<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 1997
REGISTRATION NO. 333-19729
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
PINNACLE FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MICHIGAN 6711 38-2671129
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
830 PLEASANT STREET, ST. JOSEPH, MICHIGAN 49085; (616) 983-6311
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RICHARD L. SCHANZE
PINNACLE FINANCIAL SERVICES, INC., 830 PLEASANT STREET, ST. JOSEPH, MICHIGAN
49085
(616) 983-6311
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C> <C>
J. Kevin Trimmer, Esq. James S. Fleischer, Esq. Lori M. Beresford, Esq.
Miller, Canfield, Silver, Freedman & Taff, Muldoon, Murphy &
Paddock and Stone, L.L.P. Faucette
P.L.C. 1100 New York Avenue, 5101 Wisconsin Avenue,
1400 N. Woodward Ave., N.W., Suite 700 N.W.
Suite 100 Washington, D.C. 20005 Washington, D.C. 20016
Bloomfield Hills, (202) 414-6100 (202) 362-0840
Michigan 48304
(810) 645-5000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH PROPOSED MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(1)(2) PRICE(1)(2) FEE(3)(4)
<S> <C> <C> <C> <C>
Common Stock............................. 6,921,699 shares $25.59 $177,122,812 $53,673.58
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) The proposed maximum offering price per share was determined by dividing the
proposed maximum aggregate offering price for such shares by the number of
shares being registered.
(3) The proposed maximum aggregate offering price is based on, and the
registration fee has been computed pursuant to, Rule 457(f)(1) under the
Securities Act of 1933, as amended. The proposed maximum aggregate offering
price and the registration fee attributable to the shares of common stock of
Pinnacle Financial Services, Inc. ("PNFI Common Stock") to be exchanged for
shares of common stock of Indiana Federal Corporation ("IFC") are based on
the average of the high and low prices for shares of common stock of IFC
reported on the Nasdaq National Market on January 9, 1997 ($22.75) and the
maximum number of such shares (5,004,220 shares) that may be exchanged for
the shares of PNFI Common Stock being registered. The proposed maximum
aggregate offering price and the registration fee attributable to the shares
of PNFI Common Stock to be exchanged for shares of common stock of CB
Bancorp, Inc. ("CB") are based on the average of the bid and ask prices for
shares of common stock of CB reported on the Nasdaq Small-Cap Market on
April 22, 1997 ($33.00), and (ii) the maximum number of such shares
(1,917,479 shares) that may be exchanged for the securities being
registered.
(4) Pursuant to Rule 475(b), the registration fee has been reduced by the
$34,498.79 paid in connection with the initial filing of this registration
statement on January 13, 1997.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[PINNACLE LETTERHEAD]
, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of Pinnacle Financial Services, Inc. ("Pinnacle"), which will be held at the
Mendel Center, 2755 East Napier Avenue, Benton Harbor, Michigan, at :00 a.m.,
local time, on , , 1997 (the "Pinnacle Annual Meeting").
At the Pinnacle Annual Meeting, Pinnacle stockholders will be asked to elect
eight directors of Pinnacle and to consider and vote upon two merger proposals.
One of the merger proposals is a proposal (the "IFC Merger Proposal") to approve
and adopt the Agreement and Plan of Merger dated as of November 14, 1996, as
amended (the "IFC Merger Agreement"), by and between Pinnacle and Indiana
Federal Corporation ("IFC"), and all of the transactions contemplated by the IFC
Merger Agreement (including, without limitation, the merger of IFC with and into
Pinnacle (the "IFC Merger")). The other merger proposal is a proposal (the "CB
Merger Proposal") to approve and adopt the Agreement and Plan of Merger dated as
of March 1, 1997 (the "CB Merger Agreement"), by and between Pinnacle and CB
Bancorp, Inc. ("CB"), and all of the transactions contemplated by the CB Merger
Agreement (including, without limitation, the merger of CB with and into
Pinnacle (the "CB Merger")).
The IFC Merger Agreement provides for a "merger of equals" with IFC. Upon
consummation of the IFC Merger, IFC will be merged with and into Pinnacle, with
Pinnacle being the surviving corporation, and each issued and outstanding share
of common stock of IFC will be automatically converted into one share of common
stock of Pinnacle. Pursuant to the CB Merger Agreement, upon consummation of the
CB Merger, CB will be merged with and into Pinnacle, with Pinnacle being the
surviving corporation, and each issued and outstanding share of common stock of
CB will be automatically converted into shares of common stock of Pinnacle
pursuant to a formula described in the accompanying Notice and Joint Proxy
Statement/Prospectus. Conditions to the consummation of the IFC Merger and the
CB Merger include, among other things, requisite stockholder and regulatory
approvals and the receipt of certain opinions and certificates.
The Board of Directors of Pinnacle (the "Pinnacle Board") believes that each
of the mergers will be advantageous to, and is in the best interests of,
Pinnacle and its stockholders. Pinnacle believes that each of the mergers
presents a unique opportunity to expand Pinnacle's existing financial operations
in its southwestern Michigan and northern Indiana markets and to create a larger
and stronger institution better able to compete with its regional and national
competitors. In addition, Pinnacle believes that it will realize earnings growth
over the intermediate to long term from consolidating the operations and
improving the efficiency of Pinnacle, IFC and CB. Pinnacle will draw on its
experience with previous acquisitions in seeking to achieve an effective
consolidation of its operations with those of IFC and CB. THE PINNACLE BOARD HAS
APPROVED THE IFC MERGER AGREEMENT AND THE CB MERGER AGREEMENT AND RECOMMENDS
THAT YOU VOTE FOR THE IFC MERGER PROPOSAL AND FOR THE CB MERGER PROPOSAL AT THE
PINNACLE ANNUAL MEETING.
Approval of the IFC Merger Proposal by the requisite votes of Pinnacle
stockholders and IFC stockholders is a condition to, and is required for,
consummation of the IFC Merger. Approval of the CB Merger Proposal by the
requisite votes of Pinnacle stockholders and CB stockholders is a condition to,
and is required for, consummation of the CB Merger. However, approval of the CB
Merger Proposal by Pinnacle stockholders and CB stockholders is NOT a condition
to, or required for, consummation of the IFC Merger, and approval of the IFC
Merger Proposal by Pinnacle stockholders and CB stockholders is NOT a condition
to, or required for, consummation of the CB Merger.
<PAGE>
The accompanying Notice and Joint Proxy Statement/Prospectus describe in
more detail the matters to be acted upon at the Pinnacle Annual Meeting and set
forth the voting rights of holders of Pinnacle Common Stock with respect to such
matters. Stockholders are urged to review carefully the accompanying Notice and
Joint Proxy Statement/Prospectus, which contain descriptions of, among other
things, the merger proposals, the merger agreements and their respective terms
and conditions, and the transactions contemplated by each of the merger
agreements.
Your continuing interest in the business of Pinnacle is appreciated. Because
of the significance of the mergers to Pinnacle, your participation in the
Pinnacle Annual Meeting, in person or by proxy, is especially important.
Accordingly, whether or not you plan to attend the Pinnacle Annual Meeting,
please sign, date and mail the enclosed Proxy promptly in the postage-paid
envelope that has been provided to you for your convenience.
Sincerely,
Richard L. Schanze
CHIEF EXECUTIVE OFFICER
<PAGE>
[PINNACLE LETTERHEAD]
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
------------------------
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of
Pinnacle Financial Services, Inc. ("Pinnacle"), will be held at the Mendel
Center, 2755 East Napier Avenue, Benton Harbor, Michigan, at :00 a.m., local
time, on , 1997 (the "Pinnacle Annual Meeting"), for the following
purposes, all of which are more fully described in the accompanying Proxy
Statement:
1. To elect eight directors of Pinnacle.
2. To consider and vote upon a proposal to approve and adopt (i) the
Agreement and Plan of Merger dated as of November 14, 1996, as amended
(the "IFC Merger Agreement"), by and between Pinnacle and Indiana Federal
Corporation ("IFC"), and (ii) all of the transactions contemplated by the
Merger Agreement. Such transactions include the merger of IFC with and
into Pinnacle (the "IFC Merger"), with Pinnacle being the surviving
corporation. Upon consummation of the IFC Merger, among other things,
each issued and outstanding share of common stock, $.01 par value per
share, of IFC, other than certain shares specified in the IFC Merger
Agreement, will be automatically converted into the right to receive one
share of common stock, no par value per share, of Pinnacle ("Pinnacle
Common Stock").
3. To consider and vote upon a proposal to approve and adopt (i) the
Agreement and Plan of Merger dated as of March 1, 1997 (the "CB Merger
Agreement"), by and between Pinnacle and CB Bancorp, Inc. ("CB"), and
(ii) all of the transactions contemplated by the CB Merger Agreement.
Such transactions include the merger of CB with and into Pinnacle (the
"CB Merger"), with Pinnacle being the surviving corporation. Upon
consummation of the CB Merger, among other things, each issued and
outstanding share of common stock, $.01 par value per share, of CB ("CB
Common Stock"), other than certain shares specified in the CB Merger
Agreement, will be automatically converted into the right to receive that
number of shares of Pinnacle Common Stock determined by dividing $35.00
by the average of the daily averages of the closing bid and the closing
ask prices per share of Pinnacle Common Stock as reported by the Nasdaq
National Market for the period of fifteen business days ending on the
fifth business day prior to the date of consummation of the CB Merger
(the "Average Price"); PROVIDED, HOWEVER, (a) that in the event the
Average Price is $29.00 or higher, each share of CB Common Stock issued
and outstanding so converted will be automatically converted into the
right to receive 1.2069 shares of Pinnacle Common Stock, and (b) that in
the event the Average Price is $23.00 or lower, each share of CB Common
Stock issued and outstanding so converted, will be automatically
converted into the right to receive 1.5217 shares of Pinnacle Common
Stock.
4. To transact such other business as may properly come before the Pinnacle
Annual Meeting or any adjournments or postponements thereof. The Board of
Directors of Pinnacle is not aware of any other business to come before
the Pinnacle Annual Meeting.
The Board of Directors of Pinnacle has fixed the close of business on April
1, 1997 as the record date for the determination of stockholders entitled to
notice of and to vote at the Pinnacle Annual Meeting and any adjournments or
postponements thereof. Only stockholders of record at the close of business on
such date are entitled to notice of and to vote at the Pinnacle Annual Meeting
and any adjournments or postponements thereof. A list of Pinnacle stockholders
entitled to vote at the Pinnacle Annual Meeting will be available for
examination, during ordinary business hours, at the Pinnacle Annual Meeting.
Pinnacle Common Stock constitutes the only security of Pinnacle whose
holders are entitled to vote upon the proposals to be presented at the Pinnacle
Annual Meeting.
<PAGE>
Your vote is important regardless of the number of shares you own. Each
stockholder is requested to sign, date and return the enclosed Proxy without
delay in the enclosed postage-paid envelope. You may revoke your Proxy at any
time prior to its exercise. Any stockholder of record present at the Pinnacle
Annual Meeting or at any adjournments or postponements thereof may revoke his or
her Proxy and vote personally on each matter brought before the Pinnacle Annual
Meeting.
Donald E. Radde
SECRETARY
, 1997
THE BOARD OF DIRECTORS OF PINNACLE RECOMMENDS THAT YOU VOTE FOR EACH OF THE
ABOVE PROPOSALS.
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
[IFC LETTERHEAD]
, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of Indiana Federal Corporation ("IFC"), which will be held at
, at :00 a.m., local time, on , ,
1997 (the "IFC Annual Meeting").
At the IFC Annual Meeting, IFC stockholders will be asked (i) to elect three
directors of IFC, (ii) to ratify the appointment of Ernst & Young LLP as
independent auditors for IFC, and (iii) to consider and vote upon a proposal
(the "IFC Merger Proposal") to approve and adopt the Agreement and Plan of
Merger dated as of November 14, 1996, as amended (the "IFC Merger Agreement"),
by and between Pinnacle Financial Services, Inc. ("Pinnacle") and IFC, and all
of the transactions contemplated by the IFC Merger Agreement (including, without
limitation, the merger of IFC with and into Pinnacle (the "IFC Merger")).
The IFC Merger Agreement provides for a "merger of equals" with Pinnacle.
Upon consummation of the IFC Merger, IFC will be merged with and into Pinnacle,
with Pinnacle being the surviving corporation, and each issued and outstanding
share of common stock of IFC will be automatically converted into one share of
common stock of Pinnacle. Conditions to the consummation of the IFC Merger
include, among other things, requisite stockholder and regulatory approvals and
the receipt of certain opinions and certificates.
The Board of Directors of IFC (the "IFC Board") believes that the IFC Merger
will be advantageous to, and is in the best interests of, IFC and its
stockholders. IFC believes that its merger with Pinnacle will create a
significantly stronger retail franchise stretching from the northwestern Indiana
and Chicagoland market across to southwestern Michigan. The IFC Board believes
that the IFC Merger will create additional acquisition opportunities in an
expanded market area and will create a larger and stronger institution better
able to compete with its regional and national competitors.
THE IFC BOARD HAS APPROVED THE IFC MERGER AGREEMENT AND RECOMMENDS THAT YOU
VOTE FOR THE IFC MERGER PROPOSAL AT THE IFC ANNUAL MEETING.
The accompanying Notice and Joint Proxy Statement/Prospectus set forth the
voting rights of holders of IFC Common Stock with respect to these matters, and
describe in more detail the matters to be acted upon at the IFC Annual Meeting.
Stockholders are urged to review carefully the accompanying Notice and Joint
Proxy Statement/Prospectus, which contains, among other things, a description of
the IFC Merger Proposal, the IFC Merger Agreement and its terms and conditions,
and the transactions contemplated by the IFC Merger Agreement.
The accompanying Notice and Joint Proxy Statement/Prospectus also contains
information with respect to a merger proposal between Pinnacle and CB Bancorp,
Inc. (the "CB Merger"). IFC stockholders do not have the right to vote on the CB
Merger. Furthermore, approval of the CB Merger by CB stockholders and Pinnacle
stockholders is NOT a condition to, or required for, the consummation of the IFC
Merger. The IFC Board and management are, however, in favor of the CB Merger.
Your continuing interest in the business of IFC is appreciated. Because of
the significance of the Merger to IFC, your participation in the IFC Annual
Meeting, in person or by proxy, is especially important. Accordingly, whether or
not you plan to attend the IFC Annual Meeting, please sign, date and mail the
enclosed Proxy promptly in the postage-paid envelope that has been provided to
you for your convenience.
Sincerely,
Donald A. Lesch
Chairman of the Board
<PAGE>
[IFC LETTERHEAD]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of
Indiana Federal Corporation ("IFC") will be held at at
:00 a.m., local time, on , , 1997 ("IFC Annual
Meeting"), for the following purposes, all of which are more fully described in
the accompanying Proxy Statement:
1. To elect three directors of Indiana Federal Corporation.
2. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger dated as of November 14, 1996, as amended (the "IFC
Merger Agreement"), by and between Pinnacle Financial Services, Inc.
("Pinnacle") and IFC, and all of the transactions contemplated by the IFC
Merger Agreement. Such transactions include the merger of IFC with and
into Pinnacle ("IFC Merger"), with Pinnacle being the surviving
corporation. Upon consummation of the IFC Merger, among other things,
each issued and outstanding share of common stock, $.01 par value share,
of IFC, other than certain shares specified in the IFC Merger Agreement,
will be automatically converted into the right to receive one share of
common stock, no par value per share, of Pinnacle.
3. To ratify the appointment of Ernst & Young LLP as independent auditors
for IFC for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the IFC
Annual Meeting or any adjournments or postponements thereof. The Board of
Directors of IFC is not aware of any other business to come before the
IFC Annual Meeting.
The Board of Directors of IFC has fixed the close of business on ,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the IFC Annual Meeting and any adjournments or postponements
thereof. Only stockholders of record at the close of business on such date are
entitled to notice of and to vote at the IFC Annual Meeting and any adjournments
or postponements thereof. A list of IFC stockholders entitled to vote at the IFC
Annual Meeting will be available for examination, during ordinary business
hours, at IFC's principal executive office for 10 days prior to the IFC Annual
Meeting, as well as at the IFC Annual Meeting.
Your vote is important regardless of the number of shares you own. Each
stockholder is requested to sign, date and return the enclosed Proxy without
delay in the enclosed postage-paid envelope. You may revoke your Proxy at any
time prior to its exercise. Your proxy will not be used if you attend and vote
at the IFC Annual Meeting in person.
By Order of the Board of Directors
Donald A. Lesch
Chairman of the Board
, 1997
THE BOARD OF DIRECTORS OF IFC RECOMMENDS THAT YOU VOTE FOR EACH OF THE ABOVE
PROPOSALS.
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
[IFC LETTERHEAD]
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
------------------------
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of
Indiana Federal Corporation ("IFC") will be held at
, at :00 a.m., local time, on
, , 1997 (the "IFC Annual Meeting"), for the following
purposes, all of which are more fully described in the accompanying Proxy
Statement:
1. To elect directors of Indiana Federal Corporation.
2. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger dated as of November 14, 1996, as amended (the "IFC
Merger Agreement"), by and between Pinnacle Financial Services, Inc.
("Pinnacle") and IFC, and all of the transactions contemplated by the IFC
Merger Agreement. Such transactions include the merger of IFC with and
into Pinnacle (the "IFC Merger"), with Pinnacle being the surviving
corporation. Upon consummation of the IFC Merger, each issued and
outstanding share of common stock, $.01 par value per share, of IFC,
other than certain shares specified in the IFC Merger Agreement, will be
automatically converted into the right to receive one share of common
stock, no par value per share, of Pinnacle.
3. To ratify the appointment of Ernst & Young LLP as independent auditors
for IFC for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the IFC
Annual Meeting or any adjournments or postponements thereof. The Board of
Directors of IFC is not aware of any other business to come before the
IFC Annual Meeting.
The Board of Directors of IFC has fixed the close of business on
, 1997 as the record date for the determination of stockholders
entitled to notice of and to vote at the IFC Annual Meeting and any adjournments
or postponements thereof. Only stockholders of record at the close of business
on such date are entitled to notice of and to vote at the IFC Annual Meeting and
any adjournments or postponements thereof. A list of IFC stockholders entitled
to vote at the IFC Annual Meeting will be available for examination, during
ordinary business hours, at IFC's principal executive office for 10 days prior
to the IFC Annual Meeting, as well as at the IFC Annual Meeting.
Your vote is important regardless of the number of shares you own. Each
stockholder is requested to sign, date and return the enclosed Proxy without
delay in the enclosed postage-paid envelope. You may revoke your Proxy at any
time prior to its exercise. Your proxy will not be used if you attend and vote
at the IFC Annual Meeting in person.
By Order of the Board of Directors
Donald A. Lesch
Chairman of the Board
, 1997
THE BOARD OF DIRECTORS OF IFC RECOMMENDS THAT YOU VOTE FOR EACH OF THE ABOVE
PROPOSALS.
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
[CB LETTERHEAD]
, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of CB
Bancorp, Inc. ("CB"), which will be held at
, at :00 a.m., local time, on
, , 1997 (the "CB Special Meeting").
At the CB Special Meeting, CB stockholders will be asked to consider and
vote upon a proposal (the "CB Merger Proposal") to approve and adopt the
Agreement and Plan of Merger dated as of March 1, 1997 (the "CB Merger
Agreement"), by and between Pinnacle Financial Services, Inc. ("Pinnacle") and
CB, and all of the transactions contemplated by the CB Merger Agreement
(including, without limitation, the merger of CB with and into Pinnacle (the "CB
Merger")).
The CB Merger Agreement provides for the acquisition of CB by Pinnacle. Upon
consummation of the CB Merger, (i) CB will be merged with and into Pinnacle,
with Pinnacle being the surviving corporation, and (ii) each issued and
outstanding share of common stock of CB will be converted into shares of common
stock of Pinnacle pursuant to a formula described in the accompanying Joint
Proxy Statement/Prospectus. Conditions to the consummation of the CB Merger
include, among other things, requisite stockholder and regulatory approvals and
the receipt of certain opinions and certificates.
The Board of Directors of CB (the "CB Board") believes that the CB Merger
will be advantageous to, and is in the best interests of, CB and its
stockholders. CB believes that its merger with Pinnacle will create a
significantly stronger retail franchise stretching from the northwestern Indiana
and Chicagoland market across to southwestern Michigan. The CB Board believes
the CB Merger will create a larger and stronger institution better able to
compete with its regional and national competitors.
THE CB BOARD HAS APPROVED THE CB MERGER AGREEMENT AND RECOMMENDS THAT YOU
VOTE FOR THE CB MERGER PROPOSAL AT THE CB SPECIAL MEETING.
The accompanying Notice and Joint Proxy Statement/Prospectus set forth the
voting rights of holders of CB Common Stock with respect to these matters, and
describe the matters to be acted upon at the CB Special Meeting. Stockholders
are urged to review carefully the accompanying Notice and Joint Proxy
Statement/Prospectus, which contains a description of the CB Merger Proposal,
the CB Merger Agreement and its terms and conditions, and the transactions
contemplated by the CB Merger Agreement.
The accompanying Notice and Joint Proxy Statement/Prospectus also contains
information with respect to a merger proposal between Pinnacle and Indiana
Federal Corporation (the "IFC Merger"). CB stockholders do not have the right to
vote on the IFC Merger. Furthermore, approval of the IFC Merger by IFC
stockholders and Pinnacle stockholders is NOT a condition to, or required for,
the consummation of the CB Merger. The CB Board and management are, however, in
favor of the IFC Merger.
Your continuing interest in the business of CB is appreciated. Because of
the significance of the CB Merger to CB, your participation in the CB Special
Meeting, in person or by proxy, is especially important. Accordingly, whether or
not you plan to attend the CB Special Meeting, please sign, date and mail the
enclosed Proxy promptly in the postage-paid envelope that has been provided to
you for your convenience.
Sincerely,
Joseph F. Heffernan
Chairman of the Board of Directors
<PAGE>
[CB LETTERHEAD]
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of CB Bancorp,
Inc. ("CB") will be held at , at
:00 a.m., local time, on , , 1997 (the "CB Special
Meeting"), for the following purposes, all of which are more fully described in
the accompanying Proxy Statement:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger dated as of March 1, 1997 (the "CB Merger Agreement"),
by and between Pinnacle Financial Services, Inc. ("Pinnacle") and CB, and
all of the transactions contemplated by the CB Merger Agreement. Such
transactions include the merger of CB with and into Pinnacle (the "CB
Merger"), with Pinnacle being the surviving corporation. Upon
consummation of the CB Merger, among other things, each issued and
outstanding share of common stock, $.01 par value per share, of CB ("CB
Common Stock"), other than certain shares specified in the Merger
Agreement, will be automatically converted into the right to receive that
number of shares of Pinnacle Common Stock determined by dividing $35.00
by the average of the daily averages of the closing bid and the closing
ask prices per share of common stock, no par value per share, of Pinnacle
("Pinnacle Common Stock") as reported by the Nasdaq National Market for
the period of fifteen business days ending on the fifth business day
prior to the date of consummation of the CB Merger (the "Average Price");
PROVIDED, HOWEVER, (i) that in the event the Average Price is $29.00 or
higher, each share of CB Common Stock issued and outstanding so
converted, will be automatically converted into the right to receive
1.2069 shares of Pinnacle Common Stock, and (ii) that in the event the
Average Price is $23.00 or lower, each share of CB Common Stock issued
and outstanding so converted, will be automatically converted into the
right to receive 1.5217 shares of Pinnacle Common Stock.
2. To transact such other business as may properly come before the CB
Special Meeting or any adjournments or postponements thereof. The Board
of Directors of CB is not aware of any other business to come before the
CB Special Meeting.
The Board of Directors of CB has fixed the close of business on
, 1997 as the record date for the determination of stockholders
entitled to notice of and to vote at the CB Special Meeting and any adjournments
or postponements thereof. Only stockholders of record at the close of business
on such date are entitled to notice of and to vote at the CB Special Meeting and
any adjournments or postponements thereof. A list of CB stockholders entitled to
vote at the CB Special Meeting will be available for examination, during
ordinary business hours, at CB's principal executive office for 10 days prior to
the CB Special Meeting, as well as at the CB Special Meeting.
Your vote is important regardless of the number of shares you own. Each
stockholder is requested to sign, date and return the enclosed Proxy without
delay in the enclosed postage-paid envelope. You may
<PAGE>
revoke your Proxy at any time prior to its exercise. Your proxy will not be used
if you attend and vote at the CB Special Meeting in person.
By Order of the Board of Directors
Allen E. Jones
Secretary
, 1997
THE BOARD OF DIRECTORS OF CB RECOMMENDS THAT YOU VOTE FOR THE ABOVE PROPOSAL.
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.
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PINNACLE FINANCIAL SERVICES, INC., PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION PROSPECTUS
AND 6,921,699 SHARES
CB BANCORP, INC. OF COMMON STOCK,
JOINT PROXY STATEMENT NO PAR VALUE PER SHARE
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This Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") is being furnished to stockholders of Pinnacle Financial
Services, Inc. ("Pinnacle") in connection with the solicitation of proxies by
the Board of Directors of Pinnacle (the "Pinnacle Board") to be used at the
Annual Meeting of Stockholders of Pinnacle to be held on , 1997
(including any adjournments or postponements thereof, the "Pinnacle Annual
Meeting"). At the Pinnacle Annual Meeting, holders of the common stock, no par
value per share, of Pinnacle (the "Pinnacle Common Stock") will be asked to
elect eight directors of Pinnacle and to consider and vote upon two merger
proposals. One of the merger proposals is a proposal (the "IFC Merger Proposal")
to approve and adopt the Agreement and Plan of Merger dated as of November 14,
1996 (the "Original IFC Merger Agreement"), as amended by a First Amendment to
Agreement and Plan of Merger dated as of February 27, 1997 (the "IFC Merger
Agreement Amendment," and together with the Original IFC Merger Agreement, the
"IFC Merger Agreement"), between Pinnacle and Indiana Federal Corporation
("IFC"), and all of the transactions contemplated by the IFC Merger Agreement
(including, without limitation, the merger of IFC with and into Pinnacle (the
"IFC Merger")). The second merger proposal is a proposal (the "CB Merger
Proposal," and together with the IFC Merger Proposal, the "Merger Proposals") to
approve and adopt the Agreement and Plan of Merger dated as of March 1, 1997
(the "CB Merger Agreement," and together with the IFC Merger Agreement, the
"Merger Agreements"), by and between Pinnacle and CB Bancorp, Inc. ("CB"), and
all of the transactions contemplated by the CB Merger Agreement (including,
without limitation, the merger of CB with and into Pinnacle (the "CB Merger,"
and together with the IFC Merger, the "Mergers")).
This Joint Proxy Statement/Prospectus is also being furnished to
stockholders of Indiana Federal Corporation in connection with the solicitation
of proxies by the Board of Directors of IFC (the "IFC Board") to be used at the
Annual Meeting of Stockholders of IFC to be held on , 1997
(including any adjournments or postponements thereof, the "IFC Annual Meeting").
At the IFC Annual Meeting, holders of common stock, $.01 par value per share, of
IFC (the "IFC Common Stock") will be asked to elect three directors of IFC, to
consider and vote upon the IFC Merger Proposal, and to ratify the appointment of
Ernst & Young LLP as independent auditors of IFC.
This Joint Proxy Statement/Prospectus is also being furnished to
stockholders of CB in connection with the solicitation of proxies by the Board
of Directors of CB (the "CB Board") to be used at the Special Meeting of
Stockholders of CB to be held on , 1997 (including any adjournments
or postponements thereof, the "CB Special Meeting," and together with the
Pinnacle Annual Meeting and the IFC Annual Meeting, the "Stockholder Meetings").
At the CB Special Meeting, holders of common stock, $.01 par value per share, of
CB (the "CB Common Stock") will consider and vote upon the CB Merger Proposal.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Pinnacle with respect to up to 5,004,220 shares of Pinnacle Common Stock to be
issued or reserved for issuance in connection with the IFC Merger and with
respect to up to 1,917,479 shares of Pinnacle Common Stock to be issued or
reserved for issuance in connection with the CB Merger. Upon consummation of the
IFC Merger each share of IFC Common Stock, other than certain shares specified
in the IFC Merger Agreement, will be automatically converted into the right to
receive one (1) share of Pinnacle Common Stock (the "IFC Exchange Ratio"). Upon
consummation of the CB Merger, each share of CB Common Stock, other than certain
shares specified in the CB Merger Agreement, will be automatically converted
into the right to receive that number of shares of Pinnacle Common Stock (the
"CB Exchange Ratio") determined by dividing $35.00 by the average of the daily
averages of the closing bid and the closing ask prices per share of Pinnacle
Common Stock as reported by the Nasdaq National Market for the period of fifteen
business days ending on the fifth business day prior to the date of consummation
of the CB Merger (the "Average Price"); PROVIDED, HOWEVER, (i) that in the event
the Average Price is $29.00 or higher, each share of CB Common Stock issued and
outstanding so converted, would be converted into the right to receive 1.2069
shares of Pinnacle Common Stock, and (ii) that in the event the Average Price is
$23.00 or lower, each share of CB Common Stock issued and outstanding so
converted, would be converted into the right to receive 1.5217 shares of
Pinnacle Common Stock. This Joint Proxy Statement/Prospectus does not cover any
resales of Pinnacle Common Stock to be received by stockholders of IFC or CB
upon consummation of the Mergers, and no person is authorized to make use of
this Joint Proxy Statement/Prospectus in connection with any such resale.
THE SHARES OF PINNACLE COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR
ANY OTHER GOVERNMENT AGENCY.
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 Joint Proxy Statement/Prospectus is , 1997.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of Pinnacle, IFC and CB on or about
, 1997.
Pinnacle Common Stock and IFC Common Stock are traded on the Nasdaq National
Market and CB Common Stock is traded on the Nasdaq Small-Cap Market. The last
sales prices of Pinnacle Common Stock and IFC Common Stock were $24.75 and
$19.50, respectively, on November 13, 1996 (the last trading day prior to the
public announcement of the IFC Merger). The last sales prices of Pinnacle Common
Stock, IFC Common Stock and CB Common Stock were $27.75, $26.25 and $28.65,
respectively, on February 28, 1997 (the last trading day prior to the public
announcement of the CB Merger). The closing sales prices of Pinnacle Common
Stock, IFC Common Stock and CB Common
<PAGE>
Stock were $ , $ and $ , respectively, on , 1997 (the last
practicable trading day prior to the mailing of this Joint Proxy
Statement/Prospectus).
<PAGE>
TABLE OF CONTENTS
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AVAILABLE INFORMATION..................................................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................... 2
SUMMARY................................................................................................... 5
The Companies........................................................................................... 5
The Stockholder Meetings................................................................................ 6
The Mergers............................................................................................. 9
Interests of Certain Persons in the Mergers............................................................. 14
Management and Operations After the Mergers............................................................. 14
Certain Federal Income Tax Consequences................................................................. 16
Acquisition of Maco Bancorp, Inc........................................................................ 16
Comparison of Stockholders' Rights...................................................................... 17
Summary Condensed Consolidated Historical Financial and Operating Data of Pinnacle Financial Services,
Inc................................................................................................... 18
Summary Condensed Consolidated Historical Financial and Operating Data of Indiana Federal Corporation... 19
Summary Condensed Consolidated Historical Financial and Operating Data of CB Bancorp, Inc............... 20
Summary Unaudited Pro Forma Condensed Combined Financial and Operating Data of Pinnacle Financial
Services, Inc. and Indiana Federal Corporation........................................................ 21
Summary Unaudited Pro Forma Condensed Combined Financial and Operating Data of Pinnacle Financial
Services, Inc. and CB Bancorp, Inc.................................................................... 22
Summary Unaudited Pro Forma Condensed Combined Financial and Operating Data of Pinnacle Financial
Services, Inc., Indiana Federal Corporation and CB Bancorp, Inc....................................... 23
Comparative Per Share Data of Pinnacle Financial Services, Inc. and Indiana Federal Corporation......... 24
Comparative Per Share Data of Pinnacle Financial Services, Inc. and CB Bancorp, Inc..................... 25
Comparative Per Share Data of Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB
Bancorp, Inc.......................................................................................... 26
Comparative Stock Prices................................................................................ 27
THE COMPANIES............................................................................................. 29
Pinnacle Financial Services, Inc........................................................................ 29
Indiana Federal Corporation............................................................................. 30
CB Bancorp, Inc......................................................................................... 30
THE STOCKHOLDER MEETINGS.................................................................................. 31
Matters to be Considered................................................................................ 31
Votes Required.......................................................................................... 31
Voting of Proxies....................................................................................... 34
Revocability of Proxies................................................................................. 35
Record Dates; Shares Entitled to Vote; Quorums.......................................................... 36
No Dissenters' Rights/No Appraisal Rights............................................................... 36
Solicitation of Proxies................................................................................. 36
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THE MERGERS............................................................................................... 38
Structure............................................................................................... 38
Merger Consideration.................................................................................... 39
Backgrounds of the Mergers.............................................................................. 41
Reasons for the Mergers................................................................................. 47
Recommendations of the Boards of Directors.............................................................. 52
Opinions of Pinnacle Financial Advisors................................................................. 52
Opinion of IFC Financial Advisor........................................................................ 61
Opinion of CB Financial Advisor......................................................................... 67
Certain Forward-Looking Information..................................................................... 71
Summary of the IFC Merger Agreement..................................................................... 71
Summary of the CB Merger Agreement...................................................................... 78
Procedures for Exchange of Certificates................................................................. 85
No Solicitation of Transactions......................................................................... 86
Regulatory Approvals Required for the Mergers........................................................... 87
Interests of Certain Persons in the Mergers............................................................. 89
Anticipated Accounting Treatment........................................................................ 89
Resale of Pinnacle Common Stock; Restrictions on Transfer............................................... 90
No Dissenters' Rights/No Appraisal Rights............................................................... 91
Stock Option Agreements................................................................................. 91
PRO FORMA COMBINED FINANCIAL INFORMATION
Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro Forma Combined Statement
of Income Summary..................................................................................... 97
Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro Forma Combined
Statements of Income.................................................................................. 99
Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro Forma Combined Balance
Sheet................................................................................................. 103
Notes to Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro Forma Combined
Financial Statements.................................................................................. 105
Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma Combined Statement of Income
Summary............................................................................................... 106
Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma Combined Statements of
Income................................................................................................ 108
Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma Combined Balance Sheet....... 112
Notes to Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma Combined Financial
Statements............................................................................................ 114
Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp, Inc. Unaudited Pro Forma
Combined Statement of Income Summary.................................................................. 115
Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp, Inc. Unaudited Pro Forma
Combined Statements of Income......................................................................... 117
Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp, Inc. Unaudited Pro Forma
Combined Balance Sheet................................................................................ 121
Notes to Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp, Inc. Unaudited
Pro Forma Combined Financial Statements............................................................... 123
</TABLE>
ii
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INTERESTS OF CERTAIN PERSONS IN THE MERGERS............................................................... 124
Directors............................................................................................... 124
Executive Officers...................................................................................... 124
Subsidiary Bank Mergers................................................................................. 125
Other Matters........................................................................................... 126
MANAGEMENT AND OPERATIONS AFTER THE MERGERS............................................................... 130
Directors............................................................................................... 130
Executive Officers...................................................................................... 131
Subsidiary Bank Mergers................................................................................. 132
Post-Merger Dividend Policy............................................................................. 132
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................................................... 134
ACQUISITION OF MACO BANCORP, INC.......................................................................... 135
General................................................................................................. 135
Standstill Agreement.................................................................................... 136
Transfer Agreements; Indemnification Agreement; Escrow Agreement; Non-Competition Agreement............. 137
Potential Adverse Tax Consequences...................................................................... 138
CERTAIN REGULATORY CONSIDERATIONS......................................................................... 139
General................................................................................................. 139
Payment of Dividends.................................................................................... 140
Certain Transactions with Affiliates.................................................................... 141
Capital................................................................................................. 142
Support of Subsidiary Banks............................................................................. 144
FDIC Insurance Assessments.............................................................................. 145
Regulation of Proposed Acquisitions..................................................................... 146
Recent Legislation...................................................................................... 147
Qualified Thrift Lender ("QTL") Test.................................................................... 148
Mortgage Regulation..................................................................................... 148
DESCRIPTION OF PINNACLE COMMON STOCK...................................................................... 150
COMPARISON OF STOCKHOLDERS' RIGHTS........................................................................ 151
General................................................................................................. 151
Board of Directors; Removal of Directors................................................................ 151
Stockholder Voting Requirements......................................................................... 153
Anti-Takeover Laws and Charter Provisions............................................................... 155
Special Meetings of Stockholders........................................................................ 156
Director Liability and Indemnification.................................................................. 157
IFC Rights Agreement.................................................................................... 157
Payment of Dividends.................................................................................... 158
Charter Amendments...................................................................................... 158
Other Matters........................................................................................... 159
INFORMATION REGARDING THE PINNACLE ANNUAL MEETING......................................................... 160
Election of Directors................................................................................... 160
Board of Directors Meetings and Committees.............................................................. 161
Director Compensation and Benefits...................................................................... 162
Compensation Committee Interlocks and Insider Participation............................................. 162
Executive Compensation.................................................................................. 163
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Compensation Committee Report on Executive Compensation................................................. 165
Shareholder Return Performance Presentation............................................................. 166
Indebtedness of Management.............................................................................. 166
Section 16(a) Beneficial Ownership Reporting Compliance................................................. 167
Beneficial Ownership of Pinnacle Common Stock........................................................... 168
Other Matters........................................................................................... 169
INFORMATION REGARDING THE IFC ANNUAL MEETING.............................................................. 170
Election of Directors................................................................................... 170
Board of Directors Meetings and Committees.............................................................. 171
Director Compensation and Benefits...................................................................... 172
Compensation Committee Interlocks and Insider Participation............................................. 173
Executive Compensation.................................................................................. 173
Compensation Committee Report on Executive Compensation................................................. 175
Shareholder Return Performance Presentation............................................................. 177
Indebtedness of Management.............................................................................. 178
Section 16(a) Beneficial Ownership Reporting Compliance................................................. 178
Ratification of the Appointment of Independent Auditors................................................. 178
Other Matters........................................................................................... 178
CERTAIN INFORMATION REGARDING CB.......................................................................... 179
Directors of CB......................................................................................... 179
Board of Directors Meetings and Committees.............................................................. 180
Executive Compensation.................................................................................. 181
Indebtedness of Management.............................................................................. 183
Section 16(a) Beneficial Ownership Reporting Compliance................................................. 183
Beneficial Ownership of CB Common Stock................................................................. 183
LEGAL MATTERS............................................................................................. 184
EXPERTS................................................................................................... 184
STOCKHOLDER PROPOSALS..................................................................................... 185
ANNEXES
Annex A--CB Bancorp, Inc. Annual Report to Securityholders for the Fiscal Year Ended March 31, 1996
Annex B--CB Bancorp, Inc. Quarterly Report on Form 10-QSB for the Quarterly Period Ended December 31, 1996
Annex C--Agreement and Plan of Merger dated as of November 14, 1996 between Pinnacle Financial Services, Inc. and
Indiana Federal Corporation (without exhibits)
Annex D--First Amendment to Agreement and Plan of Merger dated as of February 27, 1997 between Pinnacle Financial
Services, Inc. and Indiana Federal Corporation
Annex E--Agreement and Plan of Merger dated as of March 1, 1997 between Pinnacle Financial Services, Inc. and CB
Bancorp, Inc. (without exhibits)
Annex F--Opinion of ABN AMRO Chicago Corporation
Annex G--Opinion of PL Capital, LLC
Annex H--Opinion of Sandler O'Neill & Partners, L.P.
Annex I--Opinion of Charles Webb & Company, a division of Keefe, Bruyette & Woods, Inc.
</TABLE>
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NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PINNACLE,
IFC OR CB. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS
NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF PINNACLE, IFC OR CB SINCE THE DATE HEREOF OR THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO SUCH DATE. ALL INFORMATION
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS RELATING TO PINNACLE AND ITS
SUBSIDIARIES HAS BEEN SUPPLIED BY PINNACLE, ALL INFORMATION CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS RELATING TO IFC AND ITS SUBSIDIARIES HAS BEEN
SUPPLIED BY IFC, AND ALL INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS RELATING TO CB AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY
CB.
AVAILABLE INFORMATION
Pinnacle, IFC and CB are subject to the informational 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"). Such reports, proxy
statements and other information concerning Pinnacle, IFC or CB can be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
Commission's Regional Offices at 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 also can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding the electronic filings of Pinnacle, IFC and CB with
the Commission. The address of the Commission's Web site is
"http://www.sec.gov".
Pinnacle has filed with the Commission a Registration Statement on Form S-4
(registration no. 333-19729) (together with any amendments thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Pinnacle Common Stock to be
issued or reserved for issuance in connection with the Mergers. This Joint Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits thereto. Such additional information may
be inspected and copied as set forth above. Statements contained in this Joint
Proxy Statement/Prospectus or in any document incorporated in this Joint Proxy
Statement/Prospectus by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All of the documents filed with the Commission by Pinnacle (File No.
0-17937) pursuant to the Exchange Act since the end of its fiscal year ended
December 31, 1996 are incorporated by reference in this Joint Proxy
Statement/Prospectus. Such documents include the following:
1. Pinnacle's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "1996 Pinnacle 10-K").
2
<PAGE>
2. All other reports filed by Pinnacle pursuant to Section 13(a) or
15(d) of the Exchange Act since the end of the fiscal year covered by the
1996 Pinnacle 10-K (including Pinnacle's Current Report on Form 8-K dated
March 3, 1997).
Such incorporation by reference will not be deemed to specifically
incorporate by reference the information referred to in Item 402(a)(8) of
Regulation S-K.
All of the documents filed with the Commission by IFC (File No. 0-17379)
pursuant to the Exchange Act since the end of its fiscal year ended December 31,
1996 are incorporated by reference in this Joint Proxy Statement/Prospectus.
Such documents include the following:
1. IFC's Annual Report on Form 10-K for the fiscal year ended December
31, 1996 (the "1996 IFC 10-K").
2. All other reports filed by IFC pursuant to Section 13(a) or 15(d) of
the Exchange Act since the end of the fiscal year covered by the 1996 IFC
10-K.
3. IFC's Registration Statement on Form 8-A dated March 4, 1992,
describing the rights in respect of IFC Common Stock (the "IFC Rights")
issued pursuant to the Stockholder Protection Rights Agreement dated as of
February 26, 1992, as amended by the Amendment to Stockholder Protection
Rights Agreement dated as of November 14, 1996, between IFC and Harris Trust
and Savings Bank, as Rights Agent (the "IFC Rights Agreement").
Such incorporation by reference will not be deemed to specifically
incorporate by reference the information referred to in Item 402(a)(8) of
Regulation S-K.
All of the documents filed with the Commission by CB (File No. 0-20742)
pursuant to the Exchange Act since the end of its fiscal year ended March 31,
1996 are incorporated by reference in this Joint Proxy Statement/Prospectus.
Such documents include the following:
1. CB's Annual Report on Form 10-KSB for the fiscal year ended March
31, 1996 (the "1996 CB 10-KSB").
2. All other reports filed by CB pursuant to Section 13(a) or 15(d) of
the Exchange Act since the end of the fiscal year covered by the 1996 CB
10-KSB (including CB's Quarterly Reports on Form 10-QSB for the Quarterly
Periods ended June 30, 1996, September 30, 1996 and December 31, 1996,
respectively, and CB's Current Report on Form 8-K dated March 3, 1997).
3. The portions of CB's Proxy Statement for the Annual Meeting of
Stockholders of CB held July 24, 1996 that have been incorporated by
reference in the 1996 CB 10-KSB.
Such incorporation by reference will not be deemed to specifically
incorporate by reference the information referred to in Item 402(a)(8) of
Regulation S-K.
CB's Annual Report to Securityholders for the fiscal year ended March 31,
1996 has been reproduced and attached to this Joint Proxy Statement/Prospectus
as Annex A and CB's Quarterly Report on Form 10-QSB for the quarterly period
ended December 31, 1996 has been reproduced and attached to this Joint Proxy
Statement/Prospectus as Annex B.
All documents filed with the Commission by Pinnacle, IFC and CB pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
effectiveness of the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part and prior to the date of the Pinnacle Annual
Meeting, the date of the IFC Annual Meeting, or the date of the CB Special
Meeting, as applicable, are incorporated herein by reference and such documents
will be deemed to be a part hereof from the date of filing of such documents.
Any statement contained in this Joint Proxy Statement/Prospectus or in a
document incorporated or deemed to be incorporated by reference herein will be
deemed to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement
3
<PAGE>
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 will not be deemed, except as
so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
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 JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO PINNACLE, TO
DONALD E. RADDE, SECRETARY, PINNACLE FINANCIAL SERVICES, INC., 830 PLEASANT
STREET, ST. JOSEPH, MICHIGAN 49085, TELEPHONE: (616) 983-6311; OR IN THE CASE OF
DOCUMENTS RELATING TO IFC, TO BRENDA A. SHEETZ, SECRETARY, INDIANA FEDERAL
CORPORATION, 56 WASHINGTON STREET, VALPARAISO, INDIANA 46383, TELEPHONE: (219)
462-4131; OR IN THE CASE OF DOCUMENTS RELATING TO CB, TO ALLEN E. JONES,
SECRETARY, CB BANCORP, INC. 126 E. FOURTH STREET, MICHIGAN CITY, INDIANA 46360,
TELEPHONE: (219) 873-2800. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
REQUESTS SHOULD BE RECEIVED BY , , 1997.
4
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/ PROSPECTUS OR IN DOCUMENTS INCORPORATED HEREIN BY
REFERENCE. ALTHOUGH IT SUMMARIZES ALL MATERIAL INFORMATION CONTAINED ELSEWHERE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS, THIS SUMMARY IS NECESSARILY
INCOMPLETE. CONSEQUENTLY, REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN
ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS JOINT
PROXY STATEMENT/PROSPECTUS (INCLUDING THE ANNEXES ATTACHED HERETO AND THE
INFORMATION INCORPORATED HEREIN BY REFERENCE). STOCKHOLDERS ARE URGED TO READ
THIS JOINT PROXY STATEMENT/ PROSPECTUS AND THE ANNEXES ATTACHED HERETO IN THEIR
ENTIRETY AND WITH CARE. CERTAIN CAPITALIZED TERMS WHICH ARE USED BUT NOT DEFINED
IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
THE COMPANIES
PINNACLE. Pinnacle Financial Services, Inc. is a registered bank holding
company organized under the laws of the State of Michigan in 1986. Pinnacle is
one of the leading community-banking institutions in southwestern Michigan and
northern Indiana. Through its wholly-owned subsidiary, Pinnacle Bank, a Michigan
state banking corporation formerly known as "The Peoples State Bank of St.
Joseph" ("Pinnacle Bank"). Pinnacle's principal executive offices are located at
830 Pleasant Street, St. Joseph, Michigan 49085, and its telephone number is
(616) 983-6311. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "THE
COMPANIES--Pinnacle Financial Services, Inc."
IFC. Indiana Federal Corporation is a registered savings and loan holding
company organized under the laws of the State of Delaware in 1988. IFC 's
principal operating subsidiary is Indiana Federal Bank for Savings, a federal
savings bank ("IndFed Bank"). IndFed Bank conducts its activities from a network
of 16 full service offices located in Valparaiso and other northwest Indiana
communities. IndFed Bank also operates three loan production offices in
Highland, Mishawaka, and Valparaiso, Indiana. Based on IndFed Bank's total
assets of $837 million at December 31, 1996, IndFed Bank is the third largest
thrift institution headquartered in Indiana. IFC's principal executive offices
are located at 56 Washington Street, Valparaiso, Indiana 46383, and its
telephone number is (219) 465-6607. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and "THE COMPANIES--Indiana Federal Corporation."
CB. CB Bancorp, Inc. is a registered savings and loan holding company
organized under the laws of the State of Delaware in 1992. CB's principal
operating subsidiary is Community Bank, A Federal Savings Bank ("Community
Bank"). Community Bank conducts its activities from three full service offices
in Michigan City, Indiana and LaPorte, Indiana. CB also has a loan
production/mortgage banking office in Merrillville, Indiana. CB's principal
executive offices are located at 126 E. Fourth Street, Michigan City, Indiana
46360, and its telephone number is (219) 873-2800. SEE "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE," "THE COMPANIES--CB Bancorp, Inc.," "ANNEX A--CB
BANCORP, INC. ANNUAL REPORT TO SECURITYHOLDERS FOR THE FISCAL YEAR ENDED MARCH
31, 1996" and "ANNEX B--CB BANCORP, INC. QUARTERLY REPORT ON FORM 10-QSB FOR THE
QUARTERLY PERIOD ENDED DECEMBER 31, 1996."
Prior to the execution of the IFC Merger Agreement and the Pinnacle/IFC
Stock Option Agreements, Pinnacle had not engaged in any transactions with IFC,
and except to the extent contemplated by, or resulting from, the IFC Merger
Agreement, the Pinnacle/IFC Stock Option Agreements and the transactions
contemplated thereby, Pinnacle is not affiliated with IFC. Prior to the
execution of the CB Bancorp Merger Agreement and the CB Stock Option Agreement,
neither Pinnacle nor IFC had engaged in any transactions with CB, and except to
the extent contemplated by, or resulting from, the CB Merger Agreement, the CB
Stock Option Agreement and the transactions contemplated thereby, neither
Pinnacle nor IFC is affiliated with CB.
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THE STOCKHOLDER MEETINGS
DATES, TIMES AND PLACES
PINNACLE. The 1997 Annual Meeting of Stockholders of Pinnacle will be held
at the Mendel Center, 2755 East Napier Avenue, Benton Harbor, Michigan, at :00
a.m., local time, on , , 1997. See "THE STOCKHOLDER
MEETINGS."
IFC. The 1997 Annual Meeting of Stockholders of IFC will be held at
, at :00 a.m., local time, on , ,
1997. See "THE STOCKHOLDER MEETINGS."
CB. A special meeting of the stockholders of CB will be held at
, at :00 a.m., local time, on , , 1997.
See "THE STOCKHOLDER MEETINGS."
MATTERS TO BE CONSIDERED
PINNACLE. At the Pinnacle Annual Meeting, holders of Pinnacle Common Stock
will be asked to elect eight directors of Pinnacle and to consider and vote upon
two merger proposals. One of the merger proposals is a proposal to approve and
adopt the Agreement and Plan of Merger dated as of November 14, 1996, as amended
by a First Amendment to Agreement and Plan of Merger dated as of February 27,
1997, between Pinnacle and IFC, and all of the transactions contemplated by the
IFC Merger Agreement (including, without limitation, the merger of IFC with and
into Pinnacle). The second merger proposal is a proposal to approve and adopt
the Agreement and Plan of Merger dated as of March 1, 1997 by and between
Pinnacle and CB, and all of the transactions contemplated by the CB Merger
Agreement (including, without limitation, the merger of CB with and into
Pinnacle). Pinnacle stockholders will also consider and vote upon such other
matters as may properly be brought before the Pinnacle Annual Meeting. See "THE
STOCKHOLDER MEETINGS--Matters to be Considered" and "INFORMATION REGARDING THE
PINNACLE ANNUAL MEETING."
IFC. At the IFC Annual Meeting, holders of IFC Common Stock will be asked
to elect three directors of IFC, to consider and vote upon a proposal to approve
and adopt the Agreement and Plan of Merger dated as of November 14, 1996, as
amended by a First Amendment to Agreement and Plan of Merger dated as of
February 27, 1997, between Pinnacle and IFC, and all of the transactions
contemplated by the IFC Merger Agreement (including, without limitation, the
merger of IFC with and into Pinnacle), and to ratify the appointment of Ernst &
Young LLP as independent auditors of IFC. IFC stockholders will also consider
and vote upon such other matters as may properly be brought before the IFC
Annual Meeting. See "THE STOCKHOLDER MEETINGS--Matters to be Considered" and
"INFORMATION REGARDING THE IFC ANNUAL MEETING.
CB. At the CB Special Meeting, holders of CB Common Stock will consider and
vote upon a proposal to approve and adopt the Agreement and Plan of Merger dated
as of March 1, 1997 between Pinnacle and CB, and all of the transactions
contemplated by the CB Merger Agreement (including, without limitation, the
merger of CB with and into Pinnacle, with Pinnacle being the surviving
corporation). CB stockholders will also consider and vote upon such other
matters as may properly be brought before the CB Special Meeting. See "THE
STOCKHOLDER MEETINGS--Matters to be Considered." A conformed copy of the
Agreement and Plan of Merger dated as of November 14, 1996 between Pinnacle and
IFC (without exhibits) is attached to this Joint Proxy Statement/Prospectus as
Annex C and is incorporated herein by reference.
A conformed copy of the Agreement and Plan of Merger dated as of November
14, 1996 between Pinnacle and IFC (without exhibits) is attached to this Joint
Proxy Statement/Prospectus as Annex C and is incorporated herein by reference.
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A conformed copy of the Agreement and Plan of Merger dated as of March 1,
1997 between Pinnacle and CB (without exhibits) is attached to this Joint Proxy
Statement/Prospectus as Annex E and is incorporated herein by reference.
VOTES REQUIRED
PINNACLE. On each matter submitted to the stockholders of Pinnacle, each
outstanding share of Pinnacle Common Stock is entitled to one vote. Directors of
Pinnacle will be elected by a plurality of the votes present in person or
represented by proxy at the Pinnacle Annual Meeting and entitled to vote on the
election of directors. Approval of each of the Merger Proposals requires the
affirmative vote of a majority of the outstanding shares of Pinnacle Common
Stock. In all matters other than the election of directors and the Merger
Proposals, the affirmative vote of the majority of shares present in person or
represented by proxy at the Pinnacle Annual Meeting and entitled to vote on the
matter will be the act of Pinnacle's stockholders. Approval of the IFC Merger
Proposal by the requisite votes of Pinnacle stockholders and IFC stockholders is
a condition to, and is required for, consummation of the IFC Merger. Approval of
the CB Merger Proposal by the requisite votes of Pinnacle stockholders and CB
stockholders is a condition to, and is required for, consummation of the CB
Merger. However, approval of the CB Merger Proposal by Pinnacle stockholders and
CB stockholders is NOT a condition to, or required for, consummation of the IFC
Merger, and approval of the IFC Merger Proposal by Pinnacle stockholders and IFC
stockholders is NOT a condition to, or required for, consummation of the CB
Merger. The record date for the Pinnacle Annual Meeting is April 1, 1997. Only
Pinnacle stockholders at the close of business on such date are entitled to
notice of, and to vote at, the Pinnacle Annual Meeting. See "THE STOCKHOLDER
MEETINGS--Votes Required."
As of April 1, 1997, directors and executive officers of Pinnacle and their
affiliates were beneficial owners of 560,765, approximately 9.2%, of the
outstanding shares of Pinnacle Common Stock (including 106,836 shares of
Pinnacle Common Stock which may be acquired upon the exercise of options which
are exercisable within 60 days of such date). The directors and executive
officers of Pinnacle have indicated that they intend to vote all shares of
Pinnacle Common Stock owned by them for the election as directors of all of the
Pinnacle Board Nominees and for the approval and adoption of each of the Merger
Proposals. As of April 1, 1997, directors and executive officers of IFC and
their affiliates did not own, beneficially or of record, any of the outstanding
shares of Pinnacle Common Stock. As of April 1, 1997, directors and executive
officers of CB and their affiliates did not own, beneficially or of record, any
of the outstanding shares of Pinnacle Common Stock. See "MANAGEMENT AND
OPERATIONS AFTER THE MERGERS--Directors."
As of April 1, 1997, Pinnacle subsidiaries had or shared the right to vote,
as a consequence of shares held in a fiduciary capacity for third parties,
approximately 299,975, or 5.0%, of the outstanding shares of Pinnacle Common
Stock. Such Pinnacle subsidiaries have indicated that they currently intend to
vote all shares of Pinnacle Common Stock as to which they have sole voting power
for the election as directors of all of the Pinnacle Board Nominees and for the
approval and adoption of each of the Merger Proposals, subject to the exercise
of their fiduciary duties. As of April 1, 1997, IFC subsidiaries did not have or
share the right to vote, as a consequence of shares held in a fiduciary capacity
for third parties, any of the outstanding shares of Pinnacle Common Stock. As of
April 1, 1997, CB subsidiaries did not have or share the right to vote, as a
consequence of shares held in a fiduciary capacity for third parties, any of the
outstanding shares of Pinnacle Common Stock.
The affirmative vote of a majority of the shares represented at the Pinnacle
Annual Meeting may authorize the adjournment of the Pinnacle Annual Meeting;
provided, however, that no proxy which was voted against any proposal will be
voted in favor of adjournment to solicit further proxies for such proposal.
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<PAGE>
IFC. On each matter submitted to the stockholders of IFC, each outstanding
share of IFC Common Stock is entitled to one vote. Directors of IFC will be
elected by a plurality of the votes present in person or represented by proxy at
the IFC Annual Meeting and entitled to vote on the election of directors.
Approval of the IFC Merger Proposal requires the affirmative vote of a majority
of the outstanding shares of IFC Common Stock. In all matters other than the
election of directors and the IFC Merger Proposal, the affirmative vote of the
majority of shares present in person or represented by proxy at the IFC Annual
Meeting and entitled to vote on the matter will be the act of IFC's
stockholders. Approval of the IFC Merger Proposal by the requisite votes of
Pinnacle stockholders and IFC stockholders is a condition to, and is required
for, consummation of the IFC Merger. However, approval of the CB Merger Proposal
by Pinnacle stockholders and CB stockholders is NOT a condition to, or required
for, consummation of the IFC Merger. The record date for the IFC Annual Meeting
is , 1997. Only IFC stockholders at the close of business on such
date are entitled to notice of, and to vote at, the IFC Annual Meeting. See "THE
STOCKHOLDER MEETINGS--Votes Required," and "--Record Dates; Shares Entitled to
Vote; Quorums."
As April 1, 1997, directors and executive officers of IFC and their
affiliates were beneficial owners of 579,556, or 11.8%, of the outstanding
shares of IFC Common Stock (including 126,851 shares of IFC Common Stock which
may be acquired upon the exercise of options which are exercisable within 60
days of such date). The directors and executive officers of IFC have indicated
that they intend to vote all shares of IFC Common Stock owned by them for the
election as directors of all of the IFC Board Nominees, for the approval and
adoption of the IFC Merger Proposal, and for the ratification of the appointment
of Ernst & Young LLP as independent auditors of IFC. As of April 1, 1997,
directors and executive officers of Pinnacle and their affiliates did not own,
beneficially or of record, any of the outstanding shares of IFC Common Stock. As
of April 1, 1997, directors and executive officers of CB and their affiliates
did not own, beneficially or of record, any of the outstanding shares of IFC
Common Stock. See "MANAGEMENT AND OPERATIONS AFTER THE MERGERS--Directors."
As of April 1, 1997, IFC subsidiaries had or shared the right to vote, as a
consequence of shares held in a fiduciary capacity for third parties,
approximately 177,796 (excluding 54,102 shares reported in the prior paragraph
as owned by directors and executive officers of IFC and their affiliates), or
3.7%, of the outstanding shares of IFC Common Stock. Such IFC subsidiaries have
indicated that they currently intend to vote all shares of IFC Common Stock as
to which they have sole voting power for the election as directors of all of the
IFC Board Nominees, for the approval and adoption of the IFC Merger Proposal,
and for the ratification of the appointment of Ernst & Young LLP as independent
auditors of IFC. As of April 1, 1997, Pinnacle subsidiaries had or shared the
right to vote, as a consequence of shares held in a fiduciary capacity for third
parties, approximately 1,999, or less than .01%, of the outstanding shares of
IFC Common Stock. Such Pinnacle subsidiaries have indicated that they currently
intend to vote all shares of IFC Common Stock as to which they have sole voting
power for the election as directors of all of the IFC Board Nominees, for the
approval and adoption of the IFC Merger Proposal, and for the ratification of
the appointment of Ernst & Young LLP as independent auditors of IFC, subject to
the exercise of their fiduciary duties. As of April 1, 1997 CB subsidiaries did
not have or share the right to vote, as a consequence of shares held in a
fiduciary capacity for third parties, any of the outstanding shares of IFC
Common Stock.
The affirmative vote of a majority of the shares represented at the IFC
Annual Meeting may authorize the adjournment of the IFC Annual Meeting;
provided, however, that no proxy which was voted against any proposal will be
voted in favor of adjournment to solicit further proxies for such proposal.
CB. Approval of the CB Merger Proposal requires the affirmative vote of a
majority of the outstanding shares of CB Common Stock, with each such share
entitled to one vote. Approval of the CB Merger Proposal by the requisite votes
of Pinnacle stockholders and CB stockholders is a condition to, and is required
for, consummation of the CB Merger. However, approval of the IFC Merger Proposal
by Pinnacle stockholders and IFC stockholders is NOT a condition to, or required
for, consummation of the CB
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<PAGE>
Merger. CB's Certificate of Incorporation contains a provision limiting the
voting rights of any person who beneficially owns more than 10% of the
outstanding shares of CB Common Stock (the "Limit"). A person who beneficially
owns CB Common Stock in excess of the Limit is not entitled or permitted to vote
any of such shares in excess of the Limit. The record date for the CB Special
Meeting is , 1997. Only CB stockholders at the close of business on
such date are entitled to notice of, and to vote at, the CB Special Meeting. See
"THE STOCKHOLDER MEETINGS--Votes Required," and "--Record Dates; Shares Entitled
to Vote; Quorums" and "COMPARISON OF STOCKHOLDERS' RIGHTS."
As of April 1, 1997, directors and executive officers of CB and their
affiliates were beneficial owners of 207,965, or 16.9%, of the outstanding
shares of CB Common Stock (including 67,294 shares of CB Common Stock which may
be acquired upon the exercise of options which are exercisable within 60 days of
such date). The directors and executive officers of CB have indicated that they
intend to vote all shares of CB Common Stock owned by them for approval and
adoption of the CB Merger Proposal. As of April 1, 1997, directors and executive
officers of Pinnacle and their affiliates did not own, beneficially or of
record, any of the outstanding shares of CB Common Stock. As of April 1, 1997,
directors and executive officers of IFC and their affiliates were beneficial
owners of 670, or less than .01%, of the outstanding shares of CB Common Stock.
The directors and executive officers of IFC have indicated that they intend to
vote all shares of CB Common Stock owned by them for approval and adoption of
the CB Merger Proposal.
As of April 1, 1997, CB subsidiaries did not have or share the right to
vote, as a consequence of shares held in a fiduciary capacity for third parties,
any of the outstanding shares of CB Common Stock. As of April 1, 1997, Pinnacle
subsidiaries did not have or share the right to vote, as a consequence of shares
held in a fiduciary capacity for third parties, any of the outstanding shares of
CB Common Stock. As of April 1, 1997, IFC subsidiaries did not have or share the
right to vote, as a consequence of shares held in a fiduciary capacity for third
parties, any of the outstanding shares of CB Common Stock.
The affirmative vote of a majority of the shares represented at the CB
Special Meeting may authorize the adjournment of the CB Special Meeting;
provided, however, that no proxy which was voted against any proposal will be
voted in favor of adjournment to solicit further proxies for such proposal.
THE MERGERS
STRUCTURE
Pursuant to the IFC Merger Agreement, and at the effective time (the "IFC
Effective Time") set forth in certificates of merger (each, an "IFC Certificate
of Merger") to be filed with the Department of Consumer and Industry Services of
the State of Michigan and the Secretary of State of the State of Delaware on the
closing date with respect to the IFC Merger (the "IFC Closing Date"), IFC will
merge with and into Pinnacle, with Pinnacle being the surviving corporation in
the IFC Merger. The name of the combined corporation following consummation of
the IFC Merger will be "Pinnacle Financial Services, Inc." Pursuant to the
Agreement and Plan of Merger and Consolidation (the "IFC Subsidiary Bank Merger
Agreement") to be executed by and between IndFed Bank and Pinnacle Bank, IndFed
Bank will merge with and into Pinnacle Bank (the "IFC Subsidiary Bank Merger"),
with Pinnacle Bank being the surviving bank in the IFC Subsidiary Bank Merger.
The name of the combined bank will be "Pinnacle Bank." See "THE
MERGERS--Structure" and "MANAGEMENT AND OPERATIONS AFTER THE MERGERS."
Pursuant to the CB Merger Agreement, and at the effective time (the "CB
Effective Time") set forth in certificates of merger (each, a "CB Certificate of
Merger") to be filed with the Department of Consumer and Industry Services of
the State of Michigan and the Secretary of State of the State of Delaware on the
closing date with respect to the CB Merger (the "CB Closing Date"), CB will
merge with and into Pinnacle, with Pinnacle being the surviving corporation in
the CB Merger. The name of the combined corporation following consummation of
the CB Merger will be "Pinnacle Financial Services, Inc." Pursuant to the
Agreement and Plan of Merger and Consolidation (the "CB Subsidiary Bank
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<PAGE>
Merger Agreement," and together with the IFC Subsidiary Bank Merger Agreement,
the "Subsidiary Bank Merger Agreements") to be executed by and between Community
Bank and Pinnacle Bank, Community Bank will merge with and into Pinnacle Bank
(the "CB Subsidiary Bank Merger," and together with the IFC Subsidiary Bank
Merger, the "Subsidiary Bank Mergers"), with Pinnacle Bank being the surviving
bank in the CB Subsidiary Bank Merger. The name of the combined bank will be
"Pinnacle Bank." See "THE MERGERS--Structure" and "MANAGEMENT AND OPERATIONS
AFTER THE MERGERS."
It is expected (i) that the CB Merger will occur as soon as practicable
after the IFC Merger, (ii) that the IFC Subsidiary Bank Merger will occur
simultaneously with the IFC Merger (or as soon thereafter as is practicable),
(iii) that the CB Subsidiary Bank Merger will occur simultaneously with the CB
Merger (or as soon thereafter as is practicable), and (iv) that the CB
Subsidiary Bank Merger will occur as soon as practicable after the IFC
Subsidiary Bank Merger.
MERGER CONSIDERATION
Upon consummation of the IFC Merger, each outstanding share of IFC Common
Stock (other than certain shares specified in the IFC Merger Agreement) will be
automatically converted into the right to receive one (1) share of Pinnacle
Common Stock. Each share of Pinnacle Common Stock outstanding immediately prior
to consummation of the IFC Merger will remain outstanding and unchanged as a
result of the IFC Merger. See "THE MERGERS--Merger Consideration."
Upon consummation of the CB Merger, each outstanding share of CB Common
Stock (other than certain shares specified in the CB Merger Agreement) will be
automatically converted into the right to receive that number of shares of
Pinnacle Common Stock determined by dividing $35.00 by the average of the daily
averages of the closing bid and the closing ask prices per share of Pinnacle
Common Stock as reported by the Nasdaq National Market for the period of fifteen
business days ending on the fifth business day prior to the date of consummation
of the CB Merger; PROVIDED, HOWEVER, (i) that in the event the Average Price is
$29.00 or higher, each share of CB Common Stock issued and outstanding so
converted, would be converted into the right to receive 1.2069 shares of
Pinnacle Common Stock, and (ii) that in the event the Average Price is $23.00 or
lower, each share of CB Common Stock issued and outstanding so converted, would
be converted into the right to receive 1.5217 shares of Pinnacle Common Stock.
Each share of Pinnacle Common Stock outstanding immediately prior to
consummation of the CB Merger will remain outstanding and unchanged as a result
of the CB Merger. See "THE MERGER-- Merger Consideration."
REASONS FOR THE MERGERS
PINNACLE. The Board of Directors of Pinnacle believes that the terms of
each of the Mergers are fair to and in the best interests of Pinnacle and its
stockholders and that the Mergers will (i) result in a combined entity that will
be stronger than Pinnacle alone, (ii) enhance acquisition and other
opportunities for growth and diversification and (iii) improve the competitive
position of the combined corporation in the rapidly changing marketplace for
banking and financial services. See "THE MERGERS--Reasons for the Mergers."
IFC. The Board of Directors of IFC believes that the terms of the IFC
Merger are fair to and in the best interests of IFC and its stockholders and
that the IFC Merger will (i) result in a combined entity that will be stronger
than IFC alone, (ii) enhance acquisition and other opportunities for growth and
diversification and (iii) improve the competitive position of the combined
corporation in the rapidly changing marketplace for banking and financial
services. See "THE MERGERS--Reasons for the Mergers."
CB. The Board of Directors of CB believes that the terms of the CB Merger
are fair to and in the best interests of CB and its stockholders and that the CB
Merger will (i) result in a combined entity that
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will be stronger than CB alone, (ii) enhance acquisition and other opportunities
for growth and diversification and (iii) improve the competitive position of the
combined corporation in the rapidly changing marketplace for banking and
financial services. See "THE MERGERS--Reasons for the Mergers."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
PINNACLE. The Pinnacle Board has nominated John P. Cunningham, Charles R.
Edinger, John D. Fetters, Terrence A. Friedman, Richard L. Schanze, Kay F.
Varga, Arnold L. Weaver, and Alton C. Wendzel for election as directors of
Pinnacle (the "Pinnacle Board Nominees") and has approved the Merger Agreements
and the Stock Option Agreements. The Pinnacle Board recommends that Pinnacle
stockholders vote FOR the election of all of the Pinnacle Board Nominees as
directors of Pinnacle, FOR the approval and adoption of the IFC Merger Proposal
(which approval and adoption shall constitute, among other things, approval of
the IFC Merger and of the issuance of shares of Pinnacle Common Stock to holders
of shares of IFC Common Stock), and FOR the approval and adoption of the CB
Merger Proposal (which approval and adoption shall constitute, among other
things, approval of the CB Merger and of the issuance of shares of Pinnacle
Common Stock to holders of shares of CB Common Stock). See "THE
MERGERS--Recommendations of the Boards of Directors."
IFC. The IFC Board has nominated Peter R. Candela, John R. Poncher, M.D.,
and Byron Smith III for election as directors of IFC (the "IFC Board Nominees"),
has approved the IFC Merger Agreement and the Pinnacle/IFC Stock Option
Agreements, and has appointed Ernst & Young LLP as independent auditors of IFC.
The IFC Board recommends that IFC stockholders vote FOR the election of all of
the IFC Board Nominees as directors of IFC, FOR the approval and adoption of the
IFC Merger Proposal (which approval and adoption shall constitute, among other
things, approval of the IFC Merger and of the conversion of shares of IFC Common
Stock into shares of Pinnacle Common Stock), and FOR the ratification of the
appointment of Ernst & Young LLP as independent auditors of IFC. See "THE
MERGERS--Recommendations of the Boards of Directors."
CB. The CB Board approved the CB Merger Agreement and the CB Stock Option
Agreement and recommends that CB stockholders vote FOR the approval and adoption
of the CB Merger Proposal (which approval and adoption shall constitute, among
other things, approval of the CB Merger and of the conversion of shares of CB
Common Stock into shares of Pinnacle Common Stock). See "THE
MERGERS--Recommendations of the Boards of Directors."
OPINIONS OF FINANCIAL ADVISORS
PINNACLE. ABN AMRO Chicago Corporation has delivered to the Pinnacle Board
its oral opinion as of November 14, 1996, which opinion was subsequently
confirmed in writing, that as of November 14, 1996 the consideration to be paid
by Pinnacle in the IFC Merger was fair to Pinnacle stockholders from a financial
point of view as of November 14, 1996. For information on the assumptions made,
matters considered and limits of the reviews by ABN AMRO Chicago Corporation,
see "THE MERGERS-- Opinions of Pinnacle Financial Advisors" and the opinion of
ABN AMRO Chicago Corporation attached to this Joint Proxy Statement/Prospectus
as Annex F.
PL Capital, LLC has delivered to the Pinnacle Board its oral opinion as of
February 27, 1997, and its written opinion as of , 1997, that, as of
such dates, the consideration to be paid by Pinnacle in the CB Merger was fair
to Pinnacle stockholders from a financial point of view. For information on the
assumptions made, matters considered and limits of the reviews by PL Capital,
LLC, see "THE MERGERS--Opinions of Pinnacle Financial Advisors" and the opinion
of PL Capital, LLC attached to this Joint Proxy Statement/Prospectus as Annex G.
IFC. Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") has delivered to
the IFC Board its written opinions, as of November 14, 1996, and as of
, 1997, that, as of such dates, the IFC Exchange
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Ratio was fair to stockholders of IFC from a financial point of view. For
information on the assumptions made, matters considered and limits of the
reviews by Sandler O'Neill, see "THE MERGERS--Opinion of IFC Financial Advisor"
and the opinion of Sandler O'Neill & Partners, L.P. attached to this Joint Proxy
Statement/Prospectus as Annex H.
CB. Charles Webb & Company, a division of Keefe, Bruyette & Woods, Inc.
("Webb") has delivered to the CB Board its written opinions, as of March 1,
1997, and as of , 1997, that, as of such dates, the CB Exchange Ratio
was fair to stockholders of CB from a financial point of view. For information
on the assumptions made, matters considered and limits of the reviews by Webb,
see "THE MERGERS--Opinion of CB Financial Advisor" and the opinion of Webb
attached to this Joint Proxy Statement/Prospectus as Annex I. Conditions to the
Consummation of the Mergers
Consummation of the IFC Merger is subject to various conditions, including,
among other things, obtaining satisfactory and requisite stockholder and
regulatory approvals, and receipt of certain opinions (including opinions in
respect of certain Federal income tax consequences of the IFC Merger) and
certificates. IFC and Pinnacle are in compliance with all conditions and other
requirements required to have been satisfied prior to the date hereof. However,
consummation of the IFC Merger is not subject to, or conditioned upon, any
approval of, or the consummation of, the CB Merger. See "THE MERGERS--
Conditions to the Consummation of the Mergers."
Consummation of the CB Merger is subject to various conditions, including,
among other things, obtaining satisfactory and requisite stockholder and
regulatory approvals, and receipt of certain opinions (including opinions in
respect of certain Federal income tax consequences of the CB Merger) and
certificates. CB and Pinnacle are in compliance with all conditions and other
requirements required to have been satisfied prior to the date hereof. However,
consummation of the CB Merger is not subject to, or conditioned upon, any
approval of, or the consummation of, the IFC Merger. See "THE MERGERS--
Conditions to the Consummation of the Mergers."
Consummation of the CB Merger is NOT a condition to, or required for, the
consummation of the IFC Merger, and consummation of the IFC Merger is NOT a
condition to, or required for, the consummation of the CB Merger.
NO SOLICITATION OF TRANSACTIONS
The IFC Merger Agreement prohibits Pinnacle, IFC, and their respective
subsidiaries from, directly or indirectly, authorizing or permitting any of
their respective officers, directors, employees, representatives or agents to
entertain, solicit, encourage or take any other action to facilitate any
inquiries or the making of any proposal which constitutes, or may lead to, any
"acquisition proposal" for Pinnacle or IFC. However, the Pinnacle Board or the
IFC Board may consider an unsolicited "acquisition proposal" if it is advised by
its counsel that such action is required to discharge its fiduciary duties to
stockholders. See "THE MERGERS--Summary of the IFC Merger Agreement" and "--No
Solicitation of Transactions."
The CB Merger Agreement prohibits CB and its subsidiaries from, directly or
indirectly, authorizing or permitting any of their respective officers,
directors, employees, representatives or agents to entertain, solicit, encourage
or take any other action to facilitate any inquiries or the making of any
proposal which constitutes, or may lead to, any "acquisition proposal" for CB.
However, the CB Board may consider an unsolicited "acquisition proposal" if it
is advised by its counsel that such action is required to discharge its
fiduciary duties to stockholders. See "THE MERGERS--Summary of the CB Merger
Agreement" and "--No Solicitation of Transactions."
REGULATORY APPROVALS REQUIRED
Each of the Mergers is subject to prior approval by the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board"). Certain aspects of
the Mergers will also require notifications to,
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and/or approvals from, certain other Federal authorities and certain state
authorities. There can be no assurances as to if or when any necessary
regulatory agency or other governmental approvals required for the transactions
contemplated by the Merger Agreements will be obtained. There can also be no
assurances that any such approvals will not contain a condition or requirement
which causes such approvals to fail to satisfy the conditions to the
consummation of each of the Mergers. There can be no assurance that the
Department of Justice will not challenge either or both of the Mergers or as to
the result of any such challenge, if made. See "THE MERGERS--Regulatory
Approvals Required" and "CERTAIN REGULATORY CONSIDERATIONS."
ANTICIPATED ACCOUNTING TREATMENT
Each of the Mergers is expected to qualify as a "pooling-of-interests" for
accounting and financial reporting purposes. The IFC Merger Agreement provides
that a condition to the consummation of the IFC Merger is receipt by Pinnacle of
a letter from KPMG Peat Marwick LLP and receipt by IFC of a letter from Ernst &
Young LLP regarding the appropriateness of "pooling-of-interests" accounting for
the IFC Merger under generally accepted accounting principles if closed and
consummated in accordance with the IFC Merger Agreement. Similarly, the CB
Merger Agreement provides that a condition to the consummation of the CB Merger
is receipt by Pinnacle of a letter from KPMG Peat Marwick LLP and receipt by CB
of a letter from Crowe, Chizek and Company LLP regarding the appropriateness of
"pooling-of-interests" accounting for the CB Merger under generally accepted
accounting principles if closed and consummated in accordance with the CB Merger
Agreement. See "THE MERGERS--Anticipated Accounting Treatment."
NO DISSENTERS' RIGHTS/NO APPRAISAL RIGHTS
Holders of shares of Pinnacle Common Stock will not have dissenters' rights
under the Michigan Business Corporation Act, as amended (the "MBCA"), in
connection with, or as a result of, the matters to be acted upon at the Pinnacle
Annual Meeting. Holders of shares of IFC Common Stock will not have dissenters'
rights under the Delaware General Corporation Law, as amended (the "DGCL"), in
connection with, or as a result of, the matters to be acted upon at the IFC
Annual Meeting. Holders of shares of CB Common Stock will not have dissenters'
rights under the DGCL, in connection with, or as a result of, the matters to be
acted upon at the CB Special Meeting. See "THE STOCKHOLDER MEETINGS--No
Dissenters' Rights/No Appraisal Rights" and "THE MERGERS--No Dissenters'
Rights/No Appraisal Rights."
STOCK OPTION AGREEMENTS
As an inducement to IFC to enter into the IFC Merger Agreement, Pinnacle (as
issuer) and IFC (as grantee) entered into the Pinnacle Stock Option Agreement,
dated November 14, 1996 (the "Pinnacle Stock Option Agreement"), pursuant to
which Pinnacle granted IFC an option to purchase from Pinnacle 591,678 shares of
Pinnacle Common Stock (subject to adjustment, but in no event to exceed 9.9% of
the then outstanding Pinnacle Common Stock), at a price of $24.625 per share
(the "Pinnacle Option"). IFC may exercise the Pinnacle Option only upon the
occurrence of certain events described therein (none of which has occurred as of
the date hereof). At the request of the holder of the Pinnacle Option, under
certain circumstances, Pinnacle will repurchase, pursuant to a formula price set
out in the Pinnacle Stock Option Agreement, the Pinnacle Option and any shares
of Pinnacle Common Stock purchased upon the exercise of the Pinnacle Option and
beneficially owned by such holder at that time.
As an inducement to Pinnacle to enter into the IFC Merger Agreement, IFC (as
issuer) and Pinnacle (as grantee) entered into the IFC Stock Option Agreement,
dated November 14, 1996 (the "IFC Stock Option Agreement," and together with the
Pinnacle Stock Option Agreement, the "Pinnacle/IFC Stock Option Agreements"),
pursuant to which IFC granted Pinnacle an option to purchase from IFC 470,361
shares of IFC Common Stock (subject to adjustment, but in no event to exceed
9.9% of the then
13
<PAGE>
outstanding IFC Common Stock), at a price of $19.875 per share (the "IFC
Option"). Pinnacle may exercise the IFC Option only upon the occurrence of
certain events described therein (none of which has occurred as of the date
hereof). At the request of the holder of the IFC Option, under certain
circumstances, IFC will repurchase, pursuant to a formula price set out in the
IFC Stock Option Agreement, the IFC Option and any shares of IFC Common Stock
purchased upon the exercise of the IFC Option and beneficially owned by such
holder at that time.
As an inducement to Pinnacle to enter into the CB Merger Agreement, CB (as
issuer) and Pinnacle (as grantee) entered into the CB Stock Option Agreement,
dated March 1, 1997 (the "CB Stock Option Agreement," and together with the
Pinnacle/IFC Stock Option Agreements, the "Stock Option Agreements"), pursuant
to which CB granted Pinnacle an option to purchase from CB 115,037 shares of CB
Common Stock (subject to adjustment, but in no event to exceed 9.9% of the then
outstanding CB Common Stock), at a price of $28.50 per share (the "CB Option").
Pinnacle may exercise the CB Option only upon the occurrence of certain events
described therein (none of which has occurred as of the date hereof). At the
request of the holder of the CB Option, under certain circumstances, CB will
repurchase, pursuant to a formula price set out in the CB Stock Option
Agreement, the CB Option and any shares of CB Common Stock purchased upon the
exercise of the CB Option and beneficially owned by such holder at that time.
The Pinnacle/IFC Stock Option Agreements are intended to increase the
likelihood that the IFC Merger will be consummated in accordance with the terms
set forth in the IFC Merger Agreement. Consequently, certain aspects of the
Pinnacle/IFC Stock Option Agreements may have the effect of discouraging persons
who might now or prior to the consummation of the IFC Merger be interested in
acquiring all of or a significant interest in Pinnacle or IFC from considering
or proposing such an acquisition. Similarly, the CB Stock Option Agreement is
intended to increase the likelihood that the CB Merger will be consummated in
accordance with the terms set forth in the CB Merger Agreement. Consequently,
certain aspects of the CB Stock Option Agreement may have the effect of
discouraging persons who might now or prior to the consummation of the CB Merger
be interested in acquiring all of or a significant interest in CB from
considering or proposing such an acquisition. See "THE MERGERS-- Stock Option
Agreements."
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
Certain members of Pinnacle's management and the Pinnacle Board, and IFC's
management and the IFC Board, respectively, may be deemed to have certain
interests in the IFC Merger that are in addition to their interests as
stockholders of Pinnacle or IFC, as the case may be. The Pinnacle Board and the
IFC Board were aware of these interests and considered them, among other
matters, in approving the IFC Merger Agreement, the Stock Option Agreements, and
the transactions contemplated thereby. Similarly, certain members of Pinnacle's
management and the Pinnacle Board, and CB's management and the CB Board,
respectively, may be deemed to have certain interests in the CB Merger that are
in addition to their interests as stockholders of Pinnacle or CB, as the case
may be. The Pinnacle Board and the CB Board were aware of these interests and
considered them, among other matters, in approving the CB Merger Agreement, the
CB Stock Option Agreement, and the transactions contemplated thereby. See
"INTERESTS OF CERTAIN PERSONS IN THE MERGERS."
MANAGEMENT AND OPERATIONS AFTER THE MERGERS
DIRECTORS
If only the IFC Merger is consummated, then from and after the IFC Effective
Time, the Board of Directors of the combined corporation will consist of a
single class of directors comprised of 10 persons. Such persons will include Mr.
Richard L. Schanze (the current Chairman and Chief Executive Officer of
Pinnacle), Mr. Arnold L. Weaver (the current President of Pinnacle), and three
other persons to be named
14
<PAGE>
as directors of the surviving corporation on behalf of the Pinnacle Board, and
Mr. Donald A. Lesch (the current Chairman of the Board and Chief Executive
Officer of IFC), Mr. Howard Silverman, and three other persons to be named as
directors of the surviving corporation on behalf of the IFC Board. If only the
CB Merger is consummated, then from and after the CB Effective Time, the Board
of Directors of the combined corporation will consist of a single class of
directors comprised of nine persons. Such persons will include all of the
current directors of Pinnacle and Mr. Joseph F. Heffernan (the current Chairman
of the Board and the Chief Executive Officer of CB). If both of the Mergers are
consummated, then from and after the consummation of the last of the Mergers to
be consummated, the Board of Directors of the combined corporation will consist
of a single class of directors comprised of 11 persons. Such persons will
include Mr. Richard L. Schanze (the current Chairman and Chief Executive Officer
of Pinnacle), Mr. Arnold L. Weaver (the current President of Pinnacle), and
three other persons to be named as directors of the surviving corporation on
behalf of the Pinnacle Board, Mr. Donald A. Lesch (the current Chairman of the
Board and Chief Executive Officer of IFC), Mr. Howard Silverman, and three other
persons to be named as directors of the surviving corporation on behalf of the
IFC Board, and Mr. Joseph F. Heffernan (the current Chairman of the Board and
the Chief Executive Officer of CB). As of the date of this Joint Proxy
Statement/Prospectus, no additional directors of the combined operations have
been designated by the Pinnacle Board, the IFC Board or the CB Board. See
"MANAGEMENT AND OPERATIONS AFTER THE MERGERS--Directors."
EXECUTIVE OFFICERS
If only the IFC Merger is consummated, then the executive officers of the
combined corporation will consist of certain members of Pinnacle's senior
management and certain members of IFC's senior management. Mr. Schanze will be
the Chairman of the combined corporation following the IFC Merger, and Mr. Lesch
will be the Vice Chairman and President of the combined corporation following
the IFC Merger. If only the CB Merger is consummated, the executive officers of
the combined corporation will consist of certain members of Pinnacle's senior
management, and a number of CB's senior management may be designated executive
officers of the combined corporation. Mr. Schanze will be the Chairman of the
combined corporation following the CB Merger. If both Mergers are consummated,
then the executive officers of the combined corporation will consist of certain
members of Pinnacle's senior management and certain members of IFC's senior
management, and a number of CB's senior management may be designated executive
officers of the combined corporation. Mr. Schanze will be the Chairman of the
combined corporation following the consummation of both Mergers, and Mr. Lesch
will be the Vice Chairman and President of the combined corporation following
the consummation of both Mergers. As of the date of this Joint Proxy
Statement/Prospectus, no additional executive officers of the combined
corporation have been designated. From time to time prior to the consummation of
the Mergers, decisions may be made with respect to the management and operations
of the combined corporation following the Mergers, including the selection of
additional executive officers of the combined corporation. See "MANAGEMENT AND
OPERATIONS AFTER THE MERGERS--Executive Officers."
SUBSIDIARY BANK MERGERS
In connection with the IFC Merger, and pursuant to the IFC Subsidiary Bank
Merger Agreement, IndFed Bank will be merged with and into Pinnacle Bank. If
only the IFC Merger and the IFC Subsidiary Bank Merger are consummated, then the
Board of Directors of Pinnacle Bank following the IFC Subsidiary Bank Merger
will consist of 18 persons, with nine persons to be named as directors by the
Board of Directors of Pinnacle Bank and nine persons to be named as directors by
the Board of Directors of IndFed Bank. The executive officers of Pinnacle Bank
following the IFC Subsidiary Bank Merger will be those appointed by the Board of
Directors of Pinnacle Bank on the basis of recommendations made by Mr. Schanze,
as the Chairman of Pinnacle following the IFC Effective Time, Mr. Donald A.
Lesch, as the Vice Chairman and President of Pinnacle following the IFC
Effective Time, and an outside consulting
15
<PAGE>
service to be engaged and charged with reviewing and evaluating the
qualifications of candidates. See "MANAGEMENT AND OPERATIONS AFTER THE
MERGERS--Operations."
In connection with the CB Merger, and pursuant to the CB Subsidiary Bank
Merger Agreement, Community Bank will be merged with and into Pinnacle Bank. If
only the CB Merger is consummated, then the Board of Directors of Pinnacle Bank
following the CB Subsidiary Bank Merger will consist of
11 persons. Such persons will include all of the current directors of Pinnacle
Bank and two persons (including Mr. Joseph F. Heffernan, the current Chairman of
the Board and Chief Executive Officer of CB) to be named by the Board of
Directors of Community Bank. The executive officers of Pinnacle Bank following
the CB Subsidiary Bank Merger will consist primarily of members of Pinnacle
Bank's senior management, and a number of Community Bank's senior management may
be designated as executive officers of the combined bank. See "MANAGEMENT AND
OPERATIONS AFTER THE MERGERS-- Operations."
If both of the Mergers are consummated and IndFed Bank and Community Bank
are both merged with and into Pinnacle, then the Board of Directors of Pinnacle
Bank will consist of 21 persons, with nine persons to be named as directors by
the Board of Directors of Pinnacle Bank, nine persons to be named as directors
by the Board of Directors of IFC, and three persons (including Mr. Joseph F.
Heffernan, the current Chairman of the Board and Chief Executive Officer of CB)
to be named by the Board of Directors of Community Bank. The executive officers
of Pinnacle Bank will be those appointed by the Board of Directors of Pinnacle
Bank on the basis of recommendations made by Mr. Schanze, as the Chairman of
Pinnacle following the IFC Effective Time, Mr. Donald A. Lesch, as the Vice
Chairman and President of Pinnacle following the IFC Effective Time, and an
outside consulting service to be engaged and charged with reviewing and
evaluating the qualifications of candidates. See "MANAGEMENT AND OPERATIONS
AFTER THE MERGERS--Operations."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the IFC Merger is conditioned upon there being delivered
opinions of counsel to Pinnacle and IFC, dated as of the IFC Effective Time,
substantially to the effect that for Federal income tax purposes the IFC Merger
will constitute a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended. Based on such opinions, and among
other things, no gain or loss will be recognized by Pinnacle or IFC, and no gain
or loss will be recognized by stockholders of IFC who exchange their shares of
IFC Common Stock solely for shares of Pinnacle Common Stock. Similarly,
consummation of the CB Merger is conditioned upon there being delivered opinions
of counsel to Pinnacle and CB, dated as of the CB Effective Time, substantially
to the effect that for Federal income tax purposes the CB Merger will constitute
a reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended. Based on such opinions, and among other things, no gain or
loss will be recognized by Pinnacle or CB, and no gain or loss will be
recognized by stockholders of CB who exchange their shares of CB Common Stock
solely for shares of Pinnacle Common Stock. See "THE MERGERS--Summary of the IFC
Merger Agreement" and "--Summary of the CB Merger Agreement," and "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES."
ACQUISITION OF MACO BANCORP, INC.
On December 1, 1995, Pinnacle acquired all of the outstanding capital stock
of Maco Bancorp, Inc., a Delaware corporation and a registered savings and loan
holding company ("Maco"), for aggregate consideration of $41.9 million (the
"Purchase Price"), through the merger of Maco with and into Pinnacle (the "Maco
Acquisition"). The Purchase Price, which was paid to Mr. Cyrus A. Ansary (who
was then the sole stockholder of Maco), consisted of cash, a secured,
short-term, interest bearing promissory note in the principal amount of $18.0
million (the "Acquisition Note"), and shares of Pinnacle Common Stock then
valued at approximately $21.0 million. As a result of the Maco Acquisition,
Pinnacle became the sole stockholder of First Federal Savings Bank of Indiana, a
federal savings bank that was merged with and into
16
<PAGE>
Pinnacle Bank effective December 31, 1996 ("First Federal"), and Mr. Ansary
became the largest single Pinnacle stockholder. Mr. Ansary currently holds
approximately 19.9% of the shares of Pinnacle Common Stock outstanding. Upon
consummation of both of the Mergers, Mr. Ansary will hold approximately 9.9%
(assuming no outstanding stock options are exercised prior to the consummation
of the Mergers) of the shares of Pinnacle Common Stock then outstanding. If only
the IFC Merger is consummated, then Mr. Ansary will hold approximately 11.2% of
the shares of Pinnacle Common Stock then outstanding (assuming no outstanding
stock options are exercised prior to the consummation of the IFC Merger). If
only the CB Merger is consummated, then Mr. Ansary will hold approximately 16.5%
of the shares of Pinnacle Common Stock then outstanding (assuming no outstanding
stock options are exercised prior to the consummation of the CB Merger).
In connection with the Maco Acquisition, Mr. Ansary and Pinnacle entered
into certain agreements, including a Standstill Agreement dated as of December
1, 1995 (the "Standstill Agreement"). The Standstill Agreement obligates Mr.
Ansary, through December 31, 1999 (unless it is sooner terminated) to vote all
Pinnacle voting securities of which he is the beneficial owner in accordance
with the written directions of Pinnacle's management. Pursuant to the Standstill
Agreement, Mr. Ansary has been instructed to vote all shares of Pinnacle Common
Stock beneficially owned by him in favor of each of the Merger Proposals.
The Standstill Agreement provides that certain limitations imposed by it on
Mr. Ansary's beneficial ownership of Pinnacle Common Stock will terminate if,
among other things, the aggregate percentage of voting securities of Pinnacle
beneficially owned by the directors of Pinnacle as a group declines by more than
one-third from the aggregate percentage so held as of the date of the Maco
Acquisition. Consummation of the IFC Merger alone, as well as consummation of
both of the Mergers together, will cause such aggregate percentage to decline by
more than one-third. However, consummation of the CB Merger alone will NOT cause
such aggregate percentage to decline by more than one-third. Accordingly, the
foregoing limitations will terminate upon consummation of either the IFC Merger
alone or both of the Mergers together, but they will NOT terminate upon
consummation of the CB Merger alone. See "ACQUISITION OF MACO BANCORP, INC."
COMPARISON OF STOCKHOLDERS' RIGHTS
The rights of stockholders of IFC are currently governed by the Certificate
of Incorporation and
By-laws of IFC, the IFC Rights Agreement and the DGCL. Upon consummation of the
IFC Merger, IFC stockholders who receive shares of Pinnacle Common Stock in the
IFC Merger will become stockholders of Pinnacle, and their rights will be
governed by the Restated Articles of Incorporation and By-laws of Pinnacle and
the MBCA. Similarly, the rights of stockholders of CB are currently governed by
the Certificate of Incorporation and By-laws of CB and the DGCL. Upon
consummation of the CB Merger, CB stockholders who receive shares of Pinnacle
Common Stock in the CB Merger will become stockholders of Pinnacle, and their
rights will be governed by the Restated Articles of Incorporation and By-laws of
Pinnacle and the MBCA. See "COMPARISON OF STOCKHOLDERS' RIGHTS."
17
<PAGE>
SUMMARY CONDENSED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING
DATA OF PINNACLE FINANCIAL SERVICES, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DOLLAR AMOUNTS)
The following table presents certain condensed consolidated historical
financial and operating data of Pinnacle for each of the years in the five year
period ended December 31, 1996. The following table should be read in
conjunction with the consolidated financial statements of Pinnacle, including
the notes thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME:
Interest income........................................... $ 73,969 $ 37,495 $ 28,968 $ 29,349 $ 26,249
Interest expense.......................................... 39,693 18,151 11,862 12,420 12,587
Net interest income....................................... 34,276 19,344 17,106 16,929 13,662
Provision for loan losses................................. 375 225 125 360 1,094
Noninterest income........................................ 7,308 4,586 3,756 4,174 3,857
Noninterest expense(1).................................... 26,956 14,636 13,114 13,451 10,355
Income before income tax.................................. 14,253 9,069 7,623 7,292 6,070
Provision for income tax.................................. 5,101 2,610 2,333 2,255 1,792
Extraordinary items/accounting changes.................... -- -- -- -- --
--------- --------- --------- --------- ---------
Net income................................................ $ 9,152 $ 6,459 $ 5,290 $ 5,037 $ 4,278
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
PER SHARE DATA:(2)
Net income per share...................................... $ 1.55 $ 1.62 $ 1.38 $ 1.32 $ 1.12
Cash dividends declared per share......................... 0.82 0.76 0.62 0.53 0.48
Book value per share...................................... 13.06 12.75 9.20 8.86 7.98
Tangible book value per share............................. 10.81 10.09 8.46 8.02 7.02
BALANCE SHEET DATA:
Total assets.............................................. $1,069,121 $ 911,446 $ 409,438 $ 409,572 $ 394,880
Loans..................................................... 609,564 518,459 290,330 264,010 262,623
Allowance for loan losses................................. 5,643 5,852 5,014 5,215 5,881
Securities................................................ 372,157 287,532 91,533 119,889 96,080
Deposits.................................................. 761,269 703,100 352,037 363,014 352,319
Stockholders' equity...................................... 78,049 74,896 35,148 33,878 30,494
PERFORMANCE RATIOS:
Return on average assets(1)............................... 0.94% 1.36% 1.30% 1.27% 1.32%
Return on average stockholders' equity(1)................. 12.34 15.91 15.40 15.77 14.73
Net interest margin....................................... 3.79 4.43 4.61 4.67 4.69
Non-interest income to average assets..................... 0.75 0.96 0.92 1.05 1.19
Non-interest expense to average assets(1)................. 2.76 3.07 3.22 3.39 3.19
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER
31,
---------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
CAPITAL:(3)
Stockholders' equity to assets........ 7.30% 8.22% 8.58% 8.27% 7.72%
Tier 1 capital to total assets........ 6.24 6.62 8.62 7.87 7.37
Tier 1 capital to risk based assets... 11.99 11.97 12.70 12.59 11.59
</TABLE>
- ------------------------
(1) The amount shown for 1996 includes a $2.4 million one-time charge against
financial institutions with deposits insured by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC").
(2) Per share data has been restated to reflect the two-for-one stock split
effected in the form of a stock dividend in July, 1993.
(3) For definitions and further information relating to Pinnacle's regulatory
capital requirements, see "CERTAIN REGULATORY CONSIDERATIONS--Capital."
18
<PAGE>
SUMMARY CONDENSED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING
DATA OF INDIANA FEDERAL CORPORATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DOLLAR AMOUNTS)
The following table presents certain condensed consolidated historical
financial and operating data of IFC for each of the years in the five year
period ended December 31, 1996. The following table should be read in
conjunction with the consolidated financial statements of IFC, including the
notes thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME:
Interest income......................................... $ 56,859 $ 55,170 $ 43,573 $ 46,744 $ 47,533
Interest expense........................................ 31,859 29,855 22,365 25,888 27,588
Net interest income..................................... 25,000 25,315 21,208 20,856 19,945
Provision for loan losses............................... 1,115 177 179 1,097 1,395
Noninterest income...................................... 4,350 4,679 4,471 4,579 3,710
Noninterest expense(1).................................. 22,451 20,195 15,172 13,678 12,388
Income before income tax................................ 5,784 9,622 10,328 10,660 9,872
Provision for income tax................................ 1,161 2,318 3,066 3,076 3,891
Extraordinary items/accounting changes.................. -- -- -- (429) 250
------------ ------------ ------------ ------------ ------------
Net income.............................................. $ 4,623 $ 7,304 $ 7,262 $ 7,155 $ 6,231
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
PER SHARE DATA:(2)
Net income per share.................................... $ 0.96 $ 1.51 $ 1.50 $ 1.45 $ 1.27
Cash dividends declared per share....................... 0.82 0.86 0.72 0.53 0.40
Book value per share.................................... 14.97 14.98 13.81 13.54 12.65
Tangible book value per share........................... 14.02 13.89 13.11 13.36 12.45
BALANCE SHEET DATA:
Total assets............................................ $ 836,825 $ 721,333 $ 717,574 $ 639,148 $ 602,377
Loans................................................... 629,042 529,348 518,272 420,180 403,951
Allowance for loan losses............................... 7,458 6,655 6,101 5,356 4,392
Securities.............................................. 129,714 99,410 137,418 92,367 154,698
Deposits................................................ 569,078 532,896 510,475 430,829 416,081
Stockholders' equity.................................... 71,367 70,730 64,315 63,090 59,816
PERFORMANCE RATIOS:
Return on average assets(1)............................. 0.61% 1.00% 1.19% 1.13% 1.08%
Return on average stockholders' equity(1)............... 6.51 10.74 11.28 11.57 10.78
Net interest margin..................................... 3.61 3.78 3.70 3.48 3.65
Non-interest income to average assets................... 0.57 0.64 0.73 0.72 0.65
Non-interest expense to average assets(1)............... 2.97 2.77 2.49 2.15 2.16
CAPITAL:(3)
Stockholders' equity to assets.......................... 8.53% 9.81% 8.96% 9.87% 9.93%
Tier 1 capital to total assets.......................... 7.99 9.05 8.84 9.75 9.78
Tier 1 capital to risk based assets..................... 11.49 14.06 14.68 17.03 15.96
</TABLE>
- ------------------------------
(1) The amount shown for 1996 includes a $2.8 million one-time charge against
financial institutions with deposits insured by the SAIF of the FDIC.
(2) Per share data has been restated to reflect a three-for-two stock split
effected in May 1994 and a four-for-three stock split effected in February
1993.
(3) For definitions and further information relating to IFC's regulatory capital
requirements, see "CERTAIN REGULATORY CONSIDERATIONS--Capital."
19
<PAGE>
SUMMARY CONDENSED CONSOLIDATED HISTORICAL FINANCIAL
AND OPERATING DATA OF CB BANCORP, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DOLLAR AMOUNTS)
The following table presents certain condensed consolidated historical
financial and operating data of CB for each of the years in the five year period
ended March 31, 1996 and for the nine month periods ended December 31, 1996 and
1995. The following table should be read in conjunction with the consolidated
financial statements of CB, including the notes thereto, which are incorporated
by reference in this Joint Proxy Statement/Prospectus. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE." Pinnacle has been advised by CB that, in the
opinion of management of CB, the data presented for the nine month periods ended
December 31, 1996 and 1995 reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such data. Results
for the nine month periods ended December 31, 1996 and 1995 are not necessarily
indicative of results that may be expected for any other interim period or for
the year as a whole.
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED
DECEMBER 31, AT OR FOR THE YEAR ENDED MARCH 31,
-------------------- -----------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF INCOME:
Interest income................................. $ 12,042 $ 10,402 $ 14,352 $ 9,199 $ 11,016 $ 10,296 $ 10,918
Interest expense................................ 5,955 5,134 7,063 4,144 5,106 5,499 7,312
Net interest income............................. 6,087 5,268 7,289 5,055 5,910 4,797 3,606
Provision for loan losses....................... 861 238 1,020 78 103 278 83
Noninterest income.............................. 1,261 838 1,178 995 1,275 950 561
Noninterest expense(1).......................... 4,130 2,647 3,609 3,342 3,321 2,937 2,783
Income before income tax........................ 2,357 3,221 3,838 2,630 3,761 2,532 1,301
Provision for income tax........................ 791 1,246 1,380 970 1,406 1,060 477
Extraordinary items/accounting changes.......... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income...................................... $ 1,566 $ 1,975 $ 2,458 $ 1,660 $ 2,355 $ 1,472 $ 824
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:(2)
Net income per share............................ $ 1.26 $ 1.57 $ 1.95 $ 1.29 $ 1.82 $ .28 --
Cash dividends declared per share............... -- -- -- -- -- -- --
Book value per share............................ 17.21 15.37 15.85 13.75 12.33 10.23 --
Tangible book value per share................... 17.21 15.37 15.85 13.75 12.33 10.23 --
BALANCE SHEET DATA:
Total assets.................................... $ 226,553 $ 199,103 $ 205,385 $ 143,344 $ 143,528 $ 137,533 $ 139,201
Loans........................................... 194,052 164,693 173,160 111,969 112,692 110,177 114,634
Allowance for loan losses....................... 2,309 907 1,346 672 594 495 228
Securities...................................... 18,578 17,889 19,190 20,160 20,371 16,167 14,928
Deposits........................................ 151,383 123,094 138,261 112,071 115,006 116,853 125,070
Stockholders' equity............................ 20,008 18,258 18,832 16,678 15,099 13,138 6,385
PERFORMANCE RATIOS:
Return on average assets(1)..................... 1.01% 1.53% 1.37% 1.25% 1.50% 1.11% 0.66%
Return on average stockholders' equity(1)....... 10.54 15.25 13.98 10.36 16.58 17.21 13.85
Net interest margin............................. 4.27 4.30 4.33 4.12 3.96 3.80 3.04
Non-interest income to average assets(1)........ .81 .65 0.66 0.75 0.81 0.71 0.45
Non-interest expense to average assets.......... 2.66 2.06 2.01 2.53 2.11 2.21 2.21
CAPITAL:(3)
Stockholders' equity to assets.................. 8.83% 9.17% 9.17% 11.63% 10.52% 9.55% 4.59%
Tier 1 capital to total assets.................. 8.83 9.17 9.17 11.63 10.52 9.55 4.59
Tier 1 capital to risk based assets............. 14.13 17.13 13.22 19.70 19.39 17.57 8.24
</TABLE>
- ------------------------------
(1) The amount shown for 1996 includes a $736,000 one-time charge against
financial institutions with deposits insured by the SAIF of the FDIC.
(2) Per share data have been restated to reflect the two-for-one stock split
effected in the form of a stock dividend in February 1994 and net income per
share reflects only net income earned subsequent to the December 1992 stock
conversion.
(3) For definitions and further information relating to CB's regulatory capital
requirements, see "CERTAIN REGULATORY CONSIDERATIONS--Capital."
