporate income tax
payments are excluded from income. The Iowa corporate income tax rates range
from 6% to 12% and may be effectively increased, in individual cases, by
application of a minimum tax provision.
Nevada Taxation. Operations in Nevada are not subject to state taxation as
Nevada has no corporate income or franchise tax.
Delaware Taxation. As a Delaware holding company, the Holding Company 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. The Holding Company
is also subject to an annual franchise tax imposed by the State of Delaware.
26
<PAGE>
COMPETITION
Citizens Federal faces strong competition, both in originating real estate and
other loans and in attracting deposits. Competition in originating real estate
loans comes primarily from other savings institutions, commercial banks, credit
unions and mortgage bankers making loans secured by real estate located in the
Bank's market areas. Other savings institutions, commercial banks and credit
unions provide vigorous competition in consumer lending.
The Bank attracts all of its deposits through its branch offices, primarily from
the communities in which those branch offices are located; therefore,
competition for those deposits is principally from other savings institutions
and commercial banks located in the same communities. The Bank competes for
these deposits by offering a variety of deposit accounts at competitive rates,
convenient business hours, and convenient branch locations with interbranch
deposit and withdrawal privileges at each. Automated teller machine ("ATM")
facilities are available at all branch locations except the main office.
EMPLOYEES
At June 30, 1995, the Bank and its affiliates had a total of 70 full time
equivalent employees. The Bank's employees are not represented by any
collective bargaining group. Management considers its employee relations to be
good.
EXECUTIVE OFFICERS OF THE CORPORATION AND THE BANK
The following table sets forth certain information regarding the executive
officers of the Corporation and the Bank who are not also directors.
<TABLE>
<CAPTION>
Positions Held with
Name Age(1) Bank and Corporation
---- --- --------------------
<S> <C> <C>
David B. Quillen 39 Chief Financial Officer and Senior Vice
President of the Bank and Vice President
and Chief Financial Officer of the
Corporation.
Catherine L. Vance 38 Senior Vice President/ Mortgage Lending of
the Bank.
Robert W. Garman 57 Senior Vice President/ Consumer Lending of
the Bank
George J. Boudi, Jr. 45 Senior Vice President/ Servicing of the
Bank.
Martha S. Watters 46 Vice President/Data Processing of the Bank.
Kenneth C. Smerillo 53 Vice President/Savings of the Bank.
Jimmy G. Paustian 50 Vice President/Administrative Services
of the Bank.
(1) At June 30, 1995.
</TABLE>
The business experience of each executive officer who is not also a director is
set forth below.
DAVID B. QUILLEN. Mr. Quillen is Senior Vice President in charge of finance.
In this capacity, Mr. Quillen has served as the Bank's chief financial officer
since 1985.
CATHERINE L. VANCE. Ms. Vance is the Senior Vice President in charge of
mortgage lending for the Bank. She has served in that position since 1987. She
is responsible for the overall administration of the Bank's mortgage lending
operations. Ms. Vance joined the Bank in 1980.
ROBERT W. GARMAN. Mr. Garman is Senior Vice President in charge of consumer
lending. He is responsible for the overall administration of the Bank's
consumer lending. Mr. Garman has held this position since 1983.
27
<PAGE>
GEORGE J. BOUDI, JR. Mr. Boudi is Senior Vice President in charge of servicing
for the Bank. His primary responsibilities include overall administration of
customer service and the management of foreclosed assets held by the Bank. Mr.
Boudi joined the Bank in 1985 and served in several capacities in the Bank's
collection department, prior to being promoted to his present position in 1993.
MARTHA S. WATTERS. Ms. Watters has been Vice President of data processing with
the Bank since 1984. Ms. Watters has been employed by the Bank since 1979.
KENNETH C. SMERILLO. Mr. Smerillo is Vice President in charge of savings. He
is responsible for overseeing the Bank's savings and insurance operations. Mr.
Smerillo has held this position since 1992. Previously he served as sales
manager for Citizens Federal Insurance Agency.
JIMMY G. PAUSTIAN. Mr. Paustian has served as Vice President of administrative
services with the Bank since 1988. He is primarily responsible for overall
supervision of office services and property management for the Bank. He has
served in various other capacities for the Bank since 1975.
DIRECTORS OF THE CORPORATION AND THE BANK
Information concerning Directors of the Corporation and the Bank is incorporated
herein by reference from the definitive Proxy Statement for the Annual Meeting
of Stockholders to be held in 1995, a copy of which will be filed not later than
120 days after the close of the fiscal year.
ITEM 2. DESCRIPTION OF PROPERTIES
The following table sets forth information relating to each of the Bank's
current offices, all of which are owned by the Bank. The total net book value
of the Bank's premises and equipment at June 30, 1995 was $1.8 million.
<TABLE>
<CAPTION>
Date Net Book Value
Location Acquired at June 30, 1995
-------- -------- ----------------
<S> <C> <C>
(In Thousands)
Main Office:
101 West Third Street 1976 $1,189
Davenport, IA
Branch Offices:
1975 Kimberly Road 1986 127
Bettendorf, IA(1)
320 West Kimberly Road 1974 82
Davenport, IA(1)
2722 West Locust Street 1985 127
Davenport, IA(1)
</TABLE>
-----------
(1) The land for each of these offices is subject
to a long-term lease.
ITEM 3. LEGAL PROCEEDINGS
The Corporation, Citizens Federal and its subsidiaries are involved as plaintiff
or defendant in various legal actions arising in the normal course of their
businesses. While the ultimate outcome of these proceedings cannot be predicted
with certainty, it is the opinion of management, after consultation with counsel
representing Citizens and the Corporation in the proceedings, that the
resolution of these proceedings should not have a material effect on the
Corporation's consolidated financial position.
28
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the quarter ended June 30, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information contained under the caption "Corporate Information - Common
Stock" in the Annual Report is incorporated herein by reference.
29
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
June 30,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(In Thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Selected Financial
------------------
Condition Data:
---------------
Total assets................... $226,944 $223,348 $208,196 $155,730 $147,096
Loans receivable, net.......... 117,947 112,912 109,741 97,678 97,419
Mortgage-backed securities..... 86,055 88,842 74,238 28,858 35,313
Investment securities.......... 5,000 5,598 4,765 5,776 3,888
Deposits....................... 135,513 129,215 135,112 130,245 134,450
Borrowings..................... 63,285 68,739 49,471 --- ---
Stockholders' equity........... 23,390 20,975 18,655 17,387 7,915
Book value per share........... 25.52 23.28 19.96 17.37 N/A
Selected Operations Data:
-------------------------
Total interest income.......... $ 16,437 $ 13,958 $ 13,261 $ 13,940 $ 14,679
Total interest expense......... 9,559 6,904 6,551 7,919 10,124
-------- -------- -------- -------- --------
Net interest income.......... 6,878 7,054 6,710 6,021 4,555
Provision for possible
loan losses.................. 44 78 104 453 191
-------- -------- -------- -------- --------
Net interest income after
provision for possible loan
losses....................... 6,834 6,976 6,606 5,568 4,364
Loan servicing fees............ 234 278 301 309 227
Service charges................ 538 500 514 455 431
Gain on sales of assets........ 698 717 165 285 128
Other non-interest income...... 606 495 547 430 489
Other non-interest expense..... 4,773 4,186 4,105 3,851 3,465
-------- -------- -------- -------- --------
Income before income taxes
and cumulative effect of
change in accounting
principle.................. 4,137 4,780 4,028 3,196 2,174
Provision for income taxes..... 1,396 1,747 1,525 1,232 799
-------- -------- -------- -------- --------
Net income before
cumulative effect of
change in accounting
principle.................. 2,741 3,033 2,503 1,964 1,375
Cumulative effect on
prior years of change
in accounting principle...... --- 435 --- --- ---
-------- -------- -------- -------- --------
Net income................... $ 2,741 $ 3,468 $ 2,503 $ 1,964 $ 1,375
======== ======== ======== ======== ========
Earnings per common and
common equivalent shares:
Primary:
Income before cumulative
effect of change in
accounting principle....... $ 2.85 $ 3.13 $ 2.44 N/A N/A
Cumulative effect on
prior years of change in
accounting for income
taxes...................... --- .45 --- N/A N/A
-------- -------- -------- -------- --------
Net income................... $ 2.85 $ 3.58 $ 2.44 N/A N/A
======== ======== ======== ======== ========
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
June 30,
------------------------------------------------
1995 1994 1993 1992 1991
-------- ---------- -------- ------- -------
(In Thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Fully diluted:
Income before cumulative
effect of change in
accounting principle............. $ 2.85 $ 3.12 $ 2.42 N/A N/A
Cumulative effect on prior
years of change in accounting
for income taxes................. --- .45 --- N/A N/A
------- ------- ------- ------ ------
Net income................... $ 2.85 $ 3.57 $ 2.42 N/A N/A
======= ======= ======= ====== ======
Other Data:
-----------
Interest rate spread information:
Average during year.............. 2.85% 3.24% 3.47% 4.01% 2.95%
End of year...................... 2.89 3.03 3.00 3.68 4.48
Net interest margin................ 3.22 3.52 3.82 4.25 3.18
Net interest income to
non-interest expense............. 144.10 168.51 163.46 156.35 131.46
Non-interest expense to
average total assets............. 2.13 2.04 2.20 2.54 2.31
Average interest-earning
assets to average
interest-bearing
liabilities...................... 108.21 108.12 109.25 104.38 103.14
Non-performing assets to
total assets at end
of period........................ .38 .16 .35 .50 .84
Return on assets (ratio
of net income to average
total assets).................... 1.22 1.45(1) 1.34 1.30 .92
Return on stockholders'
equity (ratio of net
income to average
equity).......................... 12.31 15.17(1) 13.76 22.07 19.02
Stockholders' equity to
total assets (end of
period........................... 10.31 9.39 8.96 11.16 5.38
Stockholders' equity to
total assets (ratio of
average stockholders'
equity to average
total assets).................... 9.94 9.55 9.76 5.88 4.81
Cash dividends per share
as a percentage of
current year earnings............ 29.08 15.04(1) 10.90 N/A N/A
Number of full-service
offices.......................... 4 4 5 5 5
</TABLE>
(1) Using net income before cumulative effect of change in accounting
principle.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The activities of CF Bancorp, Inc. (the "Corporation", the "Company" or the
"Holding Company") have been limited to investments in marketable equity
securities and interest-bearing deposits at financial institutions. Gains on
the sale of marketable equity securities provided $655,000, $383,000 and $53,000
for the years ended June 30, 1995, 1994 and 1993, respectively.
The net income of Citizens Federal Savings Bank (the "Bank"), the wholly owned
subsidiary of the Company, is primarily dependent upon the difference (or
"spread") between the average yield earned on loans, mortgage-backed securities
and investments and the average rate paid on deposits and borrowings (if any),
as well as the relative amounts of such assets and liabilities. The interest
rate spread is affected by regulatory, economic and competitive factors that
influence interest rates, loan demand and deposit flows. The Bank, like other
thrift institutions, is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different times, or on a
different basis, than its interest-earning assets.
The Bank's interest expense is a product of the interest paid on deposits and
borrowed funds. The Bank emphasizes and promotes its short term, high balance
certificates and its consumer checking and NOW accounts, principally from its
market area. The checking and NOW accounts tend to be less susceptible to rapid
changes in volume and interest rate.
The Bank's net income is also affected by, among other things, gains and losses
on sales of loans, provisions for possible loan losses, service charge fees,
subsidiary activities, operating expenses and income taxes.
The Bank's operating strategy over the past several years has been to emphasize
consumer banking, including single family residential lending, home equity, home
improvement and other consumer lending and checking accounts. The goals of this
strategy have been to strengthen capital and increase profitability, while
controlling interest rate risk and credit risk.
ASSET QUALITY
Management believes that the Bank's historical level of asset quality has been
high. The Bank's level of non-performing assets has increased from 0.16% of
total assets at June 30, 1994 to .38% at June 30, 1995. Of the Bank's $864,000
of non-performing assets at June 30, 1995, no single asset (or group of related
assets) exceeded $288,000 in net book value. Management believes that the
Bank's favorable asset quality results from its emphasis on the origination of
loans secured by single family owner-occupied homes and on the purchase of
mortgage-backed securities secured by similar types of loans. Approximately 85%
of the Bank's loan and mortgage-backed securities portfolio is secured by one-
to four-family residential property.
ASSET/LIABILITY MANAGEMENT
Since the early 1980's, Citizens Federal's asset/liability management strategy
has been directed toward reducing its exposure to fluctuations in interest
rates. At June 30, 1995, Citizens Federal's one year interest sensitivity gap
was a positive 4.91%.
A positive gap for a given period means that the amount of interest-earning
assets maturing or otherwise repricing within such period is greater than the
amount of interest-bearing liabilities maturing or otherwise repricing within
the same period. In a rising interest rate environment, an institution with a
positive gap generally experiences a greater increase in the yield on its assets
than in the cost of its liabilities. Changes in interest rates generally have
the opposite effect on an institution with a negative gap.
The Bank's asset/liability management strategy emphasizes the holding of
adjustable rate loans and adjustable-rate mortgage-backed securities in its
portfolio. Also emphasized are consumer loans which have a relatively short
term to maturity.
32
<PAGE>
Citizens Federal has emphasized retail checking accounts, which generally are
considered to be low interest rate, long term core deposits. The following
table sets forth the scheduled repricing or maturity of the Bank's assets and
liabilities as of June 30, 1995, based on the following assumptions:
1. Fixed-rate certificate accounts will not be withdrawn prior to
maturity.
2. Deposit accounts, other than certificate accounts, are scheduled for
repricing consistent with Office of Thrift Supervision decay rates as follows:
<TABLE>
<CAPTION>
Money
NOW Market Passbook
---- ------- ---------
<S> <C> <C> <C>
One year or less.. 37% 79% 17%
2 to 3 years...... 34 11 26
4 to 5 years...... 9 5 17
Over 5 years...... 20 5 40
--- --- ---
Total........... 100% 100% 100%
=== === ===
</TABLE>
3. Mortgage loans, consumer loans and mortgage-backed and related
securities are assumed to prepay at a rate of 10% per year. Management believes
this reflects current experience. Actual prepayment rates may be faster or
slower than 10%. Adjustable and floating rate assets are included in the period
in which interest rates are scheduled to adjust.
33
<PAGE>
The effect of these assumptions is to quantify the dollar amount of items that
are interest-sensitive and can be repriced within each of the periods specified.
Such repricing can occur in one of three ways: (1) the rate of interest to be
paid on an asset or liability may adjust periodically on the basis of an index;
(2) an asset or liability such as a mortgage loan may amortize, permitting
reinvestment of cash flows at the then-prevailing interest rates; or (3) an
asset or liability may mature, at which time the proceeds can be reinvested at
current market rates.
<TABLE>
<CAPTION>
June 30, 1995
----------------------------------------------------
Maturing or Repricing
----------------------------------------------------
Within Over 1-3 Over 3-5 Over
One Year Years Years 5 Years Total
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Fixed-rate one- to four-
family, multi-family and
commercial real estate and
residential construction
loans......................... $ 8,210 $ 799 $ 455 $ 7,678 $ 17,142
Fixed-rate mortgage-backed
securities.................... 544 1,051 2,921 - - 4,516
Adjustable-rate one- to four-
family, multi-family and
commercial real estate and
residential construction
loans......................... 51,101 - - - - - - 51,101
Adjustable-rate mortgage-
backed securities............. 81,399 - - - - - - 81,399
Consumer loans................. 16,600 16,631 17,087 2,430 52,748
Investment securities and
other......................... 4,000 1,000 - - - - 5,000
-------- -------- ------- ------- --------
Total interest-earning
assets...................... 161,854 19,481 20,463 10,108 211,906
-------- -------- ------- ------- --------
Money management accounts...... 29,819 4,152 1,887 1,887 37,745
Passbook accounts.............. 1,755 2,685 1,755 4,131 10,326
NOW accounts................... 5,342 4,909 1,299 2,888 14,438
Certificates of deposit........ 50,501 18,371 4,106 26 73,004
Federal Home Loan Bank
Advances...................... 63,285 - - - - - - 63,285
-------- -------- ------- ------- --------
Total interest-bearing
liabilities................. 150,702 30,117 9,047 8,932 198,798
-------- -------- ------- ------- --------
Interest-earning assets less
interest-bearing liabilities.. $ 11,152 $(10,636) $11,416 $ 1,176 $ 13,108
======== ======== ======= ======= ========
Cumulative interest rate
sensitivity gap............... $ 11,152 $ 516 $11,932 $13,108 $ 13,108
======== ======== ======= ======= ========
Cumulative interest rate
sensitivity gap as a
percentage of total assets
at June 30, 1995.............. 4.91% .23% 5.26% 5.78%
Cumulative interest rate
sensitivity gap as a
percentage of total assets
at June 30, 1994.............. 9.72% 4.17% 6.39% 6.47%
Cumulative interest rate
sensitivity gap as a
percentage of total assets
at June 30, 1993.............. 10.84% 3.27% 8.07% 8.12%
</TABLE>
34
<PAGE>
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as ARM loans, have features
which restrict changes in interest rates on a short-term basis and over the
life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their debt may decrease in the event of an interest rate increase.
RESULTS OF OPERATIONS
Average Balances, Interest Rates and Yields. The following table presents for
the periods indicated the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollar
amounts and rates, and the net interest margin. The table does not reflect any
effect of income taxes. All average balances are monthly average balances and
include the balances of non-accruing loans. The yields and costs for the
periods indicated include fees which are considered adjustments to yield.
35
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------------------------------------
1995 1994 1993
----------------------------- ----------------------------- -----------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
----------- -------- ------ ----------- -------- ------ ----------- -------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans................................ $116,735 $10,078 8.63% $111,769 $ 9,704 8.68% $106,602 $ 9,995 9.38%
Mortgage-backed securities........... 87,000 5,760 6.62 76,703 3,665 4.78 58,374 2,817 4.83
Investment securities................ 5,054 268 5.30 5,158 206 3.99 4,716 188 3.99
Federal funds and other
interest-earning assets............ 4,715 331 7.02 6,696 383 5.72 6,183 261 4.22
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-earning
assets(1).......................... $213,504 $16,437 7.70 $200,326 13,958 6.97 $175,875 13,261 7.54
======== ------- ---- ======== ------- ---- ======== ------- ----
Interest-bearing liabilities:
NOW accounts......................... $ 14,236 $ 145 1.02 $ 14,943 166 1.11 $ 13,208 190 1.44
Money management accounts............ 28,430 1,425 5.01 17,481 498 2.85 18,072 541 2.99
Passbook accounts.................... 12,171 256 2.10 16,899 373 2.21 17,155 468 2.73
Certificate accounts................. 79,405 4,229 5.33 83,703 4,053 4.84 81,164 4,365 5.38
-------- ------- ---- -------- ------- ---- -------- ------- ----
Deposits............................. $134,242 $ 6,055 4.51 $133,026 5,090 3.83 $129,599 5,564 4.29
FHLB advances........................ 63,065 3,504 5.56 52,259 1,814 3.47 31,385 987 3.14
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities....................... $197,307 9,559 4.84 $185,285 6,904 3.73 $160,984 6,551 4.07
======== ------- ------ ======== ------- ---- ======== ------- ------
Net interest income;
interest rate spread................. $ 6,878 2.86% $ 7,054 3.24% $ 6,710 3.47%
======= ==== ======= ==== ======= ====
Net interest margin(2)................ 3.22% 3.52% 3.82%
====== ==== ======
Average interest-earning
assets to average interest
bearing liabilities.................. 108.21% 108.12% 109.25%
====== ====== ======
</TABLE>
__________________
(1) Excludes non-interest-bearing deposits and cash of $5,540,000, $5,497,000,
and $3,986,000 as of June 30, 1995, 1994, and 1993, respectively.
(2) Net interest margin is net interest income divided by average interest-
earning assets.
36
<PAGE>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
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
higher outstanding balances and that due to interest rates. For each category
of interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (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). Changes attributable to both rate and volume which
cannot be segregated have been allocated proportionately to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------------------------
1995 1994
------------------------------------- ------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Total Due to Total
-------------------- Increase ------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------- ------- ---------- -------- ----- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans............................ $ 429 $ (55) $ 374 $ 470 $(761) $(291)
Mortgage-backed securities....... 541 1,554 2,095 876 (28) 848
Investment securities............ (4) 66 62 18 -- 18
Federal funds and other
interest-earning assets......... (128) 76 (52) 23 99 122
----- ------ ------ ------ ----- -----
Total interest-earning assets.. 838 1,641 2,479 1,387 (690) 697
----- ------ ------ ------ ----- -----
Interest-bearing liabilities:
Deposits......................... 96 869 965 144 (618) (474)
FHLB advances and other
borrowings...................... 433 1,257 1,690 716 111 827
----- ------ ------ ------ ----- -----
Total interest-bearing
liabilities................... 529 2,126 2,655 860 (507) 353
----- ------ ------ ------ ----- -----
Increase (decrease) in net
interest income.................. $ 309 $ (485) $ (176) $ 527 $(183) $ 344
===== ====== ====== ====== ===== =====
</TABLE>
37
<PAGE>
The following table presents the yields received on loans, investments and other
interest-earning assets, the rates paid on savings deposits and borrowings and
the resultant interest rate spreads at the dates and for the periods indicated.
Weighted average balances are based on average month-end balances.
<TABLE>
<CAPTION>
At June 30,
-----------------
1995 1994 1993
----- ----- ----
<S> <C> <C> <C>
Weighted average yield on:
Loans receivable................... 9.09% 8.35% 8.40%
Mortgage-backed securities......... 7.11 5.66 4.81
Investment securities.............. 5.51 5.04 4.00
Other interest-earning assets...... 5.44 3.20 3.05
Combined weighted average
yield on interest-earning
assets............................ 8.15 7.09 6.76
Weighted average rate paid on:
Savings deposits................... 4.85 3.88 3.94
Borrowings (FHLB advances)......... 6.14 4.40 3.26
Combined weighted average
rate paid on interest-bearing
liabilities...................... 5.26 4.06 3.76
Spread.............................. 2.89 3.03 3.00
Year Ended June 30,
-------------------
1995 1994 1993
---- ---- ----
Average yield on:
Loans receivable................... 8.63% 8.68% 9.38%
Mortgage-backed securities......... 6.62 4.78 4.83
Investment securities.............. 5.30 3.99 3.99
Other interest-earning assets...... 7.02 5.72 4.22
Combined average yield on
interest-earning assets........... 7.70 6.97 7.54
Average rate paid on:...............
Savings deposits................... 4.51 3.83 4.29
Borrowings (FHLB advances)......... 5.56 3.47 3.14
Combined average rate paid
on interest-bearing liabilities.. 4.84 3.73 4.07
Spread.............................. 2.86 3.24 3.47
Net interest margin (net interest
earnings divided by average
interest-earning assets)........... 3.22 3.52 3.82
</TABLE>
38
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDING JUNE 30, 1995 AND JUNE 30,
1994
General. The Company's net income before the cumulative effect of change
in accounting principal decreased $292,000 to $2,741,000 for the fiscal year
ended June 30, 1995 from $3,033,000 for the fiscal year ended June 30, 1994.
The net income for the fiscal year ended June 30, 1994 was $3,468,000 after
recognizing $435,000 of additional income as a result of adopting FASB Statement
No. 109 "Accounting for Income Taxes" effective July 1, 1993.
Net Interest Income. The Company's net interest income decreased $176,000
for the fiscal year ended
June 30, 1995 to $6,878,000 from $7,054,000 for the fiscal year ended June 30,
1994. This was primarily a result of the decreased spread for the fiscal year
ended June 30, 1995.
Interest Income. Interest income increased $2,479,000 to $16,437,000 for
the fiscal year ended June 30, 1995 from $13,958,000 for the fiscal year ended
June 30, 1994. Interest on loans increased $374,000 for the fiscal year ended
June 30, 1995. This was primarily due to increased average balances on the loan
portfolio. Interest on mortgage-backed and related securities increased
$2,095,000 to $5,760,000 for the fiscal year ended June 30, 1995 from $3,665,000
for the year ended June 30, 1994. The increase is due to increased average
balances of mortgage-backed and related securities as well as increased yields
during fiscal year ended June 30, 1995.
Interest Expense. Interest expense increased $2,655,000 to $9,559,000 for
the fiscal year ended June 30, 1995 from $6,904,000 for the fiscal year ended
June 30, 1994. Interest on savings increased $965,000 to $6,055,000 for the
fiscal year ended June 30, 1995. This increase was primarily due to the
increase in the average cost of deposits. Interest on advances from the FHLB
increased $1,690,000 to $3,504,000 for the fiscal year ended June 30, 1995 from
$1,814,000 for the fiscal year ended June 30, 1994. This increase was due to
increased average advance balances outstanding during fiscal year ended June 30,
1995 as well as increased borrowing costs. During the last three fiscal years,
the Company has utilized short-term borrowings in order to fund the purchase of
mortgage-backed securities, most of which have adjustable rates and to a much
lesser extent, fund loan demand. In a rising interest rate environment, such as
the Company experienced in fiscal 1995, if interest rates increase on the
borrowings at a faster or more increased rate than the adjustment on the
mortgage-backed securities and adjustable rate loans, the Company would expect
to realize a decrease in the spread earned on the assets acquired with such
borrowings.
Provision for Possible Loan Losses. The provision for possible loan losses
decreased $34,000 to $44,000 for the fiscal year ended June 30, 1995 from
$78,000 for the fiscal year ended June 30, 1994. The Company continues to
experience favorable loan loss experience. The allowance for loan losses was
constant at $1.1 million at June 30, 1995 and 1994.
There can be no assurance that future losses will not exceed the estimated
amounts, thereby adversely affecting future results of operations. Future
additions to the Company's allowance for loan losses and any change in the
related ratio of the allowance for loan losses to non-performing loans are
dependent upon the economy, changes in real estate values and interest rates,
the view of the regulatory authorities toward adequate reserve levels, and
inflation.
Other Income. Other income increased $86,000 to $2,076,000 for the fiscal
year ended June 30, 1995 from $1,990,000 for the fiscal year ended June 30,
1994. Gain on sale of assets decreased $19,000 to $698,000 from $717,000 for
the fiscal year ended June 30, 1994. Gains on the sale of loans decreased
$193,000 to $43,000 primarily due to low levels of fixed rate refinanced loans
due to increasing rate levels. A branch facility was sold during the fiscal
year ended June 30, 1994 which resulted in a gain of $98,000. Gains on sale of
marketable equity securities increased $272,000 to $655,000 for the fiscal year
ended June 30, 1995. The Company has been purchasing initial public offerings
of thrift stocks as part of its investment practices.
Other Expenses. Other expenses increased $587,000 to $4,773,000 for the
fiscal year ended June 30, 1995 from $4,186,000 for the fiscal year ended June
30, 1994. Compensation and benefits increased $283,000 to $2,773,000 for the
fiscal year ended June 30, 1995 from $2,490,000 for the fiscal year ended June
30, 1994. This was primarily due to the anticipated termination of the Employee
Stock Ownership Plan in conjunction with the proposed merger with FMBI. Other
real estate owned expense, net increased $184,000 to $63,000 for the fiscal year
ended June 30, 1995 from $(121,000) for the fiscal year ended June 30, 1994.
This was due to reductions in the gains on sale of other real estate owned.
Other expense increased $126,000 to $820,000 for the fiscal year ended June 30,
1995 from $694,000 for the fiscal year ended June 30, 1994. This increase is
primarily due to increased professional fees of $90,000 in conjunction with the
proposed merger with FMBI.
39
<PAGE>
Income Taxes. Income taxes decreased $351,000 to $1,396,000 for the fiscal
year ended June 30, 1995 from $1,747,000 for the fiscal year ended June 30,
1994. This was mainly due to the decrease in the Company's profitability from
the previous year.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDING JUNE 30, 1994 AND JUNE 30,
1993
General. The Company's net income before the cumulative effect of change
in accounting principle increased $530,000 to $3,033,000 for the fiscal year
ended June 30, 1994 from $2,503,000 for the fiscal year ended June 30, 1993.
The net income for the fiscal year ended June 30, 1994 was $3,468,000 after
recognizing $435,000 of additional income as a result of adopting FASB Statement
No. 109 "Accounting for Income Taxes" effective July 1, 1993.
Net Interest Income. The Company's net interest income decreased $344,000
for the fiscal year ended June 30, 1994 to $7,054,000 from $6,710,000 for the
fiscal year ended June 30, 1993. This was primarily a result of the spread
earned on higher average balances of earning assets for the fiscal year ended
June 30, 1994.
Interest Income. Interest income increased $697,000 to $13,958,000 for the
fiscal year ended June 30, 1994 from $13,261,000 for the fiscal year ended June
30, 1993. Interest on loans decreased $291,000 for the fiscal year ended June
30, 1994. This was primarily due to reduced yields on the loan portfolio due to
declining interest rate levels. Interest on mortgage-backed and related
securities increased $848,000 to $3,665,000 for the fiscal year ended June 30,
1994 from $2,817,000 for the year ended June 30, 1993. The increase is
primarily due to increased average balances of mortgage-backed and related
securities during fiscal year ended June 30, 1994.
Interest Expense. Interest expense increased $353,000 to $6,904,000 for
the fiscal year ended June 30, 1994 from $6,551,000 for the fiscal year ended
June 30, 1993. Interest on savings decreased $474,000 to $5,090,000 for the
fiscal year ended June 30, 1994. This decrease was primarily due to the
decrease in the average cost of deposits. Interest on advances from the FHLB
increased $827,000 to $1,814,000 for the fiscal year ended June 30, 1994 from
$987,000 for the fiscal year ended June 30, 1993. This increase was primarily
due to increased average advance balances outstanding during fiscal year ended
June 30, 1994. During the last two fiscal years, the Company has utilized
short-term borrowings in order to fund the purchase mortgage-backed securities,
most of which have adjustable rates and to a much lesser extent, fund loan
demand. In a rising interest rate environment, such as the Company began to
experience at the end of fiscal 1994, if interest rates increase on the
borrowings at a faster or more increased rate than the adjustment on the
mortgage-backed securities and adjustable rate loans, the Company would expect
to realize a decrease in the spread earned on the assets acquired with such
borrowings.
Provision for Possible Loan Losses. The provision for possible loan losses
decreased $26,000 to $78,000 for the fiscal year ended June 30, 1994 from
$104,000 for the fiscal year ended June 30, 1993. The Company continues to
experience favorable loan loss experience. The allowance for loan losses was
constant at $1.1 million at June 30, 1994 and 1993.
There can be no assurance that future losses will not exceed the estimated
amounts, thereby adversely affecting future results of operations. Future
additions to the Company's allowance for loan losses and any change in the
related ratio of the allowance for loan losses to non-performing loans are
dependent upon the economy, changes in real estate values and interest rates,
the view of the regulatory authorities toward adequate reserve levels, and
inflation.
Other Income. Other income increased $463,000 to $1,990,000 for the fiscal
year ended June 30, 1994 from $1,527,000 for the fiscal year ended June 30,
1993. Gain on sale of assets increased $552,000 to $717,000 from $165,000 for
the fiscal year ended June 30, 1993. Gains on the sale of loans increased
$124,000 to $236,000 primarily due to high levels of fixed rate refinanced loans
due to declining rate levels. A branch facility was sold during the fiscal year
ended June 30, 1994 which resulted in a gain of $98,000. Gains on sale of
marketable equity securities increased $330,000 to $383,000 for the fiscal year
ended June 30, 1994. The Company has been purchasing initial public offerings
of thrift stocks as part of its investment practices.
Other Expenses. Other expenses increased $81,000 to $4,186,000 for the
fiscal year ended June 30, 1994 from $4,105,000 for the fiscal year ended June
30, 1993. Federal insurance increased $112,000 to $309,000 for the fiscal year
ended June 30, 1993. There was no recapture of the FSLIC Secondary Reserve in
the fiscal year ending June 30, 1994 which accounts for the increase to normal
levels.
Income Taxes. Income taxes decreased $222,000 to $1,747,000 for the fiscal
year ended June 30, 1994 from $1,525,000 for the fiscal year ended June 30,
1993. This was due to the improvement in the Company's profitability from the
previous year.
40
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are deposits, amortization and
prepayment of loan principal (including mortgage-backed securities), borrowings,
maturities of investment securities, mortgage-backed securities and short-term
investments and operations. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and early loan repayments
are more influenced by interest rates, general economic conditions, and
competition, and most recently, the restructuring of the thrift industry. The
Bank generally manages the pricing of its deposits to maintain a steady deposit
balance, but has from time to time decided not to pay deposit rates that are as
high as those of its competitors, and, when necessary, to supplement deposits
with longer term and/or less expensive alternative sources of funds.
Federal regulations historically have required the Bank to maintain minimum
levels of liquid assets. The required percentage has varied from time to time
based upon economic conditions and savings flows and is currently 5% of net
withdrawable saving deposits and borrowings payable on demand or in one year or
less during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U.S. Government, government agency
and corporate securities and other obligations generally having remaining
maturities of less than five years. The Bank has historically maintained its
liquidity ratio at levels in excess of those required. At June 30, 1995, the
Bank's liquidity ratio was 6.83%.
The primary source of cash from operating activities is net income. For the
year ended June 30, 1995, operating activities provided funds due to such net
income.
The primary investing activities of the Company are lending and purchasing
mortgage-backed securities and investment securities. For the year ended June
30, 1995, investment activities provided a net $30,000. Loan originations, net
of principal repayments and sales, used $5.5 million during the year ended June
30, 1995. Mortgage-backed securities maturities and principal prepayments
totaled $2.8 million for fiscal 1995. If general interest rates decline, the
Company would expect to experience an increase in prepayments, particularly in
its adjustable-rate mortgage loans and adjustable-rate mortgage-backed
securities. The increased funds from this source could not necessarily be re-
invested at yields and terms to maintain the net interest margins the Company
has experienced during the last three fiscal years.
For the year ended June 30, 1995, financing activities provided a net $456,000.
Historically, the primary financing activity of the Company has been deposits.
Deposits increased by $6.3 million for the year ended June 30, 1995. Advances
from the Federal Home Loan Bank used a net $5.5 million.
Liquidity management is both a daily and long-term responsibility of management.
The Company and the Bank adjust their investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) the projected amount
of loans held for re-sale by the Bank, (iii) expected deposit flows, (iv) yields
available on interest-bearing deposits, and (v) the objective of its
asset/liability management program. Excess liquidity is invested generally in
interest-bearing overnight deposits and other short-term government and agency
obligations. If the Bank requires funds beyond its ability to generate them
internally, it has additional borrowing capacity with the FHLB and collateral
eligible for reverse repurchase agreements.