20
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
AND OPERATING DATA OF PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DOLLAR AMOUNTS)
The following table sets forth certain unaudited pro forma condensed
combined financial and operating data for Pinnacle giving effect to the CB
Merger, which will be accounted for as a "pooling-of-interests," as if it had
occurred as of the beginning of the earliest period indicated and after giving
effect to the pro forma adjustments described in the Notes to Pinnacle Financial
Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma Combined Financial
Statements. For a description of "pooling-of-interests" accounting with respect
to the CB Merger, see "THE MERGERS--Anticipated Accounting Treatment." This
information should be read in conjunction with the historical consolidated
financial statements of Pinnacle, including the notes thereto, which are
incorporated by reference in this Joint Proxy Statement/Prospectus, the
historical consolidated financial statements of CB, including the notes thereto,
which are incorporated by reference in this Joint Proxy Statement/Prospectus,
and the consolidated historical financial data for Pinnacle and CB and the other
pro forma financial information, including the notes thereto, which appear
elsewhere in this Joint Proxy Statement/Prospectus. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and "PRO FORMA COMBINED FINANCIAL INFORMATION."
The effect of the expected one-time merger and restructuring charges of
approximately $1.3 million (after-tax) have been reflected in the pro forma
combined balance sheet; however, since the expected merger and restructuring
charges are nonrecurring, they have not been reflected in the pro forma combined
statements of income. See "PRO FORMA COMBINED FINANCIAL INFORMATION--Notes to
Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma
Combined Financial Statements." The pro forma financial data do not give effect
to the anticipated cost savings in connection with the CB Merger and are not
necessarily indicative of either the results that actually would have occurred
had the CB Merger been consummated on the dates indicated or the results that
may be obtained in the future.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,(1)
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CONSOLIDATED SUMMARY OF INCOME:
Interest income......................................... $ 89,961 $ 50,322 $ 38,102
Interest expense........................................ 47,576 24,380 15,973
Net interest income..................................... 42,385 25,942 22,129
Provision for loan losses............................... 2,018 482 203
Noninterest income...................................... 8,909 5,727 4,697
Noninterest expense(2).................................. 32,048 18,123 16,454
Income before income tax expense........................ 17,228 13,064 10,169
Income tax expense...................................... 6,027 4,150 3,254
Extraordinary items/accounting changes.................. -- -- --
Net income.............................................. 11,201 8,914 6,915
PER SHARE DATA:
Net income per share (primary).......................... $ 1.49 $ 1.58 $ 1.26
Net income per share (fully diluted).................... 1.49 1.58 1.26
Cash dividends declared per share....................... 0.82 0.76 0.62
Book value per share.................................... 12.79
Average common shares outstanding (primary)............. 7,504,112 5,636,634 5,498,235
Average common shares outstanding (fully diluted)....... 7,504,112 5,636,634 5,498,235
</TABLE>
<TABLE>
<CAPTION>
AT, OR FOR
THE YEAR
ENDED
DECEMBER 31,
1996
------------
<S> <C>
BALANCE SHEET DATA:
Total assets............................................ $1,294,174
Loans................................................... 803,616
Allowance for loan losses............................... (7,952 )
Securities.............................................. 390,735
Deposits................................................ 912,652
Long-term debt.......................................... --
Stockholders' equity.................................... 96,737
</TABLE>
- ------------------------
(1) Historical information included above is presented on a calendar year basis
for Pinnacle and CB. As CB's fiscal year end is March 31, CB information
for each of the years ended December 31, 1996, 1995 and 1994 includes the
fourth quarter of the fiscal year preceding each such fiscal year and the
first three quarters of such fiscal year.
(2) The amount shown for 1996 includes $3.2 million as a result of the
assessment of a one-time charge against financial institutions with deposits
insured by the SAIF of the FDIC.
22
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
AND OPERATING DATA OF PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION, AND CB BANCORP, INC.
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA AND PER SHARE DOLLAR AMOUNTS)
The following table sets forth certain unaudited pro forma condensed
combined financial and operating data for Pinnacle giving effect to each of the
Mergers, which will be accounted for as "pooling-of-interests," as if each of
the Mergers had occurred as of the beginning of the earliest period indicated
and after giving effect to the pro forma adjustments described in the Notes to
Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp,
Inc. Unaudited Pro Forma Combined Financial Statements. For a description of
"pooling-of-interests" accounting with respect to the Mergers, see "THE
MERGERS--Anticipated Accounting Treatment." This information should be read in
conjunction with the historical consolidated financial statements of Pinnacle,
including the notes thereto, which are incorporated by reference in this Joint
Proxy Statement/Prospectus, the historical consolidated financial statements of
IFC, including the notes thereto, which are incorporated by reference in this
Joint Proxy Statement/Prospectus, the historical consolidated financial
statements of CB, including the notes thereto, which are incorporated by
reference in this Joint Proxy Statement/Prospectus and the consolidated
historical financial data for Pinnacle and IFC and the other pro forma financial
information, including the notes thereto, which appear elsewhere in this Joint
Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and "PRO FORMA COMBINED FINANCIAL INFORMATION." The effect of the
expected one-time merger and restructuring charges of approximately $5.5 million
(after-tax) have been reflected in the pro forma combined balance sheet;
however, since the expected merger and restructuring charges are nonrecurring,
they have not been reflected in the pro forma combined statements of income. See
"PRO FORMA COMBINED FINANCIAL INFORMATION--Notes to Pinnacle Financial Services,
Inc., Indiana Federal Corporation and CB Bancorp, Inc. Unaudited Pro Forma
Combined Financial Statements." The pro forma financial data do not give effect
to the anticipated cost savings in connection with the Mergers and are not
necessarily indicative of either the results that actually would have occurred
had the Mergers been consummated on the dates indicated or the results that may
be obtained in the future.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,(1)
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CONSOLIDATED SUMMARY OF INCOME:
Interest income....................................................... $ 146,820 $ 105,492 $ 81,675
Interest expense...................................................... 79,435 54,235 38,338
Net interest income................................................... 67,385 51,257 43,337
Provision for loan losses............................................. 3,133 659 382
Noninterest income.................................................... 13,259 10,406 9,168
Noninterest expense(2)................................................ 54,499 38,318 31,626
Income before income tax expense...................................... 23,012 22,686 20,497
Income tax expense.................................................... 7,188 6,468 6,320
Extraordinary items/accounting changes................................ -- -- --
Net income(2)......................................................... 15,824 16,218 14,177
PER SHARE DATA:
Net income per share (primary)........................................ $ 1.29 $ 1.56 $ 1.37
Net income per share (fully diluted).................................. 1.28 1.55 1.37
Cash dividends declared per share..................................... 0.82 0.76 0.62
Book value per share.................................................. 13.28
Average common shares outstanding (primary)........................... 12,298,961 10,413,633 10,342,834
Average common shares outstanding (fully diluted)..................... 12,318,370 10,444,781 10,346,721
</TABLE>
<TABLE>
<CAPTION>
AT, OR FOR THE
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
BALANCE SHEET DATA:
Total assets................................................................................. 2,125,154
Loans........................................................................................ 1,432,658
Allowance for loan losses.................................................................... (15,410)
Securities................................................................................... 520,449
Deposits..................................................................................... 1,481,730
Long-term debt............................................................................... --
Stockholders' equity......................................................................... 163,863
</TABLE>
- ------------------------
(1) Historical information included above is presented on a calendar year basis
for Pinnacle, IFC and CB. As CB's fiscal year end is March 31, CB
information for each of the years ended December 31, 1996, 1995 and 1994
includes the fourth quarter of the fiscal year preceding each such fiscal
year and the first three quarters of such fiscal year.
(2) The amount shown for 1996 includes $6.0 million as a result of the
assessment of a one-time charge against financial institutions with deposits
insured by the SAIF of the FDIC.
23
<PAGE>
THE COMPANIES
PINNACLE FINANCIAL SERVICES, INC.
Pinnacle Financial Services, Inc. is a registered bank holding company that
was organized under the laws of the State of Michigan in 1986 in connection with
the June 30, 1986 reorganization of Pinnacle Bank (then known as "Peoples State
Bank of St. Joseph") into a wholly-owned subsidiary of Pinnacle.
Pinnacle is one of the leading community-banking institutions in
southwestern Michigan and northern Indiana. Through its wholly-owned subsidiary,
Pinnacle Bank, Pinnacle offers financial service products which include domestic
banking services such as consumer, commercial and real estate loans, personal
and business checking accounts, savings accounts, time deposits, safe deposit
services, cash management services, and transmission of funds, as well as trust
and other fiduciary services, full-service brokerage services and insurance
products. Commercial customers include retailers, commercial developers,
professionals, and small manufacturers. Retail banking and thrift customers
cover a broad spectrum with focus on providing personalized, high quality and
comprehensive service in order to develop and maintain long-term, multiple
account relationships with customers.
Pinnacle Bank, which is headquartered in St. Joseph, Michigan, has two
subsidiaries: Starke's, Inc., an insurance agency, and Brookview Real Estate,
Ltd., a real estate development company. Pinnacle Bank currently operates
through 16 branch offices located throughout southwestern Michigan, 14 branch
offices located throughout northern Indiana, and two loan production offices
that are located in Merrillville and Indianapolis, Indiana, respectively.
Pinnacle Bank focuses on providing personalized, high quality and comprehensive
service in order to develop and maintain long-term, multiple account
relationships with customers.
Pinnacle's market, which is adjacent to metropolitan Chicago, Illinois and
is bisected by Interstate 94 (the primary highway between Chicago and Detroit),
currently consists of northern Indiana and southwestern Michigan. The region's
location has facilitated the development of a diverse economy based primarily on
manufacturing, service and agriculture. The region's proximity to Chicago and
the southeastern expansion of metropolitan Chicago into Lake County, Indiana,
have led to significant commercial and residential development and a strong
second- home housing market. The region's popularity as a year-round
recreational area also has led to tourism-driven economic growth.
Pinnacle had $1.1 billion in total assets as of December 31, 1996. Pinnacle
returned .94% on average assets for the year ended December 31, 1996. This
compares to 1.36%, 1.30% and 1.27% for each of the years in the three year
period ended December 31, 1995. For the year ended December 31, 1996, Pinnacle's
return on average equity was 12.34%. Annual returns on average equity since 1993
have ranged from 15.40% to 15.91%.
Pinnacle believes its success is in part attributable to a growth strategy
that, since the beginning of 1993, has (i) increased assets by more than 171%
(with total assets growing to $1.1 billion by December 31, 1996), and (ii)
increased net loans by more than 130% (with total loans growing to approximately
$603.9 million at December 31, 1996). Pinnacle's loan to deposit ratio was
approximately 80.1% at December 31, 1996. Pinnacle's growth has been generated
internally through customer retention and cross-selling programs and externally
through acquisitions. Since 1988, Pinnacle has consummated five acquisitions,
two of which involved thrifts.
Pinnacle's executive offices are located at 830 Pleasant Street, St. Joseph,
Michigan 49085, and its telephone number is (616) 983-6311.
For additional information concerning Pinnacle, see "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
29
<PAGE>
INDIANA FEDERAL CORPORATION
Indiana Federal Corporation is a registered savings and loan holding company
organized under the laws of the State of Delaware in 1988. IFC's principal
operating subsidiary is IndFed Bank. IndFed Bank was organized in 1887 and has
operated as a federally-chartered savings and loan association since 1934.
IndFed Bank is principally engaged in the business of attracting savings
deposits from the general public and investing these funds, together with
borrowings and other funds, to originate one- to four-family residential real
estate loans, consumer loans, income-producing property loans, commercial
business loans and agricultural real estate and operating loans. IndFed Bank
conducts its activities from a network of 16 full service offices located in
Valparaiso and other northwest Indiana communities. IndFed Bank also operates
three loan production offices in Highland, Mishawaka, and Valparaiso, Indiana.
Based on IndFed Bank's total assets of $837 million at December 31, 1996, IndFed
Bank is the third largest thrift institution headquartered in Indiana. IndFed
Bank is a member of the Federal Home Loan Bank System and a stockholder in the
Federal Home Loan Bank of Indianapolis.
On December 12, 1994, IFC completed the acquisition of American Bancorp,
Inc. ("ABI"), and its wholly-owned subsidiary, American State Bank ("American"),
a commercial bank organized under the laws of the State of Indiana. Upon
acquisition, ABI was merged into IFC and American was merged into IndFed Bank.
On January 31, 1995, IFC completed the acquisition of NCB Corp. ("NCB"), and its
wholly owned subsidiary NorCen Bank ("NorCen"), an Indiana state chartered
savings bank, located in Culver, Indiana. Similarly, upon acquisition, NCB was
merged into IFC and NorCen was merged into IndFed Bank.
IFC's executive offices are located at 56 Washington Street, Valparaiso,
Indiana 46383, and its telephone number is (219) 465-6607.
For additional information concerning IFC, see "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
CB BANCORP, INC.
CB Bancorp, Inc. is a registered savings and loan holding company organized
under the laws of the State of Delaware in 1992. CB's principal operating
subsidiary is Community Bank, a federal savings bank. Community Bank was
organized in 1926 as an Indiana chartered building and loan association and
later converted to a federal charter. Community Bank became a federally
chartered capital stock savings bank on December 23, 1992.
CB's executive offices are located at 126 E. Fourth Street, Michigan City,
Indiana. Community Bank also conducts business out of its two full service
branch offices located in Michigan City and LaPorte, Indiana and a loan
production/mortgage banking office in the Merrillville, Indiana. Community
Bank's deposit-gathering base is concentrated in the communities surrounding its
offices as well as nationally through certificates of deposits to fund its
mortgage loan reverse repurchase program (the "CB Mortgage Loan Program"). The
CB Mortgage Loan Program is designed to provide financing for the mortgage
banking activities of the participants and to provide CB with a relatively high
yield short-term investment vehicle that allows CB to better manage its interest
rate risk. The CB Mortgage Loan Program allows for CB to invest in mortgage
loans nationally on a short-term basis, that is, until such loans are sold into
the secondary market, while its lending base extends throughout LaPorte and
contiguous counties.
For additional information concerning CB Bancorp, See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE," "ANNEX A--CB BANCORP, INC. ANNUAL REPORT TO
SECURITYHOLDERS FOR THE FISCAL YEAR ENDED MARCH 31, 1996" and "ANNEX B--CB
BANCORP, INC. QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED
DECEMBER 31, 1996."
30
<PAGE>
THE STOCKHOLDER MEETINGS
MATTERS TO BE CONSIDERED
PINNACLE. At the Pinnacle Annual Meeting, holders of Pinnacle Common Stock
will be asked to elect eight directors of Pinnacle and to consider and vote upon
two merger proposals. One of the merger proposals is a proposal to approve and
adopt the Agreement and Plan of Merger dated as of November 14, 1996, as amended
by a First Amendment to Agreement and Plan of Merger dated as of February 27,
1997, between Pinnacle and IFC, and all of the transactions contemplated by the
IFC Merger Agreement (including, without limitation, the merger of IFC with and
into Pinnacle). The second merger proposal is a proposal to approve and adopt
the Agreement and Plan of Merger dated as of March 1, 1997 by and between
Pinnacle and CB, and all of the transactions contemplated by the CB Merger
Agreement (including, without limitation, the merger of CB with and into
Pinnacle). Pinnacle stockholders will also consider and vote upon such other
matters as may properly be brought before the Pinnacle Annual Meeting.
THE PINNACLE BOARD RECOMMENDS THAT PINNACLE STOCKHOLDERS VOTE FOR THE
ELECTION OF ALL OF THE PINNACLE BOARD NOMINEES AS DIRECTORS OF PINNACLE, FOR THE
APPROVAL AND ADOPTION OF THE IFC MERGER PROPOSAL (WHICH APPROVAL AND ADOPTION
SHALL CONSTITUTE, AMONG OTHER THINGS, APPROVAL OF THE IFC MERGER AND OF THE
ISSUANCE OF SHARES OF PINNACLE COMMON STOCK TO HOLDERS OF SHARES OF IFC COMMON
STOCK), AND FOR THE APPROVAL AND ADOPTION OF THE CB MERGER PROPOSAL (WHICH
APPROVAL AND ADOPTION SHALL CONSTITUTE, AMONG OTHER THINGS, APPROVAL OF THE CB
MERGER AND OF THE ISSUANCE OF SHARES OF PINNACLE COMMON STOCK TO HOLDERS OF
SHARES OF CB COMMON STOCK).
IFC. At the IFC Annual Meeting, holders of IFC Common Stock will be asked
to elect three directors of IFC, to consider and vote upon a proposal to approve
and adopt the Agreement and Plan of Merger dated as of November 14, 1996, as
amended by a First Amendment to Agreement and Plan of Merger dated as of
February 27, 1997, between Pinnacle and IFC, and all of the transactions
contemplated by the IFC Merger Agreement (including, without limitation, the
merger of IFC with and into Pinnacle), and to ratify the appointment of Ernst &
Young LLP as independent auditors of IFC. IFC stockholders will also consider
and vote upon such other matters as may properly be brought before the IFC
Annual Meeting.
THE IFC BOARD RECOMMENDS THAT IFC STOCKHOLDERS VOTE FOR THE ELECTION OF ALL
OF THE IFC BOARD NOMINEES AS DIRECTORS OF IFC, FOR THE APPROVAL AND ADOPTION OF
THE IFC MERGER PROPOSAL (WHICH APPROVAL AND ADOPTION SHALL CONSTITUTE, AMONG
OTHER THINGS, APPROVAL OF THE IFC MERGER AND OF THE CONVERSION OF SHARES OF IFC
COMMON STOCK INTO SHARES OF PINNACLE COMMON STOCK), AND FOR THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF IFC.
CB. At the CB Special Meeting, holders of CB Common Stock will consider and
vote upon a proposal to approve and adopt the Agreement and Plan of Merger dated
as of March 1, 1997 between Pinnacle and CB, and all of the transactions
contemplated by the CB Merger Agreement (including, without limitation, the
merger of CB with and into Pinnacle, with Pinnacle being the surviving
corporation). CB stockholders will also consider and vote upon such other
matters as may properly be brought before the CB Special Meeting.
THE CB BOARD RECOMMENDS THAT CB STOCKHOLDERS VOTE FOR THE APPROVAL AND
ADOPTION OF THE CB MERGER PROPOSAL (WHICH APPROVAL AND ADOPTION SHALL
CONSTITUTE, AMONG OTHER THINGS, APPROVAL OF THE CB MERGER AND OF THE CONVERSION
OF SHARES OF CB COMMON STOCK INTO SHARES OF PINNACLE COMMON STOCK).
VOTES REQUIRED
PINNACLE. On each matter submitted to the stockholders of Pinnacle, each
outstanding share of Pinnacle Common Stock is entitled to one vote. Directors of
Pinnacle will be elected by a plurality of the votes present in person or
represented by proxy at the Pinnacle Annual Meeting and entitled to vote on the
31
<PAGE>
election of directors. Approval of each of the Merger Proposals requires the
affirmative vote of a majority of the outstanding shares of Pinnacle Common
Stock. In all matters other than the election of directors and the Merger
Proposals, the affirmative vote of the majority of shares present in person or
represented by proxy at the Pinnacle Annual Meeting and entitled to vote on the
matter will be the act of Pinnacle's stockholders. Approval of the IFC Merger
Proposal by the requisite votes of Pinnacle stockholders and IFC stockholders is
a condition to, and is required for, consummation of the IFC Merger. Approval of
the CB Merger Proposal by the requisite votes of Pinnacle stockholders and CB
stockholders is a condition to, and is required for, consummation of the CB
Merger. However, approval of the CB Merger Proposal by Pinnacle stockholders and
CB stockholders is NOT a condition to, or required for, consummation of the IFC
Merger, and approval of the IFC Merger Proposal by Pinnacle stockholders and IFC
stockholders is NOT a condition to, or required for, consummation of the CB
Merger. The record date for the Pinnacle Annual Meeting is April 1, 1997. Only
Pinnacle stockholders at the close of business on such date are entitled to
notice of, and to vote at, the Pinnacle Annual Meeting.
As of April 1, 1997, directors and executive officers of Pinnacle and their
affiliates were beneficial owners of 560,765, approximately 9.2%, of the
outstanding shares of Pinnacle Common Stock (including 106,836 shares of
Pinnacle Common Stock which may be acquired upon the exercise of options which
are exercisable within 60 days of such date). The directors and executive
officers of Pinnacle have indicated that they intend to vote all shares of
Pinnacle Common Stock owned by them for the election as directors of all of the
Pinnacle Board Nominees and for the approval and adoption of each of the Merger
Proposals. As of April 1, 1997, directors and executive officers of IFC and
their affiliates did not own, beneficially or of record, any of the outstanding
shares of Pinnacle Common Stock. As of April 1, 1997, directors and executive
officers of CB and their affiliates did not own, beneficially or of record, any
of the outstanding shares of Pinnacle Common Stock. See "MANAGEMENT AND
OPERATIONS AFTER THE MERGERS--Directors."
As of April 1, 1997, Pinnacle subsidiaries had or shared the right to vote,
as a consequence of shares held in a fiduciary capacity for third parties,
approximately 299,975, or 5.0%, of the outstanding shares of Pinnacle Common
Stock. Such Pinnacle subsidiaries have indicated that they currently intend to
vote all shares of Pinnacle Common Stock as to which they have sole voting power
for the election as directors of all of the Pinnacle Board Nominees and for the
approval and adoption of each of the Merger Proposals, subject to the exercise
of their fiduciary duties. As of April 1, 1997, IFC subsidiaries did not have or
share the right to vote, as a consequence of shares held in a fiduciary capacity
for third parties, any of the outstanding shares of Pinnacle Common Stock. As of
April 1, 1997, CB subsidiaries did not have or share the right to vote, as a
consequence of shares held in a fiduciary capacity for third parties, any of the
outstanding shares of Pinnacle Common Stock.
The affirmative vote of a majority of the shares represented at the Pinnacle
Annual Meeting may authorize the adjournment of the Pinnacle Annual Meeting;
provided, however, that no proxy which was voted against any proposal will be
voted in favor of adjournment to solicit further proxies for such proposal.
IFC. On each matter submitted to the stockholders of IFC, each outstanding
share of IFC Common Stock is entitled to one vote. Directors of IFC will be
elected by a plurality of the votes present in person or represented by proxy at
the IFC Annual Meeting and entitled to vote on the election of directors.
Approval of the IFC Merger Proposal requires the affirmative vote of a majority
of the outstanding shares of IFC Common Stock. In all matters other than the
election of directors and the IFC Merger Proposal, the affirmative vote of the
majority of shares present in person or represented by proxy at the IFC Annual
Meeting and entitled to vote on the matter will be the act of IFC's
stockholders. Approval of the IFC Merger Proposal by the requisite votes of
Pinnacle stockholders and IFC stockholders is a condition to, and is required
for, consummation of the IFC Merger. However, approval of the CB Merger Proposal
by Pinnacle stockholders and CB stockholders is NOT a condition to, or required
for, consummation of the IFC
32
<PAGE>
Merger. The record date for the IFC Annual Meeting is , 1997. Only IFC
stockholders at the close of business on such date are entitled to notice of,
and to vote at, the IFC Annual Meeting.
As of April 1, 1997, directors and executive officers of IFC and their
affiliates were beneficial owners of 579,556, or 11.8%, of the outstanding
shares of IFC Common Stock (including 126,851 shares of IFC Common Stock which
may be acquired upon the exercise of options which are exercisable within 60
days of such date). The directors and executive officers of IFC have indicated
that they intend to vote all shares of IFC Common Stock owned by them for the
election as directors of all of the IFC Board Nominees, for the approval and
adoption of the IFC Merger Proposal, and for the ratification of the appointment
of Ernst & Young LLP as independent auditors of IFC. As of April 1, 1997,
directors and executive officers of Pinnacle and their affiliates did not,
beneficially or of record, own any of the outstanding shares of IFC Common
Stock. As of April 1, 1997, directors and executive officers of CB and their
affiliates did not own, beneficially or of record, any of the outstanding shares
of IFC Common Stock. See "MANAGEMENT AND OPERATIONS AFTER THE
MERGERS--Directors."
As of April 1, 1997, IFC subsidiaries had or shared the right to vote, as a
consequence of shares held in a fiduciary capacity for third parties,
approximately 177,796 (excluding 54,102 shares reported in the prior paragraph
as owned by directors and executive officers of IFC and their affiliates), or
3.7%, of the outstanding shares of IFC Common Stock. Such IFC subsidiaries have
indicated that they currently intend to vote all shares of IFC Common Stock as
to which they have sole voting power for the election as directors of all of the
IFC Board Nominees, for the approval and adoption of the IFC Merger Proposal,
and for the ratification of the appointment of Ernst & Young LLP as independent
auditors of IFC, subject to the exercise of their fiduciary duties. As of April
1, 1997, Pinnacle subsidiaries had or shared the right to vote, as a consequence
of shares held in a fiduciary capacity for third parties, approximately 1,999,
or less than .01%, of the outstanding shares of IFC Common Stock. Such Pinnacle
subsidiaries have indicated that they currently intend to vote all shares of IFC
Common Stock as to which they have sole voting power for the election as
directors of all of the IFC Board Nominees, for the approval and adoption of the
IFC Merger Proposal, and for the ratification of the appointment of Ernst &
Young LLP as independent auditors of IFC, subject to the exercise of their
fiduciary duties. As of April 1, 1997 CB subsidiaries did not have or share the
right to vote, as a consequence of shares held in a fiduciary capacity for third
parties, any of the outstanding shares of IFC Common Stock.
The affirmative vote of a majority of the shares represented at the IFC
Annual Meeting may authorize the adjournment of the IFC Special Meeting;
provided, however, that no proxy which was voted against any proposal will be
voted in favor of adjournment to solicit further proxies for such proposal.
CB. Approval of the CB Merger Proposal requires the affirmative vote of a
majority of the outstanding shares of CB Common Stock, with each such share
entitled to one vote. Approval of the CB Merger Proposal by the requisite votes
of Pinnacle stockholders and CB stockholders is a condition to, and is required
for, consummation of the CB Merger. However, approval of the IFC Merger Proposal
by Pinnacle stockholders and IFC stockholders is NOT a condition to, or required
for, consummation of the CB Merger. The record date for the CB Special Meeting
is , 1997. Only CB stockholders at the close of business on such date
are entitled to notice of, and to vote at, the CB Special Meeting.
As of April 1, 1997, directors and executive officers of CB and their
affiliates were beneficial owners of 207,965, or 16.9%, of the outstanding
shares of CB Common Stock (including 67,294 shares of CB Common Stock which may
be acquired upon the exercise of options which are exercisable within 60 days of
such date). The directors and executive officers of CB have indicated that they
intend to vote all shares of CB Common Stock owned by them for approval and
adoption of the CB Merger Proposal. As of April 1, 1997, directors and executive
officers of Pinnacle and their affiliates did not own, beneficially or of
record, any of the outstanding shares of CB Common Stock. As of April 1, 1997,
directors and executive officers of IFC and their affiliates were beneficial
owners of 670, or less than .01%, of the outstanding shares of CB
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Common Stock. The directors and executive officers of IFC have indicated that
they intend to vote all shares of CB Common Stock owned by them for approval and
adoption of the CB Merger Proposal.
As of April 1, 1997, CB subsidiaries did not have or share the right to
vote, as a consequence of shares held in a fiduciary capacity for third parties,
any of the outstanding shares of CB Common Stock. Such CB subsidiaries have
indicated that they currently intend to vote all shares of CB Common Stock as to
which they have sole voting power for approval and adoption of the CB Merger
Proposal, subject to the exercise of their fiduciary duties. As of April 1,
1997, Pinnacle subsidiaries did not have or share the right to vote, as a
consequence of shares held in a fiduciary capacity for third parties, any of the
outstanding shares of CB Common Stock. As of April 1, 1997, IFC subsidiaries did
not have or share the right to vote, as a consequence of shares held in a
fiduciary capacity for third parties, any of the outstanding shares of CB Common
Stock.
The affirmative vote of a majority of the shares represented at the CB
Special Meeting may authorize the adjournment of the CB Special Meeting;
provided, however, that no proxy which was voted against any proposal will be
voted in favor of adjournment to solicit further proxies for such proposal.
VOTING OF PROXIES
PINNACLE. Shares of Pinnacle Common Stock represented by properly executed
proxies received at or prior to the Pinnacle Annual Meeting will be voted at the
Pinnacle Annual Meeting in the manner specified by the holders of such shares.
Properly executed Pinnacle proxies which do not contain voting instructions will
be voted FOR the election as directors of all of the Pinnacle Board Nominees,
FOR the IFC Merger Proposal, and FOR the CB Merger Proposal. Management of
Pinnacle believes that brokers who hold shares of Pinnacle Common Stock for
customers are NOT authorized to vote on the Merger Proposals without specific
voting instructions as to such proposal (a "broker nonvote"). Moreover, solely
for purposes of determining whether the Merger Proposals have received the vote
of Pinnacle stockholders required for approval, each of a "broker nonvote" and
an abstention is functionally equivalent to a vote "against" each of the Merger
Proposals. If any other matters are properly presented at the Pinnacle Annual
Meeting for consideration, including, among other things, consideration of a
motion to adjourn the Pinnacle Annual Meeting to another time and/or place
(including, without limitation, for the purpose of soliciting additional
proxies), the persons named in the relevant form of proxy enclosed herewith and
acting thereunder will have discretion to vote on such matters in accordance
with their best judgment; provided, however, that no proxy voted against any
proposal will be voted in favor of adjournment to solicit further proxies for
such proposal. Pinnacle knows of no other matters to be brought before the
Pinnacle Annual Meeting other than those referred to in this Joint Proxy
Statement/Prospectus, but if any other business should properly come before the
Pinnacle Annual Meeting, the persons named in the proxy, or authorized
substitutes, intend to vote in accordance with their best judgment.
HOLDERS OF PINNACLE COMMON STOCK ARE URGED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PINNACLE PROXY AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
IFC. Shares of IFC Common Stock represented by properly executed proxies
received at or prior to the IFC Annual Meeting will be voted at the IFC Annual
Meeting in the manner specified by the holders of such shares. Properly executed
IFC proxies which do not contain voting instructions will be voted FOR the
election as directors of all of the IFC Board Nominees, FOR the IFC Merger
Proposal, and FOR the ratification of the appointment of Ernst & Young LLP as
independent auditors of IFC. Management of IFC believes that brokers who hold
shares of IFC Common Stock for customers are NOT authorized to vote on the IFC
Merger Proposal without specific voting instructions as to such proposal.
Moreover, solely for purposes of determining whether the IFC Merger Proposal has
received the vote of IFC stockholders required for approval, each of a "broker
nonvote" and an abstention is functionally equivalent to a vote "against" the
IFC Merger Proposal. If any other matters are properly presented at the IFC
Annual
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Meeting for consideration, including, among other things, consideration of a
motion to adjourn the IFC Annual Meeting to another time and/or place
(including, without limitation, for the purpose of soliciting additional
proxies), the persons named in the relevant form of proxy enclosed herewith and
acting thereunder will have discretion to vote on such matters in accordance
with their best judgment; provided, however, that no proxy voted against any
proposal will be voted in favor of adjournment to solicit further proxies for
such proposal. IFC knows of no other matters to be brought before the IFC Annual
Meeting other than those referred to in this Joint Proxy Statement/Prospectus,
but if any other business should properly come before the IFC Annual Meeting,
the persons named in the proxy, or authorized substitutes, intend to vote in
accordance with their best judgment.
HOLDERS OF IFC COMMON STOCK ARE URGED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING IFC PROXY AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
CB. Shares of CB Common Stock represented by properly executed proxies
received at or prior to the CB Special Meeting will be voted at the CB Special
Meeting in the manner specified by the holders of such shares. Properly executed
CB proxies which do not contain voting instructions will be voted FOR the CB
Merger Proposal. Management of CB believes that brokers who hold shares of CB
Common Stock for customers are NOT authorized to vote on the CB Merger Proposal
without specific voting instructions as to such proposal. Moreover, solely for
purposes of determining whether the CB Merger Proposal has received the vote of
CB stockholders required for approval, each of a "broker nonvote" and an
abstention is functionally equivalent to a vote "against" the CB Merger
Proposal. If any other matters are properly presented at the CB Special Meeting
for consideration, including, among other things, consideration of a motion to
adjourn the CB Special Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the relevant form of proxy enclosed herewith and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment;
provided, however, that no proxy voted against any proposal will be voted in
favor of adjournment to solicit further proxies for such proposal. CB knows of
no other matters to be brought before the CB Special Meeting other than those
referred to in this Joint Proxy Statement/Prospectus, but if any other business
should properly come before the CB Special Meeting, the persons named in the
proxy, or authorized substitutes, intend to vote in accordance with their best
judgment.
HOLDERS OF CB COMMON STOCK ARE URGED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING CB PROXY AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
REVOCABILITY OF PROXIES
PINNACLE. The grant of a proxy on the enclosed Pinnacle form of proxy does
not preclude a Pinnacle stockholder from voting in person or otherwise revoking
a proxy. Attendance at the Pinnacle Annual Meeting will not in and of itself
constitute revocation of a proxy. A Pinnacle stockholder may revoke a proxy at
any time prior to its exercise by filing with the Secretary of Pinnacle a duly
executed revocation or a proxy bearing a later date or by voting in person at
the Pinnacle Annual Meeting.
IFC. The grant of a proxy on the enclosed IFC form of proxy does not
preclude an IFC stockholder from voting in person or otherwise revoking a proxy.
Attendance at the IFC Annual Meeting will not in and of itself constitute
revocation of a proxy. An IFC stockholder may revoke a proxy at any time prior
to its exercise by filing with the Secretary of IFC a duly executed revocation
or a proxy bearing a later date or by voting in person at the IFC Annual
Meeting.
CB. The grant of a proxy on the enclosed CB form of proxy does not preclude
a CB stockholder from voting in person or otherwise revoking a proxy. Attendance
at the CB Special Meeting will not in and of itself constitute revocation of a
proxy. A CB stockholder may revoke a proxy at any time prior to its exercise by
filing with the Secretary of CB a duly executed revocation or a proxy bearing a
later date or by voting in person at the CB Special Meeting.
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RECORD DATES; SHARES ENTITLED TO VOTE; QUORUMS
PINNACLE. Only holders of record of Pinnacle Common Stock at the close of
business on April 1, 1997 will be entitled to receive notice of and to vote at
the Pinnacle Annual Meeting. At April 1, 1997, Pinnacle had issued and
outstanding approximately 5,980,320 shares of Pinnacle Common Stock. Shares
representing a majority of the aggregate number of outstanding shares of
Pinnacle Common Stock entitled to vote must be represented in person or by proxy
at the Pinnacle Annual Meeting in order for a quorum to be present at the
Pinnacle Annual Meeting. "Broker nonvotes" and abstentions are counted for
purposes of determining a quorum.
IFC. Only holders of record of IFC Common Stock at the close of business on
, 1997 will be entitled to receive notice of and to vote at the IFC
Annual Meeting. At , 1997, IFC had issued and outstanding
approximately shares of IFC Common Stock. Shares representing a majority of
the aggregate number of outstanding shares of IFC Common Stock entitled to vote
must be represented in person or by proxy at the IFC Annual Meeting in order for
a quorum to be present at the IFC Annual Meeting. "Broker nonvotes" and
abstentions are counted for purposes of determining a quorum.
CB. Only holders of record of CB Common Stock at the close of business on
, 1997 will be entitled to receive notice of and to vote at the CB
Special Meeting. At , 1997, CB had issued and outstanding
approximately shares of CB Common Stock. Shares representing a majority of
the aggregate number of outstanding shares of CB Stock entitled to vote must be
represented in person or by proxy at the CB Special Meeting in order for a
quorum to be present at the CB Annual Meeting. "Broker nonvotes" and abstentions
are counted for purposes of determining a quorum.
NO DISSENTERS' RIGHTS/NO APPRAISAL RIGHTS
Holders of shares of Pinnacle Common Stock will not have dissenters' rights
under the MBCA in connection with, or as a result of, the matters to be acted
upon at the Pinnacle Annual Meeting. Holders of shares of IFC Common Stock will
not have appraisal rights under the DGCL in connection with, or as a result of,
the matters to be acted upon at the IFC Annual Meeting. Holders of shares of CB
Common Stock will not have appraisal rights under the DGCL in connection with,
or as a result of, the matters to be acted upon at the CB Special Meeting.
SOLICITATION OF PROXIES
PINNACLE. Pinnacle will bear the cost of soliciting proxies from its
stockholders, including the cost of printing and mailing this Joint Proxy
Statement/Prospectus to Pinnacle stockholders. In addition to solicitation by
mail, proxies may be solicited by telephone, telegram, in person or by other
forms of communication. Arrangements will be made with brokerage firms,
nominees, fiduciaries and other custodians for the forwarding of solicitation
materials to the beneficial owners of shares held of record by such persons, and
Pinnacle will reimburse such persons for their reasonable out-of-pocket expenses
in connection therewith. Proxies will be solicited on behalf of Pinnacle by mail
or personally, or by telephone, telegraph or datagram, by directors, officers
and regular employees of Pinnacle and its subsidiaries (none of whom shall
receive any additional compensation for such services, but will be reimbursed
for reasonable out-of-pocket expenses incurred in connection with such
solicitation). In addition, Morrow & Co., Inc. will assist in the solicitation
of proxies by Pinnacle for a fee of approximately $12,000, plus reasonable
out-of-pocket expenses.
IFC. IFC will bear the cost of soliciting proxies from its stockholders,
including the cost of printing and mailing this Joint Proxy Statement/Prospectus
to IFC stockholders. In addition to solicitation by mail, proxies may be
solicited by telephone, telegram, in person or by other forms of communication.
Arrangements will be made with brokerage firms, nominees, fiduciaries and other
custodians for the forwarding of solicitation materials to the beneficial owners
of shares held of record by such persons, and IFC will
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reimburse such persons for their reasonable out-of-pocket expenses in connection
therewith. Proxies will be solicited on behalf of IFC by mail or personally, or
by telephone, telegraph or datagram, by directors, officers and regular
employees of IFC and its subsidiaries (none of whom shall receive any additional
compensation for such services, but will be reimbursed for reasonable
out-of-pocket expenses incurred in connection with such solicitation). In
addition, Regan & Associates, Inc. will assist in the solicitation of proxies by
IFC for a fee of $3,750, plus reasonable out-of-pocket expenses.
CB. CB will bear the cost of soliciting proxies from its stockholders and
will also bear up to $25,000 of the cost of printing and mailing this Joint
Proxy Statement/Prospectus to CB stockholders. In addition to solicitation by
mail, proxies may be solicited by telephone, telegram, in person or by other
forms of communication. Arrangements will be made with brokerage firms,
nominees, fiduciaries and other custodians for the forwarding of solicitation
materials to the beneficial owners of shares held of record by such persons, and
CB will reimburse such persons for their reasonable out-of-pocket expenses in
connection therewith. Proxies will be solicited on behalf of CB by mail or
personally, or by telephone, telegraph or datagram, by directors, officers and
regular employees of CB and its subsidiaries (none of whom shall receive any
additional compensation for such services, but will be reimbursed for reasonable
out-of-pocket expenses incurred in connection with such solicitation).
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGERS
THE FOLLOWING DISCUSSION DESCRIBES THE MERGERS AND SUMMARIZES CERTAIN
PROVISIONS OF THE MERGER AGREEMENTS AND THE STOCK OPTION AGREEMENTS. ALTHOUGH IT
DESCRIBES AND SUMMARIZES ALL MATERIAL INFORMATION REGARDING THE MERGERS, THE
MERGER AGREEMENTS AND THE STOCK OPTION AGREEMENTS, SUCH DISCUSSION IS
NECESSARILY INCOMPLETE. CONSEQUENTLY, REFERENCE IS MADE TO, AND SUCH
DESCRIPTIONS AND SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY, THE MERGER
AGREEMENTS AND THE STOCK OPTION AGREEMENTS. A CONFORMED COPY OF THE AGREEMENT
AND PLAN OF MERGER DATED AS OF NOVEMBER 14, 1996 BETWEEN PINNACLE AND IFC
(WITHOUT EXHIBITS) IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX
C AND IS INCORPORATED HEREIN BY REFERENCE. A CONFORMED COPY OF THE FIRST
AMENDMENT TO AGREEMENT AND PLAN OF MERGER DATED AS OF FEBRUARY 27, 1997 BETWEEN
PINNACLE AND IFC IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX D
AND IS INCORPORATED HEREIN BY REFERENCE. A CONFORMED COPY OF THE AGREEMENT AND
PLAN OF MERGER DATED AS OF MARCH 1, 1997 BETWEEN PINNACLE AND CB (WITHOUT
EXHIBITS) IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX E AND IS
INCORPORATED HEREIN BY REFERENCE.
STRUCTURE
IFC MERGER. Subject to the terms and conditions of the IFC Merger Agreement
and in accordance with the MBCA and the DGCL, at the IFC Effective Time IFC will
merge with and into Pinnacle, with Pinnacle being the surviving corporation.
Thus, at the IFC Effective Time (i) the separate corporate existence of IFC will
terminate, (ii) Pinnacle will succeed to the assets and liabilities of IFC, and
(iii) each outstanding share of IFC Common Stock (other than certain shares
specified in the IFC Merger Agreement) will be automatically converted into the
right to receive one (1) share of Pinnacle Common Stock. After the IFC Effective
Time, the combined corporation will continue its corporate existence under the
MBCA and the name "Pinnacle Financial Services, Inc." Pinnacle's Restated
Articles of Incorporation, as in effect at the IFC Effective Time, will be the
articles of incorporation of the combined corporation and Pinnacle's By-Laws, as
in effect immediately prior to the IFC Effective Time, will be the by-laws of
the combined corporation. Each share of Pinnacle Common Stock outstanding
immediately prior to consummation of the IFC Merger will remain outstanding and
unchanged as a result of the IFC Merger.
CB MERGER. Subject to the terms and conditions of the CB Merger Agreement
and in accordance with the MBCA and the DGCL, at the CB Effective Time CB will
merge with and into Pinnacle, with Pinnacle being the surviving corporation.
Thus, at the CB Effective Time (i) the separate corporate existence of CB will
terminate, (ii) Pinnacle will succeed to the assets and liabilities of CB, and
(iii) each outstanding share of CB Common Stock (other than certain shares
specified in the CB Merger Agreement) will be automatically converted into the
right to receive that number of shares of Pinnacle Common Stock determined by
the CB Exchange Ratio. After the CB Effective Time, the combined corporation
will continue its corporate existence under the MBCA and the name "Pinnacle
Financial Services, Inc." Pinnacle's Restated Articles of Incorporation, as in
effect at the CB Effective Time, will be the articles of incorporation of the
combined corporation and Pinnacle's By-Laws, as in effect immediately prior to
the CB Effective Time, will be the by-laws of the combined corporation. Each
share of Pinnacle Common Stock outstanding immediately prior to consummation of
the CB Merger will remain outstanding and unchanged as a result of the CB
Merger.
SUBSIDIARY BANK MERGERS. In connection with the IFC Merger, and pursuant to
an Agreement and Plan of Merger and Consolidation to be executed by and between
Indiana Federal Bank for Savings, a federal savings bank and wholly-owned
subsidiary of IFC, and Pinnacle Bank, a Michigan banking corporation and
wholly-owned subsidiary of Pinnacle, IndFed Bank will be merged with and into
Pinnacle Bank. If only the IFC Merger and the IFC Subsidiary Bank Merger are
consummated, then the Board of Directors of Pinnacle Bank following the IFC
Subsidiary Bank Merger will consist of 18 persons, with nine persons to be named
as directors by the Board of Directors of Pinnacle Bank and nine persons to be
named as directors by the Board of Directors of IndFed Bank. The executive
officers of Pinnacle Bank following the IFC Subsidiary Bank Merger will be those
appointed by the Board of Directors of Pinnacle
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Bank on the basis of recommendations made by Mr. Schanze, as the Chairman of
Pinnacle following the IFC Effective Time, Mr. Donald A. Lesch, as the Vice
Chairman and President of Pinnacle following the IFC Effective Time, and an
outside consulting service to be engaged and charged with reviewing and
evaluating the qualifications of candidates. See "MANAGEMENT AND OPERATIONS
AFTER THE MERGERS--Operations."
In connection with the CB Merger, and pursuant to the CB Subsidiary Bank
Merger Agreement, Community Bank will be merged with and into Pinnacle Bank. If
only the CB Merger IS consummated, then the Board of Directors of Pinnacle Bank
following the CB Subsidiary Bank Merger will consist of 11 persons. Such persons
will include all of the current directors of Pinnacle Bank and two persons
(including Mr. Joseph F. Heffernan, the current Chairman of the Board and Chief
Executive Officer of CB) to be named by the Board of Directors of Community
Bank. The executive officers of Pinnacle Bank following the CB Subsidiary Bank
Merger will consist primarily of members of Pinnacle Bank's senior management,
and a number of Community Bank's senior management may be designated as
executive officers of the combined bank. See "MANAGEMENT AND OPERATIONS AFTER
THE MERGERS--Operations."
If both of the Mergers are consummated and IndFed Bank and Community Bank
are both merged with and into Pinnacle, then the Board of Directors of Pinnacle
Bank will consist of 21 persons, with nine persons to be named as directors by
the Board of Directors of Pinnacle Bank, nine persons to be named as directors
by the Board of Directors of IFC, and three persons (including Mr. Joseph F.
Heffernan, the current Chairman of the Board and Chief Executive Officer of CB)
to be named by the Board of Directors of Community Bank. The executive officers
of Pinnacle Bank will be those appointed by the Board of Directors of Pinnacle
Bank on the basis of recommendations made by Mr. Schanze, as the Chairman of
Pinnacle following the IFC Effective Time, Mr. Donald A. Lesch, as the Vice
Chairman and President of Pinnacle following the IFC Effective Time, and an
outside consulting service to be engaged and charged with reviewing and
evaluating the qualifications of candidates. See "MANAGEMENT AND OPERATIONS
AFTER THE MERGERS--Operations."
MERGER CONSIDERATION
IFC Merger. Upon consummation of the IFC Merger, each outstanding share of
IFC Common Stock (other than certain shares specified in the IFC Merger
Agreement) will be automatically converted into the right to receive one (1)
share of Pinnacle Common Stock. The IFC Exchange Ratio of one (1) share of
Pinnacle Common Stock for each share of IFC Common Stock was determined through
arms-length negotiations between Pinnacle and IFC, each of which was advised
during such negotiations by its respective financial advisor.
At the IFC Effective Time, each option granted by IFC to purchase shares of
IFC Common Stock which is outstanding and unexercised immediately prior thereto
(excluding any and all IFC Rights, all of which are to be redeemed, and thereby
extinguished, terminated and cancelled without any right of exercise, prior to
the Effective Time) shall cease to represent a right to acquire shares of IFC
Common Stock and shall be converted automatically into an option to purchase
shares of Pinnacle Common Stock in the same amount and at the same exercise
price subject to the terms of the IFC benefit plans under which they were issued
(collectively, the "IFC Stock Plans").
At the IFC Effective Time, each option granted by Pinnacle to purchase
shares of Pinnacle Common Stock which is outstanding and unexercised immediately
prior thereto will continue to represent a right to acquire shares of Pinnacle
Common Stock and will remain an issued and outstanding option to purchase from
Pinnacle, as the surviving corporation, shares of Pinnacle Common Stock in the
same amount and at the same exercise price subject to the terms of the Pinnacle
benefit plans under which they were issued (collectively, the "Pinnacle Stock
Plans") and the agreements evidencing grants thereunder, and will not be
affected by the IFC Merger.
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Based upon the number of IFC stock options, Pinnacle stock options, shares
of Pinnacle Common Stock, and shares of IFC Common Stock issued and outstanding
as of April 1, 1997, and assuming the CB Merger is not consummated, at the IFC
Effective Time IFC Stockholders would own shares of Pinnacle Common Stock
representing approximately 44% of the then outstanding voting power of Pinnacle.
Such percentage would range from approximately 43.6% to 45.6%, depending on
whether and to the extent the shares of Pinnacle Common Stock and IFC Common
Stock issuable upon exercise or vesting of outstanding Pinnacle Stock Options
and IFC Stock Options are issued. (For purposes of calculating such percentages,
it was assumed that no additional shares of Pinnacle Common Stock have been
issued except as contemplated by the preceding sentence.)
Based upon the number of IFC stock options, Pinnacle stock options, CB stock
options, shares of Pinnacle Common Stock, shares of IFC Common Stock and shares
of CB Common Stock issued and outstanding as of April 1, 1997, and assuming the
CB Merger is consummated, at the IFC Effective Time IFC Stockholders would own
shares of Pinnacle Common Stock representing approximately 39.5% of the then
outstanding voting power of Pinnacle. Such percentage would be approximately
39%, depending on whether and to the extent the shares of Pinnacle Common Stock
and IFC Common Stock issuable upon exercise or vesting of outstanding Pinnacle
stock options and IFC stock options are issued. (For purposes of calculating
such percentages, it was assumed that no additional shares of Pinnacle Common
Stock have been issued except as contemplated by the preceding sentence.)
CB MERGER. Upon consummation of the CB Merger, each outstanding share of CB
Common Stock (other than certain shares specified in the CB Merger Agreement)
will be automatically converted into the right to receive that number of shares
of Pinnacle Common Stock determined by dividing $35.00 by the average of the
daily averages of the closing bid and the closing ask prices per share of
Pinnacle Common Stock as reported by the Nasdaq National Market for the period
of fifteen business days ending on the fifth business day prior to the date of
consummation of the CB Merger; PROVIDED, HOWEVER, (i) that in the event the
Average Price is $29.00 or higher, each share of CB Common Stock issued and
outstanding so converted, would be converted into the right to receive 1.2069
shares of Pinnacle Common Stock, and (ii) that in the event the Average Price is
$23.00 or lower, each share of CB Common Stock issued and outstanding so
converted, would be converted into the right to receive 1.5217 shares of
Pinnacle Common Stock (the "CB Exchange Ratio"). The CB Exchange Ratio was
determined through arms-length negotiations between Pinnacle and CB, each of
which was advised during such negotiations by its respective financial advisor.
At the CB Effective Time, each option granted by CB to purchase shares of CB
Common Stock (including any option that has been awarded but has not yet vested)
which is outstanding and unexercised immediately prior thereto shall cease to
represent a right to acquire shares of CB Common Stock and shall be converted
automatically into the right to receive shares of Pinnacle Common Stock in an
amount determined by dividing the difference between $35.00 and the exercise
price of such option by the Average Price.
At the CB Effective Time, each option granted by Pinnacle to purchase shares
of Pinnacle Common Stock which is outstanding and unexercised immediately prior
thereto will continue to represent a right to acquire shares of Pinnacle Common
Stock and will remain an issued and outstanding option to purchase from
Pinnacle, as the surviving corporation, shares of Pinnacle Common Stock in the
same amount and at the same exercise price subject to the terms of the Pinnacle
Stock Plans under which they were issued and the agreements evidencing grants
thereunder, and will not be affected by the CB Merger.
Based upon the number of CB stock options, Pinnacle stock options, shares of
Pinnacle Common Stock and shares of CB Common Stock issued and outstanding as of
April 1, 1997, and assuming the IFC Merger is not consummated, at the CB
Effective Time CB stockholders would own shares of Pinnacle Common Stock
representing between approximately 17.4% (assuming a CB Exchange Ratio of 1.2069
shares of Pinnacle Common Stock for each share of CB Common Stock converted in
the CB
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Merger) and approximately 17.8% (assuming a CB Exchange Ratio of 1.5217 shares
of Pinnacle Common Stock for each share of CB Common Stock converted in the CB
Merger) of the then outstanding voting power of Pinnacle. Such percentages would
range from approximately 17.0% (assuming a CB Exchange Ratio of 1.2069 shares of
Pinnacle Common Stock for each share of CB Common Stock converted in the CB
Merger) to 17.4% (assuming a CB Exchange Ratio of 1.5217 shares of Pinnacle
Common Stock for each share of CB Common Stock converted in the CB Merger),
depending on whether and to the extent the shares of Pinnacle Common Stock
issuable upon exercise or vesting of outstanding Pinnacle stock options are
issued. (For purposes of calculating such percentages, it was assumed that no
additional shares of Pinnacle Common Stock have been issued except as
contemplated by the preceding sentence.)
Based upon the number of CB stock options, Pinnacle stock options, IFC stock
options, shares of CB Common Stock, shares of Pinnacle Common Stock and shares
of IFC Common Stock issued and outstanding as of April 1, 1997, and assuming the
IFC Merger IS consummated, at the CB Effective Time CB stockholders would own
shares of Pinnacle Common Stock representing between approximately 10.5%
(assuming a CB Exchange Ratio of 1.2069 shares of Pinnacle Common Stock for each
share of CB Common Stock converted in the CB Merger) and 10.8% (assuming a CB
Exchange Ratio of 1.5217 shares of Pinnacle Common Stock for each share of CB
Common Stock converted in the CB Merger) of the then outstanding voting power of
Pinnacle. Such percentages would range from approximately 10.3% (assuming a CB
Exchange Ratio of 1.2069 shares of Pinnacle Common Stock for each share of CB
Common Stock converted in the CB Merger) to 10.4% (assuming a CB Exchange Ratio
of 1.5217 shares of Pinnacle Common Stock for each share of CB Common Stock
converted in the CB Merger), depending on whether and to the extent the shares
of Pinnacle Common Stock and shares of IFC Common Stock issuable upon exercise
or vesting of outstanding Pinnacle stock options and IFC stock options are
issued. (For purposes of calculating such percentages, it was assumed that no
additional shares of Pinnacle Common Stock have been issued except as
contemplated by the preceding sentence.)
BACKGROUNDS OF THE MERGERS
GENERAL. In recent years, both Pinnacle and IFC have achieved substantial
growth primarily through mergers and acquisitions. Through these mergers and
acquisitions, Pinnacle and IFC have attempted to diversify and expand their
respective market areas and asset bases and to increase profitability by
combining with financial institutions conducting business in areas in which it
already has or expects to gain a significant market position. The Mergers
represent a continuation of these acquisition strategies. CB has sought to
enhance stockholder value by diversifying its business through various means,
including the expansion of the CB Mortgage Purchase Program (pursuant to which
CB purchases residential mortgage loans from various mortgage companies prior to
the sale of those loans by such mortgage companies in the secondary market).
IFC MERGER. In 1990 and 1993, representatives of IFC and Maco Bancorp,
Inc., the Delaware corporation and registered savings and loan holding company
acquired by Pinnacle on December 1, 1995, discussed the possibility of a
business combination between IFC and Maco. These preliminary discussions, which
were initiated by IFC, did not result in any definitive agreements. The
representatives of IFC involved in these discussions included Messrs. Peter R.
Candela and Donald A. Lesch, the President and Chairman of the Board,
respectively, of IFC. The representatives of Maco involved in these discussions
included Mr. Cyrus A. Ansary, then a director, an executive officer and a
significant stockholder of Maco. (Mr. Ansary became the sole stockholder of Maco
in 1992 when Maco acquired the entire equity interest of the only other
stockholder of Maco.)
On December 1, 1995, Pinnacle acquired all of the outstanding capital stock
of Maco, for aggregate consideration of $41.9 million through the merger of Maco
with and into Pinnacle. As a result of Pinnacle's acquisition of Maco, Mr.
Ansary became the largest single stockholder of Pinnacle, with approximately
19.9% of the shares of Pinnacle Common Stock outstanding as of the record date
for the Pinnacle Annual Meeting. See "ACQUISITION OF MACO BANCORP, INC."
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On June 13, 1996, Mr. Gary Aloia (then the President and Chief Operating
Officer of First Federal and currently a Senior Vice President of Pinnacle
Bank), Mr. Richard L. Schanze, the Chairman and Chief Executive Officer of
Pinnacle, and Mr. Arnold L. Weaver, the President of Pinnacle, met with Mr.
Lesch to discuss the growth strategies, operating philosophies and performance
of Pinnacle and IFC, as well as recent developments affecting Pinnacle and IFC,
and regional and national developments in the financial services industry.
Although this meeting, which was suggested and initiated by Mr. Aloia (who had
known Mr. Lesch professionally and socially since the late 1980s), did not
result in any understanding or agreement regarding a business combination, in
light of the perceived similarity and compatibility of each institution's
business strategies and operating philosophies and the ever-changing market for
financial services, Mr. Schanze and Mr. Lesch both felt that a business
combination could strengthen the competitive position of both institutions,
generate cost savings for both institutions, and enhance acquisition and other
business opportunities. Accordingly, they decided that it would be worthwhile to
further explore the possibility of Pinnacle and IFC affiliating.
Following the June 13, 1996 meeting, Mr. Lesch contacted Sandler O'Neill,
IFC's financial advisors, regarding the possibility of Pinnacle and IFC
affiliating. Similarly, Mr. Schanze contacted ABN AMRO Chicago Corporation,
Pinnacle's financial advisors, for the same purpose. Subsequently, Sandler
O'Neill, on behalf of IFC, and ABN AMRO Chicago Corporation, on behalf of
Pinnacle, began to explore the strategic, business and operational
compatibility, as well as the rationale and potential value of a business
combination between IFC and Pinnacle.
In May and June, 1996, IFC had preliminary discussions with another
financial institution concerning the possibility of a business combination. A
confidentiality agreement was executed and discussions ensued, but no offer was
received by IFC. IFC, from time to time, received telephone inquiries relating
to potential acquisitions, but none of these inquiries resulted in the
submission of a confidentiality agreement or a proposal to be acted upon by IFC.
During the months of July, August, September, October and November, 1996,
Pinnacle's and IFC's financial advisors, as well as Messrs. Schanze, Weaver, and
Lesch and/or a small number of senior officers of Pinnacle and IFC, met or
otherwise had discussions on multiple occasions to explore the strategic,
business and operational compatibility of the two institutions as well as the
rationale and potential value of a business combination between IFC and
Pinnacle. They also considered and discussed the potential structure and the
implications of such a combination. In August 1996, members of Pinnacle's
management team commenced a due diligence investigation of IFC and its
businesses. Beginning in September, 1996, and in connection with such due
diligence investigation, Pinnacle's management team received assistance from ABN
AMRO Chicago Corporation, BANC Financial Group, Inc., and Landmark Technologies,
Inc. (BANC Financial Group, Inc. is a banking consultant that was retained by
Pinnacle to review IFC's loan portfolio and provide information to Pinnacle's
senior managers in connection with their analysis of IFC's credit quality, loan
file documentation and loan loss reserve adequacy. BANC Financial Group, Inc. is
a nationally recognized specialist in loan portfolio reviews, credit analysis
and consumer credit compliance. BANC Financial Group, Inc. is regularly engaged
in loan portfolio reviews and credit analyses and in assisting institutions in
such areas in the context of mergers and acquisitions. Pinnacle selected BANC
Financial Group, Inc. based upon its qualifications, expertise and reputation,
as well as Pinnacle's familiarity with BANC Financial Group, Inc.'s services. No
limitations were imposed by Pinnacle on BANC Financial Group, Inc. with respect
to the investigations made or the procedures followed by it. For the services
provided to Pinnacle in connection with the IFC Merger, BANC Financial Group,
Inc. was paid $15,600. Landmark Technologies, Inc. is an environmental
consultant that was retained by Pinnacle to conduct a "Phase-I" environmental
study of IFC's properties. Landmark Technologies, Inc. is regularly engaged in
environmental testing and engineering. Pinnacle selected Landmark Technologies,
Inc. based upon its qualifications, expertise and reputation, as well as
Pinnacle's familiarity with Landmark Technologies, Inc.'s services. No
limitations were imposed by Pinnacle on Landmark Technologies, Inc. with respect
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to the investigations made or the procedures followed by it. For the services
provided to Pinnacle in connection with the IFC Merger, Landmark Technologies,
Inc. was paid $5,983.)
During the months of July, August, September, October and November, 1996,
members of IFC's management team, together with Sandler O'Neill and IFC's legal
advisors, commenced a due diligence investigation of Pinnacle.
On July 2, 1996, Mr. Schanze and Mr. Weaver, together with representatives
of ABN AMRO Chicago Corporation met with Mr. Lesch to discuss a business
combination model that had been developed by Sandler O'Neill. On July 9, 1996
and August 8, 1996, Mr. Schanze met with Mr. Lesch to discuss general business
combination issues. The discussions related to, among other things, the
structure and documentation of the potential transaction, strategic and
management issues and valuation issues. On August 22, 1996, the parties entered
into a customary confidentiality agreement. In addition, following a meeting of
Mr. Schanze and Mr. Lesch in August 1996, Pinnacle's and IFC's legal counsels
began the process of drafting an agreement regarding a possible business
combination of Pinnacle and IFC.
On September 18, October 3, and October 16, 1996, Mr. Schanze described to
the Pinnacle Board the preliminary discussions between Pinnacle and IFC and the
then status of the negotiations between Pinnacle and IFC. At such meetings,
members of Pinnacle's senior management made presentations that described the
results of their due diligence investigation of IFC, the reasons for a possible
business combination of Pinnacle and IFC, and the potential benefits to Pinnacle
and its stockholders from such a transaction. At those same meetings, ABN AMRO
Chicago Corporation discussed the then status of the mergers and acquisitions
market and the strategic, business and operational compatibility, rationale and
financial aspects of a possible business combination of Pinnacle and IFC, and
analyzed the impact of such a transaction on Pinnacle.
On July 18, August 22, September 19, and October 17, 1996, Mr. Lesch
described to the IFC Board the preliminary discussions between Pinnacle and IFC
and the then status of the negotiations between Pinnacle and IFC. At such
meetings, members of IFC's senior management made presentations that described
the results of their due diligence investigation of Pinnacle, the reasons for a
possible business combination of Pinnacle and IFC and the potential benefits to
IFC and its stockholders from such a transaction. At those same meetings, IFC's
financial advisors discussed the strategic, business and operational
compatibility, rationale and financial aspects of a possible business
combination of Pinnacle and IFC. At the November 14, 1996 meeting of the IFC
Board, IFC's legal advisors reviewed the IFC Board's obligations in
consideration of the IFC Merger.
Mr. Schanze and Mr. Lesch continued discussions concerning the proposed
transaction and each institution's management team continued to conduct its due
diligence investigation of the other institution's businesses. They also
continued to negotiate issues in the Original IFC Merger Agreement and the
Pinnacle/IFC Stock Option Agreements. During the period beginning August 1, 1996
and ending November 14, 1996, the IFC Exchange Ratio was determined by the
parties on the basis of arm's-length negotiations between the parties.
At a special meeting of the Pinnacle Board held on November 14, 1996, Mr.
Schanze and senior management of Pinnacle again reviewed the reasons for and the
potential benefits of the IFC Merger; Pinnacle's legal advisors reviewed the
terms of the Original IFC Merger Agreement and the Pinnacle/IFC Stock Option
Agreements; and ABN AMRO Chicago Corporation (Pinnacle's financial advisor with
respect to the IFC Merger) made a presentation regarding the financial terms and
fairness, from a financial point of view, of the IFC Exchange Ratio to holders
of Pinnacle Common Stock. After discussion and consideration of the factors
discussed below under "--Reasons for the Mergers," the Pinnacle Board (with
eight directors present and one director absent) unanimously approved and
authorized the execution of the Original IFC Merger Agreement and the
Pinnacle/IFC Stock Option Agreements.
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At a special meeting of the IFC Board on November 14, 1996, Mr. Lesch and
senior management of IFC again reviewed the reasons for and the potential
benefits of the IFC Merger; IFC's legal advisors reviewed the terms of the
Original IFC Merger Agreement and the Pinnacle/IFC Stock Option Agreements; and
IFC's financial advisors made a presentation regarding the financial terms and
fairness, from a financial point of view, of the IFC Exchange Ratio to holders
of IFC Common Stock. After discussion and consideration of the factors discussed
below under "--Reasons for the Mergers," the IFC Board (with seven directors
present and one director absent) unanimously approved and authorized the
execution of the Original IFC Merger Agreement and the Pinnacle/IFC Stock Option
Agreements.
The Original IFC Merger Agreement and the Pinnacle/IFC Stock Option
Agreements were executed by Pinnacle and IFC on November 14, 1996.
In December 1996, and as further described below, Pinnacle submitted a
preliminary indication of interest to acquire all of the outstanding shares of
CB Common Stock and advised IFC of its bid and the terms thereof. As Pinnacle's
efforts to acquire CB progressed, it prepared a proposed form of IFC Merger
Agreement Amendment to permit the potential acquisition of CB by Pinnacle under
the Original IFC Merger Agreement. On February 20, 1997, a proposed form IFC
Merger Agreement Amendment was presented to the IFC Board.
At a special meeting of the Pinnacle Board held on February 27, 1997, Mr.
Schanze and senior management of Pinnacle reviewed the reasons for and the
potential benefits of both the IFC Merger and the CB Merger; Pinnacle's legal
advisors reviewed the terms of the IFC Merger Agreement Amendment, the CB Merger
Agreement and the CB Stock Option Agreement; and PL Capital, LLC (Pinnacle's
financial advisor with respect to the CB Merger) made a presentation regarding
the financial terms and fairness, from a financial point of view, of the CB
Exchange Ratio to holders of Pinnacle Common Stock. After discussion and
consideration of the factors discussed below under "--Reasons for the Mergers,"
the Pinnacle Board (with eight directors present and no directors absent)
unanimously approved and authorized the execution of the IFC Merger Agreement
Amendment, the CB Merger Agreement and the CB Stock Option Agreement.
On February 27, 1997, the IFC Merger Agreement Amendment was executed by
Pinnacle and IFC. The IFC Board unanimously ratified (with seven directors
present and one director absent) the IFC Merger Agreement Amendment on March 20,
1997 as being in the best interests of IFC and its stockholders.
CB MERGER. In July 1996, after it had identified CB as a potential
acquisition candidate, Pinnacle engaged PL Capital, LLC as its financial advisor
with respect to a possible business combination with CB. A representative of PL
Capital, LLC then arranged a meeting between Richard L. Schanze, the Chairman
and Chief Executive Officer of Pinnacle, and Joseph F. Heffernan, the Chairman
of the Board and Chief Executive Officer of CB. On August 6, 1996, Messrs.
Schanze and Heffernan, together with representatives of PL Capital, LLC, met to
discuss general business issues and a possible business combination of Pinnacle
and CB. This meeting did not result in any understanding or agreement regarding
a business combination, in part because of Mr. Heffernan's indication that CB
was in the process of reviewing its long-term strategies, certain capital issues
and various means of enhancing stockholder value.
In early August 1996, Mr. Heffernan met again with Mr. Schanze to further
explore a potential business combination of Pinnacle and CB. In late August,
1996, when PL Capital, LLC contacted Mr. Heffernan to follow up on his
discussions with Mr. Schanze, Mr. Heffernan indicated CB would engage a
financial advisor to explore a variety of means of enhancing stockholder value,
including possible business combinations with other financial institutions.
On August 28, 1996, the CB Board, taking into account its concerns regarding
CB's future ability to remain competitive as well as the continuing
consolidation of the banking industry, decided to explore possible merger
opportunities with another financial institution as a potential method of
enhancing
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stockholder value. On September 12, 1996, the CB Board engaged Charles Webb &
Company, a division of Keefe, Bruyette & Woods, Inc. to perform investment
advisory services, and in particular, to identify prospective merger partners,
provide advice regarding any preliminary indications of interest, and assist in
any negotiations that might occur. In October and November 1996, Webb contacted
29 potential merger partners (including Pinnacle), which were chosen based on
criteria established by Webb and CB. As a result of these contacts, all 29
financial institutions entered into confidentiality agreements with CB and
confidential information packets regarding CB were distributed to these 29
institutions.
CB received preliminary indications of interest from four potential
acquirors, one of which was Pinnacle. Pinnacle submitted a preliminary offer of
$29-$33 per share to be paid in shares of Pinnacle common stock. A second
institution offered cash in the amount of $23.86-$28.63 for each share of CB
common stock and option. A third institution offered cash for a total deal value
of $35 million. A fourth institution offered cash in the amount of 175% of CB's
book value, including the value of any unexercised stock options.
All four institutions were permitted to conduct due diligence reviews during
a two week period beginning January 6, 1997. CB received final written
indications of interest from three of the four potential acquirors, one of which
was Pinnacle. Pinnacle submitted a final indication of interest to acquire all
of the outstanding shares of CB Common Stock for a purchase price of $35.00 for
each outstanding share of CB Common Stock and exercisable options, with the
price to be paid in the form of Pinnacle Common Stock. The second institution
submitted a final indication of interest in which CB stockholders would exchange
CB shares for cash of between $20.68-$23.86 per share of CB Common Stock. The
third potential acquiror offered to acquire shares of CB Common Stock in a stock
for stock transaction valued between approximately $28.20-$33.92 per share. This
transaction was dependent upon a number of factors, including the acquiror
having the opportunity to raise additional capital and assumptions as to future
earnings, prices and market conditions. The fourth party ultimately declined to
provide a final bid. The information, both oral and written, provided to the CB
Board by Webb, which was considered by the CB Board in deciding to recommend the
CB Merger to stockholders, is summarized below and elsewhere in this Joint Proxy
Statement/Prospectus.
In January 1997, members of Pinnacle's management team commenced a due
diligence investigation of CB and its businesses. In connection with such due
diligence investigation, Pinnacle's management team received assistance from PL
Capital, LLC, BANC Financial Group, Inc., and Landmark Technologies, Inc. (BANC
Financial Group, Inc. is a banking consultant that was retained by Pinnacle to
review CB's loan portfolio and provide information to Pinnacle's senior managers
in connection with their analysis of CB's credit quality, loan file
documentation and loan loss reserve adequacy. BANC Financial Group, Inc. is a
nationally recognized specialist in loan portfolio reviews, credit analysis and
consumer credit compliance. BANC Financial Group, Inc. is regularly engaged in
loan portfolio reviews and credit analyses and in assisting institutions in such
areas in the context of mergers and acquisitions. Pinnacle selected BANC
Financial Group, Inc. based upon its qualifications, expertise and reputation,
as well as Pinnacle's familiarity with BANC Financial Group, Inc.'s services. No
limitations were imposed by Pinnacle on BANC Financial Group, Inc. with respect
to the investigations made or the procedures followed by it. For the services
provided to Pinnacle in connection with the CB Merger, BANC Financial Group,
Inc. was paid $9,500. Landmark Technologies, Inc. is an environmental consultant
that was retained by Pinnacle to conduct a "Phase-I" environmental study of CB's
properties. Landmark Technologies, Inc. is regularly engaged in environmental
testing and engineering. Pinnacle selected Landmark Technologies, Inc. based
upon its qualifications, expertise and reputation, as well as Pinnacle's
familiarity with Landmark Technologies, Inc.'s services. No limitations were
imposed by Pinnacle on Landmark Technologies, Inc. with respect to the
investigations made or the procedures followed by it. For the services provided
to Pinnacle in connection with the CB Merger, Landmark Technologies, Inc. was
paid $788.)
On January 7, 1997, Mr. Schanze, Mr. Kolhagen, Mr. Radde, and
representatives of PL Capital, LLC met with Mr. Heffernan and a representative
of Webb to discuss business issues and a possible business
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combination between CB and Pinnacle. Mr. Heffernan and the representative of
Webb requested Pinnacle to submit an additional proposal outlining the terms of
a possible business combination between CB and Pinnacle.
On January 22, 1997, members of PL Capital, LLC advised the Pinnacle Board
of the status of the preliminary discussions between CB and Pinnacle, and on
January 31, 1997 Pinnacle issued an additional proposal to CB.
On February 4, 1997, the CB Board met to consider, among other things, the
three written indications of interest. At this meeting, a report was presented
by Webb detailing the three proposals and the potential acquirors. The
presentation included a review of the specific terms of each proposal, a pro
forma analysis of each proposed transaction, historical stock pricing for CB and
the potential acquirors and an analysis of numerous other recent transactions
involving thrift institutions of a similar size and involving thrift
institutions in the mid-west region. In considering the proposals, the CB Board
considered the risk to stockholders of a deal in which the consideration
included stock of a potential acquiror because the consideration to be received
would fluctuate with the market price of the acquiror's stock. The CB Board also
considered the tax effect of the transactions, acknowledging that the cash for
stock transaction would result in 100% of the merger consideration being
immediately taxable to stockholders, while the stock for stock transactions,
assuming they were structured as tax-free reorganizations, would result in none
of the merger consideration being immediately taxable, assuming a stockholder
did not immediately sell their stock in the acquiror. On the basis of such
review, and given the higher level of consideration being offered by Pinnacle,
Pinnacle's strong earnings history and the synergies expected to be produced by
a merger with Pinnacle, among other factors, the CB Board concluded that
Pinnacle's proposal was the most favorable offer presented and expressed its
preliminary view that the Pinnacle proposal appeared to be in the best interests
of stockholders. Accordingly, the CB Board authorized CB's senior management to
pursue further discussions with Pinnacle. The CB Board also noted that the
Pinnacle proposal was attractive because Pinnacle asserted in its preliminary
proposal that it intended to retain as many CB employees as possible in a
similar capacity and all CB personnel retained would be eligible to participate
in Pinnacle's benefit plans.
On February 5, 1997, representatives of Webb contacted representatives of PL
Capital, LLC and informed them that Webb was authorized by the CB Board to
negotiate the terms of a definitive agreement with Pinnacle.
During the next several weeks Pinnacle and CB conducted due diligence
reviews of the other party and each continued to negotiate the terms and
conditions of the CB Merger Agreement. During this period which ended February
27, 1997, the CB Exchange Ratio was determined by the parties on the basis of
arm's-length negotiations between the parties.
At a special meeting of the Pinnacle Board held on February 27, 1997, Mr.
Schanze and senior management of Pinnacle reviewed the reasons for and the
potential benefits of both the IFC Merger and the CB Merger; Pinnacle's legal
advisors reviewed the terms of the IFC Merger Agreement Amendment, the CB Merger
Agreement and the CB Stock Option Agreement; and PL Capital, LLC (Pinnacle's
financial advisor with respect to the CB Merger) made a presentation regarding
the financial terms and fairness, from a financial point of view, of the CB
Exchange Ratio to holders of Pinnacle Common Stock. After discussion and
consideration of the factors discussed below under " --Reasons for the Mergers,"
the Pinnacle Board (with eight directors present and no directors absent)
unanimously approved and authorized the execution of the IFC Merger Agreement
Amendment, the CB Merger Agreement and the CB Stock Option Agreement.
On March 1, 1997, the CB Board held a special meeting to consider the
proposed transaction with Pinnacle. Presentations were made by CB's legal
counsel and by Webb. The CB Board reviewed the terms and conditions of the CB
Merger Agreement and the CB Stock Option Agreement. Webb's updated presentation
included the terms of the proposed transaction. Webb gave a written opinion that
the
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consideration to be received in the CB Merger was fair, from a financial point
of view, to CB stockholders. Following the CB Board's consideration of the
factors discussed above and discussion with Webb, during which the CB Board
asked questions related to Webb's presentation and oral opinion, and in
consideration of the negotiation that took place between the parties, the CB
Board of Directors unanimously approved the CB Merger Agreement and the CB Stock
Option Agreement and authorized their execution and to recommend approval of
those agreements by stockholders.
The CB Merger Agreement and the CB Stock Option Agreement were executed on
March 1, 1997.
REASONS FOR THE MERGERS
GENERAL. The Mergers are expected to create a stronger, more competitive,
financial institution with the size and capabilities to better meet the
challenges of the ever-changing market for financial products and services in
northern Indiana and southwestern Michigan. Moreover, the combined corporation
is expected to be able to provide a broader array of financial services and
products to the depositors, customers and communities currently served by
Pinnacle, IFC and CB, and to take advantage of opportunities for growth and
diversification that would not be available to Pinnacle, IFC or CB on its own.
In reaching their decisions to approve the IFC Merger Agreement and the
Pinnacle/IFC Stock Option Agreements, the Pinnacle Board and IFC Board each
determined that the IFC Merger is in the best interests of their respective
institutions and stockholders because of their belief that a "merger of equals"
uniting Pinnacle and IFC (two financially sound institutions with complementary
businesses and business strategies) will create a stronger combined institution
with greater size, flexibility, breadth of services, efficiency, capital
strength and profitability than either Pinnacle or IFC possesses on a
stand-alone basis or would be able to achieve through internal growth, DE NOVO
branching or acquisitions of smaller financial institutions in their respective
market areas. The Pinnacle Board and the IFC Board each believes that each
institution is currently well managed and possesses compatible management
philosophies and strategic focus to that of the other; that each institution
will contribute complementary business strengths resulting in a well-diversified
combined institution; and that the enhanced capitalization of the combined
institution will allow it to take advantage of future acquisition opportunities
that might otherwise be unavailable to either institution. The Pinnacle Board
and IFC Board believe that the acquisition of CB will further enhance the
combined corporation's profitability and competitiveness. Similarly, the CB
Board also determined that merging with Pinnacle would create a stronger, more
competitive combined corporation better able to take advantage of opportunities
that may arise in the future and to enhance profitability.
The Pinnacle Board, the IFC Board and the CB Board also considered that the
Mergers would represent a strategic alliance of Pinnacle, IFC and CB and that
stockholders of each entity could realize the expected long-term benefits of
such alliance (including, but not limited to, the future stock value and
earnings per share of the combined corporation, the combined corporation's
financial strength and its consequent enhanced ability to invest in its existing
businesses as well as develop new products and services, the cost savings to be
realized through consolidation of operations, the potential for cross-marketing
services to customers of the combining companies, the opportunity to diversify
earnings, the business synergies that might be realized, and the potential
effect of the Mergers on the perception of the combined corporation's businesses
by the financial markets). In evaluating the Mergers, each of the Pinnacle
Board, the IFC Board and the CB Board and their respective managements discussed
the critical importance of successfully integrating, and building on the
strengths of, the management teams and cultures of the combining companies, and
considered the uncertainties inherent in any such combination of sizable
companies.
PINNACLE. In reaching its conclusion to approve the Merger Agreements and
the Stock Option Agreements, the Pinnacle Board consulted with Pinnacle
management, as well as with its financial and legal advisors, and considered the
factors described above under "--General" and a number of additional factors,
including the following:
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(i) The Pinnacle Board considered the effectiveness of the Mergers in
implementing and accelerating Pinnacle's basic long-term external growth
strategy. The Mergers represent a continuation of Pinnacle's acquisition
strategy of combining with financial institutions in markets where Pinnacle
already has or expects to gain a significant market position. By expanding
Pinnacle's existing operations in northern Indiana, the Mergers are expected to
provide Pinnacle with a stronger market position in northern Indiana, a
significant midwestern market in close proximity to the larger market for
financial services in and around metropolitan Chicago, Illinois.
(ii) The Pinnacle Board analyzed the financial condition, businesses and
prospects of Pinnacle, IFC and CB (including, but not limited to, information
with respect to their respective recent and historic stock and earnings
performance and their respective relatively strong credit position and access to
the capital markets). The Pinnacle Board considered the detailed financial
analyses, pro forma and other information with respect to Pinnacle and IFC
discussed by ABN AMRO Chicago Corporation, its own knowledge of Pinnacle, IFC
and their respective businesses, and the results of Pinnacle's due diligence
review of IFC's business. The Pinnacle Board also considered the detailed
financial analyses, pro forma and other information with respect to Pinnacle and
CB discussed by PL Capital, LLC, its own knowledge of Pinnacle, CB and their
respective businesses, and the results of Pinnacle's due diligence review of
CB's business. The Pinnacle Board also considered the anticipated revenue
enhancements and operating efficiencies for the combined corporation and the
likelihood that the Mergers, on a pro forma basis, would be accretive to the
combined corporation's earnings per share and book value per share in the longer
term.
(iii) The Pinnacle Board considered the oral opinion of ABN AMRO Chicago
Corporation, subsequently confirmed in writing, that, as of November 14, 1996,
the IFC Exchange Ratio was fair to holders of Pinnacle Common Stock from a
financial point of view. The Pinnacle Board also considered the oral opinion of
PL Capital, LLC, subsequently confirmed in writing, that, as of February 27,
1997, the CB Exchange Ratio was fair to holders of Pinnacle Common Stock from a
financial point of view. See "--Opinions of Pinnacle Financial Advisors."
(iv) The Pinnacle Board considered the terms of the Merger Agreements, the
Pinnacle/IFC Stock Option Agreements (which are reciprocal in nature), and the
CB Stock Option Agreement. The Pinnacle Board also considered certain other
information regarding the Mergers, including the terms and structure of each of
the Mergers, the proposed arrangements with respect to the board of directors
and management structure of the combined corporations following the Mergers, and
that major business functions would be located in St. Joseph, Michigan even
though the corporate headquarters of the combined corporation would be located
in Valparaiso, Indiana.
(v) The Pinnacle Board considered the effect on Pinnacle stockholders' value
of Pinnacle continuing as a stand-alone entity compared to the effect of
Pinnacle combining with IFC and CB in light of the factors summarized above with
respect to the financial condition and prospects of the companies on a
stand-alone basis and of the combined corporation. In particular, the Pinnacle
Board believed that Pinnacle, as an independent institution, would have reduced
opportunities to participate in the consolidation process currently occurring in
the financial services industry and to generate cost savings. The Pinnacle Board
also noted that the Mergers would not preclude the acquisition of the combined
corporation in the future by a larger financial institution.
(vi) The Pinnacle Board also considered the current and prospective economic
and competitive environment facing each institution and other financial
institutions, and the likelihood of the Mergers being approved by the
appropriate regulatory authorities.
(vii) The Pinnacle Board considered the anticipated cost savings and
operating efficiencies available to the combined corporation from the Mergers.
Given the substantial prior experience of both Pinnacle and IFC in effecting
successful mergers (including Pinnacle's merger with Maco Bancorp, Inc. in 1995
and IFC's acquisitions of American Bancorp, Inc. and NCB Corp. since 1994), the
Pinnacle Board believes that
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the operations of Pinnacle, IFC and CB can be effectively consolidated and
integrated within a reasonable time following the consummation of the Mergers.
(viii) The Pinnacle Board considered the expectation that the Mergers will be
tax-free transactions to Pinnacle and its stockholders.
(ix) The Pinnacle Board considered the effects of the Mergers on Pinnacle's
other constituencies, including its senior management and other employees and
the communities and customers served by Pinnacle.
In reaching its determination to approve and recommend the Mergers, the
Pinnacle Board did not assign any relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to different
factors. After deliberating with respect to the IFC Merger and the other
transactions contemplated by the IFC Merger Agreement, considering, among other
things, the matters discussed above and the opinion of ABN AMRO Chicago
Corporation referred to above, the Pinnacle Board unanimously (with eight
directors present and one director absent) approved and adopted the Original IFC
Merger Agreement, the Pinnacle/IFC Stock Option Agreements, and the transactions
contemplated thereby, as being in the best interests of Pinnacle and its
stockholders. After deliberating with respect to the CB Merger and the other
transactions contemplated by the CB Merger Agreement, considering, among other
things, the matters discussed above and the opinion of PL Capital, LLC referred
to above, the Pinnacle Board unanimously (with eight directors present and no
directors absent) approved and adopted the IFC Merger Agreement Amendment, the
CB Merger Agreement, the CB Stock Option Agreement, and the transactions
contemplated thereby, as being in the best interests of Pinnacle and its
stockholders. THE PINNACLE BOARD IS UNANIMOUS IN ITS RECOMMENDATION THAT HOLDERS
OF PINNACLE COMMON STOCK VOTE "FOR" APPROVAL AND ADOPTION OF EACH OF THE MERGER
PROPOSALS.
IFC. In reaching its conclusion to approve the IFC Merger Agreement and the
Pinnacle/IFC Stock Option Agreements, the IFC Board consulted with IFC
management, as well as with its financial and legal advisors, considered the
factors described above under "--General" and a number of additional factors,
including the following:
(i) The IFC Board considered the effectiveness of the IFC Merger in
implementing and accelerating IFC's basic long-term external growth strategy.
The IFC Merger represents a continuation of IFC's acquisition strategy of
combining with financial institutions in markets where IFC already has or
expects to gain a significant market position. By expanding IFC's existing
operations in northern Indiana and providing IFC immediate access to Pinnacle's
existing operations in southwestern Michigan, the IFC Merger is expected to
provide IFC with a stronger market position in northern Indiana and with the
opportunity to expand into a significant midwestern market in close proximity to
its current market.
(ii) The IFC Board analyzed the financial condition, businesses and
prospects of Pinnacle and IFC, including, but not limited to, information with
respect to their respective recent and historic stock and earnings performance
and their respective relatively strong credit position and access to the capital
markets. The IFC Board considered the detailed financial analyses, pro forma and
other information with respect to Pinnacle and IFC discussed by Sandler O'Neill,
its own knowledge of IFC, Pinnacle and their respective businesses, and the
results of IFC's due diligence review of Pinnacle's businesses. The IFC Board
also considered the anticipated revenue enhancements and operating efficiencies
for the combined corporation and the likelihood that the IFC Merger, on a pro
forma basis, would be accretive to the combined corporation's earnings per share
and book value per share in the longer term.
(iii) The IFC Board considered the written opinion of Sandler O'Neill that,
as of November 14, 1996, the IFC Exchange Ratio was fair to stockholders of IFC
from a financial point of view. See "--Opinion of IFC Financial Advisor."
(iv) The IFC Board considered the terms of the IFC Merger Agreement and the
Pinnacle/IFC Stock Option Agreements, which were reciprocal in nature. The IFC
Board also considered certain other
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information regarding the IFC Merger, including the terms and structure of the
IFC Merger, the proposed arrangements with respect to the board of directors and
management structure of the combined corporation following the Merger, and that
the corporate headquarters of the combined corporation would be located in
Valparaiso, Indiana, with major business functions being located in St. Joseph,
Michigan.
(v) The IFC Board considered the effect on IFC stockholders' value of IFC
continuing as a stand-alone entity compared to the effect of IFC combining with
Pinnacle in a "merger of equals" in light of the factors summarized above with
respect to the financial condition and prospects of the two companies on a
stand-alone basis and of the combined corporation. In particular, the IFC Board
believed that IFC, as an independent institution, would have reduced
opportunities to participate in the consolidation process currently occurring in
the financial services industry and to generate cost savings. The IFC Board also
noted that the IFC Merger would not preclude the acquisition of the combined
corporation in the future by a larger financial institution.
(vi) The IFC Board also considered the current and respective economic and
competitive environment facing each institution and other financial
institutions, and the likelihood of the IFC Merger being approved by the
appropriate regulatory authorities.
(vii) The IFC Board considered the anticipated cost savings and operating
efficiencies available to the combined corporation from the IFC Merger. Given
the substantial prior experience of both Pinnacle and IFC in effecting
successful mergers (including Pinnacle's merger with Maco Bancorp, Inc. in 1995
and IFC's acquisitions of American Bancorp, Inc. and NCB Corp. since 1994), the
IFC Board believes that the operations of Pinnacle and IFC can be effectively
consolidated and integrated within a reasonable time following the consummation
of the IFC Merger.
(viii) The IFC Board considered the expectation that the IFC Merger will be a
tax-free transaction to IFC and its stockholders.
(ix) The IFC Board considered the effect of the IFC Merger on IFC's other
constituencies, including its senior management and other employees, customers
and communities served by IFC.
In reaching its determination to approve and recommend the IFC Merger, the
IFC Board did not assign any relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to different
factors. After deliberating with respect to the IFC Merger and the other
transactions contemplated by the Original IFC Merger Agreement, considering,
among other things, the matters discussed above and the opinion of Sandler
O'Neill referred to above, the IFC Board unanimously (with seven directors
present and one director absent) approved and adopted the Original IFC Merger
Agreement, the Pinnacle/IFC Stock Option Agreements, and the transactions
contemplated thereby, including the Stock Option Agreements, as being in the
best interests of IFC and its stockholders. On March 20, 1997, the IFC Board
unanimously (with seven directors present and one director absent) ratified the
IFC Merger Agreement Amendment as being in the best interests of IFC and its
stockholders. THE IFC BOARD IS UNANIMOUS IN ITS RECOMMENDATION THAT HOLDERS OF
IFC COMMON STOCK VOTE "FOR" APPROVAL AND ADOPTION OF THE IFC MERGER PROPOSAL.
CB. In reaching its conclusion to approve the CB Merger Agreement and the
CB Stock Option Agreement, the CB Board consulted with CB management, as well as
with its financial and legal advisors, considered the factors described above
under "--General" and a number of additional factors, including the following:
(i) The CB Board considered the effectiveness of the CB Merger in
implementing and accelerating CB's basic long-term strategy to offer expanded
services and possibly to expand its business through acquisitions and otherwise.
(ii) The CB Board analyzed the financial condition, businesses and prospects
of Pinnacle and CB (including IFC, once merged with Pinnacle, as well)
including, but not limited to, information with respect
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to their respective recent and historic stock and earnings performance and their
respective relatively strong credit position and access to the capital markets.
The CB Board considered the detailed financial analyses, pro forma and other
information with respect to Pinnacle and CB discussed by Webb, its own knowledge
of CB, Pinnacle and IFC and their respective businesses, and the results of CB's
due diligence review of Pinnacle's businesses. The CB Board also considered the
anticipated revenue enhancements and operating efficiencies for the combined
corporation and the likelihood that the CB Merger, on a pro forma basis, would
be accretive to the combined corporation's earnings per share and book value per
share in the longer term.
(iii) The CB Board considered the written opinion of Webb that, as of March
1, 1997, the CB Exchange Ratio was fair to stockholders of CB from a financial
point of view. See "--Opinion of CB Financial Advisor."
(iv) The CB Board considered the terms of the CB Merger Agreement, the CB
Stock Option Agreement, the IFC Merger Agreement and the Pinnacle/IFC Stock
Option Agreements. The CB Board also considered certain other information
regarding the CB Merger, including the terms and structure of the CB Merger and
the IFC Merger, the proposed arrangements with respect to the board of directors
and management structure of the combined corporation following the CB Merger and
the IFC Merger, and that the corporate headquarters of the combined corporation
would be located in Valparaiso, Indiana, with major business functions being
located in St. Joseph, Michigan.
(v) The CB Board considered the effect on CB stockholders' value of CB
continuing as a stand-alone entity compared to the effect of CB combining with
Pinnacle in light of the factors summarized above with respect to the financial
condition and prospects of the two companies on a stand-alone basis and of the
combined corporation. In particular, the CB Board believed that CB, as an
independent institution, would have fewer opportunities to participate in the
consolidation process currently occurring in the financial services industry and
to generate cost savings. The CB Board also noted that the CB Merger would not
preclude the acquisition of the combined corporation in the future by a larger
financial institution.
(vi) The CB Board also considered the current and respective economic and
competitive environment facing each institution and other financial
institutions, and the likelihood of the CB Merger being approved by the
appropriate regulatory authorities.
(vii) The CB Board considered the anticipated cost savings and operating
efficiencies available to the combined corporation from the CB Merger. Given the
substantial prior experience of Pinnacle in effecting successful mergers, the CB
Board believes that the operations of Pinnacle and CB can be effectively
consolidated and integrated within a reasonable time following the CB Closing
Date.
(viii) The CB Board considered the expectation that the CB Merger will be a
tax-free transaction to CB and its stockholders.
(ix) The CB Board considered the effect of the CB Merger on CB's other
constituencies, including its senior management and other employees, customers
and communities served by CB.
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The foregoing discussion of the information and factors considered by the CB
Board is not intended to be exhaustive but includes all material factors
considered by the CB Board. In reaching its determination to approve and
recommend the CB Merger, the CB Board did not assign any relative or specific
weights to the foregoing factors, and individual directors may have given
differing weights to different factors. After deliberating with respect to the
CB Merger and the other transactions contemplated by the CB Merger Agreement,
considering, among other things, the matters discussed above and the opinion of
Webb referred to above, the CB Board unanimously approved and adopted the CB
Merger Agreement, the CB Stock Option Agreement, and the transactions
contemplated thereby, as being in the best interests of CB and its stockholders.
THE CB BOARD IS UNANIMOUS IN ITS RECOMMENDATION THAT HOLDERS OF CB COMMON STOCK
VOTE "FOR" APPROVAL AND ADOPTION OF THE CB MERGER PROPOSAL.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
PINNACLE. For the reasons described above, at the meeting held on November
14, 1996, the Pinnacle Board unanimously (with eight directors present and one
director absent) approved and adopted the Original IFC Merger Agreement, the
Pinnacle/IFC Stock Option Agreements and the transactions contemplated thereby
as being in the best interests of Pinnacle and its stockholders. In addition,
for the reasons described above, at the meeting held on February 27, 1997, the
Pinnacle Board unanimously (with eight directors present and no directors
absent) approved and adopted the IFC Merger Agreement Amendment, the CB Merger
Agreement, the CB Stock Option Agreement and the transactions contemplated
thereby as being in the best interests of Pinnacle and its stockholders. THE
PINNACLE BOARD RECOMMENDS THAT PINNACLE STOCKHOLDERS VOTE FOR THE ELECTION OF
ALL OF THE PINNACLE BOARD NOMINEES AS DIRECTORS OF PINNACLE, FOR THE APPROVAL
AND ADOPTION OF THE IFC MERGER PROPOSAL (WHICH APPROVAL AND ADOPTION SHALL
CONSTITUTE, AMONG OTHER THINGS, APPROVAL OF THE IFC MERGER AND OF THE ISSUANCE
OF SHARES OF PINNACLE COMMON STOCK TO HOLDERS OF SHARES OF IFC COMMON STOCK),
AND FOR the approval and adoption of the CB Merger Proposal (which approval and
adoption shall constitute, among other things, approval of the CB Merger and of
the issuance of shares of Pinnacle Common Stock to holders of shares of CB
Common Stock).
IFC. For the reasons described above, at the meeting held on November 14,
1996, the IFC Board unanimously (with seven directors present and one director
absent) approved and adopted the Original IFC Merger Agreement, the Pinnacle/IFC
Stock Option Agreements and the transactions contemplated thereby as being in
the best interests of IFC and its stockholders. For the reasons described above,
at the meeting held on March 20, 1997, the IFC Board unanimously (with seven
directors present and one director absent) ratified the IFC Merger Agreement
Amendment and the transactions contemplated thereby as being in the best
interests of IFC and its stockholders. THE IFC BOARD RECOMMENDS THAT IFC
STOCKHOLDERS VOTE FOR THE ELECTION OF ALL OF THE IFC BOARD NOMINEES AS DIRECTORS
OF IFC, FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS OF IFC, AND FOR THE APPROVAL AND ADOPTION OF THE IFC MERGER
PROPOSAL (WHICH APPROVAL AND ADOPTION SHALL CONSTITUTE, AMONG OTHER THINGS,
APPROVAL OF THE IFC MERGER AND OF THE CONVERSION OF SHARES OF IFC COMMON STOCK
INTO SHARES OF PINNACLE COMMON STOCK).
CB. For the reasons described above, at the meeting held on March 1, 1997,
the CB Board unanimously (with seven directors present and no directors absent)
approved and adopted the CB Merger Agreement, the CB Stock Option Agreement and
the transactions contemplated thereby as being in the best interests of CB and
its stockholders. THE CB BOARD RECOMMENDS THAT CB STOCKHOLDERS VOTE FOR THE CB
MERGER PROPOSAL.
OPINIONS OF PINNACLE FINANCIAL ADVISORS
IFC MERGER--GENERAL. Pursuant to an engagement letter dated July 16, 1996
between Pinnacle and ABN AMRO Chicago Corporation, Pinnacle retained ABN AMRO
Chicago Corporation to act as its sole financial advisor in connection with the
IFC Merger and related matters. As part of its engagement, ABN
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AMRO Chicago Corporation agreed, if requested by Pinnacle, to render an opinion
with respect to the fairness from a financial point of view to Pinnacle
stockholders of the consideration to be paid by Pinnacle in the IFC Merger. ABN
AMRO Chicago Corporation is a nationally recognized specialist in the financial
services industry in general and in midwestern banks and thrifts in particular.
ABN AMRO Chicago Corporation is regularly engaged in evaluations of similar
businesses and in advising institutions with regard to mergers and acquisitions,
as well as raising debt and equity capital for such institutions. Pinnacle
selected ABN AMRO Chicago Corporation as its financial advisor based upon its
qualifications, expertise and reputation in such capacity, as well as ABN AMRO
Chicago Corporation's existing relationship and familiarity with Pinnacle.
At the November 14, 1996 meeting of the Pinnacle Board, ABN AMRO Chicago
Corporation delivered its oral opinion that the consideration to be paid by
Pinnacle in the IFC Merger (the amount of which was determined by Pinnacle and
IFC on the basis of arm's-length negotiations between Pinnacle and IFC) was fair
to Pinnacle stockholders from a financial point of view as of November 14, 1996.
ABN AMRO Chicago Corporation subsequently delivered to the Pinnacle Board a
written opinion dated as of the date of this Joint Proxy Statement/Prospectus
confirming its oral opinion. No limitations were imposed by Pinnacle on ABN AMRO
Chicago Corporation with respect to the investigations made or the procedures
followed in rendering its opinion.
THE FULL TEXT OF ABN AMRO CHICAGO CORPORATION'S WRITTEN OPINION TO THE
PINNACLE BOARD, DATED AS OF THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS OF
REVIEW BY ABN AMRO CHICAGO CORPORATION, IS ATTACHED HERETO AS ANNEX F AND IS
INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS
ENTIRETY IN CONJUNCTION WITH THIS JOINT PROXY STATEMENT/PROSPECTUS. THE
FOLLOWING SUMMARY OF ABN AMRO CHICAGO CORPORATION'S OPINION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. ABN AMRO CHICAGO
CORPORATION'S OPINION IS ADDRESSED TO THE PINNACLE BOARD AND DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY STOCKHOLDER OF PINNACLE OR IFC OR CB AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE PINNACLE ANNUAL MEETING, THE IFC ANNUAL MEETING
OR THE CB SPECIAL MEETING.
In connection with its opinion, ABN AMRO Chicago Corporation has, among
other things: (i) reviewed the IFC Merger Agreement and this Joint Proxy
Statement/Prospectus; (ii) reviewed certain historical business and financial
information relating to Pinnacle and IFC; (iii) reviewed other pertinent
internally-generated reports with regard to the separate businesses and
prospects of Pinnacle and IFC including, among other things, the strategic
objectives of each corporation and the potential benefits which might be
realized through consummation of the IFC Merger; (iv) participated in senior
management discussions of Pinnacle and IFC with regard to said strategic
objectives which might be realized through consummation of the IFC Merger; (v)
reviewed public information regarding other selected comparable publicly-traded
companies deemed relevant to the proposed business combination; (vi) reviewed
the financial terms and data of selected comparable business combinations
between banks, thrifts and bank and thrift holding companies deemed relevant to
the proposed business combination; (vii) reviewed the historical market
performance and trading volume of Pinnacle Common Stock and IFC Common Stock;
(viii) reviewed certain information pertaining to prospective cost savings
and/or revenue enhancements relative to the proposed business combination; (ix)
reviewed and evaluated the current stock distribution and ownership of Pinnacle
Common Stock and IFC Common Stock, as well as the pro forma distribution and
ownership following consummation of the IFC Merger, based upon the contribution
of Pinnacle's assets, liabilities, stockholders' equity and earnings to the
combined entity; and (x) conducted such other financial studies, analyses and
investigations as ABN AMRO Chicago Corporation deemed appropriate. The oral and
written opinions provided by ABN AMRO Chicago Corporation to Pinnacle were
necessarily based upon economic, monetary, financial market and other relevant
conditions as of the dates thereof.
In connection with its review and arriving at its opinion, ABN AMRO Chicago
Corporation relied upon the accuracy and completeness of the financial
information and other pertinent information provided by Pinnacle and IFC to ABN
AMRO Chicago Corporation for purposes of rendering its opinion. ABN
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AMRO Chicago Corporation did not assume any obligation to independently verify
any of the provided information as being complete and accurate in all material
respects. With regard to the financial forecasts established and developed for
Pinnacle and IFC and provided to ABN AMRO Chicago Corporation by the respective
managements, as well as projections of cost savings, revenue enhancements and
operating synergies, ABN AMRO Chicago Corporation assumed that these materials
had been reasonably prepared on bases reflecting the best available estimates
and judgments of Pinnacle and IFC as to the future performance of the separate
and combined entities and that the projections provided a reasonable basis upon
which ABN AMRO Chicago Corporation could form its opinion. Neither Pinnacle nor
IFC publicly discloses such internal management projections of the type provided
to ABN AMRO Chicago Corporation in connection with ABN AMRO Chicago
Corporation's role as financial advisor to Pinnacle in review of the IFC Merger.
Therefore, such projections cannot be assumed to have been prepared with a view
towards public disclosure. The projections were based upon numerous variables
and assumptions that are inherently uncertain, including, but notwithstanding,
factors relative to the general economic and competitive conditions facing
Pinnacle and IFC. Accordingly, actual results could vary significantly from
those set forth in the respective projections.
ABN AMRO Chicago Corporation does not claim to be an expert in the
evaluation of loan portfolios or the allowance for loan losses with respect
thereto and therefore assumes that such allowances for Pinnacle and IFC are
adequate to cover such losses. In addition, ABN AMRO Chicago Corporation does
not assume responsibility for the review of individual credit files nor make an
independent evaluation, appraisal or physical inspection of the assets or
individual properties of Pinnacle or IFC, nor was ABN AMRO Chicago Corporation
provided with such appraisals. Furthermore, ABN AMRO Chicago Corporation assumes
that the IFC Merger will be consummated in accordance with the terms set forth
in the IFC Merger Agreement, without any waiver of any material terms or
conditions by Pinnacle and that obtaining the necessary regulatory approvals for
the IFC Merger will not have an adverse effect on either separate institution or
the combined entity. Moreover, in each analysis that involves per share data for
Pinnacle or the combined entity, ABN AMRO Chicago Corporation adjusted the data
to reflect full dilution, i.e. the exercise of all outstanding options and/or
warrants. In particular, ABN AMRO Chicago Corporation assumes that the IFC
Merger will be recorded as a "pooling-of-interests" in accordance with generally
accepted accounting principles.
In connection with rendering its opinion to the Pinnacle Board, ABN AMRO
Chicago Corporation performed a variety of financial and comparative analyses
which are briefly summarized below. Such summary of analyses does not purport to
be a complete description of the analyses performed by ABN AMRO Chicago
Corporation. Moreover, ABN AMRO Chicago Corporation believes that these analyses
must be considered as a whole and that selecting portions of such analyses and
the factors considered by it, without considering all such analyses and factors,
could create an incomplete scope of the process underlying the analyses and,
more importantly, the opinion derived from them. The preparation of a financial
advisor's opinion is a complex process involving subjective judgments and is not
necessarily susceptible to partial analyses or a summary description of such
analyses. In its full analysis, ABN AMRO Chicago Corporation also accounted for
the assessment of general economic, financial market and other financial
conditions. Furthermore, ABN AMRO Chicago Corporation drew from its past
experience in similar transactions, as well as its experience in the valuation
of securities and its knowledge of the banking industry on a whole. Any
estimates contained in ABN AMRO Chicago Corporation's analyses were not
necessarily indicative of future results or values which may significantly
diverge more or less favorably from such estimates. Estimates of company
valuations do not purport to be appraisals or necessarily reflect the prices at
which companies or their respective securities actually may be sold. Most
notably, none of the analyses performed by ABN AMRO Chicago Corporation were
assigned a greater significance by ABN AMRO Chicago Corporation than any other
in deriving its opinion.
The analyses performed by ABN AMRO Chicago Corporation in rendering its
opinion are briefly described below.
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IFC MERGER--COMPARABLE COMPANY ANALYSIS. ABN AMRO Chicago Corporation
reviewed and compared actual stock market data and actual and estimated selected
financial information for selected peer groups of companies comparable to (i)
Pinnacle with corresponding information for 20 publicly-traded midwestern
banking organizations with assets between $750 million and $1.5 billion (the
"AACC Selected Pinnacle Peer Group"); (ii) the combined entity with information
for 28 publicly-traded banking organizations with assets between $1.5 billion
and $2.5 billion (the "AACC Selected Post-Merger Bank Peer Group"); and (iii)
the combined entity with information for 20 publicly-traded thrift organizations
with assets between $1.5 billion and $2.5 billion (the "AACC Selected
Post-Merger Thrift Peer Group").
The AACC Selected Pinnacle Peer Group consisted of: Republic Bancorp Inc.,
Owosso, MI; First Financial Corporation, Terre Haute, IN; Peoples First
Corporation, Paducah, KY; Mid-America Bancorp, Louisville, KY; Heritage
Financial Services, Tinley Park, IL; Irwin Financial Corporation, Columbus, IN;
F&M Bancorporation, Inc., Kaukauna, WI; Area Bancshares Corporation, Owensboro,
KY; Pinnacle Banc Group, Inc., Oak Brook, IL; Mississippi Valley Bancshares, St.