The Company and the Bank anticipate that it will have sufficient funds available
to meet current loan commitments. At June 30, 1995, the Bank had outstanding
commitments to extend credit which amounted to $5.5 million.
Certificates of deposit scheduled to mature in one year or less at June 30,
1995, totaled $50.5 million. Management believes that a significant portion of
such deposits will remain with the Bank. At June 30, 1995, the Bank had $63.3
million in advances from the FHLB of Des Moines.
41
<PAGE>
Under federal law, the Bank must meet certain capital requirements applicable to
all savings institutions. At June 30, 1995, the Bank was in full compliance with
the capital requirements as set forth in the following table.
<TABLE>
<CAPTION>
OTS Requirement Bank's Capital Level at June 30, 1995
---------------- --------------------------------------
% of % of Amount
Capital Standard Assets Amount Assets Amount of Excess
---------------- ------- ------- ------ ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Tangible capital........ 1.50% $3,332 8.49% $18,847 $15,515
Core capital/(1)/....... 3.00 6,664 8.49 18,847 12,183
Risk-based capital...... 8.00 8,989 17.61 19,789 10,800
</TABLE>
--------------------
(1) In April 1991, the OTS proposed for savings associations a core capital
requirement comparable to the requirement for national banks that became
effective December 31, 1990. The proposal calls for an OTS core capital
requirement of at least 3% of total adjusted assets for thrifts that receive the
highest supervisory rating for safety and soundness, and a 4% to 5% core capital
requirement for all other thrifts.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations. Unlike
most industrial companies, nearly all the assets and liabilities of the Bank are
monetary. As a result, interest rates have a greater impact on the Bank'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.
42
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
TABLE OF CONTENTS
-----------------
Independent Auditor's Report..................... 44
Consolidated Statements of Income................ 45 and 46
Consolidated Statements of Financial Condition... 47
Consolidated Statements of Stockholders' Equity.. 48
Consolidated Statements of Cash Flows............ 49 and 50
Notes to Consolidated Financial Statements....... 51-72
Schedules (consolidated) not listed above are omitted because of the
absence of conditions under which they are required or because the
required information is included in the financial statements submitted.
43
<PAGE>
[LOGO OF MCGLADREY & PULLEN, LLP]
MCGLADREY & PULLEN, LLP
--------------------------------------------
Certified Public Accountants and Consultants
Independent Auditor's Report
----------------------------
To the Board of Directors
CF Bancorp, Inc.
Davenport, Iowa
We have audited the accompanying consolidated statements of financial
condition of CF Bancorp, Inc. and subsidiaries as of June 30, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 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 CF Bancorp,
Inc. and subsidiaries as of June 30, 1995 and 1994 and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 2 and Note 8, the Company changed its method of
accounting for securities and income taxes in 1995 and 1994, respectively.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa
July 28, 1995
44
<PAGE>
CF BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest income:
Interest on loans $ 10,078 $ 9,704 $ 9,995
Interest on mortgage-backed and related securities 5,760 3,665 2,817
Interest on investment securities 268 206 188
Other interest and dividend income 331 383 261
-------- -------- --------
Total interest income $ 16,437 $ 13,958 $ 13,261
-------- -------- --------
Interest expense: $ 6,055 $ 5,090 $ 5,564
Interest on savings deposits 3,504 1,814 987
Interest on advances from FHLB and other borrowings -------- -------- --------
Total interest expense $ 9,559 $ 6,904 $ 6,551
-------- -------- --------
Net interest income $ 6,878 $ 7,054 $ 6,710
Provision for possible loan losses 44 78 104
-------- -------- --------
Net interest income after provision for
possible loan losses $ 6,834 $ 6,976 $ 6,606
-------- -------- --------
Other income:
Loan servicing fees $ 234 $ 278 $ 301
Service charges 538 500 514
Gain on sale of assets 698 717 165
Other income 606 495 547
-------- -------- --------
$ 2,076 $ 1,990 $ 1,527
-------- -------- --------
Other expenses:
Compensation and benefits $ 2,773 $ 2,490 $ 2,441
Occupancy 327 305 263
Furniture, equipment and data processing 480 509 534
Federal insurance 310 309 197
Other real estate owned expense (income), net 63 (121) (53)
Other 820 694 723
-------- -------- --------
$ 4,773 $ 4,186 $ 4,105
-------- -------- --------
Income before income taxes and
cumulative effect of change in
accounting principle $ 4,137 $ 4,780 $ 4,028
Provision for income taxes 1,396 1,747 1,525
-------- -------- --------
Income before cumulative effect of
change in accounting principle $ 2,741 $ 3,033 $ 2,503
Cumulative effect on prior years of change in accounting
for income taxes -- 435 --
-------- -------- --------
$ 2,741 $ 3,468 $ 2,503
Net income ======== ======== ========
</TABLE>
45
<PAGE>
CF BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- ----------
<S> <C> <C> <C>
Weighted average common and common
equivalent shares 960,234 970,316 1,024,341
Weighted average common and common
equivalent shares, assuming full dilution 961,650 971,432 1,035,025
Earnings per common and common
equivalent share:
Primary:
Income before cumulative effect of
change in accounting principle $ 2.85 $ 3.13 $ 2.44
Cumulative effect on prior years of
change in accounting for income taxes -- .45 --
-------- -------- ----------
Net income $ 2.85 $ 3.58 $ 2.44
======== ======== ==========
Fully diluted:
Income before cumulative effect of
change in accounting principle $ 2.85 $ 3.12 $ 2.42
Cumulative effect on prior years of
change in accounting income taxes -- .45 --
-------- -------- ----------
Net income $ 2.85 $ 3.57 $ 2.42
======== ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
46
<PAGE>
CF BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
ASSETS -------- --------
<S> <C> <C>
Interest bearing deposits $ 3,592 $ 1,432
Noninterest-bearing deposits and cash 5,540 5,497
-------- --------
Cash and cash equivalents $ 9,132 $ 6,929
Investment securities (fair value 1995 $4,962; 1994 $5,450) 5,000 5,598
Marketable equity securities (cost 1995 $351; fair value 1994 $1,639) 514 1,421
Mortgage-backed and related securities (fair value 1995 $85,752; 1994 $86,580) 86,055 88,842
Loans held for sale 1,040 657
Loans receivable, net 116,907 112,255
Federal Home Loan Bank stock 3,487 3,487
Accrued interest receivable 1,149 1,061
Real estate acquired in settlement of loans, net 458 36
Office premises and equipment, net 1,715 1,821
Prepaid expenses and other assets 1,192 871
Net deferred income taxes 295 370
-------- --------
$226,944 $223,348
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings deposits $135,513 $129,215
Federal Home Loan Bank advances 63,285 68,739
Advance payments by borrowers for taxes and insurance 1,040 1,002
Accrued interest payable 1,058 935
Dividends payable 253 135
Accrued expenses and other liabilities 2,306 2,143
Income taxes payable 99 204
-------- --------
Total liabilities $203,554 $202,373
-------- --------
Commitments
Stockholders' equity:
Serial preferred stock, par value $.01; authorized 1,000,000 shares; no shares
issued and outstanding $ -- $ --
Common stock, par value $.01; authorized 4,000,000 shares; issued 1,000,936
shares 10 10
Additional paid-in capital 9,755 9,767
Retained earnings, substantially restricted 15,558 13,614
Unrealized gain on securities available for sale, net 107 --
Less common stock acquired by ESOP (375) (425)
Unearned stock grant compensation (48) (121)
-------- --------
$ 25,007 $ 22,845
Less cost of shares reacquired for treasury (1995 84,440 shares; 1994 100,007
shares) (1,617) (1,870)
-------- --------
Total stockholders' equity $ 23,390 $ 20,975
-------- --------
$226,944 $223,348
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
47
<PAGE>
CF BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Retained Unrealized Common
Earnings Gain On Stock
Additional Substan- Securities Acquired Unearned
Common Paid-In tially Available By Stock Grant Treasury
Stock Capital Restricted for Sale, Net ESOP Compensation Stock Total
------ ---------- ---------- ------------- -------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1992 $ 9 $8,241 $ 9,879 $ -- $(500) $(242) $ -- $17,387
Net income -- -- 2,503 -- -- -- -- 2,503
Payment on ESOP loan -- -- -- -- 25 -- -- 25
Amortization of stock grants -- -- -- -- -- 73 -- 73
Tax benefit of stock grants -- 15 -- -- -- -- -- 15
Cash dividends $.30 per share -- -- (272) -- -- -- -- (272)
Ten percent stock dividend 1 1,507 (1,508) -- -- -- -- --
Cost of 66,550 shares
reacquired for treasury -- -- -- -- -- -- (1,076) (1,076)
--- ------ ------- ---- ----- ----- ------- -------
Balance, June 30, 1993 $10 $9,763 $10,602 $ -- $(475) $(169) $(1,076) $18,655
Net income -- -- 3,468 -- -- -- -- 3,468
Payment on ESOP loan -- -- -- -- 50 -- -- 50
Amortization of stock grants -- -- -- -- -- 48 -- 48
Cash dividends $.50 per share -- -- (456) -- -- -- -- (456)
Cost of 38,959 shares
reacquired for treasury -- -- -- -- -- -- (895) (895)
Tax benefit of stock grants and
options -- 55 -- -- -- -- -- 55
Reissuance of 5,502 shares from
treasury stock upon the exercise
of stock options -- (51) -- -- -- -- 101 50
--- ------ ------- ---- ----- ----- ------- -------
Balance, June 30, 1994 $10 $9,767 $13,614 $ -- $(425) $(121) $(1,870) $20,975
Net income -- -- 2,741 -- -- -- -- 2,741
Payment on ESOP loan -- -- -- -- 50 -- -- 50
Amortization of stock grants -- -- -- -- -- 73 -- 73
Tax benefit of stock grants -- 108 -- -- -- -- -- 108
Cash dividends $.876 per share -- -- (797) -- -- -- -- (797)
Effect of adopting SFAS No. 115 -- -- -- 144 -- -- -- 144
Change in unrealized gain on securities
available for sale, net -- -- -- (37) -- -- -- (37)
Cost of 442 shares reacquired for
treasury -- -- -- -- -- -- (12) (12)
Reissuance of 16,009 shares from
treasury stock upon the exercise
of stock options -- (120) -- -- -- -- 265 145
--- ------ ------- ---- ----- ----- ------- -------
Balance, June 30, 1995 $10 $9,755 $15,558 $107 $(375) $ (48) $(1,617) $23,390
=== ====== ======= ==== ===== ===== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
48
<PAGE>
CF BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
(DOLLARS IN THOUSANDS)
(PAGE 1 OF 2)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,741 $ 3,468 $ 2,503
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting principle -- (435) --
Depreciation 213 209
Provision for loan losses and losses on real estate
owned, net (55) (161) (64)
Amortization of premiums and discounts on investment
and mortgage-backed and related securities, net 20 64 34
Amortization of stock grant compensation 73 48 73
Amortization of loan discounts (92) (130) (186)
Proceeds from loans sold 3,325 21,023 6,300
Loans originated for resale (3,665) (19,919) (7,678)
Gain on sale of assets (698) (717) (165)
Federal Home Loan Bank stock dividends -- -- (165)
Deferred income taxes 19 105 38
Changes in assets and liabilities:
(Increase) in accrued interest receivable (88) (215) (52)
(Increase) in prepaid expenses and other assets (321) (65) (480)
Increase (decrease) in accrued interest payable 123 84 (192)
Increase (decrease) in accrued expenses and other
liabilities 228 (626) 301
Increase (decrease) in income taxes payable (105) 13 106
-------- -------- --------
Net cash provided by operating activities $ 1,717 $ 2,750 $ 582
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities $ 598 $ 4,557 $ 7,476
Purchase of investment securities -- (5,390) (6,465)
Proceeds from sale of marketable equity securities 6,623 1,948 224
Purchase of marketable equity securities (4,898) (2,558) (599)
Principal repayments on mortgage-backed and related
securities 2,767 45,446 14,353
Purchase of mortgage-backed and related securities -- (60,114) (59,767)
(Purchase) of Federal Home Loan Bank stock -- (496) (1,762)
Proceeds from sale of loans -- 400 2,163
Loan originations and principal payment on loans, net (5,489) (2,578) (14,386)
Proceeds from sales of real estate acquired in
settlement of loans 610 181 261
Proceeds from sale of property and equipment 4 241 --
Purchase of property and equipment (110) (66) (232)
Additions to real estate owned (63) -- --
-------- -------- --------
Net cash provided by (used in)
investing activities $ 42 $(18,429) $(58,734)
-------- -------- --------
</TABLE>
49
<PAGE>
CF BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
(DOLLARS IN THOUSANDS)
(PAGE 2 OF 2)
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in savings deposits $ 6,298 $ (5,897) $ 4,867
Advances from Federal Home Loan Bank 62,550 69,330 66,000
Payment on advances from Federal Home Loan Bank (68,004) (50,062) (16,529)
Net increase in mortgage escrow funds 38 134 122
Net proceeds (payment) from oversubscription
of common stock -- -- (3,405)
Tax benefit of stock grants and options 108 55 15
Proceeds from exercise of stock options 145 50 --
Cash dividends paid (679) (396) (197)
Purchase of common stock for the treasury (12) (895) (1,076)
--------- -------- --------
Net cash provided by financing activities $ 444 $ 12,319 $ 49,797
--------- -------- --------
Increase (decrease) in cash and cash
equivalents $ 2,203 $ (3,360) $ (8,355)
Cash and cash equivalents:
Beginning 6,929 10,289 18,644
--------- -------- --------
Ending $ 9,132 $ 6,929 $ 10,289
========= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 9,436 $ 6,820 $ 6,743
Income taxes 1,481 1,573 1,419
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Transfers from loans to real estate acquired through
foreclosure $ 1,449 $ 305 $ 739
Loans originated from sale of real estate acquired in
settlement of loans 564 589 497
Effect of adoption of SFAS No. 115 144 -- --
Change in unrealized gain on securities available
for sale, net (37) -- --
</TABLE>
See Notes to Consolidated Financial Statements.
50
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES
Nature of business:
CF Bancorp, Inc. is a savings bank holding company whose subsidiaries
provide retail financial services.
Significant accounting policies:
Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Citizens Federal Savings
Bank and its subsidiaries, Citizens Federal Insurance Agency, Inc.,
Citizens Service Corporation, and CF Investments, Inc. All material
intercompany accounts and transactions have been eliminated in
consolidation.
Cash and cash equivalents:
Cash and cash equivalents include cash and amounts due from
depository institutions, interest-bearing deposits in banks, and
federal funds sold. For purposes of reporting cash flows, the
Company considers all highly liquid debt instruments with original
maturities of less than three months to be cash equivalents.
Federal Reserve Board regulations require savings institutions to
maintain noninterest-earning reserves against their transaction
accounts, nonpersonal time deposits with an original maturity of
less than one and one-half years and certain money market deposit
accounts. At June 30, 1995 the reserve requirement amounted to
$260,000 and was exceeded by vault cash.
Securities:
Effective July 1, 1994, the Company adopted Financial Accounting
Standards Board Statement No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." Statement 115 requires
investments in debt and equity securities be classified as
securities held to maturity, securities available for sale or
trading securities.
Securities classified as held to maturity are those debt securities
the Company has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or
changes in general economic conditions. These securities are
carried at cost adjusted for amortization of premium and accretion
of discount, computed by the interest method over their contractual
lives.
Securities classified as available for sale are those debt
securities that the Company intends to hold for an indefinite
period of time, but not necessarily to maturity. Any decision to
sell a security classified as available for sale would be based on
various factors, including significant movements in interest rates,
changes in the maturity mix of the Company's assets and
liabilities, liquidity needs, regulatory capital considerations and
other similar factors. Securities available for sale are carried at
fair value. Unrealized gains or losses are reported as increases or
decreases in stockholders' equity, net of the related deferred tax
effect. Realized gains or losses, determined on the basis of the
cost of specific securities sold, are included as a component of
net income.
Securities classified as trading securities are those debt and
equity securities that are purchased and held for sale in the near
term. Trading securities are carried at fair value with unrealized
gains and losses included in income. The Company has no trading
securities.
Prior to the adoption of Statement 115, all of the Company's
securities were classified as investment securities and were
carried at amortized cost.
Federal Home Loan Bank stock is carried at cost, which is equal to
its redemption value.
51
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans held for sale:
Loans held for sale generally consist of the current production of
certain fixed-rate first mortgage loans which are recorded at the
lower of aggregate cost or market value. Estimated market value
considers prevailing market rates and generally, the loans are sold
within 30 days of origination.
Loans receivable:
Loans receivable are stated at unpaid principal balances, less the
allowance for loan losses, loans in process, and net deferred loan-
origination fees and discounts.
Discounts on first-mortgage loans are amortized to income using the
interest method over the remaining period to contractual maturity,
adjusted for anticipated prepayments. Discounts on consumer loans are
recognized over the lives of the loans using the interest method.
The allowance for loan losses is increased by charges to income and
decreased by loan charge-offs net of loan recoveries. Management's
periodic evaluation of the adequacy of the allowance is based on the
subsidiary Bank's past loan loss experience, known and inherent risks
in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral,
and current economic conditions.
Uncollectible interest on loans that are 90 days past due is charged
off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest
income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are
received until, in management's judgement, the borrower's ability to
make periodic interest and principal payments is back to normal, in
which case the loan is returned to accrual status.
Loan origination fees and discounts:
The subsidiary bank receives fees for originating and servicing loans.
Loan fees and certain direct loan origination costs are deferred, and
the net fee or cost is recognized as an adjustment to interest income
using the interest method over the actual life of the loans.
Real estate acquired in settlement of loans:
Real estate acquired in settlement of loans is initially recorded at
the lower of cost (loan value of real estate acquired in settlement of
loans plus incidental expenses) or estimated fair value minus
estimated costs to sell the property. Based on periodic evaluations
by management, the carrying values are reduced when they exceed net
realizable value. Costs relating to the development and improvement
of the property are capitalized, whereas those relating to holding the
property are expensed.
Office premises and equipment:
Office premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed primarily by the straight-line
method over the estimated useful life of the assets.
52
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes:
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and deferred
tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
The Company and each of its subsidiaries are parties to a tax sharing
agreement which provides for calculation and payment by each party of
its allocation of the tax liability of the parties.
Off-balance sheet risk:
The subsidiary bank is a party to financial instruments with off-balance
sheet risk such as commitments to extend credit and purchase loans or
investment securities. Management assesses the risk related to these
instruments for potential loss.
Earnings per common share:
Earnings per common share is calculated using the weighted average
number of common stock and common stock equivalent (stock options)
shares outstanding.
NOTE 2. SECURITIES
As discussed in Note 1, the Company adopted Financial Accounting
Standards Board Statement No. 115 effective July 1, 1994. The adoption
of Statement 115 had the effect of increasing stockholders' equity as of
July 1, 1994, by approximately $144,000, net of related deferred income
tax of $74,000.
Amortized cost and estimated fair values of securities as of June 30,
1995 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Securities held to maturity:
---------------------------
Investment securities,
United States
government and agency
securities $ 5,000 $ -- $ 38 $ 4,962
-------- -------- -------- --------
Mortgage-backed and
related securities:
FNMA Certificates $ 797 $ 23 $ -- $ 820
FHLMC Certificates 2,894 4 96 2,802
GNMA Certificates 6,345 29 2 6,372
Collateralized mortgage
obligations 76,019 186 447 75,758
-------- -------- -------- --------
$ 86,055 $ 242 $ 545 $ 85,752
-------- -------- -------- --------
$ 91,055 $ 242 $ 583 $ 90,714
======== ======== ======== ========
Securities available for sale:
-----------------------------
Marketable equity
securities, common stock $ 351 $ 171 $ 8 $ 514
======== ======== ======== ========
</TABLE>
53
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and estimated fair value of securities as of June 30, 1994
are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Investment securities:
---------------------
United States government and agency securities $ 5,000 $ -- $ 148 $ 4,852
Interest-bearing deposits at financial institutions
598 -- -- 598
Mortgage-backed and related securities: ------- ---- ------ -------
-------------------------------------- $ 5,598 $ -- $ 148 $ 5,450
FNMA Certificates ======= ==== ====== =======
FHLMC Certificates
GNMA Certificates
Collateralized mortgage obligations $ 876 $ -- $ 3 $ 873
3,306 -- 172 3,134
6,947 -- 224 6,723
Marketable equity securities,
----------------------------- 77,713 123 1,986 75,850
common stocks ------- ---- ------ -------
$88,842 $123 $2,385 $86,580
======= ==== ====== =======
$ 1,421 $230 $ 12 $ 1,639
======= ==== ====== =======
</TABLE>
The amortized cost and estimated fair value of investment securities as of
June 30, 1995 by contractual maturity are shown below.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
--------- ---------
<S> <C> <C>
Due after one year through five years $4,000 $3,972
Due after five years through ten years 1,000 990
------ ------
$5,000 $4,962
====== ======
</TABLE>
Mortgage-backed and related securities are composed of certificates representing
interests in pools of primarily adjustable interest rate single family mortgage
loans originated for terms of 15 to 30 years. However, very few of these loans
remain outstanding for their entire term. Generally, scheduled repayments
gradually reduce the outstanding balance until the underlying property is sold
and the loan paid off.
There were no sales of investment securities and mortgage-backed and related
securities during the years ended June 30, 1995, 1994 and 1993. Proceeds, gross
gains, and gross losses from sale of marketable equity securities are summarized
as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------
1995 1994 1993
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Proceeds $6,623 $1,948 $224
Gross gains 655 383 53
Gross losses -- -- --
</TABLE>
Mortgage-backed and related securities and investment securities with principal
balances totalling $68,120,000 at June 30, 1995 are pledged to collateralize
short-term borrowings with the Federal Home Loan Bank.
54
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS RECEIVABLE AND REAL ESTATE
ACQUIRED IN SETTLEMENT OF LOANS
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
June 30,
----------------------
1995 1994
---------- ----------
(In Thousands)
<S> <C> <C>
First mortgage loans (principally conventional):
Principal balances:
Collateralized by one-to-four family residences $ 57,931 $ 59,858
Collateralized by other properties 2,757 3,497
Construction loans 6,515 9,034
-------- --------
Consumer and other loans: $ 67,203 $ 72,389
Principal balances: -------- --------
Home equity and improvement
Mobile home
Automobile $ 31,013 $ 26,631
Recreational 12,174 9,663
Other 5,591 4,805
2,295 2,517
Less: 1,675 1,465
Loans in process -------- --------
Deferred fees and discounts $ 52,748 $ 45,081
-------- --------
Less allowance for loan losses $ (1,792) $ (3,834)
(195) (287)
-------- --------
$ (1,987) $ (4,121)
-------- --------
$ (1,057) $ (1,094)
-------- --------
$116,907 $112,255
======== ========
</TABLE>
The Bank has both adjustable and fixed interest rate loans. At June 30, 1995,
adjustable interest rate loans aggregated $53,783,000 and fixed interest rate
loans aggregated $67,208,000, including $1,040,000 of loans held for sale.
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------
1995 1994 1993
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,094 $1,110 $1,102
Provision charged to income 44 78 104
Charge-offs (93) (117) (111)
Recoveries 12 23 15
------ ------ ------
Balance at end of year $1,057 $1,094 $1,110
====== ====== ======
</TABLE>
55
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity in the allowance for real estate acquired in settlement of loans is
summarized as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------
1995 1994 1993
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year $ -- $ 197 $ 193
Provision charged to income (99) (239) (168)
Charge-offs (12) (258) (47)
Recoveries 124 300 219
---- ----- -----
Balance at end of year $ 13 $ -- $ 197
==== ===== =====
</TABLE>
The balance of nonaccrual loans at June 30, 1995 and 1994 was approximately
$303,000 and $164,000, respectively.
Interest income that would have been recorded under the original terms of such
loans and the interest income actually recognized are summarized below:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------
1995 1994 1993
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Interest income that would have been recognized
Interest income recognized $10 $16 $31
Interest income foregone 1 1 7
--- --- ---
$ 9 $15 $24
=== === ===
</TABLE>
The Bank is not committed to make additional loans to debtors whose loans have
been modified.
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. Servicing loans for others
generally consist of collecting mortgage payments, maintaining escrow accounts,
disbursing payments to investors and foreclosure processing. Loan servicing
income is recognized on the accrual basis and includes servicing fees from
investors and certain charges collected from borrowers, such as late payment
fees. The unpaid principal balances and borrowers' escrow balances are
summarized as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------
1995 1994 1993
-------- --------- --------
(In Thousands)
<S> <C> <C> <C>
Mortgage loan portfolios serviced for:
FHLMC
Others $41,671 $44,179 $37,476
3,656 4,847 6,054
------- ------- -------
Borrowers' escrow balances on $45,327 $49,026 $43,530
mortgage loans serviced for others ======= ======= =======
$ 480 $ 471 $ 361
======= ======= =======
</TABLE>
Loans to directors and executive officers are made on substantially the same
terms as those for other loan customers.
56
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a reconciliation of loans outstanding in excess of
$100,000 for executive officers and directors:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------
1995 1994
-------- --------
(In Thousands)
<S> <C> <C>
Balance, beginning of period $ 663 $ 102
Existing loans to individual becoming related to officer
New loans -- 1,645
Repayments 215 --
Balance, end of period (398) (1,084)
----- -------
$ 480 $ 663
===== =======
</TABLE>
NOTE 4. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
June 30,
----------------------
1995 1994
-------- --------
(In Thousands)
<S> <C> <C>
Investment securities $ 91 $ 126
Mortgage-backed and related securities 296 258
Loans receivable 762 677
------ ------
$1,149 $1,061
====== ======
</TABLE>
NOTE 5. OFFICE PREMISES AND EQUIPMENT
Office premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
June 30,
----------------------
1995 1994
-------- --------
(In Thousands)
<S> <C> <C>
Land and buildings $3,122 $3,122
Furniture and equipment 1,338 1,251
------ ------
$4,460 $4,373
Less accumulated depreciation 2,745 2,552
------ ------
$1,715 $1,821
====== ======
</TABLE>
The subsidiary bank leases the land for three of their branches under
various non-cancelable agreements which expire between December 31, 2006
and December 31, 2014 and require various minimum annual rentals, plus
the payment of property taxes, normal maintenance and insurance on the
property. As of June 30, 1995, the facilities located on this leased
land had a depreciated cost of $337,000.
57
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The total minimum rental commitment under these leases as of June 30,
1995 is $1,035,000, which is due as follows:
<TABLE>
<CAPTION>
Year ending June 30:
<S> <C>
1996 $ 91,000
1997 94,000
1998 95,000
1999 96,000
2000 100,000
2001 through 2014 559,000
</TABLE>
The total rent expense for the years ended June 30, 1995, 1994, and
1993 was $109,000, $105,000, and $104,000, respectively.
NOTE 6. SAVINGS DEPOSITS
Savings deposit accounts are summarized as follows:
<TABLE>
<CAPTION>
June 30,
--------------------------------------------
1995 1994
-------------------- ----------------------
Weighted Weighted
Average Average
Nominal Nominal
Rate Balance Rate Balance
--------- --------- ----------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Demand accounts:
Non-interest bearing --% $ 7,039 --% $ 6,333
NOW accounts 1.95 7,399 1.95 7,845
Money management accounts 5.54 37,745 3.55 19,662
-------- --------
Total demand $ 52,183 $ 33,840
-------- --------
Passbook accounts 2.11 $ 10,326 2.13 $ 15,685
-------- --------
Certificate accounts (remaining
maturity):
Within one year:
Six months 5.47 $ 33,005 4.21 $ 39,006
Other within one year 6.13 17,496 5.03 10,608
One year to three years 5.70 18,371 5.42 17,867
Over three years 5.33 4,132 5.75 12,209
-------- --------
Total certificate accounts $ 73,004 $ 79,690
-------- --------
Total savings deposits $135,513 $129,215
======== ========
</TABLE>
Certificates of deposit equal to or in excess of $100,000 at June 30,
1995 and 1994 aggregated $8,318,000 and $8,574,000, respectively.
58
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturities of certificate accounts as of June 30, 1995 are summarized as
follows:
<TABLE>
<CAPTION>
<S> <C>
Year maturing June 30 (in thousands):
1996 $50,501
1997 9,187
1998 9,184
1999 2,358
2000 and thereafter 1,774
-------
$73,004
=======
</TABLE>
Interest expense on savings deposits consists of the following:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
(In Thousands)
NOW accounts $ 145 $ 166 $ 190
Money management accounts 1,425 498 541
Passbook accounts 256 373 468
Certificate accounts 4,229 4,053 4,365
------ ------ ------
$6,055 $5,090 $5,564
====== ====== ======
</TABLE>
59
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows rate and maturity information for the subsidiary
Bank's certificates of deposit as of June 30, 1995 (dollars in thousands).
<TABLE>
<CAPTION>
0.00- 4.00- 5.00- 6.00- 7.00- 8.00- Percent
3.99% 4.99% 5.99% 6.99% 7.99% 8.99% Total Of Total
------ ------- ------- ------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts maturing
in quarter ending:
September 30, 1995 $459 $ 6,136 $ 9,206 $ 3,410 $ 340 $ 668 $20,219 27.69%
December 31, 1995 254 3,647 5,115 3,452 287 31 12,786 17.51
March 31, 1996 -- 2,233 760 3,895 5,087 216 12,191 16.70
June 30, 1996 40 1,160 597 3,138 212 158 5,305 7.27
September 30, 1996 -- 873 1,672 139 103 61 2,848 3.90
December 31, 1996 -- 761 181 252 22 33 1,249 1.71
March 31, 1997 -- 772 236 50 132 -- 1,190 1.63
June 30, 1997 -- 347 247 3,306 -- -- 3,900 5.34
September 30, 1997 -- 451 529 3,584 -- -- 4,564 6.25
December 31, 1997 -- 343 302 915 -- -- 1,560 2.14
March 31, 1998 -- 414 355 819 -- -- 1,588 2.17
June 30, 1998 -- 61 525 886 -- -- 1,472 2.02
September 30, 1998 -- 195 927 -- -- -- 1,122 1.54
December 31, 1998 -- 9 338 -- -- -- 347 .48
March 31, 1999 -- -- 642 -- -- -- 642 .88
June 30, 1999 -- -- 247 -- -- -- 247 .34
September 30, 1999 -- -- 594 -- -- -- 594 .81
December 31, 1999 -- -- 269 -- -- -- 269 .37
March 31, 2000 -- -- 450 -- -- -- 450 .62
June 30, 2000 -- -- 435 -- -- -- 435 .60
September 30, 2000 -- -- 15 -- -- -- 15 .02
December 31, 2000 -- -- -- -- -- -- -- --
March 31, 2001 -- -- 2 -- -- -- 2 --
June 30, 2001 -- -- -- -- -- -- -- --
September 30, 2001 -- -- 3 -- -- -- 3 --
December 31, 2001 -- -- -- -- -- -- -- --
March 31, 2002 -- -- 6 -- -- -- 6 .01
---- ------- ------- ------- ------ ------ ------- ------
Total $753 $17,402 $23,653 $23,846 $6,183 $1,167 $73,004 100.00%
==== ======= ======= ======= ====== ====== ======= ======
Percent of total 1.03% 23.84% 32.40% 32.66% 8.47% 1.60% 100.00%
==== ======= ======= ======= ====== ====== =======
</TABLE>
60
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. FEDERAL HOME LOAN BANK ADVANCES
The subsidiary bank maintains an open line-of-credit with the Federal
Home Loan Bank which allows the Bank to borrow up to $5,000,000. The
interest rate changes daily and the agreement expires September 16,
1995. Advances were taken on the line during the year ended June 30,
1995 with $3,500,000 outstanding at June 30, 1995 at 6.46%. Mortgage
loans with principal balances of approximately $7,500,000 as of June
30, 1995 are pledged as collateral on the line-of-credit borrowings.
The subsidiary bank also has short-term repurchase advances from the
Federal Home Loan Bank which bear interest and are due as follows:
<TABLE>
<CAPTION>
Interest Rate Balance Due
------------- -----------
<S> <C> <C>
July 1995 6.12% $59,785,000
</TABLE>
Mortgage-backed securities and investment securities of approximately
$68,120,000 as of June 30, 1995 are pledged as collateral on these
advances.
During the year ended June 30, 1995 the maximum amount of advances
outstanding at a month-end was $68,739,000. The average balance of
advances for the year was $63,065,000.
NOTE 8. INCOME TAX MATTERS
The Company and its subsidiaries file consolidated federal income tax
returns on a fiscal year basis. Under the existing provisions of the
Internal Revenue Code and similar sections of the Iowa income tax law,
the subsidiary bank is allowed a special bad debt deduction based on a
percentage of taxable income (presently 8%) or on specified experience
formulas. The subsidiary bank used the experience method in 1995 and
the percentage of taxable income method in 1994 and 1993.
Effective July 1, 1993 the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes". The adoption of Statement No. 109
changed the method of accounting for income taxes from the deferred
method to a liability method. Under the deferred method, the past tax
effects of timing differences between financial reporting and taxable
income were deferred. As explained in Note 1, the liability method
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the
reported amounts of assets and liabilities and their tax bases. The
effect of adopting Statement No. 109 is reflected as the cumulative
effect of an accounting change in the fiscal year 1994 consolidated
statement of income.
The provision for income taxes consists of the following:
Year Ended June 30,
----------------------------
1995 1994 1993
-------- -------- --------
(In Thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Currently payable $1,377 $1,642 $1,487
Deferred 19 105 38
------ ------ ------
$1,396 $1,747 $1,525
====== ====== ======
</TABLE>
61
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net deferred tax assets consist of the following components as of June 30, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
-------- -------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Provision for losses on loans and real estate owned $ 162 $ 220
Deferred compensation 335 293
Deferred income 62 70
Deferred gains on real estate owned -- 31
Organizational costs 17 26
Other 48 11
----- -----
$ 624 $ 652
----- -----
Deferred tax liabilities:
Net unrealized gains on securities available
for sale $ 56 $ --
Federal Home Loan Bank stock dividends 224 224
Land 47 47
Office premises and equipment 2 11
----- -----
$ 329 $ 282
----- -----
Net deferred tax assets $ 295 $ 370
===== =====
</TABLE>
The net change in deferred income taxes is reflected in the financial statements
for the years ended June 30, 1995 and 1994 as follows:
1995 1994
------ ------
(In Thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Provision for income taxes $ 19 $ 105
Statement of equity, net unrealized gains on
securities available for sale 56 --
----- -----
$ 75 $ 105
===== =====
</TABLE>
The availability of the bad-debt deduction has resulted in the creation, for tax
purposes, of sizable bad-debt reserves, to which losses can be charged when
realized. As a result, there is a possibility that part of the retained earnings
of the subsidiary bank effectively have not been taxed. If the reserve included
in retained earnings is used for any purpose other than to absorb losses, the
amount must first be reduced for taxes not previously paid. This effectively
results in a restriction on retained earnings. Retained earnings as of June 30,
1995 include approximately $3,000,000 for which no provision for income taxes
has been made. If the possible merger discussed in Note 19 occurs, the
$3,000,000 would be taxable over four years.