Louis, MO; National City Bancshares, Inc., Evansville, IN; CBT Corporation,
Paducah, KY; Farmers Capital Bank Corp., Frankfort, KY; Second Bancorp, Inc.,
Warren, OH; National City Bancorporation, Minneapolis, MN; Citizens Bancshares,
Salineville, OH; Independent Bank Corporation, Ionia, MI; Michigan Financial
Corporation, Marquette, MI; First Oak Brook Bancshares, Oak Brook, IL; and Old
Second Bancorp, Inc., Aurora, IL.
The analysis of the AACC Selected Pinnacle Peer Group indicated, among other
things, that based on the market prices as of November 7, 1996 and financial
data as of June 30, 1996 or September 30, 1996, (i) the average multiple of
price to respective last twelve months' earnings was 13.4 for the AACC Selected
Pinnacle Peer Group as compared to a corresponding multiple of 16.6 for
Pinnacle, (ii) the average multiple of price to 1996 estimated earnings was 12.7
for the AACC Selected Pinnacle Peer Group (based on a published consensus market
estimate) as compared to a corresponding multiple of 13.8 for Pinnacle (also
based on a published consensus market estimate), (iii) the average multiple of
price to 1997 estimated earnings was 11.5 for the AACC Selected Pinnacle Peer
Group (based on a published consensus market estimate) as compared to a
corresponding multiple of 12.1 for Pinnacle (also based on a published consensus
market estimate), (iv) the average ratio of price to book value per share was
170.5% for the AACC Selected Pinnacle Peer Group as compared to a corresponding
ratio of 197.8% for Pinnacle, (v) the average ratio of price to tangible book
value per share was 182.3% for the AACC Selected Pinnacle Peer Group as compared
to a corresponding ratio of 243.4% for Pinnacle, (vi) the average ratio of
tangible equity as a percentage of tangible assets was 8.92% for the AACC
Selected Pinnacle Peer Group as compared to a corresponding ratio of 6.58% for
Pinnacle, (vii) the average return on average assets was 1.27% for the AACC
Selected Pinnacle Peer Group as compared to a corresponding return of 0.94% for
Pinnacle, (viii) the average return on average equity was 13.5% for the AACC
Selected Pinnacle Peer Group as compared to a corresponding return of 12.0% for
Pinnacle, (ix) the average ratio of non-performing assets as a percentage of
total assets was 0.52% for the AACC Selected Pinnacle Peer Group as compared to
a corresponding ratio of 0.29% for Pinnacle, and (x) the average ratio of loan
loss reserves as a percentage of non-performing assets was 248.8% for the AACC
Selected Pinnacle Peer Group as compared to a corresponding ratio of 353.6% for
Pinnacle.
The AACC Selected Post-Merger Bank Peer Group consisted of: First
Commonwealth Financial, Indiana, PA; Trust Company of New Jersey, Jersey City,
NJ; Community First Bankshares, Fargo, ND; Hancock Holding Company, Gulfport,
MS; United Bankshares, Inc., Charleston, WV; First Financial Bancorp., Hamilton,
OH; Mid Am, Inc., Bowling Green, OH; Corus Bankshares, Inc., Chicago, IL; F & M
National Corporation, Winchester, VA; Jefferson Bankshares, Inc.,
Charlottesville, VA; USBANCORP Inc., Johnstown, PA; UST Corporation, Boston, MA;
1st Source Corporation, South Bend, IN; Chittenden Corporation, Burlington, VT;
Trans Financial, Inc., Bowling Green, KY; Firstbank of Illinois Co.,
Springfield, IL; First Commerce Bancshares, Lincoln, NE; Pikeville National
Corporation, Pikeville, KY; F.N.B. Corporation, Hermitage, PA; Hubco, Inc.,
Mahwah, NJ; First Western Bancorp Inc., New Castle, PA; Silicon Valley
Bancshares, Santa Clara, CA; Chemical Financial Corporation, Midland, MI;
Capital
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Bancorp, Miami, FL; Brenton Banks, Inc., Des Moines, IA; Park National
Corporation, Newark, OH; and Carolina First Corporation, Greenville, SC.
The analysis of the AACC Selected Post-Merger Bank Peer Group indicated,
among other things, that based on the market prices as of November 7, 1996 and
financial data as of June 30, 1996 or September 30, 1996, (i) the average
multiple of price to respective last twelve months' earnings was 14.0, (ii) the
average multiple of price to 1996 estimated earnings was 13.0 (based on a
published consensus market estimate), (iii) the average multiple of price to
1997 estimated earnings was 11.7 (based on a published consensus market
estimate), (iv) the average ratio of price to book value per share was 183.7%,
(v) the average ratio of price to tangible book value per share was 193.7%, (vi)
the average ratio of tangible equity as a percentage of tangible assets was
8.27%, (vii) the average return on average assets was 1.20%, (viii) the average
return on average equity was 13.6%, (ix) the average ratio of non-performing
assets as a percentage of total assets was 0.69%, and (x) the average ratio of
loan loss reserves as a percentage of non-performing assets was 278.8%.
The AACC Selected Post-Merger Thrift Peer Group consisted of: PFF Bancorp,
Inc., Pomona, CA; Standard Financial, Inc., Chicago, IL; America First Financial
Fund, San Francisco, CA; Bankers Corp., Perth Amboy, NJ; BankAtlantic Bancorp,
Inc., Fort Lauderdale, FL; CENFED Financial Corp., Pasadena, CA; First Republic
Bancorp, San Francisco, CA; Commonwealth Bancorp, Inc., Valley Forge, PA;
Northwest Savings Bank, MHC, Warren, PA; ML Bancorp, Inc., Villanova, PA;
Reliance Bancorp, Inc., Garden City, NY; Anchor BanCorp Wisconsin, Madison, WI;
InterWest Bancorp, Inc., Oak Harbor, WA; Haven Bancorp, Inc., Woodhaven, NY;
Harris Savings Bank, MHC, Harrisburg, PA; Sterling Financial Corp., Spokane, WA;
JSB Financial, Inc., Lynbrook, NY; First Financial Holdings Inc., Charleston,
SC; CFX Corporation, Keene, NH; and First Colorado Bancorp, Inc., Lakewood, CO.
The analysis of the AACC Selected Post-Merger Thrift Peer Group indicated,
among other things, that based on the market prices as of November 7, 1996 and
financial data as of June 30, 1996 or September 30, 1996, (i) the average
multiple of price to respective last twelve months' earnings was 14.8, (ii) the
average multiple of price to 1996 estimated earnings was 12.4 (based on a
published consensus market estimate), (iii) the average multiple of price to
1997 estimated earnings was 11.2 (based on a published consensus market
estimate), (iv) the average ratio of price to book value per share was 128.0%,
(v) the average ratio of price to tangible book value per share was 137.5%, (vi)
the average ratio of tangible equity as a percentage of tangible assets was
7.51%, (vii) the average return on average assets was 0.70%, (viii) the average
return on average equity was 8.1%, (ix) the average ratio of non-performing
assets as a percentage of total assets was 0.95%, and (x) the average ratio of
loan loss reserves as a percentage of non-performing assets was 150.8%.
IFC MERGER--COMPARABLE TRANSACTIONS ANALYSIS. ABN AMRO Chicago Corporation
reviewed and compared actual information for comparable pending or closed
transactions it deemed pertinent to the IFC Merger, including: (i) twenty
midwestern thrift transactions with sellers' assets between $500 million and
$1.5 billion (the "AACC Selected Thrift Transactions"); and (ii) thirteen
merger-of-equals transactions involving banks and/or thrifts with assets between
$100 million and $5.0 billion (the "AACC Selected Merger-of-Equals").
The AACC Selected Thrift Transactions were (note: selling company is in
italics): Mutual Savings Bank, Milwaukee, WI/FIRST FEDERAL BANCSHARES, EAU
CLAIRE, WI; MAF Bancorp, Clarendon Hills, IL/N.S. BANCORP, Chicago, IL;
Commercial Federal, Omaha, NE/RAILROAD FINANCIAL, WICHITA, KS; CNB Bancshares
Inc., Evansville, IN/UFBANCORP INC., EVANSVILLE, IN; Fifth Third Bancorp,
Cincinnati, OH/FALLS FINANCIAL INC., CUYAHOGA FALLS, OH; NBD Bancorp, Detroit,
Ml/DEERBANK CORP, DEERFIELD, IL; Firstar Corp, Milwaukee, WI/INVESTORS BANK
CORP, WAYZATA, MN; FirstMerit Corp, Akron, OH/CIVISTA CORPORATION, CANTON, OH;
NBD Bancorp, Detroit, MI/AMERIFED FINANCIAL CORP, JOLIET, IL; First Banks, Inc.,
Creve Coeur, MO/ RIVER VALLEY FSB, PEORIA, IL; Fifth Third Bancorp, Cincinnati,
OH/CUMBERLAND FEDERAL, LOUISVILLE, KY; Roosevelt Financial, Chesterfield,
MO/HOME FEDERAL BANCORP OF MO, ST. LOUIS, MO; Mercantile Bancorp,
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St. Louis, MO/UNITED POSTAL BANCORP, ST. LOUIS, MO; Huntington Bancshares,
Columbus, OH/ RAILROADMEN'S FS&LA, INDIANAPOLIS, IN; Standard Federal Bank,
Troy, MI/HERITAGE BANKCORP, TAYLOR, MI; PNC Bank Corp, Pittsburgh, PA/GATEWAY
FED CORP, CINCINNATI, OH; Metropolitan Financial, Minneapolis, MN/WESTERN
FINANCIAL, OVERLAND PARK, KS; TCF Financial Corp, Minneapolis, MN/REPUBLIC
CAPITAL GROUP, MILWAUKEE, WI; Charter One Financial, Cleveland, OH/WOMEN'S
FEDERAL SB, CLEVELAND, OH; and First Financial Corp, Stevens Point, WI/UNITED
FEDERAL BANK, GALESBURG, IL.
The analysis of the AACC Selected Thrift Transactions indicated, among other
things, that based on the announced transaction value, (i) the average multiple
of deal price to respective last twelve months' earnings was 13.7, (ii) the
average ratio of deal price to book value per share was 154.4%, (iii) the
average ratio of deal price to tangible book value per share was 164.2%, and
(iv) the average tangible book premium as a percentage of core deposits was
6.86%. For the IFC Merger, the multiple of transaction value to last twelve
months earnings was 17.3, the ratio of transaction value to book value was
166.0%, the ratio of transaction value to tangible book value was 177.9%, and
the tangible book premium as a percentage of core deposits was 8.25%.
The AACC Selected Merger-of-Equals were: Hinsdale Financial Corp, Hinsdale,
IL/Liberty Bancorp, Chicago, IL; United Security Bancshares, Thomasville,
AL/First Bancshares, Grove Hill, AL; Mid-Peninsula Bancorp, Palo Alto, CA/
Cupertino National Bancorp, Cupertino, CA; Northern IL Financial, Wauconda,
IL/Premier Financial Services, Freeport, IL; Home Interstate Bancorp, Signal
Hill, CA/CU Bancorp, Encino, CA; Republic Bancorp., Philadelphia, PA/ExecuFirst
Bancorp, Philadelphia, PA; National Bankshares, Blacksburg, VA/Bank of Tazewell
County, Tazewell, VA; National Commerce Corp, Birmingham, AL/Alabama National,
Shoal Creek, AL; New England Commercial Bancorp, Windsor, CT/ Equity Bank,
Wethersfield, CT; Main Street Community, Waltham, MA/Lexington Savings Bank,
Lexington, MA; Commercial Bancorp, Salem, OR/West Coast Bancorp, Newport, OR;
Community Bancorp, Rhinebeck, NY/Fishkill National, Beacon, NY; and Triangle
Bancorp, Raleigh, NC/New East Bancorp, Raleigh, NC.
The analysis of the AACC Selected Merger-of-Equals indicated, among other
things, that based on the announced transaction value (note: deal pricing
assumes the "seller" to be the merger partner listed second in each transaction
above), (i) the average multiple of deal price to respective last twelve months'
earnings was 12.2, (ii) the average ratio of deal price to book value per share
was 125.7%, (iii) the average ratio of deal price to tangible book value per
share was 139.5%; and (iv) the average tangible book premium as a percentage of
core deposits was 4.46%. For the IFC Merger, the multiple of transaction value
to last twelve months earnings was 17.3, the ratio of transaction value to book
value was 166.0%, the ratio of transaction value to tangible book value was
177.9%, and the tangible book premium as a percentage of core deposits was
8.25%.
IFC MERGER--CONTRIBUTION ANALYSIS. ABN AMRO Chicago Corporation analyzed
the contribution of each of Pinnacle and IFC to, among other things, the pro
forma assets, common equity and tangible common equity of the combined entity as
of September 30, 1996. This analysis showed, among other things, that Pinnacle
would have contributed 55.7%, 51.3% and 47.8% of the pro forma assets, common
equity and tangible common equity, respectively, of the combined entity at
September 30, 1996. Similarly, ABN AMRO Chicago Corporation analyzed the
contribution to pro forma net income for the projected years ending December 31,
1996, 1997 and 1998, which showed that Pinnacle would have contributed, for such
periods, 59.1%, 60.1%, and 57.2%, respectively to the net income of the combined
entity. Based upon the IFC Exchange Ratio set forth in the IFC Merger Agreement,
and assuming the CB Merger is not consummated, the holders of Pinnacle Common
Stock will then own approximately 55.4% of the outstanding common stock of the
combined entity upon completion of the IFC Merger.
IFC MERGER--ACCRETION/DILUTION ANALYSIS. On the basis of the range of
projections prepared by the respective managements of Pinnacle and IFC, for the
calendar years 1997, 1998, 1999, 2000, 2001 and the range of projected net cost
savings, revenue enhancements and synergy benefits provided to ABN AMRO
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Chicago Corporation, ABN AMRO Chicago Corporation compared pro forma net income,
book value and tangible book value for the combined entity to the stand-alone
projections for Pinnacle. This analysis assumed synergistic after-tax cost
savings for the calendar years 1997, 1998, 1999, 2000, 2001 and transaction
expenses, which are assumed to be incurred in 1997, in accordance with the range
of projections provided to ABN AMRO Chicago Corporation.
The accretion/dilution analysis showed, among other things, that the IFC
Merger would result in a projected earnings dilution of 16.7% in 1997 for
holders of Pinnacle Common Stock, after accounting for one-time expenses related
to the transaction, and earnings accretion of 2.0%, 1.6%, 1.3% 0.9%, in calendar
years 1998, 1999, 2000, 2001 respectively. The analysis also showed that the IFC
Merger would result in accretion to book value ranging from 3.4% to 8.0%, and
accretion to tangible book value ranging from 5.5% to 14.1%.
IFC MERGER--DISCOUNTED CASH FLOW ANALYSIS. ABN AMRO Chicago Corporation
performed discounted cash flow analyses with regard to Pinnacle on a stand-alone
basis and with regard to the combined entity, using the earnings and cost
savings projections provided by Pinnacle and IFC. ABN AMRO Chicago Corporation
utilized a range of discount rates between 12.5% and 17.5% as well as a range of
terminal multiples applied to calendar year 2001 projected earnings of $3.06 and
$3.09 on a stand-alone basis and a pro forma basis, respectively. The discount
rates were selected by ABN AMRO Chicago Corporation as reasonable estimates of
the cost of capital to Pinnacle and of the combined entity. The selected
terminal rates reflect the range of price-to-earnings multiples paid in similar
merger transactions. The analyses resulted in ranges of present values between
$20.94 and $32.49 per share on a stand-alone basis and in ranges of present
values between $21.06 and $32.70 per share on a pro forma combined basis.
IFC MERGER--OTHER ANALYSES. ABN AMRO Chicago Corporation also reviewed
certain other information regarding selected pro forma industry rankings, the
institutional and inside ownership of Pinnacle Common Stock and IFC Common Stock
and the historical performance, trading volume and other relevant market
information of Pinnacle Common Stock and IFC Common Stock.
No other company used as a comparison in the above analyses is identical to
Pinnacle, IFC or the combined entity; and no other transaction is identical to
the IFC Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial market and operating characteristics of the
companies and other factors that could affect the public trading volume of the
companies to which Pinnacle, IFC and the combined entity are being compared.
For its financial advisory services provided to Pinnacle, upon closing of
the IFC Merger, ABN AMRO Chicago Corporation will be paid a fee of $500,000. In
addition, Pinnacle has agreed to reimburse ABN AMRO Chicago Corporation for all
reasonable out-of-pocket expenses, not to exceed $10,000, incurred by it on
Pinnacle's behalf, as well as indemnify ABN AMRO Chicago Corporation against
certain liabilities, including any which may arise under the federal securities
laws.
ABN AMRO Chicago Corporation is a member of all principal securities
exchanges in the United States; and in its conduct of its broker-dealer
activities has from time to time purchased securities from, and sold securities
to, Pinnacle and/or IFC. As a market maker, ABN AMRO Chicago Corporation had
also purchased and sold the securities of Pinnacle and/or IFC for ABN AMRO
Chicago Corporation's own account and for the accounts of its customers. Two
affiliates of ABN AMRO Chicago Corporation manage limited partnerships which
invest in publicly-traded securities of banking institutions. Additionally, ABN
AMRO Chicago Corporation manages two group trusts which invest in
publicly-traded securities of banking institutions. Together, these investment
pools, known as The Banc Funds, have reported ownership of 41,100 shares of
Pinnacle Common Stock and 37,515 shares of IFC Common Stock.
CB MERGER--GENERAL. Pursuant to an engagement letter dated July 29, 1996,
as amended March 24, 1997, between Pinnacle and PL Capital, LLC, Pinnacle
retained PL Capital, LLC to act as its sole financial
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advisor in connection with the CB Merger and related matters. As part of its
engagement, PL Capital, LLC agreed, if requested by Pinnacle, to render an
opinion with respect to the fairness from a financial point of view to Pinnacle
stockholders of the consideration to be paid by Pinnacle in the CB Merger. PL
Capital, LLC is a recognized specialist in the financial services industry in
general and in midwestern banks and thrifts in particular. PL Capital, LLC is
regularly engaged in evaluations of similar businesses and in advising
institutions with regard to mergers and acquisitions. Pinnacle selected PL
Capital, LLC as its financial advisor based upon its qualifications, expertise
and reputation in such capacity, as well as PL Capital, LLC's existing
relationship and familiarity with Pinnacle.
At the February 27, 1997 meeting of the Pinnacle Board, PL Capital, LLC
delivered its oral opinion that the consideration to be paid by Pinnacle in the
CB Merger (the amount of which was determined by Pinnacle and CB on the basis of
arm's-length negotiations between Pinnacle and CB) was fair to Pinnacle
stockholders from a financial point of view. PL Capital, LLC subsequently
delivered to the Pinnacle Board a written opinion dated as of the date of this
Joint Proxy Statement/Prospectus confirming its oral opinion. No limitations
were imposed by Pinnacle on PL Capital, LLC with respect to the investigations
made or the procedures followed in rendering its opinion.
THE FULL TEXT OF PL CAPITAL, LLC'S WRITTEN OPINION TO THE PINNACLE BOARD,
DATED AS OF THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS OF REVIEW BY PL
CAPITAL, LLC, IS ATTACHED HERETO AS ANNEX G AND IS INCORPORATED HEREIN BY
REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONJUNCTION WITH
THIS JOINT PROXY STATEMENT/PROSPECTUS. THE FOLLOWING SUMMARY OF PL CAPITAL,
LLC'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION. PL CAPITAL, LLC'S OPINION IS ADDRESSED TO THE PINNACLE BOARD AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF PINNACLE OR IFC OR CB AS
TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE PINNACLE ANNUAL MEETING, THE IFC
ANNUAL MEETING OR THE CB SPECIAL MEETING.
In connection with its opinion, PL Capital, LLC has, among other things: (i)
reviewed the CB Merger Agreement and this Joint Proxy Statement/Prospectus; (ii)
reviewed certain historical business and financial information relating to
Pinnacle and CB; (iii) reviewed other pertinent internally-generated reports
with regard to the separate businesses and prospects of Pinnacle and CB
including, among other things, the strategic objectives of each corporation and
the potential benefits which might be realized through consummation of the CB
Merger; (iv) participated in senior management discussions of Pinnacle and CB
with regard to said strategic objectives which might be realized through
consummation of the CB Merger; (v) reviewed public information regarding other
selected comparable publicly-traded companies deemed relevant to the proposed
business combination; (vi) reviewed the financial terms and data of selected
comparable business combinations between banks, thrifts and bank and thrift
holding companies deemed relevant to the proposed business combination; (vii)
reviewed the historical market performance and trading volume of Pinnacle Common
Stock and CB Common Stock; (viii) reviewed certain information pertaining to
prospective cost savings and/or revenue enhancements relative to the proposed
business combination; (ix) considered, based upon information provided by
Pinnacle and CB, the pro forma effects of the CB Merger on Pinnacle's capital
ratios and projected earnings, book value per share, and tangible book value per
share; and (x) conducted such other financial studies, analyses and
investigations as PL Capital, LLC deemed appropriate. The oral and written
opinions provided by PL Capital, LLC to Pinnacle were necessarily based upon
economic, monetary, financial market and other relevant conditions as of the
dates thereof.
In connection with its review and arriving at its opinion, PL Capital, LLC
relied upon the accuracy and completeness of the financial information and other
pertinent information provided by Pinnacle and CB to PL Capital, LLC for
purposes of rendering its opinion. PL Capital, LLC did not assume any obligation
to independently verify any of the provided information as being complete and
accurate in all material respects. With regard to the financial forecasts
established and developed for Pinnacle and CB and provided to PL Capital, LLC by
the respective managements, as well as projections of cost savings, revenue
enhancements and operating synergies, PL Capital, LLC assumed that these
materials had been reasonably
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prepared on bases reflecting the best available estimates and judgments of
Pinnacle and CB as to the future performance of the separate and combined
entities and that the projections provided a reasonable basis upon which PL
Capital, LLC could form its opinion. Neither Pinnacle nor CB publicly discloses
such internal management projections of the type provided to PL Capital, LLC in
connection with PL Capital, LLC's role as financial advisor to Pinnacle in
review of the CB Merger. Therefore, such projections cannot be assumed to have
been prepared with a view towards public disclosure. The projections were based
upon numerous variables and assumptions that are inherently uncertain,
including, but notwithstanding, factors relative to the general economic and
competitive conditions facing Pinnacle and CB. Accordingly, actual results could
vary significantly from those set forth in the respective projections.
PL Capital, LLC did not make an independent evaluation of loan portfolios of
Pinnacle or CB or the allowance for loan losses with respect thereto and
therefore assumes that such allowances for Pinnacle and CB are adequate to cover
such losses. In addition, PL Capital, LLC does not assume responsibility for the
review of individual credit files nor make an independent evaluation, appraisal
or physical inspection of the assets or individual properties of Pinnacle or CB,
nor was PL Capital, LLC provided with such appraisals. Furthermore, PL Capital,
LLC assumes that the CB Merger will be consummated in accordance with the terms
set forth in the CB Merger Agreement, without any waiver of any material terms
or conditions by Pinnacle and that obtaining the necessary regulatory approvals
for the CB Merger will not have an adverse effect on either separate institution
or the combined entity. Moreover, in each analysis that involves per share data
for Pinnacle or the combined entity, PL Capital, LLC adjusted the data to
reflect full dilution, i.e. the exercise of all outstanding options and/or
warrants. In particular, PL Capital, LLC assumes that the CB Merger will be
recorded as a "pooling-of-interests" in accordance with generally accepted
accounting and regulatory principles.
In connection with rendering its opinion to the Pinnacle Board, PL Capital,
LLC performed a variety of financial and comparative analyses which are briefly
summarized below. Such summary of analyses does not purport to be a complete
description of the analyses performed by PL Capital, LLC. Moreover, PL Capital,
LLC believes that these analyses must be considered as a whole and that
selecting portions of such analyses and the factors considered by it, without
considering all such analyses and factors, could create an incomplete scope of
the process underlying the analyses and, more importantly, the opinion derived
from them. The preparation of a financial advisor's opinion is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analyses or a summary description of such analyses. In its full analysis, PL
Capital, LLC also accounted for the assessment of general economic, financial
market and other financial conditions. Furthermore, PL Capital, LLC drew from
its past experience in similar transactions, as well as its experience in the
valuation of securities and its knowledge of the banking industry on a whole.
Any estimates contained in PL Capital, LLC's analyses were not necessarily
indicative of future results or values which may significantly diverge more or
less favorably from such estimates. Estimates of company valuations do not
purport to be appraisals or necessarily reflect the prices at which companies or
their respective securities actually may be sold. Most notably, none of the
analyses performed by PL Capital, LLC were assigned a greater significance by PL
Capital, LLC than any other in deriving its opinion.
The analyses performed by PL Capital, LLC in rendering its opinion are
briefly described below.
CB MERGER--COMPARABLE TRANSACTIONS ANALYSIS. PL Capital, LLC reviewed and
compared actual information for comparable pending or closed transactions it
deemed pertinent to the CB Merger, including midwestern thrift transactions with
sellers' assets between $200 million and $1.5 billion (the "PLC Selected Thrift
Transactions").
The PLC Selected Thrift Transactions consisted of (note: selling company is
in italics): Mutual Savings Bank, Milwaukee, WI/FIRST FEDERAL BANCSHARES, EAU
CLAIRE, WI; MAF Bancorp, Clarendon Hills, IL/N.S. BANCORP, Chicago, IL;
Commercial Federal, Omaha, NE/RAILROAD FINANCIAL, WICHITA, KS; CNB Bancshares
Inc., Evansville, IN/UFBANCORP INC., EVANSVILLE, IN; Fifth Third Bancorp,
Cincinnati, OH/FALLS FINANCIAL
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INC., CUYAHOGA FALLS, OH; NBD Bancorp, Detroit, Ml/DEERBANK CORP, DEERFIELD, IL;
Firstar Corp, Milwaukee, WI/INVESTORS BANK CORP, WAYZATA, MN; FirstMerit Corp,
Akron, OH/CIVISTA CORPORATION, CANTON, OH; NBD Bancorp, Detroit, MI/AMERIFED
FINANCIAL CORP, JOLIET, IL; First Banks, Inc., Creve Coeur, MO/ RIVER VALLEY
FSB, PEORIA, IL; Fifth Third Bancorp, Cincinnati, OH/CUMBERLAND FEDERAL,
LOUISVILLE, KY; Roosevelt Financial, Chesterfield, MO/HOME FEDERAL BANCORP OF
MO, ST. LOUIS, MO; Mercantile Bancorp, St. Louis, MO/UNITED POSTAL BANCORP, ST.
LOUIS, MO; Huntington Bancshares, Columbus, OH/ RAILROADMEN'S FS&LA,
INDIANAPOLIS, IN; Standard Federal Bank, Troy, MI/HERITAGE BANKCORP, TAYLOR, MI;
PNC Bank Corp, Pittsburgh, PA/GATEWAY FED CORP, CINCINNATI, OH; Metropolitan
Financial, Minneapolis, MN/WESTERN FINANCIAL, OVERLAND PARK, KS; TCF Financial
Corp, Minneapolis, MN/REPUBLIC CAPITAL GROUP, MILWAUKEE, WI; Charter One
Financial, Cleveland, OH/WOMEN'S FEDERAL SB, CLEVELAND, OH; and First Financial
Corp, Stevens Point, WI/UNITED FEDERAL BANK, GALESBURG, IL.
The analysis of the PLC Selected Thrift Transactions indicated, among other
things, that based on the announced transaction value, (i) the median multiple
of deal price to respective last twelve months' earnings was 20.7, (ii) the
median ratio of deal price to book value per share was 1.16%, and (iii) the
average tangible book premium as a percentage of core deposits was 6.10%. For
the CB Merger, the multiple of transaction value to last twelve months earnings
was 19.5 and the ratio of transaction value to book value was 203%.
CB MERGER--ACCRETION/DILUTION ANALYSIS. On the basis of the range of
projections prepared by the respective managements of Pinnacle and CB and the
range of projected net cost savings, revenue enhancements and synergy benefits
provided to it, PL Capital, LLC compared pro forma net income, book value and
tangible book value for the combined entity to the stand-alone projections for
Pinnacle. This analysis assumed synergistic after-tax cost savings and
transaction expenses, which are assumed to occur in 1997, in accordance with the
range of projections provided to PL Capital, LLC.
The accretion/dilution analysis showed, among other things, that the CB
Merger would result in a projected earnings accretion of approximately 1% in
1997 for holders of Pinnacle Common Stock, after accounting for one-time
expenses related to the transaction. The analysis also showed the CB Merger
would result in accretion to Pinnacle's tangible book value as of December 31,
1997 of approximately 4%.
CB MERGER--OTHER ANALYSES. PL Capital, LLC also reviewed certain other
information regarding selected pro forma industry rankings, the institutional
and inside ownership of Pinnacle Common Stock and CB Common Stock and the
historical performance, trading volume and other relevant market information of
Pinnacle Common Stock and CB Common Stock.
No other company used as a comparison in the above analyses is identical to
Pinnacle, CB or the combined entity; and no other transaction is identical to
the CB Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial market and operating characteristics of the
companies and other factors that could affect the public trading volume of the
companies to which Pinnacle, CB and the combined entity are being compared.
For its financial advisory services provided to Pinnacle, upon closing of
the CB Merger, PL Capital, LLC will be paid a fee of $275,000. In addition,
Pinnacle has agreed to pay PL Capital, LLC a fee of $20,000 for rendering its
fairness opinion, to reimburse PL Capital, LLC for all reasonable out-of-pocket
expenses, estimated to be $10,000, incurred by it on Pinnacle's behalf, and to
indemnify PL Capital, LLC against certain liabilities, including any which may
arise under the federal securities laws.
OPINION OF IFC FINANCIAL ADVISOR
GENERAL. Pursuant to a letter agreement dated as of November 13, 1996 (the
"Sandler O'Neill Agreement"), IFC retained Sandler O'Neill as an independent
financial advisor in connection with strategic planning and merger and
acquisition transactions. Sandler O'Neill is a nationally recognized
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investment banking firm whose principal business specialty is banks and savings
institutions and, in that connection, is regularly engaged in the valuation of
such businesses and their securities in connection with mergers and acquisitions
and other corporate transactions.
Pursuant to the terms of the Sandler O'Neill Agreement, Sandler O'Neill
acted as financial advisor to IFC in connection with the IFC Merger. In
connection therewith, at the November 14, 1996 meeting at which the IFC Board
approved and adopted the Original IFC Merger Agreement, Sandler O'Neill
delivered a written opinion to the IFC Board that, as of November 14, 1996, the
consideration to be received by the holders of shares of IFC Common Stock
pursuant to the IFC Merger Agreement (the amount of which was determined by
Pinnacle and IFC on the basis of arm's-length negotiations between Pinnacle and
IFC) was fair, from a financial point of view, to such stockholders. Sandler
O'Neill has also delivered a written opinion (the "Sandler O'Neill Fairness
Opinion"), dated as of the date of this Joint Proxy Statement/Prospectus which
is substantially similar to its November 14, 1996 opinion. THE FULL TEXT OF THE
SANDLER O'NEILL FAIRNESS OPINION, WHICH SETS FORTH THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX H TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF
SUCH OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SAID
ANNEX H. HOLDERS OF IFC COMMON STOCK ARE URGED TO READ THE SANDLER O'NEILL
FAIRNESS OPINION IN ITS ENTIRETY IN CONNECTION WITH THEIR CONSIDERATION OF THE
PROPOSED IFC MERGER. THE SANDLER O'NEILL FAIRNESS OPINION SHOULD NOT BE
CONSTRUED BY THE HOLDERS OF SHARES OF IFC COMMON STOCK OR PINNACLE COMMON STOCK
OR CB COMMON STOCK AS A RECOMMENDATION AS TO HOW THEY SHOULD VOTE AT THE IFC
ANNUAL MEETING OR THE PINNACLE ANNUAL MEETING OR THE CB SPECIAL MEETING.
In connection with rendering its opinion dated November 14, 1996, Sandler
O'Neill performed a variety of financial analyses. The following is a summary of
such analyses, but does not purport to be a complete description of Sandler
O'Neill's analysis. The preparation of a fairness opinion is a complex process
involving subjective judgments and is not necessarily susceptible to a partial
analysis or summary description. Sandler O'Neill believes that its analyses 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 the Sandler
O'Neill Fairness Opinion. In performing its analyses, Sandler O'Neill made
numerous assumptions with respect to industry performance, business and economic
conditions and various other matters, many of which cannot be predicted and are
beyond the control of Pinnacle, IFC and Sandler O'Neill. Any estimates contained
in Sandler O'Neill's analyses are not necessarily indicative of future results
or values, which may be significantly more or less favorable than such
estimates. Estimates on the values of companies do not purport to be appraisals
or necessarily reflect the prices at which companies or their securities may
actually be sold. Such estimates are inherently subject to uncertainty and,
accordingly, none of IFC, Pinnacle or Sandler O'Neill assumes responsibility for
their accuracy.
STOCK TRADING HISTORY. Sandler O'Neill examined the history of the trading
prices and the volume of IFC Common Stock and Pinnacle Common Stock, and the
relationship between the movements in the prices of the IFC and the Pinnacle
Common Stock, respectively, to movements in certain stock indices, including the
Standard & Poor's 500 Index, the Nasdaq Banking Index and a composite group of
publicly traded savings institutions (in the case of IFC) and publicly traded
commercial banks (in the case of Pinnacle) in geographic proximity and of
similar asset size.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. In preparing its
presentation, Sandler O'Neill used publicly available information to compare
selected financial and market trading information, including book value,
tangible book value, earnings, asset quality ratios, loan loss reserve levels,
profitability and capital adequacy, of IFC and two different groups of selected
savings institutions. The first group consisted of the following 14
publicly-traded savings institutions (the "Regional Thrift Group") which operate
in the same general geographic region as IFC and are of comparable size: First
Indiana Corporation, D & N Financial Corporation, FirstFederal Financial Svcs,
CFSB Bancorp, Inc., Ottawa Financial Corporation,
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Mutual Savings Bank, FSB, Home Federal Bancorp, FirstFed Bancshares, FFY
Financial Corp., Avondale Financial Corp., Security First Corp., Strongsville
Savings Bank, First Defiance Financial, and Calumet Bancorp, Inc. Sandler
O'Neill also compared IFC to a group of 10 publicly-traded savings institutions
of comparable size which were considered to be highly-valued (the "Highly-Valued
Group") by investors. The Highly-Valued Group was comprised of: InterWest
Bancorp., Inc., Eagle Financial Corp., American Federal Bank, FSB, WSFS
Financial Corporation, Magna Bancorp, Inc., Dime Financial Corp., Great Southern
Bancorp, Inc., Coastal Financial Corp., Glacier Bancorp, Inc., and PVF Capital
Corp. The analysis compared publicly available period-end financial information
as of and for the periods ended December 31, 1991 through June 30, 1996. The
following comparisons are based upon the June 30, 1996 financial information.
The data described below with respect to the Regional Thrift Group and the
Highly-Valued Group consists of the median data for such groups.
The total assets of IFC were approximately $750 million, compared to $630
million for the Regional Thrift Group and approximately $1.0 billion for the
Highly-Valued Group. The annual growth rate of assets for IFC was positive
2.10%, compared to a positive growth rate of approximately 7% for the Regional
Thrift Group and approximately 9% for the Highly-Valued Group. The total equity
of IFC was approximately $70 millon, compared to approximately $70 million for
the Regional Thrift Group and approximately $71 million for the Highly-Valued
Group. The tangible equity to total assets ratio was 8.82% for IFC, compared to
8.20% for the Regional Thrift Group and 6.97% for the Highly-Valued Group. The
net loans to assets ratio for IFC was approximately 75%, compared to
approximately 76% for the Regional Thrift Group and approximately 64% for the
Highly-Valued Group. The cash and securities to total assets ratio was
approximately 19% for IFC, compared to approximately 20% for the Regional Thrift
Group and approximately 30% for the Highly-Valued Group. Total deposits were
approximately $564 million for IFC, compared to approximately $475 million for
the Regional Thrift Group and approximately $655 million for the Highly-Valued
Group. IFC had a gross loans to total deposits ratio of approximately 99%,
compared to approximately 104% for the Regional Thrift Group and approximately
101% for the Highly-Valued Group. The total borrowings to total asset ratio for
IFC was approximately 14%, compared to approximately 14% for the Regional Thrift
Group and approximately 24% for the Highly-Valued Group. The ratio of non-
performing loans to total assets for IFC was 0.69%, compared to 0.24% for the
Regional Thrift Group and .77% for the Highly-Valued Group. The ratio of
non-performing assets to total assets for IFC was 1.26%, compared to 0.31% for
the Regional Thrift Group and 0.82% for the Highly-Valued Group. The ratio of
loan loss reserves to non-performing loans for IFC was 131.40%, compared to
approximately 262.5% for the Regional Thrift Group and approximately 153.0% for
the Highly-Valued Group. The net interest margin of IFC was 3.76%, compared to
3.58% for the Regional Thrift Group and 3.97% for the Highly-Valued Group. The
ratio of non-interest income to average assets for IFC was 0.62%, compared to
0.54% for the Regional Thrift Group and 1.21% for the Highly-Valued Group. The
ratio of non-interest expense to average assets was 2.87% for IFC, compared to
2.28% for the Regional Thrift Group and 2.53% for the Highly-Valued Group. The
efficiency ratio of IFC was 66.23%, compared to approximately 57% for the
Regional Thrift Group and approximately 55% for the Highly-Valued Group. The
overhead ratio of IFC was 59.23%, compared to approximately 52% for the Regional
Thrift Group and approximately 46% for the Highly-Valued Group. The return on
average assets for IFC was .91%, compared to 0.91% for the Regional Thrift Group
and 1.45% for the Highly-Valued Group. The return on average equity for IFC was
9.37%, compared to approximately 7.8% for the Regional Thrift Group and
approximately 17.4% for the Highly-Valued Group. The price to tangible book
value for IFC was 146.53%, compared to approximately 138% for the Regional
Thrift Group and approximately 200% for the Highly-Valued Group. The price to
earnings per share multiple for IFC was 14.89x, compared to approximately 15.8x
for the Regional Thrift Group and 12.3x for the Highly-Valued Group.
Sandler O'Neill also used publicly available information to perform a
similar comparison of selected financial and market trading information for
Pinnacle and two different groups of selected banking institutions. The first
group consisted of the following 15 publicly-traded commercial banks (the
"Regional Bank Group") which operate in the same general geographic region: Park
National Corporation, Republic
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Bancorp Inc., First Financial Corporation, Heritage Financial Services, Irwin
Financial Corporation, National City Bancshares, Inc., Second Bancorp, Inc.,
Citizens Bancshares, Pinnacle Banc Group, Inc., Michigan Financial Corporation,
Independent Bank Corporation, Old Second Bancorp, Inc., First Oak Brook
Bancshares, Ambanc Corp., and First Merchants Corp. Sandler O'Neill also
compared Pinnacle to a group of 13 publicly-traded commercial banks of
comparable size which were considered to be highly-valued (the "Highly-Valued
Bank Group") by investors. The Highly-Valued Bank Group was comprised of: Park
National Corporation, National Penn Bancshares, Inc., Texas Regional Bancshares,
Inc., Heritage Financial Services, Irwin Financial Corporation, Westernbank
Puerto Rico, F&M Bancorporation, Inc., CVB Financial Corp., Mississippi Valley
Bancshares, MainStreet Bank Group, Inc., Citizens Bancshares, Independent Bank
Corporation, and Arrow Financial Corporation. The analysis compared publicly
available period-end financial information as of and for the periods ending
December 31, 1991 through June 30, 1996. The following comparisons are based
upon the June 30, 1996 financial information. The data described below with
respect to the Regional Bank Group and the Highly-Valued Bank Group consists of
the median data for such groups.
The total assets of Pinnacle were approximately $970 million, compared to
$850 million for the Regional Bank Group and $1.1 billion for the Highly-Valued
Bank Group. The annual growth rate of assets for Pinnacle was positive 122%,
compared to a positive growth rate of approximately 9% for the Regional Bank
Group and approximately 18% for the Highly-Valued Bank Group. The total equity
of Pinnacle was approximately $72 million, compared to approximately $80 millon
for the Regional Bank Group and approximately $80 million for the Highly-Valued
Bank Group. The tangible equity to total assets ratio was 5.88% for Pinnacle,
compared to approximately 8.9% for the Regional Bank Group and approximately
7.7% for the Highly-Valued Bank Group. The net loans to total assets ratio for
Pinnacle was approximately 53.61%, compared to approximately 58.4% for the
Regional Bank Group and approximately 63.4% for the Highly-Valued Bank Group.
The cash and securities to total assets ratio was approximately 38% for
Pinnacle, compared to approximately 33% for the Regional Bank Group and
approximately 32% for the Highly-Valued Bank Group. Total deposits were
approximately $740 million for Pinnacle, compared to approximately $680 million
for the Regional Bank Group and approximately $895 million for the Highly-Valued
Bank Group. Pinnacle had a gross loans to total deposits ratio of approximately
71%, compared to approximately 76% for the Regional Bank Group and approximately
82% for the Highly-Valued Bank Group. The total borrowings to total assets ratio
for Pinnacle was approximately 16%, compared to approximately 10% for the
Regional Bank Group and approximately 7% for the Highly-Valued Bank Group. The
total non-performing loans to total assets ratio for Pinnacle was 0.29%,
compared to 0.32% for the Regional Thrift Group and 0.31% for the Highly-Valued
Bank Group. The non-performing assets to total assets ratio for Pinnacle was
0.41%, compared to 0.39% for the Regional Thrift Group and 0.39% for the
Highly-Valued Bank Group. The ratio of loan loss reserves to non-performing
loans for Pinnacle was 209%, compared to approximately 218% for the Regional
Bank Group and approximately 281% for the Highly-Valued Bank Group. The ratio of
loan loss reserves to non-performing assets for Pinnacle was approximately 145%,
compared to approximately 188% for the Regional Bank Group and approximately
223% for the Highly-Valued Bank Group. The net interest margin of Pinnacle was
3.93%, compared to 4.47% for the Regional Bank Group and 5.10% for the
Highly-Valued Bank Group. The ratio of non-interest income to average assets for
Pinnacle was .76%, compared to .85% for the Regional Bank Group and .83% for the
Highly-Valued Bank Group. The ratio of non-interest expense to average assets
was 2.70% for Pinnacle, compared to 2.87% for the Regional Bank Group and 3.07%
for the Highly-Valued Bank Group. The efficiency ratio of Pinnacle was 57.28%,
compared to approximately 57.4% for the Regional Bank Group and approximately
56.2% for the Highly-Valued Bank Group. The overhead ratio of Pinnacle was
48.46%, compared to approximately 47.9% for the Regional Bank Group and
approximately 48.2% for the Highly-Valued Bank Group. The return on average
assets for Pinnacle was 1.16%, compared to 1.24% for the Regional Bank Group and
1.38% for the Highly-Valued Bank Group. The return on average equity for
Pinnacle was 14.26%, compared to approximately 12.8% for the Regional Bank Group
and approximately 17.5% for the Highly-Valued Bank
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Group. The price to tangible book value for Pinnacle was 229.15%, compared to
approximately 190% for the Regional Bank Group and approximately 216% for the
Highly-Valued Bank Group. The price to earnings per share multiple for Pinnacle
was 13.17x, compared to 12.7x for the Regional Bank Group and 12.4x for the
Highly-Valued Bank Group.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Sandler O'Neill reviewed 44
transactions announced from January 1, 1996 to October 10, 1996 involving public
savings institutions nationwide as targets for transaction values over $15
million ("All Transactions") and 10 transactions announced from January 1, 1996
to September 16, 1996 involving public savings institutions in the Midwest
("Regional Transactions"). Sandler O'Neill reviewed the ratios of price to
earnings, price to book value, price to tangible book value, price to deposits,
price to assets, and deposit premium paid in each such transaction and computed
high, low, mean and median ratios and premiums for the respective groups of
transactions. Based upon the median multiples for All Transactions, Sandler
O'Neill derived an imputed range of values per share of IFC Common Stock of
$19.66 to $25.56. Based upon the median multiples for Regional Transactions,
Sandler O'Neill derived an imputed range of values per share of IFC Common Stock
of $18.97 to $31.75.
In addition, Sandler O'Neill reviewed transactions announced from January 1,
1996 to October 24, 1996 involving public bank institutions nationwide as
targets with transaction values over $15 million ("All Transactions") and 10
transactions announced from January 1, 1996 to October 11, 1996 involving public
bank institutions in the Midwest ("Regional Transactions"). Sandler O'Neill
reviewed the ratios of price to earnings, price to book value, price to tangible
book value, price to deposits, price to assets, and deposit premium paid in each
such transaction and computed high, low, mean, and median ratios and premiums
for the respective groups of transactions. Based upon the median multiples for
All Transactions, Sandler O'Neill derived an imputed range of values per share
of the pro forma Pinnacle Common Stock of $26.87 to $37.13. Based upon the
median multiples for Regional Transactions, Sandler O'Neill derived an imputed
range of values per share of the Pinnacle Common Stock of $24.70 to $37.31.
SUMMARY CONTRIBUTION ANALYSIS. Sandler O'Neill computed the contribution to
the combined entity's September 30, 1996 pro forma financial results
attributable to each of IFC and Pinnacle. The computation showed that IFC and
Pinnacle contributed to the combined company approximately 44.27% and 55.73%,
respectively, of total assets, 43.89% and 56.11%, respectively, of total
liabilities, 48.77% and 51.23%, respectively, of total equity, 52.22% and
47.78%, respectively, of total tangible equity, 40.77% and 59.23%, respectively,
of net income available to common shares (absent of IFC's SAIF assessment), and
45.10% and 54.90% of pro forma ownership of the combined entity (using the IFC
Exchange Ratio of 1.00).
DISCOUNTED DIVIDEND STREAM AND TERMINAL VALUE ANALYSIS. Sandler O'Neill
also performed an analysis which estimated the future stream of after-tax
dividend flows of IFC through the year 2001 under various circumstances,
assuming IFC performed in accordance with the earnings forecasts of its
management and certain variations thereof (including variation with respect to
the growth rate of assets, net interest spread, non-interest income,
non-interest expense and dividend payout ratio). To approximate the terminal
value of IFC Common Stock at the end of the five-year period, Sandler O'Neill
applied price to earnings multiples ranging from 8x to 17x and applied multiples
of book value ranging from 80.0% to 180.0%. The dividend income streams and
terminal values were then discounted to present values using different discount
rates (ranging from 10% to 16.0%) chosen to reflect different assumptions
regarding required rates of return of holders of prospective buyers of IFC
Common Stock. This analysis, assuming the current dividend payout ratio,
indicated an imputed range of values per share of IFC Common Stock between
$13.55 and $31.72 when applying the price to earnings multiples, and an imputed
range of values per share of IFC Common Stock between $11.22 and $26.49 when
applying multiples of book value. In connection with its analysis, Sandler
O'Neill extensively used sensitivity analyses to illustrate the effects changes
in the underlying assumptions would have on the resulting present value, and
discussed these changes with the IFC Board.
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In addition, Sandler O'Neill performed an analysis which estimated the
future stream of after-tax dividend flows of Pinnacle on pro-forma basis,
assuming consummation of the IFC Merger (the "Combined Company") through the
year 2002 under various circumstances, assuming (i) the operations of the
Combined Company attributable to IFC performed in accordance with the earnings
forecasts of IFC's management and certain variations thereof, as described in
the previous paragraph; (ii) the operations of the Combined Company attributable
to Pinnacle performed in accordance with the earnings forecasts of Pinnacle's
management and certain variations thereof (including variation with respect to
the growth rate of assets, net interest spread, non-interest income,
non-interest expense and dividend payout ratio); and (iii) the Combined
Company's realized cost savings equal to 16.82% of IFC's projected non-interest
expenses (other than the expense of deposit insurance). To approximate the
terminal value of the Combined Company's common stock at the end of the
five-year period, Sandler O'Neill applied price to earnings multiples ranging
from 10x to 20x and applied multiples of book value ranging from 100.0% to
200.0%. The dividend income streams and terminal values were then discounted to
present values using different discount rates (ranging from 9.0% to 13.5%)
chosen to reflect different assumptions regarding required rates of return of
holders of prospective buyers of the Combined Company's common stock. This
analysis, assuming the current dividend payout ratio, indicated an imputed range
of values of the one (1) share of Pinnacle Common Stock to be received in the
IFC Merger for each share of IFC Common Stock of between $23.58 and $51.49 when
applying the price to earnings multiples, and an imputed range of values of the
shares of Pinnacle Common Stock to be received in the IFC Merger for each share
of IFC Common Stock of between $16.59 and $34.38 when applying multiples of book
value. In connection with its analysis, Sandler O'Neill extensively used
sensitivity analyses to illustrate the effects changes in the underlying
assumptions would have on the resulting present value, and discussed these
changes with the IFC Board.
In connection with rendering the Sandler O'Neill Fairness Opinion, Sandler
O'Neill confirmed the appropriateness of its reliance on the analysis used to
render its November 14, 1996 opinion by performing procedures to update certain
of such analyses and by reviewing the assumptions upon which they were based and
the factors considered in connection therewith. Sandler O'Neill also reviewed,
among other things: (i) the IFC Merger Agreement and exhibits thereto; (ii) the
Pinnacle/IFC Stock Option Agreements; (iii) a draft of this Joint Proxy
Statement/Prospectus; (iv) Pinnacle's audited consolidated financial statements
and management's discussion and analysis of the condition and results of
operations contained in its annual report to stockholders for the year ended
December 31, 1995; (v) IFC's audited consolidated financial statements and
management's discussion and analysis of the financial condition and results of
operations contained in its annual report to stockholders for the fiscal year
ended December 31, 1995; (vi) Pinnacle's unaudited consolidated financial
statements and management's discussion and analysis of the financial condition
and results of operations contained in its Quarterly Reports on Form 10-Q for
the quarterly periods ended March 31, June 30, and September 30, 1996,
respectively; (vii) IFC's unaudited consolidated financial statements and
management's discussion and analysis of the financial condition and results of
operations contained in its Quarterly Reports on Form 10-Q for the quarterly
periods ended March 31, June 30, and September 30, 1996, respectively; (viii)
certain financial analyses and forecasts of IFC prepared by and reviewed with
management of IFC and the views of senior management of IFC regarding IFC's past
and current business operations, results thereof, financial condition and future
prospect; (ix) certain financial analyses and forecasts of Pinnacle prepared by
and reviewed with management of Pinnacle and the views of senior management of
Pinnacle regarding Pinnacle's past and current business operations, results
thereof, financial conditions and future prospects; (x) the pro forma impact of
the IFC Merger on Pinnacle; (xi) the historical reported price and trading
activity for Pinnacle Common Stock and IFC Common Stock, including a comparison
of certain financial and stock market information for Pinnacle and IFC with
similar information for certain other companies the securities of which are
publicly traded; (xii) the financial terms of recent business combinations in
the savings institution and banking industries; (xiii) the current market
environment generally and the banking environment in particular; and (xiv) such
other information, financial studies, analyses and investigations and financial,
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economic and market criteria as Sandler O'Neill considered relevant. Sandler
O'Neill was not asked to, and did not, solicit indications of interest in a
potential transaction from other third parties.
In performing its review, Sandler O'Neill assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information reviewed by and discussed with it,
and Sandler O'Neill did not make an independent evaluation or appraisal of the
specific assets, the collateral securing assets or the liabilities of Pinnacle
or IFC or any of their subsidiaries, or the collectibility of any such assets
(relying, where relevant, on the analyses and estimates of Pinnacle and IFC).
With respect to the financial projections reviewed with each company's
management, Sandler O'Neill assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
respective managements of the respective future financial performances of
Pinnacle and IFC and that such performances will be achieved. Sandler O'Neill
also assumed that there has been no material change in Pinnacle's or IFC's
assets, financial condition, results of operations, business or prospects since
the date of the last financial statements noted above. Sandler O'Neill assumed
that the IFC Merger will qualify for "pooling-of-interests" accounting treatment
and has further assumed that Pinnacle will remain as a going concern for all
periods relevant to its analyses and that the conditions precedent in the IFC
Merger Agreement are not waived.
Under the Sandler O'Neill Agreement, IFC will pay Sandler O'Neill a
transaction fee in connection with the IFC Merger, a substantial portion of
which is contingent upon the consummation of the IFC Merger. Under the terms of
the Sandler O'Neill Agreement, IFC will pay Sandler O'Neill a transaction fee
equal to $775,000, of which 25% was paid upon execution of the IFC Merger
Agreement and 75% will be paid if the IFC Merger is consummated. IFC has also
paid Sandler O'Neill a fee of $50,000 for rendering the Sandler O'Neill Fairness
Opinion, all of which amount will be credited towards the fee payable to Sandler
O'Neill upon consummation of the IFC Merger. IFC has also agreed to reimburse
Sandler O'Neill for its reasonable out-of-pocket expenses incurred in connection
with its engagement and to indemnify Sandler O'Neill and its affiliates and
their respective partners, directors, officers, employees, agents, and
controlling persons against certain expenses and liabilities, including
liabilities under securities laws.
OPINION OF CB FINANCIAL ADVISOR
Pursuant to an engagement letter dated as of September 12, 1996 (the "Webb
Engagement Letter"), CB retained Webb on an exclusive basis to render financial
advisory and investment banking services to CB in connection with strategic
planning and merger and acquisition transactions.
Webb is a nationally recognized investment banking firm and, as part of its
investment banking business, is continually engaged in the valuation of bank,
bank holding company and thrift institution securities in connection with
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for various other
purposes. As specialists in the securities of banking companies, Webb has
experience in, and knowledge of, the valuation of banking enterprises. Webb was
selected by CB on the basis of its familiarity with CB, its qualifications, its
previous experience in similar transactions and its reputation in the banking
and investment communities. Webb has acted exclusively for the CB Board in
rendering its fairness opinion and will receive a fee from CB for its services.
At the March 1, 1997 special meeting of the CB Board, Webb rendered its
written opinion to the CB Board to the effect that, as of such date, the CB
Exchange Ratio was fair to the stockholders of CB from a financial point of
view. Webb has also delivered a written opinion to the CB Board dated as of the
date of this Joint Proxy Statement/Prospectus to the effect that, as of such
date, the CB Exchange Ratio was fair to the stockholders of CB from a financial
point of view.
THE FULL TEXT OF WEBB'S OPINION IS ATTACHED AS ANNEX I TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF
THE OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ANNEX
I. CB STOCKHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY FOR A
DESCRIPTION OF THE
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PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND
LIMITATIONS ON THE REVIEW UNDERWRITTEN BY WEBB IN CONNECTION THEREWITH. WEBB'S
OPINION IS DIRECTED ONLY TO THE CB EXCHANGE RATIO AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY CB STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT
THE CB SPECIAL MEETING.
In connection with its opinion, Webb reviewed, analyzed and relied upon the
following material relating to the financial and operating condition of CB and
Pinnacle: (i) the CB Merger Agreement; (ii) Annual Reports to Stockholders and
Annual Reports on Form 10-K for the fiscal years ended December 31, 1995 and
December 31, 1994 for Pinnacle and March 31, 1996 and March 31, 1995 for CB;
(iii) certain interim reports to stockholders of CB and Pinnacle and Quarterly
Reports on Form 10-Q of CB and Pinnacle and certain other communications from CB
and Pinnacle to their respective stockholders; (iv) other financial information
concerning the businesses and operations of CB and Pinnacle furnished to Webb by
CB and Pinnacle for the purpose of Webb's analysis, including certain internal
financial analyses and forecasts for CB and Pinnacle prepared by senior
management of CB and Pinnacle; (v) certain publicly available information
concerning the trading of, and the trading market for, the common stock of CB
and Pinnacle; and (vi) certain publicly available information with respect to
banking companies and the nature and terms of certain other transactions that
Webb considered relevant to its inquiry. Additionally, in connection with its
written opinion attached as Annex I to this Joint Proxy Statement/Prospectus,
Webb reviewed a draft of this Joint Proxy Statement/Prospectus in substantially
the form hereof. Webb also held discussions with senior management of CB and
Pinnacle concerning their past and current operations, financial condition and
prospects, as well as the results of regulatory examinations. Webb also
considered such financial and other factors as it deemed appropriate under the
circumstances and took into account its assessment of general economic, market
and financial conditions and its experience in similar transactions, as well as
its experience in securities valuation and its knowledge of banks, bank holding
companies and thrift institutions generally. Webb's opinion was necessarily
based upon conditions as they existed and could be evaluated on the date thereof
and the information made available to Webb through the date thereof.
In conducting its review and arriving at its opinion, Webb relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and Webb did not attempt to
verify such information independently. Webb relied upon the managements of CB
and Pinnacle as to the reasonableness and achievability of the financial and
operating forecasts (and the assumptions and bases therefor) provided to Webb
and assumed that such forecasts reflected the best available estimates and
judgments of such managements and that such forecasts will be realized in the
amounts and in the time periods estimated by such managements. Webb also
assumed, without independent verification, that the aggregate allowances for
loan losses for CB and Pinnacle are adequate to cover such losses. Webb did not
make or obtain any evaluations or appraisals of the property of CB or Pinnacle,
nor did Webb examine any individual loan credit files. Webb was informed by CB,
and assumed for purposes of its opinion, that the CB Merger will be accounted
for as a pooling-of-interests under generally accepted accounting principles.
Prior to rendering the written opinion attached as Annex I to this Joint
Proxy Statement/Prospectus, Webb reviewed with the CB Board on February 4, 1997
certain financial aspects of the proposed CB Merger and rendered a written
opinion as to the fairness of the CB Exchange Ratio to the CB Board on March 1,
1997. Set forth below is a summary of the material factors considered by and
valuation methodologies presented by Webb to the CB Board on February 4, 1997
and March 1, 1997 and utilized by Webb in connection with rendering its opinion
as to the fairness, from a financial point of view, of the CB Exchange Ratio to
CB's stockholders.
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ANALYSIS OF THE PINNACLE OFFER. Webb reviewed certain historical
information for CB and Pinnacle and calculated the imputed value of the Pinnacle
offer to holders of CB Common Stock. Webb calculated the multiple which the CB
Exchange Ratio represents, based on an assumed per share purchase price of
$35.00, when compared to CB's December 31, 1996 stated book value per share of
$17.21, its estimated fully diluted tangible book value per share of $16.16, its
trailing twelve months earnings of $1.76 per share and its trailing twelve
months fully diluted earnings of $1.64 per share. The price to stated book value
multiple was 2.03 times, the price to fully diluted tangible book value multiple
was 2.03 times, and the price to trailing twelve months earnings per share
multiple was 19.48 times and the price to its trailing twelve months fully
diluted multiple was 21.34 times. Webb also described the financial effect of
the feature of the CB Exchange Ratio that generally would enable each share of
CB Bancorp to be exchanged for no more than 1.5217 and no less than 1.2069
shares of Pinnacle Common Stock. Webb also noted that, based on the closing
price of Pinnacle's Common Stock on February 28, 1997 ($27.75 per share) and
assuming that the Average Closing Price was equal to such closing price, the CB
Exchange Ratio under the Pinnacle proposal would be 1.2612 and CB's stockholders
would receive Pinnacle Common Stock with a value (valued at such closing price)
of $35.00.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Webb reviewed certain financial
data related to 16 completed bank holding company and thrift holding company
acquisitions of thrifts. The selected acquisitions included the following
transactions (identified by acquiror/acquiree): Pinnacle Banc Group/Financial
Security; Security Banc Corp./Third Financial; Old National Bancorp./Workingmens
Capital; ISB Financial Corp./Jefferson Bancorp; CFX Corporation/Milford Coop
Bank; Barnett Banks Inc./First Financial-Polk County; United Bankshares/Eagle
Bancorp; First Citizens BancShares/Allied Bank Capital; Roosevelt
Financial/Kirksville Bancshares; FCNB Corp./Laurel Bancorp; Co-op Bank
Concord/Bank of Braintree; First Fed Capital Corp./Rock Financial Corp.; Main
Street Community/Lexington Savings Bank; CitFed Bancorp, Inc./PSB Holdings
Corp.; Great Financial Corp./First Financial Shares; and National City
Bancshares/United Financial Bancorp.
Webb also reviewed certain financial data related to six pending bank
holding company and thrift holding company acquisitions of thrifts. The selected
acquisitions included the following transactions (identified by
acquiror/acquiree): PennFirst Bancorp/Troy Hill Bancorp; Northwest
Savings/Bridgeville Savings; Western Ohio Financial/Seven Hills Financial; ISB
Financial/Jefferson Bancorp; Camco Financial/First Ashland Financial; and
BancSecurity Corp/Marshalltown Financial.
The information in the following table summarizes the material information
analyzed by Webb with respect to the 16 completed and six pending merger
transactions listed above. The summary does not purport to be a complete
description of the analysis performed by Webb and should not be construed
independently of the other information considered by Webb in rendering its
opinion.
<TABLE>
<CAPTION>
CONSIDERATION AS A
CONSIDERATION AS A PERCENT OF TANGIBLE CONSIDERATION AS A
PERCENT OF BOOK VALUE BOOK VALUE MULTIPLE OF EARNINGS(1)
--------------------- ------------------- -----------------------
<S> <C> <C> <C>
Median for Completed Transactions.................. 141.13 141.13 19.17x
Median for Pending Transactions.................... 123.98 123.98 23.22x
Highest Amount for Completed Transactions.......... 190.42 190.42 41.00x
Lowest Amount for Complete Transactions............ 104.17 106.42 10.67x
Highest Amount for Pending Transactions............ 145.02 143.02 33.50x
Lowest Amount for Pending Transactions............. 108.80 108.80 17.83x
Pinnacle Offer..................................... 203.32 203.32 19.48x
</TABLE>
- ------------------------
(1) Earnings were computed for a twelve month period, but not necessarily a
fiscal year basis. Earnings and book values have not been adjusted for the
recapitalization of the SAIF deposit insurance fund.
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No company or transaction used as a comparison in the above analysis is
identical to CB, Pinnacle or the CB Merger. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which they are being compared.
CONTRIBUTION ANALYSIS. Webb analyzed the relative contribution of each of
CB and Pinnacle (including IFC) to certain balance sheet and income statement
items, including assets, deposits, stockholders' equity and estimated earnings.
Webb then compared the relative contribution of such balance sheet and income
statement items, with ownership percentages of between approximately 15.01% and
12.29% for CB stockholders based on a CB Exchange Ratio that could range between
1.5217 and 1.2069. The contribution analysis showed that under the Pinnacle
proposal, CB would contribute approximately 10.65% of the combined assets,
10.53% of the combined deposits, 12.12% of the combined stockholders' equity and
12.95% of the twelve month earnings ended December 31, 1996 of the companies
(before cost savings).
This analysis was based upon varying assumptions concerning earnings growth
rates, dividend rates and exit multiples, which assumptions are themselves based
upon many factors and assumptions many of which are beyond the control of CB and
Pinnacle. As indicated below, this analysis is not necessarily indicative of
actual values or actual future results and does not purport to reflect the
prices at which any security may trade at the present time or any time in the
future.
The summary contained herein provides a summary description of the material
analyses prepared by Webb in connection with the rendering of its opinion. The
summary set forth above does not purport to be a complete description of the
analyses performed by Webb in connection with the rendering of its opinion. The
preparation of a fairness opinion is not necessarily susceptible to partial
analysis or summary description. Webb believes that its analyses and the summary
set forth above must be considered as a whole and that selecting portions of its
analyses without considering all analyses, or selecting part of the above
summary, without considering all factors and analyses, would create an
incomplete view of the processes underlying the analyses set forth in Webb's
presentations and opinion. The ranges of valuations resulting from any
particular analysis described above should not be taken to be Webb's view of the
actual value of CB or Pinnacle. The fact that any specific analysis has been
referred to in the summary above is not meant to indicate that such analysis was
given greater weight than any other analyses.
In performing its analyses, Webb made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of CB and Pinnacle. The analyses
performed by Webb are not necessarily indicative of actual values or actual
future results which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as part of Webb's analysis
of the fairness, from a financial point of view, of the CB Exchange Ratio and
were provided to the CB Board in connection with the delivery of Webb's opinion.
The analyses do not purport to be appraisals or to reflect the prices at which a
company actually might be sold or the prices at which any securities may trade
at the present time or at any time in the future. In addition, as described
above, Webb's opinion, along with its presentation to the CB Board, was just one
of many factors taken into consideration by the CB Board in unanimously
approving the CB Merger Agreement. See "--Recommendation of the Boards of
Directors" and "--Reasons for the Merger" above.
Pursuant to the Webb Engagement Letter, CB has agreed to pay Webb a cash fee
of 1.0% of the total consideration paid to CB's stockholders pursuant to the CB
Merger Agreement which fee will total approximately $430,000. Such fee is
payable as follows: $25,000 was paid upon the signing of the CB Merger
Agreement; $25,000 will be paid upon the mailing of this Joint Proxy
Statement/Prospectus and the remainder is contingent upon and will be paid at
the closing of the CB Merger. CB also has agreed to indemnify Webb against
certain liabilities, including liabilities under the federal securities laws,
and to reimburse Webb for certain out-of-pocket expenses. Webb has also provided
general advisory and
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investment banking services to CB since September 12, 1996 and, pursuant to an
engagement letter dated September 12, 1996, Webb is entitled to be paid an
annual retainer of $25,000. Through the date hereof, Webb has received fees
totalling $35,000 pursuant to such general retainer letter.
CERTAIN FORWARD-LOOKING INFORMATION
This Joint Proxy Statement/Prospectus contains certain forward-looking
information concerning possible or assumed future results of the combined
companies or the benefits of either one or both of the Mergers. Such information
is subject to risks and uncertainties. Pinnacle, IFC and CB have identified
certain important factors in addition to those discussed elsewhere in this Joint
Proxy Statement/Prospectus and in the documents incorporated herein by
reference, which could cause actual results to differ materially from any such
results which might be projected, forecast, estimated or budgeted in forward-
looking information. All of such factors are difficult to predict and many are
beyond the control of Pinnacle, IFC and CB. These important factors include: (i)
future economic conditions in the regional and national markets in which the
companies compete; (ii) financial market conditions, including, but not limited
to, changes in interest rates; (iii) inflation; (iv) changing competition; (v)
the ability to carry out business plans; (vi) the ability to enter new markets
successfully and capitalize on growth opportunities; and (vii) adverse changes
in applicable law, regulations or rules governing financial institutions and
environmental, tax or accounting matters.
SUMMARY OF IFC MERGER AGREEMENT
EFFECTIVE TIME. The IFC Effective Time will be as set forth in Certificates
of Merger which will be filed with the Department of Consumer and Industry
Services of the State of Michigan and the Secretary of State of the State of
Delaware on the closing date with respect to the IFC Merger. The IFC Closing
Date will occur on a date to be specified by the parties which will be no later
than five business days after the satisfaction or waiver (subject to applicable
law) of the latest to occur of the conditions precedent to the IFC Merger set
forth in the IFC Merger Agreement. Pinnacle and IFC each anticipate that the IFC
Merger will be consummated prior to June 30, 1997. However, the consummation of
the IFC Merger could be delayed as a result of delays in obtaining any necessary
regulatory agency or other governmental approvals required for the transactions
contemplated by the IFC Merger Agreement. There can be no assurances as to if or
when such approvals will be obtained or that the IFC Merger will be consummated.
If the IFC Merger is not effected on or before November 14, 1997, the IFC Merger
Agreement may be terminated by either Pinnacle or IFC, unless the failure to
effect the IFC Merger by such date is due to the failure of the party seeking to
terminate the IFC Merger Agreement to perform or observe the covenants and
agreements of such party set forth therein.
CONVERSION OF SHARES. At the IFC Effective Time, each share IFC Common
Stock outstanding, other than shares of IFC Common Stock held in IFC's treasury
or held by IFC or Pinnacle or any of their respective wholly-owned subsidiaries
(except, in both cases, for shares held directly or indirectly in trust
accounts, managed accounts and the like or otherwise held in a fiduciary
capacity that are beneficially owned by third parties ("Trust Account Shares")
or in respect of a debt previously contracted ("DPC Shares")), will be converted
into the right to receive one (1) share of Pinnacle Common Stock. If, prior to
the IFC Effective Time, the outstanding shares of Pinnacle Common Stock or IFC
Common Stock have been increased, decreased, changed into or exchanged for a
different number or kind of shares or securities as a result of a
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, or other similar change in capitalization, then an
appropriate and proportionate adjustment shall be made to the IFC Exchange
Ratio. At the IFC Effective Time, all shares of IFC Common Stock owned by IFC as
treasury stock and all shares of IFC Common Stock owned, directly or indirectly,
by IFC or Pinnacle or any of their respective wholly-owned subsidiaries (other
than Trust Account Shares and DPC Shares), will be cancelled and will cease to
exist and no stock of Pinnacle or other consideration shall be delivered in
exchange therefor. Shares of Pinnacle Common Stock issued and
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outstanding immediately prior to the IFC Effective Time will remain issued and
outstanding and be unaffected by the IFC Merger, and holders of such stock will
not be required to exchange the certificates representing such stock or take any
other action by reason of the consummation of the IFC Merger. However, all
shares of Pinnacle Common Stock owned by IFC or any of its wholly-owned
subsidiaries (other than Trust Account Shares and DPC Shares) will become
treasury stock of Pinnacle.
DISTRIBUTIONS TO STOCKHOLDERS. The IFC Merger Agreement provides that
neither Pinnacle nor IFC shall make, declare or pay any dividend or make any
other distribution on, or directly or indirectly redeem, purchase or otherwise
acquire, any shares of its capital stock or any securities or obligations
convertible into or exchangeable for any shares of its capital stock except, (i)
in the case of Pinnacle, for regular quarterly cash dividends on Pinnacle Common
Stock at a rate not in excess of $0.25 per share of Pinnacle Common Stock, (ii)
in the case of IFC, for regular quarterly cash dividends on IFC Common Stock at
a rate not in excess of $0.21 per share of IFC Common Stock, (iii) for dividends
paid by any wholly-owned subsidiaries of each of Pinnacle and IFC to Pinnacle or
IFC or any of their subsidiaries, respectively, and (iv) for dividends paid in
the ordinary course of business by any subsidiaries (whether or not wholly-
owned) of each of Pinnacle and IFC. The IFC Merger Agreement also obligates each
of Pinnacle and IFC to coordinate with the other the declaration of any
dividends in respect of Pinnacle Common Stock and IFC Common Stock and the
record dates and payment dates relating thereto, it being the intent of Pinnacle
and IFC that after the date of the IFC Merger Agreement holders of Pinnacle
Common Stock or IFC Common Stock do not receive two dividends, or fail to
receive one dividend, for any quarter with respect to their shares of Pinnacle
Common Stock and/or IFC Common Stock and any shares of Pinnacle Common Stock any
such holder receives in exchange for shares of IFC Common Stock in the IFC
Merger.
REPRESENTATIONS AND WARRANTIES. The IFC Merger Agreement contains
representations and warranties of Pinnacle and IFC as to, among other things,
(i) the corporate organization and existence of each party and its subsidiaries;
(ii) the capitalization of each party and its subsidiaries; (iii) the corporate
power and authority of each party and the compliance of the IFC Merger Agreement
with (a) the charter and by-laws of each party, (b) applicable law, and (c)
certain material agreements; (iv) governmental and third-party approvals; (v)
the timely filing of required regulatory reports; (vi) each party's financial
statements and filings with the Commission; (vii) each party's brokers' fees;
(viii) the absence of certain changes in each party's business since December
31, 1995; (ix) the absence of material legal proceedings; (x) the filing and
accuracy of each party's tax returns; (xi) each party's employee benefit plans
and related matters; (xii) the material accuracy and completeness of the filings
made by each party with the Commission; (xiii) each party's compliance with
applicable law; (xiv) the absence of material defaults under certain contracts;
(xv) agreements between each party and regulatory agencies; (xvi) the activities
of the subsidiaries of each party; (xvii) investment securities; (xviii)
interest rate risk management instruments; (xix) the absence of undisclosed
liabilities; (xx) environmental liabilities; (xxi) the inapplicability to the
transactions contemplated by the Merger Agreement of Chapter 7A of the MBCA and
Section 203 of the DGCL, relating to certain business combinations specified in
such statutes; and (xxii) "pooling-of-interests" accounting treatment. IFC has
also made representations and warranties as to the inapplicability of the IFC
Rights Agreement to the transactions contemplated by the IFC Merger Agreement
and the IFC Stock Option Agreement and the redemption, extinguishing,
termination and cancellation of the IFC Rights. In the event the IFC Merger is
consummated, all representations and warranties of Pinnacle and IFC will expire
with and be terminated as of the IFC Effective Time.
CONDUCT OF BUSINESS PENDING THE MERGER AND OTHER AGREEMENTS. Pursuant to
the IFC Merger Agreement, prior to the IFC Effective Time Pinnacle and IFC have
each agreed to, and to cause their respective subsidiaries to, (i) conduct its
business in the usual, regular and ordinary course consistent with past
practice, (ii) use reasonable best efforts to maintain and preserve intact its
business organization, employees and advantageous business relationships and
retain the services of its key officers and key employees, and (iii) take no
action which would adversely affect or delay the ability of either Pinnacle or
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IFC to obtain any requisite regulatory approvals or to perform its covenants and
agreements under the IFC Merger Agreement or the Pinnacle/IFC Stock Option
Agreements.
Pinnacle and IFC have also agreed to use their best efforts to promptly
prepare and file all necessary documentation to effect all applications,
notices, petitions and filings, and to obtain and to cooperate in obtaining
permits, consents, approvals and authorizations of all third parties and
governmental entities necessary or advisable to consummate the transactions
contemplated by the IFC Merger Agreement and to comply with the terms and
conditions of all such permits, consents, approvals and authorizations. Pinnacle
and IFC have each agreed upon request to furnish to the other party all
information concerning themselves and their subsidiaries, directors, officers
and stockholders and such other matters as may be reasonably necessary or
advisable in connection with the IFC Merger. Pinnacle and IFC have also agreed,
subject to the terms and conditions of the IFC Merger Agreement, to use their
best efforts to take, or cause to be taken, all actions necessary, proper or
advisable to comply promptly with all legal requirements which may be imposed on
such party or its subsidiaries and to consummate the IFC Merger. Pinnacle also
agreed to cause the shares of Pinnacle Common Stock to be issued in the IFC
Merger to be listed for quotation on the Nasdaq National Market, subject to
official notice of issuance, prior to the IFC Effective Time. Pinnacle and IFC
also agreed that the employee benefit plans in place on the date the IFC Merger
Agreement was entered into with respect to employees of Pinnacle and IFC, as the
case may be, will remain in effect for such employees until such time as the
combined company adopts new benefit plans covering employees of both parties who
continue to be employed by the combined company (the "New Benefit Plans"). These
New Benefit Plans will substantially conform to the benefit plans of Pinnacle in
effect as of the IFC Effective Time. Pinnacle and IFC have stated their
intention to develop the New Benefit Plans, effective as of the IFC Effective
Time or as soon thereafter as practicable, and to have the New Benefit Plans,
among other things, treat similarly situated employees on a substantially
equivalent basis, taking into account all relevant factors, including, without
limitation, duties, geographic location, tenure, qualifications and abilities.
Moreover, the New Benefit Plans will not discriminate between employees of the
combined corporation who were covered by the benefit plans of Pinnacle, on the
one hand, and those covered by the benefit plans of IFC, on the other hand, at
the IFC Effective Time. Pinnacle and IFC also reached certain agreements with
respect to directors' and officers' indemnification and insurance, and with
respect to dividends. See "INTERESTS OF CERTAIN PERSONS IN THE MERGERS."
Each of Pinnacle and IFC have further agreed to give the other party access
to all of its properties, books, contracts, commitments and records and to
furnish information concerning its businesses, properties and personnel, subject
to the restrictions set forth in the IFC Merger Agreement.
In addition, except as expressly contemplated by the IFC Merger Agreement or
specified in a schedule thereto or as contemplated by the Pinnacle/IFC Stock
Option Agreements, each of Pinnacle and IFC has agreed that, without the consent
of the other party, it and its subsidiaries will not, among other things:
(i) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money (other than short-term
indebtedness incurred to refinance short-term indebtedness and indebtedness
of Pinnacle or any of its subsidiaries to Pinnacle or any of its
subsidiaries, on the one hand, or of IFC or any of its subsidiaries to IFC
or any of its subsidiaries, on the other hand), assume, guarantee, endorse
or otherwise as an accommodation become responsible for the obligations of
any other individual, corporation or other entity, or make any loan or
advance;
(ii) adjust, split, combine or reclassify any capital stock; or make,
declare or pay any dividend or make any other distribution on, or directly
or indirectly redeem, purchase or otherwise acquire, any shares of its
capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock (except, (a) in the case of
Pinnacle, for regular quarterly cash dividends at a rate not in excess of
$.25 per share of Pinnacle Common Stock, (b) in the case of IFC, for regular
quarterly cash dividends on IFC Common Stock at a rate not in excess of $.21
per share of IFC
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Common Stock, (c) for dividends paid by any of the wholly-owned subsidiaries
of each of IFC and Pinnacle to IFC or Pinnacle or any of their subsidiaries,
respectively, and (d) for dividends paid in the ordinary course of business
by any subsidiaries (whether or not wholly-owned) of each of IFC and
Pinnacle);
(iii) grant any stock appreciation rights or grant any individual,
corporation or other entity any right to acquire any shares of its capital
stock (except as otherwise agreed in writing by Pinnacle and IFC); or issue
any additional shares of capital stock except pursuant to (a) the exercise
of stock options or warrants outstanding as of November 14, 1996, (b) the
Pinnacle/IFC Stock Option Agreements, or (c) as otherwise described in this
paragraph (iii);
(iv) sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties or assets to any individual, corporation or other entity
other than a subsidiary, or cancel, release or assign any indebtedness to
any such person or any claims held by any such person, except in the
ordinary course of business consistent with past practice or pursuant to
contracts or agreements in force at the date of the IFC Merger Agreement;
(v) except for transactions in the ordinary course of business
consistent with past practice or pursuant to contracts or agreements in
force at the date of the IFC Merger Agreement, make any material investment
either by purchase of stock or securities, contributions to capital,
property transfers, or purchase of any property or assets of any other
individual, corporation or other entity other than a subsidiary;
(vi) except for transactions in the ordinary course of business
consistent with past practice, enter into or terminate any material contract
or agreement, or make any change in any of its material leases or contracts,
other than renewals of contracts and leases without material adverse changes
of terms;
(vii) increase in any manner the compensation or fringe benefits of any
of its employees or pay any pension or retirement allowance not required by
any existing plan or agreement to any such employees or become a party to,
amend or commit itself to any pension, retirement, profit-sharing or welfare
benefit plan or agreement or employment agreement with or for the benefit of
any employee other than in the ordinary course of business consistent with
past practice or accelerate the vesting of any stock options or other
stock-based compensation;
(viii) solicit, encourage or authorize any individual, corporation or
other entity to solicit from any third party any inquiries or proposals
relating to the disposition of its business or assets, or the acquisition of
its voting securities, or the merger of it or any of its subsidiaries with
any corporation or other entity other than as provided by the IFC Merger
Agreement (and each party will promptly notify the other of all of the
relevant details relating to all inquiries and proposals which it may
receive relating to any of such matters);
(ix) settle any claim, action or proceeding involving money damages,
except in the ordinary course of business consistent with past practice;
(x) take any action (other than the exercise of its rights under the IFC
Stock Option Agreement or the Pinnacle Stock Option Agreement, as the case
may be) that would prevent or impede the IFC Merger from qualifying (a) for
"pooling-of-interests" accounting treatment or (b) as a "reorganization"
within the meaning of Section 368 of the Code;
(xi) amend its certificate of incorporation or articles of
incorporation, as the case may be, or its by-laws;
(xii) other than in prior consultation with the other party, restructure
or materially change its investment securities portfolio or its gap
position, through purchases, sales or otherwise, or the manner in which the
portfolio is classified or reported;
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(xiii) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in the IFC
Merger Agreement being or becoming untrue in any material respect at any
time prior to the IFC Effective Time, or in any of the conditions to the IFC
Merger set forth in the IFC Merger Agreement not being satisfied or in a
violation of any provision of the IFC Merger Agreement, except, in every
case, as may be required by applicable law; or
(xiv) agree to, or make any commitment to, take any of the actions listed
above.
CONDITIONS TO THE CONSUMMATION OF THE IFC MERGER. Each party's obligation
to effect the IFC Merger is subject to the satisfaction or waiver, where
permissible, of the following conditions at or prior to the IFC Effective Time:
(i) the IFC Merger Agreement and the transactions contemplated thereby
shall have been adopted and approved by the respective requisite affirmative
votes of the holders of Pinnacle Common Stock and IFC Common Stock entitled
to vote thereon;
(ii) the shares of Pinnacle Common Stock which are to be issued to IFC
stockholders upon consummation of the IFC Merger shall have been authorized
for listing on the Nasdaq National Market, subject to official notice of
issuance;
(iii) the requisite regulatory approvals shall have been obtained and
will remain in full force and effect and all statutory waiting periods with
respect to such approvals will have expired;
(iv) the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part shall have become effective and no stop
order suspending the effectiveness will have been issued and no proceedings
for that purpose will have been initiated or threatened by the Commission;
(v) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the IFC Merger or any of the other transactions
contemplated by the IFC Merger Agreement shall be in effect and no statute,
rule, regulation, order, injunction or decree shall have been enacted,
entered, promulgated or enforced by any court, administrative agency or
commission or other governmental authority or instrumentality which
prohibits or makes illegal consummation of the IFC Merger;
(vi) each party shall have received an opinion of its legal counsel
(Silver, Freedman & Taff, L.L.P. in the case of IFC, and Miller, Canfield,
Paddock and Stone, P.L.C. in the case of Pinnacle), in form and substance
reasonably satisfactory to IFC and Pinnacle, dated as of the IFC Effective
Time, substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the IFC Effective Time: (a)
the IFC Merger will constitute a tax-free reorganization under Section
368(a)(1)(A) of the Code and IFC and Pinnacle will each be a party to the
reorganization, (b) no gain or loss will be recognized by IFC or Pinnacle as
a result of the IFC Merger, (c) no gain or loss will be recognized by the
stockholders of IFC who exchange their IFC Common Stock solely for Pinnacle
Common Stock pursuant to the IFC Merger, (d) the tax basis of the Pinnacle
Common Stock received by stockholders who exchange all of their IFC Common
Stock solely for Pinnacle Common Stock in the IFC Merger will be the same as
the tax basis of the IFC Common Stock surrendered in exchange therefor and
(e) the holding period of Pinnacle Common Stock received by stockholders of
IFC in the IFC Merger will include the period during which the shares of IFC
Common Stock surrendered in exchange therefor were held (provided that such
IFC Common Stock was held as a capital asset by the holder of such IFC
Common Stock at the IFC Effective Time);
(vii) each party shall have received an opinion of the other party's
legal counsel in form and substance reasonably satisfactory to such party
and its legal counsel, dated as of the IFC Effective Time, as to (a) the
corporate organization and existence of the other party and its
subsidiaries; (b) the capitalization of the other party and its
subsidiaries; (c) the corporate power and authority of the
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other party and the compliance of the IFC Merger Agreement with (1) the
charter and by-laws of the other party, (2) applicable law, and (3) certain
material agreements; (d) governmental and third-party approvals; and (e) the
absence of material legal proceedings;
(viii) each party shall have received a letter from its independent
certified public accountants (Ernst & Young LLP in the case of IFC, and KPMG
Peat Marwick LLP in the case of Pinnacle) addressed to such party, regarding
the appropriateness of "pooling-of-interests" accounting for the IFC Merger
under generally accepted accounting principles if closed and consummated in
accordance with the IFC Merger Agreement;
(ix) each party shall have received a "comfort letter" from the other
party's independent certified public accountants regarding certain financial
information of such other party included or incorporated by reference in the
Registration Statement of which this Joint Proxy Statement/ Prospectus is a
part;
(x) each party shall have received a letter from its financial advisors
(Sandler O'Neill in the case of IFC, and ABN AMRO Chicago Corporation in the
case of Pinnacle) addressed to IFC or Pinnacle, as the case may be, to the
effect that consummation of the IFC Merger upon the terms and conditions of
the IFC Merger Agreement is fair to such party's stockholders from a
financial point of view;
(xi) the representations and warranties of the other party to the IFC
Merger Agreement shall be true and correct in all material respects as of
the date of the IFC Merger Agreement and (except to the extent such
representations and warranties speak as of an earlier date and except for
any changes to a party's disclosure schedule delivered to the other party as
of the IFC Closing Date) as of the IFC Closing Date as though made on the
IFC Closing Date;
(xii) each party shall have performed in all material respects all
obligations required to be performed by it under the IFC Merger Agreement at
or prior to the IFC Closing Date; and
(xiii) no event or circumstance shall have occurred which has, or is
likely to have a materially adverse effect on the other party or upon the
right of the other party or any of its subsidiaries to conduct their
businesses as presently conducted.
The obligation of Pinnacle to effect the IFC Merger is also subject to the
satisfaction by IFC, or the waiver by Pinnacle, at or prior to the IFC Effective
Time, of the condition that all of the IFC Rights be redeemed at a cost to IFC
of not more than $0.01 per each share of the IFC Common Stock issued and
outstanding, that all of said IFC Rights be extinguished, terminated and
cancelled, without any right of exercise, and that all of the IFC Rights only
represent the right to receive the Redemption Price in cash from IFC or
Pinnacle, as the surviving corporation, following the IFC Merger.
No assurance can be provided as to if or when the requisite regulatory
approvals necessary to consummate the IFC Merger will be obtained or whether all
of the other conditions precedent to the IFC Merger will be satisfied or waived
by the party permitted to do so. If the IFC Merger is not effected on or before
November 14, 1997, the IFC Merger Agreement may be terminated by either Pinnacle
or IFC, unless the failure to effect the IFC Merger by such date is due to the
failure of the party seeking to terminate the IFC Merger Agreement to perform or
observe covenants and agreements of such party set forth therein.
EXPENSES. The IFC Merger Agreement provides that Pinnacle and IFC will each
pay its own expenses in connection with the IFC Merger and the transactions
contemplated thereby, except that Pinnacle and IFC will divide equally all
printing costs, filing fees and registration fees in connection with the IFC
Merger Agreement, this Joint Proxy Statement/Prospectus and the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part.
EXTENSION AND WAIVER. At any time prior to the IFC Effective Time, Pinnacle
and IFC, by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (i) extend
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the time for the performance of any of the obligations or other acts of the
other party, (ii) waive any inaccuracies in the representations and warranties
contained in the IFC Merger Agreement or in any document delivered pursuant the
IFC Merger Agreement and (iii) waive compliance with any of the agreements or
conditions contained in the IFC Merger Agreement; except that after any approval
of the.transactions contemplated by the IFC Merger Agreement by the respective
stockholders of IFC or Pinnacle, there may not be, without further approval of
such stockholders, any extension or waiver of the IFC Merger Agreement which
reduces the amount or changes the form of the consideration to be delivered to
the holders of IFC Common Stock.
AMENDMENT. Subject to compliance with applicable law, the IFC Merger
Agreement may be amended by Pinnacle and IFC, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the IFC Merger by the stockholders of
Pinnacle or IFC, except that after any approval of the transactions contemplated
by the IFC Merger Agreement by the respective stockholders of Pinnacle or IFC,
there may not be, without further approval of such stockholders, any amendment
of the IFC Merger Agreement which changes the amount or the form of the
consideration to be delivered to the holders of IFC Common Stock under the IFC
Merger Agreement, other than as contemplated by the IFC Merger Agreement. In the
event the parties contemplate an amendment to the IFC Merger Agreement of the
type which by law or pursuant to the foregoing may not be made without
stockholder approval, Pinnacle and/or IFC, as the case may be, may resolicit
proxies from the stockholders of Pinnacle and/or of IFC, as the case may be, to
obtain such approval.
TERMINATION. The IFC Merger Agreement provides that the IFC Merger may be
terminated at any time prior to the IFC Effective Time, whether before or after
approval by Pinnacle's or IFC's stockholders:
(i) by mutual consent of Pinnacle and IFC in a written instrument, if
the Board of Directors of each so determines by a vote of a majority of the
members of its entire board of directors;
(ii) by either the Pinnacle Board or the IFC Board if any governmental
entity which must grant a requisite regulatory approval has denied approval
of the IFC Merger and such denial has become final and non-appealable or any
governmental entity of competent jurisdiction has issued a final non-
appealable order enjoining or otherwise prohibiting the consummation of the
transactions contemplated by the IFC Merger Agreement;
(iii) by either the Pinnacle Board or IFC Board if the IFC Merger is not
consummated on or before November 14, 1997, unless the failure of the
closing to occur by such date is due to the failure of the party seeking to
terminate the IFC Merger Agreement to perform or observe the covenants and
agreements of such party set forth therein;
(iv) by either the Pinnacle Board or IFC Board (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained in the IFC Merger Agreement)
if there has been a material breach of any of the covenants or agreements or
any of the representations or warranties set forth in the IFC Merger
Agreement on the part of the other party, which breach is not cured within
45 days following written notice to the party committing such breach, or
which breach, by its nature, cannot be cured prior to the IFC Closing Date;
(v) by either Pinnacle or IFC if required Pinnacle or IFC stockholder
approvals have not been obtained by reason of the failure to obtain the
required vote at a duly held meeting of stockholders or any adjournment or
postponement thereof;
(vi) by either Pinnacle or IFC if any of the conditions to the
consummation of the IFC Merger specified by Article VII of the IFC Merger
Agreement to the obligation of the terminating party have not been satisfied
on the IFC Closing Date; or
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(vii) by Pinnacle if the disclosure schedule of IFC delivered to Pinnacle
on the IFC Closing Date discloses any change from the disclosure schedule
delivered to Pinnacle by IFC in connection with the execution of the IFC
Merger Agreement which has, or is likely to have, a material adverse effect
on IFC or any of IFC's wholly-owned subsidiaries; or by IFC if the
disclosure schedule of Pinnacle delivered to IFC on the IFC Closing Date
discloses any change from the disclosure schedule delivered to IFC by
Pinnacle in connection with the execution of the IFC Merger Agreement which
has, or is likely to have, a material adverse effect on Pinnacle or any of
Pinnacle's wholly-owned subsidiaries.
Any termination pursuant to the foregoing shall be made by written notice
from the party seeking termination to the other party.
In the event of termination of the IFC Merger Agreement, the IFC Merger
Agreement will become void and have no effect except (i) for certain specified
provisions of the IFC Merger Agreement dealing with confidentiality, the effect
of termination, the nonsurvival of representations and warranties, and expenses,
and (ii) that neither party will be relieved or released from any liabilities or
damages arising out of the willful breach by the other party of any provisions
of the IFC Merger Agreement.
SUMMARY OF THE CB MERGER AGREEMENT
EFFECTIVE TIME. The CB Effective Time will be as set forth in Certificates
of Merger which will be filed with the Department of Consumer and Industry
Services of the State of Michigan and the Secretary of State of the State of
Delaware on the closing date with respect to the CB Merger. The CB Closing Date
will occur on a date to be specified by the parties which will be no later than
five business days after the satisfaction or waiver (subject to applicable law)
of the latest to occur of the conditions precedent to the CB Merger set forth in
the CB Merger Agreement. Pinnacle and CB each anticipate that the CB Merger will
be consummated prior to June 30, 1997. However, the consummation of the CB
Merger could be delayed as a result of delays in obtaining any necessary
regulatory agency or other governmental approvals required for the transactions
contemplated by the CB Merger Agreement. There can be no assurances as to if or
when such approvals will be obtained or that the CB Merger will be consummated.
If the CB Merger is not effected on or before March 1, 1998, the CB Merger
Agreement may be terminated by either Pinnacle or CB, unless the failure to
effect the CB Merger by such date is due to the failure of the party seeking to
terminate the CB Merger Agreement to perform or observe the covenants and
agreements of such party set forth therein.
CONVERSION OF SHARES. At the CB Effective Time, each share of CB Common
Stock outstanding, other than shares of CB Common Stock held in CB's treasury or
held by CB or Pinnacle or any of their respective wholly-owned subsidiaries
(except, in both cases, for shares held directly or indirectly in trust
accounts, managed accounts and the like or otherwise held in Trust Account
Shares or DPC Shares), will be converted into the right to receive that number
of shares of Pinnacle Common Stock determined by dividing $35.00 by the average
of the daily averages of the closing bid and the closing ask prices per share of
Pinnacle Common Stock as reported by the Nasdaq National Market for the period
of fifteen business days ending on the fifth business day prior to the date of
consummation of the CB Merger; provided, however, (i) that in the event the
Average Price is $29.00 or higher, each share of CB Common Stock issued and
outstanding so converted, would be converted into the right to receive 1.2069
shares of Pinnacle Common Stock, and (ii) that in the event the Average Price is
$23.00 or lower, each share of CB Common Stock issued and outstanding so
converted, would be converted into the right to receive 1.5217 shares of
Pinnacle Common Stock. No fractional shares of Pinnacle Common Stock will be
issued and, in lieu thereof, any fractional shares shall be paid the cash
equivalent value thereof based on the Average Price. If, prior to the CB
Effective Time, the outstanding shares of Pinnacle Common Stock or CB Common
Stock have been increased, decreased, changed into or exchanged for a different
number or kind of shares or securities as a result of a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar change in capitalization, then an appropriate and
proportionate adjustment shall be made to the CB Exchange Ratio. At the CB
Effective Time, all shares of CB Common
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Stock owned by CB as treasury stock and all shares of CB Common Stock owned,
directly or indirectly, by CB or Pinnacle or any of their respective
wholly-owned subsidiaries (other than Trust Account Shares and DPC Shares), will
be cancelled and will cease to exist and no stock of Pinnacle or other
consideration shall be delivered in exchange therefor. Shares of Pinnacle Common
Stock issued and outstanding immediately prior to the CB Effective Time will
remain issued and outstanding and be unaffected by the CB Merger, and holders of
such stock will not be required to exchange the certificates representing such
stock or take any other action by reason of the consummation of the CB Merger.
However, all shares of Pinnacle Common Stock owned by CB or any of its
wholly-owned subsidiaries (other than Trust Account Shares and DPC Shares) will
become treasury stock of Pinnacle.
DISTRIBUTIONS TO STOCKHOLDERS. The CB Merger Agreement provides that CB
shall not make, declare or pay any dividend or make any other distribution on,
or directly or indirectly redeem, purchase or otherwise acquire, any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock.
REPRESENTATIONS AND WARRANTIES. The CB Merger Agreement contains
representations and warranties of Pinnacle and CB as to, among other things, (i)
the corporate organization and existence of each party and its subsidiaries;
(ii) the capitalization of each party and its subsidiaries; (iii) the corporate
power and authority of each party and the compliance of the CB Merger Agreement
with (a) the charter and by-laws of each party, (b) applicable law, and (c)
certain material agreements; (iv) governmental and third-party approvals; (v)
the timely filing of required regulatory reports; (vi) each party's financial
statements and filings with the Commission; (vii) each party's brokers' fees;
(viii) the absence of certain changes (a) in the business of Pinnacle since
December 31, 1996, and (b) in the business of CB since March 31, 1996; (ix) the
absence of material legal proceedings; (x) the filing and accuracy of each
party's tax returns; (xi) each party's employee benefit plans and related
matters; (xii) the material accuracy and completeness of the filings made by
each party with the Commission; (xiii) each party's compliance with applicable
law; (xiv) the absence of material defaults under certain contracts; (xv)
agreements between each party and regulatory agencies; (xvi) the activities of
the subsidiaries of each party; (xvii) investment securities; (xviii) interest
rate risk management instruments; (xix) the absence of undisclosed liabilities;
(xx) environmental liabilities; (xxi) the inapplicability to the transactions
contemplated by the CB Merger Agreement of Chapter 7A of the MBCA and Section
203 of the DGCL, relating to certain business combinations specified in such
statutes; and (xxii) "pooling-of-interests" accounting treatment. In the event
the CB Merger is consummated, all representations and warranties of Pinnacle and
CB will expire with and be terminated as of the CB Effective Time.
CONDUCT OF BUSINESS AND OTHER AGREEMENTS. Pursuant to the CB Merger
Agreement, prior to the CB Effective Time Pinnacle and CB have each agreed to,
and to cause their respective subsidiaries to, (i) conduct its business in the
usual, regular and ordinary course consistent with past practice, (ii) use
reasonable best efforts to maintain and preserve intact its business
organization, employees and advantageous business relationships and retain the
services of its key officers and key employees, and (iii) avoid taking any
action which would adversely affect or delay the ability of either Pinnacle or
CB to obtain any requisite regulatory approvals or to perform its covenants and
agreements under the CB Merger Agreement or the CB Stock Option Agreement. CB
also agreed to, in a manner consistent with past practice and prudent banking
standards, charge-off or establish provisions for all of its loans, receivables
and other assets, or portions thereof, deemed uncollectible by CB in accordance
with GAAP and applicable laws and to maintain its allowance for loan losses at a
level deemed adequate to provide for all known and reasonably expected losses on
assets outstanding and other inherent risks in its loan portfolio.
Pinnacle and CB have also agreed to use their best efforts to promptly
prepare and file all necessary documentation to effect all applications,
notices, petitions and filings, and to obtain and to cooperate in obtaining
permits, consents, approvals and authorizations of all third parties and
governmental entities necessary or advisable to consummate the transactions
contemplated by the CB Merger Agreement and to
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comply with the terms and conditions of all such permits, consents, approvals
and authorizations. Pinnacle and CB have each agreed upon request to furnish to
the other party all information concerning themselves and their subsidiaries,
directors, officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the CB Merger. Pinnacle and CB have
also agreed, subject to the terms and conditions of the CB Merger Agreement, to
use their best efforts to take, or cause to be taken, all actions necessary,
proper or advisable to comply promptly with all legal requirements which may be
imposed on such party or its subsidiaries and to consummate the CB Merger.
Pinnacle also agreed to cause the shares of Pinnacle Common Stock to be issued
in the CB Merger to be listed for quotation on the Nasdaq National Market,
subject to official notice of issuance, prior to the CB Effective Time. Pinnacle
and CB also agreed that the employee benefit plans in place on the date the CB
Merger Agreement was entered into with respect to employees of Pinnacle and CB,
as the case may be, will remain in effect for such employees until such time as
the combined company adopts new benefit plans covering employees of both parties
who continue to be employed by the combined company. These New Benefit Plans
will substantially conform to the benefit plans of Pinnacle in effect as of the
CB Effective Time. Pinnacle and CB have stated their intention to develop the
New Benefit Plans, effective as of the CB Effective Time or as soon thereafter
as practicable, and to have the New Benefit Plans, among other things, treat
similarly situated employees on a substantially equivalent basis, taking into
account all relevant factors, including, without limitation, duties, geographic
location, tenure, qualifications and abilities. Moreover, the New Benefit Plans
will not discriminate between employees of the combined corporation who were
covered by the benefit plans of Pinnacle, on the one hand, and those covered by
the benefit plans of CB, on the other hand, at the CB Effective Time. Pinnacle
and CB also reached certain agreements with respect to directors' and officers'
indemnification and insurance, and with respect to dividends. See "INTERESTS OF
CERTAIN PERSONS IN THE MERGERS."
Each of Pinnacle and CB have further agreed to give the other party access
to all of its properties, books, contracts, commitments and records and to
furnish information concerning its businesses, properties and personnel, subject
to the restrictions set forth in the CB Merger Agreement.
In addition, except as expressly contemplated by the CB Merger Agreement or
specified in a schedule thereto or as contemplated by the CB Stock Option
Agreement, CB has agreed that, without the consent of Pinnacle, it and its
subsidiaries will not, among other things:
(i) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money (other than short-term
indebtedness incurred to refinance short-term indebtedness of CB or any of
its subsidiaries to CB or any of its subsidiaries), assume, guarantee,
endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity, or make
any loan or advance; provided, however, that CB may continue to access lines
of credit to fund the CB Mortgage Loan Program in amounts reasonably
necessary to fund that program.
(ii) adjust, split, combine or reclassify any capital stock; or make,
declare or pay any dividend or make any other distribution on, or directly
or indirectly redeem, purchase or otherwise acquire, any shares of its
capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock);
(iii) grant any stock appreciation rights or grant any individual,
corporation or other entity any right to acquire any shares of its capital
stock; or issue any additional shares of capital stock except pursuant to
(a) the exercise of stock options or warrants outstanding as of March 1,
1997, (b) the CB Stock Option Agreement, or (c) as otherwise described in
this paragraph (iii);
(iv) sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties or assets to any individual, corporation or other entity
other than a subsidiary, or cancel, release or assign any indebtedness to
any such person or any claims held by any such person, except in the
ordinary course of business consistent with past practice or pursuant to
contracts or agreements in force at the date of
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the CB Merger Agreement; PROVIDED, HOWEVER, that CB may pursue certain loan
workouts as specified in the CB Merger Agreement;
(v) except for transactions in the ordinary course of business
consistent with past practice or pursuant to contracts or agreements in
force at the date of the CB Merger Agreement, make any material investment
either by purchase of stock or securities, contributions to capital,
property transfers, or purchase of any property or assets of any other
individual, corporation or other entity other than a subsidiary;
(vi) except for transactions in the ordinary course of business
consistent with past practice, enter into or terminate any material contract
or agreement, or make any change in any of its material leases or contracts,
other than renewals of contracts and leases without material adverse changes
of terms;
(vii) increase in any manner the compensation or fringe benefits of any
of its employees or pay any pension or retirement allowance not required by
any existing plan or agreement to any such employees or become a party to,
amend or commit itself to any pension, retirement, profit-sharing or welfare
benefit plan or agreement or employment agreement with or for the benefit of
any employee other than in the ordinary course of business consistent with
past practice or accelerate the vesting of any stock options or other
stock-based compensation;
(viii) solicit, encourage or authorize or permit any individual,
corporation or other entity to solicit from any third party any inquiries or
proposals relating to the disposition of its business or assets, or the
acquisition of its voting securities, or the merger of it or any of its
subsidiaries with any corporation or other entity other than as provided by
the CB Merger Agreement;
(ix) settle any claim, action or proceeding involving money damages,
except in the ordinary course of business consistent with past practice;
(x) take any action that would prevent or impede the CB Merger from
qualifying (a) for "pooling-of-interests" accounting treatment or (b) as a
"reorganization" within the meaning of Section 368 of the Code;
(xi) amend its certificate of incorporation, or its by-laws;
(xii) other than in prior consultation with the other party, restructure
or materially change its investment securities portfolio or its gap
position, through purchases, sales or otherwise, or the manner in which the
portfolio is classified or reported;
(xiii) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in the CB
Merger Agreement being or becoming untrue in any material respect at any
time prior to the CB Effective Time, or in any of the conditions to the CB
Merger set forth in the CB Merger Agreement not being satisfied or in a
violation of any provision of the CB Merger Agreement, except, in every
case, as may be required by applicable law; or
(xiv) agree to, or make any commitment to, take any of the actions listed
above.
In addition, Pinnacle has agreed (i) not to take any action (other than the
exercise of its rights under the IFC Merger Agreement and the Stock Option
Agreements) that would impede the CB Merger from qualifying (a) for
"pooling-of-interests" accounting treatment or (b) as a "reorganization" within
the meaning of Section 368 of the Code; (ii) not to amend its articles of
incorporation, or its by-laws; or (iii) not to agree to, or make any commitment
to, take any of the actions listed above.