Total income tax expense differed from the amounts computed by applying the U.S.
federal income tax rates to income before income taxes as a result of the
following:
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Expected income tax expense at
federal tax rate
Effect of graduated tax rates 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit (1.0) (1.0) (1.0)
Other
Total income tax expense -- 3.3 3.3
(.3) (.8) .6
---- ---- ----
33.7% 36.5% 37.9%
==== ==== ====
</TABLE>
62
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. EMPLOYEE BENEFITS
The subsidiary bank sponsors a 401(k) profit sharing plan for all
employees who are at least 21 years of age and have one or more
continuous years of service during which they work at least 1,000 hours.
The plan was amended effective January 1, 1991 to allow employees to
make elective contributions through salary deferral and the Bank must
make matching contributions up to 5% of qualified compensation. The Bank
may also make additional discretionary contributions. Effective July 1,
1992, the Bank began making matching contributions of 50% of the first
5% of compensation. The total contributions of the Bank amounted to
$43,000, $41,000, and $42,000 for the years ended June 30, 1995, 1994,
and 1993, respectively.
The subsidiary bank established the Employee Stock Ownership Plan (ESOP)
for the benefit of its employees during the year ended June 30, 1992.
The ESOP is designed to meet the requirements of an employee stock
ownership plan as described at Section 4975(e)(7) of the Code and
Section 407(d)(6) of the Employee Retirement Income Security Act of
1974, as amended (ERISA), and as such, the ESOP borrowed $500,000 from
the Company to finance the purchase of 55,000 shares of the Company's
common stock. All employees of the Bank are eligible to participate in
the ESOP after they attain age 21 and complete one year of service
during which they work at least 1,000 hours. The total contributions of
the Bank amounted to $278,000, $52,000, and $64,000 for the years ended
June 30, 1995, 1994, and 1993, respectively. The increased cost
incurred in 1995 is a result of the agreement between CF Bancorp, Inc.
and First Midwest Bancorp, Inc. to pay off the remaining loan balance
and distribute out the plan assets in conjunction with the planned
acquisition of CF Bancorp, Inc. by First Midwest Bancorp., Inc. as
discussed in Note 19.
The Company also established two recognition and retention plans and
trusts (RRPs) for key officers during the year ended June 30, 1992.
Under the terms of the RRPs, awards can be granted to key officers in
the form of shares of common stock held by the RRPs. The awards will
vest at a rate of 20% per year at the end of the calendar year subject
to continued service and performance criteria. In connection with the
acquisition agreement, all unvested shares will be distributed on the
effective date of the merger. At June 30, 1995 and 1994, unearned stock
grant compensation totaled $48,000 and $121,000, respectively.
In addition to the RRP, the Company established a stock option and
incentive plan (SOP) for designated participants. Under the terms of the
SOP, a participant may be awarded an option to purchase shares,
restricted stock, stock appreciation rights or limited stock
appreciation rights. Such award may be subject to terms and conditions
as determined by the Committee appointed by the Board of Directors
responsible for administering the plan. The SOP provides for up to
100,100 shares of common stock to be issued to participants. The option
price of any options granted may not be less than the market value of
the common stock on the date of the grant. All options issued under the
plan were granted at $9.09 per share, which approximated the market
value at the date of grant, and expire on June 30, 2002.
The following summarizes the stock option transactions:
Year Ended June 30,
-----------------------
1995 1994
---------- ----------
(# of Shares)
<TABLE>
<CAPTION>
<S> <C> <C>
Balance, beginning 89,093 94,595
Granted -- --
Exercised (16,011) (5,502)
------- ------
Balance, ending 73,082 89,093
======= ======
</TABLE>
The Bank has a bonus plan for certain key officers with the bonuses computed
based on percentage of income before taxes and bonuses. The bonus expense under
this plan for the years ended June 30, 1995, 1994, and 1993 was $172,000,
$204,000, and $210,000, respectively.
In addition to the above, several employees receive incentive or production
bonuses based upon predetermined performance criteria.
63
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. FINANCIAL INSTITUTIONS REFORM, RECOVERY
AND ENFORCEMENT ACT (FIRREA) OF 1989
FIRREA requires institutions to meet certain regulatory capital
requirements. The regulations require minimum regulatory tangible
capital of 1.5% of total assets, a 3% core capital ratio, and an 8%
risk-based capital ratio. As of June 30, 1995, the Bank meets all
regulatory capital requirements.
The following is a summary of computed regulatory capital compared to
required regulatory capital:
<TABLE>
<CAPTION>
Regulatory Capital
----------------------------------------------------------------
Tangible Capital Core Capital Risk-Based Capital
------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Stockholder's equity per financial
statements $18,847 8.49% $18,847 8.49% $18,847 16.77%
Items requiring capital adjustment,
general loan loss reserves, and
equity reduction -- -- -- -- 942 .84
------- ---- ------- ---- ------- -----
Regulatory capital, as computed $18,847 8.49% $18,847 8.49% $19,789 17.61%
Minimum capital requirements 3,332 1.50 6,664 3.00 8,989 8.00
------- ---- ------- ---- ------- -----
Regulatory capital in excess of minimum
requirements $15,515 6.99% $12,183 5.49% $10,800 9.61%
======= ==== ======= ==== ======= =====
</TABLE>
64
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. GAINS ON SALES OF ASSETS
Gains are summarized as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------
1995 1994 1993
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Branch facility $ -- $ 98 $ --
Marketable equity securities 655 383 53
Loans 43 236 112
---- ---- ----
$698 $717 $165
==== ==== ====
</TABLE>
NOTE 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE
SHEET RISK
The subsidiary bank is a party to financial instruments with off-
balance sheet risk in the normal course of business to meet the
financing needs of its customers. These agreements involve, to varying
degrees, elements of credit risk in excess of the amount recognized in
the statements of financial condition. The Bank does not use financial
instruments with off-balance sheet risk as part of its own
asset/liability management program or for trading purposes.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Off-balance sheet financial instruments whose contract amounts
represent credit risk are as follows:
<TABLE>
<CAPTION>
June 30,
---------------------------
1995 1994
-------- --------
(In Thousands)
<S> <C> <C>
Commitments to extend credit under:
Commitments to originate loans $ 928 $2,730
Undisbursed loan funds 1,792 3,834
Unused lines of credit 2,788 635
------ ------
Total $5,508 $7,199
====== ======
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and any required payment of a fee. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit evaluation of the
counter-party. Such collateral consists primarily of residential
properties.
NOTE 13. CONTINGENCIES
Congress is considering legislation on the issue of a one-time Savings
Association Insurance Fund (SAIF) assessment sufficient to capitalize
SAIF and increase its reserve ratio to 1.25% of SAIF-insured deposits.
If the assessment is put into place, it would be approximately 85 to 90
basis points of SAIF-insured deposits as of March 31, 1995. This would
mean an assessment of approximately $1,200,000 to the Bank likely to be
due on or about January 1, 1996.
65
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the normal course of the banking business, there are various
commitments, legal proceedings and contingencies which are not
reflected in the accompanying consolidated financial statements. In the
opinion of management, no material losses are expected to result from
any such commitments, legal proceedings or contingencies.
NOTE 14. CONCENTRATION OF CREDIT RISK
The subsidiary bank generally originates single-family residential
loans within its primary lending area. The Bank's underwriting policies
require such loans to be made 80% or less loan-to-value, based upon
appraised values, unless private mortgage insurance is obtained. These
loans are collateralized by the underlying properties. The Bank also
originates consumer loans which are secured by underlying collateral or
are guaranteed.
NOTE 15. RESTRICTIONS ON STOCKHOLDERS' EQUITY
At the time of conversion from a mutual to a stock savings bank, the
subsidiary bank established a liquidation account in an amount equal to
the retained income of the Bank as of the latest practicable date prior
to conversion, which amounts to approximately $8,950,000 at June 30,
1992. The liquidation account was established to provide a limited
priority claim to the assets of the Bank to qualifying depositors
("eligible account holders") at September 30, 1991 who continued to
maintain deposits in the Bank after the merger conversion. In the
unlikely event of a complete liquidation of the Bank, and only in such
event, each eligible account holder would receive from the liquidation
account a liquidation distribution based on their proportionate share
of the then remaining qualifying deposits.
Current regulations allow the Bank to pay dividends on its stock if its
regulatory capital would not thereby be reduced below the amount then
required for the aforementioned liquidation account. Also capital
distribution regulations limit the Bank's ability to make capital
distributions which include dividends, stock redemptions, and
repurchases, cash-out mergers, interest payments on certain convertible
debt and other transactions charged to the capital account based on
their capital level and supervisory condition. Federal regulations also
preclude any repurchase of the stock of the Bank for three years after
conversion except for purchases of qualifying shares of a director and
repurchases pursuant to an offer made on a pro rata basis to all
stockholders and with prior approval of the Office of Thrift
Supervision or pursuant to an open-market stock repurchase program with
certain regulatory criteria.
The Bank is a tier one savings institution. A tier one savings
institution has pro forma capital ratios, after any proposed capital
distributions equal to or greater than its fully phased in capital
requirement. The Bank is allowed, after advance notice to the OTS, to
distribute up to 100 percent of net income earned to the date of
distribution during the fiscal year plus one-half of any surplus
capital that existed as of the beginning of the year. The Bank may also
pay dividends in excess of the above specified limits upon approval of
the OTS.
NOTE 16. PROPOSED FASB STATEMENTS
In May 1993, the FASB issued Statement No. 114 "Accounting By Creditors
for Impairment of a Loan". Statement No. 114 will require all creditors
to measure the impairment of a loan involved in a troubled debt
restructuring based upon the present value of the loan's future cash
flows discounted using the loans' effective interest rate. The loan can
also be valued at its fair value or the market price of its underlying
collateral if the loan is primarily collateral dependent. The statement
does not effect large groups of smaller balance homogeneous loans that
are collectively evaluated for impairment.
66
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 1994, the FASB issued Statement No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures"
which allows creditors to use existing methods for recognizing interest
income on an impaired loan. This statement amends certain requirements
of FASB Statement No. 114, specifically related to income recognition
and disclosure issues.
In October 1994 the FASB issued Statement No. 119, "Disclosure About
Derivative Financial Instruments and Fair Value of Financial
Instruments". Statement No. 119 requires the Company to make
disclosures about the purposes of the investment in derivative
financial instruments and about how the instruments are reported in
financial statements. As of June 30, 1995 the Company did not have any
derivative financial instruments.
FASB Statements No. 114, No. 118 and No. 119 become effective for
fiscal years beginning after December 15, 1994 and management believes
that their adoption will not have a material effect on the Company's
consolidated financial statements.
The Financial Accounting Standards Board has issued Statement No. 122,
Accounting for Mortgage Servicing Rights, which becomes effective for
years beginning after December 15, 1995. This Statement amends FASB
Statement No. 65, Accounting for Certain Mortgage Banking Activities,
to require that a mortgage banking enterprise recognize as separate
assets rights to service mortgage loans for others, however those
rights are acquired. A mortgage banking enterprise that acquires
mortgage servicing rights through either the purchase or organization
of mortgage loans and sells or securitizes those loans with servicing
rights retained should allocate the total cost of the mortgage loans to
the mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values. If it is not
practicable to estimate the fair values separately, the entire cost of
purchasing or originating the loans should be allocated to the mortgage
loans (without the mortgage servicing rights) and no cost should be
allocated to the mortgage servicing rights. This Statement also
requires that a mortgage banking enterprise assess its capitalized
mortgage servicing rights for impairment based on the fair value of
those rights. Neither the Company nor the Bank has addressed the
potential future impact of the application of this Statement.
67
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. PARENT ONLY CONDENSED FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
(In Thousands)
ASSETS
Cash and cash equivalents $ 3,831 $ 1,571
Marketable equity securities 514 1,421
Loans receivable 438 425
Investment in Citizens Federal Savings Bank, net of ESOP loan
Other assets 18,847 17,754
782 641
--------- ----------
$ 24,412 $ 21,812
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Dividends payable $ 253 $ 135
Accrued expenses and other liabilities 769 587
Income taxes payable -- 115
--------- ----------
Total liabilities $ 1,022 $ 837
--------- ----------
Stockholders' equity:
Serial preferred stock, par value $.01; authorized 1,000,000 shares; no
shares issued and outstanding $ -- $ --
Common stock, par value $.01; authorized 4,000,000 shares; issued
1,000,936 shares 10 10
Additional paid-in capital 9,755 9,767
Retained earnings, substantially restricted 15,558 13,614
Unrealized gain on securities available for sale, net 107 --
Less common stock acquired by ESOP (375) (425)
Unearned stock grant compensation (48) (121)
--------- ----------
$ 25,007 $ 22,845
Less cost of shares reacquired for
treasury 1995 84,440 shares; 1994 100,007 shares (1,617) (1,870)
--------- ----------
Total stockholders' equity $ 23,390 $ 20,975
--------- ----------
$ 24,412 $ 21,812
========= ==========
</TABLE>
68
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------
1995 1994 1993
----------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Interest income $ 60 $ 98 $ 75
Interest expense -- -- --
---------- ---------- ----------
Net interest income $ 60 $ 98 $ 75
---------- ---------- ----------
Provision for possible loan losses $ 17 $ 20 $ --
---------- ---------- ----------
Net interest income after provision for possible loan losses $ 43 $ 78 $ 75
---------- ---------- ----------
Equity in wholly-owned subsidiary $ 2,527 $ 3,269 $ 2,535
Gain on sale of assets 655 383 53
---------- ---------- ----------
Total other income $ 3,182 $ 3,652 $ 2,588
---------- ---------- ----------
Other expenses $ 322 $ 135 $ 179
---------- ---------- ----------
Income before income taxes (credits) $ 2,903 $ 3,595 $ 2,484
Provision for income taxes (credits) 162 127 (19)
---------- ---------- ----------
Net income $ 2,741 $ 3,468 $ 2,503
========== ========== ==========
</TABLE>
69
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------
1995 1994 1993
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,741 $ 3,468 $ 2,503
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of assets (655) (383) (53)
Equity in undistributed earnings of subsidiary (971) (1,248) (883)
(Increase) decrease in other assets (153) (72) 2,827
Increase (decrease) in other liabilities 10 186 (2,915)
------- ------- -------
Net cash provided by operating activities $ 972 $ 1,951 $ 1,479
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable equity securities $(4,898) $(2,558) $ (599)
Proceeds from sale of marketable equity securities 6,623 1,948 224
------- ------- -------
Net cash provided by (used in)
investing activities $ 1,725 $ (610) $ (375)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid $ (679) $ (396) $ (197)
Tax benefit of stock grants and options 108 55 --
Proceeds from exercise of stock options 146 50 --
Purchase of common stock for the treasury (12) (895) (1,076)
------- ------- -------
Net cash (used in) financing activities $ (437) $(1,186) $(1,273)
------- ------- -------
Increase (decrease) in cash and $ 2,260 $ 155 $ (169)
cash equivalents
Cash and cash equivalents:
Beginning 1,571 1,416 1,585
------- ------- -------
Ending $ 3,831 $ 1,571 $ 1,416
======= ======= =======
</TABLE>
70
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS
FASB Statement No. 107, Disclosures about Fair Value of Financial
Instruments, requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet,
for which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instrument. Statement No. 107
excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Company.
The following methods and assumptions were used by the Company to
estimate the fair value of its financial instruments:
Cash and cash equivalents:
The carrying amounts reported in the statement of financial
condition for cash and cash equivalents approximate their fair
values.
Investment securities (including marketable equity and mortgage-
backed and related securities):
Fair values for investment securities are based on quoted market
prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable instruments.
Loans receivable:
The fair value of loans are estimated using a discounted cash flow
calculation that applies current market interest rates to the
existing portfolio.
Off-balance sheet instruments:
Fair values for the subsidiary bank's off-balance sheet
instruments (lending commitments) are based on fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit
standing.
Deposit liabilities:
The fair values disclosed for demand deposits equal their carrying
amounts which represents the amount payable on demand. Fair values
for certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being
offered on certificates to the remaining maturity of the current
time deposit portfolio.
Federal Home Loan Bank advances:
The carrying amount of the Federal Home Loan Bank advances and the
related accrued interest payable approximates its fair value.
71
<PAGE>
CF BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 9,132 $ 9,132 $ 6,929 $ 6,929
Investment securities 91,569 91,228 95,861 93,669
Loans, net of allowance 117,947 112,263 112,912 112,919
Financial liabilities:
Savings deposits 135,513 135,875 129,215 129,607
Federal Home Loan Bank Advances 63,285
Unrecognized financial instruments: 63,285 68,739 68,739
Commitments to extend credit -- -- -- --
Standby letters of credit -- -- -- --
</TABLE>
NOTE 19. POSSIBLE MERGER
In May 1995, the Company's Board of Directors voted to recommend
approval of a merger with First Midwest Bancorp., Inc. in which First
Midwest would be the surviving entity, subject to the approval of the
Company's shareholders. A special meeting of shareholders of the
Company to vote on the merger proposal has not yet been scheduled.
72
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT
DIRECTORS
---------
Information concerning Directors of the Company is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 1995, a copy of which will be filed not later than
120 days after the close of the fiscal year.
EXECUTIVE OFFICERS
------------------
Information regarding the business experience of the executive officers of
the Company and the Bank contained in Part I of this Form 10-KSB is incorporated
herein by reference.
COMPLIANCE WITH SECTION 16(A)
-----------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater
than 10% stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal years ended June 30, 1995, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 1995, a copy of which will be filed not later than
120 days after the close of the fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Stockholders to be held in 1995, a copy of
which will be filed not later than 120 days after the close of the fiscal year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 1995, a copy of which will be filed
not later than 120 days after the close of the fiscal year.
73
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-B.
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE NUMBER
REFERENCE TO WHERE ATTACHED
PRIOR FILING EXHIBITS ARE
OR EXHIBIT LOCATED IN
REGULATION NUMBER THIS
S-K EXHIBIT ATTACHED FORM 10-KSB
NUMBER DOCUMENT HERETO REPORT
----------- ----------------------------------------------- ------------ --------------
<S> <C> <C> <C>
2 Plan of merger with First Midwest Bancorp, Inc. *** Not applicable
3(i) Articles of Incorporation * Not applicable
3(ii) By-Laws * Not applicable
4 Instruments defining the rights * Not applicable
of security holders, including
debentures
9 Voting Trust Agreement None Not applicable
10 Executive Compensation Plans and
Arrangements
(a) Special Termination Agreement
with:
(i) Paul L. Eckert ** Not applicable
(ii) Greg I. Bohac ** Not applicable
(iii) George J. Boudi, Jr. ** Not applicable
(iv) Catherine L. Vance ** Not applicable
(v) Robert W. Garman ** Not applicable
(vi) David B. Quillen ** Not applicable
(b) Stock Option and Incentive Plan * Not applicable
(c) Salary Continuation Agreement ** Not applicable
(d) Management Recognition and
Retention Plan * Not applicable
(e) Citizens Federal Savings Bank
401(k) Savings Plan * Not applicable
11 Statement re: computation of per None Not applicable
share earnings
13 Annual Report to Security Holders 13 Page __
16 Letter re: change in certifying None Not applicable
accountants
18 Letter re: change in accounting None Not applicable
principles
21 Subsidiaries of Registrant 21 Page __
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE NUMBER
REFERENCE TO WHERE ATTACHED
PRIOR FILING EXHIBITS ARE
OR EXHIBIT LOCATED IN
REGULATION NUMBER THIS
S-K EXHIBIT ATTACHED FORM 10-KSB
NUMBER DOCUMENT HERETO REPORT
------------- ----------------------------- ------------ --------------
<S> <C> <C> <C>
22 Published report regarding None Not applicable
matters submitted to vote of
security holders
23 Consent of McGladrey & Pullen 23 Page __
24 Power of Attorney Not required Not applicable
27 Financial Data Schedule None Not applicable
28 Information from reports None Not applicable
furnished to state insurance
regulatory authorities
99 Other Exhibits Not required Not applicable
</TABLE>
________________
* Filed as exhibits to the Corporation's Form S-1 Registration Statement filed
on March 14, 1992 (File No. 33-46410) pursuant to Section 5 of the
Securities Act of 1933. All of such previously filed documents are hereby
incorporated herein by reference in accordance with Item 601 of Regulation
S-K.
** Filed as exhibits to the Corporation's Annual Report on Form 10-KSB filed on
September 21, 1994 pursuant to Section 12g of the Exchange Act of 1934. All
of such previously filed documents are hereby incorporated herein by
reference in accordance with Item 601 of Regulation S-K.
*** Filed as exhibit to the Corporation's Form 8-K filed on June 5, 1995.
(b) Reports on Form 8-K
-----------------------
There were two reports on Form 8-K filed during the quarter ended June 30, 1995:
1) a) Report dated April 7, 1995.
b) Item 5 - Announcement of quarter ending March 31, 1995 earnings.
c) No financial statements were filed.
2) a) Report dated June 5, 1995
b) Filed the definitive agreement to merge with First Midwest Bancorp,
Inc.
c) No financial statements were filed.
75
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CF BANCORP, INC.
Date: August 14, 1995 By: /s/ Paul L. Eckert
----------------------------- --------------------------------
Paul L. Eckert
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Greg I. Bohac /s/ Paul L. Eckert
---------------------------- ----------------------------------
GREG I. BOHAC PAUL L. ECKERT
Executive Vice President, President, Chief Executive Officer
Chief Operating Officer, and Chairman of the Board
Secretary and Director (Principal Executive and
Operating Officer)
Date: August 14, 1995 Date: August 14, 1995
---------------------- ----------------------------
/s/ B.C. O'Brien /s/ Mark C. Kilmer
---------------------------- ----------------------------------
B.C. O'BRIEN, Director MARK C. KILMER, Director
Date: August 14, 1995 Date: August 14, 1995
---------------------- ----------------------------
/s/ Margaret M. Tiedemann /s/ Willett C. Kubec
---------------------------- ----------------------------------
MARGARET M. TIEDEMANN, Director WILLETT C. KUBEC, Director
Date: August 14, 1995 Date: August 14, 1995
---------------------- ----------------------------
/s/ David B. Quillen
----------------------------
DAVID B. QUILLEN, Chief
Financial Officer
(Principal Financial and
Accounting Officer)
Date: August 14, 1995
----------------------
76
<PAGE>
Exhibit 21
----------
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<TABLE>
<CAPTION>
Percent
Subsidiary of State of
Parent or Organization Ownership Incorporation
------------------ ---------------------- ---------- -------------
<S> <C> <C> <C>
CF Bancorp, Inc. Citizens Federal 100% Federal
Savings Bank
Citizens Federal Citizens Service 100 Iowa
Savings Bank Corporation
Citizens Federal Citizens Federal 100 Iowa
Savings Bank Insurance Agency
Citizens Federal CF Investments, Inc. 100 Nevada
Savings Bank (closed as of 6/30/95)
</TABLE>
77
<PAGE>
APPENDIX D
SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
SECTION 262. Appraisal Rights. (a) Any stockholder of a corporation of
this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this
section and who has neither voted in favor of the merger or consolidation
nor consented thereto in writing pursuant to Section 228 of this title
shall be entitled to an appraisal by the Court of Chancery of the fair
value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the work
"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 Section 251, 252, 254, 257, 258, 263 or 264 of
this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock which,
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 of the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to Section 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 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.
D-1
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned
by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or consented
to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or 253 of this title, the surviving or resulting corporation, either
before the effective date of the merger or consolidation or within 10
days thereafter, shall notify each of the stockholders entitled to
appraisal rights of the effective date of the merger or consolidation and
that appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger
D-2
<PAGE>
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 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
of Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also
be given by 1 or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all relevant factors.
In determining the fair rate of interest, the Court may consider all
relevant factors, including the rate of interest which the surviving or
resulting corporation would have had to pay to borrow money during the
pendency of the proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the appraisal
proceeding, the Court may, in its discretion, permit discovery or other
pretrial proceedings and may proceed to trial upon the appraisal prior to
the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or
resulting corporation pursuant to subsection (f) of this section and who
has submitted his certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is
finally determined that he is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation
to the stockholders entitled thereto. Interest may be simple or compound,
as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and
in 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.
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(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of his demand for an appraisal and an acceptance of the
merger or consolidation, either within 60 days after the effective date of
the merger or consolidation as provided in subsection (e) of this section
or thereafter with the written approval of the corporation, then the right
of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be
dismissed as to any 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.
D-4
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APPENDIX E
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT ("Agreement"), dated as of May 31, 1995,
between First Midwest Bancorp, Inc. ("First Midwest"), a Delaware corporation
registered as a bank holding company under the Bank Holding Company Act of 1956,
as amended (the "BHC"), and CF Bancorp, Inc. ("Bancorp'), a Delaware corporation
registered as a savings and loan holding company under the Home Owner's Loan
Act, as amended ("HOLA").
WITNESSETH
----------
WHEREAS, the Boards of Directors of First Midwest and Bancorp have approved
an Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), providing for the merger of Bancorp with and into First Midwest
(the "Merger"); and
WHEREAS, to induce First Midwest to enter into the Merger Agreement, First
Midwest has required that Bancorp agree, and Bancorp has agreed, to grant to
First Midwest the option set forth herein to purchase shares of Bancorp's
authorized but unissued common stock, par value $.01 per share ("Bancorp Common
Stock").
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. DEFINITIONS. Capitalized terms defined in the Merger Agreement and
used herein shall have the same meaning as in the Merger Agreement.
2. GRANT OF OPTION. Subject to the terms and conditions set forth herein,
Bancorp hereby grants to First Midwest an unconditional, unrevocable option (the
"Option") to purchase up to 227,693 shares of Bancorp Common Stock (the "Option
Shares") at an exercise price of $24.75 per share (with the number of Option
Shares and price per share being subject to adjustment pursuant to Section 7
hereof), payable in cash as provided in Section 4 hereof; provided, however,
that in the event Bancorp issues or agrees to issue any shares of Bancorp Common
Stock (except for shares issued pursuant to Bancorp Stock Option Plans and the
Bancorp Management Recognition and Retention Plan ("Bancorp MRP")) after the
date hereof at a price less than $24.75 per share (as adjusted pursuant to
Section 7 hereof), the exercise price shall be equal to such lesser price; and
provided further that in no event shall the aggregate number of Option Shares
issuable under the Option exceed 19.9 percent of the number of shares of Bancorp
Common Stock then issued and outstanding after giving effect to the issuance of
the Option Shares.
<PAGE>
3. EXERCISE OF OPTION.
-------------------
(a) EXPIRATION OF OPTION. Subject to compliance with applicable
provisions of law, First Midwest may exercise the Option, in whole or part, at
any time or from time to time upon the occurrence or during the continuance of a
Purchase Event (as defined below); provided that to the extent the Option shall
not have been exercised, it shall terminate and be of no further force and
effect (i) at the Effective Time of the Merger; (ii) upon termination of the
Merger Agreement by First Midwest after approval of the Merger by the Bancorp
stockholders, except a termination by First Midwest pursuant to Section 7.01(e)
of the Merger Agreement; (iii) a termination of the Merger Agreement pursuant to
Section 7.01(a) thereof; (iv) upon termination of the Merger Agreement by
Bancorp pursuant to Section 7.01(e) thereof or by First Midwest pursuant to
Section 7.01(f) thereof; (v) upon any other termination of the Merger Agreement
pursuant to Section 7.01 thereof except a termination by First Midwest under
Section 7.01(e), if no Purchase Event shall have occurred prior to such
termination; (vi) except as set forth in clauses (ii) and (iv) of this Section
3(a), on the 270th day after the termination of the Merger Agreement (such 270-
day period after termination of the Merger Agreement is referred to herein as
the "Post-Termination Period") if no Purchase Event has occurred or continued
during the term of the Merger Agreement or during the Post-Termination Period;
or (vii) on the 270th day after the discontinuance of all Purchase Events that
occurred or continued during the term of the Merger Agreement or during the
Post-Termination Period if a Purchase Event occurred or continued during any
such period.
(b) PURCHASE EVENT. As used herein, "Purchase Event" shall mean: (i)
any person (other than First Midwest or its Subsidiaries) shall have commenced
any Acquisition Transaction by the making of an appropriate filing with the SEC
relating to a tender offer or appropriate filing with the OTS or the Federal
Reserve Board requesting approval for such person's acquisition of shares of
Bancorp Common Stock; or has made a written offer to engage in an Acquisition
Transaction that requires approval by the Board of Directors of Bancorp and
which is not rejected by such Board within 5 business days after receipt thereof
or the Board of Directors of Bancorp shall have recommended that the
stockholders of Bancorp approve or accept any such offer; (ii) Bancorp, without
having received First Midwest's prior written consent, shall have entered into
an agreement to engage in an Acquisition Transaction with any person (other than
First Midwest or its Subsidiaries); (iii) after a proposal is made by a third
party to Bancorp or its stockholders to engage in an Acquisition Transaction,
Bancorp shall have breached any of its representations, warranties, covenants or
agreements contained in the Merger Agreement which breach would entitle First
Midwest to terminate the Merger Agreement (without regard to the cure periods
provided for therein) and such breach shall not have been cured prior to the
Notice Date (as defined below). If more than one of the transactions giving rise
to a Purchase Event under this Section 3(b) is undertaken or effected, then all
such transactions shall give rise only to one Purchase Event, which Purchase
Event shall be deemed continuing for all purposes hereof until all such
transactions are abandoned. As used in this Agreement, "person" shall have the
meanings specified in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange
Act.
(c) NOTICE OF PURCHASE EVENT. Bancorp shall notify First Midwest
promptly in writing of the occurrence of any Purchase Event; provided, however,
that the giving
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of such notice by Bancorp shall not be a condition to the right of First Midwest
to exercise the Option.
(D) NOTICE OF EXERCISE. In the event First Midwest wishes to exercise
the Option, it shall send to Bancorp a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares it will purchase pursuant to such exercise, and (ii) a place and date not
earlier than ten business days nor later than twenty business days from the
Notice Date for the closing of such purchase (the "Closing Date").
Notwithstanding the foregoing, if prior notification to or approval of the
Federal Reserve Board, the OTS or any other regulatory agency is required in
connection with such purchase, First Midwest shall promptly file the required
notice or application for approval and shall expeditiously process the same and
the period of time that otherwise would run pursuant to the preceding sentence
shall run instead from the date on which any required notification periods have
expired or been terminated or such approvals have been obtained and any
requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
-------------------------------------
(a) PAYMENT. At the closing referred to in Section 3(d) hereof, First
Midwest shall pay to Bancorp the aggregate purchase price for the shares
purchased pursuant to the exercise of the Option in immediately available funds
by a wire transfer to a bank designated by Bancorp; provided that the failure or
refusal of Bancorp to designate such a bank account shall not preclude First
Midwest from exercising the Option.
(b) DELIVERY OF CERTIFICATES. At such closing, simultaneously with
the delivery of cash as provided in subsection (a), Bancorp shall deliver to
First Midwest a certificate or certificates representing the number of shares of
Bancorp Common Stock purchased by First Midwest, which certificates may bear the
legend set forth in Section 4(c) below, and First Midwest shall deliver to
Bancorp a letter agreeing that First Midwest will not offer to sell or otherwise
dispose of such shares in violation of this Agreement or applicable law or in a
manner that would result in First Midwest becoming an "underwriter" within the
meaning of that term under the Securities Act. Bancorp shall pay all expenses
and any and all United States federal, state and local taxes and other charges
that may be payable in connection with the preparation, issuance and delivery of
stock certificates under this Section 4 in the name of First Midwest or its
assignee, transferee or designee. Upon the giving by First Midwest to Bancorp of
the written notice of exercise of the Option provided for under Section 3(d)
above and the tender of the applicable purchase price in immediately available
funds, First Midwest shall be deemed to be the holder of record of the shares of
Bancorp Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Bancorp shall then be closed or that certificates representing
such shares of Bancorp Common Stock shall not then be actually delivered to
First Midwest.
(C) RESTRICTIVE LEGEND. Certificates for Bancorp Common Stock delivered at
a closing hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
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"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder hereof
and the Issuer and to resale restrictions arising under the Securities Act
of 1933, as amended, and any applicable state securities laws, a copy of
which agreement is on file at the principal office of the Issuer. A copy
of such agreement will be mailed to the holder hereof without charge within
five days after the receipt by the Issuer of a written request."
It is understood that (i) the reference to the resale restrictions of the
Securities Act in the above legend shall be removed by delivery of substitute
certificate(s) without reference if First Midwest shall have delivered to
Bancorp a copy of a letter from the staff of the SEC, or an opinion of counsel,
in form and substance reasonably satisfactory to Bancorp, to the effect that
such legend is not required for purposes of the Securities Act; (ii) the
reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
5. BANCORP REPRESENTATIONS. Bancorp hereby represents and warrants
-----------------------
to First Midwest as follows:
(a) RESERVATION OF SHARES. Bancorp has taken all necessary corporate
action to authorize and reserve for issuance a sufficient number of shares of
Bancorp Common Stock to satisfy its obligations upon the exercise of the Option
without additional authorization of Bancorp Common Stock after giving effect to
all other options, warrants, convertible securities and other rights to purchase
Bancorp Common Stock. Bancorp shall not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets or by any
other voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Bancorp.
(b) DULY AUTHORIZED SHARES. The shares of Bancorp Common Stock to be
issued upon exercise, in whole or in part, of the Option, when paid for as
provided herein, will be duly authorized, validly issued, fully paid and
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and will not be subject to any preemptive
rights.
(c) ADDITIONAL ACTIONS. Bancorp shall promptly take all reasonable
action as may from time to time be required to be taken by it (including (A)
complying with all premerger notification, reporting and waiting period
requirements applicable to it specified in 15 U.S.C. Section 18a and regulations
promulgated thereunder, and (B) in the event, under the BBC or HOLA or, a state
banking law, prior approval of or notice to the Federal Reserve Board, the OTS
or to any state or other federal regulatory authority is necessary before the
Option may be exercised, cooperating fully with First Midwest in preparing such
applications or notices and providing such information to the applicable
regulatory body as may be required)
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<PAGE>
reasonable in order to permit First Midwest to exercise the Option and Bancorp
duly and effectively to issue shares of Bancorp Common Stock pursuant thereto.