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CONDITIONS TO THE CONSUMMATION OF THE CB MERGER. Each party's obligation to
effect the CB Merger is subject to the satisfaction or waiver, where
permissible, of the following conditions at or prior to the CB Effective Time:
(i) the CB Merger Agreement and the transactions contemplated thereby
shall have been adopted and approved by the respective requisite affirmative
votes of the holders of Pinnacle Common Stock and CB Common Stock entitled
to vote thereon;
(ii) the shares of Pinnacle Common Stock which are to be issued to CB
stockholders upon consummation of the CB Merger shall have been authorized
for listing on the Nasdaq National Market, subject to official notice of
issuance;
(iii) the requisite regulatory approvals shall have been obtained and
will remain in full force and effect and all statutory waiting periods with
respect to such approvals will have expired;
(iv) the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part shall have become effective and no stop
order suspending the effectiveness will have been issued and no proceedings
for that purpose will have been initiated or threatened by the Commission;
(v) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the CB Merger or any of the other transactions
contemplated by the CB Merger Agreement shall be in effect and no statute,
rule, regulation, order, injunction or decree shall have been enacted,
entered, promulgated or enforced by any court, administrative agency or
commission or other governmental authority or instrumentality which
prohibits or makes illegal consummation of the CB Merger;
(vi) each party shall have received an opinion of its legal counsel
(Muldoon, Murphy & Faucette in the case of CB, and Miller, Canfield, Paddock
and Stone, P.L.C. in the case of Pinnacle), in form and substance reasonably
satisfactory to CB and Pinnacle, dated as of the CB Effective Time,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion which are consistent with the state of
facts existing at the CB Effective Time: (a) the CB Merger will constitute a
tax-free reorganization under Section 368(a)(1)(A) of the Code and CB and
Pinnacle will each be a party to the reorganization, (b) no gain or loss
will be recognized by CB or Pinnacle as a result of the CB Merger, (c) no
gain or loss will be recognized by the stockholders of CB who exchange their
CB Common Stock solely for Pinnacle Common Stock pursuant to the CB Merger,
(d) the tax basis of the Pinnacle Common Stock received by stockholders who
exchange all of their CB Common Stock solely for Pinnacle Common Stock in
the CB Merger will be the same as the tax basis of the CB Common Stock
surrendered in exchange therefor and (e) the holding period of Pinnacle
Common Stock received by stockholders of CB in the CB Merger will include
the period during which the shares of CB Common Stock surrendered in
exchange therefor were held (provided that such CB Common Stock was held as
a capital asset by the holder of such CB Common Stock at the CB Effective
Time);
(vii) each party shall have received an opinion of the other party's
legal counsel in form and substance reasonably satisfactory to such party
and its legal counsel, dated as of the CB Effective Time, as to (a) the
corporate organization and existence of the other party and its
subsidiaries; (b) the capitalization of the other party and its
subsidiaries; (c) the corporate power and authority of the other party and
the compliance of the CB Merger Agreement with (1) the charter and by-laws
of the other party, (2) applicable law, and (3) certain material agreements;
(d) governmental and third-party approvals; and (e) the absence of material
legal proceedings;
(viii) each party shall have received a letter from its independent
certified public accountants (Crowe, Chizek and Company LLP in the case of
CB, and KPMG Peat Marwick LLP in the case of Pinnacle) addressed to such
party, regarding the appropriateness of "pooling-of-interests" accounting
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for the CB Merger under generally accepted accounting principles if closed
and consummated in accordance with the CB Merger Agreement;
(ix) each party shall have received a "comfort letter" from the other
party's independent certified public accountants regarding certain financial
information of such other party included or incorporated by reference in the
Registration Statement of which this Joint Proxy Statement/ Prospectus is a
part;
(x) each party shall have received a letter from its financial advisors
(Webb in the case of CB and PL Capital, LLC in the case of Pinnacle)
addressed to CB or Pinnacle, as the case may be, to the effect that
consummation of the CB Merger upon the terms and conditions of the CB
Bancorp Merger Agreement is fair to such party's stockholders from a
financial point of view;
(xi) the representations and warranties of the other party to the CB
Merger Agreement shall be true and correct in all material respects as of
the date of the CB Merger Agreement and (except to the extent such
representations and warranties speak as of an earlier date and except for
any changes to a party's disclosure schedule delivered to the other party as
of the CB Closing Date) as of the CB Closing Date as though made on the CB
Closing Date;
(xii) each party shall have performed in all material respects all
obligations required to be performed by it under the CB Merger Agreement at
or prior to the CB Closing Date; and
(xiii) no event or circumstance shall have occurred which has, or is
likely to have a materially adverse effect on the other party or upon the
right of the other party or any of its subsidiaries to conduct their
businesses as presently conducted.
The obligation of Pinnacle to effect the CB Merger is also subject to the
satisfaction by CB, or the waiver by Pinnacle, at or prior to the CB Effective
Time, of the condition that the difference between the total consolidated assets
of CB and the total consolidated liabilities of CB (the "CB Net Worth") as of
the last day of the calendar month immediately preceding the CB Closing Date
(the "CB Determination Date"), as determined in accordance with generally
accepted accounting principles consistently applied, be not less than the CB Net
Worth shown on the December 31, 1996 consolidated balance sheet of CB (after
taking into account any and all dividends paid or declared or other
distributions made, but excluding any and all costs and expenses incurred by CB
with respect to the CB Merger through and including the CB Closing Date). (In
calculating the CB Net Worth it will be assumed that the value of CB's
securities held for sale is, as of the CB Determination Date, equivalent to its
value on December 31, 1996.) In addition, Pinnacle must receive a certificate as
to the satisfaction of the foregoing condition signed by appropriate officers of
CB and by Crowe, Chizek and Company, LLP. Another condition to the obligation of
Pinnacle to effect the CB Merger is the execution and delivery to Pinnacle of
certain acknowledgements of payments due under the CB Employment Agreements and
each of the CB Change in Control Agreements as contemplated by Section 6.7 of
the CB Merger Agreement.
No assurance can be provided as to if or when the requisite regulatory
approvals necessary to consummate the CB Merger will be obtained or whether all
of the other conditions precedent to the CB Merger will be satisfied or waived
by the party permitted to do so. If the CB Merger is not effected on or before
March 1, 1998, the CB Merger Agreement may be terminated by either Pinnacle or
CB, unless the failure to effect the CB Merger by such date is due to the
failure of the party seeking to terminate the CB Merger Agreement to perform or
observe covenants and agreements of such party set forth therein.
EXPENSES. The CB Merger Agreement provides that Pinnacle and CB will each
pay its own expenses in connection with the CB Merger and the transactions
contemplated thereby, except that CB will pay a maximum of $25,000 for printing
costs, filing fees and registration fees in connection with the CB Merger
Agreement, this Joint Proxy Statement/Prospectus and the Registration Statement
of which this Joint Proxy Statement/Prospectus is a part.
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EXTENSION AND WAIVER. At any time prior to the CB Effective Time, Pinnacle
and CB, by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other party, (ii) waive any
inaccuracies in the representations and warranties contained in the CB Merger
Agreement or in any document delivered pursuant the CB Merger Agreement, and
(iii) waive compliance with any of the agreements or conditions contained in the
CB Merger Agreement; except that after any approval of the transactions
contemplated by the CB Merger Agreement by the respective stockholders of CB or
Pinnacle, there may not be, without further approval of such stockholders, any
extension or waiver of the CB Merger Agreement which reduces the amount or
changes the form of the consideration to be delivered to the holders of CB
Common Stock.
AMENDMENT. Subject to compliance with applicable law, the CB Merger
Agreement may be amended by Pinnacle and CB by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the CB Merger by the stockholders of
Pinnacle or CB except that after any approval of the transactions contemplated
by the CB Merger Agreement by the respective stockholders of Pinnacle or CB,
there may not be, without further approval of such stockholders, any amendment
of the CB Merger Agreement which changes the amount or the form of the
consideration to be delivered to the holders of CB Common Stock under the CB
Merger Agreement, other than as contemplated by the CB Merger Agreement. In the
event the parties contemplate an amendment to the CB Merger Agreement of the
type which by law or pursuant to the foregoing may not be made without
stockholder approval, Pinnacle and/or CB, as the case may be, may resolicit
proxies from the stockholders of Pinnacle and/or of CB, as the case may be, to
obtain such approval.
TERMINATION. The CB Merger Agreement provides that the CB Merger may be
terminated at any time prior to the CB Effective Time, whether before or after
approval by Pinnacle's or CB Bancorp's stockholders:
(i) by mutual consent of Pinnacle and CB in a written instrument, if the
Board of Directors of each so determines by a vote of a majority of the
members of its entire board of directors;
(ii) by either the Pinnacle Board or the CB Board if any governmental
entity which must grant a requisite regulatory approval has denied approval
of the CB Merger and such denial has become final and non-appealable or any
governmental entity of competent jurisdiction has issued a final non-
appealable order enjoining or otherwise prohibiting the consummation of the
transactions contemplated by the CB Merger Agreement;
(iii) by either the Pinnacle Board or CB Board if the CB Merger is not
consummated on or before March 1, 1998, unless the failure of the closing to
occur by such date is due to the failure of the party seeking to terminate
the CB Merger Agreement to perform or observe the covenants and agreements
of such party set forth therein;
(iv) by either the Pinnacle Board or CB Board (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained in the CB Merger Agreement)
if there has been a material breach of any of the covenants or agreements or
any of the representations or warranties set forth in the CB Merger
Agreement on the part of the other party, which breach is not cured within
45 days following written notice to the party committing such breach, or
which breach, by its nature, cannot be cured prior to the CB Closing Date;
(v) by either Pinnacle or CB if required Pinnacle or CB stockholder
approvals have not been obtained by reason of the failure to obtain the
required vote at a duly held meeting of stockholders or any adjournment or
postponement thereof;
(vi) by either Pinnacle or CB if any of the conditions to the
consummation of the CB Merger specified by Article VII of the CB Bancorp
Merger Agreement to the obligation of the terminating party have not been
satisfied on the CB Closing Date; or
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(vii) by Pinnacle if the disclosure schedule of CB delivered to Pinnacle
on the CB Closing Date discloses any change from the disclosure schedule
delivered to Pinnacle by CB in connection with the execution of the CB
Merger Agreement which has, or is likely to have, a material adverse effect
on CB or any of CB's wholly-owned subsidiaries; or by CB if the disclosure
schedule of Pinnacle delivered to CB on the CB Closing Date discloses any
change from the disclosure schedule delivered to CB by Pinnacle in
connection with the execution of the CB Merger Agreement which has, or is
likely to have, a material adverse effect on Pinnacle or any of Pinnacle's
wholly-owned subsidiaries.
(viii) by CB prior to the CB Closing Date there becomes a reasonable
likelihood that the tax free reorganization treatment for federal income tax
purposes accorded to the merger of Maco Bancorp, Inc. with and into Pinnacle
effective December 1, 1995, will not be sustained.
Any termination pursuant to the foregoing shall be made by written notice
from the party seeking termination to the other party.
In the event of termination of the CB Merger Agreement, the CB Merger
Agreement will become void and have no effect except (i) for certain specified
provisions of the CB Merger Agreement dealing with confidentiality, the effect
of termination, the nonsurvival of representations and warranties, and expenses,
and (ii) that neither party will be relieved or released from any liabilities or
damages arising out of the willful breach by the other party of any provisions
of the CB Merger Agreement.
PROCEDURES FOR EXCHANGE OF CERTIFICATES
IFC. At or prior to the IFC Effective Time, Pinnacle will deposit, or cause
to be deposited, with Harris Trust and Savings Bank, Chicago, Illinois (the
"Exchange Agent"), for the benefit of the holders of certificates of IFC Common
Stock, certificates representing the shares of Pinnacle Common Stock to be
issued pursuant to the IFC Merger Agreement in exchange for outstanding shares
of IFC Common Stock. As soon as is practicable after the IFC Effective Time, and
in no event later than five business days thereafter, a form of transmittal
letter will be mailed by the Exchange Agent to the holders of IFC Common Stock.
The form of transmittal letter will contain instructions with respect to the
surrender of certificates representing IFC Common Stock. IFC STOCK CERTIFICATES
SHOULD NOT BE RETURNED WITH THE ENCLOSED IFC PROXY AND SHOULD NOT BE FORWARDED
TO THE EXCHANGE AGENT UNLESS AND UNTIL THE IFC STOCKHOLDER RECEIVES A LETTER OF
TRANSMITTAL FOLLOWING THE IFC EFFECTIVE TIME.
Dividends or other distributions declared with respect to Pinnacle Common
Stock with a record date following the IFC Effective Time will not be paid to
the holder of any certificate representing shares of IFC Common Stock until such
certificates have been surrendered for exchange. In addition, after the IFC
Effective Time, holders of unsurrendered IFC Common Stock will not be entitled
to vote at any meeting of Pinnacle stockholders at which Pinnacle stockholders
are eligible to vote until such holders have exchanged their IFC Common Stock
for Pinnacle Common Stock. If certificates representing shares of IFC Common
Stock are presented after the IFC Effective Time, they will be cancelled and
exchanged for the relevant certificate representing shares of Pinnacle Common
Stock.
Fractional shares of Pinnacle Common Stock will not be issued to any holder
of IFC Common Stock upon consummation of the IFC Merger. None of Pinnacle, IFC,
the Exchange Agent or any other person will be liable to any former holder of
IFC Common Stock for any amount delivered in good faith to a public official
pursuant to applicable abandoned property, escheat or similar laws. If a
certificate for IFC Common Stock has been lost, stolen or destroyed, the
Exchange Agent will issue the consideration properly payable in accordance with
the IFC Merger Agreement upon receipt of appropriate evidence as to such loss,
theft or destruction, appropriate evidence as to the ownership of such
certificate by the claimant, and appropriate and customary indemnification.
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For a description of Pinnacle Common Stock, see "DESCRIPTION OF PINNACLE
COMMON STOCK." For a description of the differences between the rights of
holders of Pinnacle Common Stock and the rights of holders of IFC Common Stock,
see "COMPARISON OF STOCKHOLDERS' RIGHTS."
CB. Prior to the CB Effective Time, Pinnacle will deposit, or cause to be
deposited, with the Exchange Agent, for the benefit of the holders of
certificates of CB Common Stock, certificates representing the shares of
Pinnacle Common Stock and cash for payment of consideration in lieu of
fractional shares to be issued and paid pursuant to the CB Merger Agreement in
exchange for outstanding shares of CB Common Stock. As soon as is practicable
after the CB Effective Time, and in no event later than five business days
thereafter, a form of transmittal letter will be mailed by the Exchange Agent to
the holders of CB Common Stock. The form of transmittal letter will contain
instructions with respect to the surrender of certificates representing CB
Common Stock. CB STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED CB
PROXY AND SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT UNLESS AND UNTIL THE CB
STOCKHOLDER RECEIVES A LETTER OF TRANSMITTAL FOLLOWING THE CB EFFECTIVE TIME.
Dividends or other distributions declared with respect to Pinnacle Common
Stock with a record date following the CB Effective Time will not be paid to the
holder of any certificate representing shares of CB Common Stock until such
certificates have been surrendered for exchange. In addition, after the CB
Effective Time, holders of unsurrendered CB Common Stock will not be entitled to
vote at any meeting of Pinnacle stockholders at which Pinnacle stockholders are
eligible to vote until such holders have exchanged their CB Common Stock for
Pinnacle Common Stock. If certificates representing shares of CB Common Stock
are presented after the CB Effective Time, they will be cancelled and exchanged
for the relevant certificate representing shares of Pinnacle Common Stock.
Fractional shares of Pinnacle Common Stock will not be issued to any holder
of CB Common Stock upon consummation of the CB Merger. None of Pinnacle, CB, the
Exchange Agent or any other person will be liable to any former holder of CB
Common Stock for any amount delivered in good faith to a public official
pursuant to applicable abandoned property, escheat or similar laws. If a
certificate for CB Common Stock has been lost, stolen or destroyed, the Exchange
Agent will issue the consideration properly payable in accordance with the CB
Merger Agreement upon receipt of appropriate evidence as to such loss, theft or
destruction, appropriate evidence as to the ownership of such certificate by the
claimant, and appropriate and customary indemnification.
For a description of Pinnacle Common Stock, see "DESCRIPTION OF PINNACLE
COMMON STOCK." For a description of the differences between the rights of
holders of Pinnacle Common Stock and the rights of holders of CB Common Stock,
see "COMPARISON OF STOCKHOLDERS' RIGHTS."
NO SOLICITATION OF TRANSACTIONS
IFC MERGER. The IFC Merger Agreement prohibits IFC and its subsidiaries
from, directly or indirectly, authorizing or permitting any of their respective
representatives or affiliates to entertain, solicit, encourage or participate in
any negotiations concerning any "acquisition proposal," for IFC. The IFC Merger
Agreement also prohibits Pinnacle and its subsidiaries from, directly or
indirectly, authorizing or permitting any of their respective representatives or
affiliates to entertain, solicit, encourage or participate in any negotiations
concerning any "acquisition proposal," for Pinnacle. For these purposes, an
"acquisition proposal" is defined as any (i) proposal pursuant to which any
corporation, partnership, person or other entity or group, other than a party to
the IFC Merger Agreement, would acquire or participate in a merger or other
business combination involving Pinnacle, IFC or any of their respective
subsidiaries, directly or indirectly; (ii) proposal by which any corporation,
partnership, person or other entity or group, other than a party to the IFC
Merger Agreement, would acquire the right to vote 10% or more of the capital
stock of Pinnacle, IFC or any of their respective subsidiaries entitled to vote
thereon for the
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election of directors; (iii) acquisition of 10% or more of the assets of
Pinnacle, IFC or any of their respective subsidiaries; or (iv) acquisition in
excess of 10% of the outstanding capital stock of Pinnacle, IFC or any of their
respective subsidiaries, in each case other than as contemplated by the IFC
Merger Agreement.
CB MERGER. The CB Merger Agreement prohibits CB and its subsidiaries from,
directly or indirectly, authorizing or permitting any of their respective
representatives or affiliates to entertain, solicit, encourage or participate in
any negotiations concerning any "acquisition proposal," for CB. For these
purposes, an "acquisition proposal" is defined as any (i) proposal pursuant to
which any corporation, partnership, person or other entity or group, other than
a party to the CB Merger Agreement, would acquire or participate in a merger or
other business combination involving CB or any of its subsidiaries, directly or
indirectly; (ii) proposal by which any corporation, partnership, person or other
entity or group, other than a party to the CB Merger Agreement, would acquire
the right to vote 10% or more of the capital stock of CB or any of its
subsidiaries entitled to vote thereon for the election of directors; (iii)
acquisition of 10% or more of the assets of CB or any of its subsidiaries; or
(iv) acquisition in excess of 10% of the outstanding capital stock of CB or any
of its subsidiaries, in each case other than as contemplated by the CB Merger
Agreement.
REGULATORY APPROVALS REQUIRED FOR THE MERGERS
Pinnacle and IFC have agreed to use their best efforts to obtain the
requisite regulatory approvals for the IFC Merger, which include approval from
the Federal Reserve Board and various state regulatory authorities, and intend
to complete the filing of applications and notifications to obtain such
requisite regulatory approvals promptly after the date of this Joint Proxy
Statement/Prospectus. Similarly, Pinnacle and CB have agreed to use their best
efforts to obtain the requisite regulatory approvals for the CB Merger, which
include approval from the Federal Reserve Board and various state regulatory
authorities, and intend to complete the filing of applications and notifications
to obtain such requisite regulatory approvals promptly after the date of this
Joint Proxy Statement/Prospectus. Neither the IFC Merger nor the CB Merger can
proceed in the absence of the requisite regulatory approvals. There can be no
assurance that such requisite regulatory approvals will be obtained, and, if
obtained, there can be no assurance as to the date of any such approvals or the
absence of any litigation challenging such approvals. There can likewise be no
assurance that the Department of Justice or any state attorney general will not
attempt to challenge either one or both of the Mergers on antitrust grounds or,
if such a challenge is made, as to the result thereof.
Pinnacle and IFC are not aware of any other material governmental approvals
or actions that are required prior to the parties' consummation of the IFC
Merger other than those described below. Similarly, Pinnacle and CB are not
aware of any other material governmental approvals or actions that are required
prior to the parties' consummation of the CB Merger other than those described
below. It is presently contemplated that if any such additional governmental
approvals or actions are required, such approvals or actions will be sought.
There can be no assurance, however, that any such additional approvals or
actions will be obtained.
FEDERAL RESERVE BOARD. Each of the Mergers is subject to approval by the
Federal Reserve Board pursuant to Section 4 of the Bank Holding Company Act of
1956, as amended (the "BHCA"). Pinnacle and IFC intend to promptly file the
required application and notification with the Federal Reserve Board for
approval of the IFC Merger. Pinnacle and CB intend to promptly file the required
application and notification with the Federal Reserve Board for approval of the
CB Merger.
In reviewing a transaction under the applicable statutes, the Federal
Reserve Board will consider the financial and managerial resources of the
companies and their subsidiary banks and the convenience and needs of the
communities to be served. As part of, or in addition to, consideration of the
above factors, it is anticipated that the Federal Reserve Board will consider
the regulatory status of Pinnacle, IFC and CB, as
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applicable, current and projected economic conditions in the Midwest and the
overall capital and safety and soundness standards established by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and the
regulations promulgated thereunder.
In addition, under the Community Reinvestment Act of 1977, as amended (the
"CRA"), the Federal Reserve Board must take into account the record of
performance of each of Pinnacle, IFC and CB, as applicable, in meeting the
credit needs of the entire community, including low and moderate income
neighborhoods, served by each company. Pinnacle's bank subsidiary has a
satisfactory CRA rating with its Federal regulator. IFC's thrift subsidiary has
an outstanding CRA rating with its Federal regulator. CB's thrift subsidiary has
a satisfactory CRA rating with its Federal regulator. No bank or thrift
subsidiary of Pinnacle or IFC or CB has received any negative comments from its
respective Federal regulator in its last CRA examination relating to such
ratings which were material and remain unresolved.
The Federal Reserve Board will furnish notice and a copy of the application
for approval of each of the Mergers to the Federal Deposit Insurance Corporation
and the appropriate state regulatory authorities. These agencies have 30 days to
submit their views and recommendations to the Federal Reserve Board.
Furthermore, the BHCA and Federal Reserve Board regulations require publication
of notice of, and the opportunity for public comment on, the applications
submitted for approval of the Mergers and authorize the Federal Reserve Board to
hold a public hearing in connection therewith if the Federal Reserve Board
determines that such a hearing would be appropriate. Any such hearing or
comments provided by third parties could prolong the period during which the
application is subject to review by the Federal Reserve Board.
In general, the Federal Reserve Board and the Department of Justice will
examine the impact of each of the Mergers on competition in various product and
geographic markets, including competition for deposits and loans, especially
loans to small and middle market businesses.
Pinnacle's and IFC's rights to exercise their respective options under the
Stock Option Agreements are also subject to the prior approval of the Federal
Reserve Board, to the extent that the exercise of their respective options under
the Stock Option Agreements would result in Pinnacle or IFC, as the case may be,
owning more than 5% of the outstanding shares of IFC Common Stock or Pinnacle
Common Stock, respectively. In considering whether to approve Pinnacle's or
IFC's right to exercise its respective option, including its respective right to
purchase more than 5% of the outstanding shares of IFC Common Stock or Pinnacle
Common Stock, as the case may be, the Federal Reserve Board would generally
apply the same statutory criteria it would apply to its consideration of
approval of the Merger. Pinnacle's right to exercise its option under the CB
Stock Option Agreement is also subject to the prior approval of the Federal
Reserve Board, to the extent that the exercise of its option under that Stock
Option Agreement would result in Pinnacle, owning more than 5% of the
outstanding shares of CB Common Stock. In considering whether to approve
Pinnacle's right to exercise its option, including its right to purchase more
than 5% of the outstanding shares of CB Common Stock, the Federal Reserve Board
would generally apply the same statutory criteria it would apply to its
consideration of approval of the CB Merger.
The acquisition by a bank holding company such as Pinnacle of a single
savings association is not subject to interstate banking limitations; however,
the acquisition of any additional savings associations other than in emergency
circumstances must be specifically authorized by the laws of the state in which
the additional savings association is located.
FEDERAL DEPOSIT INSURANCE CORPORATION. An application has been filed with
the FDIC to merge IndFed Bank with and into Pinnacle Bank pursuant to the IFC
Subsidiary Bank Merger Agreement. Similarly, an application will promptly be
filed with the FDIC to merge Community Bank with and into Pinnacle Bank pursuant
to the CB Subsidiary Bank Merger Agreement. The FDIC will review such
applications pursuant to standards which are similar to certain of the standards
employed by the Federal Reserve Board, as described above.
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STATE REGULATORY AUTHORITIES. Applications or notifications will be
promptly filed with the Financial Institutions Bureau of the State of Michigan
(the "Michigan Financial Institutions Bureau"). The Michigan Financial
Institutions Bureau will review such applications or notifications pursuant to
standards which are similar to certain of the standards employed by the Federal
Reserve Board, as described above. In addition, each of the Mergers, and the
last of the Subsidiary Bank Mergers to be consummated, may be reviewed by the
attorneys general in Indiana and Michigan. Such authorities may be empowered
under the applicable state laws and regulations to investigate and/or disapprove
either one or both of the Mergers or such Subsidiary Bank Merger under the
circumstances and based upon the review set forth in applicable state laws and
regulations. There can be no assurance that one or more state attorneys general
will not file an antitrust action to enjoin either one or both of the Mergers.
THERE CAN BE NO ASSURANCE THAT THE REGULATORY AUTHORITIES HAVING
JURISDICTION WILL APPROVE EITHER ONE OR BOTH OF THE MERGERS AND IF EITHER ONE OR
BOTH OF THE MERGERS IS APPROVED, THERE CAN BE NO ASSURANCE AS TO THE DATE OF
SUCH APPROVALS. THERE CAN ALSO BE NO ASSURANCE THAT ANY SUCH APPROVALS WILL NOT
CONTAIN A MATERIALLY BURDENSOME CONDITION OR REQUIREMENT WHICH CAUSES SUCH
APPROVALS TO FAIL TO SATISFY THE CONDITIONS TO CONSUMMATION OF THE MERGERS SET
FORTH IN THE MERGER AGREEMENTS. THERE CAN LIKEWISE BE NO ASSURANCE THAT THE
DEPARTMENT OF JUSTICE OR ONE OR MORE STATE ATTORNEYS GENERAL WILL NOT CHALLENGE
EITHER ONE OR BOTH OF THE MERGERS, OR IF SUCH A CHALLENGE IS MADE, AS TO THE
RESULT THEREOF.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
Certain members of Pinnacle's management and the Pinnacle Board, and IFC's
management and the IFC Board, respectively, may be deemed to have certain
interests in the IFC Merger that are in addition to their interests as
stockholders of Pinnacle or IFC, as the case may be. The Pinnacle Board and the
IFC Board were aware of these interests and considered them, among other
matters, in approving the IFC Merger Agreement, the Stock Option Agreements, and
the transactions contemplated thereby. Similarly, certain members of Pinnacle's
management and the Pinnacle Board, and CB's management and the CB Board,
respectively, may be deemed to have certain interests in the CB Merger that are
in addition to their interests as stockholders of Pinnacle or CB, as the case
may be. The Pinnacle Board and the CB Board were aware of these interests and
considered them, among other matters, in approving the CB Merger Agreement, the
CB Stock Option Agreement, and the transactions contemplated thereby. See
"INTERESTS OF CERTAIN PERSONS IN THE MERGERS."
ANTICIPATED ACCOUNTING TREATMENT
It is anticipated that each of the Mergers will be accounted for as a
"pooling-of-interests" transaction under generally accepted accounting
principles. Under such method of accounting, holders of IFC Common Stock and
holders of CB Common Stock will be deemed to have combined their existing voting
common stock interest with that of holders of Pinnacle Common Stock by
exchanging their shares of IFC Common Stock or CB Common Stock, as the case may
be, for shares of Pinnacle Common Stock. Accordingly, the book value of the
assets, liabilities and stockholders' equity of IFC and CB, as reported on its
respective consolidated balance sheet, will be carried over to the consolidated
balance sheet of the combined corporation at their recorded amounts and no
goodwill will be created. The combined corporation will be able to include in
its consolidated income the consolidated income of IFC and CB and Pinnacle for
the entire fiscal year in which the Mergers occur (however, certain expenses
incurred to effect the Mergers must be treated as current charges against income
rather than adjustments to the balance sheet), and the reported income of the
separate institutions for prior periods will be combined and restated as income
of the combined corporation. The unaudited pro forma combined financial
information contained in this Joint Proxy Statement/Prospectus has been prepared
using the "pooling-of-interests" accounting method to account for the Mergers.
See "PRO FORMA COMBINED FINANCIAL INFORMATION."
The IFC Merger Agreement provides that a condition to the consummation of
the IFC Merger is receipt by Pinnacle of a letter from KPMG Peat Marwick LLP and
receipt by IFC of a letter from Ernst &
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Young LLP regarding the appropriateness of "pooling-of-interests" accounting for
the IFC Merger under generally accepted accounting principles if closed and
consummated in accordance with the IFC Merger Agreement. Similarly, the CB
Merger Agreement provides that a condition to the consummation of the CB Merger
is receipt by Pinnacle of a letter from KPMG Peat Marwick LLP and receipt by CB
of a letter from Crowe, Chizek and Company LLP regarding the appropriateness of
"pooling-of-interests" accounting for the CB Merger under generally accepted
accounting principles if closed and consummated in accordance with the CB Merger
Agreement.
The issuance of shares of IFC Common Stock pursuant to the IFC Stock Option
Agreement, or the issuance of shares of Pinnacle Common Stock pursuant to the
Pinnacle Stock Option Agreement, may prevent the Mergers from qualifying as a
"pooling-of-interests" for accounting purposes. Similarly, the issuance of
shares of CB Common Stock pursuant to the CB Stock Option Agreement may prevent
the CB Merger from qualifying as a "pooling-of-interests" for accounting
purposes. In such event, the IFC Merger Agreement may be terminated at the
option of either Pinnacle or IFC, and, similarly, the CB Merger Agreement may be
terminated at the option of either Pinnacle or CB.
RESALE OF PINNACLE COMMON STOCK; RESTRICTIONS ON TRANSFER
The Pinnacle Common Stock issued pursuant to the Mergers will be freely
transferable under the Securities Act, except for shares issued to any
stockholder of IFC or CB who may be deemed to be an affiliate of Pinnacle for
purposes of Rule 144 promulgated under the Securities Act ("Rule 144") or an
affiliate of IFC or CB for purposes of Rule 145 promulgated under the Securities
Act ("Rule 145") (each an "Affiliate"). Affiliates will include persons
(generally executive officers, directors and 10% stockholders) who control, are
controlled by, or are under common control with (i) Pinnacle or IFC at the time
of the Stockholder Meetings, (ii) Pinnacle or CB at the time of the Stockholder
Meetings, or (iii) the combined corporation at or after the consummation of the
Mergers.
Rule 144 and Rule 145 will restrict the sale of Pinnacle Common Stock
received in the Mergers by Affiliates and certain of their family members and
related interests. Generally speaking, during the one year following the
consummation of the Mergers, those persons who are Affiliates of CB or IFC at
the time of the Stockholder Meetings, provided they are not Affiliates of
Pinnacle at or following the consummation of the Mergers, may publicly resell
any Pinnacle Common Stock received by them in the Mergers, subject to certain
limitations as to, among other things, the amount of Pinnacle Common Stock sold
by them in any three-month period and as to the manner of sale. After the
one-year period, such Affiliates may resell their shares without such
restrictions so long as there is adequate current public information with
respect to the combined corporation as required by Rule 144. Persons who become
Affiliates of Pinnacle prior to, or at or after the consummation of the Mergers,
may publicly resell the Pinnacle Common Stock received by them in the Mergers
subject to similar limitations and subject to certain filing requirements
specified in Rule 144.
The ability of Affiliates to resell shares of Pinnacle Common Stock received
in the Mergers under Rule 144 or Rule 145 as summarized herein generally will be
subject to Pinnacle's having satisfied its Exchange Act reporting requirements
for specified periods prior to the time of sale. Affiliates also would be
permitted to resell Pinnacle Common Stock received in the Mergers pursuant to an
effective registration statement under the Securities Act or another available
exemption from the registration requirements of the Securities Act.
This Joint Proxy Statement/Prospectus does not cover any resales of Pinnacle
Common Stock to be received by stockholders of IFC or CB upon consummation of
the Mergers, and no person is authorized to make use of this Joint Proxy
Statement/Prospectus in connection with any such resale.
Commission guidelines regarding qualifying for the "pooling-of-interests"
method of accounting also limit sales of shares of the acquiring and acquired
company by affiliates of either company in a business combination. Commission
guidelines indicate further that the "pooling-of-interests" method of accounting
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will generally not be challenged on the basis of sales by affiliates of the
acquiring or acquired company if they do not dispose of any of the shares of the
corporation they own or shares of a corporation they receive in connection with
a merger during the period beginning 30 days before the merger and ending when
financial results covering at least 30 days of post-merger operations of the
combined entity have been published.
Each of IFC and Pinnacle has agreed in the IFC Merger Agreement to use its
best efforts to cause each person who is an Affiliate (for purposes of Rule 145
and for purposes of qualifying the IFC Merger for "pooling-of-interests"
accounting treatment) of such party to deliver to the other party a written
agreement intended to ensure compliance with the Securities Act and preserve the
ability to treat the IFC Merger as a "pooling-of-interests." Similarly, each of
CB and Pinnacle has agreed in the CB Merger Agreement to use its best efforts to
cause each person who is an Affiliate (for purposes of Rule 145 and for purposes
of qualifying the CB Merger for "pooling-of-interests" accounting treatment) of
such party to deliver to the other party a written agreement intended to ensure
compliance with the Securities Act and preserve the ability to treat the CB
Merger as a "pooling-of-interests." In addition, Pinnacle, as the surviving
corporation, has agreed in each of the Merger Agreements to use its best efforts
to publish not later than 90 days after the end of the first month after the
effective time of each of the Mergers in which there are at least 30 days of
post-merger combined operations, combined sales and net income figures as
contemplated by and in accordance with the terms of the Commission's Accounting
Series Release No. 135.
NO DISSENTERS' RIGHTS/NO APPRAISAL RIGHTS
Holders of shares of Pinnacle Common Stock will not have dissenters' rights
under the Michigan Business Corporation Act, as amended, in connection with, or
as a result of, the matters to be acted upon at the Pinnacle Annual Meeting.
Holders of shares of IFC Common Stock will not have dissenters' rights under the
Delaware General Corporation Law, as amended, in connection with, or as a result
of, the matters to be acted upon at the IFC Annual Meeting. Holders of shares of
CB Common Stock will not have dissenters' rights under the DGCL, in connection
with, or as a result of, the matters to be acted upon at the CB Special Meeting.
STOCK OPTION AGREEMENTS
Concurrently with the execution of the IFC Merger Agreement, Pinnacle (as
issuer) and IFC (as grantee) entered into the Pinnacle Stock Option Agreement,
pursuant to which Pinnacle granted to IFC the Pinnacle Option. At the same time,
IFC (as issuer) and Pinnacle (as grantee) entered into the IFC Stock Option
Agreement, pursuant to which IFC granted to Pinnacle the IFC Option. Pinnacle
and IFC approved and entered into the Pinnacle/IFC Stock Option Agreements to
induce each other to enter into the IFC Merger Agreement. The Pinnacle/IFC Stock
Option Agreements are intended to increase the likelihood that the IFC Merger
will be consummated in accordance with the terms of the IFC Merger Agreement.
Consequently, certain aspects of the Pinnacle/IFC Stock Option Agreements may
have the effect of discouraging persons who might now or prior to the IFC
Effective Time be interested in acquiring all of or a significant interest in
Pinnacle or IFC from considering or proposing such an acquisition.
Concurrently with the execution of the CB Merger Agreement, CB (as issuer)
and Pinnacle (as grantee) entered into the CB Stock Option Agreement, pursuant
to which CB granted to Pinnacle the CB Option. Pinnacle and CB approved and
entered into the CB Stock Option Agreement to induce each other to enter into
the CB Merger Agreement. The CB Stock Option Agreement is intended to increase
the likelihood that the CB Merger will be consummated in accordance with the
terms of the CB Merger Agreement. Consequently, certain aspects of the CB Stock
Option Agreement may have the effect of discouraging persons who might now or
prior to the CB Effective Time be interested in acquiring all of or a
significant interest in CB from considering or proposing such an acquisition.
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Except as otherwise noted below, the terms and conditions of the Pinnacle
Stock Option Agreement, the IFC Stock Option Agreement and the CB Stock Option
Agreement are identical in all material respects. For purposes of this Section,
except as otherwise noted, (i) the Pinnacle Stock Option Agreement or the IFC
Option Agreement or the CB Stock Option Agreement, as the case may be, is
sometimes referred to as the "Issuer Option Agreement", (ii) Pinnacle, as issuer
of the Pinnacle Common Stock, IFC, as issuer of the IFC Common Stock, and CB, as
issuer of the CB Common Stock, upon the exercise of the Pinnacle Option, the IFC
Option, and the CB Stock Option, respectively, are sometimes individually
referred to as the "Issuer", (iii) Pinnacle, as the holder of the IFC Option and
the CB Option and IFC, as the holder of the Pinnacle Option, are sometimes
individually referred to as the "Optionee", (iv) the Pinnacle Option or the IFC
Option or the CB Option, as the case may be, is sometimes referred to as the
"Issuer Option" and (v) the Pinnacle Common Stock, the IFC Common Stock and the
CB Common Stock are referred to as "Issuer Common Stock."
The Pinnacle Stock Option Agreement provides for the purchase by IFC of
591,678 shares (the "Pinnacle Option Shares" or the "Issuer Option Shares", as
the case may be) of Pinnacle Common Stock at an exercise price of $24.625 per
share, payable in cash. The Pinnacle Option Shares, if issued pursuant to the
Pinnacle Option Agreement, will in no event exceed 9.9% of the Pinnacle Common
Stock issued and outstanding without giving effect to the issuance of any
Pinnacle Common Stock pursuant to the Pinnacle Option.
The IFC Stock Option Agreement provides for the purchase by Pinnacle of
470,361 shares (the "IFC Option Shares" or the "Issuer Option Shares", as the
case may be) of IFC Common Stock at an exercise price of $19.875 per share,
payable in cash. The IFC Stock Option Shares, if issued pursuant to the IFC
Option Agreement, will in no event exceed 9.9% of the IFC Common Stock issued
and outstanding without giving effect to the issuance of any IFC Common Stock
pursuant to the IFC Option.
The CB Stock Option Agreement provides for the purchase by Pinnacle of
115,037 shares (the "CB Option Shares" or the "Issuer Option Shares", as the
case may be) of CB Common Stock at an exercise price of $28.50 per share,
payable in cash. The CB Stock Option Shares, if issued pursuant to the CB Option
Agreement, will in no event exceed 9.9% of the CB Common Stock issued and
outstanding without giving effect to the issuance of any CB Common Stock
pursuant to the CB Option.
The number of shares of Issuer Common Stock subject to the Issuer Option
will be increased or decreased to the extent that the Issuer issues additional
shares of Issuer Common Stock (otherwise than pursuant to an exercise of the
Issuer Option) or redeems, repurchases, retires or otherwise causes to be no
longer outstanding shares of Issuer Common Stock such that the number of shares
of Issuer Common Stock subject to the Issuer Option continues to equal 9.9% of
the Issuer Common Stock then issued and outstanding, without giving effect to
the issuance of shares of Issuer Common Stock pursuant to an exercise of the
Issuer Option. In the event of any change in, or distributions in respect of,
the Issuer Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares,
distributions on or in respect of the Issuer Common Stock that would be
prohibited under the terms of the applicable Merger Agreement, or the like, the
type and number of shares of Issuer Common Stock subject to the Issuer Option,
and the applicable exercise price per Issuer Option Share, will be appropriately
adjusted in such manner as to fully preserve the economic benefits provided
under the Issuer Option Agreement.
The Optionee or any other holder or holders of the Issuer Option
(collectively, the "Holder") may exercise the Issuer Option, in whole or in
part, by sending notice within 90 days, in the case of the Pinnacle/ IFC Stock
Option Agreements, or 60 days, in the case of the CB Stock Option Agreement (in
each case subject to extension as provided in the applicable Issuer Option
Agreement), after the occurrence of both an "Initial Triggering Event" and a
"Subsequent Triggering Event" (as such terms are defined herein) prior
92
<PAGE>
to termination of the Issuer Option. The term "Initial Triggering Event" is
defined as the occurrence of any of the following events:
(i) the Issuer or any of its subsidiaries (each an "Issuer Subsidiary"),
without having received the Optionee's prior written consent, shall have
entered into an agreement to engage in an Acquisition Transaction (as
defined herein) with any person (the term "person" for purposes of the
Issuer Option Agreement having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the Exchange Act, and the rules and regulations
thereunder) other than the Optionee or any of its subsidiaries (each an
"Optionee Subsidiary") or the Board of Directors of the Issuer shall have
recommended that the stockholders of the Issuer approve or accept any such
Acquisition Transaction. For purposes of the Issuer Option Agreement,
"Acquisition Transaction" shall mean (w) a merger or consolidation, or any
similar transaction, involving the Issuer or any "Significant Subsidiary"
(as such term is defined in Rule 1-02 of Regulation S-X promulgated by the
Commission) of the Issuer, (x) a purchase, lease, or other acquisition of
all or a substantial portion of the assets or deposits of the Issuer or any
Significant Subsidiary of the Issuer, (y) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or otherwise) of
securities representing 10% or more of the voting power of the Issuer, or
(z) any substantially similar transaction; provided, however, that in no
event shall any merger, consolidation, purchase, or similar transaction
involving only the Issuer and one or more of its subsidiaries or involving
only any two or more of such Issuer Subsidiaries, be deemed to be an
Acquisition Transaction, provided any such transaction is not entered into
in violation of the terms of the applicable Merger Agreement; and provided,
further, that any transaction described in this sentence that is expressly
permitted by the applicable Merger Agreement shall not be deemed to be an
Acquisition Transaction;
(ii) the Issuer or any Issuer Subsidiary, without having received
Optionee's prior written consent, shall have authorized, recommended,
proposed, or publicly announced its intention to authorize, recommend, or
propose, to engage in an Acquisition Transaction with any person other than
the Optionee or an Optionee Subsidiary, or the Board of Directors of the
Issuer shall have publicly withdrawn or modified, or publicly announced its
interest to withdraw or modify, in any manner adverse to the Optionee, its
recommendation that the stockholders of the Issuer approve the transactions
contemplated by the applicable Merger Agreement;
(iii) any person other than the Optionee, any Optionee Subsidiary, or any
Issuer Subsidiary acting in a fiduciary capacity in the ordinary course of
its business (and other than any person who (a) as of the date of the Issuer
Option Agreement, beneficially owned 10% or more of the outstanding shares
of the Issuer Common Stock, and (b) would have been eligible to use Schedule
13G but for the fact that such person owned 10% or more of the outstanding
shares of the Issuer Common Stock) shall have acquired beneficial ownership
or the right to acquire beneficial ownership of 10% or more of the
outstanding shares of the Issuer Common Stock (the term "beneficial
ownership" for purposes of the Issuer Option Agreement having the meaning
assigned thereto in Section 13(d) of the Exchange Act, and the rules and
regulations thereunder);
(iv) any person other than the Optionee or any Optionee Subsidiary shall
have made a bona fide proposal to the Issuer or its stockholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) after an overture (in the case of the Pinnacle/IFC Stock Option
Agreements), or a bona fide proposal by public announcement or written
communication (in the case of the CB Stock Option Agreement), is made by a
third party to the Issuer or its stockholders to engage in an Acquisition
Transaction, the Issuer shall have breached any covenant or obligation
contained in the applicable Merger Agreement and such breach (x) would
entitle the Optionee to terminate the applicable Merger Agreement and (y)
shall not have been cured prior to the date of the written notice exercising
the Issuer Option; or
93
<PAGE>
(vi) any person other than the Optionee or any Optionee Subsidiary,
other than in connection with a transaction to which the Optionee has given
its prior written consent, shall have filed an application or notice with
the Federal Reserve Board or other Federal or state bank regulatory
authority, which application or notice has been accepted for processing, for
approval to engage in an Acquisition Transaction.
"Subsequent Triggering Event" is defined as either (A) the acquisition by
any person of beneficial ownership of 20% or more of the then outstanding Issuer
Common Stock, or (B) the occurrence of the Initial Triggering Event described in
clause (i) above, except that the percentage referred to in subclause (y)
thereof shall be 20%.
Within 90 days (subject to extension as provided in the Issuer Option
Agreement) after a Subsequent Triggering Event prior to the termination of the
Issuer Option, the Optionee (on behalf of itself or any subsequent Holder) may
demand that the Issuer Option and the related Issuer Option Shares be registered
under the Securities Act. Upon such demand, the Issuer must effect such
registration promptly, subject to certain exceptions. The Optionee is entitled
to two such registrations.
The Issuer Option terminates (i) upon consummation of the applicable Merger,
(ii) upon termination of the applicable Merger Agreement in accordance with the
terms of such Merger Agreement prior to the occurrence of an Initial Triggering
Event except a termination by the Optionee due to the material breach by the
Issuer of any representation, warranty, covenant or other agreement in such
Merger Agreement (unless the breach by the Issuer giving rise to such right of
termination is nonvolitional), or (iii) 12 months after termination of the
applicable Merger Agreement following the occurrence of an Initial Triggering
Event or if the termination is by the Optionee due to the material breach by the
Issuer of any representation, warranty, covenant or other agreement in such
Merger Agreement (unless the breach by the Issuer giving rise to such right of
termination is nonvolitional) (provided that if an Initial Triggering Event
occurs after or continues beyond such termination and prior to the passage of
such 12-month period, the Issuer Option will terminate twelve months from the
expiration of the last Initial Triggering Event to expire, but in no event more
than 18 months after such termination).
Immediately prior to the occurrence of a "Repurchase Event" (as hereinafter
defined), the Issuer is required (i) at the request of the holder delivered
prior to termination of the Issuer Option, to repurchase the Issuer Option from
the holder at a price (the "Issuer Option Repurchase Price" ) equal to the
amount by which (x) the "Market/Offer Price" (as hereinafter defined) exceeds
(y) the then applicable Issuer Option exercise price, multiplied by the number
of shares for which the Issuer Option may then be exercised; and (ii) at the
request of the owner of Issuer Option Shares from time to time (the "Owner")
delivered within 90 days of such occurrence, to repurchase such number of the
Issuer Option Shares from the Owner as the Owner designates at a price per share
(the "Issuer Option Share Repurchase Price") equal to the Market/Offer Price.
"Market/Offer Price" means the highest of (A) the price per share of the Issuer
Common Stock at which a tender offer or exchange offer therefor has been made,
(B) the price per share of the Issuer Common Stock to be paid by any third party
pursuant to an agreement with the Issuer, (C) the highest closing price for
shares of the Issuer Common Stock within the six-month period (in the case of
the Pinnacle/IFC Stock Option Agreements) or three-month period (in the case of
the CB Stock Option Agreement) immediately preceding the date the Holder gives
notice of the required repurchase of the Issuer Option or the Owner gives notice
of the required repurchase of the Issuer Option Shares, as the case may be, and
(D) in the event of the sale of all or a substantial portion of the Issuer's
assets, the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of the Issuer divided by the number of
shares of the Issuer Common Stock then outstanding. "Repurchase Event" means (i)
the consummation of any merger, consolidation or similar transaction involving
the Issuer or any purchase, lease or other acquisition of all or a substantial
portion of the assets of the Issuer, other than any such transaction which would
not constitute an Acquisition Transaction (as defined above) or (ii) the
acquisition by any person of beneficial ownership of 50% or more of then
outstanding shares of the Issuer Common Stock, provided that no such event shall
constitute a Repurchase Event unless a Subsequent
94
<PAGE>
Triggering Event shall have occurred prior to an "Exercise Termination Event"
(as defined in the Stock Option Agreements).
In the event that prior to termination of the Issuer Option, the Issuer
enters into an agreement (i) to consolidate with or merge into any person other
than the Optionee or one of its subsidiaries and shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to permit any person
other than the Optionee or one of its subsidiaries to merge into the Issuer with
the Issuer as the continuing or surviving corporation, but, in connection
therewith, the then outstanding shares of the Issuer Common Stock are changed
into or exchanged for securities of any other person or cash or any other
property, or the then outstanding shares of the Issuer Common Stock after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged company, or (iii) to sell or transfer all or
substantially all of its assets to any entity other than the Optionee or one of
its subsidiaries, then such agreement shall provide that the Issuer Option be
converted into or exchanged for an option (a "Substitute Option") to purchase
shares of common stock of, at the holder's option, either (x) the continuing or
surviving corporation of a merger or consolidation or the transferee of all or
substantially all of the Issuer's assets, or (y) the person controlling such
continuing or surviving corporation or transferee. The number of shares subject
to the Substitute Option and the exercise price per share will be determined in
accordance with a formula in the Issuer Option Agreement. To the extent
possible, the Substitute Option will contain terms and conditions that are the
same as those in the Issuer Option.
The issuer of the Substitute Option will be required to repurchase the
Substitute Option at the request of the holder thereof and to repurchase any
shares of such issuer's common stock ("Substitute Common Stock") issued upon
exercise of a Substitute Option ("Substitute Shares of Issuer Common Stock") at
the request of the owner thereof. The repurchase price for a Substitute Option
will equal the amount by which (A) the "Highest Closing Price" (as hereinafter
defined) exceeds (B) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised, plus the Optionee's reasonable out-of-pocket expenses.
The repurchase price for Substitute Shares of Issuer Common Stock shall equal
the Highest Closing Price multiplied by the number of Substitute Shares of
Issuer Common Stock to be repurchased, plus the Optionee's reasonable
out-of-pocket expenses. "Highest Closing Price" means the highest closing price
for shares of Substitute Common Stock within the six-month period immediately
preceding the date the holder gives notice of the required repurchase of the
Substitute Option or the owner gives notice of the required repurchase of
Substitute Shares of Issuer Common Stock, as the case may be.
Neither the Issuer nor the Optionee may assign any of its respective rights
and obligations under the Issuer Option Agreement or the Issuer Option to any
other person without the other party's express written consent, except that if a
Subsequent Triggering Event occurs prior to termination of the Issuer Option,
within 90 days thereafter (subject to extension as provided in the Issuer Option
Agreement), the Optionee, subject to the provisions of the Issuer Option
Agreement, may assign, in whole or in part, its rights and obligations
thereunder; provided, however, that until 15 days after the Federal Reserve
Board approves an application by the Optionee to acquire the Issuer Option
Shares, the Optionee may not assign its rights under the Issuer 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 2% of the voting shares of
the Issuer, (iii) an assignment to a single party for the purpose of conducting
a widely dispersed public distribution on the Optionee's behalf, or (iv) any
other manner approved by the Federal Reserve Board.
The rights and obligations of the Issuer and the Optionee under the Issuer
Option Agreement are subject to receipt of any required regulatory approvals,
and both parties have agreed to use their best efforts in connection therewith.
These include, but are not limited to, causing the shares of the Issuer Common
Stock to be listed for quotation on the Nasdaq National Market or the Nasdaq
Small-Cap Market, as applicable, upon official notice of issuance and applying
to the Federal Reserve Board for approval to acquire the Issuer Option Shares.
95
<PAGE>
The CB Stock Option Agreement also provides that CB shall not be obligated
to issue shares of CB Common Stock upon the exercise of the CB Option (i) in the
absence of any required governmental or regulatory approval or consent necessary
for CB to issue shares or for Pinnacle to exercise the CB Option, (ii) in the
event and for so long as Pinnacle is in material breach of its representations,
warranties, covenants or obligations under the CB Merger Agreement (unless
excused by reason of the material breach of CB of any of its representations,
warranties, covenants or obligations under the CB Merger Agreement), or (iii) so
long as any injunction or decree or ruling issued by a court of competent
jurisdiction is in effect which prohibits the sale or delivery of the CB Common
Stock.
96
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc. and CB Bancorp, Inc.
Unaudited Pro Forma Combined Statement of Income Summary combines the historical
Consolidated Statements of Income of Pinnacle and CB giving effect to the CB
Merger, which will be accounted for as a "pooling-of-interests," as if it had
been effective as of the beginning of the earliest period indicated and after
giving effect to the pro forma adjustments described in the Notes to Pinnacle
Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma Combined
Financial Statements. For a description of "pooling-of-interests" accounting
with respect to the CB Merger, see "THE MERGERS--Anticipated Accounting
Treatment." This information should be read in conjunction with the historical
consolidated financial statements of Pinnacle, including the notes thereto,
which are incorporated by reference in this Joint Proxy Statement/ Prospectus,
the historical consolidated financial statements of CB, including the notes
thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus, and the condensed consolidated historical financial data
for Pinnacle and CB and the other pro forma financial information, including the
notes thereto, which appear elsewhere in this Joint Proxy Statement/Prospectus.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The effect of the
expected one-time merger and restructuring charges of approximately $1.3 million
(after-tax) have been reflected in the unaudited pro forma combined balance
sheet; however, since the expected merger and restructuring charges are
nonrecurring they have not been reflected in the unaudited pro forma combined
statements of income. (See "--Notes to Pinnacle Financial Services, Inc. and CB
Bancorp, Inc. Unaudited Pro Forma Combined Financial Statements" for details of
the expected one-time merger and restructuring charges.) The pro forma financial
data do not give effect to any anticipated cost savings in connection with the
CB Merger and are not necessarily indicative of either the results that actually
would have occurred had the CB Merger been consummated on the dates indicated or
the results that may be obtained in the future.
106
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31*
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
INCOME STATEMENT
INTEREST INCOME:
Interest and fees on loans:
Taxable................................................................ $64,486 $41,004 $30,722
Tax-exempt............................................................. 239 241 242
Interest and dividends on securities:
Taxable................................................................ 23,199 7,601 5,754
Tax-exempt............................................................. 1,064 905 998
Interest on federal funds sold........................................... 434 270 290
Interest on due from banks............................................... 539 301 96
---------- ---------- ----------
Total interest income.................................................. 89,961 50,322 38,102
---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits..................................................... $35,965 $20,877 $15,243
Interest on securities sold under repurchase agreements and other
borrowings............................................................. 11,611 3,503 730
---------- ---------- ----------
Total interest expense................................................. 47,576 24,380 15,973
---------- ---------- ----------
Net interest income...................................................... 42,385 25,942 22,129
Provision for loan losses................................................ 2,018 482 203
---------- ---------- ----------
Net interest income after provision for loan losses...................... 40,367 25,460 21,926
---------- ---------- ----------
NON-INTEREST INCOME:
Other.................................................................... 8,256 5,378 4,630
Securities gains (losses), net........................................... 653 349 67
---------- ---------- ----------
Total non-interest income.............................................. 8,909 5,727 4,697
NON-INTEREST EXPENSE:
Salaries and benefits.................................................... 12,695 8,613 7,573
Occupancy and equipment.................................................. 4,254 2,551 2,429
Other.................................................................... 15,099 6,959 6,452
---------- ---------- ----------
Total non-interest expense............................................. 32,048 18,123 16,454
Income before income tax expense......................................... 17,228 13,064 10,169
Income tax expense....................................................... 6,027 4,150 3,254
Extraordinary items/accounting changes................................... -- -- --
---------- ---------- ----------
Net income............................................................... $11,201 $ 8,914 $ 6,915
---------- ---------- ----------
---------- ---------- ----------
NET INCOME PER SHARE:
Primary.................................................................. $1.49 $1.58 $1.26
Fully diluted............................................................ 1.49 1.58 1.26
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.................................................................. 7,504,112 5,636,634 5,498,235
Fully diluted............................................................ 7,504,112 5,636,634 5,498,235
</TABLE>
- ------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle and CB. As CB's fiscal year end is March 31, CB information for
each of the years ended December 31, 1996, 1995 and 1994 includes the fourth
quarter of the fiscal year preceding each such fiscal year and the first
three quarters of such fiscal year.
107
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc. and CB Bancorp, Inc.
Unaudited Pro Forma Combined Statement of Income combine the historical
Consolidated Statements of Income of Pinnacle and CB giving effect to the CB
Merger, which will be accounted for as a "pooling-of-interests," as if it had
been effective as of the beginning of the earliest period indicated and after
giving effect to the pro forma adjustments described in the Notes to Pinnacle
Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma Combined
Financial Statements. For a description of "pooling-of-interests" accounting
with respect to the CB Merger, see "THE MERGERS--Anticipated Accounting
Treatment." This information should be read in conjunction with the historical
consolidated financial statements of Pinnacle, including the notes thereto,
which are incorporated by reference in this Joint Proxy Statement/Prospectus,
the historical consolidated financial statements of CB, including the notes
thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus, and the condensed consolidated historical financial data
for Pinnacle and CB and the other pro forma financial information, including the
notes thereto, which appear elsewhere in this Joint Proxy Statement/Prospectus.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The effect of the
expected one time merger and restructuring charges of approximately $1.3 million
(after-tax) have been reflected in the unaudited pro forma combined balance
sheet; however, since the expected merger and restructuring charges are
nonrecurring they have not been reflected in the unaudited pro forma combined
statements of income. (See "--Notes to Pinnacle Financial Services, Inc. and CB
Bancorp, Inc. Unaudited Pro Forma Combined Financial Statements" for details of
the expected one-time merger and restructuring charges.) The pro forma financial
data do not give effect to any anticipated cost savings in connection with the
CB Merger and are not necessarily indicative of either the results that actually
would have occurred had the CB Merger been consummated on the dates indicated or
the results that may be obtained in the future.
108
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996*
------------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
INCOME STATEMENT(1)
INTEREST INCOME:
Interest and fees on loans:
Taxable.................................................. $49,791 $14,695 $64,486
Tax-exempt............................................... 218 21 239
Interest and dividends on securities:
Taxable.................................................. 21,957 1,242 23,199
Tax-exempt............................................... 1,064 -- 1,064
Interest on federal funds sold............................. 410 24 434
Interest on due from banks................................. 529 10 539
---------- ---------- ------------ ----------
Total interest income.................................... 73,969 15,992 89,961
---------- ---------- ------------ ----------
INTEREST EXPENSE:
Interest on deposits....................................... $30,536 $5,429 $ $35,965
Interest on securities sold under repurchase agreements and
other borrowings......................................... 9,157 2,454 11,611
---------- ---------- ------------ ----------
Total interest expense................................... 39,693 7,883 47,576
---------- ---------- ------------ ----------
Net interest income........................................ 34,276 8,109 42,385
Provision for loan losses.................................. 375 1,643 2,018
---------- ---------- ------------ ----------
Net interest income after provision for loan losses........ 33,901 6,466 40,367
---------- ---------- ------------ ----------
NON-INTEREST INCOME:
Other...................................................... 6,655 1,601 8,256
Securities gains, net...................................... 653 -- 653
---------- ---------- ------------ ----------
Total non-interest income................................ 7,308 1,601 8,909
NON-INTEREST EXPENSES:
Salaries and benefits...................................... 10,843 1,852 12,695
Occupancy and equipment.................................... 3,670 584 4,254
Other...................................................... 12,443 2,656 15,099
---------- ---------- ------------ ----------
Total non-interest expense............................... 26,956 5,092 32,048
Income before income tax expense........................... 14,253 2,975 17,228
Income tax expense......................................... 5,101 926 6,027
---------- ---------- ------------ ----------
Net income................................................. $ 9,152 $ 2,049 $11,201
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
NET INCOME PER SHARE:
Primary.................................................... $1.55 $1.64 $1.49
Fully diluted.............................................. 1.55 1.64 1.49
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.................................................... 5,899,453 1,245,810 358,955(1) 7,504,112
Fully diluted.............................................. 5,899,453 1,250,704 353,955(1) 7,504,112
</TABLE>
- ------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle and CB. As CB's fiscal year end is March 31, CB information for
each of the years ended December 31, 1996, 1995 and 1994 includes the fourth
quarter of the fiscal year preceding each such fiscal year and the first
three quarters of such fiscal year.
109
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995*
-----------------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
INCOME STATEMENT
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................... $29,542 $11,462 $41,004
Tax-exempt............................................ 214 27 241
Interest and dividends on securities:
Taxable............................................... 6,321 1,280 7,601
Tax-exempt............................................ 905 -- 905
Interest on federal funds sold.......................... 257 13 270
Interest on due from banks interest bearing............. 256 45 301
------------ ------------ ----------- ------------
Total interest income............................... 37,495 12,827 50,322
------------ ------------ ----------- ------------
INTEREST EXPENSE:
Interest on deposits.................................... 16,093 4,784 20,877
Interest on securities sold under repurchase agreements
and other borrowings.................................. 2,058 1,445 3,503
------------ ------------ ----------- ------------
Total interest expense.............................. 18,151 6,229 24,380
------------ ------------ ----------- ------------
Net interest income..................................... 19,344 6,598 25,942
Provision for loan losses............................... 225 257 482
Net interest income after provision for loan losses..... 19,119 6,341 25,460
------------ ------------ ----------- ------------
NON-INTEREST INCOME:
Other income............................................ 4,236 1,142 5,378
Securities gains (losses), net.......................... 350 (1) 349
------------ ------------ ----------- ------------
Total non-interest income........................... 4,586 1,141 5,727
NON-INTEREST EXPENSES:
Salaries and benefits................................... 7,100 1,513 8,613
Occupancy and equipment................................. 2,044 507 2,551
Other non-interest expense.............................. 5,492 1,467 6,959
------------ ------------ ----------- ------------
Total non-interest expense.......................... 14,636 3,487 18,123
Income before income tax expense........................ 9,069 3,995 13,064
Income tax expense...................................... 2,610 1,540 4,150
------------ ------------ ----------- ------------
Net income.............................................. $ 6,459 $ 2,455 $ 8,914
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
NET INCOME PER SHARE:
Primary................................................. $1.62 $1.94 $1.58
Fully diluted........................................... 1.62 1.93 1.58
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................................. 3,996,137 1,265,353 375,114(1) 5,636,634
Fully diluted........................................... 3,996,137 1,273,276 367,221(1) 5,636,634
</TABLE>
- ------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle and CB. As CB's fiscal year end is March 31, CB information for
each of the years ended December 31, 1996, 1995 and 1994 includes the fourth
quarter of the fiscal year preceding each such fiscal year and the first
three quarters of such fiscal year.
110
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994*
------------------------------------------------
<S> <C> <C> <C> <C>
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ----------
INCOME STATEMENT(1)
INTEREST INCOME:
Interest and fees on loans:
Taxable.................................................. $22,949 $7,773 $30,722
Tax-exempt............................................... 209 33 242
Interest and dividends on securities:
Taxable.................................................. 4,626 1,128 5,754
Tax-exempt............................................... 998 -- 998
Interest on federal funds sold............................. 110 180 290
Interest on due from banks................................. 76 20 96
---------- ---------- ------------ ----------
Total interest income.................................. 28,968 9,134 38,102
---------- ---------- ------------ ----------
INTEREST EXPENSE:
Interest on deposits....................................... 11,316 3,927 15,243
Interest on securities sold under repurchase agreements and
other borrowings......................................... 546 184 730
---------- ---------- ------------ ----------
Total interest expense................................. 11,862 4,111 15,973
---------- ---------- ------------ ----------
Net interest income........................................ 17,106 5,023 22,129
Provision for loan losses.................................. 125 78 203
---------- ---------- ------------ ----------
Net interest income after provision for loan losses........ 16,981 4,945 21,926
---------- ---------- ------------ ----------
NON-INTEREST INCOME:
Other income............................................... 3,692 938 4,630
Securities gains, net...................................... 64 3 67
---------- ---------- ------------ ----------
Total non-interest income.............................. 3,756 941 4,697
NON-INTEREST EXPENSES:
Salaries and benefits...................................... 6,073 1,500 7,573
Occupancy and equipment.................................... 1,918 511 2,429
Other...................................................... 5,123 1,329 6,452
---------- ---------- ------------ ----------
Total non-interest expense............................. 13,114 3,340 16,454
Income before income tax expense........................... 7,623 2,546 10,169
Income tax expense......................................... 2,333 921 3,254
---------- ---------- ------------ ----------
Net income................................................. $ 5,290 $1,625 $ 6,915
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
NET INCOME PER SHARE:
Primary.................................................... $1.38 $1.26 $1.26
Fully diluted.............................................. 1.38 1.26 1.26
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.................................................... 3,821,904 1,292,293 384,038(1) 5,498,235
Fully diluted.............................................. 3,821,904 1,289,970 386,361(1) 5,498,235
</TABLE>
- ------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle and CB. As CB's fiscal year end is March 31, CB information for
each of the years ended December 31, 1996, 1995 and 1994 includes the fourth
quarter of the fiscal year preceding each such fiscal year and the first
three quarters of such fiscal year.
111
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc. and CB Bancorp, Inc.
Unaudited Pro Forma Combined Balance Sheet combines the historical Consolidated
Balance Sheets of Pinnacle and CB giving effect to the CB Merger, which will be
accounted for as a "pooling-of-interests," as if it had been effective on
December 31, 1996. For a description of "pooling-of-interests" accounting with
respect to the CB Merger, see "THE MERGERS--Anticipated Accounting Treatment."
This information should be read in conjunction with the historical consolidated
financial statements of Pinnacle, including the notes thereto, which are
incorporated by reference in this Joint Proxy Statement/Prospectus, the
historical consolidated financial statements of CB, including the notes thereto,
which are incorporated by reference in this Joint Proxy Statement/Prospectus,
and the condensed consolidated historical financial data for Pinnacle and the CB
and the other pro forma financial information, including the notes thereto,
which appear elsewhere in this Joint Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The effect of the expected
one-time merger and restructuring charges of approximately $1.3 million
(after-tax) have been reflected in the unaudited pro forma combined balance
sheet; however, since the expected merger and restructuring charges are
nonrecurring they have not been reflected in the unaudited pro forma combined
statements of income. (See "--Notes to Pinnacle Financial Services, Inc. and CB
Bancorp, Inc. Unaudited Pro Forma Combined Financial Statements" for details of
the expected one-time merger and restructuring charges.) The pro forma financial
data do not give effect to any anticipated cost savings in connection with the
CB Merger and are not necessarily indicative of either the results that actually
would have occurred had the CB Merger been consummated on December 31, 1996 or
the results that may be obtained in the future.
112
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-----------------------------------------------------
PINNACLE IFC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash due from banks..................................... $ 30,290 $ 4,088 $(1,500)(2) $ 32,878
Federal funds sold...................................... 15,750 -- 15,750
Due from banks-interest bearing......................... 3,223 2,226 5,449
Investment securities................................... 372,157 18,578 390,735
Loans................................................... 609,564 194,052 803,616
Allowance for loan losses............................... (5,643) (2,309) (7,952)
Other assets............................................ 43,780 9,918 53,698
------------ ------------ ----------- ------------
Total assets........................................ $ 1,069,121 226,553 $(1,500) $ 1,294,174
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
LIABILITIES:
Deposits:
Non-interest-bearing demand deposits.................. $ 78,365 $ 17,604 $ 95,969
Interest-bearing demand deposits...................... 76,665 14,037 90,702
Savings deposits...................................... 261,997 37,106 299,103
Time deposits......................................... 344,242 82,636 426,878
------------ ------------ ----------- ------------
Total deposits...................................... 761,269 151,383 -- 912,652
Securities sold under agreements to repurchase and other
borrowings............................................ 225,361 53,000 278,361
Other liabilities....................................... 4,442 2,162 $(180)(2) 6,424
------------ ------------ ----------- ------------
Total liabilities................................... 991,072 206,545 (180) 1,197,437
STOCKHOLDERS' EQUITY:
Common stock............................................ 19,110 13 (13)(3) 19,110
Additional paid-in-capital.............................. 44,526 5,803 (1,731)(3) 48,598
Retained earnings....................................... 14,789 15,890 (1,320)(2) 29,359
Net unrealized gain (loss) on securities-for-sale....... (376) 46 (330)
Less: Treasury stock.................................... -- 1,744 (1,744)(3) --
------------ ------------ ----------- ------------
Total stockholders' equity.......................... 78,049 20,008 (1,320) 96,737
------------ ------------ ----------- ------------
Total liabilities and stockholders' equity.......... $ 1,069,121 $226,553 $(1,500) $ 1,294,174
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
PER SHARE DATA:
Shares outstanding...................................... 5,977,548 1,162,279 426,281(1) 7,566,108
Book value per share.................................... $ 13.06 $17.21 $ 12.79
</TABLE>
113
<PAGE>
NOTES TO PINNACLE FINANCIAL SERVICES, INC., AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Reflects additional shares issued assuming a CB Exchange Ratio of 1.2785
shares of Pinnacle Common Stock for each share of CB Common Stock and each
CB stock option converted in the CB Merger. The assumed CB Exchange Ratio
was calculated assuming an average price for Pinnacle Common Stock of
$27.375.
(2) Reflects expected one-time merger and restructuring charges of approximately
$1.5 million (pre-tax) and a tax credit of $180,000 to be incurred in 1997.
In addition, management believes there will be annualized pre-tax cost
savings of approximately $900,000 following the CB Merger. (While there can
be no assurances that such cost savings will be realized, they are expected
to be realized primarily through reductions in staff, consolidation of the
parties' banking and thrift businesses, the consolidation of certain
offices, data processing and other redundant back-office operations and
staff functions.)
The pro forma entries are displayed below:
<TABLE>
<S> <C> <C>
Debt--Retained earnings.............................. $1,320,000
Debt--other liabilities--taxes payable............... 180,000
Credit--Cash....................................... $1,500,000
</TABLE>
The following provides detail of the estimated pre-tax charges:
<TABLE>
<S> <C> <C>
Personnel............................................ $ 150,000
Benefit plans........................................ 200,000
Facilities and data processing....................... 100,000
Other Merger expenses................................ 1,050,000
---------
Total charges.................................... $1,500,000
---------
---------
</TABLE>
(3) Reflects accounting of the CB Merger as a "pooling-of-interests," through
the exchange of 1,588,560 shares of Pinnacle Common Stock for 1,162,279
shares of CB Common Stock and outstanding CB stock options and the
elimination of treasury stock.
114
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc., Indiana Federal Corporation
and CB Bancorp, Inc. Unaudited Pro Forma Combined Statement of Income Summary
combines the historical Consolidated Statements of Income of Pinnacle, IFC and
CB giving effect to each of the Mergers, which will be accounted for as
"pooling-of-interests," as if each of the Mergers had been effective as of the
beginning of the earliest period indicated and after giving effect to the pro
forma adjustments described in the Notes to Pinnacle Financial Services, Inc.,
Indiana Federal Corporation and CB Bancorp, Inc. Unaudited Pro Forma Combined
Financial Statements. For a description of "pooling-of-interests" accounting
with respect to the Mergers, see "THE MERGERS--Anticipated Accounting
Treatment." This information should be read in conjunction with the historical
consolidated financial statements of Pinnacle, including the notes thereto,
which are incorporated by reference in this Joint Proxy Statement/Prospectus,
the historical consolidated financial statements of IFC, including the notes
thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus, the historical consolidated financial statements of CB
Bancorp, Inc., including the notes thereto, which are incorporated by reference
in this Joint Proxy Statement/Prospectus, and the condensed consolidated
historical financial data for Pinnacle, IFC and CB and the other pro forma
financial information, including the notes thereto, which appear elsewhere in
this Joint Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE." The effect of the expected one-time merger and restructuring
charges of approximately $5.5 million (after-tax) have been reflected in the
unaudited pro forma combined balance sheet; however, since the expected merger
and restructuring charges are nonrecurring they have not been reflected in the
unaudited pro forma combined statements of income. (See "--Notes to Pinnacle
Financial Services, Inc., Indiana Federal Corporation and CB Bancorp, Inc.
Unaudited Pro Forma Combined Financial Statements" for details of the expected
one-time merger and restructuring charges.) The pro forma financial data do not
give effect to any anticipated cost savings in connection with the Mergers and
are not necessarily indicative of either the results that actually would have
occurred had the Mergers been consummated on the dates indicated or the results
that may be obtained in the future.
115
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,*
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
INCOME STATEMENT
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................................... $113,161 $ 87,686 $65,815
Tax-exempt............................................................ 477 454 447
Interest and dividends on securities:
Taxable............................................................. 30,919 15,701 13,737
Tax-exempt.......................................................... 1,136 973 1,093
Interest on federal funds sold.......................................... 498 356 447
Interest on due from banks interest bearing............................. 629 322 136
------------- ------------- -------------
Total interest income................................................. 146,820 105,492 81,675
------------- ------------- -------------
INTEREST EXPENSE:
Interest on deposits.................................................... 60,403 43,300 31,722
Interest on securities sold under repurchase agreements and other
borrowings............................................................ 19,032 10,935 6,616
------------- ------------- -------------
Total interest expense................................................ 79,435 54,235 38,338
------------- ------------- -------------
Net interest income....................................................... 67,385 51,257 43,337
Provision for loan losses................................................. 3,133 659 382
------------- ------------- -------------
Net interest income after provision for loan losses....................... 64,252 50,598 42,955
------------- ------------- -------------
NON-INTEREST INCOME:
Other................................................................... 12,551 9,617 9,031
Securities gains (losses), net.......................................... 708 789 137
------------- ------------- -------------
Total non-interest income............................................. 13,259 10,406 9,168
NON-INTEREST EXPENSE:
Salaries and benefits................................................... 21,519 17,568 14,980
Occupancy and equipment................................................. 7,690 6,001 4,934
Other................................................................... 25,290 14,749 11,712
------------- ------------- -------------
Total non-interest expense............................................ 54,499 38,318 31,626
------------- ------------- -------------
Income before income tax expense.......................................... 23,012 22,686 20,497
Income tax expense...................................................... 7,188 6,468 6,320
Extraordinary items/accounting changes.................................. -- -- --
------------- ------------- -------------
Net income.............................................................. $ 15,824 $ 16,218 $14,177
------------- ------------- -------------
------------- ------------- -------------
NET INCOME PER SHARE:
Primary................................................................. $1.29 $1.56 $1.37
Fully diluted........................................................... 1.28 1.55 1.37
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................................................. 12,298,961 10,413,633 10,342,834
Fully diluted........................................................... 12,318,370 10,444,781 10,346,721
</TABLE>
- ------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle, IFC and CB. As CB's fiscal year end is March 31, CB
information for each of the years ended December 31, 1996, 1995 and 1994
includes the fourth quarter of the fiscal year preceding each such fiscal
year and the first three quarters of such fiscal year.
116
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc., Indiana Federal Corporation
and CB Bancorp, Inc. Unaudited Pro Forma Combined Statement of Income combine
the historical Consolidated Statements of Income of Pinnacle, IFC and CB giving
effect to each of the Mergers, which will be accounted for as
"pooling-of-interests," as if each of the Mergers had been effective as of the
beginning of the earliest period indicated and after giving effect to the pro
forma adjustments described in the Notes to Pinnacle Financial Services, Inc.,
Indiana Federal Corporation and CB Bancorp, Inc. Unaudited Pro Forma Combined
Financial Statements. For a description of "pooling-of-interests" accounting
with respect to the Mergers, see "THE MERGERS--Anticipated Accounting
Treatment." This information should be read in conjunction with the historical
consolidated financial statements of Pinnacle, including the notes thereto,
which are incorporated by reference in this Joint Proxy Statement/Prospectus,
the historical consolidated financial statements of IFC, including the notes
thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus, the historical consolidated financial statements of CB,
including the notes thereto, which are incorporated by reference in this Joint
Proxy Statement/Prospectus and the condensed consolidated historical financial
data for Pinnacle, IFC and CB and the other pro forma financial information,
including the notes thereto, which appear elsewhere in this Joint Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The
effect of the expected one time merger and restructuring charges of
approximately $5.5 million (after-tax) have been reflected in the unaudited pro
forma combined balance sheet; however, since the expected merger and
restructuring charges are nonrecurring they have not been reflected in the
unaudited pro forma combined statements of income. (See "--Notes to Pinnacle
Financial Services, Inc., Indiana Federal Corporation and CB Bancorp, Inc.
Unaudited Pro Forma Combined Financial Statements" for details of the expected
one-time merger and restructuring charges.) The pro forma financial data do not
give effect to any anticipated cost savings in connection with the Mergers and
are not necessarily indicative of either the results that actually would have
occurred had the Mergers been consummated on the dates indicated or the results
that may be obtained in the future.
117
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996*
--------------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................... $49,791 $48,675 $14,695 $113,161
Tax-exempt............................................ 218 238 21 477
Interest and dividends on securities:
Taxable............................................... 21,957 7,720 1,242 30,919
Tax-exempt............................................ 1,064 72 -- 1,136
Interest on federal funds sold.......................... 410 64 24 498
Interest on due from banks interest bearing............. 529 90 10 629
------------ ------------ ------------ ------------ ------------
Total interest income............................... 73,969 56,859 15,992 146,820
------------ ------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits.................................... 30,536 24,438 5,429 60,403
Interest on securities sold under repurchase agreements
and other borrowings.................................. 9,157 7,421 2,454 19,032
------------ ------------ ------------ ------------ ------------
Total interest expense.............................. 39,693 31,859 7,883 79,435
------------ ------------ ------------ ------------ ------------
Net interest income....................................... 34,276 25,000 8,109 67,385
Provision for loan losses................................. 375 1,115 1,643 3,133
------------ ------------ ------------ ------------ ------------
Net interest income after provision for loan losses....... 33,901 23,885 6,466 64,252
------------ ------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Other income............................................ 6,655 4,295 1,601 12,551
Securities gains, net................................... 653 55 -- 708
------------ ------------ ------------ ------------ ------------
Total non-interest income........................... 7,308 4,350 1,601 13,259
NON-INTEREST EXPENSES:
Salaries and benefits................................... 10,843 8,824 1,852 21,519
Occupancy and equipment................................. 3,670 3,436 584 7,690
Other................................................... 12,443 10,191 2,656 25,290
------------ ------------ ------------ ------------ ------------
Total non-interest expense.......................... 29,956 22,451 5,092 54,499
------------ ------------ ------------ ------------ ------------
Income before income tax expense........................ 14,253 5,784 2,975 23,012
Income tax expense...................................... 5,101 1,161 926 7,188
------------ ------------ ------------ ------------ ------------
Net income.............................................. $ 9,152 $ 4,623 $ 2,049 $ 15,824
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME PER SHARE:
Primary................................................. $1.55 $0.96 $1.64 $1.29
Fully diluted........................................... 1.55 0.96 1.64 1.28
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................................. 5,899,453 4,794,849 1,245,810 358,849(1) 12,298,961
Fully diluted........................................... 5,899,453 4,814,258 1,250,704 353,955(1) 12,318,370
</TABLE>
- ------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle, IFC and CB. As CB's fiscal year end is March 31, CB
information for each of the years ended December 31, 1996, 1995 and 1994
includes the fourth quarter of the fiscal year preceding each such fiscal
year and the first three quarters of such fiscal year.
118
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995*
-----------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
INTEREST INCOME:
Interest and fees on loans:
Taxable........................................ $29,542 $46,682 $11,462 $ 87,686
Tax-exempt..................................... 214 213 27 454
Interest and dividends on securities:
Taxable........................................ 6,321 8,100 1,280 15,701
Tax-exempt..................................... 905 68 -- 973
Interest on federal funds sold..................... 257 86 13 356
Interest on due from banks interest bearing........ 256 21 45 322
---------- ---------- ---------- ----------- ----------
Total interest income............................ 37,495 55,170 12,827 105,492
---------- ---------- ---------- ----------- ----------
INTEREST EXPENSE:
Interest on deposits............................... 16,093 22,423 4,784 43,300
Interest on securities sold under repurchase
agreements and other borrowings.................. 2,058 7,432 1,445 10,935
---------- ---------- ---------- ----------- ----------
Total interest expense........................... 18,151 29,855 6,229 54,235
---------- ---------- ---------- ----------- ----------
Net interest income................................ 19,344 25,315 6,598 51,257
Provision for loan losses.......................... 225 177 257 659
---------- ---------- ---------- ----------- ----------
Net interest income after provision for loan
losses........................................... 19,119 25,138 6,341 50,598
---------- ---------- ---------- ----------- ----------
NON-INTEREST INCOME:
Other income....................................... 4,236 4,239 1,142 9,617
Securities gains (losses), net..................... 350 440 (1) 789
---------- ---------- ---------- ----------- ----------
Total non-interest income........................ 4,586 4,679 1,141 10,406
---------- ---------- ---------- ----------- ----------
NON-INTEREST EXPENSES:
Salaries and benefits.............................. 7,100 8,955 1,513 17,568
Occupancy and equipment............................ 2,044 3,450 507 6,001
Other.............................................. 5,492 7,790 1,467 14,749
---------- ---------- ---------- ----------- ----------
Total non-interest expense....................... 14,636 20,195 3,487 38,318
---------- ---------- ---------- ----------- ----------
Income before income tax expense................... 9,069 9,622 3,995 22,686
Income tax expense................................. 2,610 2,318 1,540 6,468
---------- ---------- ---------- ----------- ----------
Net income......................................... $ 6,459 $ 7,304 $ 2,455 $ 16,218
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET INCOME PER SHARE:
Primary.......................................... $1.62 $1.51 $1.94 $1.56
Fully diluted.................................... 1.62 1.52 1.93 1.55
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.......................................... 3,996,137 4,776,999 1,265,353 375,144(1) 10,413,633
Fully diluted.................................... 3,996,137 4,808,147 1,273,276 367,221(1) 10,444,781
</TABLE>
- ------------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle, IFC and CB. As CB's fiscal year end is March 31, CB
information for each of the years ended December 31, 1996, 1995 and 1994
includes the fourth quarter of the fiscal year preceding each such fiscal
year and the first three quarters of such fiscal year.
119
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994*
--------------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................... $22,949 $35,093 $7,773 $65,815
Tax-exempt............................................ 209 205 33 447
Interest and dividends on securities:
Taxable............................................... 4,626 7,983 1,128 13,737
Tax-exempt............................................ 998 95 -- 1,093
Interest on federal funds sold.......................... 110 157 180 447
Interest on due from banks.............................. 76 40 20 136
------------ ------------ ------------ ------------ ------------
Total interest income............................... 28,968 43,573 9,134 81,675
INTEREST EXPENSE:
Interest on deposits.................................... 11,316 16,479 3,927 31,722
Interest on securities sold under repurchase agreements
and other borrowings.................................. 546 5,886 184 6,616
------------ ------------ ------------ ------------ ------------
Total interest expense.............................. 11,862 22,365 4,111 38,338
------------ ------------ ------------ ------------ ------------
Net interest income....................................... 17,106 21,208 5,023 43,337
Provision for loan losses................................. 125 179 78 382
------------ ------------ ------------ ------------ ------------
Net interest income after provision for loan losses....... 16,981 21,029 4,945 42,955
------------ ------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Other income............................................ 3,692 4,401 938 9,031
Securities gains (losses), net.......................... 64 70 3 137
------------ ------------ ------------ ------------ ------------
Total non-interest income........................... 3,756 4,471 941 9,168
NON-INTEREST EXPENSES:
Salaries and benefits................................... 6,073 7,407 1,500 14,980
Occupancy and equipment................................. 1,918 2,505 511 4,934
Other non-interest expense.............................. 5,123 5,260 1,329 11,712
------------ ------------ ------------ ------------ ------------
Total non-interest expense.......................... 13,114 15,172 3,340 31,626
------------ ------------ ------------ ------------ ------------
Income before income tax
expense............................................... 7,623 10,328 2,546 20,497
Income tax expense...................................... 2,333 3,066 921 6,320
------------ ------------ ------------ ------------ ------------
Net income.............................................. $ 5,290 $ 7,262 $1,625 $14,177
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
NET INCOME PER SHARE:
Primary................................................. $1.38 $1.50 $1.26 $1.37
Fully diluted........................................... 1.38 1.50 1.26 1.37
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................................. 3,821,904 4,844,599 1,292,293 384,038 (1) 10,342,834
Fully diluted........................................... 3,821,904 4,848,486 1,289,970 386,361 (1) 10,346,721
</TABLE>
- ------------------------------
* Historical information included above is presented on a calendar year basis
for Pinnacle, IFC and CB. As CB's fiscal year end is March 31, CB
information for each of the years ended December 31, 1996, 1995 and 1994
includes the fourth quarter of the fiscal year preceding each such fiscal
year and the first three quarters of such fiscal year.
120
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc., Indiana Federal Corporation
and CB Bancorp, Inc. Unaudited Pro Forma Combined Balance Sheet combines the
historical Consolidated Balance Sheets of Pinnacle, IFC and CB giving effect to
each of the Mergers, which will be accounted for as "pooling-of-interests," as
if each of the Mergers had been effective on December 31, 1996. For a
description of "pooling-of-interests" accounting with respect to the Mergers,
see "THE MERGERS--Anticipated Accounting Treatment." This information should be
read in conjunction with the historical consolidated financial statements of
Pinnacle, including the notes thereto, which are incorporated by reference in
this Joint Proxy Statement/Prospectus, the historical consolidated financial
statements of IFC, including the notes thereto, which are incorporated by
reference in this Joint Proxy Statement/Prospectus, the historical consolidated
financial statements of CB, including the notes thereto, which are incorporated
by reference in this Joint Proxy Statement/Prospectus, and the condensed
consolidated historical financial data for Pinnacle, IFC and CB and the other
pro forma financial information, including the notes thereto, which appear
elsewhere in this Joint Proxy Statement/Prospectus. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE." The effect of the expected one-time merger and
restructuring charges of approximately $5.5 million (after-tax) have been
reflected in the unaudited pro forma combined balance sheet; however, since the
expected merger and restructuring charges are nonrecurring they have not been
reflected in the unaudited pro forma combined statements of income. (See
"--Notes to Pinnacle Financial Services, Inc., Indiana Federal Corporation and
CB Bancorp, Inc. Unaudited Pro Forma Combined Financial Statements" for details
of the expected one-time merger and restructuring charges.) The pro forma
financial data do not give effect to any anticipated cost savings in connection
with the Mergers and are not necessarily indicative of either the results that
actually would have occurred had the Mergers been consummated on December 31,
1996 or the results that may be obtained in the future.
121
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
--------------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash due from banks.................... $ 30,290 $ 25,820 $ 4,088 $ (6,809 (2) $ 53,389
Federal funds sold..................... 15,750 -- -- 15,750
Due from banks-interest bearing........ 3,223 66 2,226 5,515
Investment securities.................. 372,157 129,714 18,578 520,449
Loans.................................. 609,564 629,042 194,052 1,432,658
Allowance for loan losses.............. (5,643) (7,458) (2,309) (15,410)
Other assets........................... 43,780 59,641 9,918 (536 (2) 112,803
------------ ------------ ------------ ----------- -------------
Total assets......................... $1,069,121 $836,825 $226,553 $ (7,345) $2,125,154
------------ ------------ ------------ ----------- -------------
------------ ------------ ------------ ----------- -------------
LIABILITIES:
Deposits:
Non-interest-bearing demand deposits... $ 78,365 $ 31,686 $17,604 $127,655
Interest-bearing demand deposits....... 76,665 53,459 14,037 144,161
Savings deposits....................... 261,997 138,777 37,106 437,880
Time deposits.......................... 344,242 345,156 82,636 772,034
------------ ------------ ------------ ----------- -------------
Total deposits....................... 761,269 569,078 151,383 -- 1,481,730
Securities sold under agreements to
repurchase and other borrowings........ 225,361 192,800 53,000 471,161
Other liabilities...................... 4,442 3,580 2,162 $ (1,784 (2) 8,400
------------ ------------ ------------ ----------- -------------
Total liabilities.................... 991,072 765,458 206,545 (1,784) 1,961,291
Stockholders' Equity:
Common stock........................... 19,110 59 13 (72 (3) 19,110
Additional paid-in-capital............. 44,526 27,730 5,803 (10,392 (3) 67,667
Retained earnings...................... 14,789 52,175 15,890 (5,561 (2) 77,056
(237 (3)
Net unrealized gain (loss) on
securities-for-sale.................. (376) 360 46 30
Less: Treasury stock & ESOP obli-
gation................................. -- 8,957 1,744 (10,701 (3) --
------------ ------------ ------------ ----------- -------------
Total stockholders' equity............. 78,049 71,367 20,008 (5,561) 163,863
------------ ------------ ------------ ----------- -------------
Total liabilities and stockholders'
equity................................. $1,069,121 $836,825 $226,553 $ (7,345) $2,125,354
------------ ------------ ------------ ----------- -------------
------------ ------------ ------------ ----------- -------------
PER SHARE DATA:
Shares outstanding..................... 5,977,548 4,768,531 1,162,279 426,281(1) 12,334,639
Book value per share................... $13.06 $14.97 $17.21 $13.28
</TABLE>
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NOTES TO PINNACLE FINANCIAL SERVICES, INC.,
INDIANA FEDERAL CORPORATION AND CB BANCORP, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Reflects additional shares issued assuming a CB Exchange Ratio of 1.2785
shares of Pinnacle Common Stock for each share of CB Common Stock and each
CB stock option converted in the CB Merger. The assumed CB Exchange Ratio
was calculated assuming an average price for Pinnacle Common Stock of
$27.375.
(2) Reflects expected one-time merger and restructuring charges of approximately
$7.345 million (pre-tax) and a tax credit of $1.784 million to be incurred
in 1997. In addition management believes there will be annualized pre-tax
cost savings of approximately $4.4 million following the Mergers. (While
there can be no assurances that such cost savings will be realized, they are
expected to be realized primarily through reductions in staff, consolidation
of certain branches, consolidation of the parties' banking and thrift
businesses, the consolidation of certain offices, data processing and other
redundant back-office operations and staff functions.) This is expected to
result in a tax credit of $1.784 million from the one-time charges and a
$5.561 million after-tax charge to retained earnings in the pro forma
condensed combined balance sheet.
The pro forma entries are displayed below:
<TABLE>
<S> <C> <C>
Debt--Retained earnings.......................................... $5,561,000
Debt--Other liabilities--taxes payable........................... 1,784,000
Credit--Cash................................................... $6,809,000
Credit--Other assets--prepaid acquisition charges.............. 536,000
</TABLE>
The following provides detail of the estimated pre-tax charges:
<TABLE>
<S> <C> <C>
Personnel........................................................ $1,400,000
Benefit plans.................................................... 1,960,000
Facilities and data processing................................... 1,000,000
Other Merger expenses............................................ 2,985,000
---------
Total charges.................................................. $7,345,000
---------
---------
</TABLE>
(3) Reflects accounting of the IFC Merger as a "pooling-of-interests," through
the exchange of 4,768,531 shares of Pinnacle Common Stock for an equivalent
number of shares of IFC Common Stock and the elimination of treasury stock.
Reflects accounting of the CB Merger as a "pooling-of-interest," through the
exchange of 1,588,560 shares of Pinnacle Common Stock for 1,162,279 shares
of CB Common Stock and outstanding CB stock options.
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INTERESTS OF CERTAIN PERSONS IN THE MERGERS
Certain members of Pinnacle's management and the Pinnacle Board, IFC's
management and the IFC Board, and CB's management and the CB Board, may be
deemed to have certain interests in the Mergers that are in addition to their
interests as stockholders of Pinnacle or IFC or CB, as the case may be. The
Pinnacle Board, the IFC Board and the CB Board were aware of these interests and
considered them, among other matters, in approving the IFC Merger Agreement and
the CB Merger Agreement, as applicable, and the transactions contemplated
thereby.
The directors, officers and principal stockholders of each of Pinnacle, IFC
and CB and their respective associates may have had in the past, and expect to
have in the future, transactions in the ordinary course of business with each of
Pinnacle, IFC, CB and their respective subsidiaries. Such transactions were, and
are expected to be, on substantially the same terms as those prevailing at the
time for comparable transactions with others.
DIRECTORS
If only the IFC Merger is consummated, then from and after the IFC Effective
Time, the Board of Directors of the combined corporation will consist of a
single class of directors comprised of 10 persons. Such persons will include Mr.
Richard L. Schanze (the current Chairman and Chief Executive Officer of
Pinnacle), Mr. Arnold L. Weaver (the current President of Pinnacle), and three
other persons to be named as directors of the surviving corporation on behalf of
the Pinnacle Board, and Mr. Donald A. Lesch (the current Chairman of the Board
and Chief Executive Officer of IFC), Mr. Howard Silverman, and three other
persons to be named as directors of the surviving corporation on behalf of the
IFC Board. If only the CB Merger is consummated, then from and after the CB
Effective Time, the Board of Directors of the combined corporation will consist
of a single class of directors comprised of nine persons. Such persons will
include all of the current directors of Pinnacle and Mr. Joseph F. Heffernan
(the current Chairman of the Board and the Chief Executive Officer of CB). If
both of the Mergers are consummated, then from and after the consummation of the
last of the Mergers to be consummated, the Board of Directors of the combined
corporation will consist of a single class of directors comprised of 11 persons.
Such persons will include Mr. Richard L. Schanze (the current Chairman and Chief
Executive Officer of Pinnacle), Mr. Arnold L. Weaver (the current President of
Pinnacle), and three other persons to be named as directors of the surviving
corporation on behalf of the Pinnacle Board, Mr. Donald A. Lesch (the current
Chairman of the Board and Chief Executive Officer of IFC), Mr. Howard Silverman,
and three other persons to be named as directors of the surviving corporation on
behalf of the IFC Board, and Mr. Joseph F. Heffernan (the current Chairman of
the Board and the Chief Executive Officer of CB).
As of the date of this Joint Proxy Statement/Prospectus, no additional
directors of the combined operations have been designated by the Pinnacle Board
or the IFC Board or the CB Board.
Under the terms of the Standstill Agreement between Pinnacle and Mr. Cyrus
A. Ansary, Pinnacle has certain obligations to nominate Mr. Ansary for election
as a director of Pinnacle. In the event that Pinnacle, as the surviving
corporation, becomes obligated to nominate Mr. Ansary as a director of the
surviving corporation, then the Board of Directors of the combined corporation
will be increased in size to a total of 12 persons, and Mr. Ansary will be
nominated as a director of the surviving corporation pursuant to the terms of
the Standstill Agreement, and the Chairman of the surviving corporation will
nominate for approval by the Board of Directors of the combined corporation a
twelfth person as a director of the surviving corporation. See "MANAGEMENT AND
OPERATIONS FOLLOWING THE MERGERS."
EXECUTIVE OFFICERS
If only the IFC Merger is consummated, then the executive officers of the
combined corporation will consist of certain members of Pinnacle's senior
management and certain members of IFC's senior management. Mr. Schanze will be
the Chairman of the combined corporation following the IFC Merger,
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<PAGE>
and Mr. Lesch will be the Vice Chairman and President of the combined
corporation following the IFC Merger. If only the CB Merger is consummated, the
executive officers of the combined corporation will consist of certain members
of Pinnacle's senior management, and a number of CB's senior management may be
designated executive officers of the combined corporation. Mr. Schanze will be
the Chairman of the combined corporation following the CB Merger. If both of the
Mergers are consummated, then the executive officers of the combined corporation
will consist of certain members of Pinnacle's senior management and certain
members of IFC's senior management, and a number of CB's senior management may
be designated executive officers of the combined corporation. Mr. Schanze will
be the Chairman of the combined corporation following the consummation of both
of the Mergers, and Mr. Lesch will be the Vice Chairman and President of the
combined corporation following the consummation of both of the Mergers. As of
the date of this Joint Proxy Statement/Prospectus, no additional executive
officers of the combined corporation have been designated. From time to time
prior to the consummation of the Mergers, decisions may be made with respect to
the management and operations of the combined corporation following the Mergers,
including the selection of additional executive officers of the combined
corporation. See "MANAGEMENT AND OPERATIONS AFTER THE MERGERS--Executive
Officers."
SUBSIDIARY BANK MERGERS
In connection with the IFC Merger, and pursuant to the IFC Subsidiary Bank
Merger Agreement, IndFed Bank will be merged with and into Pinnacle Bank. If
only the IFC Merger is consummated, then the Board of Directors of Pinnacle Bank
following the IFC Subsidiary Bank Merger will consist of 18 persons, with nine
persons to be named as directors by the Board of Directors of Pinnacle Bank and
nine persons to be named as directors by the Board of Directors of IndFed Bank.
The executive officers of Pinnacle Bank following the IFC Subsidiary Bank Merger
will be those appointed by the Board of Directors of Pinnacle Bank on the basis
of recommendations made by Mr. Schanze, as the Chairman of Pinnacle following
the IFC Effective Time, Mr. Donald A. Lesch, as the Vice Chairman and President
of Pinnacle following the IFC Effective Time, and an outside consulting service
to be engaged and charged with reviewing and evaluating the qualifications of
candidates.
In connection with the CB Merger, and pursuant to the CB Subsidiary Bank
Merger Agreement, Community Bank will be merged with and into Pinnacle Bank. If
only the CB Merger is consummated, then the Board of Directors of Pinnacle Bank
following the CB Subsidiary Bank Merger will consist of 11 persons. Such persons
will include all of the current directors of Pinnacle Bank and two persons
(including Mr. Joseph F. Heffernan, the current Chairman of the Board and Chief
Executive Officer of CB) to be named by the Board of Directors of Community
Bank. The executive officers of Pinnacle Bank following the CB Subsidiary Bank
Merger will consist primarily of members of Pinnacle Bank's senior management,
and a number of Community Bank's senior management may be designated as
executive officers of the combined bank.
If both of the Mergers are consummated and IndFed Bank and Community Bank
are both merged with and into Pinnacle Bank, then the Board of Directors of
Pinnacle Bank will consist of 21 persons, with nine persons to be named as
directors by the Board of Directors of Pinnacle Bank, nine persons to be named
as directors by the Board of Directors of IFC, and three persons (including Mr.
Joseph F. Heffernan, the current Chairman of the Board and Chief Executive
Officer of CB) to be named as directors by the Board of Directors of Community
Bank. The executive officers of Pinnacle Bank following the Subsidiary Bank
Merger will be those appointed by the Board of Directors of Pinnacle Bank on the
basis of recommendations made by Mr. Schanze, as the Chairman of Pinnacle
following the IFC Effective Time, Mr. Donald A. Lesch, as the Vice Chairman and
President of Pinnacle following the IFC Effective Time, and an outside
consulting service to be engaged and charged with reviewing and evaluating the
qualifications of candidates. See "MANAGEMENT AND OPERATIONS AFTER THE MERGERS--
Operations."
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OTHER MATTERS
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. The Merger Agreements
provide for indemnification and directors and officers insurance under certain
circumstances. Specifically, the IFC Merger Agreement provides that, in the
event of any threatened or actual claim or proceeding in which any person who is
or has been a director, officer or employee of IFC, its subsidiaries or any of
their predecessors (the "Indemnified Parties") is, or is threatened to be, made
a party based in whole or in part on, or pertaining to, (i) the fact that such
person was a director, officer or employee of IFC, its subsidiaries or any of
their predecessors, or (ii) the IFC Merger Agreement, the Pinnacle/IFC Stock
Option Agreements or the transactions contemplated thereby, the combined
corporation will, subject to the conditions set forth in the IFC Merger
Agreement, indemnify such person to the fullest extent permitted by law against
any liability or expense incurred in connection with any such claim or
proceeding. The IFC Merger Agreement provides that the combined corporation's
obligation to indemnify any Indemnified Party will continue for a period of at
least six years following the IFC Effective Time, provided that rights to
indemnification in respect of any claim asserted or made within such period will
continue until final disposition of such claim. The IFC Merger Agreement further
provides that the combined corporation will, subject to the conditions set forth
in the IFC Merger Agreement, use its best efforts to cause the persons serving
as officers and directors of IFC immediately prior to the IFC Merger to be
covered for a period of at least six years following the IFC Effective Time by
IFC's directors' and officers' liability insurance policy (or any equivalent
substitute therefor), provided that the combined corporation will not be
required to expend more than 150% of the current amount expended by IFC to
procure such insurance. The CB Merger Agreement provides for similar
indemnification and directors and officers insurance for directors, officers and
employees of CB, its subsidiaries or any of their predecessors.
PINNACLE EMPLOYMENT SEVERANCE COMPENSATION AGREEMENTS. Pinnacle and
Pinnacle Bank have entered into "employment severance compensation agreements"
with Messrs. Schanze and Weaver, Mr. Donald E. Radde (currently an Executive
Vice President of Pinnacle and Pinnacle Bank) and Mr. David W. Kolhagen
(currently a Senior Vice President and Chief Financial Officer of Pinnacle and
Pinnacle Bank) (each, a "key manager"). Under the terms of these agreements,
each key manager's annual salary is established by the Pinnacle Board or
Pinnacle Bank, and once such salary is established it may not be reduced without
the consent of such key manager unless the reduction (i) is made pursuant to a
general reduction in salaries for all similarly-situated officers, and (ii) is
in an amount or percentage comparable to such general reduction.
Under these employment severance compensation agreements, in the event there
is a "change of control" and a key manager's employment is terminated, the key
manager is entitled to be paid an amount equal to two times his annual base
salary at the date of termination and an amount equal to two times the highest
bonus paid to him in any one year during the most recent five-year period. Upon
the occurrence of such events, a key manager is also entitled to (i) certain
life, health and other insurance benefits, reimbursement of certain expenses
(including reasonable travel expenses, and reasonable office and secretarial
expenses), executive car benefits, and financial counseling, all for a period of
two years after such termination, and (ii) reimbursement of reasonable
outplacement costs and certain legal expenses.
For purposes of the foregoing, a "change of control" shall have occurred if:
(i) Pinnacle and/or Pinnacle Bank sells substantially all of its assets to a
single purchaser or to a group of associated purchasers; (ii) at least one-half
of the outstanding corporate shares of Pinnacle and/or Pinnacle Bank are sold,
exchanged or otherwise disposed of, in one transaction; (iii) Pinnacle and/or
Pinnacle Bank elects to terminate its business or liquidate its assets; or (iv)
there is a merger or consolidation of Pinnacle and/or Pinnacle Bank in a
transaction in which the stockholders of Pinnacle and/or Pinnacle Bank receive
less than 50% of the outstanding voting shares of the new or continuing
corporation.
The Pinnacle Board (with Messrs. Schanze and Weaver abstaining from
considering this matter as members of the Pinnacle Board due to their conflict
of interest as interested parties) does not believe that either the IFC Merger
alone or the CB Merger alone constitutes a "change of control" for purposes of
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Pinnacle employment severance compensation agreements. However, the Mergers
together will constitute a "change of control" for such purposes. Assuming each
of the Mergers constitutes a "change of control" for such purposes, then, at
December 31, 1996, if their employment terminated for any reason other than
"cause" (as defined therein) following the consummation of the Mergers and prior
to age 65, Messrs. Schanze, Weaver, Radde and Kolhagen would be entitled to
payments of approximately $995,000, $535,000, $359,000 and $305,000,
respectively.
IFC EMPLOYMENT AGREEMENTS. IndFed Bank has entered into employment
agreements with Mr. Lesch and with Mr. Candela (the "IFC Employment Agreements")
which provide for an annual base salary in an amount not less than such
individual's current salary. The agreements are for a term of three years each
and provide for one year extension, at the end of the first year as well as any
subsequent year, at the discretion of the Board of Directors of IndFed Bank upon
the board's review of the remaining term. The agreements provide for termination
upon such individual's death, disability, for cause or in certain events
specified by regulations of IndFed Bank's primary regulator, the Director of the
Office of Thrift Supervision of the Department of Treasury (the "OTS"). The
employment agreements are terminable by Messrs. Lesch and Candela upon 90 days'
notice to IndFed Bank.
The agreements each provide for payment to Messrs. Lesch and Candela of 299%
of their "base amount" of compensation (as defined under Section 280G(b)(3) of
the Internal Revenue Code of 1986, as amended) in the event there is a change in
control of IFC or IndFed Bank, where employment terminates involuntarily in
connection with such a change in control or within 12 months thereafter. Such
termination payment is provided on a similar basis in connection with the
voluntary termination of employment, where the change in control was at any time
or at any price opposed by the IFC Board. The IFC Merger constitutes a change in
control for purposes of the IFC Employment Agreements. Accordingly, at December
31, 1996, if their employment terminated involuntarily in connection with the
IFC Merger or within 12 months thereafter, Messrs. Lesch and Candela would be
entitled to payments of approximately $568,100 and $478,400, respectively. The
IFC Employment Agreements also provide, among other things, for participation in
an equitable manner in employee benefits applicable to executive personnel.
IFC and IndFed Bank have entered into Executive Supplemental Retirement
Income Agreements (the "IFC ESRIAs") with Messrs. Lesch and Candela, as well as
with certain other key officers. The IFC ESRIAs are unfunded, non-qualified
agreements which provide for an annual benefit to each executive of an amount
generally equal to a stated percentage (of between 15% and 45%) of the
executive's highest five-year average "base compensation" (which includes
salary, but excludes bonuses and fringe benefits) paid by IFC and/or IndFed
Bank, to be paid over a 15-year period. The IFC ESRIAs also provide for
disability and death benefits, including a $10,000 burial expense payment. In
addition, the IFC ESRIAs for Messrs. Lesch and Candela provide that they will be
eligible to receive their full supplemental benefit in the event their
employment with IFC and/or IndFed Bank is involuntarily terminated prior to
reaching retirement age. Until disbursed, the amounts payable under the IFC
ESRIAs are subject to the claims of general creditors. Assuming Messrs. Lesch
and Candela were involuntarily terminated from the employment of IFC or IndFed
Bank as of December 31, 1996, they would have been eligible to receive, at
normal retirement, an annual benefit of approximately $145,000 and $63,000,
respectively, under their IFC ESRIA. The annual benefit upon retirement at
normal retirement age payable to each such individual under their IFC ESRIA is
estimated, based on assumed salary increases, to be approximately $145,000 and
$63,000, respectively.
IFC EMPLOYEE STOCK OPTIONS. At the IFC Effective Time, each option granted
by IFC to purchase shares of IFC Common Stock which is outstanding and
unexercised immediately prior thereto (excluding any and all IFC Rights, all of
which are to be redeemed, and thereby extinguished, terminated and cancelled
without any right of exercise, prior to the IFC Effective Time) will cease to
represent a right to acquire shares of IFC Common Stock and will be converted
automatically into an option to purchase shares of Pinnacle Common Stock in the
same amount and at the same exercise price (subject to the terms of the IFC
benefit plans under which they were issued and the agreements evidencing grants
thereunder).