Bancorp shall promptly take all other reasonable action provided herein to
protect the rights of First Midwest against dilution.
(d) PRINCIPAL STOCKHOLDERS. To the best knowledge of Bancorp, as of
the date of this Agreement, no person owns beneficially more than ten percent of
the outstanding shares of its Common Stock, except as set forth on the
Disclosure Schedule of Bancorp.
6. FIRST MIDWEST REPRESENTATIONS. First Midwest hereby represents
-----------------------------
and warrants to Bancorp as follows:
(a) REGISTRATION. First Midwest shall not transfer or otherwise
dispose of any shares purchased by First Midwest pursuant to this Agreement
except in a transaction registered or exempt from registration under the
Securities Act.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
-----------------------------------------
(a) STOCK DIVIDENDS. In the event of any change in the outstanding
Bancorp Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, exchanges of shares, or the like (but excluding
any exercise of stock options pursuant to any of the Bancorp Stock Option Plans
or the vesting of Bancorp MRPs), the type and number of shares subject to the
Option, or the purchase price per share, as the case may be, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
any such transaction so that First Midwest shall receive upon exercise of the
Option the number and class of shares, other securities or property that First
Midwest would have received in respect of the shares of Bancorp Common Stock
subject to the Option if the Option had been exercised and the Bancorp Common
Stock subject to the Option had been issued to First Midwest immediately prior
to such event or the record date therefor, as applicable.
(b) ISSUANCE OF ADDITIONAL SHARES. In the event that any additional
shares of Bancorp Common Stock are issued after the date of this Agreement
(other than pursuant to this Agreement or as provided in Section 7(a) above but
including any exercise of stock options pursuant to any of the Bancorp Stock
Option Plans), the number of shares subject to the Option shall be adjusted
after such issuance, so that it equals 19.9 percent of the number of shares of
Bancorp Common Stock then issued and outstanding after giving effect to the
issuance of the Option Shares; provided, however, that nothing contained in this
Section 7 shall be deemed to authorize Bancorp to issue any shares of its Common
Stock in breach of the provisions of the Merger Agreement; and provided further
that in no event shall the number of shares subject to the Option exceed 19.9
percent of Bancorp's issued and outstanding Common Stock, after giving effect to
the issuance of the Option Shares.
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<PAGE>
8. REPURCHASE.
----------
(a) REPURCHASE PRICE. In the event that after the date hereof any
person, other than First Midwest or any of its Subsidiaries, acquires beneficial
ownership of 24.9% or more of the outstanding shares of Bancorp Common Stock;
or the Board of Directors of Bancorp shall accept or publicly recommend that the
stockholders of Bancorp accept an offer from a person, other than First Midwest
or its Subsidiaries, to acquire 24.9% or more of either the outstanding shares
of Bancorp Common Stock or the consolidated assets of Bancorp (a "Repurchase
Event"), at the request of First Midwest and subject to any regulatory
requirements, Bancorp shall repurchase the Option but only prior to the
expiration thereof from First Midwest together with any of the Option Shares
purchased by First Midwest pursuant thereto, at a price equal to the sum of:
(i) the exercise price paid by First Midwest for any of the
Option Shares;
(ii) the difference between the "market/tender offer price" (as
defined below) for shares of Bancorp Common Stock and the exercise
price as determined pursuant to Section 2 hereof, multiplied by the
number of shares of Bancorp Common Stock with respect to which the
Option has not been exercised, but only if the market/tender offer
price is greater than such exercise price;
(iii) the difference between the market/tender offer price (as
defined below) and the exercise price paid by First Midwest for any
Option Shares, multiplied by the number of shares so purchased, but
only if the market/tender offer price is greater than such exercise
price;
(iv) First Midwest's costs and expenses as provided in Section
7.02(b)(ii) of the Merger Agreement; provided there shall be no
duplication of payment under this Agreement and the Merger Agreement.
Any payment under this Section 8(a)(iv) shall only be made if no
payment has been made under Section 7.02(b)(ii) of the Merger
Agreement, and any payment under this Section 8(a)(iv) shall discharge
any and all obligations to Bancorp to make a payment under 7.02(b)(ii)
of the Merger Agreement; and
(v) Notwithstanding the foregoing, the maximum amount payable by
Bancorp to First Midwest pursuant to the provisions of this Section
8(a) shall not exceed the sum of (i) the aggregate exercise price paid
by First Midwest to Bancorp in connection with the actual purchase by
First Midwest of any Option Shares, (ii) $1,800,000, and (iii) the
amount specified in Section 8(a)(iv) above.
As used herein, the phrase "market/tender offer price" shall mean the greater of
(x) the price per share at which a tender or exchange offer has been made if
such tender or exchange offer shall have given rise to the Repurchase Event, or
(y) the highest price paid by a person, whose actions shall have given rise to
the Repurchase Event, for shares of Bancorp Common Stock at any time after the
date of this Agreement, or (z) the highest closing price for shares of Bancorp
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Common Stock within the four-month period immediately preceding the date First
Midwest gives notice of the required repurchase of the Option. In the event the
consideration used in a Repurchase Event is payable, in whole or in part, in
securities or other property, the value of such securities or other property
shall be determined by a nationally recognized investment banking firm selected
by First Midwest.
(b) REPURCHASE DATE. In the event First Midwest exercises its right
to require the repurchase of the Option and/or the Option Shares, Bancorp shall,
within three business days thereafter, pay the required amount to First Midwest
in immediately available funds and First Midwest shall surrender the Option and
the certificates evidencing the Option Shares.
(c) BANCORP'S REPURCHASE RIGHT. At Bancorp's option, Bancorp may
repurchase the Option and the Option Shares from First Midwest at the price
specified in Section 8(a) hereof at any time beginning on the 270th day after
the discontinuance of all Purchase Events that occurred or continued during the
term of the Merger Agreement or during the Post-Termination Period if a Purchase
Event occurred or continued during any such period.
(d) BANCORP'S FIRST RIGHT OF REFUSAL. If, at any time within 18
months after the acquisition of Option Shares by First Midwest, it shall desire
to sell, assign, transfer or otherwise dispose of all or any of the Option
Shares, it shall give Bancorp written notice of the proposed transaction (an
"Offeror's Notice"), identifying the proposed transferee, and setting forth the
terms of the proposed transaction. An Offeror's Notice shall be deemed an offer
by First Midwest to Bancorp, which may be accepted within 5 business days of the
receipt of such Offeror's Notice, on the same terms and conditions and at the
same price at which First Midwest is proposing to transfer the Option Shares to
a third party. The purchase of the number of the Option Shares by Bancorp
specified in the Offeror's Notice shall be closed within 10 business days of the
date of the acceptance of the offer and the purchase price shall be paid to
First Midwest by wire transfer of immediately available funds to an account
designated by First Midwest. In the event of the failure or refusal of Bancorp
to purchase all the Option Shares covered by the Offeror's Notice or if any
regulatory authority disapproves Bancorp's proposed purchase of the Option
Shares, First Midwest may, within 60 days from the latter to occur of Bancorp's
failure or refusal or the date of such disapproval, sell the number of Option
Shares specified in the Offeror's Notice to such third party at no less than the
price specified and on terms no more favorable to the purchaser than those set
forth in the Offeror's Notice. The requirements of this Section 8(d) shall not
apply to any disposition as a result of which the proposed transferee would
beneficially own not more than 2% of the voting power of Bancorp.
9. REGISTRATION RIGHTS.
-------------------
(a) REGISTRATION PROCEDURE. If a Purchase Event shall have occurred
and be continuing, if requested by First Midwest at any time during the three-
year period beginning on the date of the acquisition of any of the Option
Shares, as expeditiously as possible, use its best efforts to effect the
registration of the Option Shares, on a form of general use under the Securities
Act, in order to permit the sale or other disposition of such shares in
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accordance with the intended method of sale or other disposition requested by
First Midwest and by any underwriter selected by First Midwest; provided,
however, that First Midwest may effect only two registrations pursuant to this
Section 9. The first registration effected under this Section 9(a) shall be at
Bancorp's expense. If a second registration is requested hereunder by First
Midwest, it shall be paid for equally by First Midwest and Bancorp. In
connection with such registrations, each party shall pay the fees and expenses
of its own legal counsel and First Midwest shall pay all blue sky fees and any
underwriting discounts and commissions incurred in connection with such
registrations. First Midwest shall provide such information as may be necessary
for Bancorp's preparation of the registration statement. Bancorp will use its
best efforts to cause such registration statement first to become effective and
then to remain effective for such period not in excess of 180 days from the day
such registration statement first becomes effective or such shorter time as may
be reasonably necessary to effect such sales or other dispositions. The
obligations of Bancorp hereunder to file a registration statement and to
maintain its effectiveness may be suspended for one or more periods of time that
do not exceed 120 days in the aggregate if the Board of Directors of Bancorp
shall have determined that the filing of such registration statement or the
maintenance of its effectiveness would require a special audit of Bancorp or any
of its Subsidiaries or the disclosure of nonpublic information that would
materially and adversely affect Bancorp. The foregoing notwithstanding, if, at
the time of any request by First Midwest for registration of the Option Shares
as provided above, Bancorp is in registration with respect to an underwritten
public offering of shares of its common stock, and if, in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering, the inclusion of the Option
Shares would interfere with the successful marketing of the shares of common
stock offered by Bancorp, the number of shares represented by Option Shares
which are to be covered in the registration statement contemplated hereby may be
reduced; provided, however, that after any such required reduction the number of
Option Shares to be included in such offering for the account of First Midwest
shall constitute at least 25% of the total number of shares to be sold by First
Midwest and Bancorp in such offering in the aggregate; provided, further,
however, that if such reduction occurs, then Bancorp shall file a registration
statement for the balance as promptly as practical and no reduction shall
thereafter occur.
(b) REGISTRATION INDEMNIFICATION. In connection with the filing of
any such registration statement, Bancorp shall indemnify and hold harmless First
Midwest or its transferee against any losses, claims, damages or liabilities,
joint or several, to which First Midwest or its transferee may become subject,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement,
including any prospectus included therein, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; and Bancorp shall reimburse First
Midwest or its transferee for any legal or other expense reasonably incurred by
First Midwest or its transferee in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
Bancorp shall not be liable in any case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
omission or an alleged untrue statement or omission made in such registration
statement, and any prospectus included therein, or any amendment or supplement
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thereto, in reliance upon and in conformity with written information furnished
by or on behalf of First Midwest or its transferee specifically for use in the
preparation thereof. First Midwest or its transferee shall indemnify and hold
harmless Bancorp to the same extent as set forth in the immediately preceding
sentence but only with reference to written information furnished by or on
behalf of First Midwest or its transferee for use in the preparation of such
registration statement, and any prospectus included therein, or any amendment or
supplement thereto; and First Midwest or its transferee shall reimburse Bancorp
for any legal or other expenses reasonably incurred by Bancorp in connection
with investigation or defense of any such loss, claim, damage, liability or
action.
10. SEVERABILITY. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Option will not permit the holder to acquire the full
number of Option Shares of Bancorp Common Stock provided in Section 2 hereof (as
adjusted pursuant to Section 7 hereof), it is the express intention of Bancorp
to allow the holder to acquire such lesser number of shares as may be
permissible, without any amendment or modification hereof.
11. MISCELLANEOUS.
-------------
(a) EXPENSES. Except as otherwise provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
(b) ENTIRE AGREEMENT. Except as otherwise expressly provided herein,
this Agreement contains the entire agreement between the parties with respect to
the transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns. Nothing in this Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided herein.
(c) ASSIGNMENT. Neither of the parties hereto may assign any of its
rights or obligations under this Agreement or the Option created hereunder to
any other person, without the express written consent of the other party, except
that in the event a Purchase Event shall have occurred and be continuing First
Midwest may assign in whole or in part the Option, and its rights and
obligations hereunder; provided, however, that until the date 30 days following
the date on which the Federal Reserve Board and the OTS approve an application
by Grantee (as defined below) under the Act and HOLA to acquire the Option
Shares, if such approvals are necessary, Grantee may not assign its rights under
the Option except in (i) a widely dispersed public distribution, (ii) a private
placement in which no one party acquires the right to purchase in excess of two
percent of the voting shares of Bancorp, (iii) an assignment to a single party
9
<PAGE>
(e.g., a broker or investment banker) for the purpose of conducting a widely
dispersed public distribution on Grantee's behalf, or (iv) any other manner
approved by the Federal Reserve Board or the OTS. "Grantee" means First Midwest
or any person, corporation or other entity to which this Agreement or the Option
created hereby is assigned pursuant to this Section 11(c).
(d) NOTICES. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if delivered
personally or by reliable overnight courier or sent by registered or certified
mail, postage prepaid, addressed as follows:
IF TO FIRST MIDWEST: First Midwest Bancorp, Inc.
184 Shuman Boulevard
Suite 310
Naperville, Illinois 60563
Attention: Mr. Donald J. Swistowicz,
Senior Vice President
WITH A COPY TO: Timothy M. Sullivan, Esquire
Hinshaw & Culbertson
222 North LaSalle Street, Suite 300
Chicago, Illinois 60601
IF TO BANCORP: CF Bancorp, Inc.
101 West Third Street
Davenport, Iowa 52801
Attention: Paul L. Eckert, Chairman
WITH A COPY TO: Martin Meyrowitz, Esquire or
Barry Taff, Esquire
Silver, Freedman & Taff
1100 New York Avenue, Seventh Floor
Washington, D.C. 20005
A party may change its address for notice purposes by written notice to the
other party hereto. All such notices and communications shall be deemed
delivered when received by all parties entitled to such receipt hereunder.
(e) EXTENSION OF TIME. All time periods specified herein shall be
extended, if necessary, by the length of time required for any necessary
governmental approval to be sought and received or governmental notice to be
given and the waiting period to expire, provided that any governmental
application or notice shall be made or given promptly. All of the parties hereto
shall use their best efforts to secure any required governmental approval and to
give any required governmental notice. Notwithstanding anything to the contrary
contained herein, no party shall be required to proceed with any transaction
described herein if any required governmental approval is not obtained or if,
upon the giving of any required governmental notice, the notified governmental
agency prohibits any such transaction. If any
10
<PAGE>
required governmental approval is not obtained or if a governmental agency
prohibits any such transaction upon receipt of a required notice, the decision
to appeal such governmental action shall be solely that of First Midwest;
provided, however, that First Midwest shall bear all of the costs and expenses,
including legal and accounting fees, incurred by any of the parties hereto in
prosecuting such an appeal. Periods of time that otherwise would run under the
terms of this Agreement shall also be extended to the extent necessary to avoid
liability under Section 16(b) of the Securities Exchange Act.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(g) SPECIFIC PERFORMANCE. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Agreement by Bancorp
and that this Agreement may be enforced by First Midwest through injunctive or
other equitable relief.
(h) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to agreements
made and entirely to be performed within such state and such federal laws as may
be applicable.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first above written.
FIRST MIDWEST BANCORP, INC.
By: DONALD J. SWISTOWICZ
--------------------
Its Senior Vice President
CF BANCORP, INC.
By PAUL L. ECKERT
--------------
Its President
11
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Delaware law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action (other than an action by
or in the right of the corporation) by reason of his service as a director or
officer of the corporation, or his service, at the corporation's request, as a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees) that are actually and reasonably
incurred by him ("Expenses"), and judgments, fines and amounts paid in
settlement that are actually and reasonably incurred by him, in connection with
the defense or settlement of such action, provided that he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Although Delaware law permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the Court of Chancery (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnity for such
Expenses as the court deems proper. The determination as to whether a person
seeking indemnification has met the required standard of conduct is to be made
(1) by a majority vote of a quorum of disinterested members of the board of
directors, or (2) by independent legal counsel in a written opinion, if such a
quorum does not exist or if the disinterested directors so direct, or (3) by the
stockholders. The General Corporation Law of the State of Delaware also
provides for mandatory indemnification of any director, officer, employee or
agent against Expenses to the extent such person has been successful in any
proceeding covered by the statute. In addition, the General Corporation Law of
the State of Delaware provides the general authorization of advancement of a
director's or officer's litigation expenses in lieu of requiring the
authorization of such advancement by the board of directors in specific cases,
and that indemnification and advancement of expenses provided by the statute
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any by-law,
agreement or otherwise.
First Midwest's Restated Certificate of Incorporation (the "Certificate")
and its Bylaws provide for indemnification of First Midwest's directors,
officers, employees and other agents to the fullest extent permitted by Delaware
law.
First Midwest has entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in First
Midwest's Restated Certificate and its Bylaws. These agreements, among other
things, will indemnify First Midwest's directors and executive officers for all
direct and indirect expenses and costs (including, without limitation, all
reasonable attorneys' fees and related disbursement, other out of pocket costs
and reasonable compensation for time spent by such persons for which they are
not otherwise compensated by First Midwest or any third party) and liabilities
of any type whatsoever (including, but not limited to, judgments, fines and
settlement fees) actually and reasonably incurred by such person in connection
with either the investigation, defense, settlement or appeal of any threatened,
pending or completed action suit or other proceeding, including any action by or
in the right of the corporation, arising out of such person's services as a
director, officer, employee or other agent of First Midwest, any subsidiary of
First Midwest or any other company or enterprise to which the person provides
services at the request of First Midwest.