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At the IFC Effective Time, each option granted by Pinnacle to purchase
shares of Pinnacle Common Stock which is outstanding and unexercised immediately
prior thereto will continue to represent a right to acquire shares of Pinnacle
Common Stock and will remain an issued and outstanding option to purchase from
Pinnacle, as the surviving corporation, shares of Pinnacle Common Stock in the
same amount and at the same exercise price subject to the terms of the Pinnacle
benefit plans under which they were issued and the agreements evidencing grants
thereunder, and will not be affected by the IFC Merger.
IFC RIGHTS. As of November 11, 1996, up to 4,751,131 rights in respect of
shares of IFC Common Stock were issued and outstanding under the IFC Rights
Agreement. The IFC Rights remain attached to the associated shares of IFC Common
Stock and are not exercisable except under the limited circumstances set forth
in the IFC Rights Agreement. In connection with the execution of the IFC Merger
Agreement, IFC amended the IFC Rights Agreement to confirm that neither
Pinnacle, nor any of its subsidiaries, nor any other person, will be deemed to
be an "Acquiring Person" (as defined in the IFC Rights Agreement) (i) by virtue
of the IFC Merger Agreement, (ii) by virtue of any of the transactions
contemplated by the IFC Merger Agreement or the IFC Stock Option Agreement, or
(iii) by virtue of the fact that Pinnacle is the "Beneficial Owner" (as defined
in the IFC Rights Agreement) solely of shares of IFC Common Stock (A) of which
Pinnacle or such subsidiary was the Beneficial Owner on November 14, 1996, (B)
acquired or acquirable pursuant to the grant or exercise of the option granted
pursuant to the IFC Stock Option Agreement, (C) acquired or acquirable pursuant
to a debt previously contracted before November 14, 1996 and (D) held directly
or indirectly in trust accounts, managed accounts and the like or otherwise held
in a fiduciary capacity for third parties. Such amendment to the IFC Rights
Agreement provides, however, that in the event that Pinnacle or any of its
subsidiaries acquires beneficial ownership of any shares of IFC Common Stock
other than the shares described in clauses (A)-(D) above ("Subsequently Acquired
Shares"), then the shares described in clauses (A), (B) and (C) above, together
with such Subsequently Acquired Shares, will be considered in determining
whether Pinnacle or any of its subsidiaries has become an Acquiring Person.
Under the IFC Merger Agreement, IFC must redeem the IFC Rights prior to the IFC
Effective Time at a cost to IFC of not more than $0.01 per each share of IFC
Common Stock issued and outstanding. Consequently, all of said IFC Rights will
be extinguished, terminated and cancelled prior to the IFC Effective Time,
without any right of exercise, and will only represent the right to receive the
Redemption Price in cash from IFC or Pinnacle, as the surviving corporation,
following the IFC Merger.
CB EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL AGREEMENTS. CB and Community
Bank each maintain employment agreements with Mr. Joseph Heffernan ("CB
Employment Agreements") and Change in Control Agreements with each of the
following five executive officers: George L. Koehm, Daniel R. Buresh, Allen E.
Jones, Marvin L. Kominiarek, Jr. and James O. Neff (the "CB Change in Control
Agreements").
The CB Employment Agreements provide for concurrent three year terms and set
the position of the executive, duties, base salary and a procedure for
termination of employment. Upon a change in control of CB or Community Bank, and
an involuntary termination of employment other than for cause or a voluntary
termination that follows any demotion, loss of title, office or significant
authority, reduction in annual compensation or benefits, or material relocation
of executive's principal place of employment, the executive is entitled to
receive a severance payment under one of the two CB Employment Agreements. The
formula under either CB Employment Agreement is three times his average total
compensation. Average total compensation covers the most recent three year
period. The CB Employment Agreement would also continue the executive's life,
health, accident, dental and disability coverage for a period not to exceed 36
months. The consummation of the transactions contemplated by the CB Merger
Agreement will constitute a change in control for purposes of the CB Employment
Agreements. The CB Merger Agreement provides that CB will make all required
payments in satisfaction of liabilities under the CB Employment Agreements
immediately prior to the CB Effective Time, which payments are expected to total
approximately $585,594.
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The CB Change in Control Agreements provide for a two year term. Each
agreement provides that in the event of a change in control of CB or Community
Bank and a termination of employment either involuntarily (other than for cause)
or voluntarily after any demotion, loss of title, office, or significant
authority, reduction in his annual compensation or benefits, or material
relocation of his principal place of employment, the agreement holder would be
entitled to receive a severance payment equal to two times the executive's then
current annual compensation. The consummation of the transactions contemplated
by the CB Merger Agreement will constitute a change in control for purposes of
the CB Change in Control Agreements. The CB Merger Agreement provides that CB
will make all required payments in satisfaction of liabilities under the CB
Change in Control Agreements, immediately prior to the CB Effective Time, which
payments are expected to total approximately $781,432.
CB SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. CB's Supplemental Executive
Retirement Plan (the "CB SERP") provides a benefit to four senior officers to
provide them with additional requirement benefits. In the event of a change in
control, such as will occur upon consummation of the transactions contemplated
by the CB Merger Agreement, the distribution of certain benefits is accelerated.
A total of $204,412, $4,975, $6,972 and $5,505 will be contributed to the CB
SERP by CB on behalf of Messrs. Heffernan, Koehm, Neff and Buresh, respectively,
immediately prior to closing, to satisfy amounts due to those executives under
the CB SERP.
POST CB MERGER COMPENSATION AND BENEFITS. The CB Merger Agreement provides
that officers and employees of CB who become employees of Pinnacle after the CB
Merger will be entitled to participate in certain of Pinnacle's employee benefit
plans maintained generally for the benefit of their respective employees.
Pinnacle will treat CB's employees who become employees of Pinnacle as new
employees, but shall amend its plans to provide credit, for purposes of vesting
and eligibility to participants, for service with CB to the extent that such
service was recognized for similar purposes under CB's plans. The CB Merger
Agreement provides for termination of the Community Bank, A Federal Savings
Bank, Employee Stock Ownership Plan and Trust (the "CB ESOP"). With respect to
the CB ESOP, which is a leveraged employee stock ownership plan, the CB Merger
Agreement provides that the loan will be repaid and all remaining assets, after
payment of fees and expenses, will be allocated to individual accounts of
eligible participants. After receipt of a favorable determination letter, assets
will be distributed to participants. All accounts will fully vest upon
termination under the terms of the CB ESOP. The release of unallocated shares is
expected to result in benefits to all participants, which have not been
quantified at this time
CB OPTION PLANS AND RECOGNITION AND RETENTION PLANS. CB maintains an
incentive stock option plan, a directors' option plan and certain recognition
and retention plans ("RRPs") which provide for an immediate acceleration of the
vesting period for benefits payable under the plans upon a change in control.
The CB Merger will constitute a change in control under such plans. The
aggregate increase in share value since the grant of the options, and the
aggregate amount which will be paid out (as described below) under the option
plans is $2,808,284. The aggregate value of RRPs is $303,275.
Each option that is outstanding and unexercised immediately prior to the CB
Effective Time (whether such options are vested or not vested and whether or not
such options are otherwise exercisable), will be converted into the right to
receive shares of Pinnacle stock in an amount determined by dividing the
difference between $35.00 and the exercise price of each option by the Average
Price.
CB DIRECTORS DEFERRED COMPENSATION PLAN. CB maintains a Deferred Plan (the
"CB Deferred Compensation Plan") for directors that provides directors with the
ability to defer the receipt of fees paid by CB pursuant to a deferred
compensation arrangement with CB. The CB Deferred Compensation Plan will make
aggregate payments of approximately $266,535. The CB Deferred Compensation Plan
will be terminated no later than the closing of the CB Merger and will
distribute each participant's interest at the time Of the termination The
distributions will be paid by CB.
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CB OUTSIDE DIRECTORS' EMERITUS PLAN. The payments under this plan will
total $240,000. The CB Outside Directors' Emeritus Plan was established by
Community Bank to provide directors with certain benefits after retirement from
the Board of Directors. The benefit under the Outside Directors' Emeritus Plan
is $48,000 to each participant. In the event of a change in control, the CB
Directors' Emeritus Plan provides for a lump sum payment of benefits, payable at
the CB Effective Time. The consummation of transactions contemplated by the CB
Merger Agreement will constitute a change in control for purposes of the Outside
Directors' Emeritus Plan. Five CB directors (Messrs. Broad, Bausback, Fryar, Ott
and Smith) will receive benefits upon consummation of the CB Merger.
MANAGEMENT AND OPERATIONS AFTER THE MERGERS
Except as described below, it has not yet been determined which members of
Pinnacle's or IFC's or CB's senior management also will become executive
officers or directors of the combined corporation following the Mergers or what
such persons' titles or functions will be. From time to time prior to
consummation of the Mergers, decisions may be made with respect to the
management and operations of the combined corporation following the Mergers,
including the selection of executive officers of the combined corporation.
None of Pinnacle, IFC and CB is aware of any material relationships between
Pinnacle or its directors or executive officers and IFC or its directors or
executive officers and CB or its directors and executive officers, except as
contemplated by the Merger Agreements or as described herein or in the materials
incorporated herein by reference. In the ordinary course of business and from
time to time each of Pinnacle, IFC and CB may do business with the other and
their respective subsidiaries may enter into banking transactions with certain
executive officers and affiliates of each of them.
DIRECTORS
If only the IFC Merger is consummated, then from and after the IFC Effective
Time, the Board of Directors of the combined corporation will consist of a
single class of directors comprised of 10 persons. Such persons will include Mr.
Richard L. Schanze (the current Chairman and Chief Executive Officer of
Pinnacle), Mr. Arnold L. Weaver (the current President of Pinnacle), and three
other persons to be named as directors of the surviving corporation on behalf of
the Pinnacle Board, and Mr. Donald A. Lesch (the current Chairman of the Board
and Chief Executive Officer of IFC), Mr. Howard Silverman, and three other
persons to be named as directors of the surviving corporation on behalf of the
IFC Board. If only the CB Merger is consummated, then from and after the CB
Effective Time, the Board of Directors of the combined corporation will consist
of a single class of directors comprised of nine persons. Such persons will
include all of the current directors of Pinnacle and Mr. Joseph F. Heffernan
(the current Chairman of the Board and the Chief Executive Officer of CB). If
both of the Mergers are consummated, then from and after the consummation of the
last of the Mergers to be consummated, the Board of Directors of the combined
corporation will consist of a single class of directors comprised of 11 persons.
Such persons will include Mr. Richard L. Schanze (the current Chairman and Chief
Executive Officer of Pinnacle), Mr. Arnold L. Weaver (the current President of
Pinnacle), and three other persons to be named as directors of the surviving
corporation on behalf of the Pinnacle Board, Mr. Donald A. Lesch (the current
Chairman of the Board and Chief Executive Officer of IFC), Mr. Howard Silverman,
and three other persons to be named as directors of the surviving corporation on
behalf of the IFC Board, and Mr. Joseph F. Heffernan (the current Chairman of
the Board and the Chief Executive Officer of CB).
Under the terms of the Standstill Agreement between Pinnacle and Mr. Cyrus
A. Ansary, Pinnacle has certain obligations to nominate Mr. Ansary for election
as a director of Pinnacle. In the event that Pinnacle, as the surviving
corporation, becomes obligated to nominate Mr. Ansary as a director of the
surviving corporation, then the Board of Directors of the combined corporation
will be increased in size to a total of 12 persons, and Mr. Ansary shall be
nominated as a director of the surviving corporation pursuant to the terms of
the Standstill Agreement, and the Chairman of the surviving corporation will
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nominate for approval by the Board of Directors of the combined corporation a
twelfth person as a director of the surviving corporation. Whenever the Board of
Directors of the surviving corporation is comprised of 10 or fewer persons,
action of the Board within the meaning of Section 523 of the MBCA, and for all
other purposes, will require the favorable vote of six or more of the directors,
and whenever the Board of Directors of the surviving corporation is comprised of
11 or 12 persons, action of the Board within the meaning of Section 523 of the
MBCA, and for all other purposes, will require the favorable vote of seven or
more of the directors.
The directors selected by Pinnacle, IFC and CB will be divided as equally as
practicable among the various committees established by the Board of Directors
of the combined corporation in proportion to the aggregate representation of
such directors.
Howard B. Silverman, age 58, will be a director of the combined corporation
upon consummation of the IFC Merger. Mr. Silverman is Chairman of the Board of
Directors of Reliance Acceptance Group, Inc., a specialty consumer finance
company, since the split-off of its subsidiary bank in February 1997. He has
also been Chairman of the Board of Reliance Acceptance Corporation, its
operating subsidiary, since its incorporation in 1992. For more than five years,
Mr. Silverman has also been President of Silverman and Associates, a consulting
firm furnishing services to businesses and financial institutions which has
provided services to Indiana Federal Corporation. During his earlier career, he
served as Chairman and Chief Executive Officer of a multi-bank and financial
services company, which included a finance company subsidiary, and as President
of a securities broker/dealer. Mr. Silverman is also a director of Forrest
Holdings, Inc. which owns and operates Forrest Financial Corporation, a leasing
company that provides financing solutions for the acquisition of information
systems. IFC holds a one-third interest in Forrest Holdings, Inc. Mr. Silverman
is the beneficial owner of 32,799 shares of IFC Common Stock (which holdings
constitute less than 1% of the issued and outstanding shares of IFC Common
Stock).
Additional information about Messrs. Schanze and Lesch and the directors of
Pinnacle, IFC and CB appears elsewhere in this Joint Proxy Statement/Prospectus
or is contained in Pinnacle's and IFC's respective Annual Reports on Form 10-K
for the year ended December 31, 1996, which are incorporated by reference in
this Joint Proxy Statement/Prospectus. See "AVAILABLE INFORMATION,"
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "INFORMATION REGARDING THE
PINNACLE ANNUAL MEETING," "INFORMATION REGARDING THE IFC ANNUAL MEETING" and
"CERTAIN INFORMATION REGARDING CB."
EXECUTIVE OFFICERS
If only the IFC Merger is consummated, then the executive officers of the
combined corporation will consist of certain members of Pinnacle's senior
management and certain members of IFC's senior management. Mr. Schanze will be
the Chairman of the combined corporation following the IFC Merger, and Mr. Lesch
will be the Vice Chairman and President of the combined corporation following
the IFC Merger. If only the CB Merger is consummated, the executive officers of
the combined corporation will consist of certain members of Pinnacle's senior
management, and a number of CB's senior management may be designated executive
officers of the combined corporation. Mr. Schanze will be the Chairman of the
combined corporation following the CB Merger. If both of the Mergers are
consummated, then the executive officers of the combined corporation will
consist of certain members of Pinnacle's senior management and certain members
of IFC's senior management, and a number of CB's senior management may be
designated executive officers of the combined corporation. Mr. Schanze will be
the Chairman of the combined corporation following the consummation of both of
the Mergers, and Mr. Lesch will be the Vice Chairman and President of the
combined corporation following the consummation of both of the Mergers. As of
the date of this Joint Proxy Statement/Prospectus, no additional executive
officers of the combined corporation have been designated. From time to time
prior to the consummation of the Mergers, decisions may be made with respect to
the management and operations of the combined
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corporation following the Mergers, including the selection of additional
executive officers of the combined corporation.
Additional information about Messrs. Schanze and Lesch and the executive
officers of Pinnacle, IFC and CB, appears elsewhere in this Joint Proxy
Statement/Prospectus or is contained in Pinnacle's and IFC's respective Annual
Reports on Form 10-K for the year ended December 31, 1996, which are
incorporated by reference in this Joint Proxy Statement/Prospectus. See
"AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE,"
"INFORMATION REGARDING THE PINNACLE ANNUAL MEETING," "INFORMATION REGARDING THE
IFC ANNUAL MEETING" and "CERTAIN INFORMATION REGARDING CB."
SUBSIDIARY BANK MERGERS
In connection with the IFC Merger, and pursuant to the IFC Subsidiary Bank
Merger Agreement, IndFed Bank will be merged with and into Pinnacle Bank. If
only the IFC Merger and the IFC Subsidiary Bank Merger are consummated, then the
Board of Directors of Pinnacle Bank following the IFC Subsidiary Bank Merger
will consist of 18 persons, with nine persons to be named as directors by the
Board of Directors of Pinnacle Bank and nine persons to be named as directors by
the Board of Directors of IndFed Bank. The executive officers of Pinnacle Bank
following the IFC Subsidiary Bank Merger will be those appointed by the Board of
Directors of Pinnacle Bank on the basis of recommendations made by Mr. Schanze,
as the Chairman of Pinnacle following the IFC Effective Time, Mr. Donald A.
Lesch, as the Vice Chairman and President of Pinnacle following the IFC
Effective Time, and an outside consulting service to be engaged and charged with
reviewing and evaluating the qualifications of candidates. See "MANAGEMENT AND
OPERATIONS AFTER THE MERGERS--Operations."
In connection with the CB Merger, and pursuant to the CB Subsidiary Bank
Merger Agreement, Community Bank will be merged with and into Pinnacle Bank. If
only the CB Merger is consummated, then the Board of Directors of Pinnacle Bank
following the CB Subsidiary Bank Merger will consist of 11 persons. Such persons
will include all of the current directors of Pinnacle Bank and two persons
(including Mr. Joseph F. Heffernan, the current Chairman of the Board and Chief
Executive Officer of CB) to be named by the Board of Directors of Community
Bank. The executive officers of Pinnacle Bank following the CB Subsidiary Bank
Merger will consist primarily of members of Pinnacle Bank's senior management,
and a number of Community Bank's senior management may be designated as
executive officers of the combined bank. See "MANAGEMENT AND OPERATIONS AFTER
THE MERGERS--Operations."
If both of the Mergers are consummated and IndFed Bank and Community Bank
are both merged with and into Pinnacle, then the Board of Directors of Pinnacle
Bank will consist of 21 persons, with nine persons to be named as directors by
the Board of Directors of Pinnacle Bank, nine persons to be named as directors
by the Board of Directors of IFC, and three persons (including Mr. Joseph F.
Heffernan, the current Chairman of the Board and Chief Executive Officer of CB)
to be named by the Board of Directors of Community Bank. The executive officers
of Pinnacle Bank will be those appointed by the Board of Directors of Pinnacle
Bank on the basis of recommendations made by Mr. Schanze, as the Chairman of
Pinnacle following the IFC Effective Time, Mr. Donald A. Lesch, as the Vice
Chairman and President of Pinnacle following the IFC Effective Time, and an
outside consulting service to be engaged and charged with reviewing and
evaluating the qualifications of candidates. See "MANAGEMENT AND OPERATIONS
AFTER THE MERGERS--Operations."
POST-MERGER DIVIDEND POLICY
The holders of Pinnacle Common Stock are entitled to receive such dividends
as may be declared from time to time by the Pinnacle Board of Directors of
Pinnacle out of funds legally available therefor. Pinnacle (or its predecessor)
has paid cash dividends at least annually since the 1930's and on a regular
quarterly basis since April 1979. However, no determination has been made as to
whether Pinnacle will
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continue its existing dividend policy after consummation of the Mergers. Any
future dividends will depend upon, among other things, the earnings, cash
position and capital needs of Pinnacle and the future financial results and
requirements and contractual restrictions applicable to Pinnacle or its
subsidiaries. The ability of Pinnacle to fund its operations and to pay
dividends on its common stock will be dependent upon its receipt of dividends
from its subsidiaries. The ability of those subsidiaries to pay dividends is
subject to regulatory restrictions. Moreover, the rights of Pinnacle, and
consequently its shareholders, to participate in any distribution of assets of
any of its subsidiaries is subject to prior claims of creditors and preferred
shareholders, if any, of any such subsidiary, except to the extent claims of
Pinnacle in its capacity as a creditor are recognized, and to certain regulatory
restrictions. See "CERTAIN REGULATORY CONSIDERATIONS--Payment of Dividends."
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL. The following is a summary description of the material Federal
income tax consequences of each of the Mergers. This summary is not a complete
description of all of the consequences of the Mergers and, in particular, may
not address Federal income tax considerations that may affect the treatment of a
stockholder which, at the effective times of the Mergers, already owns some
Pinnacle Common Stock, is not a U.S. person, is a tax-exempt entity or an
individual who acquired IFC Common Stock or CB Common Stock pursuant to an
employee stock option, or exercises some form of control over IFC or CB. In
addition, no information is provided herein with respect to the tax consequences
of the Mergers under applicable foreign, state or local laws. Consequently, each
IFC stockholder and each CB stockholder is advised to consult a tax advisor as
to the specific tax consequences of the transaction to that stockholder. The
following discussion is based on the Internal Revenue Code of 1986, as amended,
as in effect on the date of this Joint Proxy Statement/Prospectus, without
consideration of the particular facts or circumstances of any holder of IFC
Common Stock or CB Common Stock.
IFC MERGER. Consummation of the IFC Merger is conditioned upon the receipt
by IFC and Pinnacle of an opinion of their respective tax counsel (Silver,
Freedman & Taff, L.L.P. in the case of IFC, and Miller, Canfield, Paddock and
Stone, P.L.C. in the case of Pinnacle), dated as of the IFC Effective Time,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinions which are consistent with the state of
facts existing at the IFC Effective Time, for Federal income tax purposes the
IFC Merger will constitute a reorganization within the meaning of Section 368 of
the Code.
Based on such opinions, the material Federal income tax consequences of the
IFC Merger will be:
(i) no gain or loss will be recognized by Pinnacle or by IFC as a result
of the IFC Merger;
(ii) no gain or loss will be recognized by stockholders of IFC who
exchange their IFC Common Stock solely for Pinnacle Common Stock pursuant to
the IFC Merger;
(iii) the tax basis of the Pinnacle Common Stock received by a IFC
stockholder who exchanges all of his or her IFC Common Stock solely for
Pinnacle Common Stock will be the same as such stockholder's tax basis in
the IFC Common Stock surrendered in exchange therefor; and
(iv) the holding period of the Pinnacle Common Stock received by a IFC
stockholder will include the period during which the IFC Common Stock
surrendered in exchange therefor was held (provided that such IFC Common
Stock was held by such IFC stockholder as a capital asset at the IFC
Effective Time).
CB MERGER. Consummation of the CB Merger is conditioned upon the receipt by
CB and Pinnacle of an opinion of their respective tax counsel (Muldoon, Murphy &
Faucette in the case of CB, and Miller, Canfield, Paddock and Stone, P.L.C. in
the case of Pinnacle), dated as of the CB Effective Time, substantially to the
effect that, on the basis of facts, representations and assumptions set forth in
such opinions which are consistent with the state of facts existing at the CB
Effective Time, for Federal income tax purposes the CB Merger will constitute a
reorganization within the meaning of Section 368 of the Code.
Based on such opinions, the material Federal income tax consequences of the
CB Merger will be:
(i) no gain or loss will be recognized by Pinnacle or by IFC as a result
of the CB Merger;
(ii) no gain or loss will be recognized by stockholders of CB who
exchange their CB Common Stock solely for Pinnacle Common Stock pursuant to
the CB Merger;
(iii) the tax basis of the Pinnacle Common Stock received by a CB
stockholder who exchanges all of his or her CB Common Stock solely for
Pinnacle Common Stock will be the same as such stockholder's tax basis in
the CB Common Stock surrendered in exchange therefor; and
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(iv) the holding period of the Pinnacle Common Stock received by a CB
stockholder will include the period during which the CB Common Stock
surrendered in exchange therefor was held (provided that such CB Common
Stock was held by such CB stockholder as a capital asset at the CB Effective
Time).
INFORMATION REPORTING AND BACKUP WITHHOLDING. Payments in respect of IFC
Common Stock or CB Common Stock may be subject to information reporting to the
Internal Revenue Service and to a 31% backup withholding tax. Backup withholding
will not apply, however, to a payment to a IFC stockholder or other payee if
such stockholder or payee completes and signs the substitute Form W-9 that will
be included as part of the transmittal letter or otherwise proves to the
combined company and the Exchange Agent that it is exempt from backup
withholding.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. THE
DISCUSSION DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE
MERGERS. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE,
EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE
RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY
SUCH CHANGES COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. EACH
PINNACLE STOCKHOLDER, EACH IFC STOCKHOLDER AND EACH CB STOCKHOLDER SHOULD
CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN FEDERAL LAWS OR OTHER TAX LAWS.
ACQUISITION OF MACO BANCORP, INC.
GENERAL
On December 1, 1995, Pinnacle acquired all of the outstanding capital stock
of Maco Bancorp, Inc., a Delaware corporation and a registered savings and loan
holding company, for aggregate consideration of $41.9 million through the merger
of Maco with and into Pinnacle. The Purchase Price consisted of cash, a secured,
short-term, interest-bearing promissory note in the principal amount of $18.0
million, and shares of Pinnacle Common Stock then valued at approximately $21.0
million. The Acquisition Note was paid in full in March 1996. As a result of the
Maco Acquisition, Pinnacle became the sole stockholder of First Federal Savings
Bank of Indiana, a federal savings bank and then a wholly-owned subsidiary of
Maco. First Federal was merged with and into Pinnacle Bank effective December
31, 1996.
In connection with the Maco Acquisition, Pinnacle and Mr. Cyrus A. Ansary,
the sole stockholder of Maco, entered into the Standstill Agreement, an
indemnification agreement dated December 1, 1995 (the "Indemnification
Agreement"), an escrow agreement dated December 1, 1995 (the "Escrow Agreement")
and a non-competition agreement dated December 1, 1995 (the "Non-Competition
Agreement"). Prior to its acquisition by Pinnacle, Maco entered into two
transfer agreements (the "Transfer Agreements"), each providing for the transfer
of all of Maco's rights and liabilities arising out of certain litigation to
which it is a party to Mr. Ansary and to Investment Services International Co.
("ISIC"), an affiliate of Mr. Ansary.
The information contained in this Joint Proxy Statement/Prospectus with
respect to the Standstill Agreement, the Transfer Agreements, the
Indemnification Agreement, the Escrow Agreement and the Non-Competition
Agreement is a summary of the material provisions of those agreements, and, as
such, is qualified in its entirety by reference to those agreements, all of
which are included as exhibits to the Registration Statement (of which this
Joint Proxy Statement/Prospectus is a part).
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STANDSTILL AGREEMENT
Mr. Ansary is now, and following consummation of the Merger will be, the
largest single Pinnacle stockholder. He currently holds approximately 19.9% of
the shares of Pinnacle Common Stock outstanding. Upon consummation of both of
the Mergers, Mr. Ansary will hold approximately 9.9% (assuming no outstanding
stock options are exercised prior to the consummation of the Mergers) of the
shares of Pinnacle Common Stock then outstanding. If only the IFC Merger is
consummated, then Mr. Ansary will hold approximately 11.2% of the shares of
Pinnacle Common Stock then outstanding (assuming no outstanding stock options
are exercised prior to the consummation of the IFC Merger). If only the CB
Merger is consummated, then Mr. Ansary will hold approximately 16.5% (assuming
no outstanding stock options are exercised prior to the consummation of the CB
Merger) of the shares of Pinnacle Common Stock then outstanding. Consequently,
he may be able to exert influence on Pinnacle's future strategic direction with
regard to, among other things, the long-term independence of Pinnacle. However,
the Standstill Agreement obligates Mr. Ansary, through December 31, 1999,
subject to certain exceptions, to vote all voting securities of which he is the
beneficial owner in accordance with the directions of Pinnacle's management.
Pursuant to the Standstill Agreement, Pinnacle granted Mr. Ansary certain
"piggyback" registration rights and certain limited demand registration rights
with respect to the shares of Pinnacle Common Stock that he holds. However,
under the terms of the Standstill Agreement, and except under limited
circumstances specified therein, Mr. Ansary may not voluntarily sell, transfer
any beneficial interest in, assign, pledge, hypothecate or otherwise dispose of
or encumber any Pinnacle Common Stock prior to December 1, 1997.
The Standstill Agreement also prohibits Mr. Ansary from, subject to certain
exceptions and without the prior written consent of the "Pinnacle Designee" (as
hereinafter defined), (i) selling or otherwise transferring his shares of
Pinnacle Common Stock; (ii) submitting any proposal for the vote of stockholders
of Pinnacle; (iii) becoming a member of a "group" within the meaning of Section
13(d)(3) of the Exchange Act with respect to Pinnacle Common Stock or any voting
securities of Pinnacle; (iv) acting in concert with others to influence or
control the management of Pinnacle; (v) inducing or attempting to induce or give
encouragement to any other person to initiate any proposal or tender or exchange
offer for voting securities or change of control of Pinnacle; or (vi) soliciting
or participating in the solicitation of proxies in opposition to management of
Pinnacle. In addition, under the Standstill Agreement Mr. Ansary is obligated,
subject to certain exceptions, to vote or cause to be voted all voting
securities of which he is the beneficial owner for persons nominated by the
Pinnacle Board for election to the Pinnacle Board, and, on all other matters,
voting securities of which Mr. Ansary is the beneficial owner must be voted
strictly in accordance with the written recommendations of the Pinnacle
Designee. For purposes of the Standstill Agreement, the "Pinnacle Designee" is
the Chief Executive Officer of Pinnacle or another individual specifically
designated by the Pinnacle Board in a resolution adopted by a majority of the
directors of Pinnacle and identified to Mr. Ansary in writing. Pursuant to the
Standstill Agreement, Mr. Ansary has been instructed to vote all shares of
Pinnacle Common Stock beneficially owned by him in favor of the Merger
Proposals.
The Standstill Agreement provides that the foregoing limitations on Mr.
Ansary's beneficial ownership of Pinnacle Common Stock will terminate if, among
other things, the aggregate percentage of voting securities of Pinnacle
beneficially owned by the directors of Pinnacle as a group declines by more than
one-third from the aggregate percentage so held as of the date of the Maco
Acquisition. Consummation of the IFC Merger alone, as well as consummation of
both of the Mergers together, will cause such aggregate percentage to decline by
more than one-third. However, consummation of the CB Merger alone will NOT cause
such aggregate percentage to decline by more than one-third. Accordingly, the
foregoing limitations will terminate upon consummation of either the IFC Merger
alone or both of the Mergers together, but they will NOT terminate upon
consummation of the CB Merger alone.
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TRANSFER AGREEMENTS; INDEMNIFICATION AGREEMENT; ESCROW AGREEMENT;
NON-COMPETITION AGREEMENT
In connection with its 1988 acquisition of a distressed thrift, Maco entered
into an Assistance Agreement with the Federal Savings and Loan Insurance
Corporation (the "Assistance Agreement"). The FDIC, the successor-in-interest to
the Federal Savings and Loan Insurance Corporation, has brought suit against
Maco seeking payment by Maco of $3.0 million allegedly due it under the
Assistance Agreement. Maco disputed the FDIC claim, and management of Maco
believed it to be without merit. Moreover, Maco counterclaimed against the FDIC
and sued the United States of America for damages it claimed as a result of the
withdrawal of certain regulatory capital forbearances previously granted to it
by the Federal Home Loan Bank Board.
Maco and another entity affiliated with Mr. Ansary, Investment Services
International Co., also brought suit against the investment banking firm of
Friedman, Billings, Ramsey & Co. in connection with an earlier acquisition
effort by Maco and ISIC. In that action Friedman, Billings has counterclaimed
for reimbursement of legal expenses occasioned by the suit.
Effective May 4, 1995, Maco and Mr. Ansary entered into a Transfer Agreement
pursuant to which Maco transferred to Mr. Ansary all of its claims against the
FDIC and the United States of America arising with respect to the Assistance
Agreement, including rights to any settlement proceeds and benefits of any kind
in connection with its claims, in exchange for the assumption by Mr. Ansary of
Maco's obligations arising from the Assistance Agreement and the FDIC dispute,
including a commitment to pay all future costs of litigation and to indemnify
Maco and its successors (which includes Pinnacle as the successor of Maco)
against any such liability, but not including any tax effects on the tax returns
of Pinnacle (as the successor to Maco) arising from any results of the
litigation. Mr. Ansary has agreed that he will prepare and file all his federal,
state and local tax returns consistent with the Transfer Agreement, treating Mr.
Ansary personally as the sole and exclusive beneficial owner of the claims
relating to said litigation.
Effective May 4, 1995, Maco and ISIC entered into a second Transfer
Agreement pursuant to which Maco transferred to ISIC all of its claims against
Friedman, Billings arising with respect to the Friedman, Billings litigation,
including rights to any settlement proceeds and benefits of any kind in
connection with its claims, in exchange for the assumption by ISIC of Maco's
obligations arising with respect to the Friedman, Billings litigation, including
a commitment to pay all future costs of litigation and to indemnify Maco and its
successors (which includes Pinnacle as the successor of Maco) against any such
liability, but not including any effects on the tax returns of Pinnacle (as the
successor to Maco) arising from any results of the litigation. ISIC has agreed
that it will prepare and file all its federal, state and local tax returns
consistent with this second Transfer Agreement, treating ISIC as the sole and
exclusive beneficial owner of the claims relating to said litigation.
Pursuant to the Indemnification Agreement, Mr. Ansary agreed, subject to
certain conditions, to partially indemnify Pinnacle from and against certain
liabilities. With respect to indemnification for certain contingent tax
liabilities of Maco, Mr. Ansary's indemnification obligations to Pinnacle are
limited to an aggregate of $1,175,000 and are subject to Pinnacle having borne
the first $750,000 of unreimbursed loss, and with respect to indemnification for
certain contingent liabilities of Maco to a former employee, Mr. Ansary's
indemnification obligations to Pinnacle are limited to an aggregate of $500,000
and are subject to Pinnacle having borne the first $250,000 of unreimbursed
loss. In each case, indemnification is not provided to cover any costs Pinnacle
may incur to litigate or defend against the indemnified liabilities. Mr.
Ansary's and ISIC's obligations with respect to the Transfer Agreements and the
Indemnification Agreement are secured by the deposit of assets having an initial
fair market value aggregating approximately $4.7 million by Mr. Ansary into
escrow pursuant to the Escrow Agreement. Under the terms of the Indemnification
Agreement, any claim for indemnification thereunder by Pinnacle must be made by
May 28, 1998. In the event of any loss by Pinnacle arising out of any matter
relating to the Transfer Agreements or the Indemnification Agreement, there can
be no assurance that Pinnacle will be able to successfully exercise its rights
under the Transfer Agreements, the Indemnification Agreement or the
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Escrow Agreement or that the value of the assets placed in escrow pursuant to
the Escrow Agreement will be sufficient to reimburse Pinnacle for the full
amount of any such loss. However, management of Pinnacle believes that any
unreimbursed loss remaining after recourse to and enforcement of its rights
would not be expected to have a material adverse effect on the consolidated
financial position, results of operation, cash flows or capital position of
Pinnacle and its subsidiaries.
Pursuant to the Non-Competition Agreement, Mr. Ansary has agreed, effective
as of the closing of the Maco Acquisition and on behalf of himself and all of
his affiliates, not to engage in the banking and savings and loan business for a
period of three years following the consummation of the Maco Acquisition
anywhere within the States of Michigan and Indiana (other than as a stockholder
of Pinnacle). The Non-Competition Agreement does not, however, restrict Mr.
Ansary from holding passive investments of less than five percent of the
outstanding debt or equity securities of any publicly-held company (including,
without limitation, IFC). In consideration of the execution of the
Non-Competition Agreement, Pinnacle paid Mr. Ansary the additional sum of
$25,000 upon consummation of the Maco Acquisition.
POTENTIAL ADVERSE TAX CONSEQUENCES
Pinnacle's acquisition of Maco has been treated as a tax-free reorganization
under Section 368(a)(1)(A) of the Code. In order to be treated as such a
tax-free reorganization, Pinnacle's acquisition of Maco had to satisfy a
"continuity of interest" requirement. Under Revenue Procedure 77-37, this
"continuity of interest" requirement is satisfied if at least 50% of the
consideration received by the stockholders of the acquired entity in a merger
constitutes equity of the acquiring entity. Approximately 50% of the total
purchase price paid by Pinnacle upon consummation of the Maco Acquisition was
paid in shares of Pinnacle Common Stock. In determining whether Pinnacle's
acquisition of Maco satisfied the "continuity of interest" requirement, Pinnacle
assumed (i) that the transfer prior to the consummation of the Maco Acquisition
of certain litigation to which Maco is a party to ISIC and to Mr. Ansary,
pursuant to the Transfer Agreements, was not treated for tax purposes as part of
the consideration being received by the sole stockholder of Maco in Pinnacle's
acquisition of Maco, and (ii) that an outstanding promissory note in the
approximate amount of $1.5 million evidencing certain advances to Maco by Mr.
Ansary was treated as bona fide debt of Maco (and not equity) for tax purposes,
and therefore Pinnacle's assumption or payment of such promissory note was not
part of the consideration being received by the sole stockholder of Maco in the
Maco Acquisition.
In the event that (i) the transferred litigation were treated for tax
purposes as consideration paid to the sole stockholder of Maco in the Maco
Acquisition, and a positive net present value, after deduction of expenses, were
attributed to such litigation, and (ii) the promissory note was treated as
equity of Maco and the payment of such promissory note was treated for tax
purposes as consideration paid to the sole stockholder of Maco in the Maco
Acquisition, the percentage of the total consideration consisting of Pinnacle
Common Stock paid to the sole stockholder of Maco in connection with the Maco
Acquisition would be reduced to less than 50%. Management of Pinnacle believes,
however, that even in such circumstances the percentage of the total
consideration consisting of Pinnacle Common Stock received by the sole
stockholder of Maco in the Maco Acquisition would still be sufficient to satisfy
the "continuity of interest" test as interpreted under applicable case law.
If the Maco Acquisition is not treated as a tax-free reorganization for
federal income tax purposes, the imposition of federal income taxes on Pinnacle
in connection with the Maco Acquisition would have a material adverse effect on
the results of operations of Pinnacle.
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CERTAIN REGULATORY CONSIDERATIONS
THE FOLLOWING DISCUSSION IS A SUMMARY OF CERTAIN STATUTES AND REGULATIONS
AFFECTING PINNACLE, IFC, CB AND THEIR RESPECTIVE SUBSIDIARIES. ALTHOUGH IT
DESCRIBES AND SUMMARIZES ALL MATERIAL PROVISIONS OF SUCH STATUTES AND
REGULATIONS, SUCH DISCUSSION IS NECESSARILY INCOMPLETE. CONSEQUENTLY, REFERENCE
IS MADE TO AND SUCH DISCUSSION IS QUALIFIED IN ITS ENTIRETY BY, SUCH STATUTES
AND REGULATIONS. A CHANGE IN APPLICABLE LAWS OR REGULATIONS MAY HAVE A MATERIAL
EFFECT ON PINNACLE, IFC, CB, THEIR RESPECTIVE SUBSIDIARIES AND THE RESPECTIVE
BUSINESSES OF PINNACLE, IFC, CB, AND THEIR RESPECTIVE SUBSIDIARIES.
GENERAL
Financial institutions such as bank holding companies, banks, savings and
loan holding companies, and thrifts are extensively regulated under both federal
and state law. Such regulations apply to, among other things, acquisitions,
permissible types and amounts of loans, investments and other activities,
capital adequacy, branching, interest rates on loans and on deposits and the
safety and soundness of banking practices.
The policies and regulations of financial institution regulatory authorities
have had significant effect on the operating results of financial institutions
in the past and are expected to have significant effects in the future. Such
policies and regulations may be influenced by many factors, including inflation,
unemployment, short-term and long-term changes in the international trade
balance and fiscal policies of the United States government.
Periodically legislation is considered and adopted which has resulted in, or
that could result in, further regulation or deregulation of financial
institutions. In addition to the relaxation or elimination of geographic
restrictions on banks and bank holding companies, a number of regulatory and
legislative initiatives have the potential for eliminating many of the product
line barriers presently separating the services offered by commercial banks from
those offered by nonbanking institutions, including mutual funds, securities
brokerage firms and investment banking firms. No assurance can be given as to
whether any additional legislation will be adopted or as to the effect such
legislation would have on the business of Pinnacle, IFC, CB, and their
respective subsidiaries.
* * * * *
BANK HOLDING COMPANIES. As a bank holding company, Pinnacle is subject to
regulation under the BHCA and its examination and reporting requirements and is
subject to the supervision of the Federal Reserve Board.
Banking laws and regulations restrict transactions by insured banks owned by
a bank holding company, including loans to and certain purchases from the parent
holding company, non-bank and bank subsidiaries of the parent holding company,
principal stockholders, officers, directors and their affiliates, and
investments by the subsidiary banks in the shares or securities of the parent
holding company (or of any other non-bank or bank affiliates), and acceptance of
such shares or securities as collateral security for loans to any borrower. The
regulators also review other payments, such as management fees, made by
subsidiary banks or affiliated companies.
Under the BHCA, a bank holding company is prohibited, with certain limited
exceptions, from engaging in activities other than those of banking or of
managing or controlling banks and from acquiring or retaining direct or indirect
ownership or control of voting shares or assets of any company which is not a
bank or bank holding company, other than subsidiaries furnishing services to or
performing services for its subsidiaries, and other subsidiaries engaged in
activities which the Federal Reserve Board determines to be so closely related
to banking or managing or controlling banks as to be a proper incident thereto.
As a Michigan state banking corporation, Pinnacle Bank is subject to
regulation and examination by the Financial Institutions Bureau of the State of
Michigan. As an institution whose deposits are insured by
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the Bank Insurance Fund (the "BIF") and the SAIF of the FDIC, Pinnacle Bank is
also subject to regulation and examination by the FDIC.
SAVINGS AND LOAN HOLDING COMPANIES. As savings and loan holding companies,
IFC and CB are subject to regulation under the Home Owners Loan Act of 1933, as
amended ("HOLA"), and its examination and reporting requirements, and is subject
to the supervision of the OTS.
Under The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), the OTS is granted broad power to impose restrictions on
savings and loan holding company activities if the OTS determines there is
reasonable cause to believe that the continuation by the holding company of any
activity constitutes a serious risk to the financial safety, soundness or
stability of a subsidiary thrift. The restrictions, issued in the form of a
directive, limit (i) the payment of dividends by the thrifts; (ii) transactions
between the thrift, the savings and loan holding company, and the subsidiaries
or affiliates of either; and (iii) any activities of the thrift that might
create a serious risk that the liabilities of the savings and loan holding
company or its other affiliates may be imposed on the thrift.
IFC's subsidiary savings bank, IndFed Bank, and CB's subsidiary savings
bank, Community Bank, are subject to regulation and examination by the OTS and
by the FDIC because their deposits are insured by SAIF.
PAYMENT OF DIVIDENDS
PINNACLE. Pinnacle is a legal entity separate and distinct from its
subsidiaries. Substantially all of Pinnacle's revenues result from dividends
paid to it by Pinnacle Bank and from earnings on investments. There are
statutory and regulatory requirements applicable to the payment of dividends by
Pinnacle Bank as well as by Pinnacle to its stockholders.
Under Michigan law, Pinnacle Bank may not declare a cash dividend or a
dividend in kind except out of net profits then on hand after deducting all
losses and bad debts, and then only if it will have a surplus amounting to not
less than 20% of its capital after the payment of the dividend. Moreover,
Pinnacle Bank may not declare or pay any cash dividend or dividend in kind until
the cumulative dividends on its preferred stock, if any, have been paid in full.
Further, if the surplus of Pinnacle Bank is at any time less than the amount of
its capital, before the declaration of a cash dividend or dividend in kind, it
must transfer to surplus not less than 10% of its net profits for the preceding
half-year (in the case of quarterly or semi-annual dividends) or the preceding
two consecutive half-year periods (in the case of annual dividends). Under the
foregoing dividend restrictions, Pinnacle Bank, without obtaining governmental
approvals, could declare aggregate dividends in 1996 of approximately $14.9
million from retained net profits of the preceding two years, plus an amount
approximately equal to the net profits (as measured under current regulations),
if any, earned for the period from January 1, 1996 through the date of
declaration less dividends previously paid in 1996. During 1996, Pinnacle Bank
paid $3.7 million in dividends.
IFC AND CB. IFC and CB are also legal entities separate and distinct from
their respective subsidiaries. Substantially all of IFC's revenues result from
dividends paid to it by IndFed Bank. Substantially all of CB's revenues result
from dividends paid to it by Community Bank. Under regulations promulgated by
the OTS, the amount of dividends that may be paid by thrifts such as IndFed Bank
and Community Bank are subject to certain limitations. In general, these
limitations depend upon whether or not the thrift's capital equals or exceeds
its fully phased-in capital requirement immediately prior to, and on a pro forma
basis after giving effect to, a proposed dividend. A thrift which meets or
exceeds its fully phased-in capital requirement is categorized as a "Tier 1
association" and during any calendar year may not, without the prior approval of
the OTS, pay annual dividends in an amount in excess of the higher of (i) its
net income (as defined and interpreted by regulation) to date for that year,
plus the amount that would reduce by one-half the thrift's "surplus capital
ratio" at the beginning of the year, or (ii) 75% of its net income over the most
recent four-quarter period. For purposes of determining the amount of dividends
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which may be paid by a thrift, the term "surplus capital ratio" means the
percentage by which the thrift's capital-to-assets ratio exceeds the ratio of
its fully phased-in capital requirement to its assets. A thrift with capital
equal to or in excess of its minimum capital requirement, but less than its
fully phased-in capital requirement, is subject to more stringent limitations on
the amount of dividends that it may pay in any year without the prior approval
of the OTS, while a thrift that does not have capital in an amount equal to its
minimum capital requirement may not pay any dividends without the prior approval
of the OTS. A thrift which meets the fully phased-in capital requirements but
which has received notice from the OTS that it is in need of more than normal
supervision will be treated as a thrift in one of the other two classes noted
above, at the discretion of the OTS, unless the OTS determines that such
treatment is not necessary to ensure the thrift's safe and sound operation.
IndFed Bank is categorized as a "Tier 1 association" and, as such, was
eligible to make capital distributions of approximately $15.9 million at
December 31, 1996.
Community Bank is categorized as a "Tier 1 association" and, as such, was
eligible to make capital distributions of approximately $4.0 million at December
31, 1996.
OTHER FACTORS. The payment of dividends by Pinnacle and its subsidiaries
may also be affected or limited by other factors, such as the requirements to
maintain adequate capital above regulatory guidelines. In addition, if, in the
opinion of the applicable regulatory authority, a bank or thrift under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the bank or thrift,
could include the payment of dividends), such authority may require, after
notice and hearing, that such bank or thrift cease and desist from such practice
or prohibit the payment of future dividends. The Federal Reserve Board has
indicated that paying dividends that deplete a bank's capital base to an
inadequate level would be an unsafe and unsound banking practice. The Federal
Reserve Board and the FDIC have issued policy statements which provide that bank
holding companies and insured banks should generally only pay dividends out of
current operating earnings. The OTS has indicated that the payment of dividends
by a thrift whose capital is decreasing because of substantial losses would be
an unsafe and unsound practice.
CERTAIN TRANSACTIONS WITH AFFILIATES
BANK HOLDING COMPANIES. There are legal restrictions on the extent to which
a bank holding company such as Pinnacle and its nonbank subsidiaries can borrow
or otherwise obtain credit from its bank subsidiaries (e.g., Pinnacle Bank). The
"covered transactions" that an insured bank such as Pinnacle Bank and its
subsidiaries are permitted to engage in with their nonbank or nonsavings bank
affiliates are limited to the following amounts: (i) in the case of any one such
affiliate, the aggregate amount of "covered transactions" of the insured bank
and its subsidiaries cannot exceed 10% of the capital stock and the surplus of
the insured bank; and (ii) in the case of all affiliates, the aggregate amount
of "covered transactions" of the insured bank and its subsidiaries cannot exceed
20% of the capital stock and surplus of the insured bank. "Covered transactions"
are defined by statute to include a loan or extension of credit to the
affiliate, a purchase of securities issued by an affiliate, a purchase of assets
from the affiliate (unless otherwise exempted by the Federal Reserve Board), the
acceptance of securities issued by the affiliate as collateral for a loan and
the issuance of a guarantee, acceptance, or letter of credit for the benefit of
an affiliate. Covered transactions must also be collateralized. Further, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services.
SAVINGS AND LOAN HOLDING COMPANIES. OTS regulations impose restrictions on
the extent to which a savings and loan holding company (such as IFC and CB), its
subsidiaries and its affiliates may engage in "covered transactions" similar to
those applicable to banks. Such regulations also prohibit a thrift and its
subsidiaries from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services. In
addition, a thrift is generally prohibited from making any
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loan or extension of credit to any affiliate unless the affiliate is engaged
solely in activities permissible to affiliates of thrifts under HOLA, and is
generally prohibited from purchasing any securities of any affiliate, other than
a subsidiary. A thrift and its subsidiaries may generally not purchase a low
quality asset from an affiliate unless the thrift, pursuant to an independent
credit evaluation, committed itself to purchase the asset prior to the time the
asset was acquired by the affiliate.
CAPITAL
GENERAL. Bank and thrift regulators continue to indicate a desire to raise
capital requirements applicable to financial institutions beyond their current
levels. The Federal Reserve Board, FDIC, and state bank regulators require
banks, thrifts and holding companies to maintain minimum ratios of primary and
total capital to total assets. Regulatory authorities may increase such minimum
requirements for all banks and bank holding companies or for specified banks or
bank holding companies. Increases in the minimum required ratios could adversely
affect Pinnacle, Pinnacle Bank, First Federal and IndFed Bank, including their
ability to pay dividends.
BANK HOLDING COMPANIES. The Federal Reserve Board has adopted risk-based
capital guidelines for bank holding companies. When the guidelines became fully
phased-in at the end of 1992, the minimum guidelines for the ratio of total
capital ("Total Capital") to risk-weighted assets (including certain off-balance
sheet activities, such as standby letters of credit) increased from 7.25% to
8.00%. At least half of Total Capital must be composed of common stockholders'
equity, minority interests in the equity accounts of consolidated subsidiaries
and a limited amount of perpetual preferred stock, less goodwill and certain
other intangible assets ("Tier 1 Capital"). The remainder may consist of
subordinated debt, other preferred stock and a limited amount of loan loss
reserves. At December 31, 1996, Pinnacle's ratio of Tier 1 Capital to risk-based
assets was 11.99%. At December 31, 1996, on a pro forma basis after giving
effect to the IFC Merger, Pinnacle's ratio of Tier 1 Capital to risk-based
assets would be 11.36%. At December 31, 1996, on a pro forma basis after giving
effect to the CB Merger, Pinnacle's ratio of Tier 1 Capital to risk-based assets
would be 12.24%. At December 31, 1996, on a pro forma basis after giving effect
to both of the Mergers, Pinnacle's ratio of Tier 1 Capital to risk-based assets
would be 11.57%.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies which provide for a minimum leverage
ratio of Tier 1 Capital to total assets, less goodwill and certain other
intangible assets (the "Tier 1 Capital leverage ratio"), of 3% for bank holding
companies that meet certain specified criteria, including having the highest
regulatory rating. All other bank holding companies are required to maintain a
minimum Tier 1 Capital leverage ratio of 3% plus an additional cushion of 100 to
200 basis points. Pinnacle's Tier 1 Capital leverage ratio at December 31, 1996
was 6.24%. At December 31, 1996, on a pro forma combined basis after giving
effect to the IFC Merger, Pinnacle's Tier 1 Capital leverage ratio would be
6.81%. At December 31, 1996, on a pro forma combined basis after giving effect
to the CB Merger, Pinnacle's Tier 1 Capital leverage ratio would be 6.60%. At
December 31, 1996, on a pro forma combined basis after giving effect to both of
the Mergers, Pinnacle's Tier 1 Capital leverage ratio would be 6.96%. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the guidelines indicate that the Federal
Reserve Board will continue to consider a "tangible Tier 1 Capital leverage
ratio" (deducting all intangibles) in evaluating proposals for expansion or new
activities. The Federal Reserve Board has not advised Pinnacle of any specific
minimum Tier 1 Capital leverage ratio applicable to it.
Pinnacle Bank is subject to similar capital requirements adopted by the
FDIC. At December 31, 1996, Pinnacle Bank had a Tier 1 Capital ratio and a Total
Capital ratio (computed under the 1992 guidelines) in excess of the fully
phased-in requirements and a Tier 1 Capital to risk based assets ratio in excess
of 8.00%. No regulatory agency has advised Pinnacle Bank of any specific
applicable minimum Tier 1 Capital leverage ratio. Failure to meet capital
guidelines could subject an insured bank to a variety of enforcement
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remedies, including the termination of deposit insurance by the FDIC and a
prohibition on the acceptance of brokered deposits.
In December, 1992, the Federal Reserve Board approved a final rule altering
the method of computation of Tier 1 Capital of bank holding companies. Subject
to certain exceptions, in calculating Tier 1 Capital under the revised rule,
bank holding companies would be required to deduct all intangible assets other
than purchased mortgage servicing rights and purchased credit card
relationships, each valued at least quarterly at the lesser of 90% of their fair
market value or 100% of their book value, in an aggregate amount not exceeding
50% of Tier 1 Capital, with a separate sublimit of 25% of Tier 1 capital for
purchased credit card relationships.
The Federal Deposit Insurance Corporation Improvement Act of 1991 requires
federal bank regulatory agencies biannually to review risk-based capital
standards to ensure that they adequately address interest rate risk,
concentration of credit risk and risks from non-traditional activities. On
December 31, 1992, capital adequacy regulations adopted by the FDIC, the Federal
Reserve Board and the Office of the Comptroller of the Currency (the
"Comptroller") that incorporated (i) interest rate risk into the calculation of
risk-based capital and (ii) concentration of credit risk and risk from
non-traditional activities into bank capital requirements became effective.
Failure to meet the capital guidelines described above could subject an
insured financial institution to a variety of sanctions, including asset growth
restrictions and termination of deposit insurance by the FDIC.
Upon consummation of each of the Mergers and each of the Subsidiary Bank
Mergers, Pinnacle expects that Pinnacle Bank, as the surviving bank, will
continue to meet its fully phased-in capital requirements and its capital
requirements.
SAVINGS AND LOAN HOLDING COMPANIES. FIRREA and the regulations promulgated
by the OTS thereunder require thrifts to have minimum regulatory "Tangible
Capital" equal to at least 1.5% of adjusted total assets. In addition, thrifts
are required to maintain minimum regulatory "Core Capital" equal to 3% of
adjusted total assets, which, as discussed below, may be increased on a case by
case basis, and to comply with risk-based capital requirements comparable to
those applicable to banks, which currently require minimum risk-based capital
equal to 8% of total risk-adjusted assets. For purposes of determining
compliance with Core Capital and risk-based capital standards, thrifts may not
include supervisory goodwill in the Core Capital calculation.
The term "Tangible Capital" includes common stockholders' equity,
non-cumulative perpetual preferred stock and related surplus, minority interests
in equity accounts of consolidated subsidiaries and certain non-withdrawable
accounts and pledged deposits of mutual associations, minus goodwill and other
intangible assets and investments in non-includable subsidiaries. The term "Core
Capital" means Tangible Capital plus qualifying supervisory goodwill and certain
intangible assets.
At least 50% of a thrift's risk-based capital requirement must be met with
Core Capital, while the remainder may be met with supplementary, or "Tier II
Capital." "Tier II Capital" incudes general loss reserves, certain cumulative
perpetual preferred stock, certain hybrid debt-equity instruments and qualifying
subordinated debt. The risk-based capital regulations require the inclusion of
100% of the principal amount of mortgage loans sold with recourse ("recourse
servicing") for purposes of calculating risk-weighted assets. The assets are
then to be included in the appropriate risk-weight category based on the
requirements of the regulation for mortgage loans.
Under FIRREA, the OTS is required to establish capital requirements for
thrifts no less stringent than those established by the Comptroller with respect
to banks subject to its jurisdiction. The Comptroller has established capital
requirements for banks under its jurisdiction that are substantially similar to
bank holding company capital requirements adopted by the Federal Reserve Board
and described above. The Comptroller has increased its core capital requirements
for such banks, other than those with the highest
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supervisory rating. The OTS has issued a proposed rule that similarly requires
an increased level of Core Capital for all thrifts other than the most highly
rated thrifts. This new rule will be applied by the OTS on a case by case basis.
Under this new rule, certain thrifts will be required to have at least 4% Core
Capital.
At December 31, 1996, IFC had Tangible Capital and Core Capital equal to
6.01% of adjusted total assets, and risk-based capital equal to 9.78% of total
risk-adjusted assets. At December 31, 1996, CB had Tangible Capital and Core
Capital equal to 8.81% of adjusted total assets, and risk-based capital equal to
14.13% of total risk-adjusted assets. At December 31, 1996 on a pro forma basis
after giving effect to the IFC Merger, Pinnacle would have had Tangible Capital
equal to 6.81% of adjusted total assets, Core Capital equal to 6.81% of adjusted
total assets and risk-based capital equal to 11.36% of risk-adjusted total
assets. At December 31, 1996 on a pro forma basis after giving effect to the CB
Merger, Pinnacle would have had Tangible Capital equal to 6.60% of adjusted
total assets, Core Capital equal to 6.60% of adjusted total assets and
risk-based capital equal to 12.24% of risk-adjusted total assets. At December
31, 1996 on a pro forma basis after giving effect to both of the Mergers,
Pinnacle would have had Tangible Capital equal to 6.96% of adjusted total
assets, Core Capital equal to 6.96% of adjusted total assets and risk-based
capital equal to 11.57% of risk-adjusted total assets.
The OTS is permitted to establish, on an institution by institution basis,
individualized minimum capital requirements exceeding the general requirements
described above. Failure to meet the capital guidelines described above could
subject an insured thrift to a variety of sanctions, including asset growth
restrictions and termination of deposit insurance by the FDIC.
Upon consummation of the IFC Merger, Pinnacle expects that IndFed Bank will
continue to meet applicable fully phased-in capital requirements. Upon
consummation of the merger of IndFed Bank with and into Pinnacle Bank, Pinnacle
expects that Pinnacle Bank, as the surviving bank, will continue to meet
applicable fully phased-in capital requirements. Similarly, upon consummation of
the CB Merger, Pinnacle expects that Community Bank will continue to meet
applicable fully phased-in capital requirements. Upon consummation of the merger
of Community Bank with and into Pinnacle, Pinnacle expects that Pinnacle Bank,
as the surviving bank, will continue to meet applicable fully phased-in capital
requirements. Finally, upon consummation of both of the Mergers, Pinnacle
expects that both IndFed Bank and Community Bank will continue to meet
applicable fully phased-in capital requirements. Upon consummation of the
mergers of IndFed Bank and Community Bank with and into Pinnacle, Pinnacle
expects that Pinnacle Bank, as the surviving bank, will continue to meet
applicable fully phased-in capital requirements.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve Board policy, Pinnacle is expected to act as a source
of financial strength to each of its subsidiary banks and to commit resources to
support each of such subsidiaries. This support may be required at times when,
absent such Federal Reserve Board policy, Pinnacle would not otherwise be
required to provide it. Any capital loans by a bank holding company to any
subsidiary bank are subordinate in right of payment to deposits and to certain
other indebtedness of such subsidiary bank. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a subsidiary bank will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
Under FIRREA, a depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC after August 9, 1989 in connection with (i) the default of a commonly
controlled FDIC-insured depository institution, or (ii) any assistance provided
by the FDIC to any commonly controlled FDIC-insured depository institution "in
danger of default." "Default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a default is likely to occur in
the absence of regulatory assistance. This right of recovery by the FDIC
generally is superior to any claim of the stockholders of the depository
institution that is liable or of any affiliate of such institution. Pinnacle's
subsidiary banks are subject to such provisions of FIRREA and such right of
recovery by the FDIC.
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Under Michigan law, if the capital of a Michigan-chartered bank is impaired
by losses or otherwise, the Michigan Financial Institutions Bureau is authorized
to require payment of the deficiency by assessment upon the bank's stockholders,
pro rata, and to the extent necessary, if any such assessment is not paid by any
stockholder after three months notice, to cause the sale of the stock of such
stockholder to make good the deficiency.
FDIC INSURANCE ASSESSMENTS
The deposits of Pinnacle Bank, IndFed Bank and Community Bank are currently
insured to a maximum of $100,000 per depositor, subject to certain aggregation
rules. The FDIC establishes rates for the payment of premiums by federally
insured banks and thrifts, such as Pinnacle Bank, IndFed Bank and Community
Bank, for deposit insurance. Separate insurance funds (the BIF and the SAIF) are
maintained for commercial banks and thrifts, with insurance premiums from the
industry used to offset losses from insurance payouts when banks and thrifts
fail. Due to the high rate of failures in recent years, the FDIC has adopted a
risk-based deposit insurance premium system for all insured depository
institutions, including Pinnacle Bank, IndFed Bank and Community Bank, which
requires that a depository institution pay to BIF from $.00 to $.27 per $100, or
to SAIF from $.23 to $.31 per $100, of insured deposits depending on its capital
levels and risk profile, as determined by its primary federal regulator on a
semiannual basis. Under its risk-based assessment system, the FDIC may place a
member in one of nine assessment risk categories based on certain capital and
supervisory measures. The capital measures are "well capitalized," "adequately
capitalized" and "less than adequately capitalized." Within each capital group a
member may be assigned to one of three supervisory subgroups: "healthy,"
"supervisory concern" and "substantial supervisory concern."
A financial institution is "well capitalized" if it has a Total Capital to
risk based assets of 10% or greater, a Tier 1 Capital of 6% or greater, and a
Tier 1 leverage ratio of 5% or greater. A financial institution is "adequately
capitalized" if it does not meet the standards for "well capitalized" but has a
Total Capital to risk based assets of 8% or greater, a Tier 1 Capital of 4% or
greater, and a Tier 1 leverage ratio of 4% or greater. A financial institution
is "less than adequately capitalized" if it does not meet the standards for
"adequately capitalized."
A "healthy" financial institution is one that is financially sound with only
a few minor weaknesses. A financial institution raising "supervisory concern" is
one with weaknesses which, if not corrected, could result in significant
deterioration of the institution and increased risk to the BIF or SAIF. A
financial institution raising "substantial supervisory concern" is one that
poses a substantial probability of loss to the BIF or SAIF unless effective
corrective action is taken.
The risk-related adjusted assessment schedule adopted by the FDIC with
respect to deposits insured by the BIF is as follows:
<TABLE>
<CAPTION>
SUPERVISORY SUBSTANTIAL SUPERVISORY
HEALTHY CONCERN CONCERN
----------- --------------- -----------------------
<S> <C> <C> <C>
Well Capitalized............................................ .00% .03% .17%
Adequately Capitalized...................................... .03% .10% .24%
Less than Adequately Capitalized............................ .10% .24% .27%
</TABLE>
The risk-related adjusted assessment schedule recently adopted by the FDIC
with respect to deposits insured by the SAIF is as follows:
<TABLE>
<CAPTION>
SUPERVISORY SUBSTANTIAL SUPERVISORY
HEALTHY CONCERN CONCERN
----------- --------------- -----------------------
<S> <C> <C> <C>
Well Capitalized............................................ .00% .03% .17%
Adequately Capitalized...................................... .03% .10% .24%
Less than Adequately Capitalized............................ .10% .24% .27%
</TABLE>
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The FDIC's adoption of risk-based insurance assessment, schedules did not
result in a significant increase in the insurance assessment costs of any of
Pinnacle, IFC or CB. As of December 31, 1996, Pinnacle Bank, IndFed Bank and
Community Bank were each classified as "well capitalized" and "healthy."
Legislation was recently enacted that resulted in, among other things, the
assessment of a one-time charge (the "Special Assessment") against financial
institutions with deposits insured by SAIF. The amount of the charge equaled
approximately .657% of the deposits of a financial institution held on March 31,
1995 and subject to the SAIF premium. The Special Assessment was due on
September 30, 1996 and payable no later than November 27, 1996. As a result of
the Special Assessment, Pinnacle paid an assessment of $2.4 million on
approximately $361.3 million of deposits held by it on March 31, 1995 and
insured by SAIF, IFC paid an assessment of $2.8 million on approximately $430.1
million of deposits held by it on March 31, 1995 and insured by SAIF, and CB
paid an assessment of $723,000 on approximately $110.1 million of deposits held
by it on March 31, 1995 and insured by SAIF.
The FDIC has determined not to levy any premium on healthy banks for the
first half of 1997. As a "well capitalized" and "healthy" institution, Pinnacle
Bank will not pay (or accrue) any premiums for FDIC coverage during the first
six months of 1997. BIF insured financial institutions will, however, begin
servicing Financing Corp. ("FICO") bonds, which were funded by SAIF insured
financial institutions. The FICO bonds were issued in the late 1980s in
connection with government efforts to bail out the thrift industry. Beginning in
1997, interest payments for FICO bonds will be borne by all FDIC insured
institutions. FICO bond servicing will require BIF members to pay 6.4 cents for
every $100 in insured deposits, and SAIF members to pay 3.2 cents for each $100
in insured deposits. The servicing payments will be collected electronically by
the FDIC beginning January 2, 1997.
REGULATION OF PROPOSED ACQUISITIONS
With certain limited exceptions, the BHCA prohibits bank holding companies,
such as Pinnacle, from acquiring direct or indirect ownership or control of
voting shares or assets of any company other than a bank, unless the company
involved is engaged solely in one or more activities which the Federal Reserve
Board has determined to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Any such acquisition will
require, except in certain limited cases, the prior approval of the Federal
Reserve Board.
In evaluating an application for its approval of such an acquisition, the
Federal Reserve Board will consider whether the performance by an affiliate of
Pinnacle of the activity can reasonably be expected to produce benefits to the
public (such as greater convenience, increased competition, or gains in
efficiency) that outweigh possible adverse effects (such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices). The Federal Reserve Board may apply different standards to
activities proposed to be commenced de novo and activities commenced by
acquisition, in whole or in part, of a going concern. The Federal Reserve
Board's consideration will also include an evaluation of the financial and
managerial resources of Pinnacle, including its existing subsidiaries, and of
any entity to be acquired, and the effect of the proposed transaction on those
resources. This required regulatory approval is subject to public notice and
comment procedures, and adverse public comments received, or adverse
considerations raised by regulatory agencies, may delay or prevent consummation
of such an acquisition.
FIRREA amended the BHCA in 1989 to permit the Federal Reserve Board to
approve an application by any bank holding company to acquire and operate a
thrift as a non-bank subsidiary of such bank holding company. A bank holding
company such as Pinnacle may apply to the Federal Reserve Board for permission
to acquire and operate a thrift engaged only in deposit-taking, lending and
other activities that the Federal Reserve Board has determined to be permissible
for bank holding companies, in accordance with the procedures and standards
described in the preceding paragraph.
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With certain exceptions, a savings and loan holding company must obtain the
prior written approval of the OTS before acquiring control of a thrift or
savings and loan holding company through the acquisition of stock or through a
merger or some other business combination. HOLA was recently amended to provide
that prior written approval is not required if the acquiring entity is a bank
holding company registered under, and subject to, the BHCA. Because Pinnacle is
a bank holding company registered under, and subject to, the BHCA, prior written
approval of the OTS is not required in connection with the Mergers.
RECENT LEGISLATION
COMMUNITY DEVELOPMENT ACT. In September 1994, the Riegle Community
Development and Regulatory Improvement Act (the "Community Development Act") was
enacted. The Community Development Act consists of (i) Subtitle A, the
"Community Development and Financial Institutions Act," which establishes the
"Community Development Financial Institutions Fund" to promote economic
revitalization and community development through investment in "Community
Development Financial Institutions," and (ii) Subtitle B, "The Home Ownership
and Equity Protection Act of 1994," which seeks to increase the protections
afforded to individuals most at risk from abusive lending practices,
particularly high-interest mortgages secured by the borrowers' homes.
The Community Development Act provides a number of initiatives to lessen the
regulatory burden placed upon depository institutions and also affects a number
of the consumer compliance laws by allowing streamlined disclosures for radio
advertising of consumer leases, providing consumers with information necessary
to challenge an "adverse characterization" due to a credit reporting agency
report and by clarifying the disclosure requirements under the Real Estate
Settlement Procedures Act regarding the transfer of serviced mortgaged loans.
The Community Development Act also reforms currency transaction reports to
increase their usefulness to the Federal Government and to various law
enforcement agencies in combating money laundering. The measure also calls for
improvement in the identification of money laundering schemes, better controls
over negotiable instruments drawn on foreign banks by making them subject to
reporting, and uniform licensing and registration of check cashing and money
transmitting businesses, which are often used to facilitate illegal currency
transactions.
INTERSTATE ACT. In September 1994, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Act") was also enacted. The
Interstate Act facilitates the interstate expansion and consolidation of banking
organizations by permitting (i) beginning one year after enactment of the
legislation, bank holding companies that are adequately capitalized and managed
to acquire banks located in states outside their home states regardless of
whether such acquisitions are authorized under the law of the host state, (ii)
the interstate merger of banks after June 1, 1997, subject to the right of
individual states to "opt in" or "opt out" of this authority prior to such date,
(iii) banks to establish new branches on an interstate basis provided that such
action is specifically authorized by the law of the host state, (iv) foreign
banks to establish, with approval of the appropriate regulators in the United
States, branches outside their home states to the same extent that national or
state banks located in such state would be authorized to do so and (v) beginning
September 29, 1995, banks to receive deposits, renew time deposits, close loans,
service loans and receive payments on loans and other obligations as agent for
any bank or thrift affiliate, whether the affiliate is located in the same or
different state.
FDICIA. The Federal Deposit Insurance Corporation Improvement Act of 1991
substantially revised the bank regulatory and funding provisions of the Federal
Deposit Insurance Act and revised several other federal banking statutes.
FDICIA establishes five capital tiers: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." A depository institution is well capitalized if
it significantly exceeds the minimum level required by regulation for each
relevant capital measure,
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adequately capitalized if it meets each such measure, undercapitalized if it
fails to meet any such measure, significantly undercapitalized if it is
significantly below such measure and critically undercapitalized if it fails to
meet any critical capital level set forth in regulations. The critical capital
level is defined as a ratio of tangible equity to total assets of two percent or
less. An institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position under certain
circumstances.
Among other things, FDICIA requires the federal bank regulatory authorities
to take "prompt corrective action" in respect of any depository institution
which does not meet specified minimum capital requirements. The scope and degree
of regulatory intervention is linked to the extent of the shortfall of the
depository institution's capital from required minimum standards. In the case of
a depository institution which is "critically undercapitalized" (a term defined
to include institutions which still have a positive net worth), the federal bank
regulatory authorities are generally required to appoint a conservator or
receiver. FDICIA also requires the holding company of any undercapitalized
depository institution to guarantee, in part, such depository institution's
capital plan in order for such plan to be acceptable. FDICIA also prohibits a
depository institution that is not well-capitalized from accepting brokered
deposits and paying deposit interest rates which significantly exceed the
prevailing rate in its own market or the national rate (as determined by the
FDIC) for similar deposits. Implementing regulations for these provisions of
FDICIA have not yet been adopted by the federal bank regulatory authorities.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized.
QUALIFIED THRIFT LENDER ("QTL") TEST
Except in certain cases, HOLA requires savings associations to meet a QTL
test to avoid certain restrictions on their operations. Most savings
associations are required to maintain 65% of their "portfolio assets" (total
assets minus goodwill, intangibles, property used to conduct business and liquid
assets up to 20% of assets), in "qualified thrift investments" (primarily loans
and other investments related to residential real estate together with certain
other assets). As of December 31, 1996, IndFed Bank had approximately 69% of its
portfolio assets in qualified thrift investments and therefore was a QTL under
applicable law. As of December 31, 1996, Community Bank had 91% of its portfolio
assets in qualified thrift investments and therefore was a QTL under applicable
law.
A savings institution's failure to remain a QTL may result in: (i)
limitations on new investments and activities; (ii) imposition of branching
restrictions; (iii) loss of Federal Home Loan Bank borrowing privileges; and
(iv) limitations on the payments of dividends. If a savings institution that is
a subsidiary of a savings and loan holding company fails to regain QTL status
within one year of its loss of such status, the holding company must register as
and will be deemed to be a bank holding company subject to, among other things,
the business activity restrictions of the BHCA.
MORTGAGE REGULATION
In the origination of mortgage loans, Pinnacle, IFC, CB and their respective
subsidiaries are subject to various federal statutes, such as the Equal Credit
Opportunity Act, Fair Credit Reporting Act, Truth in Lending Act, Real Estate
Settlement Procedures Act, and Home Mortgage Disclosure Act, and the regulations
promulgated thereunder, which prohibit discrimination and specify disclosures to
be made to borrowers regarding credit and settlement costs.
As sellers and servicers of mortgage loans, Pinnacle, IFC and CB are
participants in the secondary mortgage market with some or all of the following:
private institutional investors, Federal National Mortgage Association ("FNMA"),
Government National Mortgage Association, Federal Home Loan Mortgage Corporation
("FHLMC"), Veterans' Administration and Federal Housing Authority. In its
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dealings with these agencies, Pinnacle and IFC are subject to various
eligibility requirements prescribed by the agencies, including but not limited
to net worth, quality control, bonding, financial reporting and compliance
reporting requirements. The mortgage loans which Pinnacle and IFC originate are
subject to agency-prescribed procedures, including (without limitation)
inspection and appraisal of properties, maximum loan-to-value ratios, and
obtaining credit reports on prospective borrowers. On some types of loans, the
agencies prescribe maximum loan amounts, interest rates and fees. When selling
mortgage loans to FNMA and FHLMC, a seller must represent and warrant that all
such mortgage loans conform to the requirements of FNMA and FHLMC. If the
mortgage loans sold are found to be nonconforming mortgage loans, FNMA or FHLMC
may require the seller to repurchase the nonconforming mortgage loans.
Additionally, FNMA and FHLMC may require a seller/servicer to indemnify them
against all losses arising from the seller/servicer's failure to perform its
contractual obligations under the applicable selling or servicing contract.
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DESCRIPTION OF PINNACLE COMMON STOCK
ALTHOUGH THE FOLLOWING DESCRIPTION SUMMARIZES ALL MATERIAL PROVISIONS OF
PINNACLE COMMON STOCK, IT DOES NOT PURPORT TO BE COMPLETE. CONSEQUENTLY,
REFERENCE IS MADE TO, AND SUCH DESCRIPTION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO, PINNACLE'S RESTATED ARTICLES OF INCORPORATION (WHICH ARE FILED AS
AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS JOINT PROXY
STATEMENT/PROSPECTUS FORMS A PART AND ARE INCORPORATED HEREIN BY REFERENCE). THE
FOLLOWING DESCRIPTION SHOULD BE READ CAREFULLY BY THE IFC STOCKHOLDERS AND CB
STOCKHOLDERS SINCE, UPON CONSUMMATION OF THE IFC MERGER AND THE CB MERGER, AS
APPLICABLE, THE ISSUED AND OUTSTANDING SHARES OF IFC COMMON STOCK AND CB COMMON
STOCK WILL BE CONVERTED INTO SHARES OF PINNACLE COMMON STOCK.
Pinnacle's total authorized capital stock currently consists of 15,000,000
shares of common stock, no par value per share. With respect to Pinnacle Common
Stock, as of the record date for the Pinnacle Annual Meeting, 5,980,320 shares
of Pinnacle Common Stock were issued and outstanding and 500,000 shares of
Pinnacle Common Stock were reserved for issuance upon the exercise of various
options previously issued by Pinnacle. Upon consummation of the IFC Merger, and
assuming the CB Merger is not consummated, it is expected that approximately
10,731,451 shares of Pinnacle Common Stock will be issued and outstanding and
429,004 shares of Pinnacle Common Stock will be reserved for issuance upon the
exercise of various options previously issued by Pinnacle and IFC. Upon
consummation of the CB Merger, and assuming the IFC Merger is not consummated,
it is expected that between approximately 7,242,477 shares (assuming a CB
Exchange Ratio of 1.2069 shares of Pinnacle Common Stock for each share of CB
Common Stock converted in the CB Merger) and 7,272,636 shares (assuming a CB
Exchange Ratio of 1.5217 shares of Pinnacle Common Stock for each share of CB
Common Stock converted in the CB Merger) of Pinnacle Common Stock will be issued
and outstanding and 175,915 shares of Pinnacle Common Stock will be reserved for
issuance upon the exercise of various options previously issued by Pinnacle.
Upon consummation of both of the Mergers, it is expected that between
approximately 11,993,608 shares (assuming a CB Exchange Ratio of 1.2069 shares
of Pinnacle Common Stock for each share of CB Common Stock converted in the CB
Merger) and 12,023,767 shares (assuming a CB Exchange Ratio of 1.5217 shares of
Pinnacle Common Stock for each share of CB Common Stock converted in the CB
Merger) of Pinnacle Common Stock will be issued and outstanding and 429,004
shares of Pinnacle Common Stock will be reserved for issuance upon the exercise
of various options previously issued by Pinnacle and IFC.
Holders of Pinnacle Common Stock are entitled to receive such dividends as
may from time to time be declared by the Pinnacle Board out of funds legally
available therefor. With respect to the election of directors, and every other
issue submitted to them as Pinnacle stockholders at a meeting of stockholders or
otherwise, holders of Pinnacle Common Stock are entitled to one vote per share
of Pinnacle Common Stock. Holders of Pinnacle Common Stock do not have
cumulative voting rights in the election of directors. In the event of
liquidation they are entitled to share ratably in all assets of Pinnacle
available for distribution to holders of shares of Pinnacle Common Stock.
Pinnacle Common Stock is not subject to mandatory redemption and holders of
shares of Pinnacle Common Stock do not have preemptive rights. Shares of
Pinnacle Common Stock redeemed or acquired by Pinnacle return to the status of
authorized and unissued shares of Pinnacle Common Stock and may be reissued by
the Pinnacle Board. All shares of Pinnacle Common Stock now issued and
outstanding are fully paid and nonassessable. See "COMPARISON OF STOCKHOLDERS'
RIGHTS."
The registrar and transfer agent for the Pinnacle Common Stock is Harris
Trust and Savings Bank.
Uncommitted authorized but unissued shares of Pinnacle Common Stock may be
issued from time to time to such persons and for such consideration as the
Pinnacle Board may determine and holders of the then outstanding shares of
Pinnacle Common Stock may or may not be given the opportunity to vote thereon,
depending upon the nature of any such transactions, applicable law, the rules
and policies of the National Association of Securities Dealers, Inc. and the
judgment of the Pinnacle Board regarding the
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submission of such issuance to Pinnacle's stockholders. Pinnacle stockholders
have no preemptive rights to subscribe to newly issued shares.
Moreover, it is possible that additional shares of Pinnacle Common Stock
would be issued for the purpose of making an acquisition by an unwanted suitor
of a controlling interest in Pinnacle more difficult, time-consuming or costly
or to otherwise discourage an attempt to acquire control of Pinnacle. Under such
circumstances the availability of authorized and unissued shares of Pinnacle
Common Stock may make it more difficult for stockholders to obtain a premium for
their shares. Such authorized and unissued shares could be used to create voting
or other impediments or to frustrate a person seeking to obtain control of
Pinnacle by means of a merger, tender offer, proxy contest or other means. Such
shares could be privately placed with purchasers who might cooperate with the
Pinnacle Board in opposing such an attempt by a third party to gain control of
Pinnacle. The issuance of new shares of Pinnacle Common Stock could also be used
to dilute ownership of a person or entity seeking to obtain control of Pinnacle.
Although Pinnacle does not currently contemplate taking such action, shares of
Pinnacle Common Stock could be issued for the purposes and effects described
above and the Pinnacle Board reserves its rights (if consistent with its
fiduciary responsibilities) to issue such stock for such purposes.
COMPARISON OF STOCKHOLDERS' RIGHTS
GENERAL
In the event the Mergers are consummated and IFC and CB are merged with and
into Pinnacle, stockholders of IFC and stockholders of CB whose shares of IFC
Common Stock and CB Common Stock, respectively, are converted into shares of
Pinnacle Common Stock will become stockholders of Pinnacle. The rights of
Pinnacle stockholders are governed by the Restated Articles of Incorporation and
By-laws of Pinnacle (collectively, the "Pinnacle Charter Documents") and the
Michigan Business Corporation Act, as amended ("MBCA"). Currently, the rights of
IFC stockholders are governed by the Certificate of Incorporation and By-laws of
IFC (collectively, the "IFC Charter Documents"), the IFC Rights Agreement and
the Delaware General Corporation Law, as amended ("DGCL"), and the rights of CB
stockholders are governed by the Certificate of Incorporation and By-laws of CB
(collectively, the "CB Charter Documents") and the DGCL.
There are differences between the Pinnacle Charter Documents, the IFC
Charter Documents and the CB Charter Documents that will affect stockholders'
rights. Moreover, although the MBCA and the DGCL are similar in many respects,
there are differences between those statutes which may affect stockholders'
rights.
All material differences between the rights of holders of Pinnacle Common
Stock and the rights of holders of IFC Common Stock and CB Common Stock are
described and summarized below. However, the following discussion is not meant
to be relied upon as an exhaustive list or a detailed description of such
differences and is not intended to constitute a detailed comparison or
description of the provisions of the Pinnacle Charter Documents, the IFC Charter
Documents, the IFC Rights Agreement, the CB Charter Documents the MBCA or the
DGCL. Accordingly, reference is made to, and the following discussion is
qualified in its entirety by, the Pinnacle Charter Documents, the IFC Charter
Documents, the IFC Rights Agreement, the CB Charter Documents and the laws of
the State of Michigan and of the State of Delaware.
BOARD OF DIRECTORS; REMOVAL OF DIRECTORS
The size of the whole IFC Board may not be less than seven or more than 15.
The IFC Board currently consists of eight members and the directors are divided
into three classes with the term of office of one of such classes expiring in
each year. At each annual meeting of IFC stockholders, the successors to the
directors of the class whose term is expiring at that time are elected to hold
office for a term of three years. With respect to an election of directors, an
IFC stockholder is entitled to one vote for each share of
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IFC Common Stock held. The size of the CB Board shall be such number as the CB
Board shall designate from time to time, except in the absence of such
designation, the number shall be seven. The CB Board currently consists of seven
members and the directors are divided into three classes with the term of office
of one of such classes expiring in each year. At each annual meeting of CB
stockholders, the successors to the directors of the class whose term is
expiring at that time are elected to hold office for a term of three years. With
respect to an election of directors, a CB stockholder is entitled to one vote
for each share of CB Common Stock held. In contrast, the size of the whole
Pinnacle Board may not be less than five or more than 20, and the number
constituting the whole Pinnacle Board, within such limitation, may be determined
from time to time by resolution of the Pinnacle Board. The Pinnacle Board
currently consists of eight members, all of whom are elected annually by the
stockholders of Pinnacle. With respect to an election of directors, a Pinnacle
stockholder is entitled to one vote for each share of Pinnacle Common Stock
held. Following consummation of the Mergers, the Pinnacle Board will consist of
a single class of directors comprised of ten persons, all of whom will be
elected annually by the stockholders of Pinnacle. Following consummation of the
Mergers, the Pinnacle Board will consist of a single class of directors
comprised of ten persons, all of whom will be elected annually by the
stockholders of Pinnacle. Following consummation of the Mergers, the Pinnacle
Board will consist of a single class of directors comprised of ten persons, all
of whom will be elected annually by the stockholders of Pinnacle. See "INTERESTS
OF CERTAIN PERSONS IN THE MERGERS" and "MANAGEMENT AND OPERATIONS AFTER THE
MERGERS."
IFC, CB and Pinnacle stockholders have different rights with respect to the
removal of directors. Under the DGCL, directors serving on a classified board
may be removed only for cause unless the corporation's certificate of
incorporation provides otherwise. Because IFC's Certificate of Incorporation and
CB's Certificate of Incorporation contain no contrary provisions, IFC directors
and CB directors are subject to removal by stockholders only for cause.
Moreover, IFC's Certificate of Incorporation provides that any IFC director or
the entire IFC Board may be removed only by the affirmative vote of the holders
of 75% or more of the shares of IFC Common Stock voting separately as a class
and at a meeting of stockholders called expressly for such purpose. CB's
Certificate of Incorporation provides that any CB director or the entire CB
Board may be removed only by the affirmative vote of the holders of 80% or more
of the voting power of all of the then-outstanding shares of capital stock of CB
entitled to vote generally in the election of directors, voting together as a
single class. Under the MBCA, directors may be removed with or without cause
unless the corporation's articles of incorporation provides otherwise. Because
Pinnacle's Articles of Incorporation contain no contrary provision, Pinnacle
directors are subject to removal by stockholders with or without cause and by
the affirmative vote of a majority of shares entitled to vote at an election of
directors.
Under the terms of the Standstill Agreement between Pinnacle and Mr. Cyrus
A. Ansary, Pinnacle has certain obligations to nominate Mr. Ansary for election
as a director of Pinnacle. In the event that Pinnacle, as the surviving
corporation, becomes obligated to nominate Mr. Ansary as a director of the
surviving corporation, then the Board of Directors of the combined corporation
will be increased in size to a total of 12 persons, and Mr. Ansary shall be
nominated as a director of the surviving corporation pursuant to the terms of
the Standstill Agreement, and the Chairman of the surviving corporation will
nominate for approval by the Board of Directors of the combined corporation a
twelfth person as a director of the surviving corporation. Whenever the Board of
Directors of the surviving corporation is comprised of 10 or fewer persons,
action of the Board within the meaning of Section 523 of the MBCA, and for all
other purposes, will require the favorable vote of six or more of the directors,
and whenever the Board of Directors of the surviving corporation is comprised of
11 or 12 persons, action of the Board within the meaning of Section 523 of the
MBCA, and for all other purposes, will require the favorable vote of seven or
more of the directors.
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STOCKHOLDER VOTING REQUIREMENTS
GENERAL. Pursuant to the DGCL, all matters submitted to a vote of IFC
stockholders and CB stockholders, other than the election of directors (for
which the affirmative vote of a plurality of the votes cast at an election is
required), the removal of directors for cause, the amendment of by-laws and
certain provisions of the Certificates of Incorporation, certain business
combination transactions involving major stockholders or affiliates of IFC and
CB, respectively, thereof, and certain business combination transactions, are
determined by the holders of shares entitling them to exercise a majority of the
total voting power of IFC and CB, respectively. Pursuant to the MBCA, all
matters submitted to a vote of Pinnacle stockholders, other than the election of
directors (for which, the affirmative vote of a plurality of the votes cast at
an election is required) and certain business combination transactions involving
a 10% stockholder or an affiliate thereof, are determined by a vote of the
holders of shares entitling them to exercise a majority of the voting power of
Pinnacle.
SUPERMAJORITY VOTING PROVISIONS OF THE IFC CHARTER DOCUMENTS. Section 9 of
IFC's Certificate of Incorporation provides that the affirmative vote of the
holders of 75% of the "IFC Voting Shares," voting as a single class, is required
to approve certain mergers or consolidations, certain sales, leases, exchanges,
mortgages, pledges, transfers or dispositions of assets, certain
recapitalizations or reclassifications of securities, certain issuances or
transfers of voting securities or securities convertible into or exercisable for
voting securities, and certain other business combination transactions involving
IFC or a subsidiary of IFC and a "Related Person" or an affiliate or associate
of a Related Person (collectively, a "Business Combination"). Section 9 of IFC's
Certificate of Incorporation defines the term "Voting Shares" to mean any shares
of IFC entitled to vote generally in the election of directors, and defines the
term "Related Person" to mean any person who is the beneficial owner of 10% or
more of the outstanding IFC Voting Shares of IFC. The term "Related Person"
includes any person who is a Related Person (i) as of the time any definitive
agreement relating to a Business Combination is entered into, or (ii) as of the
record date for the determination of stockholders entitled to notice of and to
vote on a Business Combination, or (iii) immediately prior to the consummation
of a Business Combination.
Section 9 of IFC's Certificate of Incorporation provides that the
supermajority voting provisions contained therein do not apply to any Business
Combination that either is approved by the affirmative vote of at least 75% of
IFC's "Continuing Directors" or satisfies certain price, form of consideration
and procedural requirements designed to ensure the fairness of such Business
Combination. Section 9 of IFC's Certificate of Incorporation defines the term
"Continuing Director" to mean any member of the IFC Board who is unaffiliated
with the Related Person and was a member of the IFC Board prior to the time that
such Related Person became a Related Person, and any successor of a Continuing
Director who is unaffiliated with such Related Person and is recommended to
succeed a Continuing Director by a majority of IFC's Continuing Directors.
By virtue of the approval of the IFC Merger Agreement and the transactions
contemplated thereby by the requisite percentage of IFC's Continuing Directors,
the provisions of Section 9 of IFC's Certificate of Incorporation do not apply
to the IFC Merger, the Pinnacle/IFC Stock Option Agreements or such
transactions.
Section 9 of IFC's Certificate of Incorporation provides that any amendment,
addition, alteration, change or repeal of said Section 9, or any other amendment
of the Certificate of Incorporation or By-laws of IFC inconsistent with or
modifying or permitting circumvention of said Section 9, must first be proposed
by the IFC Board upon the affirmative vote of at least two-thirds of the
directors then in office at a duly constituted meeting of the IFC Board called
expressly for such purpose, and thereafter approved by the affirmative vote of
the holders of at least 75% of IFC's then outstanding Voting Shares, voting as a
single class. The foregoing supermajority voting requirement does not apply to
any such amendment, addition, alteration, change or repeal recommended to IFC's
stockholders by the affirmative vote of not less than 75% of the Continuing
Directors. For the purposes of the foregoing, if at the time when any such
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amendment, addition, alteration, change or repeal is under consideration there
is no proposed Business Combination, then the term "Continuing Directors" is
deemed to mean the entire IFC Board.
Section 14 of IFC's Certificate of Incorporation provides that no amendment,
addition, alteration, change, or repeal of any provision of IFC's Certificate of
Incorporation may be made, unless such is first proposed by the IFC Board, upon
the affirmative vote of at least two-thirds of the directors then in office at a
duly constituted meeting of the IFC Board called expressly for such purposes,
and thereafter approved by the stockholders by a majority of the total votes
eligible to be cast at a duly constituted meeting of stockholders called
expressly for such purpose; except that the affirmative vote of the holders of
at least 75% of the total votes eligible to be cast at such meeting of
stockholders shall be required to amend, add to, alter, change or repeal Section
6 (which governs the composition and classification of the IFC Board, the
removal of directors, and amendments to IFC's By-laws), Section 8 (which governs
the calling of special meetings of stockholders), Section 9 (which governs
Business Combinations), Section 10 (which governs indemnification of directors
and officers), and Section 11 (which limits the personal liability of directors)
of IFC's Certificate of Incorporation. Section 14 of IFC's Certificate of
Incorporation also provides that Section 9 of IFC's Certificate of Incorporation
may be amended, added to, altered, changed or repealed only as described in the
preceding paragraph.
Section 6 of IFC's Certificate of Incorporation provides that IFC's By-laws
may be adopted, altered, amended or repealed by either (i) the IFC Board upon
the affirmative vote of at least two-thirds of the directors then in office at a
duly constituted meeting of the IFC Board called expressly for such purpose, or
(ii) IFC's stockholders upon the affirmative vote of at least 75% of the total
votes eligible to be cast by such stockholders at a duly constituted meeting of
IFC's stockholders called expressly for such purpose.
SUPERMAJORITY VOTING PROVISIONS OF THE CB CHARTER DOCUMENTS. Article Eighth
of CB's Certificate of Incorporation provides that the affirmative vote of
holders of 80% of the "CB Voting Stock," voting as a single class, is required
to approve certain mergers or consolidations, certain sales, leases, exchanges,
mortgages, pledges, transfers or dispositions of assets, certain
recapitalizations or reclassifications of securities, certain issuances or
transfers of any securities of CB or a subsidiary of CB, certain plans or
proposals for the liquidation or dissolution of CB and certain other business
combination transactions involving CB or a subsidiary of CB and an "Interested
Stockholder" or an affiliate or associate of an Interested Stockholder
(collectively, a "Business Combination"). Article Eighth of CB's Certificate of
Incorporation defines the term "Voting Stock" to mean any shares of CB entitled
to vote generally in the election of directors, and defines the term "Interested
Stockholder" to mean any person who is the beneficial owner of more than 10% of
the Voting Stock of CB, or is a certain type of affiliate of CB or a certain
type of assignee of an Interested Stockholder.
Article Eighth of CB's Certificate of Incorporation provides that the
supermajority voting provisions contained therein do not apply to any Business
Combination that either is approved by a majority of CB's "Disinterested
Directors" or satisfies certain price, form of consideration and procedural
requirements designed to ensure the fairness of such Business Combination.
Article Eighth of CB's Certificate of Incorporation defines the term
"Disinterested Director" to mean any member of the CB Board who is unaffiliated
with the Interested Stockholder and was a member of the CB Board prior to the
time that such Interested Stockholder became an Interested Stockholder and any
successor of a Disinterested Director who is unaffiliated with such Interested
Stockholder and is recommended to succeed a Disinterested Director by a majority
of CB's Disinterested Directors.
By virtue of the approval of the CB Merger Agreement and the transactions
contemplated thereby by the requisite percentage of CB's Disinterested
Directors, the provisions of Article Eighth of CB's Certificate of Incorporation
do not apply to the CB Merger, the CB Stock Option Agreement or such
transactions.
Article Eighth of CB's Certificate of Incorporation provides that any
amendment, alteration, or repeal of said Article Eighth must be approved by the
affirmative vote of the holders of at least 80% of CB's then
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outstanding Voting Stock, voting as a single class. Article Twelfth of CB's
Certificate of Incorporation provides that any amendment or repeal of any
provision of CB's Certificate of Incorporation shall be made in the manner
prescribed by the DGCL; except that the affirmative vote of the holders of at
least 80% of the total votes eligible to be cast at such meeting of stockholders
shall be required to amend or repeal Article Twelfth, Section C of Article
Fourth, Sections C or D of Article Fifth, Article Sixth, Article Seventh,
Article Eighth or Article Tenth of CB's Certificate of Incorporation. Article
Seventh of CB's Certificate of Incorporation provides that CB's By-laws may be
adopted, amended or repealed by either (i) the CB Board upon the affirmative
vote of a majority of the directors then in office at a duly constituted meeting
of the CB Board called expressly for such purpose, or (ii) CB's stockholders
upon the affirmative vote of at least 80% of the outstanding Voting Stock.
SUPERMAJORITY VOTING PROVISIONS OF THE PINNACLE CHARTER DOCUMENTS. The
Pinnacle Charter Documents do not contain any supermajority voting provisions
analogous to the provisions of Section 6, Section 9 and Section 14 of IFC's
Certificate of Incorporation or Article Seventh, Article Eighth and Article
Twelfth of CB's Certificate of Incorporation.
ANTI-TAKEOVER LAWS AND CHARTER PROVISIONS
IFC and CB are subject to the provisions of Section 203 of the DGCL, which
applies to Delaware corporations with a class of voting stock listed on a
national securities exchange, authorized for quotation on an interdealer
quotation system, or held of record by more than 2,000 persons, and restricts
transactions which may be entered into by such a corporation and certain of its
stockholders. Section 203 provides, in essence, that a stockholder acquiring
more than 15% of the outstanding voting shares of a corporation subject to its
provisions (an "Interested Stockholder") may not, except with certain board of
directors and/ or stockholder approvals, engage in certain business combinations
with the corporation for a period of three years subsequent to the date on which
the stockholder became an Interested Stockholder.
Section 203 of the DGCL defines the term "business combination" to encompass
a wide variety of transactions with or caused by an Interested Stockholder in
which the Interested Stockholder receives or could receive a benefit other than
on a pro rata basis with other stockholders, including mergers, certain asset
sales, certain issuances of additional shares to the Interested Stockholder,
transactions with the company which increase the proportionate interest of the
Interested Stockholder or transactions in which the Interested Stockholder
receives certain other benefits. By virtue of the prior approval of the IFC
Merger Agreement, the Pinnacle/IFC Stock Option Agreements, the CB Merger
Agreement, the CB Stock Option Agreement and the transactions contemplated
thereby by the IFC Board and the CB Board, the provisions of Section 203 of the
DGCL do not apply to the Mergers, the Pinnacle/IFC Stock Option Agreements, the
CB Stock Option Agreement or such transactions. By virtue of the prior approval
of the IFC Merger Agreement, the Pinnacle/IFC Stock Option Agreements, the CB
Merger Agreement, the CB Stock Option Agreement and the transactions
contemplated thereby by the IFC Board and the CB Board, the provisions of
Section 203 of the DGCL do not apply to the Mergers, the Pinnacle/IFC Stock
Option Agreements, the CB Stock Option Agreement or such transactions.
CB's Certificate of Incorporation also contains a provision limiting the
voting rights of any person who beneficially owns more than 10% of the then
outstanding shares of CB Common Stock (the "Limit"). A person who beneficially
owns CB Common Stock in excess of the Limit is not entitled or permitted to any
vote in respect of those shares held that are in excess of the Limit. The number
of votes which may be cast by any record owner of CB Common Stock in excess of
the Limit is a number equal to the total number of votes which a single record
owner of all CB Common Stock owned by such person would be entitled to cast,
multiplied by a fraction, the numerator of which is the number of shares of such
class or series beneficially owned by such person and owned of record by such
record owner and the denominator of which is the total number of shares of CB
Common Stock beneficially owned by such person owning shares in excess of the
Limit. The CB Certificate of Incorporation authorizes the CB Board (i) to make
all determinations necessary to implement and apply the Limit, including
determining whether persons or
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entities are acting in concert, and (ii) to determine that a person who is
reasonably believed to beneficially own stock in excess of the Limit, be
required to supply information to CB to enable the CB Board to implement and
apply the Limit.
In addition to the provisions of Section 203, the provisions of Section 9
and Section 14 of IFC's Certificate of Incorporation, the classification of the
IFC Board and the terms of the IFC Rights Agreement may have the effect of
deterring a third party from acquiring or attempting to acquire a controlling
interest in IFC in a transaction or series of transactions not supported by the
IFC Board. In addition to the provisions of Section 203, the provisions of
Article Eighth and Article Twelfth of CB's Certificate of Incorporation and the
classification of the CB Board may have the effect of deterring a third party
from acquiring or attempting to acquire a controlling interest in CB in a
transaction or series of transactions not supported by the CB Board.
Pinnacle is subject to the Michigan "Fair Price" statute (Chapter 7A of the
MBCA), which applies to certain "business combinations" such as mergers,
substantial sales of assets or securities issuances and liquidation,
recapitalization or reorganization plans. Generally, such statute requires, for
a business combination with an "interested stockholder" (generally, the holder
of 10% or more of a class of a corporation's voting stock), an advisory
statement from the corporation's board of directors, the approval of holders of
90% of each class of the corporation's outstanding voting stock and the approval
of two-thirds of the holders of each such class other than the interested
stockholder. The supermajority voting requirements do not apply where the
interested stockholder's offer meets certain price, form of consideration and
procedural requirements designed to make such offers fair to all stockholders or
where the board of directors has approved the transaction with respect to a
particular interested stockholder prior to the interested stockholder becoming
an interested stockholder.
Pinnacle is also subject to the Michigan "Control Share Acquisition" statute
(Chapter 7B of the MBCA). Generally, such statute provides that an entity that
acquires "control shares" may vote the control shares on any matter only if a
majority of all shares, and of all non-"interested shares," entitled to vote and
of each class of stock entitled to vote as a class, approve such voting rights.
"Interested shares" are defined generally as those shares owned by officers of
the corporation, employee directors of the corporation and the entity making the
control share acquisition. Control shares are defined generally as shares that
when added to shares already owned by an entity, would give the entity voting
power in the election of directors within any of three thresholds: one-fifth,
one-third and a majority. The effect of the statute is to condition the
acquisition of voting control of a Michigan corporation on the approval of a
majority of its pre-existing disinterested stockholders.
The provisions of the Michigan "Fair Price" statute do not apply to the
Mergers because the Mergers will not alter the contract rights of the Pinnacle
Common Stock as set forth in Pinnacle's Articles of Incorporation. The
provisions of the Michigan "Control Share Acquisition" statute do not apply to
the Mergers because, among other things, Pinnacle is a party to each of the
Merger Agreements and the Mergers will be effected in compliance with the
applicable provisions of Chapter 7 of the MBCA.
SPECIAL MEETINGS OF STOCKHOLDERS
IFC's Certificate of Incorporation provides that a special meeting of
stockholders may be called by the Chairman of the Board or the President, or a
majority of the directors then in office. Under applicable provisions of the
DGCL, such a meeting may also be called by the IFC Board. CB's Certificate of
Incorporation provides that a special meeting of stockholders may be called only
by the CB Board pursuant to a resolution adopted by the majority of the entire
CB Board.
Pinnacle's By-laws provide that a special meeting of stockholders may be
called by the Pinnacle Board, or by the Chairman of the Board, the President,
the Vice Chairman of the Board, or the Secretary of Pinnacle. Pinnacle's By-laws
further provide that the Secretary of Pinnacle shall call a special meeting of
stockholders upon the written request of stockholders of record holding in the
aggregate 25% or more of
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the outstanding voting stock of Pinnacle. Any such written request must also
state the purpose or purposes of the meeting. Notwithstanding the foregoing
provisions of Pinnacle's By-laws, the MBCA entitles the holders of not less than
10% of the shares of Pinnacle entitled to vote at a meeting to apply to the
circuit court of Berrien County, Michigan and, upon good cause shown, such court
will order a special meeting of stockholders to be held. Unlike the MBCA, the
DGCL does not provide stockholders with the right to apply to the Delaware court
of chancery or other court to cause a special meeting of IFC stockholders or CB
stockholders to be held.
DIRECTOR LIABILITY AND INDEMNIFICATION
As permitted by the DGCL, IFC's Certificate of Incorporation and CB's
Certificate of Incorporation provide that a director of both will not be
personally liable for monetary damages for breach of the director's fiduciary
duty as a director. Under the DGCL, a limitation on a director's liability such
as that contained in IFC's Certificate of Incorporation and CB's Certificate of
Incorporation does not eliminate or limit the director's liability for breaches
of the duty of loyalty, for acts or omissions not made in good faith or which
involve intentional misconduct or a knowing violation of law, the unlawful
payment of dividends or for any transaction in which the director derived an
improper personal benefit. The MBCA contains a provision similar to that relied
upon by IFC and CB in adopting their Certificates of Incorporation to limit the
liability of its directors, and Pinnacle has amended its Articles of
Incorporation to limit the liability of its directors in such manner.
The DGCL and the MBCA provide similar rights to indemnity and expense
advancement for directors of corporations chartered under the laws of their
respective states. Accordingly, the rights to indemnity and expense advancement
provided to the directors of IFC, CB and Pinnacle are essentially the same.
IFC RIGHTS AGREEMENT
On February 26, 1992, the IFC Board declared a dividend of one IFC Right for
each outstanding share of IFC Common Stock to IFC stockholders of record at the
close of business on March 6, 1992. As of November 14, 1996, up to 4,751,131 IFC
Rights were issued and outstanding. Each IFC Right entitles a registered holder
thereof, subject to the terms and conditions of the IFC Rights Agreement, to
purchase from IFC one share of IFC Common Stock at a price of $30.00 per share,
subject to adjustment. The IFC Rights remain attached to the associated shares
of IFC Common Stock and are not exercisable except under the limited
circumstances set forth in the IFC Rights Agreement and relating generally to
certain persons (an "Acquiring Person") acquiring, obtaining the right to
acquire or otherwise obtaining beneficial ownership of 10% or more of the then
outstanding shares of IFC Common Stock. Generally speaking, in the event that
any person becomes an Acquiring Person, then in each such case each holder of a
right (other than the Acquiring Person) will thereafter have the right to
receive, upon exercise thereof, shares of IFC Common Stock having a market value
equal to two times the exercise price of the IFC Rights. In the event of the
acquisition of IFC in a merger or other business combination transaction, the
holders of IFC Rights will be entitled to receive, upon exercise thereof, shares
of common stock of the acquiring corporation having a market value of two times
the exercise price of the IFC Rights. The IFC Board may, at its option, at any
time prior to the close of business on the date that an Acquiring Person becomes
an Acquiring Person for purposes of the IFC Rights Agreement, elect to redeem
all (but not less than all) the then outstanding IFC Rights at a redemption
price of $.01 per IFC Right (the "Redemption Price"). The IFC Rights will expire
on that date that is the earliest of (i) the date on which the IFC Board, acting
pursuant to Section 3.1(c) of the IFC Rights Agreement, elects to exchange each
outstanding IFC Right for one share of IFC Common Stock, subject to adjustment,
(ii) the date on which the IFC Board, acting pursuant to Section 5.1 of the IFC
Rights Agreement, elects to redeem all of the IFC Rights then outstanding at the
Redemption Price, and (iii) the close of business on March 6, 2002. Until the
exercise of the IFC Rights, the holders of the IFC Rights do not have rights as
stockholders of IFC.