II-1
<PAGE>
First Midwest's Certificate is consistent with Section 102(b)(7) of the
Delaware General Corporation Law, which generally permits a company to include a
provision limiting the personal liability of a director in the company's
certificate of incorporation. With limitations, this provision eliminates the
personal liability of First Midwest's directors to First Midwest or its
stockholders for monetary damages for breach of fiduciary duty as a director.
However, this provision does not eliminate director liability: (1) for breaches
of the duty of loyalty to First Midwest and its stockholders; (2) for acts of
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (3) for transactions from which a director derives improper
personal benefit; or (4) under Section 174 of the Delaware General Corporation
Law ("Section 174"). Section 174 makes directors personally liable for unlawful
dividends and stock repurchases or redemptions and expressly sets forth a
negligence standard with respect to such liability. While this provision
protects the directors from awards for monetary damages for breaches of their
duty of care, it does not eliminate their duty of care. The limitations in this
provision have no effect on claims arising under the federal securities laws.
First Midwest maintains liability insurance for the benefit of its directors
and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits filed pursuant to this Item 21 immediately follow the Exhibit
Index. The following is a description of the applicable exhibits required for
Form S-4 as provided by Item 601 of Regulation S-K.
Exhibit
Number Description
------- -----------
2.1 Agreement and Plan of Merger, dated as of May 31, 1995, between First
Midwest Bancorp, Inc. ("First Midwest") and CF Bancorp, Inc. ("CF").
This document is filed as Appendix A to the Proxy Statement/Prospectus
forming a part of this Registration Statement.
2.2 Stock Option Agreement, dated May 31, 1995, between First Midwest and
CF. This document is filed as Appendix E to the Proxy
Statement/Prospectus forming a part of this Registration Statement.
3. Restated Certificate of Incorporation is incorporated herein by
reference to Exhibit 4.1 to First Midwest's Registration Statement on
Form S-3 (Registration No. 33-20439), filed with the Securities and
Exchange Commission on March 2, 1988.
3.1 Restated Bylaws of First Midwest are incorporated herein by reference to
Exhibit 3.1 to First Midwest's Annual Report on Form 10-K for the year
ended December 31, 1993.
4. Rights Agreement, dated February 15, 1989, is incorporated herein by
reference to First Midwest's Form 8-A filed with the Securities and
Exchange Commission on February 17, 1989.
4.1 Certificate of Amendment of Certificate of Designation of Series A
Preferred Stock is incorporated herein by reference to Exhibit 4.1 to
First Midwest's Annual Report on Form 10-K for the year ended December
31, 1993.
5. Opinion of Hinshaw and Culbertson regarding legality, of First Midwest
Common Stock to be issued in the Merger.
II-2
<PAGE>
8. Opinion of Hinshaw and Culbertson regarding certain tax matters./*/
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of McGladrey & Pullen, LLP.
23.3 Consent of Hinshaw & Culbertson (included in Exhibits 5 and 8).
24. Power of Attorney (contained on the Signature page).
99.1 Form of Letter to Stockholders of CF.
99.2 Form of Notice of Special Meeting of Stockholders of CF.
99.3 Form of Proxy to be delivered to Stockholders of CF.
/*/ To be filed by amendment.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Act"), each
filing of the registrant's annual report pursuant to Section 13(a) or 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.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The undersigned registrant hereby undertakes that every prospectus (i) that
is filed pursuant to Paragraph (1) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
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 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.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy
Statement/Prospectus pursuant to Items 4, 10(b), 11, or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in the documents filed subsequent to the effective date of
this registration statement through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
this registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, First
Midwest has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Village of Itasca, State
of Illinois, this 8th day of September, 1995.
FIRST MIDWEST BANCORP, INC.
By: ROBERT P. O'MEARA
-------------------------------
Robert P. O'Meara
President and Chief Executive Officer
POWER OF ATTORNEY
The undersigned officers and directors of First Midwest Bancorp, Inc., do
hereby constitute and appoint Robert P. O'Meara and Donald J. Swistowicz, and
either one of them, as their attorneys-in fact with power and authority to do
any and all acts and things and to execute any and all instruments which said
attorneys-in-fact, and either one of them, determine may be necessary or
advisable or required to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules or regulations or requirements of the
Securities and Exchange Commission in connection with this Registration
Statement. Without limiting the generality of the foregoing power and
authority, the powers granted include the power and authority to sign the names
of the undersigned officers and directors in the capacities indicated below to
the Registration Statement, to any and all amendments, both pre-effective and
post-effective, and supplements to this Registration Statement, and to any and
all instruments or documents filed as part of or in conjunction with this
Registration Statement or amendments or supplements thereto, and each of the
undersigned hereby ratifies and confirms all that said attorneys-in-fact or any
of them shall do or cause to be done by virtue hereof. This Power of Attorney
may be signed in several counterparts.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed on September 8, 1995 by the following persons in their
capacities indicated.
Signature Capacity
---------------------------- ------------------------------------------------
CLARENCE D. OBERWORTMANN Chairman of the Board of Directors
----------------------------
Clarence D. Oberwortmann
ANDREW B. BARBER Vice Chairman of the Board of Directors
----------------------------
Andrew B. Barber
ROBERT P. O'MEARA President, Principal Executive Officer and
---------------------------- Director
Robert P. O'Meara
JOHN M. O'MEARA Executive Vice President, Principal Operating
---------------------------- Officer and Director
John M. O'Meara
II-5
<PAGE>
Signature Capacity
---------------------------- ------------------------------------------------
DONALD J. SWISTOWICZ Executive Vice President, Principal Financial
---------------------------- and Accounting Officer
Donald J. Swistowicz
BRUCE S. CHELBERG Director
----------------------------
Bruce S. Chelberg
O. RALPH EDWARDS Director
----------------------------
O. Ralph Edwards
JOSEPH W. ENGLAND Director
----------------------------
Joseph W. England
THOMAS M. GARVIN Director
----------------------------
Thomas M. Garvin
ALAN M. HALLENE Director
----------------------------
Alan M. Hallene
SISTER NORMA JANSSEN, O.S.F. Director
----------------------------
Sister Norma Janssen, O.S.F.
ROBERT E. JOYCE Director
----------------------------
Robert E. Joyce
FRANK J. TURK, SR. Director
----------------------------
Frank J. Turk, Sr.
J. STEPHEN VANDERWOUDE Director
----------------------------
J. Stephen Vanderwoude
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
NUMBER NUMBER
--------- ---------------
<S> <C> <C>
2.1 Agreement and Plan of Merger - filed herewith as Appendix A *
2.2 Stock Option Agreement - filed herewith as Appendix E *
3 Restated Certificate of Incorporation - incorporated herein by reference *
3.1 Restated Bylaws of First Midwest - incorporated herein by reference *
4 Rights Agreement - incorporated herein by reference *
4.1 Certificate of Amendment of Certificate of Designation of Series A Preferred *
Stock - incorporated herein by reference
5 Opinion of Hinshaw & Culbertson regarding legality *
8 Opinion of Hinshaw & Culbertson regarding certain tax matters ** *
23.1 Consent of KPMG Peat Marwick LLP *
23.2 Consent of McGladrey & Pullen, LLP *
23.3 Consent of Hinshaw & Culbertson (included in Exhibits 5 and 8) *
24 Power of Attorney (contained on the Signature page) *
99.1 Form of Letter to Stockholders of CF *
99.2 Form of Notice of Special Meeting of Stockholders of CF *
99.3 Form of Proxy to be delivered to Stockholders of CF *
</TABLE>
* Sequential page numbers not applicable to EDGAR filing.
** To be filed by amendment.
<PAGE>
EXHIBIT 5
HINSHAW & CULBERTSON
BELLEVILLE, ILLINOIS SUITE 300 WAUKEGAN, ILLINOIS
BLOOMINGTON, ILLINOIS 222 NORTH LA SALLE STREET FT. LAUDERDALE, FLORIDA
CHAMPAIGN, ILLINOIS CHICAGO, ILLINOIS 60601-1081 MIAMI, FLORIDA
JOLIET, ILLINOIS TAMPA, FLORIDA
LISLE, ILLINOIS 312.704.3000 ST. LOUIS, MISSOURI
PEORIA, ILLINOIS ________ APPLETON, WISCONSIN
ROCKFORD, ILLINOIS TELEFAX 312.704.3001 BROOKFIELD, WISCONSIN
SPRINGFIELD, ILLINOIS MILWAUKEE, WISCONSIN
September 5, 1995
WRITER'S DIRECT DIAL NO. FILE NO.
(312) 704-3852 728693
VIA FACSIMILE & AIRBORNE EXPRESS
--------------------------------
First Midwest Bancorp, Inc.
300 Park Boulevard, Suite 405
P.O. Box 459
Itasca, Illinois 60143-0459
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
You have requested our opinion in connection with the above-
referenced registration statement, (the "Registration Statement") for the
registration of up to 1,439,341 shares of Common Stock, no par value per
share, of the Company (the "Shares") in connection with the Company's
acquisition of CF Bancorp, Inc.
In arriving at the opinion expressed below, we have examined the
Registration Statement and such other documents as we have deemed necessary
to enable us to express the opinion hereinafter set forth. In our
examination, we have assumed the authenticity of all documents submitted to
us as originals, the conformity to the original documents of all documents
submitted to us as copies, the genuineness of all signatures on documents
reviewed by us and the legal capacity of natural persons.
Based upon and subject to the foregoing, we are of the opinion
that the Shares have been duly authorized and, when issued in accordance
with the terms and conditions set forth in the Registration Statement, will
be validly issued, fully paid and non-assessable.
We hereby consent to the reference to our firm under the caption
"Opinions" in the Registration Statement and to the use of this opinion as
an exhibit to the Registration Statement.
Very truly yours,
TIMOTHY M. SULLIVAN
-------------------
Timothy M. Sullivan
TMS/mm
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
<PAGE>
EXHIBIT 23.1
KPMG Peat Marwick LLP
The Board of Directors
First Midwest Bancorp, Inc.:
We consent to the use of our reports incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG PEAT MARWICK LLP
Chicago, Illinois
September 8, 1995
Member Firm of
Klynveld Peat Marwick Goerdeler
<PAGE>
EXHIBIT 23.2
MCGLADREY & PULLEN, LLP
-----------------------
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the use of this Registration Statement of
our report, dated July 28, 1995, relating to the consolidated
financial statements of CF Bancorp, Inc. and subsidiaries, and to
the reference to our Firm under the caption "Experts" in the
Prospectus.
McGLADREY & PULLEN, LLP
Davenport, Iowa
September 8, 1995
<PAGE>
CF BANCORP, INC. EXHIBIT 99.1
101 WEST THIRD STREET
DAVENPORT, IOWA 52801
October ___, 1995
To The Stockholders of CF Bancorp, Inc.:
You are cordially invited to attend a Special Meeting of Stockholders to be
held on the 20th day of November, 1995, at 2:00 p.m., local time, at Citizens
Federal Savings Bank, 101 West Third Street, Davenport, Iowa.
The Special Meeting is being called to enable Stockholders to consider and
vote upon the approval and adoption of a Merger Agreement, dated May 31, 1995
(the "Agreement"), entered into by and between First Midwest Bancorp, Inc., a
Delaware corporation ("First Midwest"), and CF Bancorp, Inc., a Delaware
corporation ("CF"). Pursuant to the Agreement, CF will merge with and into
First Midwest, the separate existence of CF will cease and Citizens Federal
Savings Bank ("Citizens Federal"), a wholly owned subsidiary of CF and its
principal asset, will become a wholly owned subsidiary of First Midwest (the
"Merger").
Stockholders will also be called to consider and vote upon the approval and
adoption of an amendment to CF's Certificate of Incorporation, in conjunction
with the Merger. The Charter Amendment would repeal Article Fourth, Section C,
of CF's Certificate of Incorporation in its entirety. Article Fourth, Section
C, of CF's Certificate of Incorporation currently imposes certain restrictions
on voting by stockholders owning more than 10% of CF's outstanding Common
Stock. Under the Agreement and Plan of Merger, adoption of the Charter
Amendment is a condition precedent to First Midwest's obligation to consummate
the Merger. However, in the event the Stockholders of CF approve the Charter
Amendment but the Merger is not consummated for any reason, the Board of
Directors of CF intends to abandon the Charter Amendment prior to the filing of
such amendment with the Secretary of State of Delaware. Therefore, if the
Merger is not consummated, Article Fourth, Section C, of CF's Certificate of
Incorporation will not be repealed and will remain unchanged.
If the Agreement is approved by the Stockholders of CF, and the Merger
becomes effective, each outstanding share of Common Stock of CF will be
converted into 1.4545 shares of First Midwest Common Stock. The consummation of
the Merger is subject to the satisfaction of certain conditions notwithstanding
the approval of the Merger by the Stockholders of CF at the Special Meeting.
First Midwest is an Illinois-based holding company comprised of a commercial
bank that is a national banking association, four nonbank affiliates that offer
trust, investment advisory, credit life insurance and mortgage banking related
services in the same markets served by the bank and four inactive Illinois
state-chartered banks. Stockholders of CF who receive First Midwest Common
Stock will have a security which is issued by a larger, more diversified
financial institution and is traded on the NASDAQ National Market System under
the symbol "FMBI".
After carefully considering the Merger, the Agreement and the benefits which
will result to the Stockholders of CF, the Board of Directors of CF has
determined that the Merger is in the best interest of the Stockholders and
urges that you vote in favor of the Merger.
YOUR VOTE IS IMPORTANT. APPROVAL OF THE PROPOSED MERGER REQUIRES THE
AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF CF
COMMON STOCK AND APPROVAL OF THE CHARTER AMENDMENT REQUIRES THE AFFIRMATIVE
VOTE OF HOLDERS OF 80% OF THE SHARES OF SUCH STOCK. WHETHER OR NOT YOU EXPECT
TO ATTEND THE MEETING IN PERSON, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY
AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE.
Sincerely,
Paul L. Eckert, President
and Chief Executive Officer
<PAGE>
EXHIBIT 99.2
CF BANCORP, INC.
101 WEST THIRD STREET
P.O. BOX 4410
DAVENPORT, IOWA 52808
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the Special Meeting of the Stockholders of CF
Bancorp, Inc. will be held at the main office of Citizens Federal Savings Bank,
101 West Third Street, Davenport, Iowa on November 20, 1995, at 2:00 p.m., local
time, for the following purposes:
1. To consider and vote upon a proposal to adopt an Agreement and Plan of
Merger among CF Bancorp, Inc. and First Midwest Bancorp, Inc.;
2. To approve and adopt an amendment to CF's Certificate of Incorporation
(the "Charter Amendment"); and
3. To transact such other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on _________ __, 1995,
as the record date for the determination of Stockholders entitled to notice of,
and to vote at, the meeting and any adjournment thereof.
Under Delaware law dissenters' rights are not available to stockholders of a
corporation whose shares are listed and quoted on the NASDAQ National Market
System. Both CF and First Midwest are incorporated under the laws of Delaware,
and both CF's and First Midwest's Common Stock are listed and quoted on the
NASDAQ National Market System. As a consequence, stockholders of CF do not have
dissenters' rights with respect to the Merger.
By Order of The Board of Directors,
Paul L. Eckert, President
and Chief Executive Officer
<PAGE>
EXHIBIT 99.3
REVOCABLE PROXY
CF BANCORP, INC.
SPECIAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints the Board of Directors of CF Bancorp, Inc.
(the "Company"), and its survivor, with full power of substitution, to act as
attorneys and proxies for the undersigned to vote all shares of common stock of
the Company which the undersigned is entitled to vote at the Special Meeting of
Stockholders (the "Meeting"), to be held at the main offices of the Company,
located at 101 Third Street, Davenport, Iowa, at the date and time specified in
the Joint Proxy Statement/Prospectus, and at any and all adjournments thereof,
as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE LISTED PROPOSALS.
1. [_] FOR [_] AGAINST [_] ABSTAIN FROM
the adoption of an Agreement and Plan of Merger, dated May 31, 1995,
between First Midwest Bancorp, Inc., a Delaware corporation ("First
Midwest"), and CF Bancorp, Inc., a Delaware corporation ("CF"), pursuant
to which CF will be merged with and into First Midwest and each holder of
shares of CF Common Stock will be entitled to receive in exchange
therefor, 1.4545 shares of First Midwest Common Stock.
2. [_] FOR [_] AGAINST [_] ABSTAIN FROM
the adoption of an amendment to CF's Certificate of Incorporation
repealing Article Fourth, Section C, of CF's Certificate of Incorporation
in its entirety.
3. In the discretion of the named proxies, on such other business as may
properly come before the meeting or any adjournment or adjournments
thereof.
--------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSALS STATED. IF ANY OTHER BUSINESS IS PRESENTED
AT SUCH 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 MEETING.
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Should the undersigned be present and elect to vote at the Special Meeting
or at any adjournment thereof, and after notification to the Secretary of the
Company at the Meeting of the stockholder's decision to terminate this Proxy,
then the power of such attorneys and proxies shall be deemed terminated and of
no further force and effect.
The undersigned acknowledges receipt from the Company, prior to the
execution of this Proxy, of Notice of the Special Meeting and the Joint Proxy
Statement/Prospectus.
Date: ___________________
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PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
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SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears above on this card. When
signing as attorney, executor, administrator, trustee or guardian,
please give your full title. If shares are held jointly, each
holder should sign.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE