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In connection with the execution of the IFC Merger Agreement and the
Pinnacle/IFC Stock Option Agreements, IFC amended the IFC Rights Agreement to
confirm that neither Pinnacle, nor any of its subsidiaries, nor any other
person, will be deemed to be an Acquiring Person (i) by virtue of the IFC Merger
Agreement, (ii) by virtue of any of the transactions contemplated by the IFC
Merger Agreement or the IFC Stock Option Agreement, or (iii) by virtue of the
fact that Pinnacle is the "Beneficial Owner" (as defined in the IFC Rights
Agreement) solely of shares of IFC Common Stock (A) of which Pinnacle or such
subsidiary was the Beneficial Owner on November 14, 1996, (B) acquired or
acquirable pursuant to the grant or exercise of the option granted pursuant to
the IFC Stock Option Agreement, (C) acquired or acquirable pursuant to a debt
previously contracted before November 14, 1996 and (D) held directly or
indirectly in trust accounts, managed accounts and the like or otherwise held in
a fiduciary capacity for third parties. Such amendment to the IFC Rights
Agreement provides, however, that in the event that Pinnacle or any of its
subsidiaries acquires beneficial ownership of any shares of IFC Common Stock
other than the shares described in clauses (A)-(D) above ("Subsequently Acquired
Shares"), then the shares described in clauses (A), (B) and (C) above, together
with such Subsequently Acquired Shares, will be considered in determining
whether Pinnacle or any of its subsidiaries has become an Acquiring Person.
Under the IFC Merger Agreement, IFC must redeem the IFC Rights prior to the
IFC Effective Time at a cost to IFC of not more than $0.01 per each share of IFC
Common Stock issued and outstanding. Consequently, all of said IFC Rights will
be extinguished, terminated and cancelled prior to the IFC Effective Time,
without any right of exercise, and will only represent the right to receive the
Redemption Price in cash from IFC or Pinnacle, as the surviving corporation,
following the IFC Merger.
Shares of Pinnacle Common Stock and shares of CB Common Stock do not have
any rights similar to the IFC Rights or otherwise.
PAYMENT OF DIVIDENDS
Under the DGCL, a corporation may declare and pay dividends either out of
its surplus or, if there is no surplus, out of its net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year.
Under the MBCA, a corporation may not make distributions to its stockholders
if, after giving effect to the distribution, the corporation would not be able
to pay its debts as they become due in the usual course of business, or the
corporation's total assets would be less than the sum of its total liabilities
plus, unless the corporation's articles of incorporation permit otherwise, the
amount that would be needed, if the corporation were to be dissolved at the time
of the distribution, to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights are superior to those receiving the
distribution.
In addition to the dividend restrictions imposed on IFC and CB under the
DGCL and the dividend restrictions imposed on Pinnacle under the MBCA, IFC, CB,
Pinnacle and their respective subsidiaries are subject to certain regulatory
restrictions. See "CERTAIN REGULATORY CONSIDERATIONS--Payment of Dividends."
CHARTER AMENDMENTS
Under the DGCL and the MBCA, a corporation's certificate or articles of
incorporation, respectively, may be amended by the affirmative vote of a
majority of the outstanding stock entitled to vote thereon, and a majority of
the outstanding stock entitled to vote thereon as a class, subject to such
supermajority vote requirements as may be provided for in the corporation's
certificate or articles of incorporation. Except for certain provisions thereof
which are subject to supermajority vote requirements as described above, each of
IFC's Certificate of Incorporation and CB's Certificate of Incorporation may be
amended by the affirmative vote of a majority of the outstanding shares of IFC
Common Stock and CB's Common Stock, respectively. Except for certain provisions
thereof which are subject to supermajority vote requirements as described above,
each of IFC's Certificate of Incorporation and CB's Certificate of Incorporation
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may be amended by the affirmative vote of a majority of the outstanding shares
of IFC Common Stock and CB's Common Stock, respectively. Pinnacle's Articles of
Incorporation may be amended by the affirmative vote of a majority of the
outstanding shares of Pinnacle Common Stock.
Under the DGCL, the power to adopt, amend or repeal by-laws is vested
exclusively in the stockholders entitled to vote, unless the certificate of
incorporation confers such power upon the board of directors as well. IFC's
Certificate of Incorporation provides that, in general, IFC's By-laws may be
amended by the affirmative vote of two-thirds of the directors of IFC then in
office at a duly constituted meeting of the IFC Board called expressly for such
purpose, or by the vote of the holders of 75% of the total votes eligible to be
cast by stockholders at a duly constituted meeting of IFC's stockholders called
expressly for such purpose. Under the DGCL, the power to adopt, amend or repeal
by-laws is vested exclusively in the stockholders entitled to vote, unless the
certificate of incorporation confers such power upon the board of directors as
well. CB's Certificate of Incorporation provides that, in general, CB's By-laws
may be amended by the affirmative vote of a majority of the directors of CB then
in office or by the vote of the holders of 80% of the total Voting Stock.
Under the MBCA, the stockholders or the board of directors of the
corporation may adopt, amend or repeal the by-laws unless the articles of
incorporation or by-laws of the corporation provide that the power to adopt new
by-laws is reserved exclusively to the stockholders or that the by-laws or any
particular by-law shall not be altered or repealed by the board of directors.
Pinnacle's By-laws provide that they may be amended or repealed by a majority
vote of the Pinnacle Board or by Pinnacle's stockholders.
OTHER MATTERS
The DGCL provides that, unless otherwise provided in a corporation's
certificate of incorporation, any action required or permitted to be taken at an
annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize such action at a meeting. IFC's Certificate of Incorporation
prohibits IFC stockholders the right to take action by written consent.
Consequently, such actions must be voted on. CB's Certificate of Incorporation
prohibits CB stockholders the right to take action by written consent.
Consequently, such actions must be voted on.
Although the MBCA contains a provision permitting stockholder action by less
than unanimous written consent, it requires a provision to that effect to be
included in a corporation's articles of incorporation. Because Pinnacle's
Articles of Incorporation do not contain a provision authorizing stockholder
action by less than unanimous written consent, stockholders of IFC and
stockholders of CB who become stockholders of Pinnacle subsequent to their
respective Mergers will not have this right.
The MBCA provides somewhat broader dissenters' rights of appraisal than
those provided under the DGCL. The MBCA expressly authorizes stockholders of a
Michigan corporation to exercise dissenters' rights with respect to certain
amendments to the articles of incorporation of such Michigan corporation which
adversely affect the rights of the class of shares held by them, while the DGCL
provides that stockholders of a Delaware corporation may not exercise
dissenters' rights of appraisal in connection with such an amendment unless the
certificate of incorporation of such Delaware corporation so provides.
Similarly, the MBCA expressly permits stockholders to exercise dissenters'
rights of appraisal in connection with the sale or exchange of all or
substantially all of the property of a Michigan corporation if the stockholder
is entitled to vote thereon. The DGCL permits the exercise of such rights in
connection with such a transaction only if the Delaware corporation's
certificate of incorporation so provides. IFC's Certificate of Incorporation
does not provide for dissenters' rights of appraisal in either of the foregoing
situations. CB's Certificate of Incorporation also does not provide for
dissenters' rights of appraisal in either of the foregoing situations.
The MBCA and the DGCL provide similar voting rights with respect to mergers,
sales of substantially all of the assets of a corporation and other
extraordinary corporate transactions.
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INFORMATION REGARDING THE PINNACLE ANNUAL MEETING
ELECTION OF DIRECTORS
The By-laws of Pinnacle provide that the Pinnacle Board shall consist of not
less than five directors and not more than 20 directors, with the number of
directors to be determined from time to time by the Pinnacle Board. Currently,
the Pinnacle Board consists of eight members, all of whom are elected annually
by the stockholders of Pinnacle. The Pinnacle Board has nominated John P.
Cunningham, Charles R. Edinger, John D. Fetters, Terrence A. Friedman, Richard
L. Schanze, Kay F. Varga, Arnold L. Weaver and Alton C. Wendzel (the "Pinnacle
Nominees") for election as directors of Pinnacle at the Pinnacle Annual Meeting.
The individuals who are elected as directors at the Pinnacle Annual Meeting will
hold office for a term expiring at the next Annual Meeting of Stockholders of
Pinnacle or upon the election and qualification of their respective successors
or upon their earlier resignation or removal.
THE PINNACLE BOARD RECOMMENDS THAT PINNACLE STOCKHOLDERS VOTE FOR THE
ELECTION OF ALL OF THE PINNACLE BOARD NOMINEES AS DIRECTORS OF PINNACLE.
It is intended that the proxies solicited on behalf of the Pinnacle Board of
Directors (other than proxies in which the vote is withheld as to one or more
nominees) will be voted at the Pinnacle Annual Meeting for the election of all
of the Pinnacle Board Nominees to the Pinnacle Board. If any nominee is unable
to serve, the shares represented by all such proxies will be voted for the
election of such substitute as the Pinnacle Board may recommend. At this time,
the Pinnacle Board knows of no reason why any of the nominees might be unable to
serve, if elected.
The current directors and executive officers of Pinnacle are as indicated in
the following table. The table also indicates the positions held by such persons
at Pinnacle Bank.
<TABLE>
<CAPTION>
NAME AGE PINNACLE POSITION(S) PINNACLE BANK POSITION(S)
- ----------------------------------- --- ---------------------------------- ----------------------------------
<S> <C> <C> <C>
John P. Cunningham................. 59 Director Director
Charles R. Edinger................. 68 Director Director
John D. Fetters.................... 69 Director Director
Terrence A. Friedman............... 59 Director Director
Richard L. Schanze................. 56 Director, Chairman and Chief Director, Chairman and Chief
Executive Officer Executive Officer
Kay F. Varga....................... 59 Director Director
Arnold L. Weaver................... 51 Director, President and Chief Director, President and Chief
Operating Officer Operating Officer
Alton C. Wendzel................... 66 Director Director
Donald E. Radde.................... 44 Executive Vice President and Director, Executive Vice
Secretary President, Chief Lending Officer
and Secretary
David W. Kolhagen.................. 39 Senior Vice President and Senior Vice President and Chief
Treasurer Financial Officer
LeAnn Krokker...................... 38 Vice President, Executive Vice President, Executive
Marketing Officer Marketing Officer
John A. Newcomer................... 45 Corporate Affairs Officer Corporate Affairs Officer
</TABLE>
John P. Cunningham has been a director of both Pinnacle and Pinnacle Bank
since May, 1996. He is currently the Chief Financial Officer of Whirlpool
Corporation, a publicly-held appliance manufacturer with securities listed on
the New York Stock Exchange. In 1995 he was the Chief Financial Officer of
Maytag, a publicly-held appliance manufacturer with securities listed on the New
York Stock Exchange.
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Prior to that time he was the Controller of IBM, a publicly-held company with
securities listed on the New York Stock Exchange.
Charles R. Edinger has been a director of Pinnacle since 1986 and a director
of Pinnacle Bank since 1967. He is currently the President of Anderson Building
Materials, Co., a steel fabricating company.
John D. Fetters has been a director of Pinnacle since 1986 and a director of
Pinnacle Bank since 1979. He is currently the President of Sanitary Dry
Cleaners, Inc., a dry cleaning company.
Terrence A. Friedman has been a director of Pinnacle since 1986 and a
director of Pinnacle Bank since 1981. He is currently the President of
Yale-South Haven Inc., a manufacturer of rubber components primarily for the
auto industry.
Richard L. Schanze has been a director of Pinnacle since 1986 and a director
of Pinnacle Bank since 1975. He is currently the Chairman and Chief Executive
Officer of Pinnacle and the Chairman and Chief Executive Officer of Pinnacle
Bank.
Kay F. Varga has been a director of both Pinnacle and Pinnacle Bank since
1990. She is currently the President of Thayer, Inc., a paper products
distributor.
Arnold L. Weaver has been a director of both Pinnacle and Pinnacle Bank
since 1990. He is currently the President of Pinnacle and of Pinnacle Bank.
Alton C. Wendzel has been a director of Pinnacle since 1986 and a director
of Pinnacle Bank since 1981. He is currently the President of Greg Orchards and
Produce, Inc. and Coloma Frozen Foods, Inc., processors of fresh and frozen
producer.
Donald E. Radde is an Executive Vice President and Secretary of Pinnacle. He
became a director of Pinnacle Bank in 1997 and is an Executive Vice President,
Chief Lending Officer and Secretary of Pinnacle Bank.
David W. Kolhagen is a Senior Vice President and the Treasurer of Pinnacle
and a Senior Vice President and the Chief Financial Officer of Pinnacle Bank.
LeAnn Krokker is Vice President, Executive Marketing Officer of Pinnacle and
of Pinnacle Bank.
John A. Newcomer is the Corporate Affairs Officer of Pinnacle and of
Pinnacle Bank.
Executive officers of Pinnacle are appointed by the Pinnacle Board and serve
until their successors are appointed and qualified. No director or executive
officer of Pinnacle or Pinnacle Bank is related to any other director or to any
executive officer of Pinnacle or of any of its subsidiaries by blood, marriage
or adoption, and there are no arrangements or understandings between a director
or executive officer and any other person pursuant to which such person was
elected a director or executive officer of Pinnacle or any of its subsidiaries.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
Meetings of the Pinnacle Board are generally held monthly. During 1996 the
Pinnacle Board held 14 meetings. No director attended fewer than 75% of the
total number of meetings of the Pinnacle Board held during 1996 and the total
number of meetings held by all Pinnacle Board committees on which any such
director served during 1996.
The Pinnacle Board has standing Audit, Compensation, Merger and Acquisition,
and Retirement Committees, the functions and composition of which are set forth
below.
The Audit Committee reviews audit reports and related matters to ensure
effective compliance with regulations and internal policies and procedures. The
Audit Committee also approves the accounting firm selected by management to
perform Pinnacle's annual audit and acts as the liaison between the auditors
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and the Pinnacle Board. Members of the Audit Committee include Messrs. Edinger
and Wendzel and Ms. Varga. This committee met four times during 1996.
The Compensation Committee makes recommendations to the Board of Directors
with respect to the Company's compensation plans and policies. During 1996, the
Compensation Committee was composed of Messrs. Fetters, Friedman and Cunningham.
This committee held five meetings during 1996.
The Mergers and Acquisitions Committee is responsible for monitoring
Pinnacle's long-term growth strategy. During 1996, the Mergers and Acquisitions
Committee was composed of Messrs. Cunningham, Friedman and Wendzel. This
committee held three meetings during 1996.
The Retirement Committee is responsible for monitoring Pinnacle's benefit
plans. During 1996, the Retirement Committee was composed of Messrs. DeGroot and
Cunningham. This committee held two meetings during 1996.
DIRECTORS COMPENSATION AND BENEFITS
Commencing January 1, 1997, each director of Pinnacle is paid an annual
retainer of $7,500 plus $1,000 for each meeting of the Board of Directors of
Pinnacle attended. Each director of Pinnacle Bank is paid an annual retainer of
$7,500 plus $1,000 for each meeting of the Board of Directors of Pinnacle Bank
attended. Members of committees of the Board of Directors of Pinnacle Bank also
receive $500 for each committee meeting attended. Messrs. Schanze and Weaver
have waived all fees for attending meetings of committees of the Board of
Directors of Pinnacle Bank in the past and intend to continue to do so in the
future.
Pinnacle and Pinnacle Bank each maintain deferred compensation plans under
which a director may elect to defer receipt of either all or 50% of directors'
fees otherwise payable during a calendar year to a later calendar year. Amounts
deferred are reflected as unsecured accounts payable on the books of the
appropriate corporation and are subject to claims of such corporation's general
creditors. These accounts are credited with interest at the end of each month at
110% of the rate being paid on U.S. Treasury Securities.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996 only John D. Fetters, Terrence A. Friedman, and John P.
Cunningham, each a director of Pinnacle, served as members of the Compensation
Committee of the Board of Directors of Pinnacle. No officers or employees of
Pinnacle or Pinnacle Bank served as members of the Compensation Committee and no
executive officer of Pinnacle served as a member of the Compensation Committee
of another entity.
162
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth information
concerning compensation for services in all capacities awarded to, earned by or
paid to each of the five most highly compensated executive officers and/or
employees of Pinnacle and its subsidiaries (the "Named Pinnacle Executives") for
the last three completed fiscal years whose salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS
- ------------------------------------------------------------------------- ----------------------- PAYOUT
OTHER ANNUAL RESTRICTED OPTIONS ---------- ALL OTHER
SALARY BONUS COMPENSATION STOCK / LTIP COMPENSATION
NAME AND PRINCIPLE POSITION YEAR ($) ($) ($)(1) AWARD(S) ($) SARS (#) PAYOUT ($) ($)(2)
- ----------------------------------- ---- ------- ------- ------------ ------------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard L. Schanze ................ 1996 288,875 225,000 23,000 -- 9,500 -- 37,205
Chairman/CEO 1995 242,420 180,000 17,800 -- 15,300 -- 35,403
1994 222,410 130,000 15,100 -- 7,200 -- 5,219
Arnold L. Weaver .................. 1996 208,875 75,000 23,000 -- 8,000 -- 5,559
President 1995 167,200 70,000 17,800 -- 10,600 -- 10,833
1994 147,410 45,000 15,100 -- 4,550 -- 5,404
Donald E. Radde ................... 1996 132,875 40,000 -- -- 7,000 -- 4,800
Executive Vice President 1995 106,620 28,000 -- -- 7,500 -- 5,920
1994 91,289 21,000 -- -- 2,500 -- 5,187
David W. Kolhagen ................. 1996 97,375 35,000 -- -- 6,500 -- 7,116
Senior Vice President/CFO 1995 82,280 30,000 -- -- 7,000 -- 8,534
1994 -- -- -- -- -- -- --
</TABLE>
- ------------------------------
(1) Amounts shown consist of director fees paid by Pinnacle and by Pinnacle
Bank.
(2) Amounts shown for 1996 consist of the following: (i) Mr. Schanze: matching
contributions under Pinnacle Bank's 401-k plan of $2,375, personal use of
Company-owned automobile of $3,304, and contributions under Pinnacle Bank's
Deferred Compensation Plan for Executive Officers of $31,526; (ii) Mr.
Weaver: matching contributions under Pinnacle Bank's 401-k plan of $2,375,
and personal use of Company-owned automobile of $3,184; (iii) Mr. Radde:
matching contributions under Pinnacle Bank's 401-k plan of $2,375 and
personal use of Company-owned automobile of $2,425; and (iv) Mr. Kolhagen:
matching contributions under Pinnacle Bank's 401-k plan of $2,375 and
personal use of Company-owned automobile of $4,741. Amounts shown for 1995
consist of the following: (i) Mr. Schanze: matching contributions under
Pinnacle Bank's 401-k plan of $4,620, personal use of Company-owned
automobile of $3,192, and contributions under Pinnacle Bank's Deferred
Compensation Plan for Executive Officers of $27,591; (ii) Mr. Weaver:
matching contributions under Pinnacle Bank's 401-k plan of $4,620, personal
use of Company-owned automobile of $3,770 and contributions under Pinnacle
Bank's Deferred Compensation Plan for Executive Officers of $2,443; (iii)
Mr. Radde: matching contributions under Pinnacle's 401-k plan of $4,620 and
personal use of Company-owned automobile of $1,300; and (iv) Mr. Kolhagen:
matching contributions under Pinnacle Bank's 401-k plan of $3,781 and
personal use of Company-owned automobile of $4,753. Amounts shown for 1994
consist of the following: (i) Mr. Schanze: matching contributions under
Pinnacle Bank's 401-k plan of $2,310, and personal use of Company-owned
automobile of $2,909 (ii) Mr. Weaver: matching contributions under Pinnacle
Bank's 401-k plan of $2,310, and personal use of Company-owned automobile of
$3,094; and (iii) Mr. Radde: matching contributions under Pinnacle Bank's
401-k plan of $1,790 and personal use of Company-owned automobile of $3,397.
163
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR. The following table sets forth
certain information concerning stock options/SARs granted during 1996 to the
Named Pinnacle Executives.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
NUMBER OF % OF TOTAL PRICE
SECURITIES OPTIONS/SARS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OF BASE OPTION TERM
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -----------------
NAME GRANT DATE GRANTED FISCAL YEAR ($/SH) DATE 5% 10%
- ------------------------------ ---------- ------------ ------------ -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard L. Schanze ........... 07/96 9,500 13.33 21.16 07/17/01 $55,538 $122,724
Chairman/CEO
Arnold L. Weaver ............. 07/96 8,000 11.22 21.16 07/17/01 46,768 103,347
President
Donald E. Radde .............. 07/96 7,000 9.82 21.16 07/17/01 40,922 0,428
Exec. Vice President
David W. Kolhagen ............ 07/96 6,500 9.12 21.16 07/17/01 37,999 3,969
Senior Vice President/CFO
</TABLE>
The above listed stock options were granted pursuant to Pinnacle's Executive
Long-Term Incentive Plan, which is administered by the Compensation Committee of
the Pinnacle Board.
PENSION PLAN. The following table shows estimated annual benefits payable
upon retirement to, and credited years of services for, each of the Named
Executive Officers.
<TABLE>
<CAPTION>
ANNUAL BENEFIT PER YEARS OF SERVICE
- ------------------------------------------------------------------------
ANNUAL COMP 15 20 25 30 MORE THAN 30
- ------------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 30,744 $ 40,992 $ 51,241 $ 61,489 $ 61,489
$ 150,000 $ 37,307 $ 49,742 $ 62,178 $ 74,614 $ 74,614
$ 175,000 $ 37,307 $ 49,742 $ 62,178 $ 74,614 $ 74,614
$ 200,000 $ 37,307 $ 49,742 $ 62,178 $ 74,614 $ 74,614
$ 225,000 $ 37,307 $ 49,742 $ 62,178 $ 74,614 $ 74,614
$ 250,000 $ 37,307 $ 49,742 $ 62,178 $ 74,614 $ 74,614
$ 300,000 $ 37,307 $ 49,742 $ 62,178 $ 74,614 $ 74,614
$ 400,000 $ 37,307 $ 49,742 $ 62,178 $ 74,614 $ 74,614
$ 450,000 $ 37,307 $ 49,742 $ 62,178 $ 74,614 $ 74,614
$ 500,000 $ 37,307 $ 49,742 $ 62,178 $ 74,614 $ 74,614
</TABLE>
The benefits shown above are payable in a straight-life annuity and are not
offset by any other benefits, including Social Security. The final average
annual compensation is determined under the defined benefit plan by the average
of the five highest consecutive years of annual compensation (including salary
and bonus payments) during the last ten years of employment, subject to a
maximum of $150,000 for all years. As of December 31, 1996, Mr. Schanze had 21
years of credited service, Mr. Weaver had 20 years of credited service, Mr.
Radde had 15 years of credited service, and Mr. Kolhagen had 16 years of
credited service.
EMPLOYMENT SEVERANCE COMPENSATION AGREEMENTS. Pinnacle and Pinnacle Bank
have entered into "employment severance compensation agreements" with Messrs.
Schanze, Weaver, Radde and Kolhagen (each, a "key manager"). Under the terms of
these agreements, each key manager's annual salary is established by the Board
of Directors of Pinnacle or Pinnacle Bank, and once such salary is established
it may not be reduced without the consent of such key manager unless the
reduction (i) is made pursuant to a general reduction in salaries for all
similarly-situated officers, and (ii) is in an amount or percentage comparable
to such general reduction.
164
<PAGE>
Under the employment severance compensation agreements, in the event there
is a "change of control" and a key manager's employment is terminated, the key
manager is entitled to be paid an amount equal to two times his annual base
salary at the date of termination and an amount equal to two times the highest
bonus paid to him in any one year during the most recent five-year period. Upon
the occurrence of such events, a key manager is also entitled to (i) certain
life, health and other insurance benefits, reimbursement of certain expenses
(including reasonable travel expenses, and reasonable office and secretarial
expenses), executive car benefits, and financial counseling, all for a period of
two years after such termination, and (ii) reimbursement of reasonable
outplacement costs and certain legal expenses.
For purposes of the foregoing, a "change of control" shall have occurred if:
(i) Pinnacle and/or Pinnacle Bank sells substantially all of its assets to a
single purchaser or to a group of associated purchasers; (ii) at least one-half
of the outstanding corporate shares of Pinnacle and/or Pinnacle Bank are sold,
exchanged or otherwise disposed of, in one transaction; (iii) Pinnacle and/or
Pinnacle Bank elects to terminate its business or liquidate its assets; or (iv)
there is a merger or consolidation of Pinnacle and/or Pinnacle Bank in a
transaction in which the stockholders of Pinnacle and/or Pinnacle Bank receive
less than 50% of the outstanding voting shares of the new or continuing
corporation.
OTHER COMPENSATION ARRANGEMENTS. Under Pinnacle Bank's Deferred
Compensation Plan for Executive Officers, certain highly compensated employees
of Pinnacle Bank or its affiliates may be granted certain awards of deferred
compensation. These awards, which must be approved by the Board of Directors of
Pinnacle Bank, may be granted annually. All awards remain the property of
Pinnacle Bank until paid out. Awards, together with any accrued interest
thereon, are to be distributed to a participant in annual installments over a
ten-year period beginning on the January 1 following the calendar year in which
such participant ceases to be an employee of Pinnacle Bank or its affiliates.
(In the event of a participant's death the balance of his awards will be paid in
full to his estate within 90 days of the date of his death.) These accounts are
credited with interest at the end of each month at 110% of the rate then being
paid on certain U.S. Treasury securities.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation policy of Pinnacle, as applicable to executive officers, is
designed to assure Pinnacle's ongoing ability to attract, retain and motivate,
while at the same time recognizing the contributions of those individuals upon
whose judgment, efforts and results Pinnacle is largely dependent for its
success and future. Pinnacle is cognizant of the fact it competes for qualified
individuals at the local and regional levels and to a lesser degree, nationally.
As a result, compensation for executive officers is monitored carefully.
To assist in this process, the Compensation Committee reviews information
from independent salary studies that include the financial industry and other
industrial classifications.
While Pinnacle and Pinnacle Bank establish objective annual goals in
targeted areas such as asset growth, earnings, loan originations, etc. and
progress toward these goals is reviewed, a specific "trigger level" is not
required to be reached in each area.
On a subjective basis, performance criteria encompass evaluation of each
officer's initiative and contribution to overall corporate performance, the
officer's managerial ability, the officer's leadership capacity and the
officer's performance in any special projects which the officer may have
undertaken. No formula was used to determine the Chief Executive Officer's, or
other named executives', bonus or award of stock options. This was the fourth
year stock options were awarded and the previous award schedule was taken into
consideration while awarding 1996's stock options. In future years, if awards
are granted, the Compensation Committee will take into consideration awards
previously made to a potential recipient, the vesting schedule of such awards,
and the number of awards outstanding in the aggregate to all recipients.
165
<PAGE>
In reviewing Mr. Schanze's total compensation, the primary focus of the
Compensation Committee was on Pinnacle's performance in 1996, which met
established goals. The Compensation Committee also considered Mr. Schanze's
contributions to various non-quantifiable community improvement activities and
the positive impact they have had upon Pinnacle and to various long-range
initiatives impacting the future of Pinnacle, including the acquisition
strategies currently in place.
Members of the Compensation Committee:
John D. Fetters John P. Cunningham Terrence A. Friedman
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The following graph compares the yearly percentage change in the cumulative
total shareholder return on Pinnacle's Common Stock against the cumulative total
return of the Standard & Poor's 500 Index and the Value Line Banks: Midwest
Index for the periods shown.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PINNACLE STANDARD & POORS 500 VALUE LINE BANKS: MIDWEST
<S> <C> <C> <C>
1991 $ 100.00 $ 100.00 $ 100.00
1992 $ 182.07 $ 107.79 $ 123.96
1993 $ 335.67 $ 118.66 $ 125.32
1994 $ 222.25 $ 120.55 $ 115.77
1995 $ 266.18 $ 166.78 $ 175.24
1996 $ 361.64 $ 204.32 $ 235.03
</TABLE>
TOTAL RETURN ANALYSIS*
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Pinnacle............................................... 100.00 182.07 335.67 222.25 266.18 361.64
Standard & Poors 500................................... 100.00 107.79 118.66 120.55 166.78 204.32
Value Line Banks: Midwest.............................. 100.00 123.96 125.32 115.77 175.24 235.03
</TABLE>
- ------------------------
* Shows performance results through December 31, 1996 for Pinnacle Financial
Services, Inc. Common Stock, Standard & Poor's 500, and Banks: Midwest
assuming $100 was invested at the close of trading December 1991 and all
dividends are reinvested. Source: Value Line, Inc.
INDEBTEDNESS OF MANAGEMENT
Pinnacle Bank, like many financial institutions, has followed a policy of
granting loans to eligible officers and directors. Any and all loans to officers
and directors are made in the ordinary course of
166
<PAGE>
business in accordance with Pinnacle Bank's standard underwriting practices and
procedures, were all made in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as these
prevailing at the time for comparable transactions with other persons, and did
not include more than the normal risk of collectibility or present other
unfavorable features.
The directors, officers and principal stockholders of Pinnacle and their
associates may have had in the past, and expect to have in the future,
transactions in the ordinary course of business with Pinnacle and its
subsidiaries. Such transactions were, and are expected to be, on substantially
the same terms as those prevailing at the time for comparable transactions with
others.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Pinnacle's directors and
executive officers, and persons who own more than 10% of a registered class of
Pinnacle's equity securities, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Pinnacle Common Stock and other equity securities of Pinnacle. Officers,
directors and greater than 10% shareholders are required by the Commission
regulation to furnish Pinnacle with copies of all Section 16(a) forms they file.
To Pinnacle's knowledge, based solely on a review of the copies of such
reports furnished to Pinnacle and written representations that no other reports
were required, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10 percent beneficial owners were complied with
during the year ended December 31, 1996.
167
<PAGE>
BENEFICIAL OWNERSHIP OF PINNACLE COMMON STOCK
The following table sets forth information provided by the persons indicated
with respect to the beneficial ownership (as defined under applicable rules of
the Commission) of shares of Pinnacle Common Stock as of April 1, 1997 by (i)
each person known by Pinnacle who is the owner of more than 5% of the
outstanding shares of Pinnacle Common Stock, (ii) each person who is a director
or an executive officer of Pinnacle, and (iii) all persons who are directors or
executive officers of Pinnacle as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF BENEFICIAL
NAME AND ADDRESS(1) NUMBER OF SHARES(2) OWNERSHIP(2)
- ----------------------------------------------- ------------------- -------------------------
<S> <C> <C>
Cyrus A. Ansary................................ 1,188,954(3) 19.9%(3)
John P. Cunningham............................. -0- *
Charles R. Edinger............................. 34,072(4) *
John D. Fetters................................ 31,864 *
Terrence A. Friedman........................... 35,288 *
David W. Kolhagen.............................. 20,193(5)(6) *
LeAnn Krokker.................................. 9,261(5)(7) *
John Newcomer.................................. 12,148(5)(8) *
Donald E. Radde................................ 24,575(5)(9) *
Richard L. Schanze............................. 281,504(3)(10) 4.7(3)
Kay F. Varga................................... 8,471 *
Arnold L. Weaver............................... 34,138(5)(11) *
Alton C. Wendzel............................... 84,724(12) 1.4(12)
All directors and executive officers of
Pinnacle as a group (13 persons)............. 576,238(13) 9.2(13)
</TABLE>
- ------------------------
(1) Unless otherwise noted, Pinnacle believes that all persons named in the
table have (i) sole voting and investment power with respect to all shares
of Pinnacle Common Stock owned by them, except to the extent that authority
is shared by spouses under applicable law, and (ii) record and beneficial
ownership of such shares. The business address of Mr. Ansary is 1725 K
Street, N.W., Suite 410, Washington, D.C. 20006. The business address of all
other persons named in the table is 830 Pleasant Street, St. Joseph,
Michigan 48085.
(2) Number of shares and percentages with respect to beneficial ownership of
Pinnacle Common Stock are based on ownership of Pinnacle Common Stock as of
April 1, 1997, and have been calculated in accordance with Rule 13d-3(d)(1)
under the Exchange Act and assuming 5,980,320 shares of Pinnacle Common
Stock are issued and outstanding. An asterisk indicates beneficial ownership
of less than 1%.
(3) Upon consummation of the IFC Merger, and assuming the CB Merger is NOT
consummated, Mr. Ansary will own 1,197,953 (or 11.2%) of the shares of
Pinnacle Common Stock then issued and outstanding. Upon consummation of the
CB Merger, and assuming the IFC Merger is NOT consummated, Mr. Ansary will
own 1,188,954 (or approximately 16.5%) of the shares of Pinnacle Common
Stock then issued and outstanding. Upon consummation of both of the Mergers,
Mr. Ansary will own 1,197,953 (or 9.9%) of the shares of Pinnacle Common
Stock then issued and outstanding. Upon consummation of the IFC Merger, and
assuming the CB Merger is NOT consummated, Mr. Schanze will own 281,504 (or
2.6%) of the shares of Pinnacle Common Stock then issued and outstanding.
Upon consummation of the CB Merger, and assuming the IFC Merger is NOT
consummated,
168
<PAGE>
Mr. Schanze will own 281,504 (or 3.9%) of the shares of Pinnacle Common
Stock then issued and outstanding. Upon consummation of both of the Mergers,
Mr. Schanze will own 281,504 (or 2.3%) of the shares of Pinnacle Common
Stock then issued and outstanding. These numbers of shares and percentages
have been calculated assuming (i) 5,980,320 shares of Pinnacle Common Stock
are issued and outstanding immediately prior to the Mergers, (ii) 4,737,330
shares of IFC Common Stock are issued and outstanding immediately prior to
the IFC Merger, (iii) 1,161,997 shares of CB Common Stock are issued and
outstanding immediately prior to the CB Merger, (iv) 4,737,330 shares of
Pinnacle Common Stock are issued in the IFC Merger, (v) not less than
1,262,157 shares and not more than 1,292,316 shares of Pinnacle Common Stock
are issued in the CB Merger, (vi) 10,731,451 shares of Pinnacle Common Stock
are issued and outstanding following the IFC Merger; (vii) not less than
7,242,477 shares and not more than 7,272,636 shares of Pinnacle Common Stock
are issued and outstanding following the CB Merger; and (viii) not less than
11,993,608 shares and not more than 12,023,767 shares of Pinnacle Common
Stock are issued and outstanding following both Mergers.
(4) Includes 25,432 shares held jointly with spouse, 4,320 held by Mr.
Edinger's spouse and 4,320 held by Mr. Edinger.
(5) All shares are held jointly with spouse.
(6) Includes 17,500 shares of Pinnacle Common Stock issuable upon exercise of
options which are exercisable within 60 days.
(7) Includes 8,750 shares of Pinnacle Common Stock issuable upon exercise of
options which are exercisable within 60 days.
(8) Includes 11,000 shares of Pinnacle Common Stock issuable upon exercise of
options which are exercisable within 60 days.
(9) Includes 19,400 shares of Pinnacle Common Stock issuable upon exercise of
options which are exercisable within 60 days.
(10) Includes 39,200 shares of Pinnacle Common Stock issuable upon exercise of
options which are exercisable within 60 days.
(11) Includes 27,700 shares of Pinnacle Common Stock issuable upon exercise of
options which are exercisable within 60 days.
(12) Includes 78,972 shares of Pinnacle Common Stock held jointly with his
spouse and 5,752 shares of Pinnacle Common Stock held by a corporation of
which Mr. Wendzel is President.
(13) Includes 105,488 shares of Pinnacle Common Stock issuable upon exercise of
options which are exercisable within 60 days.
OTHER MATTERS
Pinnacle knows of no other matters to be brought before the Pinnacle Annual
Meeting other than those referred to in this Joint Proxy Statement/Prospectus,
but if any other business should properly come before the Pinnacle Annual
Meeting, the persons named in the proxy, or authorized substitutes, intend to
vote in accordance with their best judgment.
169
<PAGE>
INFORMATION REGARDING THE IFC ANNUAL MEETING
ELECTION OF DIRECTORS
The IFC Board is composed of eight members. Approximately one-third of the
directors are elected annually. Directors of IFC are generally elected to serve
for a three-year term or until their respective successors have been elected and
qualified.
The table below sets forth certain information, as of the record date for
the IFC Annual Meeting, regarding the composition of the IFC Board, including
their terms of office. It is intended that the proxies solicited on behalf of
the IFC Board (other than proxies in which the vote is withheld as to one or
more nominees) will be voted at the IFC Annual Meeting for the election of the
nominees identified below. If any nominee is unable to serve, the shares
represented by all such proxies will be voted for the election of such
substitute as the IFC Board may recommend. At this time, the IFC Board knows of
no reason why any of the nominees might be unable to serve, if elected. Except
as otherwise discussed herein, there are no arrangements or understandings
between any nominee and any other person pursuant to which such nominee was
selected. If the IFC Merger is approved by the stockholders of IFC and Pinnacle
the composition of the Board of Directors of the combined corporation will be as
discussed under "MANAGEMENT AND OPERATIONS AFTER THE MERGER--Directors" in this
Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
DIRECTOR TERM TO BENEFICIALLY PERCENT OF
NAME AGE POSITIONS HELD IN IFC SINCE EXPIRE OWNED(1) CLASS
- -------------------------- --- ----------------------------------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
NOMINEES
Peter R. Candela.......... 58 Director, President and Chief 1987 2000 102,874 *
Operating Officer
John R. Poncher, M.D...... 66 Director 1987 2000 37,691 *
Byron Smith III........... 48 Director 1987 2000 32,725 *
DIRECTORS CONTINUING IN OFFICE
Donald A. Lesch........... 46 Chairman of the Board and Chief 1990 1999 76,241 *
Executive Officer
Philip A. Maxwell......... 62 Director 1987 1999 62,748 *
Barbara A. Young.......... 47 Director 1990 1999 46,449 *
James E. Hutton........... 58 Director 1987 1998 55,559 *
Fred A. Wittlinger........ 55 Director 1992 1998 53,619 *
</TABLE>
- ------------------------
* Less than one percent.
(1) Includes shares held directly, as well as an aggregate of 115,651 shares
which are subject to immediately exercisable options and options exercisable
within 60 days of the record date for the IFC Annual Meeting, under IFC's
Stock Option Plan, shares held in retirement accounts or by certain members
of the named individual's family or corporations for which an individual is
an officer or director or held by trust of which an individual is trustee or
a substantial beneficiary, over which shares the individual may be deemed to
have sole or shared voting and/or investment power. The above named
individuals held exercisable options and options exercisable within 60 days
of the Voting Record Date as follows: Chairman Lesch--30,450 shares;
Director Maxwell--7,125 shares; Director Young--25,126 shares; President
Candela--6,450 shares; Director Poncher--7,125 shares; Director Smith--7,125
shares; Director Hutton--7,125 shares; and Director Wittlinger--25,125
shares.
170
<PAGE>
The business experience of each of the directors of IFC for at least the
past five years is as follows:
DONALD A. LESCH. Effective June 1, 1993, Mr. Lesch became a full-time,
salaried Chairman of the Board of IFC and IndFed Bank. He became Chief Executive
Officer of both entities in 1996. Prior thereto, Mr. Lesch was an investor and
consultant to Gough and Lesch Development Corporation, a real estate development
company located in Merrillville, Indiana.
PHILIP A. MAXWELL. Mr. Maxwell has been a self-employed farmer in
Valparaiso, Indiana since 1959.
BARBARA A. YOUNG. Since January 1, 1994, Ms. Young has served as President
of Benchmark LTD, a real estate development company located in Valparaiso,
Indiana. Prior thereto, Ms. Young was an attorney with the law firm of Hoeppner,
Wagner & Evans, located in both Valparaiso and Merrillville, Indiana.
PETER R. CANDELA. From 1985 to 1996, Mr. Candela served as President, Chief
Executive Officer and Director of IFC and IndFed Bank. In 1996, Mr. Candela
became the Chief Operating Officer of both entities. Since 1973, Mr. Candela
held a variety of positions with IndFed Bank including Senior Vice President and
Chief Financial Officer.
JOHN R. PONCHER, M.D. Dr. Poncher is a physician engaged in the private
practice of medicine in Valparaiso, Indiana.
BYRON SMITH III. Mr. Smith is the President of Smith Ready Mix, Inc., a
concrete producer located in Valparaiso, Indiana.
JAMES E. HUTTON. Since June 1993, Mr. Hutton has served as Vice President
in charge of operations for Burrell Professionals Labs, Inc., a professional
photo processing company with operations throughout the United States. Prior
thereto, Mr. Hutton was Managing Partner of the Northern Indiana office of Geo.
S. Olive and Co., an accounting firm. Mr. Hutton is a certified public
accountant.
FRED A. WITTLINGER. Since 1988, Mr. Wittlinger has served as President and
Chief Executive Officer of United Consumers Club, Inc., a consumer buying club
franchising corporation located in Merrillville, Indiana.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
Meetings of the IFC Board are generally held as required. During 1996 the
IFC Board held 15 meetings. No director attended fewer than 75% of the total
number of meetings of the IFC Board held during 1996 and the total number of
meetings held by all IFC Board committees on which any such director served
during 1996.
The IFC Board has standing Nominating, Audit and Personnel Committees, the
functions and composition of which are set forth below.
The Nominating Committee consists of the entire IFC Board. The Nominating
Committee did not meet during 1996. The Nominating Committee recommends to the
IFC Board nominees for election as directors, as well as nominees to fill any
vacancies which may exist on the IFC Board. The Nominating Committee will
consider nominees recommended by others; however, it has not actively solicited
nominations nor established any procedures for this purpose. Pursuant to IFC's
Bylaws, nominations must be delivered in writing to the Secretary of IFC at
least 15 days prior to the date of the annual meeting.
IFC's Audit Committee reviews audit reports and related matters to ensure
effective compliance with regulations and internal policies and procedures. The
Audit Committee also approves the accounting firm selected by management to
perform IFC's annual audit and acts as the liaison between the auditors and the
IFC Board. Members of the Audit Committee include Directors Hutton (Chairman),
Maxwell, Smith, Young, Candela (ex officio) and Lesch (ex officio). The Audit
Committee met four times during 1996.
171
<PAGE>
IndFed Bank's Personnel Committee, which acts as the compensation committee
of IFC and IndFed Bank, is responsible for making recommendations to the IFC
Board with respect to salaries for the President and senior officers, as well as
fees for services on the IFC Board and its committees. During 1996, the
Personnel Committee was composed of Directors Smith (Chairman), Hutton, Poncher,
Young, Lesch (ex officio) and Candela (ex officio). This committee held one
meeting during 1996.
DIRECTOR COMPENSATION AND BENEFITS
DIRECTORS FEES. Each non-employee director of the IFC Board (each of whom
is also a director of the IndFed Bank Board) was paid an annual fee during 1996
of $11,850 for serving on the IFC Board and the IndFed Bank Board, except for
Directors Smith and Hutton, Secretary and Vice Chairman, respectively, of the
IFC Board and the IndFed Bank Board. During 1996, Messrs. Smith and Hutton
received an annual fee of $14,250, of which $10,950 was paid by IndFed Bank and
the remainder of which was paid by IFC. All other non-employee directors
received $8,550 of their annual fee from IndFed Bank and the remaining balance
from IFC. Each non-employee director is also paid $150 for each IFC or IndFed
Bank committee meeting attended. IFC and IndFed Bank each pay their own fees to
directors for services on their respective Board committees.
DIRECTORS STOCK OPTION PLAN AWARDS. The IFC Stock Option Plan provides for
the granting of formula awards to directors of IFC. The director awards are part
of a policy adopted in 1993 by IndFed Bank's Personnel Committee relating to the
granting of awards to directors, executive officers and certain key employees
under the IFC Stock Option Plan, to be carried out by the Stock Option
Committee. Under this policy, awards may be granted to plan participants by the
Stock Option Committee utilizing objective criteria adopted by the Personnel
Committee and approved by the IFC Board, after taking into account the practices
of other publicly traded financial institutions and such other factors as deemed
appropriate.
The IFC Stock Option Plan provides for an annual base award of 3,000 option
shares to each non-employee director. The actual amount each director will
receive is determined under the formula so that non-employee directors will
receive a minimum of 1,500 shares and a maximum of 4,500 shares, subject to IFC
achieving a return on equity of at least 10% and a return on assets of at least
.80%. Pursuant to the formula award provision of the IFC Stock Option Plan, no
options were granted during 1996.
DIRECTORS DEFERRED COMPENSATION AGREEMENTS. IFC has entered into a Director
Deferred Compensation Agreement ("DDCA") with five of its non-employee
directors. The DDCAs are unfunded, non-qualified agreements which provide for
retirement, death and disability benefits for the participants and their
designated beneficiaries. Under the DDCAs, each non-employee director may, for a
period of five years, make an annual election to defer receipt of all or a
portion of his or her monthly director fees into a Guaranteed Investment
Contract ("GIC") Account and/or a Phantom Unit Account.
Deferred amounts allocated to the GIC Account will be credited with interest
at the rate of .667% per month. Deferred amounts allocated to the Phantom Unit
Account are used to "purchase" Phantom Units, each representing a share of IFC
Common Stock, at the market price of IFC Common Stock on the date of the
deferral election. Phantom Units are credited with the dividends that are
received by the holders of IFC Common Stock, and are adjusted for any stock
splits or similar events affecting the IFC Common Stock generally. Directors do
not have the option to receive dividends in cash, but may elect to reinvest such
dividends in Phantom Units or in a GIC Account. Upon termination of the
director's service, the Phantom Units are deemed to be sold, and the proceeds of
such sale are distributed to the director in cash pursuant to the payment
provisions of the DDCAs.
At normal retirement (age 65), each director will be entitled to receive
over a 15-year period his or her accrued benefit, which is determined by
annuitizing such benefit over the payment period using a monthly interest factor
of .833%. The DDCAs also provide for disability and death benefits, including a
$10,000 burial expense payment. Until disbursed, the amounts directed to be
deferred are subject to the claims of general creditors.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Personnel Committee, which acts as the compensation committee for IFC
and IndFed Bank, is comprised of Directors Smith (Chairman), Hutton, Poncher,
Young, Lesch (ex officio) and Candela (ex officio). During 1996, Mr. Lesch
served as the Chairman of the Board and Chief Executive Officer of IFC and
IndFed Bank and Mr. Candela served as President and Chief Operating Officer of
IFC and IndFed Bank.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth information
concerning the compensation paid or granted to IFC's Chief Executive Officer and
President. No other executive officer of IFC was paid or granted compensation in
excess of $100,000 during 1996. IFC has not granted any stock appreciation
rights to date.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------------
------------------------------------------- RETRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
COMPENSATION AWARD(S) OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) $(2) ($) (#) ($)
- --------------------------------- --------- ------------- ----------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald A. Lesch ................. 1996 $ 168,427 -- -- -- 3,000 $ 9,000(4)
Chairman of the Board and Chief 1995 139,992 -- -- -- 27,000 8,400
Executive Officer 1994 119,996 $ 18,099 -- -- 4,500 12,924
Peter R. Candela, ............... 1996 $ 160,008(3) -- -- -- 3,000 $ 10,500(4)
President 1995 160,008(3) -- -- -- 3,000 11,100
1994 156,504(3) $ 18,880 -- -- 4,500 17,366
</TABLE>
- ------------------------
(1) Paid pursuant to IFC's Incentive Compensation Plan. See "--Bonus Awards for
1996."
(2) Messrs. Lesch and Candela did not receive any additional benefits or
perquisites which, in the aggregate, exceeded the lesser of 10% of their
salary and bonus or $50,000.
(3) Includes $11,400 in compensation deferred pursuant to Mr. Candela's
Executive Deferred Compensation Agreement. Under the agreement, Mr. Candela
has elected to defer 100% of the portion of his annual salary which equals
the annual base Board fees received by non-employee Directors of IndFed Bank
for attendance at regular Board meetings. Additional terms of Mr. Candela's
agreement are substantially similar to those for IFC's directors. See
"--Directors Deferred Compensation Agreements" above.
(4) Represents IndFed Bank's 1996 contributions to the Employee Stock Ownership
Plan of $9,000 and $9,000 and to IndFed Bank's 401(K) plan of zero and
$1,500 to Messrs. Lesch and Candela, respectively.
173
<PAGE>
The following table sets forth certain information with respect to the
number and value of stock options held by the named executive officers at
December 31, 1996. To date, no stock appreciation rights have been granted by
IFC.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#) FY-END($)
ACQUIRED ON VALUE ---------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- ----------- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald A. Lesch................. -- -- 30,450 7,800 $ 59,944 $ 36,037
Peter R. Candela................ 15,001 $ 229,766 6,450 7,800 $ 35,306 $ 36,037
</TABLE>
EMPLOYMENT AGREEMENTS. IndFed Bank has entered into employment agreements
with both Messrs. Lesch and Candela which provide for an annual base salary in
an amount not less than such individual's current salary. The agreements were
initially for a term of three years each and provide for extensions of one year
at the end of each year (in addition to the then-remaining term under the
agreement) upon the review and at the discretion of the Board of Directors of
IndFed Bank. Upon review of the employment agreements for the year ended
December 31, 1996, the IndFed Bank Board elected not to extend the terms of such
agreements for Messrs. Lesch and Candela; accordingly, Messrs. Lesch and Candela
now have two years remaining on their current employment agreements.
The employment agreements provide for termination upon such individual's
death, disability, for cause or in certain events specified by regulations of
IndFed Bank's primary regulator, the United States Office of Thrift Supervision.
The employment agreements are terminable by Messrs. Lesch and Candela upon 90
days' notice to IndFed Bank. The agreements each provide for payment to Messrs.
Lesch and Candela of 299% of their "base amount" of compensation (as defined
under Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code")) in the event there is a change in control of IFC or IndFed Bank, where
employment terminates involuntarily in connection with such a change in control
or within 12 months thereafter. Such termination payment is provided on a
similar basis in connection with the voluntary termination of employment, where
the change in control was at any time or at any price opposed by IFC's Board of
Directors. Assuming a change in control were to take place as of December 31,
1996, the aggregate amounts payable to Messrs. Lesch and Candela pursuant to
this change in control provision would be approximately $568,100 and $478,400,
respectively. The agreements also provide, among other things, for participation
in an equitable manner in employee benefits applicable to executive personnel.
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENTS. IFC and IndFed Bank
have entered into Executive Supplemental Retirement Income Agreements ("IFC
ESRIAs") with Messrs. Lesch and Candela, as well as with certain other key
officers. The IFC ESRIAs are unfunded, non-qualified agreements which provide
for an annual benefit to each executive of an amount generally equal to a stated
percentage (of between 15% and 45%) of the executive's highest five-year average
"base compensation" (which includes salary, but excludes bonuses and fringe
benefits) paid by IFC and/or IndFed Bank, to be paid over a 15-year period. The
IFC ESRIAs also provide for disability and death benefits, including at $10,000
burial expense payment. In addition, the IFC ESRIAs for Mr. Candela and Mr.
Lesch provide that they will be eligible to receive their full supplemental
benefit in the event they involuntarily terminate their employment with IndFed
Bank and/or IFC prior to reaching retirement age. Until disbursed, the amounts
payable under the IFC ESRIAs are subject to the claims of general creditors.
Assuming Messrs. Lesch and Candela were involuntarily terminated from the
employment of IFC or IndFed Bank as of December 31, 1996, they would have been
eligible to receive, at normal retirement, an annual benefit of approximately
$145,000 and $63,000, respectively, under their IFC ESRIA. The annual benefit
upon retirement at normal
174
<PAGE>
retirement age payable to each such individual under their IFC ESRIA is
estimated, based on assumed salary increases, to be approximately $145,000 and
$63,000, respectively.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Personnel Committee (the "Committee") has furnished the following report
on executive compensation:
COMPENSATION POLICIES. Under the supervision of the IFC Board, IFC has
developed and implemented compensation policies, plans and programs which seek
to enhance the profitability of IFC, and thus shareholder value, by aligning
closely the financial interests of IFC's employees, including its President,
Chairman of the Board and IFC's other senior management, with those of its
shareholders. With regard to compensation actions affecting the President, the
Executive Committee of the IFC Board, consisting of the members of the
Committee, as well as all of the non-employee members of the IFC Board, acted as
the approving body.
The executive compensation program of IFC is designed to:
- Support a pay-for-performance policy that differentiates compensation
based on corporate and individual performance;
- Motivate employees to assume increased responsibility and reward them for
their achievement;
- Provide compensation opportunities that are comparable to those offered by
other leading companies, allowing IFC to compete for and retain talented
executives who are critical to IFC's long-term success; and
- Align the interests of executives with the long-term interests of
shareholders through award opportunities that can result in ownership of
IFC Common Stock.
At present, the executive compensation program is comprised of salary,
annual cash incentive opportunities, long-term incentive opportunities in the
form of stock options and restricted stock, and miscellaneous benefits typically
offered to executives by major corporations. Annual base salaries for all
executive officers are generally set somewhat below competitive levels so that
IFC relies to a large degree on annual and longer term incentive compensation to
attract and retain corporate officers and other employees and to motivate them
to perform to the full extent of their abilities. The Committee considers the
total compensation (earned or potentially available) in establishing each
element of compensation so that total compensation paid is competitive with the
market place, based on an independent consultant's survey of salary
competitiveness of other financial institutions. The Committee intends to be
advised periodically by independent compensation consultants concerning salary
competitiveness.
As to Messrs. Lesch and Candela, as well as the other executive officers, as
an executive's level of responsibility increases, a greater portion of his or
her potential total compensation opportunity is based on IFC performance
incentives rather than on salary. Reliance on IFC performance causes greater
variability in the individual's total compensation from year to year. By varying
annual and long-term compensation and basing both on corporate performance, IFC
believes executive officers are encouraged to continue focusing on building
profitability and shareholder value.
SALARIES. Effective June 6, 1996, the IFC Board, acting on the
recommendation of the Committee, increased the base salary of Mr. Lesch. The
increase reflected consideration of competitive data provided by an independent
consulting firm, the Committee's and the IFC Board's assessment of Mr. Lesch's
performance over the year and increased responsibilities received in the
management realignment which occurred during 1996. No other salary increases
were granted to executive officers in 1996.
STOCK OPTION AWARDS. IFC's Stock Option Plan is designed to align a
significant portion of the executive compensation program with shareholder
interests. IFC's Stock Option Plan, which was approved
175
<PAGE>
by shareholders in 1987, as amended and approved by shareholders in 1993,
provides for the granting of stock-based awards. To date, the only type of award
granted under the Stock Option Plan to executive officers and other key
employees consists of stock options.
In 1993, the Committee adopted a policy relating to the granting of awards
to directors, executive officers and certain key employees under IFC's Stock
Option Plan, to be carried out by the Stock Option Committee, consisting of
Directors Poncher (Chairman), Maxwell and Smith. Under this policy, awards may
be granted to plan participants by the Stock Option Committee utilizing
objective criteria adopted by the Personnel Committee and approved by the IFC
Board, after taking into account the practices of other publicly traded
financial institutions and such other factors as deemed appropriate. The formula
adopted is based on a plan participant's grade level and IFC's return in equity
and return on assets for each fiscal year. Plan participants may receive a base
award of stock options covering between 1,000 and 6,000 shares for each year in
which IFC's return on equity is 12%. The participant's base award may be
increased or decreased by 25% for each 1% change in return on equity above or
below 12%, to a minimum suggested award of 50% of the base award or to a maximum
of 150% of the base award. In addition, under the formula, no awards under the
Stock Option Plan will be granted in any year in which IFC does not achieve a
return on equity of at least 10% and a return on assets of at least .80%.
Pursuant to the formula award provision of IFC's Stock Option Plan, no stock
options were granted during 1996.
In 1993, Section 162(m) was added to the Code, the effect of which is to
eliminate the deductibility of compensation over $1 million, with certain
exclusions, paid to each of certain highly compensated executive officers of
publicly held corporations, such as IFC. Section 162(m) applies to all
remuneration (both cash and non-cash) that would otherwise be deductible for tax
years beginning on or after January 1, 1994, unless expressly excluded. Because
the current compensation of each of IFC's executive officers is below the $1
million threshold, IFC has not yet considered its policy regarding this
provision.
JOHN R. PONCHER, M.D. JAMES E. HUTTON DONALD A. LESCH (EX OFFICIO)
BARBARA A. YOUNG BYRON SMITH III PETER R. CANDELA (EX OFFICIO)
176
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on IFC Common Stock against the
cumulative total return of Media General's Composite S&L Index and the Nasdaq
Market Index for the period of five years commencing January 1, 1992 and ended
December 31, 1996. The graph assumes a $100 investment on January 1, 1992 and
the reinvestment of dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
IFC S&L INDEX NASDAQ INDEX
<S> <C> <C> <C>
12/31/91 $100.00 $100.00 $100.00
12/31/92 146.62 132.76 100.98
12/31/93 205.77 164.62 121.13
12/31/94 238.04 157.68 127.17
12/31/95 327.33 249.75 164.96
12/31/96 359.38 325.95 204.98
</TABLE>
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
IFC............................................. $ 100.00 $ 146.62 $ 205.77 $ 238.04 $ 327.33 $ 359.38
S&L Index....................................... 100.00 132.76 164.62 157.68 249.75 325.95
Nasdaq Index.................................... 100.00 100.98 121.13 127.17 164.96 204.98
</TABLE>
177
<PAGE>
INDEBTEDNESS OF MANAGEMENT
IndFed Bank, like many financial institutions, has followed a policy of
granting loans to eligible officers and directors. Any and all loans to officers
and directors are made in the ordinary course of business in accordance with
IndFed Bank's standard underwriting practices and procedures, were all made in
the ordinary course of business, were made on substantially the same terms,
including interest rates and collateral, as these prevailing at the time for
comparable transactions with other persons, and did not include more than the
normal risk of collectibility or present other unfavorable features.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires IFC's directors and executive
officers, and persons who own more than 10% of a registered class of IFC's
equity securities, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of IFC Common Stock and
other equity securities of IFC. Officers, directors and greater than 10%
shareholders are required by the Commission regulation to furnish IFC with
copies of all Section 16(a) forms they file.
To IFC's knowledge, based solely on a review of the copies of such reports
furnished to IFC and written representations that no other reports were
required, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10 percent beneficial owners were complied with
during the year ended December 31, 1996, except for executive officer George
Eberhardt who inadvertently failed to file on a timely basis a Form 4 in October
1996 reporting his obligation to transfer IFC Common Stock pursuant to an
agreement entered into in September 1996. A Form 4 was subsequently filed in
March 1997 upon the physical transfer of such shares.
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The IFC Board has renewed IFC's arrangement for Ernst & Young LLP to be its
independent auditors for the year ending December 31, 1997, subject to the
ratification of the appointment by IFC's stockholders. A representative of Ernst
& Young LLP is expected to attend the Meeting to respond to appropriate
questions and will have an opportunity to make a statement if he or she so
desires.
THE IFC BOARD RECOMMENDS THAT THE IFC STOCKHOLDERS VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF ERNST & YOUNG LLP AS IFC'S AUDITORS FOR THE YEAR ENDING
DECEMBER 31, 1997.
OTHER MATTERS
IFC knows of no other matters to be brought before the IFC Annual Meeting
other than those referred to in this Joint Proxy Statement/Prospectus, but if
any other business should properly come before the IFC Annual Meeting, the
persons named in the proxy, or authorized substitutes, intend to vote in
accordance with their best judgment.
178
<PAGE>
CERTAIN INFORMATION REGARDING CB
DIRECTORS OF CB
The Board of Directors of CB presently consists of seven directors. Each of
the seven members of the Board of Directors of CB also presently serves as a
director of Community Bank. Directors are elected for staggered terms of three
years each, with a term of office of only one of the three classes of directors
expiring each year. Directors serve until their successors are elected and
qualified.
The following table sets forth, as of the date of this Joint Proxy
Statement/Prospectus, the names of the directors of CB, their ages, a brief
description of their recent business experience, including present occupations
and employment, certain directorships held by each, the year in which each
became a director of Community Bank and the year in which their terms (or, in
the case of nominees, their proposed terms) as director of CB expire and the
amount of CB Common Stock and the percent thereof beneficially owned by each and
all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF CB
EXPIRATION OF COMMON STOCK OWNERSHIP AS
NAME AND PRINCIPAL OCCUPATION DIRECTOR TERM AS BENEFICIALLY PERCENT OF
AT PRESENT AND FOR THE PAST FIVE YEARS AGE SINCE(1) DIRECTOR OWNED(2)(3) CLASS
- ------------------------------------------------- --- ----------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Joseph F. Heffernan ............................. 61 1989 1999 60,587(4)( (6) 5.14%
Chairman of the Board, President and CEO of CB;
served as President of Community Bank since
1989.
Robert V. Ott ................................... 69 1973 1999 12,408(7) 1.06
Realtor and Real Estate Appraiser and Owner of
Ott Realty and Appraisal Co.
James J. Broad .................................. 57 1992 1999 10,300 *
President and Chairman of the Board of Imperial
Steel Tank Company, Chicago, Illinois. Also
part owner and director of Three Oaks Ford
Mercury, Three Oaks, Michigan.
Marvin L. Kominiarek, Jr. ....................... 59 1971 1998 27,291(4)( (6) 2.38%
Divisional President-Financial Services,
Incorporated. Prior to joining Financial
Services, Incorporated, Mr. Kominiarek was part
owner of Kominiarek and Greing Insurance, an
insurance brokerage firm in Michigan City,
Indiana.
Jon R. Bausback ................................. 57 1979 1998 20,040(7)(8) 1.71
Optometrist practicing in Michigan City.
Ken O. Fryer .................................... 72 1969 1997 12,081(7) 1.04
Architect and owner of Ken Fryar Associates, an
architectural firm and Ken Fryar Builders,
Inc., a construction firm.
J. Patrick Smith ................................ 65 1974 1997 12,040(7)(8) 1.03
Attorney in private practice in LaPorte,
Indiana
All Directors and executive officers as a group
(10 persons)................................... 207,965(9) 16.92%
</TABLE>
- --------------------------
* Less than 1.0% of CB's voting stock.
(1) Includes years of service as a director of Community Bank.
179
<PAGE>
(2) Each person effectively exercises sole (or shares with spouse or other
immediate family member) voting or dispositive power as to shares reported.
(3) All shares and percentage amounts reflect a two-for-one stock split effected
in the form of a stock dividend in February 1994.
(4) Includes 1,926 and 963 shares awarded to Messrs. Heffernan and Kominiarek,
respectively, under the Community Bank, A Federal Savings Bank Recognition
and Retention Plans and Trusts for Officers and Employees ("MRPs"), which
vest at an annual rate of 20% of the original number of shares awarded
commencing on December 23, 1993, as to which voting may be directed by
Messrs. Heffernan and Kominiarek.
(5) Includes 16,438 and 8,733 and 2,568 shares, which may be acquired through
the exercise of stock options granted to Messrs Heffernan and Kominiarek and
to Mr. Kominiarek's wife, respectively, under the CB Bancorp, Inc. 1992
Incentive Stock Option Plan ("CB Option Plan"), which are currently
exercisable. Does not include 4,110 and 2,183 and 642 shares awarded to
Messrs Heffernan and Kominiarek and to Mr Kominiarek's wife, respectively,
under the Option Plan, which are not presently exercisable and vest at an
annual rate of 20% of the original amount granted beginning December 23,
1993.
(6) Includes 4,996 and 895 shares allocated under the CB ESOP to the accounts of
Messrs. Heffernan and Kominiarek, respectively.
(7) Includes 963 shares granted to each outside director of CB with a minimum of
ten years of service as a director of Community Bank under the Community
Bank, A Federal Savings Bank Recognition and Retention Plans and Trusts for
Outside Directors ("DRPs") which vest at an annual rate of 20% of the
original number granted commencing on the date of grant (December 23,1992),
as to which each participant presently has voting power.
(8) Includes 9,632 shares subject to options granted to Messrs. Smith and
Bausback under the CB Bancorp, Inc. 1992 Stock Option Pian for Outside
Directors ("CB Directors' Option Plan"), which are currently exercisable.
(9) Includes 8,665 shares (including 4,813 shares set forth in footnotes 4 and 7
above) subject to Awards under the MRPs and DRPs and as to which voting may
be directed; 67,294 shares subject to options under the CB Option Plan and
CB Directors Option Plan which are currently exercisable (including 47,003
shares set forth in footnotes 5 and 8 above); and 19,421 shares held for
executive officers in the aggregate under the CB ESOP.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During fiscal 1996, the CB Board held twelve regular meetings. All directors
attended at least 75% in the aggregate of the total number of CB Board meetings
held and meetings of the committees on which they served during fiscal 1996.
The Boards of Directors of CB and Community Bank maintain committees, the
nature and composition of which are described below:
The Executive Committee consists of Messrs. Heffernan, Kominiarek and Ott.
This committee generally meets twice a month to approve and/or review loans and
generally exercises most powers of the CB Board in intervals between meetings of
the CB Board. This committee met 23 times in fiscal 1996.
The Audit Committee consists of Messrs. Broad (Chairman), Bausback and
Smith. The Audit Committee reviews the audited financial statements and meets
with CB's and Community Bank's independent auditors. This committee met 2 times
in fiscal 1996.
Community Bank's Salary Review and Personnel Committee, consisting of
Messrs. Bausback, Broad, Fryar and Heffernan (Ex Officio), establishes
compensation for Community Bank's executive officers and other employees.
Community Bank's Interest Rate Risk/Business Plan Committee consists of
Messrs. Heffernan, Kominiarek and Ott and is responsible for supervising
Community Bank's Business Plan and for establishing and monitoring Community
Bank's Asset/Liability management policies and practices.
180
<PAGE>
CB's nominating committee for the 1996 Annual Meeting of Stockholders of CB
consisted of Messrs. Fryar, Kominiarek and Smith. The committee considers and
recommends the nominees for director to stand for election at CB's annual
meeting of stockholders. The nominating committee met one time in fiscal 1996.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table shows, for the fiscal years
ended March 31, 1996, 1995 and 1994, the cash compensation paid by Community
Bank, as well as certain other compensation paid or accrued for those years, to
the Chief Executive Officer (the "Named Executive Officer"). No other executive
officer of CB or Community Bank received an amount in salary and bonus in excess
of $100,000 in fiscal 1996. Other than certain directors' fees, CB did not pay
any cash compensation to any individual during fiscal 1996.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------
AWARDS
------------------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING PAYOUTS
------------------------------------------- RETRICTED EXERCISED ------------
OTHER ANNUAL STOCK OPTIONS/ ALL LTIP
NAME AND PRINCIPAL COMPENSATION AWARD(S) SARS PAYOUTS
POSITION FISCAL YEAR SALARY($)(1) BONUS($)(2) $(3) ($)(4)(5) (#)(6) ($)
- -------------------- ----------- ------------- ----------- --------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph F. 1996 $ 131,401 $ -- $ -- $ -- $ -- $ --
Heffernan ........ 1995 121,684 -- $ -- $ -- $ -- $ --
Chairman of the 1994 111,025 -- 153 -- -- --
Board, President
and CEO
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION ($)(7)
- -------------------- -------------
<S> <C>
Joseph F. $ 33,705
Heffernan ........ 21,669
Chairman of the 12,404
Board, President
and CEO
</TABLE>
- --------------------------
(1) Includes director's fees for CB and Community Bank.
(2) No bonus was paid or accrued in fiscal 1996, 1995 or 1994.
(3) For fiscal years ended March 31, 1996, 1995 and 1994, there were no (a)
perquisites over the lesser of $50,000 or 10% of the individual's total
salary and bonus for the years; (b) payments of earnings with respect to
long term incentive plans prior to settlement or maturation; (c) tax payment
reimbursements; or (d) preferential discounts on stock.
(4) The dollar value of shares awarded to Mr. Heffernan pursuant to the
Community Bank, A Federal Savings Bank Recognition and Retention Plans and
Trusts for Officers and Employees ("MRP") is based on the initial public
offering price of the common stock of 55.00 per share (as adjusted for the
2-for-1 stock split). Such awards vest in equal installments at a rate of
20% per year commencing on December 23, 1993. When shares become vested and
are distributed, the recipient will also receive an amount equal to
accumulated dividends and earnings thereon (if any). 5,778 shares granted
under the MRP to Mr. Heffernan have vested.
(5) All share and share price disclosures reflect CB's two-for-one stock split
distributed on February 9, 1994.
(6) The Company maintains the CB Option Plan for the benefit of officers and key
employees. Options granted pursuant to the CB Option Plan vest at a rate of
20% per year beginning one year from the date of grant (December 23, 1992).
At the Record Date, 12,329 options granted to Mr. Heffernan under the CB
Option Plan had vested. Options granted include limited rights.
(7) Represents shares allocated to the CB ESOP at market value on the allocation
date of December 31, 1995 of $33,705 for Mr. Heffernan. As of March 31,
1996, three allocations have been made to each participant's CB ESOP
account.
EMPLOYMENT AGREEMENTS. CB and Community Bank have entered into employment
agreements with Mr. Heffernan, who is sometimes referred to herein as the
"executive." These employment agreements are
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intended to ensure that CB and Community Bank will be able to maintain a stable
and competent management base.
The employment agreements with CB and Community Bank provide for a
three-year term. Commencing on the first anniversary date and continuing each
anniversary date thereafter, the respective Boards of Directors may extend the
agreements for an additional year so that the remaining terms shall be three
years. The agreements provide that the executive's base salary will be reviewed
annually. In addition to the base salary, the agreements provide for, among
other things, disability pay, participation in stock benefit plans and other
fringe benefits applicable to executive personnel. The agreements provide for
termination by CB and Community Bank for cause at any time. In the event CB and
Community Bank choose to terminate the executive's employment for reasons other
than for cause, or in the event of the executive's resignation from CB and
Community Bank upon (i) a material change in the executive's functions, duties
or responsibilities, or relocation of his principal place of employment, (ii)
liquidation or dissolution of CB and Community Bank, or (iii) a breach of the
agreement by CB and Community Bank, the executive, or in the event of death, his
beneficiary, would be entitled to severance pay or liquidated damages in an
amount equal to the salary to which he would be entitled for the remaining term
of the agreement. The agreements provide that the failure to re-elect the
executive to his current offices or to nominate the executive to the board of
directors shall constitute an event of termination.
If termination as described above follows a change in control of CB and
Community Bank, the executive or, in the event of death prior to payment, his
beneficiary, would be entitled to a severance payment equal to three times his
average annual compensation over the past three years of employment with CB and
Community Bank. CB and Community Bank would also continue the executive's life,
health and disability coverage for the remaining unexpired term of the
agreements. The employment agreements contain a provision to the effect that if,
in the event of a change in control, the aggregate payments under the agreements
would constitute an excess parachute payment under Section 280G of the Code
(which imposes an excise tax on the recipient and denial of the deduction for
such excess amounts to the employer). payments under the agreements shall be
reduced to one dollar below the amount which would trigger an excise tax under
Section 280G. Payments to the executive under Community Bank's agreement are
guaranteed by the Company in the event that payments or benefits are not paid by
Community Bank.
For purposes of the employment and change in control agreements and the
stock option plans described herein, a "change in control" generally means the
acquisition by any person or group of persons of 25% or more of CB's or
Community Bank's outstanding securities, a change in the incumbent boards of
directors such that incumbent members (which includes members approved by
incumbent members) cease to constitute a majority of the respective boards, or a
transaction in which Community Bank or CB is not the surviving institution.
In the event of a change in control based upon the past fiscal year's
compensation, the executive would be entitled to receive a severance payment of
$364,110 in addition to other non-cash benefits provided under the employment
agreements.
STOCK OPTION PLAN. The Company maintains the CB Bancorp, Inc. 1992
Incentive Stock Option Plan (the "CB Option Plan"). There were no grants to the
Named Executive Officer under the Option Plan during the fiscal year ended March
31, 1996.
The following table provides certain information with respect to the number
of shares of CB Common Stock represented by outstanding stock options held by
the Named Executive Officer as of March 31, 1996. Also reported are the values
for "in-the-money" options which represent the positive spread between the
exercise price of existing stock options and the fiscal year-end price of CB
Common Stock. No options were exercised by the Named Executive Officer during
fiscal 1996.
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FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT FISCAL
FISCAL YEAR-END(#)(1) YEAR-END($)(2)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------------------------- ----------------------- -----------------------------------
<S> <C> <C>
Joseph F. Heffernan................................. 12,329/8,219 $ 160,277/$106,842
</TABLE>
- ------------------------
(1) Based upon $18.00, the closing bid price of CB Common Stock as reported on
the Nasdaq Small-Cap Market on March 31, 1996. The exercise price of the
options is $5.00.
(2) Options are subject to limited rights (SARs) pursuant to which the options,
to the extent outstanding for at least six months, may be exercised in the
event of a change in control of CB or Community Bank. Upon the exercise of
limited rights, the optionee would receive cash payments equal to the
difference between the exercise price of the related option on the date of
grant and the fair market value of the underlying shares of CB Common Stock
on the date the limited rights is exercised.
INDEBTEDNESS OF MANAGEMENT
The FIRREA requires that all loans or extensions of credit to executive
officers and directors must be made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with the general public and must not involve more than the normal
risk of repayment or present other unfavorable features. In addition, loans made
to a director or executive officer in excess of the greater of $25,000 or 5% of
Community Bank's capital or surplus (up to a maximum of $500,000) must be
approved in advance by a majority of the disinterested members of the Board of
Directors. Community Bank's policy regarding loans to directors and executive
officers is in accordance with the requirements of the FIRREA. At March 31,
1996, all outstanding loans made by Community Bank to directors and executive
officers and members of their immediate families had been made in the ordinary
course of business, on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility or
present other unfavorable features.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires CB's directors and executive
officers, and persons who own more than 10% of a registered class of CB's equity
securities, to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of CB Common Stock and other
equity securities of CB. Officers, directors and greater than 10% shareholders
are required by the Commission regulation to furnish CB with copies of all
Section 16(a) forms they file. To CB's knowledge, based solely on a review of
the copies of such reports furnished to CB and written representations that no
other reports were required, all Section 16(a) filing requirements applicable to
its officers, directors and greater than 10 percent beneficial owners were
complied with during the year ended December 31, 1996.
BENEFICIAL OWNERSHIP OF CB COMMON STOCK
The following table sets forth information provided by the persons indicated
with respect to the beneficial ownership (as defined under applicable rules of
the Commission) of shares of CB Common Stock as of April 1, 1997 by (i) each
person known by CB who is the owner of more than 5% of the
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outstanding shares of CB Common Stock, (ii) each person who is a director or an
executive officer of CB, and (iii) all persons who are directors or executive
officers of CB as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- -------------------------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
Community Bank, A Federal Savings Bank, Employee ......................... 86,864(1) 7.43%
Stock Ownership Plan and Trust
126 E. Fourth Street
Michigan City, Indiana 46360
First Manhattan Co.(2) ................................................... 93,500(2) 8.05
437 Madison Avenue
New York, New York 10022
John Hancock Advisers, Inc. .............................................. 107,870(3) 7.90
c/o John Hancock Mutual Life
Insurance Company
P.O. Box 111
Boston, MA 02117
</TABLE>
- ------------------------
(1) The CB ESOP holds 86,864 shares, of which 37,103 shares have been allocated
to employees with the remaining shares unallocated. Directors administer the
CB ESOP as a committee (the "CB ESOP Committee"). Craig Braje, Esq., an
unaffiliated person, has been appointed as the trustee for the CB ESOP ("CB
ESOP Trustee"). The CB ESOP Trustee, subject to his fiduciary duty, must
vote all allocated shares held in the ESOP in accordance with the
instructions of the participating employees. Under the CB ESOP, unallocated
shares held in the suspense account will be voted by the CB ESOP Trustee in
a manner calculated to most accurately reflect the instructions received
from participants so long as such vote is in accordance with the provisions
of Employee Retirement Income Security Act of 1974.
(2) Information is based on the February 5, 1997 Schedule 13G filed by First
Manhattan Co.
(3) Information is based on the February 3, 1997 Schedule 13G filed by John
Hancock Advisors, Inc.
LEGAL MATTERS
The legality of the Pinnacle Common Stock to be issued in connection with
the Mergers, and certain other legal matters, will be passed upon by Miller,
Canfield, Paddock and Stone, P.L.C., 1400 North Woodward Avenue, Suite 100,
Bloomfield Hills, Michigan 48304. Certain legal matters will be passed upon for
IFC by Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Suite 700,
Washington, D.C. 20005-3934. Certain legal matters will be passed upon for CB by
Muldoon, Murphy & Faucette, 5101 Wisconsin Avenue, N.W., Washington, DC 20016.
EXPERTS
The consolidated financial statements of Pinnacle incorporated by reference
in Pinnacle's Annual Report on Form 10-K for the year ended December 31, 1996
and incorporated by reference in this Joint Proxy Statement, which is referred
to and made a part of this Prospectus and Registration Statement, have been
audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their
report thereon incorporated by reference therein and incorporated by reference
herein. Such consolidated financial statements are incorporated by reference
herein in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
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The consolidated financial statements of IFC incorporated by reference in
IFC's Annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated by reference in this Joint Proxy Statement, which is referred to
and made a part of this Prospectus and Registration Statement, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
incorporated by reference therein and incorporated by reference herein. Such
consolidated financial statements are incorporated by reference herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
The consolidated financial statements of CB incorporated by reference in
CB's Annual Report on Form 10-KSB for the year ended March 31, 1996 and
incorporated by reference in this Joint Proxy Statement, which is referred to
and made a part of this Prospectus and Registration Statement, have been audited
by Crowe, Chizek and Company LLP, independent auditors, as set forth in their
report thereon incorporated by reference therein and incorporated by reference
herein. Such consolidated financial statements are incorporated by reference
herein in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
STOCKHOLDER PROPOSALS
Any Pinnacle stockholder who wishes to submit, pursuant to Rule 14a-8, a
non-binding stockholder proposal for presentation to Pinnacle's 1998 Annual
Meeting of Stockholders, and for inclusion, if appropriate, in Pinnacle's proxy
statement and the form of proxy relating to such annual meeting, must comply
with the rules and regulations of the Commission then in effect and must
transmit such proposal via registered or certified mail to Donald E. Radde,
Secretary, Pinnacle Financial Services, Inc., 830 Pleasant Street, St. Joseph,
Michigan 49805. Any such stockholder proposal must be received by Pinnacle not
later than , 199 .
Any IFC stockholder who wishes to submit, pursuant to Rule 14a-8, a
non-binding stockholder proposal for presentation to IFC's 1998 Annual Meeting
of Stockholders, and for inclusion, if appropriate, in IFC's proxy statement and
the form of proxy relating to such annual meeting, must comply with the rules
and regulations of the Commission then in effect and must submit such proposal
to Brenda A. Sheetz, Secretary, Indiana Federal Corporation, 56 Washington
Street, Valparaiso, Indiana 46383. Any such stockholder proposal must be
received by IFC not later than , 199 .
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Pinnacle Annual Meeting. Representatives of Ernst & Young LLP are expected to be
present at the IFC Annual Meeting. Representatives of Crowe, Chizek and Company
LLP are expected to be present at the CB Special Meeting. These representatives
will have an opportunity to make statements if they so desire and will be
available to respond to appropriate questions.
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ANNEX C
AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 14, 1996 BETWEEN
PINNACLE FINANCIAL SERVICES INC.
AND INDIANA FEDERAL CORPORATION
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of November 14, 1996, by and between
PINNACLE FINANCIAL SERVICES, INC., a Michigan corporation ("Pinnacle"), and
INDIANA FEDERAL CORPORATION, a Delaware corporation ("IFC").
WITNESSETH:
WHEREAS, the Boards of Directors of Pinnacle and IFC have determined that it
is in the best interests of their respective companies and their stockholders to
consummate the business combination transaction provided for herein in which IFC
will, subject to the terms and conditions set forth herein, merge with and into
Pinnacle (the "Merger"), so that Pinnacle is the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") in the Merger; and
WHEREAS, it is the intent of the respective Boards of Directors of Pinnacle
and IFC that the Merger be structured as a "merger of equals" of Pinnacle and
IFC and that the Surviving Corporation be governed and operated on this basis;
and
WHEREAS, as a condition to, and immediately after the execution of, this
Agreement, Pinnacle and IFC are entering into a Pinnacle stock option agreement
(the "Pinnacle Option Agreement") attached hereto as Exhibit A; and
WHEREAS, as a condition to, and immediately after the execution of, this
Agreement, Pinnacle and IFC are entering into an IFC stock option agreement (the
"IFC Option Agreement"; and together with the Pinnacle Option Agreement, the
"Option Agreements") attached hereto as Exhibit B; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this Agreement, in
accordance with the Michigan Business Corporation Act, as amended (the "MBCA"),
the Delaware General Corporation Law, as amended (the "DGCL"), at the Effective
Time (as defined in Section 1.2), IFC shall merge with and into Pinnacle.
Pinnacle shall be the Surviving Corporation in the Merger, and shall continue
its corporate existence under the laws of the State of Michigan. Upon
consummation of the Merger, the separate corporate existence of IFC shall
terminate.
1.2 EFFECTIVE TIME. The Merger shall become effective as set forth in
certificates of merger (each, a "Certificate of Merger"), which shall specify an
effective date and time no earlier than the filing thereof with the appropriate
authorities of the State of Michigan, and with the appropriate authorities of
the State of Delaware, on the Closing Date (as defined in Section 9.1), or as
soon thereafter as practicable. The term "Effective Time" shall be the date and
time when the Merger becomes effective, as set forth in each Certificate of
Merger having been filed in accordance with the MBCA and DGCL.
1.3 EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
shall have the effects set forth in the MBCA and the DGCL.
1.4 CONVERSION OF IFC COMMON STOCK. At the Effective Time, in each case,
subject to Section 2.2(e), by virtue of the Merger and without any action on the
part of Pinnacle, IFC or the holder of any of the following securities:
(a) Each share of the common stock, par value $0.01 per share, of IFC
(the "IFC Common Stock") issued and outstanding immediately prior to the
Effective Time (other than shares of IFC
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Common Stock held (x) in IFC's treasury or (y) directly or indirectly by IFC
or Pinnacle or any of their respective wholly-owned Subsidiaries (as defined
in Section 3.1) (except for Trust Account Shares and DPC shares, as such
terms are defined in Section 1.4(c) and as set forth in the IFC Disclosure
Schedule)), shall be converted into the right to receive one (1) share (the
"Exchange Ratio") of the common stock, without par value, of Pinnacle (the
"Pinnacle Common Stock").
(b) All of the shares of IFC Common Stock converted into Pinnacle Common
Stock pursuant to this Article I shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist as of the Effective
Time, and each certificate (each a "Common Certificate") previously
representing any such shares of IFC Common Stock shall thereafter represent
the right to receive a certificate representing the number of whole shares
of Pinnacle Common Stock into which the shares of IFC Common Stock
represented by such Common Certificate have been converted pursuant to this
Section 1.4 and Section 2.2. Common Certificates previously representing
shares of IFC Common Stock shall be exchanged for certificates representing
whole shares of Pinnacle Common Stock issued in consideration therefor upon
the surrender of such Common Certificates in accordance with Section 2.2,
without any interest thereon. If, prior to the Effective Time, the
outstanding shares of Pinnacle Common Stock or IFC Common Stock shall have
been increased, decreased, changed into or exchanged for a different number
or kind of shares or securities as a result of a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse
stock split, or other similar change in capitalization, then an appropriate
and proportionate adjustment shall be made to the Exchange Ratio.
(c) At the Effective Time, all shares of IFC Common Stock that are owned
by IFC as treasury stock and all shares of IFC Common Stock that are owned,
directly or indirectly, by IFC or Pinnacle or any of their respective
wholly-owned Subsidiaries (other than shares of IFC Common Stock held,
directly or indirectly, in trust accounts, managed accounts and the like or
otherwise held in a fiduciary capacity that are beneficially owned by third
parties (any such shares, and shares of Pinnacle Common Stock which are
similarly held, whether held directly or indirectly by IFC or Pinnacle, as
the case may be, being referred to herein as "Trust Account Shares") and
other than any shares of IFC Common Stock held by IFC or Pinnacle or any of
their respective Subsidiaries in respect of a debt previously contracted
(any such shares of IFC Common Stock, and shares of Pinnacle Common Stock
which are similarly held, whether held directly or indirectly by IFC or
Pinnacle or any of their respective Subsidiaries, being referred to herein
as "DPC Shares") and as set forth in the IFC Disclosure Schedule) shall be
cancelled and shall cease to exist and no stock of Pinnacle or other
consideration shall be delivered in exchange therefor.
1.5 PINNACLE COMMON STOCK. At and after the Effective Time, each share of
Pinnacle Common Stock issued and outstanding immediately prior to the Closing
Date shall remain an issued and outstanding share of common stock of the
Surviving Corporation and shall not be affected by the Merger. All shares of
Pinnacle Common Stock that are owned by IFC or any of its wholly-owned
Subsidiaries (other than Trust Account Shares and DPC Shares) shall become
treasury stock of Pinnacle.
1.6 OPTIONS.
(a) At the Effective Time, each option granted by IFC to purchase shares of
IFC Common Stock which is outstanding and unexercised immediately prior thereto
(excluding any and all IFC Rights (as hereinafter defined), all of which shall
have been redeemed, and thereby extinguished, terminated and cancelled without
any right of exercise, prior to the Effective Time) shall cease to represent a
right to acquire shares of IFC Common Stock and shall be converted automatically
into an option to purchase shares of Pinnacle Common Stock in an amount and at
an exercise price determined as provided below
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(and subject to the terms of the IFC benefit plans under which they were issued
(collectively, the "IFC Stock Plans") and the agreements evidencing grants
thereunder):
(i) The number of shares of Pinnacle Common Stock to be subject to the
new option shall be equal to the number of shares of IFC Common Stock
subject to the original option; and
(ii) The exercise price per share of Pinnacle Common Stock under the new
option shall be equal to the exercise price per share of IFC Common Stock
under the original option.
The adjustment provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code")) shall be and is intended to be effected in a manner
which is consistent with Section 424(a) of the Code. The duration and other
terms of the new option shall be the same as the original option except that all
references to IFC shall be deemed to be references to Pinnacle.
(b) At the Effective Time, each option granted by Pinnacle to purchase
shares of Pinnacle Common Stock which is outstanding and unexercised immediately
prior thereto shall continue to represent a right to acquire shares of Pinnacle
Common Stock and shall remain an issued and outstanding option to purchase from
the Surviving Corporation shares of Pinnacle Common Stock in the same amount and
at the same exercise price subject to the terms of the Pinnacle benefit plans
under which they were issued (collectively, the "Pinnacle Stock Plans") and the
agreements evidencing grants thereunder, and shall not be affected by the
Merger.
1.7 ARTICLES OF INCORPORATION. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Articles of Incorporation of Pinnacle
shall be the Articles of Incorporation of the Surviving Corporation, until
thereafter amended in accordance with applicable law.
1.8 BYLAWS. Subject to the terms and conditions of this Agreement, at the
Effective Time, the Bylaws of Pinnacle, with appropriate amendments to
incorporate the provisions of Section 1.11 of this Agreement, shall be the
Bylaws of the Surviving Corporation until thereafter amended in accordance with
applicable law.
1.9 TAX CONSEQUENCES; ACCOUNTING TREATMENT. It is intended that (i) the
Merger shall constitute a reorganization within the meaning of Section
368(a)(i)(A) of the Code, (ii) this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code, and (iii) the
Merger shall qualify for "pooling of interests" accounting treatment under
Accounting Principles Board Opinion No. 16 and SEC Accounting Series Releases
130 and 135, as amended.
1.10 MANAGEMENT. At the Effective Time, Mr. Richard L. Schanze shall be
the Chairman of the Board and the Chief Executive Officer of the Surviving
Corporation, and Mr. Donald A. Lesch shall be the Vice Chairman, President and
Chief Operating Officer of the Surviving Corporation.
1.11 BOARD OF DIRECTORS. At the Effective Time, the Board of Directors of
the Surviving Corporation shall consist of ten (10) persons, with Mr. Schanze,
as well as Mr. Arnold L. Weaver and three (3) other persons, to be named as
directors of the Surviving Corporation on behalf of the Board of Directors of
Pinnacle, and with Mr. Lesch, as well as Mr. Howard Silverman and three (3)
other persons, to be named as directors of the Surviving Corporation on behalf
of the Board of Directors of IFC. Under the terms of the Standstill Agreement
dated as of December 1, 1995, between Pinnacle and Mr. Cyrus A. Ansary, Pinnacle
has certain obligations to nominate Mr. Ansary for election as a director of
Pinnacle. In the event that Pinnacle, as the Surviving Corporation, becomes
obligated to nominate Mr. Ansary as a director of the Surviving Corporation,
then the Board of Directors shall be increased in size to a total of twelve (12)
persons, and Mr. Ansary shall be nominated as a director of the Surviving
Corporation pursuant to the terms of the Standstill Agreement dated as of
December 1, 1995, between Pinnacle and Mr. Ansary, and the Chairman shall
nominate for approval by the Board of Directors a twelfth person as a director
of the Surviving Corporation. Whenever the Board of Directors is comprised of
ten (10) or fewer persons, action
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<PAGE>
of the Board within the meaning of Section 523 of the MBCA, and for all other
purposes, shall require the favorable vote of six (6) or more of the directors,
and whenever the Board of Directors is comprised of eleven (11) or twelve (12)
persons, action of the Board within the meaning of Section 523 of the MBCA, and
for all other purposes, shall require the favorable vote of seven (7) or more of
the directors.
1.12 HEADQUARTERS OF SURVIVING CORPORATION. At the Effective Time, the
headquarters and principal executive offices of the Surviving Corporation shall
be located in Valparaiso, Indiana.
1.13 BANK MERGER. At the Bank Merger Effective Time (as hereinafter
defined), Indiana Federal Bank for Savings, a federal savings bank ("IndFed
Bank"), the wholly-owned subsidiary of IFC, shall be merged (the "Bank Merger")
with and into Pinnacle Bank, a Michigan banking corporation ("Pinnacle Bank"),
the wholly-owned subsidiary of Pinnacle, pursuant to the terms and conditions
set forth herein and in the Agreement and Plan of Merger and Consolidation
substantially in the form attached hereto as Exhibit C (the "Bank Merger
Agreement"). Upon consummation of the Bank Merger, the separate existence of
IndFed Bank shall cease, and Pinnacle Bank shall continue as the surviving
institution of the Bank Merger. The name of Pinnacle Bank, as the surviving
institution of the Bank Merger, shall be "Pinnacle Bank". From and after the
Bank Merger Effective Time (as hereinafter defined), Pinnacle Bank as the
surviving institution of the Bank Merger shall possess all of the properties and
rights and be subject to all of the liabilities and obligations of Pinnacle Bank
and IndFed Bank. The Bank Merger shall become effective at the time the Bank
Merger Agreement for such merger is endorsed and declared effective by the
Financial Institutions Bureau of the State of Michigan (the "Bank Merger
Effective Time"). The parties shall cause the Bank Merger to become effective as
soon as practical following the Merger. At the Bank Merger Effective Time:
(a) each share of IndFed Bank common stock issued and outstanding
immediately prior thereto shall, by virtue of the Bank Merger, be cancelled.
No new shares of the capital stock or other securities or obligations of
IndFed Bank shall be issued or be deemed issued with respect to or in
exchange for such cancelled shares, and such cancelled shares of common
stock of IndFed Bank shall not be converted into any shares or other
securities or obligations of any other entity;
(b) each share of Pinnacle Bank common stock issued and outstanding
immediately prior thereto shall remain an issued and outstanding share of
common stock of Pinnacle Bank as the surviving institution and shall not be
affected by the Bank Merger;
(c) the charter and bylaws of Pinnacle Bank, as then in effect, shall be
the Charter and Bylaws of Pinnacle Bank as the surviving institution of the
Bank Merger, and may thereafter be amended in accordance with applicable
law; and
(d) the directors of Pinnacle Bank as the surviving institution
following the Bank Merger shall consist of eighteen (18) persons, with nine
(9) persons to be named as directors by the Board of Directors of Pinnacle
Bank and nine (9) persons to be named as directors by the Board of Directors
of IndFed Bank; and the executive officers of Pinnacle Bank as the surviving
institution following the Bank Merger shall be those appointed by the Board
of Directors of the surviving institution upon consummation of the Bank
Merger, on the basis of recommendations made by Mr. Schanze, as the Chairman
of the parent Surviving Corporation, Mr. Lesch, as the Vice Chairman of the
parent Surviving Corporation, and an outside consulting service to be
engaged and charged with reviewing and evaluating the qualifications of
candidates.
ARTICLE II
EXCHANGE OF SHARES
2.1 PINNACLE TO MAKE SHARES AVAILABLE. At or prior to the Effective Time,
Pinnacle shall deposit, or shall cause to be deposited, with Harris Trust and
Savings Bank, Chicago, Illinois, or another bank or trust company reasonably
acceptable to each of Pinnacle and IFC (the "Exchange Agent"), for the benefit
of
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the holders of Common Certificates, for exchange in accordance with this Article
II, certificates representing the shares of Pinnacle Common Stock (such
certificates for shares of Pinnacle Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") to be issued pursuant to Section 1.4 and Section 2.2(a) in
exchange for outstanding shares of IFC Common Stock.
2.2 EXCHANGE OF SHARES.
(a) As soon as practicable after the Effective Time, and in no event later
than five (5) business days thereafter, the Exchange Agent shall mail to each
holder of record of one or more Common Certificates a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Common Certificates shall pass, only upon delivery of the Common
Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the Common Certificates in exchange for certificates representing
the shares of Pinnacle Common Stock into which the shares of IFC Common Stock
represented by such Common Certificate or Common Certificates shall have been
converted pursuant to this Agreement. Upon proper surrender of a Common
Certificate for exchange and cancellation to the Exchange Agent, together with
such properly completed letter of transmittal, duly executed, the holder of such
Common Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Pinnacle Common Stock to
which such holder of IFC Common Stock shall have become entitled pursuant to the
provisions of Article I, and the Common Certificate so surrendered shall
forthwith be cancelled. No interest will be paid or accrued on any unpaid
dividends and distributions payable to holders of Common Certificates.
(b) No dividends or other distributions declared with respect to Pinnacle
Common Stock with a record date following the Effective Time shall be paid to
the holder of any unsurrendered Common Certificate until the holder thereof
shall surrender such Common Certificate in accordance with this Article II.
(c) If any certificate representing shares of Pinnacle Common Stock is to be
issued in a name other than that in which the Common Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the Common Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper
form for transfer, and that the person requesting such exchange shall pay to the
Exchange Agent in advance any transfer or other taxes required by reason of the
issuance of a certificate representing shares of Pinnacle Common Stock in any
name other than that of the registered holder of the Common Certificate
surrendered, or required for any other reason, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of IFC of shares of IFC Common Stock which were issued and
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Common Certificates representing such shares are presented for transfer to
the Exchange Agent, they shall be cancelled and exchanged for certificates
representing shares of Pinnacle Common Stock as provided in this Article II.
(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Pinnacle Common Stock
shall be issued upon the surrender for exchange of Common Certificates.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of IFC for 12 months after the Effective Time shall be paid to
Pinnacle. Any stockholders of IFC who have not theretofore complied with this
Article II shall thereafter look only to Pinnacle for payment of the shares of
Pinnacle Common Stock and any unpaid dividends and distributions on the Pinnacle
Common Stock deliverable in respect of each share of IFC Common Stock such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon. Notwithstanding the foregoing, none of IFC,
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Pinnacle, the Exchange Agent or any other person shall be liable to any former
holder of shares of IFC Common Stock for any amount delivered in good faith to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(g) In the event any Common Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Common Certificate to be lost, stolen or destroyed and, if reasonably
required by Pinnacle or the Exchange Agent, the posting by such person of a bond
in such amount as Pinnacle may determine is reasonably necessary as indemnity
against any claim that may be made against it with respect to such Common
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Common Certificate the shares of Pinnacle Common Stock deliverable in
respect thereof pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PINNACLE
Except as disclosed in the Pinnacle disclosure schedule delivered to IFC
concurrently herewith (the "Pinnacle Disclosure Schedule"), Pinnacle hereby
represents and warrants to IFC as follows:
3.1 CORPORATE ORGANIZATION.
(a) Pinnacle is a corporation duly organized, validly existing and in good
standing under the laws of the State of Michigan. Pinnacle has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted, and is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect on Pinnacle. As used in this Agreement, the term
"Material Adverse Effect" means, with respect to IFC, Pinnacle or the Surviving
Corporation, as the case may be, a material adverse effect on the business,
results of operations, financial condition, or (insofar as they can reasonably
be foreseen) prospects of such party and its Subsidiaries taken as a whole,
excluding for this purpose only, however, the payment and/or incurrence of (i)
the one-time special assessment on institutions holding deposits subject to
assessment by the Savings Association Insurance Fund ("SAIF") pursuant to The
Deposit Insurance Funds Act of 1996 ("Funds Act") intended to increase SAIF's
net worth as of October 1, 1996 to 1.25 percent of SAIF-insured deposits, and
(ii) transactional expenses by IFC or Pinnacle in connection with the Merger, to
the extent having such an effect. As used in this Agreement, the word
"Subsidiary" when used with respect to any party means any bank, savings and
loan institution, corporation, partnership, limited liability company, or other
organization, whether incorporated or unincorporated, which is consolidated with
such party for financial reporting purposes. Pinnacle is duly registered as a
bank holding company under the Bank Holding Company Act of 1956, as amended (the
"BHC Act") and as a savings and loan holding company under the Home Owners' Loan
Act ("HOLA"). True and complete copies of the Articles of Incorporation and
Bylaws of Pinnacle, as in effect as of the date of this Agreement, have
previously been made available by Pinnacle to IFC.
(b) Each Pinnacle Subsidiary (i) is duly organized and validly existing as a
bank, savings and loan institution, corporation, partnership or limited
liability company under the laws of its jurisdiction of organization, (ii) is
duly qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse Effect on Pinnacle, and
(iii) has all requisite corporate power and authority to own or lease its
properties and assets and to carry on its business as now conducted.
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(c) The minute books of Pinnacle accurately reflect in all material respects
all corporate actions held or taken since January 1, 1994 of its stockholders
and Board of Directors (including committees of the Board of Directors of
Pinnacle).
3.2 CAPITALIZATION.
(a) The authorized capital stock of Pinnacle consists of (i) 15,000,000
shares of Pinnacle Common Stock, of which as of November 11, 1996, 5,976,548
shares were issued and outstanding and no shares were held in treasury. All of
the issued and outstanding shares of Pinnacle Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. As of the date of this Agreement, except pursuant to the terms of the
Pinnacle Option Agreement and the Pinnacle Stock Plans, Pinnacle does not have
and is not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of Pinnacle Common Stock or any other equity securities of
Pinnacle or any securities representing the right to purchase or otherwise
receive any shares of Pinnacle Common Stock or any other equity securities of
Pinnacle. As of November 11, 1996, no shares of Pinnacle Common Stock were
reserved for issuance, except for (i) 496,261 shares reserved for issuance upon
the exercise of stock options pursuant to the Pinnacle Stock Plans. Since
January 1, 1996, Pinnacle has not issued any shares of Pinnacle Common Stock or
other equity securities of Pinnacle, or any securities convertible into or
exercisable for any shares of Pinnacle Common Stock or other equity securities
of Pinnacle, other than pursuant to the exercise of employee stock options
granted prior to such date. The shares of Pinnacle Common Stock to be issued
pursuant to the Merger will be duly authorized and validly issued and, at the
Effective Time, all such shares will be fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof.
(b) Pinnacle owns, directly or indirectly, all of the issued and outstanding
shares of capital stock of each of the Pinnacle Subsidiaries, free and clear of
any liens, pledges, charges, encumbrances and security interests whatsoever
("Liens"), and all of such shares are duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. No Pinnacle Subsidiary has or is
bound by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of capital stock or any other equity security of such Subsidiary or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of such Subsidiary.
3.3 AUTHORITY; NO VIOLATION.
(a) Pinnacle has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of Pinnacle. The Board of Directors of Pinnacle has directed
that this Agreement and the transactions contemplated hereby be submitted to
Pinnacle's stockholders for approval at a meeting of such stockholders and,
except for the adoption of this Agreement by the affirmative vote of the holders
of a majority of the outstanding shares of Pinnacle Common Stock, no other
corporate proceedings on the part of Pinnacle are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Pinnacle and (assuming due
authorization, execution and delivery by IFC) constitutes a valid and binding
obligation of Pinnacle, enforceable against Pinnacle in accordance with its
terms.
(b) Neither the execution and delivery of this Agreement by Pinnacle nor the
consummation by Pinnacle of the transactions contemplated hereby, nor compliance
by Pinnacle with any of the terms or provisions hereof, will (i) violate any
provision of the Articles of Incorporation or Bylaws of Pinnacle or (ii)
assuming that the consents and approvals referred to in Section 3.4 are duly
obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Pinnacle or any of its
Subsidiaries or any of their respective properties or assets, or (y) violate,
conflict with, result in
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a breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of Pinnacle or any of its Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Pinnacle or
any of its Subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected, except (in the case of clause (y)
above) for such violations, conflicts, breaches or defaults which, either
individually or in the aggregate, will not have or be reasonably likely to have
a Material Adverse Effect on Pinnacle or the Surviving Corporation.
3.4 CONSENTS AND APPROVALS. Except for (i) the filing of applications and
notices, as applicable, with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the BHC Act and approval of such
applications and notices, (ii) the filing of any required applications with the
Office of Thrift Supervision (the "OTS"), (iii) the filing of any required
applications or notices with any state or foreign agencies and approval of such
applications and notices (the "State Approvals"), (iv) the filing with the
Securities and Exchange Commission (the "SEC") of a joint proxy statement in
definitive form relating to the meetings of Pinnacle's and IFC's stockholders to
be held in connection with this Agreement and the transactions contemplated
hereby (the "Joint Proxy Statement") and the registration statement on Form S-4
(the "S-4") in which the Joint Proxy Statement will be included as a prospectus,
(v) the filing of Certificates of Merger with the appropriate authorities of the
State of Michigan pursuant to the MBCA and with the appropriate officials of the
State of Delaware pursuant to the DGCL, (vi) any notices to or filings with the
Small Business Administration ("SBA"), (vii) any consent, authorizations,
approvals, filings or exemptions in connection with compliance with the
applicable provisions of federal and state securities laws relating to the
regulation of broker-dealers or investment advisers, and federal commodities
laws relating to the regulation of futures commission merchants and the rules
and regulations thereunder and of any applicable industry self-regulatory
organization ("SRO"), and the rules of NASDAQ, or which are required under
consumer finance, mortgage banking and other similar laws, (viii) such filings
and approvals as are required to be made or obtained under the securities or
"Blue Sky" laws of various states in connection with the issuance of the shares
of Pinnacle Common Stock pursuant to this Agreement, and (ix) the approval of
this Agreement by the requisite vote of the stockholders of Pinnacle and IFC, no
consents or approvals of or filings or registrations with any court,
administrative agency or commission or other governmental authority or
instrumentality (each a "Governmental Entity") or with any third party are
necessary in connection with (A) the execution and delivery by Pinnacle of this
Agreement and (B) the consummation by Pinnacle of the Merger and the other
transactions contemplated hereby.
3.5 REPORTS. Pinnacle and each of its Subsidiaries have timely filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since January 1,
1994 with (i) the Federal Reserve Board, (ii) the Federal Deposit Insurance
Corporation, (iii) any state regulatory authority (each a "State Regulator"),
(iv) the Office of the Comptroller of the Currency (the "OCC"), (v) the OTS,
(vi) the SEC and (vii) any SRO (collectively "Regulatory Agencies"), and all
other reports and statements required to be filed by them since January 1, 1994,
including, without limitation, any report or statement required to be filed
pursuant to the laws, rules or regulations of the United States, any state, or
any Regulatory Agency and have paid all fees and assessments due and payable in
connection therewith, except where the failure to file such report, registration
or statement or to pay such fees and assessments, either individually or in the
aggregate, will not have a Material Adverse Effect on Pinnacle. Except for
normal examinations conducted by a Regulatory Agency in the regular course of
the business of Pinnacle and its Subsidiaries, no Regulatory Agency has
initiated any proceeding or, to the best knowledge of Pinnacle, investigation
into the business or operations of Pinnacle or any of its Subsidiaries since
January 1, 1994, except where such proceedings or investigation are not likely,
either individually or in the aggregate, to have a Material Adverse Effect on
Pinnacle. There is no unresolved violation, criticism, or exception by any
Regulatory Agency with respect
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to any report or statement relating to any examinations of Pinnacle or any of
its Subsidiaries which, in the reasonable judgment of Pinnacle, is likely,
either individually or in the aggregate, to have a Material Adverse Effect on
Pinnacle.
3.6 FINANCIAL STATEMENTS. Pinnacle has previously made available to IFC
copies of (a) the consolidated balance sheets of Pinnacle and its Subsidiaries
as of December 31, for the fiscal years 1994 and 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the fiscal years 1993 through 1995, inclusive, as reported in
Pinnacle's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 filed with the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), in each case accompanied by the audit report of KPMG Peat
Marwick LLP, independent public accountants with respect to Pinnacle, and (b)
the unaudited consolidated balance sheet of Pinnacle and its Subsidiaries as of
June 30, 1996 and the related unaudited consolidated statements of income, cash
flows and changes in stockholders' equity for the six-month period then ended as
reported in Pinnacle's Quarterly Report on Form 10-Q for the period ended June
30, 1996 filed with the SEC under the Exchange Act (the "Pinnacle June 30, 1996
Form 10-Q"). The December 31, 1995 consolidated balance sheet of Pinnacle
(including the related notes, where applicable) fairly presents the consolidated
financial position of Pinnacle and its Subsidiaries as of the date thereof, and
the other financial statements referred to in this Section 3.6 (including the
related notes, where applicable) fairly present (subject, in the case of the
unaudited statements, to recurring audit adjustments normal in nature and
amount) the results of the consolidated operations and changes in stockholders'
equity and consolidated financial position of Pinnacle and its Subsidiaries for
the respective fiscal periods or as of the respective dates therein set forth;
each of such statements (including the related notes, where applicable) comply
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto; and each of
such statements (including the related notes, where applicable) has been
prepared in all material respects in accordance with generally accepted
accounting principles ("GAAP") consistently applied during the periods involved,
except, in each case, as indicated in such statements or in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-Q. The books
and records of Pinnacle and its Subsidiaries have been, and are being,
maintained in all material respects in accordance with GAAP and any other
applicable legal and accounting requirements and reflect only actual
transactions.
3.7 BROKER'S FEES. Neither Pinnacle nor any Pinnacle Subsidiary nor any of
their respective officers or directors has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with the Merger or related transactions contemplated by this
Agreement or the Option Agreements, other than The Chicago Corporation (a copy
of which engagement agreement has been disclosed by Pinnacle to IFC) whose fees,
commissions and expenses shall be paid by Pinnacle.
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as publicly disclosed in Pinnacle Reports (as defined in Section
3.12) filed prior to the date hereof, since December 31, 1995, (i) Pinnacle and
its Subsidiaries taken as a whole have not incurred any material liability,
except in the ordinary course of their business, and (ii) no event has occurred
which has had, individually or in the aggregate, a Material Adverse Effect on
Pinnacle or the Surviving Corporation.
(b) Except as publicly disclosed in Pinnacle Reports filed prior to the date
hereof, since December 31, 1995, Pinnacle and its Subsidiaries have carried on
their respective businesses in all material respects in the ordinary and usual
course.
(c) Since December 31, 1995, neither Pinnacle nor any of its Subsidiaries
has (i) except for such actions as are in the ordinary course of business
consistent with past practice or except as required by applicable law, (A)
increased the wages, salaries, compensation, pension, or other fringe benefits
or perquisites payable to any executive officer, employee, or director from the
amount thereof in effect as of December 31, 1995, or (B) granted any severance
or termination pay, entered into any contract to make or grant any severance or
termination pay, or paid any bonuses in excess of Pinnacle's 1995 salary and
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employee benefits expenses, or (ii) suffered any strike, work stoppage,
slowdown, or other labor disturbance which, in the reasonable judgment of
Pinnacle, is likely, either individually or in the aggregate, to have a Material
Adverse Effect on Pinnacle.
3.9 LEGAL PROCEEDINGS.
(a) Neither Pinnacle nor any of its Subsidiaries is a party to any, and
there are no pending or, to the best of Pinnacle's knowledge, threatened,
material legal, administrative, arbitral or other proceedings, claims, actions
or governmental or regulatory investigations of any nature against Pinnacle or
any of its Subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Agreement or the Pinnacle Option Agreement as
to which there is a reasonable probability of an adverse determination and
which, if adversely determined, would, individually or in the aggregate, have a
Material Adverse Effect on Pinnacle.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction (other than those that apply to similarly situated bank holding
companies, savings and loan holding companies banks, or savings institutions)
imposed upon Pinnacle, any of its Subsidiaries or the assets of Pinnacle or any
of its Subsidiaries which has had, or might reasonably be expected to have, a
Material Adverse Effect on Pinnacle.
3.10 TAXES AND TAX RETURNS.
(a) Each of Pinnacle and its Subsidiaries has duly filed all federal, state,
county, foreign and, to the best of Pinnacle's knowledge, local information
returns and tax returns required to be filed by it on or prior to the date
hereof (all such returns being accurate and complete in all material respects)
and has duly paid or made provisions for the payment of all Taxes (as defined in
Section 3.10(b)) and other governmental charges which have been incurred or are
due or claimed to be due from it by federal, state, county, foreign or local
taxing authorities on or prior to the date of this Agreement (including, without
limitation, if and to the extent applicable, those due in respect of its
properties, income, business, capital stock, deposits, franchises, licenses,
sales and payrolls) other than (i) Taxes or other charges which are not yet
delinquent or are being contested in good faith and have not been finally
determined, or (ii) information returns, tax returns, Taxes or other
governmental charges the failure to file, pay or make provision for, either
individually or in the aggregate, are not likely, in the reasonable judgment of
Pinnacle, to have a Material Adverse Effect on Pinnacle. The income tax returns
of Pinnacle and its Subsidiaries have been examined by the Internal Revenue
Service (the "IRS") and any liability with respect thereto has been satisfied
for all years to and including 1993, and either no material deficiencies were
asserted as a result of such examination for which Pinnacle does not have
adequate reserves or all such deficiencies were satisfied. To the best of
Pinnacle's knowledge, there are no material disputes pending, or claims asserted
for, Taxes or assessments upon Pinnacle or any of its Subsidiaries for which
Pinnacle does not have adequate reserves, nor has Pinnacle or any of its
Subsidiaries given any currently effective waivers extending the statutory
period of limitation applicable to any federal, state, county or local income
tax return for any period. In addition, (A) proper and accurate amounts have
been withheld by Pinnacle and its Subsidiaries from their employees for all
prior periods in compliance in all material respects with the tax withholding
provisions of applicable federal, state and local laws, except where failure to
do so would not have a Material Adverse Effect on Pinnacle, (B) federal, state,
county and local returns which are accurate and complete in all material
respects have been filed by Pinnacle and its Subsidiaries for all periods for
which returns were due with respect to income tax withholding, Social Security
and unemployment taxes, except where failure to do so would not have a Material
Adverse Effect on Pinnacle, (C) the amounts shown on such federal, state, local
or county returns to be due and payable have been paid in full or adequate
provision therefor has been included by Pinnacle in its consolidated financial
statements as of December 31, 1995, except where
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ANNEX A
CB BANCORP, INC.
ANNUAL REPORT TO SECURITYHOLDERS
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
<PAGE>
CB BANCORP, INC.
1996 ANNUAL REPORT
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
1996 ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders................................................................ 1
Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... 2
Summary of Selected Financial Data.................................................... 12
Average Balance Sheets................................................................ 13
Rate/Volume Analysis.................................................................. 14
Report of Independent Auditors........................................................ 15
Consolidated Balance Sheets........................................................... 16
Consolidated Statements of Income..................................................... 17
Consolidated Statements of Changes in Shareholders' Equity............................ 18
Consolidated Statements of Cash Flows................................................. 19
Notes to Consolidated Financial Statements............................................ 21
Directors and Officers................................................................ 48
Shareholder Information............................................................... 49
</TABLE>
<PAGE>
To Our Shareholders:
On behalf of your board of directors, officers and employees, it is my
pleasure to report to you on your Company's performance this past fiscal year.
Net income for the year ended March 31, 1996 was $2,458,000. The Company
achieved a 1.37% return on average assets and a 13.98% return on average
stockholder equity.
In line with our forecast, fiscal 1996 was a year of declining interest
rates. These lower interest rates provided the Company with increased earnings
opportunities as home mortgage demand increased significantly. Activity within
the Company's Mortgage Loan Reverse Repurchase Program was more than 68% greater
than that of the previous year. This increased activity as well as the Company's
expanded portfolio lending, together with an improved interest rate spread, were
major factors that enabled the Company to achieve record earnings for the year.
As planned, the Company continues its share repurchase activity. During
fiscal 1996 a total of 38,495 of the Company's outstanding shares were
repurchased and became treasury shares. These shares were repurchased at an
average cost of $14.48 per share, or 83.9% of the current (as of June 10, 1995)
$17.25 market price. Also, during the past fiscal year 13,583 shares of treasury
stock were reissued when a like number of outstanding options were exercised.
The Company's board of directors approved a continuation of this stock
repurchase activity on May 24, 1996 at its regular meeting, authorizing
management to, over the next twelve month period, repurchase five percent of the
Company's then outstanding shares of stock - approximately 59,500 shares. This
continuing share repurchase program will be pursued over time and as market
conditions warrant as a means of further improving stockholder wealth.
I am pleased to inform you that the Company continues to expand its
financial services product mix and distribution capabilities. A new mortgage
banking operation, a division of the Company's wholly owned subsidiary,
Community Bank, FSB, was established in November 1995 and opened its first
office in Merrillville, Indiana in February 1996. Mortgage loans are now being
originated, closed and sold in the secondary market by this new Mortgage Banking
Division of Community Bank for clients in Indiana's Porter and Lake Counties and
surrounding environs.
Looking forward for fiscal 1997, we expect a rising interest rate
environment. Indeed, interest rates have already risen somewhat during the first
two months of the Company's current fiscal year. We expect this trend to
continue at a moderate pace throughout the remainder of the year. Our interest
rate forecast notwithstanding, we believe the Company is positioned to continue
to achieve positive financial results since we have significantly increased the
number of active participants in our Mortgage Loan Reverse Repurchase program.
We plan to further expand the Program's client base. It is our plan to maintain
our aggressive quality portfolio lending activity as well. Accordingly, we are
looking forward to an exciting and productive year.
We remain focused on our goal to earn more than 1% on our average assets and
to achieve an above average return on equity.
Thanks for your continued trust and confidence in CB Bancorp, Inc.
Joseph F. Heffernan
CHAIRMAN AND C.E.O.
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failure to do so would not have a Material Adverse Effect on Pinnacle and (D)
there are no Tax liens upon any property or assets of Pinnacle or its
Subsidiaries except liens for current taxes not yet due or liens that would not
have a Material Adverse Effect on Pinnacle. Neither Pinnacle nor any of its
Subsidiaries has been required to include in income any adjustment pursuant to
Section 481 of the Code by reason of a voluntary change in accounting method
initiated by Pinnacle or any of its Subsidiaries, and the IRS has not initiated
or proposed any such adjustment or change in accounting method, in either case
which has had or is reasonably likely to have a Material Adverse Effect on
Pinnacle. Except as set forth in the financial statements described in Section
3.6, neither Pinnacle nor any of its Subsidiaries has entered into a transaction
which is being accounted for as an installment obligation under Section 453 of
the Code, which would be reasonably likely to have a Material Adverse Effect on
Pinnacle.
(b) As used in this Agreement, the term "Tax" or "Taxes" means all federal,
state, county, local, and foreign income, excise, gross receipts, gross income,
ad valorem, profits, gains, property, capital, sales, transfer, use, payroll,
employment, severance, withholding, duties, intangibles, franchise, backup
withholding, and other taxes, charges, levies or like assessments together with
all penalties and additions to tax and interest thereon.
(c) Any amount that is reasonably likely to be received (whether in cash or
property or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer or director of Pinnacle
or any of its affiliates who is a "Disqualified Individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any employment,
severance or termination agreement, other compensation arrangement or Pinnacle
Benefit Plan (as defined in Section 3.11(a)) currently in effect should not be
characterized as an "excess parachute payment" (as such term is defined in
Section 280G(b)(1) of the Code).
(d) No disallowance of a deduction under Section 162(m) of the Code for
employee remuneration of any amount paid or payable by Pinnacle or any
Subsidiary of Pinnacle under any contract, plan, program, arrangement or
understanding would be reasonably likely to have a Material Adverse Effect on
Pinnacle.
3.11 EMPLOYEES.
(a) The Pinnacle Disclosure Schedule sets forth a true and complete list of
each material employee benefit plan, arrangement or agreement that is maintained
as of the date of this Agreement (the "Pinnacle Benefit Plans") by Pinnacle or
any of its Subsidiaries or by any affiliated trade or business, whether or not
incorporated (an "ERISA Affiliate"), all of which together with Pinnacle would
be deemed a "single employer" within the meaning of Section 4001 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Pinnacle has heretofore delivered to IFC true and complete copies of
each of the Pinnacle Benefit Plans and certain related documents, including, but
not limited to, (i) the actuarial report for such Pinnacle Benefit Plan (if
applicable) for each of the last two years, and (ii) the most recent
determination letter from the IRS (if applicable) for such Plan.
(c) (i) Each of the Pinnacle Benefit Plans has been operated and
administered in all material respects in compliance with applicable laws,
including, but not limited to, ERISA and the Code, (ii) each of the Pinnacle
Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of
the Code is so qualified, (iii) with respect to each Plan which is subject to
Title IV of ERISA, the present value of accrued benefits under such Plan, based
upon the actuarial assumptions used for funding purposes in the most recent
actuarial report prepared by such Plan's actuary with respect to such Plan, did
not, as of its latest valuation date, exceed the then current value of the
assets of such Plan allocable to such accrued benefits, (iv) no Pinnacle Benefit
Plan provides benefits, including, without limitation, death or medical benefits
(whether or not insured), with respect to current or former employees of
Pinnacle, its Subsidiaries or any ERISA Affiliate beyond their retirement or
other termination of service, other than (A) coverage mandated by applicable
law, (B) death benefits or retirement benefits under any "employee pension plan"
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(as such term is defined in Section 3(2) of ERISA), (C) deferred compensation
benefits accrued as liabilities on the books of Pinnacle, its Subsidiaries or
the ERISA Affiliates or (D) benefits the full cost of which is borne by the
current or former employee (or his beneficiary), (v) no material liability under
Title IV of ERISA has been incurred by Pinnacle, its Subsidiaries or any ERISA
Affiliate that has not been satisfied in full, and no condition exists that
presents a material risk to Pinnacle, its Subsidiaries or any ERISA Affiliate of
incurring a material liability thereunder, (vi) no Plan is a "multiemployer
pension plan" (as such term is defined in Section 3(37) of ERISA), (vii) all
contributions or other amounts payable by Pinnacle or its Subsidiaries as of the
Effective Time with respect to each Pinnacle Benefit Plan in respect of current
or prior plan years have been paid or accrued in accordance with GAAP and
Section 412 of the Code, (viii) neither Pinnacle, its Subsidiaries nor any ERISA
Affiliate has engaged in a transaction in connection with which Pinnacle, its
Subsidiaries or any ERISA Affiliate reasonably could be subject to either a
material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a
material tax imposed pursuant to Section 4975 or 4976 of the Code, and (ix) to
the best knowledge of Pinnacle there are no pending, threatened or anticipated
claims (other than routine claims for benefits) by, on behalf of or against any
of the Pinnacle Benefit Plans or any trusts related thereto which are, in the
reasonable judgment of Pinnacle, likely, either individually or in the
aggregate, to have a Material Adverse Effect on Pinnacle.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director or any
employee of Pinnacle or any of its affiliates from Pinnacle or any of its
affiliates under any Pinnacle Benefit Plan or otherwise, (ii) materially
increase any benefits otherwise payable under any Pinnacle Benefit Plan or (iii)
result in any acceleration of the time of payment or vesting of any such
benefits to any material extent.
3.12 SEC REPORTS. Pinnacle has previously made available to IFC an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1994 by
Pinnacle with the SEC pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act (the "Pinnacle Reports") and prior to the
date hereof and (b) communication mailed by Pinnacle to its stockholders since
January 1, 1994 and prior to the date hereof, and no such registration
statement, prospectus, report, schedule, proxy statement or communication
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except that information as of a later date shall be deemed to modify
information as of an earlier date. Since January 1, 1994, Pinnacle has timely
filed all Pinnacle Reports and other documents required to be filed by it under
the Securities Act and the Exchange Act, and, as of their respective dates, all
Pinnacle Reports complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
3.13 COMPLIANCE WITH APPLICABLE LAW. Pinnacle and each of its Subsidiaries
hold all material licenses, franchises, permits and authorizations necessary for
the lawful conduct of their respective businesses under and pursuant to all, and
have complied in all material respects with and are not in default in any
material respect under any, applicable law, statute, order, rule, regulation,
policy and/or guideline of any Governmental Entity relating to Pinnacle or any
of its Subsidiaries, except where the failure to hold such license, franchise,
permit or authorization or such noncompliance or default would not, individually
or in the aggregate, have a Material Adverse Effect on Pinnacle.
3.14 CERTAIN CONTRACTS.
(a) Neither Pinnacle nor any of its Subsidiaries is a party to or bound by
any contract, arrangement, commitment or understanding (whether written or oral)
(i) with respect to the employment of any directors, officers or employees other
than in the ordinary course of business consistent with past practice,
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(ii) which, upon the consummation of the transactions contemplated by this
Agreement will (either alone or upon the occurrence of any additional acts or
events) result in any payment (whether of severance pay or otherwise) becoming
due from IFC, Pinnacle, the Surviving Corporation, or any of their respective
Subsidiaries to any officer or employee thereof, (iii) which is a "material
contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the
SEC) to be performed after the date of this Agreement that has not been filed or
incorporated by reference in the Pinnacle Reports, (iv) which materially
restricts the conduct of any line of business by Pinnacle, (v) with or to a
labor union or guild (including any collective bargaining agreement) or (vi)
(including any stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan) any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement, or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement. Pinnacle has previously made
available to IFC true and correct copies of all employment and deferred
compensation agreements which are in writing and to which Pinnacle is a party.
Each contract, arrangement, commitment or understanding of the type described in
this Section 3.14(a), whether or not set forth in the Pinnacle Disclosure
Schedule, is referred to herein as a "Pinnacle Contract", and neither Pinnacle
nor any of its Subsidiaries knows of, or has received notice of, any violation
of the above by any of the other parties thereto which, individually or in the
aggregate, would have a Material Adverse Effect on Pinnacle.
(b) (i) Each Pinnacle Contract is valid and binding on Pinnacle or any of
its Subsidiaries, as applicable, and in full force and effect, (ii) Pinnacle and
each of its Subsidiaries has in all material respects performed all obligations
required to be performed by it to date under each Pinnacle Contract, except
where such noncompliance, individually or in the aggregate, would not have a
Material Adverse Effect on Pinnacle, and (iii) no event or condition exists
which constitutes or, after notice or lapse of time or both, would constitute, a
material default on the part of Pinnacle or any of its Subsidiaries under any
such Pinnacle Contract, except where such default, individually or in the
aggregate, would not have a Material Adverse Effect on Pinnacle.
3.15 AGREEMENTS WITH REGULATORY AGENCIES. Neither Pinnacle nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has been since
January 1, 1994, a recipient of any supervisory letter from, or since January 1,
1994, has adopted any board resolutions at the request of any Regulatory Agency
or other Governmental Entity that currently restricts in any material respect
the conduct of its business or that in any material manner relates to its
capital adequacy, its credit policies, its management or its business (each,
whether or not set forth in the Pinnacle Disclosure Schedule, a "Pinnacle
Regulatory Agreement"), nor has Pinnacle or any of its Subsidiaries been advised
since January 1, 1994, by any Regulatory Agency or other Governmental Entity
that it is considering issuing or requesting any such Regulatory Agreement.
3.16 OTHER ACTIVITIES OF PINNACLE AND ITS SUBSIDIARIES.
(a) Neither Pinnacle nor any of its Subsidiaries that is neither a bank, a
bank operating subsidiary or a bank service corporation, directly or indirectly,
engages in any activity prohibited by the Federal Reserve Board or the OTS.
Without limiting the generality of the foregoing, any equity investment of
Pinnacle and each Subsidiary that is not a bank, a bank operating subsidiary or
a bank service corporation is not prohibited by the Federal Reserve Board or the
OTS.
(b) To Pinnacle's knowledge, each Pinnacle Subsidiary which is a federally
insured bank or savings institution (a "Pinnacle Bank Subsidiary") currently
performs all personal trust, corporate trust and other fiduciary activities
("Trust Activities") with requisite authority under applicable law of
Governmental Entities and in accordance in all material respects with the
agreed-upon terms of the agreements and instruments governing such Trust
Activities, sound fiduciary principles and applicable law and regulation
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(specifically including, but not limited to, Section 9 of Title 12 of the Code
of Federal Regulations); there is no investigation or inquiry by any
Governmental Entity pending, or to the knowledge of Pinnacle, threatened,
against or affecting Pinnacle, or any Significant Subsidiary thereof relating to
the compliance by Pinnacle or any such Significant Subsidiary (as such term is
defined in Rule 1-02(w) of Regulation S-X of the SEC) with sound fiduciary
principles and applicable regulations; and except where any such failure would
not have a Material Adverse Effect on Pinnacle, each employee of a Pinnacle Bank
Subsidiary had the authority to act in the capacity in which he or she acted
with respect to Trust Activities, in each case, in which such employee held
himself or herself out as a representative of a Pinnacle Bank Subsidiary; and
each Pinnacle Bank Subsidiary has established policies and procedures for the
purpose of complying with applicable laws of Governmental Entities relating to
Trust Activities, has followed such policies and procedures in all material
respects and has performed appropriate internal audit reviews of, and has
engaged independent accountants to perform audits of, Trust Activities, which
audits since January 1, 1994 have disclosed no material violations of applicable
laws of Governmental Entities or such policies and procedures.
3.17 INVESTMENT SECURITIES. Each of Pinnacle and its Subsidiaries has good
and marketable title to all securities held by it (except securities sold under
repurchase agreements or held in any fiduciary or agency capacity), free and
clear of any Lien, except to the extent such securities are pledged in the
ordinary course of business consistent with prudent banking practices to secure
obligations of Pinnacle or any of its Subsidiaries. Such securities are valued
on the books of Pinnacle in accordance with GAAP.
3.18 INTEREST RATE RISK MANAGEMENT INSTRUMENTS. All interest rate swaps,
caps, floors and option agreements and other interest rate risk management
arrangements, whether entered into for the account of Pinnacle or for the
account of a customer of Pinnacle or one of its Subsidiaries, were entered into
in the ordinary course of business and, to Pinnacle's knowledge, in accordance
with prudent banking practice and applicable rules, regulations and policies of
any Regulatory Authority and with counterparties believed to be financially
responsible at the time and are legal, valid and binding obligations of Pinnacle
or one of its Subsidiaries enforceable in accordance with their terms (except as
may be limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the rights of creditors generally and the availability of
equitable remedies), and are in full force and effect. Pinnacle and each of its
Subsidiaries have duly performed in all material respects all of their material
obligations thereunder to the extent that such obligations to perform have
accrued; and, to Pinnacle's knowledge, there are no material breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
3.19 UNDISCLOSED LIABILITIES. Except for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of Pinnacle
included in the Pinnacle June 30, 1996 Form 10-Q and for liabilities incurred in
the ordinary course of business consistent with past practice since June 30,
1996, neither Pinnacle nor any of its Subsidiaries has incurred any liability of
any nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due) that, either alone or when combined with all
similar liabilities, has had, or could reasonably be expected to have, a
Material Adverse Effect on Pinnacle.
3.20 ENVIRONMENTAL LIABILITY. Except as set forth in the Pinnacle
Disclosure Schedule, there are no legal, administrative, arbitral or other
proceedings, claims, actions, causes of action, private environmental
investigations or remediation activities or governmental investigations of any
nature seeking to impose, or that could reasonably be expected to result in the
imposition, on Pinnacle or any of the Pinnacle Subsidiaries of any liability or
obligation arising under common law or under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), pending or threatened against Pinnacle or any of
the Pinnacle Subsidiaries, which liability or obligation could reasonably be
expected to have a Material Adverse Effect on Pinnacle. To the knowledge of
Pinnacle, there is no reasonable basis for any such proceeding, claim, action or
governmental investigation that would impose any material liability or
obligation that could reasonably be expected to have a Material Adverse
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Effect on Pinnacle. Neither Pinnacle nor any of the Pinnacle Subsidiaries is
subject to any agreement, order, judgment, decree, letter or memorandum by or
with any court, governmental authority, regulatory agency or third party
imposing any material liability or obligation that could reasonably be expected
to have a Material Adverse Effect on Pinnacle.
3.21 STATE TAKEOVER LAWS. The Board of Directors of Pinnacle has approved
the transactions contemplated by this Agreement and the Option Agreements and
taken such action such that the provisions of Chapter 7A of the MBCA and any
other provisions of any state or local "takeover" law applicable to Pinnacle
will not apply to this Agreement or the Option Agreements or any of the
transactions contemplated hereby or thereby.
3.22 POOLING OF INTERESTS. Pinnacle has no reason to believe that the
Merger will not qualify as a "pooling of interests" for accounting purposes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF IFC
Except as disclosed in the IFC disclosure schedule delivered to Pinnacle
concurrently herewith (the "IFC Disclosure Schedule") IFC hereby represents and
warrants to Pinnacle as follows:
4.1 CORPORATE ORGANIZATION.
(a) IFC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. IFC has the corporate power
and authority to own or lease all of its properties and assets and to carry on
its business as it is now being conducted, and is duly licensed or qualified to
do business in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or leased
by it makes such licensing or qualification necessary, except where the failure
to be so licensed or qualified would not have a Material Adverse Effect on IFC.
IFC is duly registered as a savings and loan holding company under the HOLA.
True and complete copies of the Certificate of Incorporation and Bylaws of IFC,
as in effect as of the date of this Agreement, have previously been made
available by IFC to Pinnacle.
(b) Each IFC Subsidiary (i) is duly organized and validly existing as a
bank, savings and loan institution, corporation, partnership or limited
liability company under the laws of its jurisdiction of organization, (ii) is
duly qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse Effect on IFC, and
(iii) has all requisite corporate power and authority to own or lease its
properties and assets and to carry on its business as now conducted.
(c) The minute books of IFC accurately reflect in all material respects all
corporate actions held or taken since January 1, 1994 of its stockholders and
Board of Directors (including committees of the Board of Directors of IFC).
4.2 CAPITALIZATION.
(a) The authorized capital stock of IFC consists of (i) 5,000,000 shares of
serial preferred stock, par value $0.01 per share, none of which as of November
11, 1996 were issued or outstanding; and (ii) 10,000,000 shares of IFC Common
Stock, of which as of November 11, 1996, 4,751,131 shares were issued and
outstanding and 1,110,000 shares were held in treasury. All of the issued and
outstanding shares of IFC Common Stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. As of the date of this
Agreement, except pursuant to the terms of the IFC Option Agreement (as
hereinafter defined), the IFC Rights Agreement and the IFC Stock Plans, IFC does
not have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the
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purchase or issuance of any shares of IFC Common Stock or any other equity
securities of IFC or any securities representing the right to purchase or
otherwise receive any shares of IFC Common Stock or any other equity securities
of IFC. As of November 11, 1996, no shares of IFC Common Stock were reserved for
issuance, except for (i) 253,089 shares reserved for issuance upon the exercise
of stock options pursuant to the IFC Stock Plans, and (ii) shares reserved for
issuance pursuant to the IFC Rights Agreement. Since January 1, 1996, IFC has
not issued any shares of IFC Common Stock or other equity securities of IFC, or
any securities convertible into or exercisable for any shares of IFC Common
Stock or other equity securities of IFC, other than pursuant to the exercise of
employee stock options granted prior to such date.
(b) As of November 11, 1996, there are issued and outstanding up to
4,751,131 rights in respect of shares of IFC Common Stock (the "IFC Rights"),
subject to terms and conditions of the Stockholder Protection Rights Agreement
dated as of February 26, 1992, as amended by the Amendment to Stockholder
Protection Rights Agreement dated as of November 14, 1996 (the "IFC Rights
Agreement"), between IFC and Harris Trust and Savings Bank, as Rights Agent. As
of the date of this Agreement, the Separation Time (as defined in the IFC Rights
Agreement) has not occurred, the Amendment to Stockholder Protection Rights
Agreement dated as of November 14, 1996, has been entered into and is effective
and in full force and effect, the entering into of this Agreement and/or the IFC
Stock Option Agreement and/or the consummation of the transactions contemplated
hereby and/or thereby have been exempted from the application of the IFC Rights
Agreement and do not and will not cause a Separation Time to occur, and all IFC
Rights are redeemable by IFC at a cost to IFC of not more than $0.01 per each of
the shares of IFC Common Stock issued and outstanding.
(c) IFC owns, directly or indirectly, all of the issued and outstanding
shares of capital stock of each of the IFC Subsidiaries, free and clear of any
Liens, and all of such shares are duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. No IFC Subsidiary has or is bound
by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of capital stock or any other equity security of such Subsidiary or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of such Subsidiary.
4.3 AUTHORITY; NO VIOLATION.
(a) IFC has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of IFC. The Board of Directors of IFC has directed that this Agreement
and the transactions contemplated hereby be submitted to IFC's stockholders for
approval at a meeting of such stockholders and, except for the adoption of this
Agreement by the affirmative vote of the holders of a majority of the
outstanding shares of IFC Common Stock, no other corporate proceedings on the
part of IFC are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by IFC and (assuming due authorization, execution and
delivery by Pinnacle) constitutes a valid and binding obligation of IFC,
enforceable against IFC in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by IFC nor the
consummation by IFC of the transactions contemplated hereby, nor compliance by
IFC with any of the terms or provisions hereof, will (i) violate any provision
of the Certificate of Incorporation or Bylaws of IFC or (ii) assuming that the
consents and approvals referred to in Section 4.4 are duly obtained, (x) violate
any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to IFC or any of its Subsidiaries or any of their
respective properties or assets, or (y) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any
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Lien upon any of the respective properties or assets of IFC or any of its
Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which IFC or any of its Subsidiaries is a party, or
by which they or any of their respective properties or assets may be bound or
affected, except (in the case of clause (y) above) for such violations,
conflicts, breaches or defaults which, either individually or in the aggregate,
will not have or be reasonably likely to have a Material Adverse Effect on IFC
or the Surviving Corporation; provided, however, that prior to the date hereof,
IFC has secured a waiver of Harris Trust and Savings Bank under the loan,
security agreement and guaranty for the benefit of the IFC Employee Stock
Ownership Plan ("ESOP") so that this Agreement and the Merger shall not cause
any breach, default or acceleration under said IFC ESOP loan arrangement.
4.4 CONSENTS AND APPROVALS. Except for (i) the filing of applications and
notices, as applicable, with the Federal Reserve Board under the BHC Act and
approval of such applications and notices, (ii) the filing of any required
applications with the OTS, (iii) the filing of any required applications or
notices for, and the receipt of, the State Approvals, (iv) the filing with the
SEC of the Joint Proxy Statement and the S-4 in which the Joint Proxy Statement
will be included as a prospectus, (v) the filing of Certificates of Merger with
the appropriate authorities of the State of Michigan pursuant to the MBCA and
with the appropriate officials of the State of Delaware pursuant to the DGCL,
(vi) any notices to or filings with the SBA, (vii) any consent, authorizations,
approvals, filings or exemptions in connection with compliance with the
applicable provisions of federal and state securities laws relating to the
regulation of broker-dealers or investment advisers, and federal commodities
laws relating to the regulation of futures commission merchants and the rules
and regulations thereunder and of any applicable industry SRO, and the rules of
NASDAQ, or which are required under consumer finance, mortgage banking and other
similar laws, (viii) such filings and approvals as are required to be made or
obtained under the securities or "Blue Sky" laws of various states in connection
with the issuance of the shares of Pinnacle Common Stock pursuant to this
Agreement, and (ix) the approval of this Agreement by the requisite vote of the
stockholders of Pinnacle and IFC, no consents or approvals of or filings or
registrations with any Governmental Entity or with any third party are necessary
in connection with (A) the execution and delivery by IFC of this Agreement and
(B) the consummation by IFC of the Merger and the other transactions
contemplated hereby.
4.5 REPORTS. IFC and each of its Subsidiaries have timely filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since January 1,
1994 with any of the Regulatory Agencies, and all other reports and statements
required to be filed by them since January 1, 1994, including, without
limitation, any report or statement required to be filed pursuant to the laws,
rules or regulations of the United States, any state, or any Regulatory Agency
and have paid all fees and assessments due and payable in connection therewith,
except where the failure to file such report, registration or statement or to
pay such fees and assessments, either individually or in the aggregate, will not
have a Material Adverse Effect on IFC. Except for normal examinations conducted
by a Regulatory Agency in the regular course of the business of IFC and its
Subsidiaries, no Regulatory Agency has initiated any proceeding or, to the best
knowledge of IFC, investigation into the business or operations of IFC or any of
its Subsidiaries since January 1, 1994, except where such proceedings or
investigation are not likely, either individually or in the aggregate, to have a
Material Adverse Effect on IFC. There is no unresolved violation, criticism, or
exception by any Regulatory Agency with respect to any report or statement
relating to any examinations of IFC or any of its Subsidiaries which, in the
reasonable judgment of IFC, is likely, either individually or in the aggregate,
to have a Material Adverse Effect on IFC.
4.6 FINANCIAL STATEMENTS. IFC has previously made available to Pinnacle
copies of (a) the consolidated balance sheets of IFC and its Subsidiaries as of
December 31, for the fiscal years 1994 and 1995, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
fiscal years 1993 through 1995, inclusive, as reported in IFC's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 filed with the SEC under
the Exchange Act, in each case accompanied by the
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audit report of Ernst & Young LLP, independent public accountants with respect
to IFC, and (b) the unaudited consolidated balance sheet of IFC and its
Subsidiaries as of June 30, 1996 and the related unaudited consolidated
statements of income and cash flows for the six-month period then ended as
reported in IFC's Quarterly Report on Form 10-Q for the period ended June 30,
1996 filed with the SEC under the Exchange Act (the "IFC June 30, 1996 Form
10-Q"). The December 31, 1995 consolidated balance sheet of IFC (including the
related notes, where applicable) fairly presents the consolidated financial
position of IFC and its Subsidiaries as of the date thereof, and the other
financial statements referred to in this Section 4.6 (including the related
notes, where applicable) fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount) the
results of the consolidated operations and changes in stockholders' equity and
consolidated financial position of IFC and its Subsidiaries for the respective
fiscal periods or as of the respective dates therein set forth; each of such
statements (including the related notes, where applicable) comply in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto; and each of such
statements (including the related notes, where applicable) has been prepared in
all material respects in accordance with GAAP consistently applied during the
periods involved, except, in each case, as indicated in such statements or in
the notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q. The books and records of IFC and its Subsidiaries have been, and are
being, maintained in all material respects in accordance with GAAP and any other
applicable legal and accounting requirements and reflect only actual
transactions.
4.7 BROKER'S FEES. Neither IFC nor any IFC Subsidiary nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with the Merger or related transactions contemplated by this Agreement or the
Option Agreements, other than Sandler O'Neill & Partners, L.P. ("Sandler
O'Neill") (a copy of which engagement agreement has been disclosed by IFC to
Pinnacle) whose fees, commissions and expenses shall be paid by IFC.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as publicly disclosed in IFC Reports (as defined in Section 4.12)
filed prior to the date hereof, since December 31, 1995, (i) IFC and its
Subsidiaries taken as a whole have not incurred any material liability, except
in the ordinary course of their business, and (ii) no event has occurred which
has had, individually or in the aggregate, a Material Adverse Effect on IFC or
the Surviving Corporation.
(b) Except as publicly disclosed in IFC Reports filed prior to the date
hereof, since December 31, 1995, IFC and its Subsidiaries have carried on their
respective businesses in all material respects in the ordinary and usual course.
(c) Since December 31, 1995, neither IFC nor any of its Subsidiaries has (i)
except for such actions as are in the ordinary course of business consistent
with past practice or except as required by applicable law, (A) increased the
wages, salaries, compensation, pension, or other fringe benefits or perquisites
payable to any executive officer, employee, or director from the amount thereof
in effect as of December 31, 1995, or (B) granted any severance or termination
pay, entered into any contract to make or grant any severance or termination
pay, or paid any bonuses in excess of IFC's 1995 salary and employee benefits
expenses, or (ii) suffered any strike, work stoppage, slowdown, or other labor
disturbance which, in the reasonable judgment of IFC, is likely, either
individually or in the aggregate, to have a Material Adverse Effect on IFC.
4.9 LEGAL PROCEEDINGS.
(a) Neither IFC nor any of its Subsidiaries is a party to any, and there are
no pending or, to the best of IFC's knowledge, threatened, material legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature against IFC or any of its
Subsidiaries or challenging the validity or propriety of the transactions
contemplated by this Agreement or the IFC Option Agreement as to which there is
a reasonable probability of an adverse determination and which, if adversely
determined, would, individually or in the aggregate, have a Material Adverse
Effect on IFC.
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(b) There is no injunction, order, judgment, decree, or regulatory
restriction (other than those that apply to similarly situated bank holding
companies, savings and loan holding companies banks, or savings institutions)
imposed upon IFC, any of its Subsidiaries or the assets of IFC or any of its
Subsidiaries which has had, or might reasonably be expected to have, a Material
Adverse Effect on IFC.
4.10 TAXES AND TAX RETURNS.
(a) Each of IFC and its Subsidiaries has duly filed all federal, state,
county, foreign and, to the best of IFC's knowledge, local information returns
and tax returns required to be filed by it on or prior to the date hereof (all
such returns being accurate and complete in all material respects) and has duly
paid or made provisions for the payment of all Taxes and other governmental
charges which have been incurred or are due or claimed to be due from it by
federal, state, county, foreign or local taxing authorities on or prior to the
date of this Agreement (including, without limitation, if and to the extent
applicable, those due in respect of its properties, income, business, capital
stock, deposits, franchises, licenses, sales and payrolls) other than (i) Taxes
or other charges which are not yet delinquent or are being contested in good
faith and have not been finally determined, or (ii) information returns, tax
returns, Taxes or other governmental charges the failure to file, pay or make
provision for, either individually or in the aggregate, are not likely, in the
reasonable judgment of IFC, to have a Material Adverse Effect on IFC. The income
tax returns of IFC and its Subsidiaries have been examined by the IRS and any
liability with respect thereto has been satisfied for all years to and including
1993, and either no material deficiencies were asserted as a result of such
examination for which IFC does not have adequate reserves or all such
deficiencies were satisfied. To the best of IFC's knowledge, there are no
material disputes pending, or claims asserted for, Taxes or assessments upon IFC
or any of its Subsidiaries for which IFC does not have adequate reserves, nor
has IFC or any of its Subsidiaries given any currently effective waivers
extending the statutory period of limitation applicable to any federal, state,
county or local income tax return for any period. In addition, (A) proper and
accurate amounts have been withheld by IFC and its Subsidiaries from their
employees for all prior periods in compliance in all material respects with the
tax withholding provisions of applicable federal, state and local laws, except
where failure to do so would not have a Material Adverse Effect on IFC, (B)
federal, state, county and local returns which are accurate and complete in all
material respects have been filed by IFC and its Subsidiaries for all periods
for which returns were due with respect to income tax withholding, Social
Security and unemployment taxes, except where failure to do so would not have a
Material Adverse Effect on IFC, (C) the amounts shown on such federal, state,
local or county returns to be due and payable have been paid in full or adequate
provision therefor has been included by IFC in its consolidated financial
statements as of December 31, 1995, except where failure to do so would not have
a Material Adverse Effect on IFC and (D) there are no Tax liens upon any
property or assets of IFC or its Subsidiaries except liens for current taxes not
yet due or liens that would not have a Material Adverse Effect on IFC. Neither
IFC nor any of its Subsidiaries has been required to include in income any
adjustment pursuant to Section 481 of the Code by reason of a voluntary change
in accounting method initiated by IFC or any of its Subsidiaries, and the IRS
has not initiated or proposed any such adjustment or change in accounting
method, in either case which has had or is reasonably likely to have a Material
Adverse Effect on IFC. Except as set forth in the financial statements described
in Section 4.6, neither IFC nor any of its Subsidiaries has entered into a
transaction which is being accounted for as an installment obligation under
Section 453 of the Code, which would be reasonably likely to have a Material
Adverse Effect on IFC.
(b) Any amount that is reasonably likely to be received (whether in cash or
property or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer or director of IFC or
any of its affiliates who is a "Disqualified Individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any employment,
severance or termination agreement, other compensation arrangement or IFC
Benefit Plan (as defined in Section 4.11(a)) currently in effect should not be
characterized as an "excess parachute payment" (as such term is defined in
Section 280G(b)(1) of the Code).
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY'S BUSINESS
CB Bancorp, Inc. ("Company") is a unitary thrift holding company
headquartered in Michigan City, Indiana. Its wholly owned subsidiary, Community
Bank, A Federal Savings Bank, ("Bank") has been and continues to be in the
business of attracting retail deposits from the general public and investing
these deposits, together with funds generated from operations and borrowings,
primarily in one-to four-family residential mortgage loans and loans purchased
under agreements to resell and, to a lesser extent, commercial and consumer
loans, mortgage-backed securities, U.S. Government and agency securities and
other marketable securities.
The Bank also operates a wholly owned subsidiary, Community Financial
Services, Inc., ("Community Financial") which offers tax return preparation
services to individuals and small businesses as well as tax-deferred annuities
and life insurance products to customers of the Bank and the general public.
Community Financial is also the 100% owner of Community Brokerage Services,
Inc., a fully registered securities broker-dealer, which offers full service
brokerage services to the general public. Community Financial has a 99% limited
partner interest in Pedcor Investments-1994-XX, L.P. which was formed for the
construction, ownership and management of an 80 unit apartment project located
in LaPorte County. Terms of the partnership agreement allocate 99% of the
eligible tax credits and operating losses to the limited partner.
The Company's results are primarily based on the Bank's results. The Bank's
operating results are dependent primarily on net interest income, the difference
between interest income earned on loans, securities, mortgage-backed and related
securities and the Company's cost of funds (interest paid to its depositors and
interest paid for borrowed funds).
Operating results are also affected by the provision for loan losses,
noninterest income, and expense items. Noninterest income primarily includes
earnings of the Bank's wholly owned subsidiary, Community Financial, gains and
losses from sale of interest-earning assets, and foreclosed assets and fee
income, including fees earned under the Bank's Mortgage Loan Reverse Repurchase
Program ("Program"). Noninterest expenses principally consist of employee
compensation and benefits, occupancy and equipment expenses, federal deposit
insurance premiums and other administrative expenses. Factors that significantly
impact operating results include general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
Other than those discussed in this document, management is unaware of any
trends or uncertainties that will have or that are reasonably likely to have a
material effect on the liquidity, capital resources, or operations of the
issuer. In addition, management is unaware of any recommendations by regulatory
authorities which, if implemented, would have such an effect.
The Company operates out of the Bank's main office located at 126 E. Fourth
Street, Michigan City, Indiana. The Bank also conducts business out of its two
full service branch offices located at 3710 S. Franklin Street in Michigan City
and 801 Monroe Street, LaPorte, Indiana. The Bank has also established a loan
production/mortgage banking office in Merrillville, Indiana located at 701 E.
83rd Avenue, Merrillville, Indiana. The Bank's deposit-gathering base is
concentrated in the communities surrounding its offices while its lending base
extends throughout LaPorte and contiguous counties. Also, through its Program,
the Bank funds and temporarily invests in one- to four-family mortgages
originated in various states throughout the continental United States by the
Program's participants.
MORTGAGE LOAN REVERSE REPURCHASE PROGRAM
In the fiscal year 1991, the Company instituted the Mortgage Loan Reverse
Repurchase Program. Currently there are seventy-five active participants in the
Program of which the Company holds loans that were purchased under agreements to
resell. The Program is carried out pursuant to agreements with each
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participant which provide for the purchase at par (less certain fees paid to the
participant by the borrower) of whole mortgage loans by the company, at its
option, and the subsequent resale of such loans to the Participant (for transfer
to an end investor). Purchase money and refinance mortgage loans are generally
held no more than 90 days by the Company and typically are resold within 30
days. Construction loan mortgages acquired via the Program are held for the
duration of the construction loan period, typically for six months or longer. At
March 31, 1996, construction loan balances totaled $29.4 million and accounted
for 36.8% of the Company's total outstanding investment in the Program. The
Company records interest income on the loans based on a stated rate of interest
tied to the prime rate (as established from time to time by a major
Chicago-based financial institution) during the funding period, and not the
rates on individual loans, plus a fee (recorded as non-interest income)
collected from the Participant for each loan when resold. It is the Company's
policy to purchase under the Program only those loans that comply with accepted
secondary market underwriting standards and/or Community Bank's portfolio
underwriting criteria.
Based upon the current interest rate environment, management projects that
the Company's net interest margin will decline over the foreseeable future as
the Company's liabilities continue to reprice upwards. Management can make no
assurances with respect to the interest rate environment. The Company's Mortgage
Loan Reverse Repurchase Program has been and is a key contributor to the
Company's efforts to maintain a strong net interest margin. Management is aware
that a decline in Program activity would negatively impact the Company's
profitability.
FINANCIAL CONDITION
TOTAL ASSETS AT MARCH 31,
1996--$205.4 MILLION 1995--$143.3 MILLION
(REPRESENTS AN INCREASE OF $62.1 MILLION OR 43.3%)
THE YEAR TO YEAR INCREASE IN TOTAL ASSETS, WAS PRIMARILY ATTRIBUTABLE
TO GROWTH IN THE COMPANY'S MORTGAGE LOAN REPURCHASE PROGRAM AND
RETAIL LENDING PROGRAMS, AS FOLLOWS.
MORTGAGE LOAN REVERSE REPURCHASE
PROGRAM LOANS OUTSTANDING AT MARCH 31,
1996--$80.0 MILLION 1995--$25.2 MILLION
(REPRESENTS AN INCREASE OF $54.8 MILLION OR 217%)
INCREASE IS ATTRIBUTED TO BOTH LOWER MORTGAGE RATES RESULTING IN AN
INCREASE IN HOME MORTGAGE ORIGINATIONS AND REFINANCINGS FOR THE 1996
FISCAL YEAR AND AN INCREASE IN THE NUMBER OF MORTGAGE COMPANIES
PARTICIPATING IN THE PROGRAM. SINCE ITS INCEPTION, THE PROGRAM HAS
CAUSED THE LEVEL OF THE COMPANY'S ASSETS AND LIABILITIES TO FLUCTUATE
BETWEEN PERIODS.
LOANS RECEIVABLE AT MARCH 31,
1996--$92.6 MILLION 1995--$86.8 MILLION
(REPRESENTS AN INCREASE OF $5.8 MILLION OR 6.7%)
INCREASE PRIMARILY ATTRIBUTABLE TO AN INCREASE IN THE PURCHASE AND
ORIGINATION OF MULTI-FAMILY, COMMERCIAL MORTGAGE AND NON-MORTGAGE
LOANS.
SECURITIES PORTFOLIO AT MARCH 31,
1996--$9.0 MILLION 1995--$9.4 MILLION
(REPRESENTS A DECREASE OF $400,000 OR 4.26%)
THE PRIMARY OBJECTIVE OF THE COMPANY'S SECURITIES PORTFOLIO IS TO
CONTRIBUTE TO PROFITABILITY, BY PROVIDING A STABLE CASH FLOW OF
DEPENDABLE EARNINGS AND AVAILABLE-FOR-SALE SECURITIES WHICH PROVIDE A
STORE OF LIQUIDITY. THE SECURITIES PORTFOLIO CONSISTS OF U.S.
GOVERNMENT AGENCY SECURITIES, SHORT-TERM INVESTMENT GRADE CORPORATE
NOTES, MARKETABLE EQUITY SECURITIES AND FEDERAL
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HOME LOAN BANK STOCK. THE COMPANY ALSO HAS INVESTMENTS IN BOTH
VARIABLE AND FIXED RATE U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES TOTALING $10.2 MILLION AT MARCH 31, 1996 AND $10.7 MILLION
ON MARCH 31, 1995.
NON-PERFORMING ASSETS AT MARCH 31,
1996--$2,997,000 1995--$804,000
(REPRESENTS AN INCREASE OF $2.2 MILLION OR 272.8%)
INCREASE PRIMARILY ATTRIBUTABLE TO THE CLASSIFICATION OF $2.2 MILLION
OF LOANS AND LEASE PAPER AS IMPAIRED AS OF MARCH 31, 1996. LOAN LOSS
RESERVES AT MARCH 31, 1996 TOTALED $1.3 MILLION, AN INCREASE OF
$674,000 OR 100.1% OVER THE PRIOR FISCAL YEAR. THIS REPRESENTS 45.3%
OF TOTAL NONPERFORMING LOANS AT MARCH 31, 1996.
At March 31, 1996, impaired assets included $1.7 million in principal due
the company on four pools of small business equipment leases that the Company
acquired through contractual relationships entered into with Bennett Funding
Group, Inc. and its affiliate Aloha Capital Corporation (f.k.a. Bennett Leasing
Corporation). Bennett Funding Group, Inc. sought Chapter 11 Bankruptcy
protection on March 29, 1996. Several weeks later, Aloha Capital Corporation was
placed into involuntary bankruptcy at the request of the court appointed
Bankruptcy Trustee for Bennett Funding Group, Inc., who is now also the
Bankruptcy Trustee for Aloha Capital Corporation. Per the terms of the
contractual arrangements Bennett Funding Group, Inc. acts as the servicing agent
for the Company on the pool of leases purchased from that entity, wherein, at
March 31, 1996, $396,000 of principal remained to be remitted to the Company
over the course of the remaining scheduled lease payments due from individual
lessees. Similarly, at March 31, 1996, $1.3 million of principal remained to be
remitted to the Company on three pools of leases purchased from and serviced by
Aloha Capital Corporation. Payment due the Company on the four pools of leases
were current at the time the respective servicing companies were placed in
bankruptcy. The Bankruptcy Trustee is monitoring the lease payment billing and
collection activities of the servicing companies and is segregating the payments
received from individual lessees but has not yet allowed the resumption of the
payment stream due the Company.
Based on its review of the actual leases in the Company's possession, the
supporting bills of sale and appropriate U.C.C. filings, management believes the
cash flow from the acquired leases will resume when the bankruptcy trustee
verifies the Company's standing in this matter. However, management can make no
assurances about the outcome of this matter.
Also included in impaired loans are two single family construction loans
totaling $501,000. The loans, which were purchased through the Program, are
currently in foreclosure. The Company has a signed offer to purchase one of the
properties for an amount over its carrying value and continues to seek an offer
on the other property.
TOTAL LIABILITIES AT MARCH 31,
1996--$186.6 MILLION 1995--$126.7 MILLION
(REPRESENTS AN INCREASE OF $59.9 MILLION OR 47.3%)
THIS INCREASE IS PRIMARILY ATTRIBUTABLE TO A $26.2 MILLION OR 23.6%
INCREASE IN TOTAL DEPOSITS FROM $110.8 MILLION AT MARCH 31, 1995 TO
$137.0 MILLION AT MARCH 31, 1996 AND A $32.7 MILLION OR 263.7%
INCREASE IN BORROWED FUNDS FROM $12.4 MILLION AT MARCH 31, 1995 TO
$45.1 MILLION AT MARCH 31, 1996. THE GROWTH IN LIABILITIES WAS
PRIMARILY DUE TO THE INCREASED FUNDING NEEDS OF THE PROGRAM AND TO
FUND GROWTH IN THE LOANS RECEIVABLE PORTFOLIO.
The increase in total deposits was concentrated in certificates of deposits
and demand deposit accounts. Certificate balances increased $15.5 million or
29.1%, primarily attributable to management's decision to utilize the public
fund and institutional deposit markets to meet the Company's funding needs.
Management has found these markets to be a reliable and attractively priced
funding source and will continue to take advantage of these funding sources as
market conditions warrant. Demand deposit
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accounts increased $9.5 million or 133.8% primarily attributable to growth in
the Program. More than 90% of the Company's demand deposit balances are from
mortgage companies that are participating in the Company's Program.
Consequently, the level of balances maintained in demand deposits is directly
related to activity in the Program.
Total borrowed funds at March 31, 1996, consist of $7 million in federal
funds purchased and $38.1 million in Federal Home Loan Bank advances, of which
$36 million will mature in less than one year.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
GENERAL: NET INCOME FOR THE YEAR ENDED MARCH 31, 1996 WAS $2,458,000
COMPARED TO $1,660,000 IN THE PRIOR YEAR. THIS $798,000 INCREASE IN NET
INCOME IS PRIMARILY ATTRIBUTABLE TO INCREASES IN NET INTEREST INCOME OF
$2,234,000 OR 44.2% AND NONINTEREST INCOME OF $183,000 OR 18.4%.
INTEREST INCOME FOR YEAR ENDED MARCH 31,
1996--$14.4 MILLION 1995--$9.2 MILLION
(REPRESENTS AN INCREASE OF $5.2 MILLION OR 56.0%)
THIS INCREASE IS ATTRIBUTABLE TO INCREASED ACTIVITY IN THE COMPANY'S
MORTGAGE LOAN REVERSE REPURCHASE PROGRAM AND OTHER LENDING ACTIVITIES
WHICH RESULTED IN A $45.9 MILLION OR 37.5% INCREASE IN AVERAGE
INTEREST EARNING ASSETS FROM THE PRIOR FISCAL YEAR TO $168.5 MILLION
FOR THE YEAR ENDING MARCH 31, 1996. IN ADDITION, INTEREST INCOME
GENERATED BY THE COMPANY'S INTEREST EARNING ASSETS ALSO BENEFITED
FROM HIGHER YEAR OVER YEAR YIELDS ON THESE ASSETS.
Interest income earned under the Program increased $4.1 million or 303.3%
over the prior fiscal year. The average outstanding investment in the Program
increased from $16.0 million for the twelve months ended March 31, 1995 to $58.3
million for the twelve months ended March 31, 1996. The increase in outstandings
in the Program is attributable to increased mortgage refinancing and purchase
money mortgages due to lower mortgage interest rates, increased construction
lending within the Program, and an expanded number of mortgage companies
participating in the Program. Although management is committed to continue
growing the Program by increasing the number of participants, no assurance can
be given that the level of outstandings held under the Program for the fiscal
year March 3 l, 1996 will be maintained.
The increase in interest income is also attributable to growth in the
Company's loans receivable portfolio. Interest income on the loans receivable
portfolio increased $1.1 million or 17.5% over the prior fiscal year. The
average outstanding investment in the loans receivable portfolio increased from
$80.8 million at March 31, 1995 to $89.8 million at March 31, 1996. Growth in
the loan receivable portfolio is attributable to the origination and purchase of
multi-family, construction, commercial mortgage and non-mortgage loans.
Interest income on other interest earning assets decreased $110,000 or 62.3%
as fewer assets were allocated to this category by management over the course of
the year because of asset allocations to more productive resources.
INTEREST EXPENSE FOR YEAR ENDED MARCH 31,
1996--$7.0 MILLION 1995--$4.1 MILLION
(REPRESENTS AN INCREASE OF $2.9 MILLION OR 70.4%)
INCREASE PRIMARILY ATTRIBUTABLE TO A $41.0 MILLION OR 37.8% INCREASE
IN AVERAGE INTEREST-BEARING LIABILITIES OVER THE PRIOR FISCAL YEAR.
THIS INCREASE RESULTED FROM THE INCREASED FUNDING NEEDS OF THE
PROGRAM AND LOANS RECEIVABLE PORTFOLIO. IN THE COURSE OF FUNDING THIS
PROGRAM MANAGEMENT CONSIDERS THE RELEVANT COSTS OF DEPOSITS AND
BORROWINGS AND ACQUIRES THE NEEDED FUNDS ACCORDINGLY.
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NET INTEREST INCOME FOR YEAR ENDED MARCH 31,
1996--$7.3 MILLION 1995--$5.1 MILLION
(REPRESENTS AN INCREASE OF $2.2 MILLION OR 44.2%)
INCREASE RESULTED FROM SUBSTANTIALLY HIGHER OUTSTANDINGS IN THE
COMPANY'S MORTGAGE LOAN REVERSE REPURCHASE PROGRAM AND GROWTH IN THE
LOANS RECEIVABLE PORTFOLIO. IN ADDITION, MANAGEMENT'S EFFORTS TO
PROFITABLY INCREASE THE LEVEL OF INTEREST-EARNING ASSETS ALSO
CONTRIBUTED TO A 21 BASIS POINT INCREASE IN THE COMPANY'S NET
INTEREST MARGIN RATIO TO 4.33% FOR THE TWELVE MONTHS ENDED MARCH 31,
1996 FROM 4.12% FOR THE TWELVE MONTHS ENDED MARCH 31, 1995.
PROVISION FOR LOAN LOSSES FOR YEAR ENDED MARCH 31,
1996--$1,020,000 1995--$78,000
(REPRESENTS AN INCREASE OF $942,000 OR 1,207.7%)
THE 1996 PROVISION FOR LOAN LOSSES RESULTED FROM MANAGEMENT'S
CONTINUED EVALUATION OF THE LOAN PORTFOLIO, NATIONAL AND REGIONAL
ECONOMIC INDICATORS AND OF THE CURRENT REGULATORY AND GENERAL
ECONOMIC ENVIRONMENT.
The Company's allowance for loan losses increased to $1,347,000 at March 31,
1996 from $673,000 at March 31, 1995. Management's decision to substantially
increase the level of loan loss provisions was primarily attributable to several
factors: 1.) To replenish $346,000 of chargeoffs against the loan reserves
recorded in fiscal 1996, 2.) To build up the level of reserves to properly
reflect the Company's increased activity in construction lending, commercial
lending and consumer lending, and 3.) To set-up specific reserves for the lease
paper purchased from Bennett Funding Group and Aloha Capital Corp. The Company
will continue to monitor its allowance for loan losses and make future loan loss
provisions in consideration of the amount and types of loans in its portfolio
and as economic conditions dictate.
NONINTEREST INCOME FOR YEAR ENDED MARCH 31,
1996--$1.2 MILLION 1995--$1.0 MILLION
(REPRESENTS AN INCREASE OF $178,000 OR 18.0%)
INCREASE IS PRIMARILY ATTRIBUTABLE TO A $205,000 INCREASE IN FEES
RELATED TO THE MORTGAGE LOAN REVERSE REPURCHASE PROGRAM AND A $20,000
INCREASE IN OTHER INCOME. THESE INCREASES WERE PARTIALLY OFFSET BY A
$13,000 DECREASE IN COMMISSION INCOME RECEIVED BY COMMUNITY FINANCIAL
SERVICES, INC. FROM THE SALE OF TAX-DEFERRED ANNUITIES AND A $33,000
DECREASE IN OTHER SERVICE CHARGES AND FEES DUE TO THE ABSENCE OF A
ONE TIME CONSULTING FEE OF $92,000 RELATIVE TO AN AFFORDABLE HOUSING
PROJECT THAT THE COMPANY RECORDED IN THE PRIOR FISCAL YEAR.
NONINTEREST EXPENSE FOR YEAR ENDED MARCH 31,
1996--$3.6 MILLION 1995--$3.3 MILLION
(REPRESENTS AN INCREASE OF $267,000 OR 8.0%)
INCREASE IS ATTRIBUTABLE TO: 1.) THE START UP COSTS OF A MORTGAGE
BANKING DIVISION IN MERRILLVILLE, INDIANA, WHICH BEGAN OPERATIONS IN
FEBRUARY OF 1996 AND CURRENTLY EMPLOYS A STAFF OF SEVEN INDIVIDUALS,
2.) EXPENSES INCURRED RELATED TO THE ACQUISITION EFFORTS OF A
MORTGAGE BANKING COMPANY WHICH WERE LATER TERMINATED WITHOUT THE
CONSUMMATION OF A DEAL, AND 3.) HIGHER LEGAL COSTS THAN THOSE OF THE
PRIOR YEAR.
INCOME TAX EXPENSE FOR YEAR ENDED MARCH 31,
1996--$1.4 MILLION 1995--$1.0 MILLION
(REPRESENTS AN INCREASE OF $410,000 OR 42.2%)
INCOME TAXES INCREASED PRIMARILY AS A RESULT OF INCREASED EARNINGS
BEFORE INCOME TAXES.
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COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1995 AND 1994
GENERAL: NET INCOME FOR THE YEAR ENDED MARCH 31, 1995 WAS $1,660,000
COMPARED TO $2,355,000 IN THE PRIOR YEAR. THIS $695,000 DECREASE
RESULTED PRIMARILY FROM DECREASES IN NET INTEREST INCOME OF $855,000 OR
14.5% AND NONINTEREST INCOME OF $280,000 OR 22.0%.
INTEREST INCOME FOR YEAR ENDED MARCH 31,
1995--$9.2 MILLION 1994--$11.0 MILLION
(REPRESENTS A DECREASE OF $1.8 MILLION OR 16.5%)
THIS DECREASE WAS PRIMARILY ATTRIBUTABLE TO A DECREASE IN ACTIVITY IN
THE COMPANY'S MORTGAGE LOAN REVERSE REPURCHASE PROGRAM WHICH RESULTED
IN A $26.6 MILLION OR 17.8% DECREASE IN AVERAGE INTEREST EARNING
ASSETS FROM THE PRIOR FISCAL YEAR TO $122.6 MILLION AT MARCH 31,
1995.
Interest income earned under the Program decreased $2.2 million or 62.4%
over the prior fiscal year. The average outstanding investment in the Program
decreased from $50.6 million for the twelve months ended March 31, 1994 to $16.0
million for the twelve months ended March 31, 1995. An increase in mortgage
interest rates was primarily attributable to the reduced activity in the
Program.
Increases in interest income on securities and other interest-earning assets
of $326,000 or 77.8% and net loans receivable of $71,000 or 1.1% helped to
partially offset the decrease in total interest income realized from the
Program. These increases were attributable to the shifting of funds from the
Program to other interest-earning asset categories and higher year over year
yields on these assets.
INTEREST EXPENSE FOR YEAR ENDED MARCH 31,
1995--$4.1 MILLION 1994--$5.1 MILLION
(REPRESENTS A DECREASE OF $963,000 OR 18.9%)
DECREASE WAS PRIMARILY ATTRIBUTABLE TO A $26.8 MILLION OR 19.9%
DECREASE IN AVERAGE INTEREST-BEARING LIABILITIES OVER THE PRIOR
FISCAL YEAR. THIS DECREASE RESULTED FROM THE REDUCED FUNDING NEEDS OF
THE PROGRAM AS MANAGEMENT PAID OFF SHORT TERM BORROWINGS AND PUBLIC
FUND DEPOSITS WITH PROGRAM PAY DOWNS.
NET INTEREST INCOME FOR YEAR ENDED MARCH 31,
1995--$5.1 MILLION 1994--$5.9 MILLION
(REPRESENTS A DECREASE OF $854,000 OR 14.5%)
DECREASE RESULTED FROM SUBSTANTIALLY LOWER OUTSTANDINGS IN THE
COMPANY'S MORTGAGE LOAN REVERSE REPURCHASE PROGRAM. HOWEVER, THE
DECREASE IN NET INTEREST INCOME WAS PARTIALLY OFFSET BY AN INCREASE
IN THE COMPANY'S NET INTEREST RATE SPREAD OF 7 BASIS POINTS TO 3.67%
FOR THE YEAR ENDED MARCH 31, 1995 AND AN INCREASE IN THE NET INTEREST
MARGIN OF 16 BASIS POINTS TO 4.12% FOR THE YEAR ENDED MARCH 31, 1995.
THE IMPROVEMENT IN THESE RATIOS WAS A RESULT OF THE COMPANY'S
INTEREST-EARNING ASSETS REPRICING UPWARDS AT A SLIGHTLY FASTER RATE
THAN INTEREST-BEARING LIABILITIES AND A HIGHER RATIO OF
INTEREST-EARNING ASSETS TO INTEREST-BEARING LIABILITIES RATIO.
PROVISION FOR LOAN LOSSES FOR YEAR ENDED MARCH 31,
1995--$78,000 1994--$103,000
(REPRESENTS A DECREASE OF $25,000 OR 24.3%)
THE 1995 PROVISION FOR LOAN LOSSES RESULTED FROM MANAGEMENT'S
CONTINUED EVALUATION OF THE LOAN PORTFOLIO, NATIONAL AND REGIONAL
ECONOMIC INDICATORS AND OF THE CURRENT REGULATORY AND GENERAL
ECONOMIC ENVIRONMENT.
The Company's allowance for loan losses increased to $673,000 at March 31,
1995 from $595,000 at March 31, 1994. The Company recorded less than two hundred
dollars of loan chargeoffs for the year ended March 31, 1995.
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NONINTEREST INCOME FOR YEAR ENDED MARCH 31,
1995--$1.0 MILLION 1994--$1.3 MILLION
(REPRESENTS A DECREASE OF $280,000 OR 22.0%)
DECREASE WAS PRIMARILY ATTRIBUTABLE TO A $332,000 DECREASE IN FEES
RELATED TO THE MORTGAGE LOAN REVERSE REPURCHASE PROGRAM AND A $41,000
DECREASE IN COMMISSION INCOME RECEIVED BY COMMUNITY FINANCIAL FROM
THE SALE OF TAX-DEFERRED ANNUITIES. THIS DECREASE WAS PARTIALLY
OFFSET BY A $92,000 INCREASE IN SERVICE CHARGES AND FEES ATTRIBUTABLE
TO A ONE TIME AFFORDABLE HOUSING CONSULTING FEE.
NONINTEREST EXPENSE FOR YEAR ENDED MARCH 31,
1995--$3.3 MILLION 1994--$3.3 MILLION
(REPRESENTS AN INCREASE OF $21,000 OR 0.6%)
INCREASE WAS ATTRIBUTABLE TO A $39,000 INCREASE IN COMPENSATION AND
BENEFIT EXPENSES DUE TO NORMAL SALARY INCREASES WHICH WERE OFFSET, IN
PART, BY DECREASES IN OTHER NONINTEREST EXPENSES.
INCOME TAX EXPENSE FOR YEAR ENDED MARCH 31,
1995--$1.0 MILLION 1994--$1.4 MILLION
(REPRESENTS A DECREASE OF $436,000 OR 31.0%)
INCOME TAXES DECREASED PRIMARILY AS A RESULT OF DECREASED EARNINGS
BEFORE INCOME TAXES.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, proceeds from principal
and interest payments on loans, securities, mortgage-backed securities and
advances from the Federal Home Loan Bank ("FHLB") of Indianapolis. While
maturities and scheduled amortization of loans and mortgage-backed securities
are a predictable source of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions, competition
and other factors.
The Bank is required to maintain minimum levels of liquid assets as defined
by the Office of Thrift Supervision ("OTS") regulations. This requirement is
based upon a percentage of deposits and short-term borrowings, which may vary at
the direction of the OTS depending upon economic conditions and deposit flows.
The required ratio is currently 5.0%. The Bank's liquidity ratios were 7.7% and
11.4% at March 31, 1996 and 1995, respectively. Liquidity management for the
Company is both a daily and long-term function of the Company's management
strategy. Excess funds are generally invested in short-term investments,
including deposits in financial institutions. In the event that the Company
should require funds beyond its ability to generate them internally, additional
sources of funds are available via FHLB of Indianapolis advances and reverse
repurchase agreements.
Management structures the liquid asset portfolio and borrowing capacity of
the Company to meet the cash flow needs of operating, investing and financing
activities. The Company's liquid assets are cash and cash equivalents, which
include investments in highly liquid, short-term investments. At March 31, 1996
and 1995, cash and cash equivalents totaled $6.1 million and $3.5 million,
respectively. In addition, the Company maintains a $5.0 million line of credit
with the FHLB of Indianapolis to meet short term liquidity needs. The line of
credit had an outstanding balance of $124,000 at March 31, 1996.
Cash flows resulting from operating activities consisted primarily of net
income and activity under the Program. Cash flows provided by/(for) operating
activities were ($51.5) million, $11.1 million and ($2.1) million for the years
ended March 31, 1996, 1995 and 1994, respectively. The Company's primary
investing activities have been the purchase and repayment of securities;
mortgage-backed securities; and the purchase, origination,and repayment of
loans. Net cash flows provided for investing activities were ($4.5) million,
($9.3) million and ($1.4) million for the years ended March 31, 1996, 1995 and
1994, respectively. Net cash provided from/(for) financing activities, primarily
the borrowing and repayment of
A-8
<PAGE>
funds and net deposits, were $58.5 million, ($3.4) million and $3.3 million for
the years ended March 31, 1996, 1995 and 1994, respectively.
For the years ended March 31, 1996, 1995 and 1994 the Company's single
family mortgage loan purchases through the Program totaled $795.9 million,
$453.3 million and $1,092.1 million, respectively. Sales of these loans over the
same respective time periods totaled $741.0 million, $462.4 million and $1,087.2
million. During the fiscal year ended March 31, 1996, the activity in the
Program increased significantly due to increases in refinancing, purchase money
mortgage and construction mortgage loan originations attributable to lower
mortgage interest rates. The increase in activity was also attributable to an
increase in the number of mortgage companies participating in the Program.
Management utilized FHLB advances and institutional and public fund deposits to
meet the Company's funding needs. The Company maintains borrowing capacity with
the FHLB-Indianapolis to meet the funding requirements of the Program as well as
the general liquidity needs of Company operations.
At March 31, 1996, the Company had outstanding commitments to originate
loans and fund unused lines of credit of $1.4 million, unused letters of credit
of $4.1 million and $12.4 million in commitments to fund the undisbursed
balances of Program construction loans. Management anticipates that sufficient
funds will be available to finance, on a timely basis, its short and long term
loan commitments. Certificates of deposit which are scheduled to mature in one
year or less at March 31, 1996, totaled $50.6 million. Management's pricing of
certificate offerings reflect the bank's funding needs and the availability of
other sources of funds (i.e. FHLB advances, etc.).
Shareholders' equity at March 31, 1996 was $18.8 million, an increase of
$2.2 million or 12.9% over March 31, 1995, which represents net income for the
twelve months ended March 31, 1996 and the effects of treasury stock
transactions, ESOP loan repayment, the amortization of Recognition and Retention
Program Shares (RRP) acquisition costs, tax benefit related to stock plans and
the net change in unrealized appreciation on securities available-for-sale.
Under OTS capital requirements, at March 31, 1996, the Bank had:
- Tangible capital (shareholders' equity) of $16.0 million or 7.8% of
adjusted total assets thereby exceeding the 1.5% requirement of $3.1
million by $13.0 million.
- Core capital (tangible capital plus certain intangible assets) of $16.0
million or 7.8% of adjusted total assets thereby exceeding the 3.0%
requirement of $6.1 million by $9.9 million.
- Risk-based capital (core capital plus general valuation allowances) of
$17.2 million or 15.2% of risk-adjusted assets thereby exceeding the 8.0%
requirement of $9.0 million by $8.1 million.
At March 31, 1996, the Bank's capital exceeded all of the capital
requirements of the OTS.
ASSET/LIABILITY MANAGEMENT
Asset/Liability Management is a daily function of the Company's management
and is continually changing in response to interest rate fluctuations. The
matching of assets and liabilities may be analyzed by examining the extent to
which such assets and liabilities are interest rate sensitive, and by monitoring
the Company's interest rate risk ("IRR") measures produced by the Office of
Thrift Supervision from the Bank's quarterly Thrift Financial Reports.
Management regularly measures the Bank's interest rate risk by monitoring the
effect a 200 basis point instantaneous increase or decrease in market interest
rates would have on its net portfolio value ("NPV").
In 1990, the regulators adopted the interest-rate sensitivity approach as
one measure of interest-rate risk. This approach measures the projected changes
in NPV that would result if interest rates were to increase; instantaneously
across the yield curve; by 100, 200, 300 and 400 basis points; or if interest
rates were to decline by 100, 200, 300 and 400 basis points. Net portfolio value
is defined as the market value of assets less the market value of liabilities.
According to the "Interest Rate Risk Report," prepared by the
A-9
<PAGE>
Office of Thrift Supervision as of March 31, 1996, after an adverse rate shock
of + 200 points, the Bank's NPV of $22.8 million was projected to decline $1.4
million or 6.3%, to $21.4 million. According to the OTS report, only 40% of
thrifts nationwide would have experienced a decline of 7.9% or less. Presented
below, as of March 31, 1996, is an analysis of the Bank's interest rate risk as
measured by changes in NPV for instantaneous and substantial parallel shifts of
100 basis points in market interest rates.
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV)
<TABLE>
<CAPTION>
NET PORTFOLIO VALUE
CHANGE IN ---------------------------------------
RATES $ AMOUNT $ CHANGE % CHANGE
- ---------- ----------- ----------- -------------
<S> <C> <C> <C>
+400 bp 19,335 -3,498 -15%
+300 bp 20,396 -2,437 -11%
+200 bp 21,394 -1,439 -6%
+100 bp 22,269 -564 -2%
0 bp 22,833
-100 bp 22,868 35 0%
-200 bp 22,382 -451 -2%
-300 bp 22,090 -743 -3%
-400 bp 22,294 -539 -2%
</TABLE>
The Company's primary strategy for controlling interest rate risk exposure,
is to maintain a high level of the Company's asset portfolios in interest rate
sensitive assets. Management has accomplished this objective through its
investment in the Loan Reverse Repurchase Program. Under the Program, the
company purchases single family mortgage loans from select mortgage banking
firms on a short-term basis under agreements to resell and earn an adjustable
prime rate based return during the holding period. The Program has complemented
the Company's portfolio of adjustable rate mortgage loans held for investment
which account for 40.2% of all mortgage loans receivable. In addition, the
Company has sought to lengthen the maturity of its interest-bearing liabilities
by emphasizing longer term certificates of deposit. The Company also has the
ability to obtain long-term advances from the FHLB of Indianapolis if such
borrowings appear favorable under a particular interest rate environment.
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
("GAAP") which require the measurement of financial position and operating
results in terms of historical dollars (except for securities available-for-
sale) without considering the changes in the relative purchasing power of money
over time due to inflation. The impact of inflation is reflected in the
increased cost of the Company's operations. Unlike most industrial companies,
nearly all the assets and liabilities of the Company are monetary in nature. As
a result, interest rates have a greater impact on the Company'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.
IMPACT OF NEW ACCOUNTING STANDARDS
Several new accounting standards have been issued by the FASB that will
apply in 1996. Statement of Financial Accounting Standards ("SFAS") No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, requires a review of long-term assets for impairment of recorded
value and resulting write-downs if the value is impaired. SFAS No. 122,
Accounting for Mortgage Servicing Rights, requires the recognition of an asset
when servicing rights are retained on in-house originated loans that are sold.
SFAS No. 123, Accounting for Stock-Based Compensation encourages, but does not
require, entities to use a "fair value based method" to account for stock-based
compensation plans. If the fair value
A-10
<PAGE>
accounting encouraged is not adopted, entities must disclose the pro forma
effect on net income and on earnings per share had the accounting been adopted.
These statements are not expected to have a material effect on the Company's
consolidated financial position or results of operation.
INSURANCE OF DEPOSIT ACCOUNTS
Deposits of the Bank are presently insured by the SAIF. Under proposed
legislation, a special assessment would be imposed on the amount of deposits
held by SAIF-member institutions, including the Bank, to recapitalize the SAIF
fund. The amount of the special assessment would be left to the discretion of
the FDIC but is generally estimated at between 85 to 90 basis points of insured
deposits. The payment of the special assessment would have the effect of
immediately reducing the capital of SAIF-member institutions, net of any tax
effect; however, it would not affect the Bank's compliance with its regulatory
capital requirements. Management cannot predict whether legislation imposing
such a fee will be enacted, or, if enacted, the amount of any special assessment
or when and whether ongoing SAIF premiums will be reduced to a level equal to
that of BIF premiums. Management can also not predict whether or when the BIF
and SAIF will merge. The Bank's assessment rate for the fiscal year ended March
31, 1996 was 23 basis points and the premium paid for the period was $263,000.
Based on the Bank's deposit insurance assessment base as of March 31, 1996, an
85 to 90 basis point fee to recapitalize the SAIF would result in a $704,000 to
$745,000 payment on an after-tax basis.
A-11
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED MARCH 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA
Total assets......................................... $ 205,385 $ 143,344 $ 143,528 $ 137,533 $ 139,201
Loans................................................ 171,301 111,297 112,097 109,681 114,406
Mortgage-backed and related securities............... 10,192 10,740 10,275 10,008 8,447
Securities available-for-sale........................ 621 581 -- -- --
Securities held-to-maturity.......................... 5,675 6,489 -- -- --
Other securities--FHLB stock......................... 2,702 2,350 2,350 1,051 1,051
Investment securities................................ -- -- 7,170 4,608 5,430
Securities held for sale............................. -- -- 575 500 --
Deposits............................................. 137,047 110,860 113,522 115,116 123,888
Borrowed funds....................................... 45,124 12,363 12,745 7,121 7,260
Shareholders' equity, substantially restricted....... 18,832 16,678 15,099 13,138 6,385
SELECTED OPERATING DATA
Interest income...................................... $ 14,352 $ 9,199 $ 11,016 $ 10,296 $ 10,918
Interest expense..................................... 7,063 4,144 5,106 5,499 7,312
---------- ---------- ---------- ---------- ----------
Net interest income................................ 7,289 5,055 5,910 4,797 3,606
Provision for loan losses............................ 1,020 78 103 278 83
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan
losses........................................... 6,269 4,977 5,807 4,519 3,523
Noninterest income................................... 1,178 995 1,275 950 561
Noninterest expense.................................. 3,609 3,342 3,321 2,938 2,783
---------- ---------- ---------- ---------- ----------
Income before income taxes......................... 3,838 2,630 3,761 2,531 1,301
Income tax expense................................... 1,380 970 1,406 1,059 477
---------- ---------- ---------- ---------- ----------
Net income......................................... $ 2,458 $ 1,660 $ 2,335 $ 1,472 $ 824
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Earnings per share(1)................................ $ 1.95 $ 1.29 $ 1.82 $ .28 $ --
Earnings per share--fully diluted(1)................. 1.94 1.29 1.80 .28 --
SELECTED FINANCIAL RATIOS AND OTHER DATA
Return on average assets............................. 1.37% 1.25% 1.50% 1.11% .66%
Return on average equity............................. 13.98 10.36 16.58 17.21 13.85
Interest rate spread(2).............................. 3.79 3.67 3.60 3.52 2.87
Net interest margin.................................. 4.33 4.12 3.96 3.80 3.04
Average interest-earning assets to average
interest-bearing liabilities(4).................... 112.88 113.18 110.40 106.33 102.77
Operating expenses to average assets................. 2.01 2.53 2.11 2.21 2.21
Net interest income to operating expenses............ 201.97 151.26 177.95 163.27 129.57
Average equity to average assets..................... 9.81 12.12 9.03 6.43 4.73
Equity to total assets............................... 9.17 11.63 10.52 9.55 4.59
Nonperforming loans to total loans................... 1.74 .71 .57 .51 .93
Nonperforming assets to total assets................. 1.46 .56 .45 .44 .78
Allowance for loan losses to nonperforming loans..... 44.94 83.71 91.40 88.55 21.31
Number of deposit accounts........................... 15,638 15,563 15,640 16,330 17,318
</TABLE>
- ------------------------
(1) Earnings per common and common equivalent share computed subsequent to the
conversion.
(2) Calculation is based upon the difference between the average rate on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Calculation is based upon net interest income divided by average
interest-earning assets.
(4) Interest-bearing liabilities does not include noninterest-bearing
transaction accounts.
A-12
<PAGE>
AVERAGE BALANCE SHEETS
The following tables set forth, at March 31, for the years ended as
indicated, the condensed average balance of interest-earning assets and
interest-bearing liabilities, the interest earned or accrued on such amounts,
and the average interest rates earned or paid thereon.
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------ ------------------------------------ ---------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST BALANCE
--------- ----------- ------------ --------- ----------- ------------ ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS
IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans, net............................... $ 148,078 $ 13,030 8.80% $ 96,785 $ 7,801 8.06% $ 129,788
Mortgage-backed securities............... 10,356 689 6.65 10,833 653 6.03 10,515
Interest-earning deposits and federal
funds sold............................. 1,025 67 6.54 3,995 177 4.43 2,694
Securities............................... 9,036 566 6.26 10,966 568 5.18 6,189
--------- ----------- --------- ----------- ---------
Total interest-earning assets............ 168,495 14,352 8.52 122,579 9,199 7.50 149,186
Noninterest-earning assets............... 10,650 9,702 8,098
--------- ----------- ------ --------- ----------- ------ ---------
Total assets............................. $ 179,145 $ 132,281 $ 157,284
--------- ----------- ------ --------- ----------- ------ ---------
--------- ----------- ------ --------- ----------- ------ ---------
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts............................. $ 13,519 $ 301 2.23% $ 11,556 $ 283 2.45% $ 13,744
Money market accounts.................... 8,819 303 3.44 9,325 285 3.06 8,700
Passbook accounts........................ 27,633 836 3.03 31,202 944 3.03 31,821
Certificate accounts..................... 64,885 3,601 5.55 52,967 2,450 4.63 62,894
Borrowed funds........................... 34,414 2,022 5.88 3,251 182 5.60 17,976
--------- ----------- --------- ----------- ---------
Total interest-bearing liabilities....... 149,270 7,063 4.73 108,301 4,144 3.83 135,135
Other liabilities(1)..................... 12,297 7,952 7,941
--------- ----------- ------ --------- ----------- ------ ---------
Total liabilities........................ 161,567 116,253 143,076
Shareholders' equity..................... 17,578 16,028 14,208
--------- ----------- ------ --------- ----------- ------ ---------
Total liabilities & shareholders'
equity................................. $ 179,145 $ 132,281 $ 157,284
--------- ----------- ------ --------- ----------- ------ ---------
--------- ----------- ------ --------- ----------- ------ ---------
Non interest income/interest rate
spread(2).............................. $ 7,289 3.79% $ 5,055 3.67%
--------- ----------- ------ --------- ----------- ------ ---------
--------- ----------- ------ --------- ----------- ------ ---------
Net interest-earning assets/net interest
margin(3).............................. $ 19,225 4.33% $ 14,278 4.12% $ 14,051
--------- ----------- ------ --------- ----------- ------ ---------
--------- ----------- ------ --------- ----------- ------ ---------
Ratio of interest earning assets to
interest-bearing liabilities........... 112.88% 113.18%
--------- ----------- ------ --------- ----------- ------ ---------
--------- ----------- ------ --------- ----------- ------ ---------
<CAPTION>
AVERAGE
INTEREST YIELD/COST
----------- ------------
<S> <C> <C>
ASSETS
Interest earning assets:
Loans, net............................... $ 9,973 7.68%
Mortgage-backed securities............... 624 5.93
Interest-earning deposits and federal
funds sold............................. 88 3.27
Securities............................... 331 5.35
-----------
Total interest-earning assets............ 11,016 7.38
Noninterest-earning assets...............
----------- ------
Total assets.............................
----------- ------
----------- ------
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts............................. $ 301 2.19%
Money market accounts.................... 285 3.28
Passbook accounts........................ 1,004 3.16
Certificate accounts..................... 2,873 4.57
Borrowed funds........................... 643 3.57
-----------
Total interest-bearing liabilities....... 5,106 3.78
Other liabilities(1).....................
----------- ------
Total liabilities........................
Shareholders' equity.....................
----------- ------
Total liabilities & shareholders'
equity.................................
----------- ------
----------- ------
Non interest income/interest rate
spread(2).............................. $ 5,910 3.60%
----------- ------
----------- ------
Net interest-earning assets/net interest
margin(3).............................. 3.96%
----------- ------
----------- ------
Ratio of interest earning assets to
interest-bearing liabilities........... 110.40%
----------- ------
----------- ------
</TABLE>
- ------------------------------
(1) Includes noninterest-bearing demand deposit accounts.
(2) Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest earning assets.
A-13
<PAGE>
RATE/VOLUME ANALYSIS
The following table presents the extent to which changes in interest rates
and changes in the volume of interest earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996 YEAR ENDED MARCH 31, 1995
COMPARED TO YEAR ENDED MARCH COMPARED TO YEAR ENDED MARCH
31, 1995 31, 1994
INCREASE (DECREASE) INCREASE (DECREASE)
------------------------------- -------------------------------
VOLUME RATE NET VOLUME RATE NET
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, net............................................. $ 4,458 $ 771 $ 5,229 $ (2,640) $ 468 $ (2,172)
Mortgage-backed securities............................. (30) 66 36 19 10 29
Interest-earning deposits and federal funds sold....... (170) 60 (110) 51 38 89
Securities............................................. (110) 108 (2) 248 (11) 237
--------- --------- --------- --------- --------- ---------
4,148 1,005 5,153 (2,322) 505 (1,817)
--------- --------- --------- --------- --------- ---------
INTEREST-BEARING LIABILITIES
NOW accounts........................................... 45 (27) 18 (51) 33 (18)
Money market accounts.................................. (16) 34 18 20 (20) 0
Passbook accounts...................................... (108) -- (108) (19) (41) (60)
Certificate accounts................................... 610 541 1,151 (459) 36 (423)
Borrowed funds......................................... 1,831 9 1,840 (703) 242 (461)
--------- --------- --------- --------- --------- ---------
Total.............................................. 2,362 557 2,919 (1,212) 250 (962)
--------- --------- --------- --------- --------- ---------
Change in net interest income.......................... $ 1,786 $ 448 $ 2,234 $ (1,110) $ 255 $ (855)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
A-14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
CB Bancorp, Inc. and Subsidiary
Michigan City, Indiana
We have audited the accompanying consolidated balance sheets of CB Bancorp, Inc.
and Subsidiary as of March 31, 1996 and 1995 and the related consolidated
statements of income, changes in shareholders equity and cash flows for the
years ended March 31, 1996, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CB Bancorp, Inc. and
Subsidiary as of March 31, 1996 and 1995 and the results of their operations and
their cash flows for the years ended March 31, 1996, 1995 and 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 1, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", as of April 1, 1994.
Crowe, Chizek and Company LLP
South Bend, Indiana
May 17, 1996
A-15
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Cash and due from financial institutions (Note 16)............................... $ 4,754,811 $ 3,542,760
Interest-earning deposits in other financial institutions--short term............ 1,308,112 --
-------------- --------------
Cash and cash equivalents........................................................ 6,062,923 3,542,760
Interest-earning deposits in other financial institutions........................ -- 983,475
Securities available-for-sale (Note 2)........................................... 620,948 581,331
Securities held-to-maturity (Fair value: $5,644,00--1996: $6,418,000-- 1995)
(Note 2)....................................................................... 5,674,726 6,488,679
Other Securities--Federal Home Loan Bank stock (Note 2).......................... 2,702,000 2,350,400
Mortgage-backed and related securities held-to-maturity (Fair value:
$10,282,000--1996; $10,647,000--1995) (Notes 3 and 10)......................... 10,192,178 10,739,876
Loans
Loans purchased under agreements to resell (Note 4)............................ 80,031,250 25,179,207
Loans receivable (Notes 4 and 10).............................................. 92,616,450 86,789,829
Less: Allowance for loan losses (Note 4)....................................... (1,346,328) (672,276)
-------------- --------------
171,301,372 111,296,760
Mortgage loans held for sale..................................................... 512,750 --
Accrued interest receivable (Note 7)............................................. 1,183,259 786,404
Premises and equipment, net (Note 8)............................................. 2,387,382 2,405,119
Investment in limited partnership (Note 16)...................................... 1,678,573 1,525,000
Other assets (Note 11)........................................................... 3,068,825 2,644,088
-------------- --------------
$ 205,384,936 $ 143,343,892
-------------- --------------
-------------- --------------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Liabilities
Deposits (Note 9).............................................................. $ 137,047,131 $ 110,859,585
Borrowed funds (Note 10)....................................................... 45,124,355 12,362,804
Advances from borrowers for taxes and insurance................................ 1,213,766 1,211,649
Obligation relative to limited partnership (Note 16)........................... 1,450,000 1,450,000
Accrued expenses and other liabilities......................................... 1,717,500 781,893
-------------- --------------
186,552,752 126,665,931
Commitments and contingencies (Note 16)
Shareholders' equity (Notes 1, 11, 12 and 13)
Serial preferred stock, no par value, 500,000 shares authorized; none
outstanding.................................................................. -- --
Common stock, $.01 par value, 1,500,000 shares authorized; issued-- 1,284,238
shares....................................................................... 12,842 12,842
Additional paid-in capital..................................................... 5,813,358 5,821,860
Retained earnings--substantially restricted.................................... 14,323,484 11,865,274
Less:
Treasury stock, 96,012 and 71,100 shares at cost at March 31, 1996 and 1995,
respectively................................................................. (1,081,744) (671,156)
Common stock acquired by:
Employee stock ownership plan................................................ (240,794) (305,005)
Recognition and retention plans.............................................. (20,708) (47,676)
Net unrealized appreciation on securities available-for-sale, net of tax......... 25,746 1,822
-------------- --------------
Total shareholders' equity................................................... 18,832,184 16,677,961
-------------- --------------
$ 205,384,936 $ 143,343,892
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
A-16
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Interest Income
Loans receivable
First mortgage loans................................................ $ 6,949,705 $ 6,189,013 $ 6,237,519
Consumer and other loans............................................ 628,236 260,463 140,946
Loans purchased under agreements to resell............................ 5,452,138 1,351,924 3,594,757
Securities............................................................ 565,940 567,883 330,806
Mortgage-backed and related securities................................ 689,120 653,029 624,160
Other interest-earning assets......................................... 66,742 177,064 88,293
------------ ------------ ------------
14,351,881 9,199,376 11,016,481
Interest Expense
Deposits (Note 9)..................................................... 5,040,273 3,961,171 4,463,542
Borrowed Funds (Note 10).............................................. 2,022,405 182,559 642,843
------------ ------------ ------------
7,062,678 4,143,730 5,106,385
------------ ------------ ------------
NET INTEREST INCOME..................................................... 7,289,203 5,055,646 5,910,096
Provision for loan losses (Note 4)...................................... 1,020,000 78,000 103,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES..................... 6,269,203 4,977,646 5,807,096
Noninterest income
Gain (loss) on sale/disposal of interest-earning assets, net (Note
14)................................................................. 1,478 (650) 2,513
Loss from real estate operations (Note 5)............................. (8,961) (11,038) (9,254)
Gain on sale of foreclosed real estate................................ 16,731 16,240 28,275
Other (Note 15)....................................................... 1,168,772 990,532 1,253,210
------------ ------------ ------------
1,178,020 995,084 1,275,194
Noninterest expense
Compensation and benefits (Note 11)................................... 1,561,595 1,493,024 1,454,097
Occupancy and equipment............................................... 512,476 512,394 536,041
SAIF deposit insurance premium........................................ 263,397 261,206 265,984
Other (Note 15)....................................................... 1,271,616 1,075,585 1,065,114
------------ ------------ ------------
3,609,084 3,342,209 3,321,236
------------ ------------ ------------
INCOME BEFORE INCOME TAXES.............................................. 3,838,139 2,630,521 3,761,054
Income tax expense (Note 12)............................................ 1,379,929 970,274 1,406,454
------------ ------------ ------------
NET INCOME.............................................................. $ 2,458,210 $ 1,660,247 $ 2,354,600
------------ ------------ ------------
------------ ------------ ------------
Earnings per common and common equivalent share (Note 1)................ $ 1.95 $ 1.29 $ 1.82
Earnings per share-assuming full dilution (Note 1)...................... 1.94 1.29 1.80
</TABLE>
See accompanying notes to consolidated financial statements.
A-17
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON COMMON
ADDITIONAL STOCK STOCK
COMMON PAID-IN RETAINED TREASURY ACQUIRED ACQUIRED
STOCK CAPITAL EARNINGS STOCK BY ESOP BY RRP
----------- ----------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance--April 1, 1993................................ $ 6,421 $5,878,441 $7,856,848 $ -- $(433,427) $(170,638)
Purchase of shares of treasury stock (Note 1)......... -- -- -- (559,363) -- --
Issuance of shares of treasury stock (Note 1)......... -- (15,543) -- 36,464 -- --
Contribution to fund ESOP............................. -- -- -- -- 64,211 --
Amortization of RRP contribution...................... -- -- -- -- -- 80,963
100% stock dividend (Note 1).......................... 6,421 -- (6,421) -- -- --
Net income for the year ended March 31, 1994.......... -- -- 2,354,600 -- -- --
----------- ----------- ---------- ---------- --------- ---------
Balance--March 31, 1994............................... 12,842 5,862,898 10,205,027 (522,899) (369,216) (89,675)
Adoption of SFAS No. 115 (Note 1), net of tax......... -- -- -- -- -- --
Purchase of shares of treasury stock (Note 1)......... -- -- -- (243,875) -- --
Issuance of shares of treasury stock (Note 1)......... -- (41,038) -- 95,618 -- --
Contribution to fund ESOP............................. -- -- -- -- 64,211 --
Amortization of RRP contribution...................... -- -- -- -- -- 41,999
Net change in unrealized appreciation on securities
available-for-sale, net of tax...................... -- -- -- -- -- --
Net income for the year ended March 31, 1995.......... -- -- 1,660,247 -- -- --
----------- ----------- ---------- ---------- --------- ---------
Balance--March 31, 1995............................... 12,842 5,821,860 11,865,274 (671,156) (305,005) (47,676)
Purchase of shares of treasury stock (Note 1)......... -- -- -- (557,427) -- --
Issuance of shares of treasury stock (Note 1)......... -- (78,923) -- 146,839 -- --
Contribution to fund ESOP............................. -- -- -- -- 64,211 --
Amortization of RRP contribution...................... -- -- -- -- -- 26,968
Tax benefit related to stock plans.................... -- 70,421 -- -- -- --
Net change in unrealized appreciation on securities
available-for-sale, net of tax...................... -- -- -- -- -- --
Net income for the year ended March 31, 1996.......... -- -- 2,458,210 -- -- --
----------- ----------- ---------- ---------- --------- ---------
Balance--March 31, 1996............................... $ 12,842 $5,813,358 $14,323,484 $(1,081,744) $(240,794) $ (20,708)
----------- ----------- ---------- ---------- --------- ---------
----------- ----------- ---------- ---------- --------- ---------
<CAPTION>
NET
UNREALIZED
APPRECIATION
ON SECURITIES TOTAL
AVAILABLE- SHAREHOLDERS
FOR-SALE EQUITY
------------- ------------
<S> <C> <C>
Balance--April 1, 1993................................ $ -- $13,137,645
Purchase of shares of treasury stock (Note 1)......... -- (559,363)
Issuance of shares of treasury stock (Note 1)......... -- 20,921
Contribution to fund ESOP............................. -- 64,211
Amortization of RRP contribution...................... -- 80,963
100% stock dividend (Note 1).......................... -- --
Net income for the year ended March 31, 1994.......... -- 2,354,600
------------- ------------
Balance--March 31, 1994............................... -- 15,098,977
Adoption of SFAS No. 115 (Note 1), net of tax......... 96 96
Purchase of shares of treasury stock (Note 1)......... -- (243,875)
Issuance of shares of treasury stock (Note 1)......... -- 54,580
Contribution to fund ESOP............................. -- 64,211
Amortization of RRP contribution...................... -- 41,999
Net change in unrealized appreciation on securities
available-for-sale, net of tax...................... 1,726 1,726
Net income for the year ended March 31, 1995.......... -- 1,660,247
------------- ------------
Balance--March 31, 1995............................... 1,822 16,677,961
Purchase of shares of treasury stock (Note 1)......... -- (557,427)
Issuance of shares of treasury stock (Note 1)......... -- 67,916
Contribution to fund ESOP............................. -- 64,211
Amortization of RRP contribution...................... -- 26,968
Tax benefit related to stock plans.................... -- 70,421
Net change in unrealized appreciation on securities
available-for-sale, net of tax...................... 23,924 23,924
Net income for the year ended March 31, 1996.......... -- 2,458,210
------------- ------------
Balance--March 31, 1996............................... $ 25,746 $18,832,184
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements
A-18
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 2,458,210 $ 1,660,247 $ 2,354,600
Adjustments to reconcile net income to net cash from operating
activities
Depreciation and amortization.................................. 187,104 342,215 299,736
Provision for loan losses...................................... 1,020,000 78,000 103,000
(Gain) loss on sale of:
Interest-earning assets...................................... (1,478) 650 (2,513)
Foreclosed real estate....................................... (16,731) (16,240) (28,725)
Loans purchased under agreements to resell..................... (795,862,263) (453,339,372) (1,092,109,959)
Sale of loans purchased under agreements to resell............. 741,010,220 462,353,515 1,087,156,964
Mortgage loans originated for sale............................. (585,786) -- --
Proceeds from sales of mortgage loans held for sale............ 74,514 -- --
Purchase of securities held for sale........................... -- -- (574,841)
Proceeds from sale of securities held for sale................. -- -- 500,503
Amortization of RRP contribution............................... 26,968 41,999 80,963
Change in:
Accrued interest receivable.................................. (396,855) (138,011) 57,194
Other assets................................................. (370,009) (30,532) (253,667)
Accrued interest payable and other liabilities............... 911,471 114,610 311,389
--------------- ------------- ---------------
Net cash from operating activities......................... (51,544,635) 11,067,081 (2,105,356)
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on mortgage-backed securities.............. 2,311,441 3,215,365 3,035,566
Purchase of:
Securities and mortgage-backed securities available for
sale....................................................... -- 3,215,365 --
Securities and mortgage-backed securities held-to-maturity... (10,104,120) (9,424,682) --
Federal Home Loan Bank stock................................. (351,600) -- (1,299,000)
Investment and mortgage-backed securities.................... -- -- (8,481,499)
Proceeds from:
Maturities of securities held-to-maturity.................... 9,161,482 6,300,000 --
Maturities of investment securities.......................... -- -- 2,550,000
Sale of securities available-for-sale........................ -- 49,200 --
Purchase of loans.............................................. -- (2,627,077) --
Proceeds from sale of loans.................................... -- -- 128,534
Net change in loans............................................ (6,223,912) (5,717,413) 2,206,168
Proceeds from sale of foreclosed real estate................... 92,210 58,937 118,765
Net change in interest-earning deposits in other financial
institutions................................................. 983,475 (885,276) 1,585,801
Investment in limited partnership.............................. (153,573) (75,000) --
Purchase of life insurance contracts........................... -- -- (1,245,000)
Purchase of premises and equipment............................. (176,519) (134,506) (23,759)
--------------- ------------- ---------------
Net cash from investing activities......................... (4,461,116) (9,293,776) (1,424,424)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits......................................... $ 26,187,546 $ (2,662,499) $ (1,623,898)
Proceeds from borrowed funds................................... 1,709,466,300 238,718,275 498,073,464
Repayment of borrowed funds.................................... (1,676,704,749) (239,100,610) (492,448,826)
Net change in advance payments by borrowers for taxes and
insurance.................................................... 2,117 (272,378) (222,729)
Purchase of treasury stock..................................... (557,427) (243,875) (559,363)
Issuance of shares of treasury stock........................... 67,916 54,580 20,921
Contribution to fund ESOP...................................... 64,211 64,211 64,211
--------------- ------------- ---------------
Net cash from financing activities......................... 58,525,914 (3,442,296) 3,303,780
--------------- ------------- ---------------
Net change in cash and cash equivalents.......................... 2,520,163 (1,668,991) (226,000)
Cash and cash equivalents at beginning of year................... 3,542,760 5,211,751 5,437,751
--------------- ------------- ---------------
Cash and cash equivalents at end of year......................... $ 6,062,923 $ 3,542,760 $ 5,211,751
--------------- ------------- ---------------
--------------- ------------- ---------------
</TABLE>
A-19
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ------------- ---------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest..................................................... $ 6,870,582 $ 4,147,503 $ 5,121,674
Income taxes................................................. 1,618,449 885,250 1,477,320
Noncash investing activities
Transfer from:
Securities held for sale to securities
available-for-sale....................................... $ -- $ 574,841 $ --
Mortgage-backed and related securities to mortgage-backed
and related securities held-to-maturity.................. -- 10,275,366 --
Transfer from investment securities to securities
held-to-maturity........................................... -- 7,170,481 --
Investment in/obligation relative to limited partnership
(Note 16).................................................. -- 1,450,000 --
Real estate acquired in settlement of loans.................. 75,479 42,697 45,897
</TABLE>
See accompanying notes to consolidated financial statements.
A-20
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND INDUSTRY SEGMENT INFORMATION: CB Bancorp, Inc. is
a holding company located in Michigan City, Indiana and owns all the outstanding
stock of Community Bank, A Federal Savings Bank ("the Bank") and Community
Financial Services Inc. ("Community Financial"), a wholly-owned subsidiary of
the Bank (together referred to as "the Company"). The Bank operates in the
single industry of banking, including granting loans (primarily real estate
loans), accepting deposits, and other banking activities. Community Financial
offers various annuity and insurance programs and tax return preparation
services to Bank customers and others. Community Financial has a 99% limited
partner interest in Pedcor Investments-1994-XX, L.P. which was formed for the
construction, ownership, and management of an 80 unit affordable housing project
in LaPorte County, Indiana. Community Financial also owns 100% of Community
Brokerage Services, Inc. ("Community Brokerage") which was chartered on
September 12, 1994. Community Brokerage is a full service discount brokerage
firm and is a member of the National Association of Securities Dealers. The
Company operates primarily in the banking industry which accounts for more than
90% of its revenues, operating income and assets.
BASIS OF REPORTING: The accompanying consolidated financial statements
include the accounts of CB Bancorp, Inc. and its wholly-owned subsidiary. All
significant inter-company balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
CERTAIN SIGNIFICANT ESTIMATES: Areas involving the use of management's
estimates and assumptions include the allowance for loan losses, the realization
of deferred tax assets, fair values of securities and other financial
instruments, the determination and carrying value of impaired loans, the
carrying value of loans purchased under agreements to resell, the carrying value
of mortgage loans held for sale, the carrying value of foreclosed real estate,
the determination of other-than-temporary reductions in the fair value of
securities, recognition and measurement of loss contingencies and depreciation
of premises and equipment. Estimates that are more susceptible to change in the
near term include the allowance for loan losses, securities valuations, the
carrying value of loans purchased under agreements to resell, the carrying value
of mortgage loans held for sale and the realization of deferred tax assets.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash and
cash equivalents are defined to include the Company's cash on hand, balances due
from financial institutions and short-term interest-earning deposits in other
financial institutions with maturities of ninety days or less. The Company
reports net cash flows for customer loan transactions, deposit transactions,
advance payments by borrowers for taxes and insurance, and deposits made with
other financial institutions.
SECURITIES AND MORTGAGE-BACKED AND RELATED SECURITIES: On April 1, 1994,
the Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". The Company now classifies securities, including mortgage-backed
and related securities, into held-to-maturity, available-for-sale and trading
categories. Held-to-maturity securities are those which the Company has the
positive intent and ability to hold to maturity, and
A-21
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are reported at amortized cost. Available-for-sale securities are those the
Company may decide to sell if needed for liquidity, asset-liability management
or other reasons. Available-for-sale securities are reported at fair value, with
unrealized gains and losses included as a separate component of equity, net of
tax. Trading securities are bought principally for sale in the near term, and
are reported at fair value with unrealized gains and losses included in
earnings. Adoption of SFAS No. 115 on April 1, 1994 increased shareholders'
equity by $96, net of $63 tax effect.
Realized gains and losses resulting from the sale of securities are computed
by the specific identification method. Interest and dividend income, adjusted by
amortization of purchase premium or discount using the level yield method, is
included in earnings.
LOANS PURCHASED UNDER AGREEMENTS TO RESELL: The Company purchases
residential mortgage loans from various mortgage companies prior to sale of
these loans by the mortgage companies in the secondary market. The Company held
loans that were purchased under agreements to resell from 75 of the 90 approved
mortgage companies as of March 31, 1996. The Company purchases such loans from
mortgage companies at par, net of certain fees, and later sells them back to the
mortgage companies at the same amount and without recourse provisions. As a
result, no gains and losses are recorded at the resale of loans. The Company
records interest income on the loans during the funding period and the Company
records fee income received from the mortgage company for each loan when the
loan is sold. The Company uses the stated interest rate in the agreement with
each mortgage company for interest income recognition, and not the interest
rates on individual loans. The Company does not retain servicing of the loans
when they are resold. Purchase money and refinance mortgage loans are generally
held no more than 90 days by the Company and typically are resold within 30
days. Construction loan mortgages acquired are held for the duration of the
construction loan period, which is typically six months or longer.
MORTGAGE LOANS HELD FOR SALE: Mortgage loans intended for sale are carried
at the lower of cost or estimated market value in the aggregate. Net unrealized
losses are recognized in a valuation allowance by charges to income.
INTEREST INCOME ON LOANS: Interest on loans is accrued over the term of the
loans based upon the principal outstanding. Management reviews loans delinquent
90 days or more to determine if the interest accrual should be discontinued. All
mortgage loans delinquent 90 days or more are placed on non-accrual status.
Interest income on consumer and other loans is discontinued when serious doubt
exists as to the collectibility of a loan. Effective April 1, 1995, under SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS
No. 118, the carrying value of impaired loans is periodically adjusted to
reflect cash payments, revised estimates of future cash flows, and increases in
the present value of expected cash flows due to the passage of time. Cash
payments representing interest income are reported as such and other cash
payments are reported as reductions in carrying value. Increases or decreases in
carrying value due to changes in estimates of future payments or the passage of
time are reported as a component of the provision for loan losses.
LOAN FEES AND COSTS: Loan fees, net of direct origination costs, are
deferred. The net amount deferred is reported in the consolidated balance sheets
as part of loans and is recognized into interest income over the term of the
loan using the level yield method.
A-22
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries). Estimating
the risk of loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered
adequate to cover losses that are currently anticipated. Management's periodic
evaluation of the adequacy of the allowance is based on the Company'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. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowances for losses on loans and foreclosed
real estate. Such agencies may require the Company to recognize additions to the
allowances based on their judgments of information available to them at the time
of their examination.
SFAS No. 114 and SFAS No. 118 were adopted effective April 1, 1995 and
require recognition of loan impairment. Loans are considered impaired if full
principal or interest payments are not anticipated in accordance with the
contractual loan terms. Impaired loans are carried at the present value of
expected future cash flows discounted at the loans effective interest rate or at
the fair value of the collateral if the loan is collateral dependent. A portion
of the allowance for loan losses is allocated to impaired loans. If these
allocations cause the allowance for loan losses to require increase, such
increase is reported as a component of the provision for loan losses. The effect
of adopting these standards was not material.
Smaller-balance homogeneous loans are evaluated for impairment in total.
Such loans include residential first mortgage loans secured by one-to-four
family residences, residential construction loans, and automobile, home equity
and second mortgage loans. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment. When analysis of a
borrower's operating results and financial condition indicates that underlying
cash flows of the borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Often this is associated
with a delay or shortfall in payments of 30 days or more. Commercial and
mortgage loans placed on nonaccrual are often considered for impairment.
Impaired loans, or portions thereof, are charged off when deemed uncollectible.
The nature of disclosures for impaired loans is considered generally comparable
to prior nonaccrual and renegotiated loans and non-performing and past-due asset
disclosures.
FORECLOSED REAL ESTATE: Real estate properties acquired through, or in lieu
of, loan foreclosure are initially recorded at fair value at the date of
acquisition. Any reduction to fair value from the carrying value of the related
loan at the time of acquisition is accounted for as a loan loss and charged
against the allowance for loan losses. After acquisition, a valuation allowance
is recorded through a charge to income for the amount of estimated selling
costs. Valuations are periodically performed by management, and valuation
allowances are adjusted through a charge to income for changes in fair value or
estimated selling costs.
PREMISES AND EQUIPMENT: Premises and equipment of the Company are stated at
cost less at accumulated depreciation. Premises are depreciated using the
straight-line method with useful lives ranging from twelve to fifty years, and
equipment is depreciated using the straight-line method with useful lives
ranging from four to twelve years. Land is carried at cost. Maintenance and
repairs are expensed and improvements are capitalized.
A-23
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES: The Company files annual consolidated federal and state
income tax returns. Income tax expense is based upon the asset and liability
method. The asset and liability method requires the Company to record income tax
expense based on the amount of taxes due on its consolidated tax return plus
deferred taxes computed based on the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities, using enacted tax rates.
EARNINGS PER SHARE, 100% COMMON STOCK DIVIDEND AND TREASURY STOCK: Earnings
per common and common equivalent share were computed by dividing net income by
the weighted average number of shares of common stock and common stock
equivalents outstanding. Employee and Director stock options are considered
common stock equivalents. On January 19, 1994, the Board of Directors declared a
100% common stock dividend which was distributed to shareholders of record as of
February 9, 1994, increasing issued shares by 642,119 shares. The
weighted-average number of shares outstanding for the calculation of earnings
per common and common equivalent share was 1,261,062 for 1996, 1,289,998 for
1995 and 1,293,117 for 1994 as restated for the 1994 100% stock dividend. The
weighted-average number of shares outstanding for the calculation of
fully-diluted earnings per share was 1,264,728 for 1996, 1,291,301 for 1995 and
1,308,239 for 1994 as restated for the 1994 100% stock dividend.
Treasury stock activity for the years ended March 31 is summarized as
follows (all numbers of shares restated for the 1994 100% stock dividend):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Treasury stock at beginning of year...................................... 71,100 60,016 --
Shares of common stock purchased......................................... 38,495 22,000 64,200
Shares of common stock reissued (for stock options exercised)............ (13,583) (10,916) (4,184)
--------- --------- ---------
Treasury stock at end of year............................................ 96,012 71,100 60,016
--------- --------- ---------
--------- --------- ---------
</TABLE>
RECLASSIFICATIONS: Certain amounts appearing in the 1995 and 1994
consolidated financial statements and notes thereto have been reclassified to
conform with the 1996 presentation.
NOTE 2--SECURITIES
The amortized cost and fair value of securities at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
AVAILABLE-FOR-SALE COST GAINS LOSSES FAIR VALUE
- ---------------------------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Marketable equity securities.............................. $ 578,315 $ 43,956 $ (1,323) $ 620,948
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
HELD-TO-MATURITY
- ----------------------------------------------------------
U.S. Treasury and U.S. Government agency securities....... $ 3,000,000 $ -- $ (30,000) $ 2,970,000
Corporate notes........................................... 2,674,726 5,296 (6,022) 2,674,000
------------ ----------- ----------- ------------
Total................................................. $ 5,674,726 $ 5,296 $ (36,022) $ 5,644,000
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
OTHER SECURITIES
- ----------------------------------------------------------
Stock in Federal Home Loan Bank........................... $ 2,702,000 $ -- $ -- $ 2,702,000
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
A-24
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 2--SECURITIES (CONTINUED)
The amortized cost and fair value of securities at March 31, 1995 are as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
AVAILABLE-FOR-SALE COST GAINS LOSSES FAIR VALUE
- --------------------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Marketable equity securities....................... $ 578,315 $ 11,620 $ (8,604) $ 581,331
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
HELD-TO-MATURITY
- ---------------------------------------------------
U.S. Treasury and U.S. Government agency
securities....................................... $ 3,755,781 $ 137 $ (72,918) $ 3,683,000
Corporate notes.................................... 2,732,898 3,002 (900) 2,735,000
------------ ----------- ----------- ------------
Total.......................................... $ 6,488,679 $ 3,139 $ (73,818) $ 6,418,000
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
OTHER SECURITIES
- ---------------------------------------------------
Stock in Federal Home Loan Bank.................... $ 2,350,400 $ -- $ (400) $ 2,350,000
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
The amortized cost and estimated market value of debt securities at March
31, 1996, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
HELD-TO-MATURITY: AMORTIZED COST FAIR VALUE
- -------------------------------------------------------------------------- -------------- ------------
<S> <C> <C>
Due in one year or less................................................... $ 2,016,946 $ 2,018,000
Due after one year through five years..................................... 3,657,780 3,626,000
-------------- ------------
$ 5,674,726 $ 5,644,000
-------------- ------------
-------------- ------------
</TABLE>
There were no sales of securities during the year ended March 31, 1996.
Sales of securities available-for-sale during the year ended March 31, 1995
were as follows:
<TABLE>
<CAPTION>
GROSS
PROCEEDS GROSS GAIN LOSS
---------- ----------- ---------
<S> <C> <C> <C>
Equity securities.......................................................... $ 49,200 $ -- $ (650)
</TABLE>
Sales of securities held for sale during the year ended March 31, 1994, were
as follows:
<TABLE>
<CAPTION>
GROSS
PROCEEDS GROSS GAIN LOSS
---------- ----------- ---------
<S> <C> <C> <C>
Debt securities............................................................ $ 500,503 $ 503 $ --
</TABLE>
A-25
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 3--MORTGAGE-BACKED AND RELATED SECURITIES
The carrying values and fair values of mortgage-backed and related
securities held-to-maturity as presented on the balance sheets are summarized as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------------------------------
PRINCIPAL UNAMORTIZED UNEARNED CARRYING
BALANCE PREMIUMS DISCOUNTS VALUE FAIR VALUE
------------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
GNMA certificates......................... $ 3,600,363 $ 8,787 $ (9,750) $ 3,599,400 $ 3,646,000
FHLMC certificates........................ 4,891,720 3,580 (6,302) 4,888,998 4,914,000
FNMA certificates......................... 879,837 -- (7,879) 871,958 886,000
Collateralized mortgage obligations....... 833,925 473 $ (2,576) 831,822 836,000
------------- ------------ ---------- ------------- -------------
$ 10,205,845 $ 12,840 $ (26,507) $ 10,192,178 $ 10,282,000
------------- ------------ ---------- ------------- -------------
------------- ------------ ---------- ------------- -------------
<CAPTION>
MARCH 31, 1996
---------------------------------------------------------------------
PRINCIPAL UNAMORTIZED UNEARNED CARRYING
BALANCE PREMIUMS DISCOUNTS VALUE FAIR VALUE
------------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
GNMA certificates......................... $ 2,923,684 $ 5,052 $ (15,718) $ 2,913,018 $ 2,922,000
FHLMC certificates........................ 5,956,098 16,772 (10,369) 5,962,501 5,883,000
FNMA certificates......................... 970,293 -- (8,899) 961,394 951,000
Collateralized mortgage obligations....... 903,477 1,627 $ (2,141) 902,963 891,000
------------- ------------ ---------- ------------- -------------
$ 10,753,552 $ 23,451 $ (37,127) $ 10,739,876 $ 10,647,000
------------- ------------ ---------- ------------- -------------
------------- ------------ ---------- ------------- -------------
</TABLE>
Gross unrealized gains and losses on mortgage-backed and related securities
held-to-maturity are as follows:
<TABLE>
<CAPTION>
MARCH 31, 1996 MARCH 31, 1995
------------------------ ------------------------
GROSS GROSS GROSS GROSS
UNREALIZED UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES GAINS LOSSES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
GNMA certificates............................................... $ 53,136 $ (6,536) $ 34,932 $ (25,950)
FHLMC certificates.............................................. 71,973 (46,971) 37,750 (117,251)
FNMA certificates............................................... 14,042 -- -- (10,394)
Collateralized mortgage obligations............................. 4,223 $ (45) $ -- (11,963)
----------- ----------- ----------- -----------
$ 143,374 $ (53,552) $ 72,682 $ (165,558)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The Company did not sell any mortgage-backed and related securities during
the fiscal years ended March 31, 1996, 1995 and 1994.
A-26
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 4
Loans receivable at March 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
First Mortgage loans (principally conventional)
Principal balances
Secured by one-to-four family residences............................. $ 73,413,053 $ 74,384,741
Secured by other properties.......................................... 11,412,555 7,754,828
Construction loans................................................... 591,450 2,427,863
------------- -------------
85,417,058 84,567,432
Loans in Process....................................................... (47,836) (1,421,700)
Unearned Discounts..................................................... (993) (10,241)
Net deferred loan origination fees..................................... (417,599) (432,487)
------------- -------------
Total first mortgage loans......................................... 84,950,630 82,703,004
Consumer and other loans
Principal balances
VISA/Master cards.................................................... 388,685 37,252
Automobile........................................................... 400,132 361,482
Home equity and second mortgage...................................... 1,789,185 1,272,581
Commercial........................................................... 4,532,775 2,007,527
Other................................................................ 555,043 407,983
------------- -------------
Total consumer and other loans..................................... 7,665,820 4,086,825
------------- -------------
$ 92,616,450 $ 86,789,829
------------- -------------
------------- -------------
</TABLE>
The Company has entered into agreements with mortgage companies in which the
Company purchases, at its discretion, mortgage loans ("pipeline") from the
mortgage companies at par, net of certain fees, and later sells them back to the
mortgage companies at the same amount and without recourse provisions. Such
loans are reviewed, prior to purchase, for evidence that the loans are of
secondary market quality and meet the Company's internal underwriting
guidelines. An assignment of the mortgage to the Company is required. In
addition, the Company either takes possession of the original note and forwards
such note to the end investor or the Company receives a certified copy of the
note and subsequently receives acknowledgment from the end investor of receiving
the original note. A commitment to purchase from an end investor is required
prior to purchase by the Company. In the event that the end investor would not
honor this commitment and the mortgage companies would not be able to honor
their repurchase obligations, the Company would then need to sell these loans in
the secondary market at the fair value of these loans. Purchase money and
refinance loans are generally held no more than 90 days by the Company and are
typically resold within 30 days. The Company also purchases interim construction
loans under this program and holds these loans for the duration of the
construction loan period which is typically six months or longer. With regard to
the interim construction loans in the pipeline, the Company recognizes that
there may be credit risk due to possible change in the borrower's financial
condition during the interim construction period. The Company had approximately
$29,416,000 of interim construction loans in the pipeline at March 31, 1996.
A-27
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 4 (CONTINUED)
The mortgage companies from which individual mortgage loans have been
purchased under agreements to resell and the related amounts of such loans
outstanding are as follows at March 31:
<TABLE>
<CAPTION>
COMPANY 1996 1995
- ------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Company A................................................................ $ 12,792,251 $ 6,095,730
Company B................................................................ 8,614,313 --
Company C................................................................ 6,791,723 6,454,712
Company D................................................................ 5,023,314 --
Companies with balances between $1,000,000 and $5,000,000 (1996--12
companies; 1995--3 companies).......................................... 33,254,163 6,720,642
Other companies with balances less than $1,000,000....................... 13,555,486 5,908,123
------------- -------------
$ 80,031,250 $ 25,179,207
------------- -------------
------------- -------------
</TABLE>
Activity in the allowance for loan losses for the years ended March 31 is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year..................................... $ 672,276 $ 594,453 $ 494,653
Provision charged to income...................................... 1,020,000 78,000 103,000
Recoveries....................................................... -- -- 846
Charge-offs...................................................... (345,948) (177) (4,046)
------------ ---------- ----------
Balance at end of year........................................... $ 1,346,328 $ 672,276 $ 594,453
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
Information regarding impaired loans is as follows for the year ending March
31, 1996:
<TABLE>
<S> <C>
Average investment in impaired loans.................................... $ 333,020
Interest income recognized on impaired loans including interest income
recognized on cash basis.............................................. 144,320
Interest income recognized on impaired loans on cash basis.............. 128,339
</TABLE>
Information regarding impaired loans at March 31, 1996 is as follows:
<TABLE>
<S> <C>
Balance of impaired loans............................................... $2,164,419
Less portion for which no allowance for loan losses is allocated........ (500,942)
---------
Portion of impaired loan balance for which an allowance for loan losses
is allocated.......................................................... $1,663,477
---------
---------
Portion of allowance for loan losses allocated to impaired loan
balance............................................................... $ 166,348
---------
---------
</TABLE>
A-28
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 4 (CONTINUED)
Nonaccrual and renegotiated loans for which interest has been reduced
totaled approximately $804,000 at March 31, 1995. Interest income that would
have been recorded under the original terms of such loans and the interest
income actually recognized at March 31 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Interest income that would have been recorded................................... $ 54,000 $ 50,000
Interest income recognized...................................................... (22,000) (28,000)
---------- ----------
Interest income foregone........................................................ $ 32,000 $ 22,000
---------- ----------
---------- ----------
</TABLE>
The Bank is not committed to lend additional funds to debtors whose loans
have been modified.
Of the total balance of impaired loans as of March 31, 1996, $1,663,477
relates to amounts associated with Bennett Funding Group Inc. ("Bennett") and
Aloha Capital Corporation ("Aloha"), an affiliate of Bennett. The reason for the
impairment classification is that Bennett recently filed for Chapter 11
bankruptcy and Aloha was drawn into involuntary bankruptcy. The Bank purchased
numerous leases secured by small business equipment such as copy and facsimile
machines from Bennett and Aloha. The purchases total approximately $396,000 from
Bennett and $1.3 million from Aloha. Both companies act as servicing agents to
collect lease payments for the Bank. The portion of allowance for loan losses
allocated to the above loans is $166,348 which is based on the aging of the
underlying leases and the assumption of 90 days delay in payments.
NOTE 5--FORECLOSED REAL ESTATE, NET
There was no foreclosed real estate at March 31, 1996 and 1995.
Activity in the allowance for losses for foreclosed real estate for the
years ended March 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
Balance at beginning of year................................................ $ -- $ -- $ 14,400
Provision for losses........................................................ -- -- --
Charge-offs................................................................. -- -- (14,400)
Recoveries.................................................................. -- -- --
--------- --------- ----------
Balance at end of year...................................................... $ -- $ -- $ --
--------- --------- ----------
--------- --------- ----------
</TABLE>
Losses from real estate operations for the years ended March 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Provision for losses...................................................... $ -- $ -- $ --
Other..................................................................... 8,961 11,038 9,254
--------- --------- ---------
$ 8,961 $ 11,038 $ 9,254
--------- --------- ---------
--------- --------- ---------
</TABLE>
A-29
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
NOTE 6--LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these loans at
March 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Mortgage loan portfolios serviced for the Federal Home Loan
Mortgage Corporation............................................ $ 1,483,584 $ 1,869,565
------------ ------------
------------ ------------
</TABLE>
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $35,000 and $51,000 at March 31, 1996 and 1995,
respectively.
NOTE 7--ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at March 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Securities.......................................................... $ 64,940 $ 102,278
Mortgage-backed and related securities.............................. 74,146 71,576
Loans receivable and loans purchased under agreements to resell..... 1,044,173 612,550
------------ ----------
$ 1,183,259 $ 786,404
------------ ----------
------------ ----------
</TABLE>
NOTE 8--PREMISES AND EQUIPMENT, NET
Premises and equipment are stated at cost, less accumulated depreciation,
and consist of the following at March 31:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Land and land improvements...................................... $ 378,897 $ 375,620
Buildings....................................................... 3,065,759 3,062,299
Furniture, fixtures, and equipment.............................. 1,376,963 1,232,873
Construction in progress........................................ 20,022 --
------------- -------------
4,841,641 4,670,792
Accumulated depreciation and amortization....................... (2,454,259) (2,265,673)
------------- -------------
$ 2,387,382 $ 2,405,119
------------- -------------
------------- -------------
</TABLE>
A-30
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 9--DEPOSITS
Deposits at March 31 are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED 1996 1995
AVERAGE RATE ------------------------- -------------------------
AT MARCH 31, 1996 AMOUNT PERCENT AMOUNT PERCENT
------------------- -------------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Demand and NOW accounts, including
noninterest-bearing deposits of
$16,639,090 in 1996 and $7,109,518 in
1995.................................... 1.03% $ 30,980,804 22.61% $ 19,659,348 17.73%
Money market account...................... 3.53 9,424,860 6.88 8,944,562 8.07
Passbook accounts......................... 3.01 27,984,565 20.42 29,089,724 26.24
-------------- --------- -------------- ---------
68,390,229 49.91 57,693,634 52.04
Certificates of deposit:
3.00 to 3.99%........................... 330,461 .24 3,986,661 3.60
4.00 to 5.99%........................... 56,522,216 41.24 37,478,648 33.81
6.00 to 7.99%........................... 11,804,225 8.61 11,666,198 10.52
8.00 to9.99%............................ -- -- 34,444 .03
-------------- --------- -------------- ---------
68,656,902 50.09 53,165,951 47.96
-------------- --------- -------------- ---------
$ 137,047,131 100.00% $ 110,859,585 100.00%
-------------- --------- -------------- ---------
-------------- --------- -------------- ---------
</TABLE>
The aggregate amount of deposits with a minimum denomination of $100,000 was
approximately $32,078,000 and $18,252,000 at March 31, 1996 and 1995,
respectively.
At March 31, 1996, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 THEREAFTER
------------- ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
3.00 to 3.99%................. $ 326,101 $ -- $ 4,360 $ $ $
4.00 to 5.99%................. 44,363,322 7,313,875 3,625,784 586,414 563,773 69,048
6.00 to 7.99%................. 5,921,712 $ 1,879,553 1,014,485 1,636,247 915,909 436,319
------------- ------------ ------------ ------------ ------------ ----------
$ 50,611,135 $ 9,193,428 $ 4,644,629 $ 2,222,661 $ 1,479,682 $ 505,367
------------- ------------ ------------ ------------ ------------ ----------
------------- ------------ ------------ ------------ ------------ ----------
</TABLE>
Interest expense on deposits for the years ended March 31 is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Money market accounts................................................... $ 302,868 $ 284,966 $ 285,369
Passbook accounts....................................................... 835,831 943,970 1,004,496
NOW accounts............................................................ 300,517 282,527 300,772
Certificates of Deposit................................................. 3,601,057 2,449,708 2,872,905
------------ ------------ ------------
$ 5,040,273 $ 3,961,171 $ 4,463,542
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
A-31
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 10--BORROWED FUNDS
Borrowed funds at March 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Federal funds purchased........................................ $ 7,000,000 $ 7,000,000
Advances from the Federal Home Loan Bank....................... 38,000,000 4,000,000
Line of credit with Federal Home Loan Bank..................... 124,355 1,362,804
------------- -------------
$ 45,124,355 $ 12,362,804
------------- -------------
------------- -------------
</TABLE>
Fixed rate and variable rate advances from the Federal Home Loan Bank at
March 31, 1996 amount to $4 million and $34 million, respectively.
Advances from the Federal Home Loan Bank consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------
WEIGHTED AVERAGE
MATURITY INTEREST RATE AMOUNT
- ------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
1997......................................................... 5.59% $ 36,000,000
1998......................................................... 5.76% 1,000,000
1999......................................................... 5.67% 1,000,000
-------------
$ 38,000,000
-------------
-------------
</TABLE>
Information concerning borrowings under repurchase agreements for the years
ended March 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ---------
<S> <C> <C>
Average balance during the period.................................... $ 72,329 $ 1,808
Average interest rate during the period.............................. 6.50% 6.20%
Maximum month-end balance during the period.......................... 1,760,000 30,000
</TABLE>
The Company had no borrowings under repurchase agreements as of March 31,
1996 and 1995.
Federal funds purchased represent overnight purchase of federal funds from
American National Bank, Chicago, Illinois.
At March 31, 1996 specific mortgage loans with a carrying value of
approximately $59,226,000 and specific mortgage-backed securities with a
carrying value of approximately $4,251,000 were pledged to the Federal Home Loan
Bank of Indianapolis to secure current and future advances. In addition, the
Bank has a line of credit approved up to $5,000,000 with the Federal Home Loan
Bank of Indianapolis. This line is secured by specific collateral listed above.
The Bank had borrowings of $124,355 against this line of credit at March 31,
1996.
The Bank has four irrevocable direct pay letters of credit with the Federal
Home Loan Bank of Indianapolis totaling approximately $4,049,000. These letters
of credit are secured by the same collateral listed above. The balance of these
letters of credit at March 31, 1996 is $0.
A-32
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 10--BORROWED FUNDS (CONTINUED)
Interest expense on borrowed funds for the years ended March 31 is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Advances from the FHLB................................. $ 1,501,121 $ 64,876 $ 500,336
Other.................................................. 521,284 117,683 142,507
------------ ---------- ----------
$ 2,022,405 $ 182,559 $ 642,843
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
NOTE 11--EMPLOYEE BENEFITS
EMPLOYEE PENSION PLAN: The Bank is part of a multi-employer defined benefit
pension plan covering all qualified employees. The plan is administered by the
directors of the Financial Institutions Retirement Fund. There is no separate
valuation of plan benefits nor segregation of plan assets specifically for the
Bank. The plan is a multi-employer plan and separate actuarial valuations are
not made with respect to each employer nor are the plan assets so segregated.
However, as of June 30, 1995, the latest actuarial valuation, the total plan
assets exceeded the actuarially determined value of total vested benefits. The
cost of the plan is charged to expense and amounted to $4,815, $3,294 and $3,222
for the years ended March 31, 1996, 1995 and 1994, respectively.
DEFERRED COMPENSATION PLAN: In 1994, the Company implemented a deferred
compensation plan for its Board of Directors. Under the terms of the plan,
directors may elect to defer a portion of their fees which would be retained by
the Company with interest being credited to the participant's deferred balance.
Upon retirement, the participant would be entitled to receive the accumulated
deferred balance, paid over a specified number of years. The Company has
purchased insurance contracts on the lives of the participants in the deferred
compensation plan and has named the Company as beneficiary. While no direct
contract exists between the deferred compensation plan and the life insurance
contracts, it is management's current intent that the revenue from the insurance
contracts will be used as a funding source for the deferred compensation plan.
The cash surrender value of the life insurance was approximately $1,426,000 and
$1,351,000 at March 31, 1996 and 1995, respectively, and is included in other
assets. At March 31, 1996 and 1995, the accrued liability for deferred fees was
approximately $152,000 and $85,000, respectively. The income derived from the
investment in life insurance included in other income was approximately $75,000
and $68,000 for the years ended March 31, 1996 and 1995, respectively.
SUPPLEMENTAL RETIREMENT PLAN: The Bank maintains a supplemental retirement
plan for executive officers of the Bank. The Company has purchased insurance
contracts on the lives of the participants in the supplemental retirement plan
and has named the Company as beneficiary. While no direct contract exists
between the supplemental retirement plan and the life insurance contracts, it is
management's current intent that the revenue from the insurance contracts will
be used as a funding source for the supplemental retirement plan. The Bank is
recording a liability equal to the projected present value of the payment due at
retirement based on the projected remaining years of service using the projected
unit credit method. The cash surrender value of the life insurance was
approximately $938,000 and $879,000 at March 31, 1996 and 1995, respectively,
and is included in other assets. The income derived from the investment in life
insurance included in other income was approximately $59,000, $52,000 and
$56,000 for the years ended March 31, 1996, 1995 and 1994, respectively. The
cost of the plan charged to expense was approximately $44,000, $40,000 and
$33,000 for the years ended March 31, 1996, 1995 and 1994, respectively. The
accrued
A-33
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 11--EMPLOYEE BENEFITS (CONTINUED)
liability to the Company was approximately $203,000 and $154,000 at March 31,
1996 and 1995, respectively.
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS: The Board of Directors of the
Company has adopted the CB Bancorp, Inc. 1992 Stock Option Plan for outside
directors (the "Directors' Plan") of the Company. Options for the purchase of
38,528 shares of common stock are authorized under the Directors' Plan. The
option exercise price must be at least 100% of the fair market value of the
common stock on the date of the grant, and the option term cannot exceed 10
years. Eligible directors may exercise 100% of the options awarded to them. All
38,528 options were granted at an exercise price of $5 per share, restated for
the 1994 100% stock dividend.
Activity in the Directors' Plan for years ended March 31 is summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
OPTION --------------------
EXERCISE PRICE 1996 1995
--------------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year............................... $ 5.00 26,896 36,528
Options exercised.......................................... 5.00 (7,632) (9,632)
----- --------- ---------
Balance at end of year..................................... $ 5.00 19,264 26,896
----- --------- ---------
----- --------- ---------
</TABLE>
RECOGNITION AND RETENTION PLANS (RRP): In conjunction with the Bank's
conversion, the Company has established the Recognition and Retention Plans as a
method of providing directors, officers and other key employees of the Bank with
a proprietary interest in the Company in a manner designed to encourage such
persons to remain with the Bank. The terms of each RRP will be identical, only
the participants and the number of shares awarded to each participant vary.
Eligible directors, officers and other key employees of the Company will earn
(i.e., become vested in) shares of common stock covered by the award at a rate
of 20% per year commencing immediately upon conversion. The Bank contributed
funds to the RRP to enable the Plans to acquire in the aggregate 38,528 shares
of common stock, restated for the 1994 stock dividend. An expense of $26,968,
$41,999 and $80,963 was recorded for these Plans for the years ended March 31,
1996, 1995, and 1994, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP): The Bank maintains an ESOP for
eligible employees. Employees with 1,000 hours of employment with the Bank and
who have attained age 21 are eligible to participate. The ESOP borrowed funds
from the Company to purchase 89,896 shares of common stock, restated for the
1994 100% stock dividend. Collateral for the loan is the common stock purchased
by the ESOP. The loan is being repaid principally from the Bank's discretionary
contributions to the ESOP over a seven year period ending in 1999, at a variable
interest rate. The current interest rate for the loan is 9.50%. Shares purchased
by the ESOP will be held in a suspense account for allocation among participants
as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account in
an amount proportional to the repayment of the ESOP loan are allocated among
ESOP participants on the basis of compensation in the year of allocation.
Benefits generally become 100% vested after five years of credited service.
Prior to the completion of five years of credited service, a participant who
terminates employment for reasons other than death, retirement (or early
retirement), or disability will not receive any benefit under the
A-34
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 11--EMPLOYEE BENEFITS (CONTINUED)
ESOP. Forfeitures will be reallocated among remaining participating employees,
in the same proportion as contributions. Benefits may be payable in the form of
stock or cash upon termination of employment. The Bank's contributions to the
ESOP are not fixed, so benefits payable under the ESOP cannot be estimated.
The ESOP compensation expense was $64,211 for each of the years ended March
31, 1996, 1995 and 1994, respectively. The ESOP shares as of March 31 (adjusted
for the 100% stock dividend) were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Allocated shares........................................................... 37,604 25,684
Shares released for allocation............................................. 684 350
Unreleased shares.......................................................... 51,608 63,862
--------- ---------
Total ESOP Shares.......................................................... 89,896 89,896
--------- ---------
--------- ---------
</TABLE>
On April 1, 1994, the Bank adopted AICPA's Statement of Position 93-6 ("SOP
93-6") EMPLOYERS' ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS. SOP 93-6
relates only to shares purchased by the ESOP after December 31, 1992. SOP 93-6
requires that the employer record compensation expense in an amount equal to the
fair value of shares committed to be released to employees from the ESOP, and
these shares become outstanding for earnings per share computations. Dividends
on allocated ESOP shares are recorded as a reduction of retained earnings;
dividends on unallocated shares are recorded as a reduction of debt and accrued
interest. SOP 93-6 did not impact the Bank's recognition of compensation expense
as all shares currently held by the Bank's ESOP were purchased prior to December
31, 1992. Therefore, for the shares currently held by the ESOP, the Bank will
continue to recognize compensation expense equal to the amount of cash
contributed to the ESOP. All shares held by the ESOP are considered outstanding
for earnings per share computations, and all dividends on ESOP shares are
recorded as a reduction of retained earnings.
STOCK OPTION PLAN: The Board of Directors of the Company has adopted the CB
Bancorp, Inc. 1992 Incentive Stock Option Plan (the "Option Plan"). The number
of options authorized under the Plan is 89,892 shares of common stock, restated
for the 1994 100% stock dividend. Officers and employees of the Company and its
subsidiary are eligible to participate in the Option Plan. The option exercise
price must be at least 100% of the fair market value of the common stock on the
date of the grant, and the option term cannot exceed 10 years. Eligible officers
and employees of the Company can exercise options awarded to them at a rate of
20% per year. A total of 89,892 options were granted at an exercise price of $5
per share, restated for the 1994 100% stock dividend.
A-35
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 11--EMPLOYEE BENEFITS (CONTINUED)
Activity in the Option Plan for years ended March 31 is summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
RANGE OF OPTION --------------------
EXERCISE PRICE 1996 1995
--------------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year............................. $5.00-$8.50 86,424 87,708
Options exercised........................................ $5.00 (5,951) (1,284)
--------- ---------
Balance at end of year................................... $5.00-$8.50 80,473 86,424
--------- ---------
--------- ---------
</TABLE>
OUTSIDE DIRECTORS' CONSULTATION AND RETIREMENT PLAN: The Board of Directors
adopted the Outside Directors' Consultation and Retirement Plan (the "Directors'
Consultation Plan"). The purpose of the Directors' Consultation Plan is to
provide possible retirement benefits to directors who are not officers or
employees of the Company to ensure that the Company will have their continued
service and assistance, if bought by and annually contracted for by the Board of
Directors in the conduct of the Company's business in the future. These persons
will, if contracted for, be eligible, upon retirement, to receive an annual
benefit equal to a portion of the annual retainer fee, determined as of the
director's retirement date, set forth in the table below. The annual benefits
will be provided in monthly installments for the number of months a director has
agreed to provide consulting services after retirement from the Board, not to
exceed ten years. All benefits will cease upon a director's death. An expense of
approximately $37,000 and $80,000 was recorded for this plan for the years ended
March 31, 1996 and 1995. The resulting liability to the Company was
approximately $211,000 and $174,000 at March 31, 1996 and 1995 respectively.
<TABLE>
<CAPTION>
PERCENTAGE OF
YEARS OF SERVICE ANNUAL RETIREMENT BENEFIT
- ------------------------------------------------------------------ ---------------------------
<S> <C>
10................................................................ 25%
15................................................................ 50%
20................................................................ 75%
25................................................................ 100%
</TABLE>
Effective April 1, 1996, the Board of Directors of the Bank approved the
Outside Directors' Emeritus Plan (the "Directors' Emeritus Plan") to replace the
Outside Directors' Consultation and Retirement Plan. The purpose of the
Directors' Emeritus Plan is to ensure that the Bank may, if the Board so
desires, has the continued service and assistance of directors who are not
officers or employees of the Bank in the conduct of the Bank's business in the
future. These directors have provided, and will continue to provide, expertise
in enabling the Bank to experience successful growth and development.
The Directors' Emeritus Plan provides that a participant will be eligible,
upon termination due to retirement, resignation, discharge, death, disability or
otherwise, to receive an amount equal to the most recently received monthly
board fee paid to the outside director prior to his termination for a period of
48 months. Directors eligible to participate in the Directors' Emeritus Plan
consist of directors who are not active officers or employees of the Bank, who
have served as a director for at least three consecutive years and have obtained
the age of 55. However, an outside director with three years of continuous
service whose termination is due to retirement and is prior to his obtaining age
55 will become eligible to receive benefits under the Directors' Emeritus Plan
when he reaches age 55. In addition, if an outside director
A-36
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 11--EMPLOYEE BENEFITS (CONTINUED)
with three years of continuous service becomes disabled or dies prior to
reaching age 55 or prior to his electing director emeritus status, he or his
beneficiary shall receive benefits under the Directors' Emeritus Plan. The
resulting liability from the Directors' Emeritus Plan approximates the liability
accrued under the Directors' Consultation Plan.
NOTE 12--INCOME TAXES
The Company files consolidated income tax returns. If certain conditions are
met in determining taxable income, the Bank is allowed a special bad debt
deduction based on a percentage of taxable income (presently 8%) or on specified
experience formulas. The Bank used the percentage-of-taxable-income method for
all years presented below.
Income tax expense for the years ended March 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------- ------------
<S> <C> <C> <C>
Federal
Current............................................. $ 1,218,694 $ 754,847 $ 1,143,835
Deferred............................................ (146,818) 41 (64,857)
------------ ---------- ------------
1,071,876 754,888 1,078,978
------------ ---------- ------------
State
Current............................................. 363,345 236,603 346,797
Deferred............................................ (55,292) (21,217) (19,321)
------------ ---------- ------------
308,053 215,386 327,476
------------ ---------- ------------
Income tax expense.................................... $ 1,379,929 $ 970,274 $ 1,406,454
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
Total income tax expense differed from the amounts computed by applying the
federal income tax rate of 34% in all periods presented to income before income
taxes as a result of the following for the years ended March 31:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------- ------------
<S> <C> <C> <C>
Income taxes at statutory rate........................ $ 1,304,967 $ 894,377 $ 1,278,758
Tax effect of:
Non-taxable income.................................. (8,722) (10,828) (12,684)
Increase in cash surrender value of life
insurance......................................... (45,656) (40,798) (31,878)
State tax, net of federal income tax effect......... 203,315 142,155 216,134
Tax credits......................................... (70,000) -- --
Other items, net...................................... (3,975) (14,632) (43,876)
------------ ---------- ------------
Income tax expense................................ $ 1,379,929 $ 970,274 $ 1,406,454
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
A-37
<PAGE>
CB BANCORP. INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
NOTE 12--INCOME TAXES (CONTINUED)
The components of the net deferred tax asset recorded in the consolidated
balance sheets as of March 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets
Accumulated depreciation............................................ $ 41,359 $ 32,307
Bad debts........................................................... 265,804 8,223
Deferred compensation............................................... 80,384 61,014
Deferred loan fees.................................................. 147,439 171,217
Other............................................................... 4,130 4,891
---------- ----------
539,116 277,652
Deferred tax liabilities
FHLB stock dividend................................................. (25,865) (25,865)
Affordable housing partnership...................................... (48,745) --
Other............................................................... (33,659) (6,163)
---------- ----------
(108,269) (32,028)
Valuation allowance................................................... -- --
---------- ----------
Net deferred tax asset............................................ $ 430,847 $ 245,624
---------- ----------
---------- ----------
</TABLE>
Shareholders' equity at March 31, 1996 includes approximately $1,308,000 for
which no deferred federal income tax liability has been recognized. This amount
represents an allocation of income to bad debt deductions for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt losses or
adjustments arising from carry back of net operating losses would create income
for tax purposes only, which would be subject to the then current corporate
income tax rate. The unrecorded deferred income tax liability on the above
amount was approximately $445,000 at March 31, 1996.
NOTE 13--CAPITAL STANDARDS
Federal regulations require savings banks to have minimum regulatory
tangible capital equal to 1.5% of total assets, a 3% core capital ratio and an
8% risk-based capital ratio. Failure to meet a capital requirement exposes the
Bank to regulatory sanctions, including limitation on asset growth.
The Bank, at March 31, 1996 meets the regulatory tangible capital, core
capital and the risk-based capital requirements. At March 31, 1996, the Bank's
regulatory tangible capital was $16,026,000, or 7.80% of total assets; core
capital was $16,026,000 or 7.80% of total assets; and risk-based capital was
$17,191,000 or 15.20% of total risk-adjusted assets.
A-38
<PAGE>
CB BANCORP. INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 13--CAPITAL STANDARDS (CONTINUED)
The following is a reconciliation of capital under generally accepted
accounting principles (GAAP) to regulatory capital for the Bank at March 31,
1996:
<TABLE>
<CAPTION>
TANGIBLE RISK-BASED
CAPITAL CORE CAPITAL CAPITAL
------------- ------------- -------------
<S> <C> <C> <C>
GAAP capital.................................... $ 16,024,973 $ 16,024,973 $ 16,024,973
Additional capital items
General valuation allowances--limited......... 1,000 1,000 1,166,000
Other......................................... 27 27 27
------------- ------------- -------------
Regulatory capital--computed.................... 16,026,000 16,026,000 17,191,000
Minimum capital requirement..................... 3,072,000 6,144,000 9,045,000
------------- ------------- -------------
Regulatory capital--excess...................... $ 12,954,000 $ 9,882,000 $ 8,146,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Regulations of the Office of Thrift Supervision limit the amount of
dividends and other capital distributions that may be paid by a savings
institution without prior approval of the Office of Thrift Supervision. This
regulatory restriction is based on a three-tiered system with the greatest
flexibility being afforded to well-capitalized (Tier 1) institutions. The Bank
is currently a Tier 1 institution. Accordingly, the Bank can make, without prior
regulatory approval, distributions during a calendar year up to 100% of its net
income to date during the calendar year plus an amount that would reduce by
one-half its "surplus capital ratio" (the excess over its Fully Phased-in
Capital Requirements) at the beginning of the calendar year. Accordingly, at
March 31, 1996 approximately $4,464,000 of the Bank's retained earnings is
potentially available for distribution.
NOTE 14--GAINS AND LOSSES ON SALES OF INTEREST-EARNING ASSETS, NET
Gains and losses for the years ended March 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net realized gain on sale of securities held for sale............ $ -- $ -- $ 503
Net realized loss on sale of securities available-for-sale....... -- (650) --
Net realized gain on sales of first mortgage loans............... -- -- 2,010
Net realized gain on sales of mortgage loans held for sale....... 1,478 -- --
--------- --------- ---------
$ 1,478 $ (650) $ 2,513
--------- --------- ---------
--------- --------- ---------
</TABLE>
A-39
<PAGE>
CB BANCORP. INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 15--OTHER NONINTEREST INCOME AND EXPENSE
Other noninterest income and expense amounts for the years ended March 31
are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OTHER NONINTEREST INCOME
Commission income................................... $ 115,426 $ 127,968 $ 168,620
Service charges and fees............................ 506,034 539,137 447,378
Fees related to loans purchased under agreements to
resell............................................ 369,410 163,984 496,410
Late charge......................................... 21,510 23,126 28,311
Other............................................... 156,392 136,317 112,491
------------ ------------ ------------
$ 1,168,772 $ 990,532 $ 1,253,210
------------ ------------ ------------
------------ ------------ ------------
OTHER NONINTEREST EXPENSE
Advertising and promotion........................... $ 97,203 $ 93,048 $ 81,452
Data processing..................................... 247,017 243,144 246,641
Insurance........................................... 20,348 23,500 38,538
Professional fees................................... 174,265 159,707 159,264
Telephone, postage, and supplies.................... 204,903 183,116 162,966
Employee expenses................................... 195,216 145,113 132,207
Other............................................... 332,664 227,957 244,046
------------ ------------ ------------
$ 1,271,616 $ 1,075,585 $ 1,065,114
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NOTE 16--COMMITMENTS AND CONTINGENCIES
As of March 1, 1996, the Company leased a branch office in Merrillville,
Indiana. Rent expense for the year ended March 31, 1996 was approximately
$3,000. In accordance with the terms of the lease, the Company provides
liability insurance and pays repairs and maintenance costs. As of March 31,
1996, the future annual rental commitments under non-cancelable leases for five
years total approximately $183,000, which includes $35,000 in 1997 and 1998,
$36,000 in 1999, $38,000 in 2000 and $39,000 in 2001.
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet financing needs of its customers. These
financial instruments include commitments to make loans and unused lines of
credit. The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to make loans and
unused lines of credit is represented by the contractual amount of those
instruments. The Company follows the same credit policy to make such commitments
as it follows for those loans recorded in the financial statements.
A-40
<PAGE>
CB BANCORP. INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 16--COMMITMENTS AND CONTINGENCIES (CONTINUED)
At March 31, the Company had outstanding commitments as follows:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Fixed rate loans................................................. $ 137,000 $ 325,000
Variable rate loans.............................................. -- 679,000
Fixed rate unused lines of credit................................ 107,000 655,000
Variable rate unused lines of credit............................. 1,188,000 436,000
Unused letters of credit......................................... 4,074,000 4,360,000
Undisbursed construction loans in repurchase program (variable
rate).......................................................... 12,412,000
</TABLE>
Fixed rate commitments and lines of credit at March 31, 1996 are at current
rates, ranging primarily from 6.875% to 9.00% (loans) and 16.00% to 19.00%
(lines of credit). The fixed rate commitments and unused lines of credit are
primarily for terms ranging from 60 days to two years.
Variable rate lines of credit at March 31, 1996 are at current rates,
ranging from 9.25% to 10.75%. The letters of credit are based primarily on the
1-year U.S. Treasury note plus 300 basis points, with one additional letter of
credit based on the national prime rate of interest plus 100 basis points.
Since certain commitments to make loans, lines of credit and commitments to
fund loans in process expire without being used, the amounts do not necessarily
represent future cash commitments. In addition, 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.
The Bank is required to have approximately $800,000 and $625,000 of cash on
hand or on deposit with the Federal Reserve Bank of Chicago to meet regulatory
reserve requirements at March 31, 1996 and 1995, respectively.
The deposits of savings associations such as the Bank are presently insured
by the Saving Association Insurance Fund ("SAIF"). A recapitalization plan under
consideration by the Treasury Department, the FDIC, the OTS and the Congress
reportedly provides for a one-time assessment of .85% to .90% to be imposed on
all deposits insured by the SAIF in order to recapitalize the SAIF. No assurance
can be given, however, as to whether such a recapitalization plan will be
implemented. Based on the Company's deposits at March 31, 1996 in the amount of
$137.0 million, the Company's share of a one-time assessment of approximately
87.5 basis points would be approximately $1.2 million.
Community Financial has a 99% limited partner interest in Pedcor
Investments-1994-XX, L.P. which was formed for the construction, ownership, and
management of an 80 unit apartment project located in LaPorte County, Indiana.
Financing consists of a $2,550,000 first mortgage loan funded with tax exempt
bonds. The Bank is the lead lender in the debt financing arrangement and has
guaranteed through letters of credit $1,450,000 of the debt financing, which
represents the Bank's share of the mortgage loan. The remaining portion of the
debt financing is guaranteed by participating lenders through letters of credit
in amounts proportional to their loan amounts. The Bank and other lending
institutions have as their security a first mortgage lien and an assignment of
rents and leases on the apartment complex. As of March 31, 1996, Community
Financial has invested $1,678,573 in the limited partnership. Community
Financial contributed $228,573 in cash to the partnership while the remaining
$1,450,000 was funded by short-term
A-41
<PAGE>
CB BANCORP. INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 16--COMMITMENTS AND CONTINGENCIES (CONTINUED)
tax-exempt notes backed by a letter of credit issued by the Bank. Terms of the
partnership agreement allocate 99% of the eligible tax credits to the limited
partner. For the year ended March 31, 1996, the limited partner received $70,000
in tax credits, which were the first tax credits received from the limited
partnership.
NOTE 17--SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The Company grants real estate, commercial and consumer loans, including
home improvement and other consumer loans, primarily in LaPorte and Porter
counties of Indiana. Substantially all loans are secured by consumer assets and
real estate. Loans secured by real estate mortgages make up approximately 92% of
the loan portfolio at March 31, 1996 and are primarily secured by residential
mortgages. Loans purchased under agreements to resell are residential mortgage
loans secured by one-to-four family residences located throughout the United
States.
NOTE 18--RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Company are loan customers.
A summary of the aggregate amount of related party loan activity for those
directors, executive officers and their affiliates who have loans aggregating
$60,000 or more are as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance--April 1, 1995.......................................................... $ 367,013
New loans..................................................................... 169,998
Repayments.................................................................... (116,465)
Other changes................................................................. (59,433)
------------
Balance--March 31, 1996......................................................... $ 361,113
------------
------------
</TABLE>
Other changes include adjustments for loans applicable to one reporting
period that are excludable from the other reporting period.
A-42
<PAGE>
CB BANCORP. INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 19--SUBSIDIARY FINANCIAL STATEMENTS
Presented below are the condensed financial statements for the Bank's
wholly-owned subsidiary, Community Financial Services, Inc.
CONDENSED BALANCE SHEETS
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................................. $ 391,462 $ 515,800
Investment in limited partnership..................................................... 1,678,573 1,525,000
Other assets.......................................................................... (4,827) 7,151
------------ ------------
$ 2,065,208 $ 2,047,951
------------ ------------
------------ ------------
LIABILITIES
Obligation relative to limited partnership............................................ 1,450,000 1,450,000
Other liabilities..................................................................... 17,619 86,878
------------ ------------
1,467,619 1,536,878
SHAREHOLDER'S EQUITY.................................................................. 597,589 511,073
------------ ------------
$ 2,065,208 $ 2,047,951
------------ ------------
------------ ------------
</TABLE>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Operating income
Fees and commission income............................................... $ 126,301 $ 134,650 $ 173,476
Other income............................................................. 14,908 4,280 211
------------ ---------- ----------
141,209 138,930 173,687
Operating expense
Compensation............................................................. 70,306 63,181 42,930
Other expenses........................................................... 172,965 74,600 16,141
------------ ---------- ----------
243,271 137,781 59,071
------------ ---------- ----------
Income (loss) before income taxes.......................................... (102,062) 1,149 114,616
Income tax expense (benefit)............................................... (110,427) 490 48,711
------------ ---------- ----------
Net income................................................................. $ 8,365 $ 659 $ 65,905
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
A-43
<PAGE>
CB BANCORP. INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 20--PARENT COMPANY FINANCIAL STATEMENTS
Presented below are the condensed financial statements for the Parent
Company, CB Bancorp, Inc.
CONDENSED BALANCE SHEETS
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................................................... $ 2,779,683 $ 2,047,780
Interest-earning deposits in financial institutions................................ -- 390,763
Securities available-for-sale...................................................... 165,682 130,296
Investment in subsidiary........................................................... 16,024,973 14,147,322
Other assets....................................................................... -- 56,517
------------- -------------
$ 18,970,338 $ 16,772,678
------------- -------------
------------- -------------
LIABILITIES $ 138,154 $ 94,717
SHAREHOLDER'S EQUITY 18,832,184 16,677,961
------------- -------------
$ 18,970,338 $ 16,772,678
------------- -------------
------------- -------------
</TABLE>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Income
Interest income....................................................... $ 109,375 $ 91,677 $ 121,010
Dividends from the Bank............................................... 600,000 600,000 --
Other income.......................................................... -- 1,900 7,700
------------ ------------ ------------
709,375 693,577 128,710
Expenses................................................................
Compensation.......................................................... 29,962 28,156 20,665
Other expenses........................................................ 62,478 68,771 84,329
------------ ------------ ------------
92,440 96,927 104,994
------------ ------------ ------------
Income before income tax expense........................................ 616,935 596,650 23,716
Income tax expense (benefit)............................................ 7,198 (1,424) 9,763
------------ ------------ ------------
Income before equity in income of Bank.................................. 609,737 598,074 13,953
Equity in income of Bank................................................ 1,848,473 1,062,173 2,340,647
------------ ------------ ------------
Net income.............................................................. $ 2,458,210 $ 1,660,247 $ 2,354,600
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
A-44
<PAGE>
CB BANCORP. INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 20--PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income..................................................... $ 2,458,210 $ 1,660,247 $ 2,354,600
Adjustments to reconcile net income to net cash from operating
activities...................................................
Loans purchased under agreements to resell................... -- (4,568,273) (22,320,404)
Sale of loans purchased under agreements to resell........... -- 5,123,647 21,765,030
Equity in income of Bank..................................... (1,848,473) (1,062,173) (2,340,646)
Change in other assets....................................... 56,517 76,217 (115,816)
Change in other liabilities.................................. 135,572 35,766 40,081
-------------- -------------- ---------------
Net cash from operating activities......................... 801,826 1,265,431 (617,155)
Cash flows from investing activities.............................
Change in interest-earning deposits in financial
institutions................................................. 390,763 (390,763) 395,000
Purchase of securities available-for-sale...................... (35,386) (125,466) --
-------------- -------------- ---------------
Net cash from investing activities......................... 355,377 (516,229) 395,000
Cash flows from financing activities.............................
Purchase of treasury stock..................................... (557,427) (243,875) (559,363)
Issuance of shares of treasury stock........................... 67,916 54,580 20,921
Contribution to fund ESOP...................................... 64,211 64,211 64,211
-------------- -------------- ---------------
Net cash from financing activities......................... (425,300) (125,084) (474,231)
-------------- -------------- ---------------
Net change in cash and cash equivalents.......................... 731,903 624,118 (696,386)
Cash and cash equivalents at beginning of period................. 2,047,780 1,423,662 2,120,048
-------------- -------------- ---------------
Cash and cash equivalents at end of period....................... $ 2,779,683 $ 2,047,780 $ 1,423,662
-------------- -------------- ---------------
-------------- -------------- ---------------
</TABLE>
NOTE 21--FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 prescribes that the
Company disclose the estimated fair value of its financial instruments. The
following table shows those values and the related
A-45
<PAGE>
CB BANCORP. INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 21--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
carrying amounts at March 31, 1996 for the Company. Items which are not
financial instruments are not included.
<TABLE>
<CAPTION>
CARRYING ESTIMATED FAIR
AMOUNT VALUE
-------------- --------------
<S> <C> <C>
Cash and cash equivalents.................................... $ 6,062,923 $ 6,062,923
Securities available-for-sale................................ 620,948 620,948
Securities held-to-maturity.................................. 5,674,726 5,644,000
Federal Home Loan Bank stock................................. 2,702,000 2,702,000
Mortgage-backed and related securities held-to-maturity...... 10,192,178 10,282,000
Loans........................................................ 171,301,372 171,967,000
Mortgage loans held for sale................................. 512,750 513,000
Demand and savings deposits.................................. (68,390,229) (68,390,000)
Time deposits................................................ (68,656,902) (68,804,000)
Borrowed funds............................................... (45,124,355) (45,114,000)
</TABLE>
For purposes of the above disclosures of estimated fair value, the following
assumptions were used as of March 31, 1996. The estimated fair value for cash
and cash equivalents and interest-earning deposits is considered to approximate
cost. The estimated fair value for securities and mortgage-backed and related
securities is based on quoted market values for the individual securities or for
equivalent securities. The estimated fair value for loans is based on estimates
of the rate the Company would charge for similar such loans at March 31, 1996,
applied for the same time period until estimated payment. The estimated fair
value for demand and savings deposits is based on their carrying value. The
estimated fair value for certificates of deposit is based on estimates of the
rate the Company would pay on such deposits at March 31, 1996, applied for the
same time period until maturity. The estimated fair value of accrued interest
receivable and payable and other financial instruments and off-balance sheet
loan commitments approximate cost and are not considered significant for this
presentation.
While these estimates of fair value are based on management's judgement of
the most appropriate factors, there is no assurance that were the Company to
have disposed of such items at March 31, 1996, the estimated fair values would
necessarily have been achieved at these dates, since market values may differ
depending on various circumstances. The estimated fair values at March 31, 1996
should not necessarily be considered to apply at subsequent dates.
In addition, other assets and liabilities of the Company that are not
defined as financial instruments are not included in the above disclosures, such
as property and equipment. Also, non-financial instruments typically not
recognized in financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the trained work force, customer goodwill, and similar
items.
NOTE 22--IMPACT OF NEW ACCOUNTING STANDARDS
Several new accounting standards have been issued by the FASB that will
apply in 1996. Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets
A-46
<PAGE>
CB BANCORP. INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996, 1995 AND 1994
NOTE 22--IMPACT OF NEW ACCOUNTING STANDARDS (CONTINUED)
and for Long-Lived Assets To Be Disposed Of", requires a review of long-term
assets for impairment of recorded value and resulting write-downs if the value
is impaired. SFAS No. 122, "Accounting for Mortgage Servicing Rights", requires
recognition of an asset when servicing rights are retained on in-house
originated loans that are sold. SFAS No. 123, "Accounting for Stock-Based
Compensation" encourages, but does not require, entities to use a "fair value
based method" to account for stock-based compensation plans. If the fair value
accounting encouraged is not adopted, entities must disclose the pro forma
effect on net income and on earnings per share had the accounting been adopted.
These statements are not expected to have a material effect on the Company's
consolidated financial position or results of operations.
A-47
<PAGE>
CB BANCORP, INC.
BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Joseph F. Heffernan Chairman, President and C.E.O.
Marvin L. Kominiarek, Jr. Divisional President, Financial Services, Incorporated
Jon R. Bausback Optometrist, Michigan City, Indiana
James J. Broad Chairman and President, Imperial Steel Tank Co.,
Chicago, Illinois and Owner, Three Oaks Ford, Mercury,
Three Oaks, Michigan
Ken O. Fryar Architect, Michigan City, Indiana
Robert V. Ott Owner, Ott Realty and Appraisal Co., LaPorte, Indiana
J. Patrick Smith Attorney, LaPorte, Indiana
OFFICERS
Joseph F. Heffernan Chairman, President and C.E.O.
George L. Koehm Vice President and Treasurer
Daniel R. Buresh Vice President and Controller
Allen E. Jones Secretary
</TABLE>
COMMUNITY BANK, A FEDERAL SAVINGS BANK
BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Joseph F. Heffernan Chairman, President and C.E.O.
Marvin L. Kominiarek, Jr. Divisional President, Financial Services, Incorporated
Jon R. Bausback Optometrist, Michigan City, Indiana
Ken O. Fryar Architect, Michigan City, Indiana
Robert V. Ott Owner, Ott Realty and Appraisal Co., LaPorte, Indiana
J. Patrick Smith Attorney, LaPorte, Indiana
James J. Broad Chairman and President, Imperial Steel Tank Co.,
Chicago, Illinois and Owner, Three Oaks Ford, Mercury,
Three Oaks, Michigan
OFFICERS
Joseph F. Heffernan Chairman, President and C.E.O.
Daniel R. Buresh Vice President and Controller
George L. Koehm Vice President and Treasurer
James D. Neff Vice President--Lending
Allen E. Jones Assistant Vice President and Secretary
Frances M. Brennan Assistant Vice President
Patrick W. Collins Assistant Vice President
David Jocelyn Assistant Vice President
Robert E. Johnson Assistant Vice President
Monica L. Komasinski Assistant Vice President
Mary Kominiarek Assistant Vice President
Carlyne Graves Assistant Secretary
Betty J. Peo Assistant Secretary
</TABLE>
A-48
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
SHAREHOLDER INFORMATION
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders will be held at the Michigan City Holiday
Inn, 5820 S. Franklin, Michigan City, Indiana on July 24, 1996 at 10:00 a.m.
COMMON SHARES
CB Bancorp, Inc., common stock is listed and traded on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ")
Small-Cap Market under the symbol CBCO. Stock price quotations are published in
daily newspapers including the Wall Street Journal. As of March 31, 1996, CB
Bancorp, Inc. had approximately 260 holders of record of the Company's shares,
not including those investors holding the Company's stock in street name.
STOCK PRICES
The following table sets forth the common share prices and number of shares
traded during the 8 quarters ended March 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF
QUARTER ENDED HIGH BID LOW BID SHARES TRADED
- ---------------------- ---------- ---------- -------------
<S> <C> <C> <C>
June 30, 1994 131/4 101/4 379,702
September 30, 1994 123/4 111/2 471,474
December 31, 1994 12 10 197,539
March 31, 1995 111/4 101/2 100,647
June 30, 1995 123/4 111/4 90,493
September 30, 1995 151/4 121/2 302,837
December 31, 1995 173/4 151/4 188,720
March 31, 1996 19 171/4 153,347
</TABLE>
REGISTRAR AND STOCK TRANSFER AGENT
Inquiries regarding stock transfer, registration, lost certificates or
changes in name and/or address should be directed to the stock transfer agent
and registrar in writing.
ATTN: Investor Relations
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
NASDAQ MARKET MAKERS
As of March 31, 1996 the following firms were market makers in the Company's
shares:
<TABLE>
<S> <C>
Capital Resources, Inc. Sherwood Securities Corp.
Herzog, Heine, Geduld, Inc. Stifel Nicolaus & Co.
Howe, Barnes & Johnson, Inc. The Ohio Company
Natcity Investments, Inc.
</TABLE>
FORM 10-KSB
A copy of CB Bancorp, Inc.'s, Form 10-KSB (Annual Report), filed with the
Securities and Exchange Commission, may be obtained by writing to Mr. George L.
Koehm, Vice President and Treasurer, CB Bancorp, Inc., 126 E. Fourth Street,
Michigan City, Indiana 46360.
A-49
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
<TABLE>
<S> <C>
CORPORATE OFFICE CB Bancorp, Inc.
126 E. Fourth Street
P.O. Box 363
Michigan City, Indiana 46360
INDEPENDENT AUDITORS Crowe, Chizek and Company, LLP
330 East Jefferson Blvd.
P.O. Box 7
South Bend, Indiana 46624
CORPORATE COUNSEL C.T. Kitowski
126 W. Fourth Street
Michigan City, Indiana 46360
SPECIAL COUNSEL Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Suite 500
Washington D.C. 20016
COMMUNITY BANK, A FEDERAL SAVINGS BANK OFFICES
MAIN OFFICE 126 E. Fourth Street
Michigan City, Indiana 46360
(219) 873-2800
SOUTHSIDE OFFICE 3710 S. Franklin Street
Michigan City, Indiana 46360
(219) 879-3326
LAPORTE OFFICE 801 Monroe Street
LaPorte, Indiana 46350
(219) 362-6195
MERRILLVILLE LOAN OFFICE 701 E. 83rd Ave. Suite E
Merrillville, Indiana 46410
(219) 791-9171
</TABLE>
A-50
<PAGE>
ANNEX B
CB BANCORP, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
<PAGE>
- ---------------------------------------------------------
- ---------------------------------------------------------
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996,
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-20742
------------------------
CB BANCORP, INC
<TABLE>
<S> <C>
DELAWARE 35-1866127
(State or other jurisdiction (I.R.S. Employee
of incorporation or organization) Identification Number)
126 E FOURTH STREET
MICHIGAN CITY, INDIANA 46360
(Address of principal executive office) (Zip code)
</TABLE>
Registrant's telephone number, including area code: (219) 873-2800
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
(1) Yes /X/. No / /.
(2) Yes /X/. No / /.
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding for the issuer's classes of common stock as of the latest
practicable date.
<TABLE>
<S> <C>
COMMON STOCK 1,162,279 SHARES
(Class) (Outstanding)
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE>
CB BANCORP, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ---------- --------------------------------------------------------------------------------------------- ---------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets, December 31, 1996 and March 31, 1996............................ 1
Consolidated Statements of Income, Three and Nine Months Ended December 31, 1996 and 1995.... 2
Consolidated Statements of Changes in Shareholders' Equity, Nine Months Ended December 31,
1996 and 1995.............................................................................. 3
Consolidated Statements of Cash Flows, Nine Months Ended December 31, 1996 and 1995.......... 4
Notes to Financial Statements................................................................ 5-10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 11-19
<CAPTION>
PART II. OTHER INFORMATION
- ---------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Item 1 Legal Proceedings............................................................................ 20
Item 2-5 N/A.......................................................................................... 20
Item 6 Exhibits and Reports on Form 8-K............................................................. 20
Signature Page........................................................................................... 21
</TABLE>
<PAGE>
CB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DEC. 31, MARCH 31,
1996 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from financial institutions.................................................. $ 4,088 $ 4,755
Interest-earning deposits--Short Term..................................................... 2,226 1,308
---------- ----------
Cash and cash equivalents................................................................. 6,314 6,063
Securities available-for-sale (reportedat fair value (Note 2)............................. 648 621
Securities held-to-maturity (fair value: Dec. 31, 1996--$5,916; March 31, 1996-- $5,644)
(Note 2)................................................................................ 5,939 5,675
Other Securities--Federal Home Loan Bank Stock (Note 2)................................... 2,752 2,702
Mortgage-backed and related securities held-to-maturity (fair value: Dec. 31,
1996--$9,348; March 31, 1996--$10,282) (Note 3)......................................... 9,239 10,192
Loans
Loans purchased under agreements to resell (Note 5)..................................... 101,511 80,031
Loans receivable........................................................................ 90,442 92,616
Less: Allowance for possible loan losses................................................ (2,309) (1,346)
---------- ----------
189,644 171,301
Mortgage loans held for sale.............................................................. 2,099 513
Accrued interest receivable............................................................... 1,268 1,183
Premises and equipment, net............................................................... 2,870 2,387
Investment in limited partnership (Note 8)................................................ 1,633 1,679
Other assets.............................................................................. 4,147 3,069
---------- ----------
Total assets.......................................................................... $ 226,553 $ 205,385
---------- ----------
---------- ----------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Liabilities
Deposits.................................................................................. $ 150,803 $ 137,047
Borrowed funds............................................................................ 53,000 45,124
Advance payment by borrowers for taxes and insurance...................................... 580 1,214
Obligation relative to limited partnership (Note 8)....................................... 1,468 1,450
Accrued expenses and other liabilities.................................................... 694 1,718
---------- ----------
Total liabilities..................................................................... 206,545 186,553
Commitments and contingencies (Note 7)
Shareholders' equity
Serial preferred stock, no par value, 500,000 shares authorized; none outstanding
Common Stock: $.01 Par Value, 3,000,000 shares authorized, 1,284,238 Shares Issued........ 13 13
Additional Paid-in capital................................................................ 5,803 5,813
Retained earnings, substantially restricted............................................... 15,890 14,324
Less Treasury Stock: (Shares at cost: Dec. 31, 1996--121,959; (1,543) (1,082)
March 31, 1996--96,012) Net unrealized net appreciation on securities available-
for-sale................................................................................ 46 26
Less common stock acquired by employee stock ownership plan............................... (193) (241)
Less common stock acquired by recognition and retention plan.............................. (8) (21)
---------- ----------
Total shareholders' equity............................................................ 20,008 18,832
---------- ----------
Total liabilities and shareholders' equity............................................ $ 226,553 $ 205,385
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements
B-1
<PAGE>
CB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS
ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(IN THOUSANDS-EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable...................................................... $ 1,840 $ 1,931 $ 5,602 $ 5,623
Loans purchased under agreements to resell............................ 1,931 1,576 5,487 3,780
Securities available-for-sale......................................... 8 54 23 161
Securities held-to-maturity........................................... 153 86 424 259
Mortgage-backed securities held-to-maturity........................... 159 164 484 524
Other interest-earning deposits....................................... 12 17 22 55
--------- --------- --------- ---------
Total interest income................................................. 4,103 3,828 12,042 10,402
--------- --------- --------- ---------
Interest expense:
Deposits.............................................................. 1,474 1,385 4,154 3,765
Borrowed funds........................................................ 570 558 1,801 1,369
--------- --------- --------- ---------
Total interest expense................................................ 2,044 1,943 5,955 5,134
--------- --------- --------- ---------
Net interest income..................................................... 2,059 1,885 6,087 5,268
Less provision for loan losses........................................ 450 99 861 238
--------- --------- --------- ---------
Net interest income after provision for loan losses................... 1,609 1,786 5,226 5,030
--------- --------- --------- ---------
Noninterest income:
Gain (loss) on sale of interest-earning assets........................ 79 0 200 0
Commission income..................................................... 19 25 68 73
Service charges and fees.............................................. 133 127 392 374
Fees--loans purchased under agreements to resell...................... 178 104 486 242
Late charges.......................................................... 6 6 20 17
Other................................................................. 30 56 95 132
--------- --------- --------- ---------
Total noninterest income.............................................. 445 318 1,261 838
--------- --------- --------- ---------
Noninterest expense:
Compensation and employee benefits.................................... 483 400 1,437 1,147
Occupancy and equipment............................................... 147 117 448 376
SAIF deposit insurance premium........................................ 73 67 943 194
Data processing fees.................................................. 59 60 179 181
Telephone, postage and supplies....................................... 71 53 196 149
Advertising and promotion............................................. 28 24 93 70
Professional fees..................................................... 80 40 215 113
Employee expense and payroll taxes.................................... 75 52 221 137
Other................................................................. 119 86 398 280
--------- --------- --------- ---------
Total noninterest expense............................................. 1,135 899 4,130 2,647
--------- --------- --------- ---------
Income before taxes..................................................... 919 1,205 2,357 3,221
Income tax expense...................................................... 318 472 791 1,246
--------- --------- --------- ---------
Net income.............................................................. $ 601 $ 733 $ 1,566 $ 1,975
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share (Note 6)............................................. $ 0.49 $ 0.58 $ 1.26 $ 1.57
Earnings per share assuming full dilution (Note 6)...................... $ 0.49 $ 0.58 $ 1.26 $ 1.56
</TABLE>
See accompanying notes to consolidated financial statements
B-2
<PAGE>
CB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
UNREALIZED
LOSSES ON ACQUIRED BY
RETAINED SECURITIES PAID IN TREASURY --------------------
NINE MONTHS ENDED DEC. 31, 1995 EARNINGS A.F.S COMMON STOCK CAPITAL STOCK ESOP RRP
- ------------------------------------- --------- ------------- ------------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1995............. $ 11,865 $ 2 $ 13 $ 5,822 $ (671) $ (305) (48)
Net income........................... 1,975
Issuance of treasury stock........... (75) 140
Purchase of treasury stock........... (554)
Contribution to fund ESOP............ 48
Amortization of RRP contribution..... 23
Net change in unrealized net
depreciation of securities
available-for-sale................. 23
--------- --- --- --------- --------- --------- ---
Balance at Dec. 31, 1995............. $ 13,840 $ 25 $ 13 $ 5,747 $ (1,085) $ (257) $ (25)
--------- --- --- --------- --------- --------- ---
--------- --- --- --------- --------- --------- ---
<CAPTION>
TOTAL
SHAREHOLDERS
NINE MONTHS ENDED DEC. 31, 1995 EQUITY
- ------------------------------------- ------------
<S> <C>
Balance at April 1, 1995............. $ 16,678
Net income........................... 1,975
Issuance of treasury stock........... 65
Purchase of treasury stock........... (554)
Contribution to fund ESOP............ 48
Amortization of RRP contribution..... 23
Net change in unrealized net
depreciation of securities
available-for-sale................. 23
------------
Balance at Dec. 31, 1995............. $ 18,258
------------
------------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK
UNREALIZED
LOSSES ON ACQUIRED BY
RETAINED SECURITIES PAID IN TREASURY --------------------
NINE MONTHS ENDED DEC. 31, 1996 EARNINGS A.F.S COMMON STOCK CAPITAL STOCK ESOP RRP
- ------------------------------------- --------- ------------- ------------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1996............. $ 14,324 $ 26 $ 13 $ 5,813 $ (1,082) $ (241) $ (21)
Net income........................... 1,566
Issuance of treasury stock........... (10) 19
Purchase of treasury stock........... (480)
Contribution to fund ESOP............ 48
Amortization of RRP contribution..... 13
Net change in unrealized net
depreciation of securities
available-for-sale................. 20
--------- --- --- --------- --------- --------- ---
Balance at Dec. 31, 1996............. $ 15,890 $ 46 $ 13 $ 5,803 $ (1,543) $ (193) $ (8)
--------- --- --- --------- --------- --------- ---
--------- --- --- --------- --------- --------- ---
<CAPTION>
TOTAL
SHAREHOLDERS
NINE MONTHS ENDED DEC. 31, 1996 EQUITY
- ------------------------------------- ------------
<S> <C>
Balance at April 1, 1996............. $ 18,832
Net income........................... 1,566
Issuance of treasury stock........... 9
Purchase of treasury stock........... (480)
Contribution to fund ESOP............ 48
Amortization of RRP contribution..... 13
Net change in unrealized net
depreciation of securities
available-for-sale................. 20
------------
Balance at Dec. 31, 1996............. $ 20,008
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements
B-3
<PAGE>
CB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
----------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................................. $ 1,566 $ 1,975
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization........................................................ 119 148
Provision for loan losses............................................................ 861 238
(Gain) loss on sale of:
Interest earning assets............................................................ (200) 0
Foreclosed Real Estate............................................................. 1 0
Loans purchased under agreements to resell........................................... (804,324) (525,553)
Sale of loans purchased under agreements to resell................................... 782,844 477,967
Mortgage loans originated for sale................................................... (12,715) 0
Proceeds from sales of mortgage loans held for sale.................................. 11,129 0
Amortization of RRP contribution..................................................... 13 23
Change in accrued interest receivable................................................ (85) (394)
Change in other assets............................................................... (1,078) 289
Change in accrued interest payable and other liabilities............................. (1,024) 23
---------- ----------
Net cash from operating activities............................................... (22,893) (45,284)
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on:
Mortgage-backed securities held-to-maturity.......................................... 1,646 1,856
Securities available for sale........................................................ 6 0
Purchase of:
Securities and mortgage backed securities held-to-maturity........................... (3,719) (5,272)
Federal Home Loan Bank Stock......................................................... (50) (202)
Proceeds from:
Maturities of securities held-to-maturity............................................ 2,756 5,894
Purchase of loans...................................................................... 0 (1,527)
Net change in loans.................................................................... 2,180 (3,662)
Net change in interest-earning deposits in other financial institutions................ 0 983
Investment in limited partnership...................................................... 46 (41)
Proceeds from the sale of foreclosed real estate....................................... 333 67
Property and equipment purchases....................................................... (637) (67)
---------- ----------
Net cash from investing activities............................................... 2,561 (1,971)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits................................................................. 13,746 11,536
Net change in advances from borrowers for taxes and insurance.......................... (634) (513)
New borrowings......................................................................... 1,260,326 1,354,570
Repayments of borrowed funds........................................................... (1,252,432) (1,311,703)
Contribution to fund ESOP.............................................................. 48 65
Issuance of treasury stock............................................................. 9 48
Purchase of treasury stock............................................................. (480) (554)
---------- ----------
Net cash from financing activities............................................... 20,583 53,449
---------- ----------
Net change in cash and cash equivalents.................................................. 251 6,194
Cash and cash equivalents at beginning of period......................................... 6,063 3,543
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................... $ 6,314 $ 9,737
---------- ----------
---------- ----------
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest............................................................................. $ 5,846 $ 5,549
Income taxes......................................................................... 1,634 1,090
Noncash investing activities
Real estate acquired in settlement of loans.......................................... $ 334 $ 0
</TABLE>
See accompanying notes to financial statements
B-4
<PAGE>
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-QSB and, therefore, do not include
all disclosures required by generally accepted accounting principles for
complete presentation of financial statements. In the opinion of management, the
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the consolidated balance
sheets of CB Bancorp, Inc., ("the Company"), and its wholly owned subsidiary,
Community Bank, A Federal Savings Bank ("the Bank"), as of December 31, 1996 and
March 31, 1996 and the consolidated statements of income, changes in
shareholders' equity and cash flows for the nine months ended December 31, 1996
and 1995. All significant intercompany transactions and balances are eliminated
in consolidation. The income reported for the three and nine months ended
December 31, 1996 is not necessarily indicative of the results that may be
expected for the full fiscal year. For other accounting policies refer to the
financial statements incorporated by reference in the Annual Report or Form
10-KSB for the fiscal year ended March 31, 1996.
NOTE 2--SECURITIES
The amortized cost and fair values of securities at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
- --------------------------------------------------------------------
Marketable Equity securities........................................ $ 572 77 (1) 648
----------- ----- ----- ---------
----------- ----- ----- ---------
<CAPTION>
HELD-TO-MATURITY
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and U.S. Government agency securities............... $ 3,000 $ -- $ (29) $ 2,971
Corporate notes..................................................... 2,939 7 (1) 2,945
----------- ----- ----- ---------
Total............................................................. $ 5,939 $ 7 $ (30) $ 5,916
----------- ----- ----- ---------
----------- ----- ----- ---------
<CAPTION>
OTHER SECURITIES
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock in Federal Home Loan Bank..................................... $ 2,752 $ -- $ -- $ 2,752
----------- ----- ----- ---------
----------- ----- ----- ---------
</TABLE>
The amortized cost and fair values of securities at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
- --------------------------------------------------------------------
Marketable Equity securities........................................ 578 44 (1) 621
----------- ----- ----- ---------
----------- ----- ----- ---------
<CAPTION>
HELD-TO-MATURITY
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and U.S. Government agency securities............... $ 3,000 $ -- $ (30) $ 2,970
Corporate notes..................................................... 2,675 5 (6) 2,674
----------- ----- ----- ---------
Total............................................................. $ 5,675 $ 5 $ (36) $ 5,644
----------- ----- ----- ---------
----------- ----- ----- ---------
<CAPTION>
OTHER SECURITIES
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock in Federal Home Loan Bank..................................... $ 2,702 $ -- $ -- $ 2,702
----------- ----- ----- ---------
----------- ----- ----- ---------
</TABLE>
B-5
<PAGE>
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SECURITIES (CONTINUED)
The amortized cost and fair value of debt securities at December 31, 1996,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
DEC. 31, 1996
----------------------
AMORTIZED FAIR
COST VALUE
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less.................................................. $ 2,446 $ 2,448
Due after one year through five years.................................... 3,493 3,468
----------- ---------
$ 5,939 $ 5,916
----------- ---------
----------- ---------
</TABLE>
There were no sales of securities available-for-sale during the nine months
ended December 31, 1996.
At December 31, 1996, there were no holdings of securities of any one
issuer, other than the U.S. government and its agencies and corporations, in
amounts greater than 10% of shareholders' equity.
NOTE 3--MORTGAGE-BACKED AND RELATED SECURITIES
The carrying value and fair value of mortgage-backed and related securities
held-to-maturity as presented on the balance sheets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------
PRINCIPAL UNAMORTIZED UNEARNED CARRYING FAIR
BALANCE PREMIUMS DISCOUNTS VALUE VALUE
--------- --------------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
GNMA certificates...................................... $ 3,309 $ 6 $ (5) $ 3,310 $ 3,375
FHLMC certificates..................................... 4,678 -- (2) 4,676 4,708
FNMA certificates...................................... 900 -- (10) 890 901
Collateralized mortgage obligations.................... 365 -- (2) 363 364
--------- --- ----- --------- ---------
Total.............................................. $ 9,252 $ 6 $ (19) $ 9,239 $ 9,348
--------- --- ----- --------- ---------
--------- --- ----- --------- ---------
<CAPTION>
MARCH 31, 1996
-------------------------------------------------------------
PRINCIPAL UNAMORTIZED UNEARNED CARRYING FAIR
BALANCE PREMIUMS DISCOUNTS VALUE VALUE
--------- --------------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
GNMA certificates...................................... $ 3,600 $ 9 $ (10) $ 3,599 $ 3,646
FHLMC certificates..................................... 4,892 3 (6) 4,889 4,914
FNMA certificates...................................... 880 -- (8) 872 886
Collateralized mortgage obligations.................... 834 1 (3) 832 836
--------- --- ----- --------- ---------
Total.............................................. $ 10,206 $ 13 $ (27) $ 10,192 $ 10,282
--------- --- ----- --------- ---------
--------- --- ----- --------- ---------
</TABLE>
B-6
<PAGE>
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--MORTGAGE-BACKED AND RELATED SECURITIES (CONTINUED)
Gross unrealized gains and losses on mortgage-backed and related securities
held-to-maturity are as follows:
<TABLE>
<CAPTION>
DEC. 31, 1996 MARCH 31, 1996
---------------------------- ----------------------------
GROSS GROSS GROSS GROSS
UNREALIZED UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES GAINS LOSSES
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA certificates................................................ $ 65 $ -- $ 53 $ (7)
FHLMC certificates............................................... 40 (8) 72 (47)
FNMA certificates................................................ 11 -- 14 --
Collateralized mortgage obligations.............................. 2 (1) 4 --
----- ----- ----- ---
Total........................................................ $ 118 $ (9) $ 143 $ (54)
----- ----- ----- ---
----- ----- ----- ---
</TABLE>
The Company did not sell any mortgage-backed and related securities
held-to-maturity during the nine months ended December 31, 1996 and during the
nine months ended December 31, 1995.
NOTE 4--CONCENTRATIONS OF CREDIT RISK
The Company grants real estate and consumer loans including education, home
improvement and other consumer loans primarily in LaPorte and Porter counties of
Indiana. Substantially all loans are secured by consumer assets and real estate.
Loans purchased under agreements to resell are residential mortgage loans
secured by one to four family residences located throughout the United States.
NOTE 5--LOANS PURCHASED UNDER AGREEMENTS TO RESELL
The Company purchases residential mortgage loans from various mortgage
companies prior to sale of these loans by the mortgage companies in the
secondary market. The Company purchases such loans from mortgage companies at
par, net of certain fees, and later sells them back to the mortgage companies at
the same amount and without recourse provisions. The Company records interest
income on the loans during the funding period and the Company records fee income
(recorded as noninterest income) received from the mortgage company for each
loan when resold. Purchase money and refinance mortgage loans are generally held
no more than 90 days by the Company and typically are resold within 30 days.
Construction loan mortgages purchased, are held for the duration of the
construction period which is typically six months or longer. With regard to the
interim construction loans in the pipeline, the Company recognizes that there
may be credit risk due to possible change in the borrower's financial condition
during the interim construction period. The Company had approximately $32.7
million of interim construction loans in the pipeline at December 31, 1996 as
compared to $29.4 million at March 31, 1996.
NOTE 6--EARNINGS PER COMMON SHARE
Earnings per common and common equivalent share were computed by dividing
net income by the weighted-average number of shares of common stock and common
stock equivalents outstanding. Employee and Director stock options are
considered common stock equivalents. The weighted-average number of shares
outstanding for the calculation of earnings per common and common stock
equivalent share for the three months ended December 31, 1996 and 1995 was
1,237,895 and 1,254,192, respectively.
B-7
<PAGE>
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--EARNINGS PER COMMON SHARE (CONTINUED)
The weighted-average number of shares outstanding for the calculation of
fully-diluted earnings per common and common stock equivalent share for the
three months ended December 31, 1996 and 1995 was 1,238,077 and 1,254,613,
respectively.
The weighted-average number of shares outstanding for the calculation of
earnings per common and common stock equivalent share for the nine months ended
December 31, 1996 and 1995 was 1,241,567 and 1,261,923, respectively. The
weighted-average number of shares outstanding for the calculation of fully-
diluted earnings per common and common stock equivalent share for the nine
months ended December 31, 1996 and 1995 was 1,246,235 and 1,267,356,
respectively.
NOTE 7--COMMITMENTS AND CONTINGENCIES
The Company 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 financial instruments include commitments to make loans, standby letters
of credit and unused lines of credit. The Company's exposure to credit loss, in
the event of nonperformance by the other party to the financial instrument for
commitments to make loans, standby letters of credit and unused lines of credit,
is represented by the contractual amount of those instruments. The Company
follows the same credit policy to make such commitments as it follows for those
loans recorded in the financial statements. At December 31, 1996, and March 31,
1996, the Company had commitments to make loans totaling $558,000 and $137,000
respectively and standby letters of credit and unused lines of credit totaling
$6.7 million and $5.4 million, respectively. In addition, the Company's
undisbursed portion of construction loans in the repurchase program totaled
$12.0 million at December 31, 1996 and $12.4 million at March 31, 1996.
Outstanding commitments to make loans at December 31, 1996 consisted of nine
single family mortgage loans, consisting of three adjustable rate loans
totalling $215,000 and six fixed rate loans totalling $343,000. Since
commitments to make loans and to fund lines and letters of credit may expire
without being used, the amounts do not necessarily represent future cash
commitments.
NOTE 8--AFFORDABLE HOUSING TAX CREDIT PROJECT
The Company, through the Bank's subsidiary, Community Financial Services,
Incorporated, has a 99% limited partner interest in Pedcor Investments-1994-XX,
L.P. which was formed for the construction, ownership, and management of an 80
unit apartment project located in Michigan City, Indiana. Financing consists of
a $2,550,000 first mortgage loan funded with tax exempt bonds.
The Bank is the lead lender in the debt financing arrangement and has
guaranteed through letters of credit $1,550,000 of the debt financing, which
represents the Bank's share of the mortgage loan. The remaining portion of the
debt financing is guaranteed by participating lenders through letters of credit
in amounts proportional to their loan amounts. The Bank and other lending
institutions have as their security a first mortgage lien and assignment of
rents and leases on the apartment complex. As of December 31, 1996, Community
Financial has invested $1,633,000 in the limited partnership. Community
Financial contributed $165,000 in cash to the partnership while the remaining
$1,468,000 was funded by short-term tax-exempt notes backed by a letter of
credit issued by the Bank. Terms of the partnership agreement allocate 99% of
the eligible tax credits to the Company. For the year ended March 31, 1996, the
Company received $70,000 in tax credits, which were the first tax credits
received from the limited partnership. For the nine months ended December 31,
1996, the Company recorded $111,000 in anticipated tax credits from the limited
partnership.
B-8
<PAGE>
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Estimating the risk of loss and
the amount of loss on any loan is necessarily subjective. Accordingly, the
allowance is maintained by management at a level considered adequate to cover
losses that are currently anticipated. Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrowers ability to repay, the estimated value of any underlying
collateral, and current economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowance for losses on loans and foreclosed real estate. Such
agencies may require the Company to recognize additions to the allowances based
on their judgments of information available to them at the time of their
examination.
Activity in the allowance for loan losses was as follows for the nine months
ended December 31 (In Thousands).
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Balance at March 31.......................................................... $ 1,346 $ 672
Provision for loan losses.................................................... 861 238
Charged-off loans............................................................ (16) (3)
Recoveries................................................................... 118 --
--------- ---------
Balance at Dec. 31........................................................... $ 2,309 $ 907
--------- ---------
--------- ---------
</TABLE>
Information regarding impaired loans is as follows for the nine months ended
December 31, 1996:
<TABLE>
<S> <C>
Average investment in impaired loans............................... $ 2,853
Interest income recognized on impaired loans including interest
income recognized on cash basis.................................. 77
Interest income recognized on impaired loans on cash basis......... 67
</TABLE>
Information regarding impaired loans at December 31, 1996 is as follows:
<TABLE>
<S> <C>
Balance of impaired loans.......................................... $ 4,690
Less portion for which no allowance for loan losses is allocated... (1,223)
---------
Portion of impaired loan balance for which an allowance for loan
losses is allocated.............................................. $ 3,467
---------
---------
Portion of allowance for loan losses allocated to impaired loan
balance.......................................................... $ 629
---------
---------
</TABLE>
Of the total balance of impaired loans as of December 31, 1996, $1.6 million
relates to amounts associated with the Bennett Funding Group, Inc. and its
affiliate Aloha Capital Corporation (f.k.a. Bennett Leasing). Bennett Funding
Group, Inc. sought Chapter 11 Bankruptcy protection on March 29, 1996. Several
weeks later, Aloha Capital Corporation was placed into involuntary bankruptcy at
the request of the court appointed Bankruptcy Trustee for Bennett Funding Group,
Inc., who is now also the Bankruptcy Trustee for Aloha Capital Corporation. Per
the terms of the contractual arrangements, Bennett Funding Group, Inc. acts as
the servicing agent for the Company on one pool of leases purchased from that
entity,
B-9
<PAGE>
CB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--ALLOWANCE FOR LOAN LOSSES (CONTINUED)
wherein, at December 31, 1996, $396,000 of principal remained to be remitted to
the Company over the course of the remaining scheduled lease payments due from
individual lessees. Similarly, at December 31, 1996, $1.2 million of principal
remained to be remitted to the Company on three pools of leases purchased from
and serviced by Aloha Capital Corporation. Payment due the Company on the four
pools of leases were current at the time the respective servicing companies were
placed in bankruptcy. The Bankruptcy Trustee is monitoring the lease payment
billing and collection activities of the servicing companies and is segregating
the payments received from the individual lessees but has not yet allowed the
resumption of the payment stream due the Company. Management believes that it is
possible to recover 78.5% - 82% of the outstanding principal balance over the
remaining life of the leases. Management can make no assurances as to the
outcome of this matter, or if any of the outstanding principal balance will be
recovered. Management has allocated $329,000 in specific loan loss reserves at
December 31, 1996, for the Bennett Funding Group, Inc., leases.
Management has allocated $300,000 in specific loan loss reserves at December
31, 1996, for 23 single family construction loans, all located in the central
Indiana area, with a total balance outstanding of $2.5 million and total
unfunded commitments of $494,000 that are in workout situations. Twenty of these
loans are outstanding to a builder that is currently experiencing financial
difficulties and is in the process of filing Chapter 11 Bankruptcy. The
properties underlying these loans are in various stages of completion and
management has not yet determined the potential loss exposure on these loans.
The properties underlying the remaining three loans have a combined outstanding
balance of $1.2 million and construction is complete.
B-10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATION
GENERAL
The Company's results of operations are dependent primarily on the Bank. The
Bank's primary source of earnings is its net interest income which is the
difference between the interest income earned on its loans, mortgage-backed
securities and investment portfolios less its cost of funds, consisting of the
interest paid on its deposits and borrowings. Operating results are also
affected by the types of lending engaged in, fixed-rate versus adjustable or
short-term, each of which has a different rate and fee structure. The Company's
operating expenses principally consist of employee compensation and benefits,
occupancy and equipment expenses, federal deposit insurance premiums and other
general and administrative expenses. The Company's results of operations are
also significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
MORTGAGE LOAN REVERSE REPURCHASE PROGRAM
In fiscal 1991, the Company instituted the Mortgage Loan Reverse Repurchase
Program (the "Program"). There are currently seventy-nine active participants in
the Program. The Mortgage Loan Reverse Repurchase Program is carried out
pursuant to agreements with each participant which provide for the purchase at
par (less certain fees paid to the participant by the borrower) of whole
mortgage loans by the Company, at its option, and the subsequent resale of such
loans to the Participant (for transfer to an end investor). Purchase money and
refinance mortgage loans are generally held no more than 90 days by the Company
and typically are resold within 30 days. Construction loan mortgages acquired
via the Program, are held for the duration of the construction loan period,
typically for six months or longer. At December 31, 1996, construction loan
balances totaled $32.7 million and accounted for 32.2% of the Company's total
outstanding investment in the Program. Construction loan balances totaled $29.4
million at March 31, 1996. The Company records interest income on the loans
based on a rate of interest tied to the prime rate (as established from time to
time by a major Chicago-based financial institution) during the funding period,
and not the rates on individual loans, plus a fee (recorded as noninterest
income) collected from the Participant for each loan when that loan is resold.
It is the Company's policy to purchase under the Program only those loans that
comply with accepted secondary market underwriting standards. The Company's
Mortgage Loan Reverse Repurchase Program has been and is a key contributor to
the Company's efforts to maintain a strong net interest margin. Management is
aware that a decline in Program activity would negatively impact the Company's
profitability.
FINANCIAL CONDITION
Total assets increased $21.2 million or 10.3%, to $226.6 million at December
31, 1996 from $205.4 million at March 31, 1996. The increase is primarily
attributable to a $21.5 million or 26.9% increase in loans purchased under
agreements to resell under the Program. Management attributes this increase to
an increase in mortgage refinancings and home mortgage originations due to an
increase in the number of mortgage companies participating in the Program. Since
its inception, the Program has caused the level of the Company's assets and
liabilities and capital ratios to significantly fluctuate between periods. The
$2.2 million decrease in loans receivable results from management's decision to
sell a majority of the Company's single family loan production. This decision
also resulted in a $1.6 million increase in Mortgage loans held for sale. Over
this same time period, FHLB Stock and securities increased $0.3 million or 3.8%;
other assets increased $1.1 million or 35.1% primarily attributable to changes
in the Company's income tax obligations, and mortgage-backed and related
securities decreased $1.0 million or 9.4%. Premises and equipment, net,
increased $0.5 million or 20.6% due to the completion of renovations at our
LaPorte branch facility.
B-11
<PAGE>
Total borrowed funds increased $7.9 million or 17.5%, to $53.0 million at
December 31, 1996 from $45.1 million at March 31, 1996. This increase is
attributable to the increased funding needs of the Program. Borrowed funds
outstanding at December 31, 1996 consist of $46.0 million in advances
outstanding with the Federal Home Loan Bank of Indianapolis, of which $45.0
million have maturities of one year or less, and federal funds purchased of $7.0
million.
Deposits increased $13.8 million or 10.0%, to $150.8 million at December 31,
1996, from $137.0 million at March 31, 1996. The increase in deposits is
primarily attributable to the company accepting institutional and public funds
deposits to meet the increased funding needs of the Program.
The primary objective of the Company's $18.6 million securities portfolio is
to contribute to profitability by providing a stable cash flow of dependable
earnings. The investment portfolio consists of U.S. Government Agency
securities, short-term investment grade corporate notes and Federal Home Loan
Bank Stock. The Company also has investments in both variable and fixed rate
U.S. Government Agency mortgage-backed securities and collateralized mortgage
obligations. The Company's portfolio of securities contains no securities
classified by the Federal Banking Regulators as "High Risk Derivative
Securities".
RISK ELEMENTS
NON-PERFORMING ASSETS: Non-performing assets totaled $5.4 million at
December 31, 1996, an increase of $2.5 million from March 31, 1996. Loan loss
reserves at December 31, 1996 totaled $2.3 million or 42.4% of total
non-performing assets and increased $963,000 from March 31, 1996.
The increase in impaired loans is related to the construction loan segment
of the Company's Mortgage Loan Reverse Repurchase Program. At December 31, 1996,
the Company had 23 single family construction loans, all located in the central
Indiana area, with a total balance outstanding of $2.5 million and total
unfunded commitments of $494,000 that are in workout situations. Twenty of these
loans are outstanding to a builder that is currently experiencing financial
difficulties and is in the process of filing Chapter 11 Bankruptcy. The
properties underlying these loans are in various stages of completion and
management has not yet determined the potential loss exposure on these loans.
The properties underlying the remaining three loans have a combined outstanding
balance of $1.2 million and construction is complete. Management has allocated
$525,000, $300,000 of which is specific, to the allowance for loan losses
balance at December 31, 1996, for these 23 construction loans.
Also included in the December 31, 1996 impaired assets total, is $1.6
million in principal due the Company on four pools of small business equipment
leases that the Company acquired through contractual relationships entered into
with Bennett Funding Group, Inc. and its affiliate Aloha Capital Corporation
(f.k.a. Bennett Leasing Corporation). Bennett Funding Group, Inc. sought Chapter
11 Bankruptcy protection on March 29, 1996. Several weeks later, Aloha Capital
Corporation was placed into involuntary bankruptcy at the request of the court
appointed Bankruptcy Trustee for Bennett Funding Group, Inc., who is now also
the Bankruptcy Trustee for Aloha Capital Corporation. Per the terms of the
contractual arrangements, Bennett Funding Group, Inc. acts as the servicing
agent for the Company on one pool of leases purchased from that entity, wherein,
at December 31, 1996, $396,000 of principal remained to be remitted to the
Company over the course of the remaining scheduled lease payments due from
individual lessees. Similarly, at December 31, 1996, $1.2 million of principal
remained to be remitted to the Company on three pools of leases purchased from
and serviced by Aloha Capital Corporation. Payment due the Company on the four
pools of leases were current at the time the respective servicing companies were
placed in bankruptcy. The Bankruptcy Trustee is monitoring the lease payment
billing and collection activities of the servicing companies and is segregating
the payments received from the individual lessees but has not yet allowed the
resumption of the payment stream due the Company. Management believes that it is
possible to recover 78.5% - 82% of the outstanding principal balance over the
remaining life of the leases. Management can make no assurances as to the
outcome of this matter, or if any of the
B-12
<PAGE>
outstanding principal balance will be recovered. Management has allocated
$329,000 in specific loan loss reserves at December 31, 1996, for the Bennett
Funding Group, Inc., leases.
SCHEDULE OF NON-PERFORMING ASSET
<TABLE>
<CAPTION>
DEC. 31, MARCH 31, DEC. 31,
1996 1996 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Accruing mortgage loans delinquent more than 90 days............................... $ -- $ -- $ --
Accruing consumer and other loans delinquent more than 90 days..................... 1 4 3
Non-accruing mortgage loans delinquent more than 90 days........................... 466 523 1,245
Non-accruing consumer and other loans delinquent more than 90 days................. -- -- --
----------- ----------- -----------
Total loans delinquent more than 90 days 467 527 1,248
Restructured loans................................................................. 292 306 359
Impaired Loans..................................................................... 4,690 2,164 --
----------- ----------- -----------
Total non-performing loans......................................................... 5,449 2,997 1,607
Total real estate owned, net of related reserves................................... 0 -- 0
----------- ----------- -----------
Total non-performing assets........................................................ $ 5,449 $ 2,997 $ 1,607
----------- ----------- -----------
----------- ----------- -----------
Total non-performing assets to total loans......................................... 2.84% 1.74% 1.77%
Total non-performing assets to total assets........................................ 2.41 1.46 0.81
Total loan loss allowances to non-performing assets................................ 42.37 44.91 56.44
</TABLE>
INTEREST RATE SENSITIVITY
The Company's primary strategy for controlling interest rate risk exposure,
is to maintain a high level of the Company's asset portfolios in interest rate
sensitive assets. Management has accomplished this objective through its
investment in the Loan Reverse Repurchase Program. Under the Program, the
Company purchases single family mortgage loans from select mortgage banking
firms on a short-term basis under agreements to resell and earns an adjustable
prime based return during the holding period. The Program has complemented the
Company's portfolio of adjustable rate loans held for investment which account
for approximately 36% of the loans receivable portfolio. In addition, the
Company has sought to lengthen the maturity of its interest-bearing liabilities
by emphasizing longer term certificates of deposit. The Company also has the
ability to obtain long-term advances from the Federal Home Loan Bank of
Indianapolis if such borrowings appear favorable under a particular interest
rate environment.
Management regularly measures the Bank's interest rate risk by monitoring
the Company's interest rate risk ("IRR") measures produced by the Office of
Thrift Supervision from the Bank's quarterly thrift financial reports. In 1990,
the regulators adopted the interest-rate sensitivity approach as one measure of
interest-rate risk. This approach measures the projected changes in net
portfolio value ("NPV") that would result if interest rates were to increase by
100, 200, 300 and 400 basis points, or if interest rates were to decline by 100,
200, 300 and 400 basis points. Net portfolio value is defined by the market
value of assets less the market value of liabilities. According to the "Interest
Rate Risk Report," prepared by the Office of Thrift Supervision as of September
30, 1996 (most recent available), after an adverse rate shock of +200 basis
points, the Bank's NPV of $22.6 million was projected to decline $1.2 million or
5.4%, to $21.4 million. According to the OTS report, 80% of Thrifts nationwide
would have experienced an decline of more than 7.1%. Presented below, as of
September 30, 1996, is an analysis of the Bank's interest rate risk as measured
by changes in NPV for instantaneous and substantial parallel shifts of 100 basis
points in market interest rates.
B-13
<PAGE>
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV)
<TABLE>
<CAPTION>
NET PORTFOLIO VALUE
- --------------------------------------------------
CHANGE IN
RATES $ AMOUNT $ CHANGE % CHANGE
- -------------- ----------- ---------- ---------
<S> <C> <C> <C>
+400 bp 19,737 (2,863) (13%)
+300 bp 20,584 (2,016) -9%
+200 bp 21,386 (1,214) -5%
+100 bp 22,079 (521) -2%
0 bp 22,600
(100 bp) 22,789 +189 + 1%
(200 bp) 22,308 (292) -1%
(300 bp) 22,154 (446) -2%
(400 bp) 22,387 (213) -1%
</TABLE>
COMPARISON OF OPERATING RESULTS
THREE MONTHS ENDED DECEMBER 31 1996, COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1995
GENERAL: The Company reported net income of $601,000 for the three month
period ended December 31, 1996 which represents an 18.0% decrease over the
comparable three-month period in 1995 in which the Company reported net income
of $733,000. The decrease in net income is primarily attributable to
management's decision to set aside $450,000 in loan loss provisions for the
three month period ended December 31, 1996 in comparison to $99,500 in loan loss
provisions for the three month period ended December 31, 1995.
INTEREST INCOME: Interest income increased $275,000 million or 7.2%, from
$3.8 million at December 31, 1995, to $4.1 million at December 31, 1996. The
increase in interest income is primarily attributable to an increase in the
Company's outstandings in the Mortgage Loan Reverse Repurchase Program. The
Company's average outstanding investment in the Program increased $16.6 million
or 25.1%, from $66.1 million for the three months ended December 31, 1995 to
$82.7 million for the three months ended December 31, 1996. Over this same time
period, interest income on loans purchased under agreements to resell increased
$355,000 or 22.5%. The increase in outstandings in the Program is attributable
to an increase in mortgage refinancings and home mortgage originations due to an
increase in the number of mortgage companies participating in the Program.
INTEREST EXPENSE: Interest expense increased $101,000 or 5.2%, from $1.9
million for the three months December 31, 1995, to $2.0 million for the three
months December 31, 1996. The increase is primarily attributable to an $89,000
or 6.4% increase in interest on deposits and a $12,000 or 2.2% increase in
interest on borrowings resulting from the increased funding needs of the
Program.
NET INTEREST INCOME: Net interest income before the provision for loan
losses increased by $174,000 or 9.2% from $1.9 million for the three months
ended December 31, 1995, to $2.1 million for the three months ended December 31,
1996. This increase in net interest income over the prior year's quarter is
primarily attributable to management's efforts to profitably grow the Loan
Reverse Repurchase Program.
PROVISION FOR LOAN LOSSES: The provision for loan losses increased $351,000
or 354.5%, from $99,000 for the three months ended December 31, 1995, to
$450,000 for the three months ended December 31, 1996. Management's decision to
increase the provision reflects upon an increase in the Company's level of
non-performing assets and increased activity in construction lending, commercial
lending and consumer lending. The Company will continue to monitor its allowance
for loan losses and make future loan loss provisions in consideration of the
amount and types of loans in its portfolio and as economic conditions dictate.
B-14
<PAGE>
NONINTEREST INCOME: Noninterest income increased $127,000 or 39.9% to
$445,000 for the three months ended December 31, 1996, from $318,000 for the
three months ended December 31, 1995. This increase was primarily attributable
to a $74,000 or 71.2% increase in fees related to the repurchase program, and to
$79,000 in gains realized from the sale of single family mortgage loans.
NONINTEREST EXPENSE Noninterest expense increased $236,000 or 26.3% to $1.1
million for the three months ended December 31, 1996, from $899,000 for the same
time period in the prior year. The increase in noninterest expenses is primarily
attributable to increased personnel and occupancy expenses related to the
Company's newly established Mortgage Banking Division.
INCOME TAX EXPENSE: Income tax expense decreased $154,000 or 32.6%, from
$472,000 for the three months ended December 31, 1995, to $318,000 for the three
months ended December 31, 1996. This decrease is primarily attributable to a
decrease in earnings.
NINE MONTHS ENDED DECEMBER 31 1996, COMPARED TO NINE MONTHS ENDED DECEMBER
31, 1995
GENERAL: The Company reported net income of $1,566,000 for the nine month
period ended December 31, 1996 which represents a 20.7% decrease over the
comparable nine-month period in 1995 in which the Company reported net income of
$2.0 million. The decrease in net income is primarily attributable to a
non-recurring pre-tax charge of $723,000 resulting from legislation signed into
law on September 30, 1996 to recapitalize the Federal Deposit Insurance
Corporation's (FDIC) Savings Association Insurance Fund (SAIF). This one time,
special assessment reduced second quarter after tax earnings by $437,000 or
$0.36 per share. Earnings were also negatively impacted by management's decision
to increase loan loss provisions.
INTEREST INCOME: Interest income increased $1.6 million or 15.8%, from
$10.4 million at December 31, 1995, to $12.0 million at December 31, 1996. The
increase in interest income is primarily attributable to an increase in the
Company's outstandings in the Mortgage Loan Reverse Repurchase Program. The
Company's average outstanding investment in the Program increased $29.9 million
or 47.5%, from $53.5 million for the nine months ended December 31, 1995 to
$78.9 million for the nine months ended December 31, 1996. Over this same time
period, interest income on loans purchased under agreements to resell increased
$1.4 million or 61.4%. The increase in outstandings in the Program is
attributable to an increase in mortgage refinancings and home mortgage
originations due to an increase in the number of mortgage companies
participating in the Program.
INTEREST EXPENSE: Interest expense increased $821,000 or 16.0%, from $5.1
million for the nine months ended December 31, 1995, to $6.0 million for the
nine months ended December 31, 1996. The increase is primarily attributable to a
$432,000 or 31.6% increase in interest on borrowings and a $389,000 or 10.3%
increase in interest on deposits resulting from the increased funding needs of
the Program.
NET INTEREST INCOME: Net interest income before the provision for loan
losses increased by $819,000 or 15.5% from $5.3 million for the nine months
ended December 31, 1995, to $6.1 million for the nine months ended December 31,
1996. This increase in net interest income over the prior year's period is
primarily attributable to management's efforts to profitably grow the Loan
Reverse Repurchase Program.
PROVISION FOR LOAN LOSSES: The provision for loan losses increased $623,000
or 195.7%, from $238,000 for the nine months ended December 31, 1995, to
$861,000 for the nine months ended December 31, 1996. The increase in the
provision reflects an increase in the Company's level of non-performing assets
and increased activity in construction lending, commercial lending and consumer
lending. The Company will continue to monitor its allowance for loan losses and
make future loan loss provisions in consideration of the amount and types of
loans in its portfolio and as economic conditions dictate.
NONINTEREST INCOME: Noninterest income increased $423,000 or 50.5% to
$1,261,000 for the nine months ended December 31, 1996, from $838,000 for the
nine months ended December 31, 1995. This
B-15
<PAGE>
increase was primarily attributable to a $244,000 or 100.8% increase in fees
related to the repurchase program, and to $200,000 in gains realized from the
sale of single family mortgage loans.
NONINTEREST EXPENSE: Noninterest expense increased $1.5 million or 56.0% to
$4.1 million for the nine months ended December 31, 1996, from $2.6 million for
the same time period in the prior year. The increase in noninterest expenses is
primarily attributable to a $723,000 increase in deposit insurance premiums
resulting from the one time assessment cited above, and increased personnel and
occupancy expenses related to the Company's newly established Mortgage Banking
Division.
INCOME TAX EXPENSE: Income tax expense decreased $455,000 or 38.8%, from
$1.2 million for the nine months ended December 31, 1995, to $791,000 for the
nine months ended December 31, 1996. This decrease is primarily attributable to
a decrease in earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required under applicable federal regulations to maintain a
liquidity ratio at certain specified levels which are subject to change.
Currently, a minimum of 5.0% of the combined total of deposits and short term
borrowings must be maintained in the form of liquid assets. At December 31, 1996
liquidity as measured for regulatory purposes was 6.8% as compared to a ratio of
7.7% at March 31, 1996.
Management structures the liquid asset portfolio and borrowing capacity of
the Company to meet the cash flow needs of operating, investing and financing
activities. The Company's net liquid assets are cash and cash equivalents, which
include investments in highly liquid investments. At December 31, 1996 cash and
cash equivalents totaled $6.3 million. In addition, the Company maintains a $5.0
million line of credit with the FHLB of Indianapolis to meet short term
liquidity needs.
Cash flows from operating activities consisted primarily of net income and
activity under the Program. Net cash flows provided for operating activities
were ($22.9) million and ($45.3) million for the nine months ended December 31,
1996 and 1995, respectively. The Company's primary investing activities have
been the purchase and monitoring of securities and mortgage-backed securities
and the purchase, origination and repayment of loans. Net cash flows provided
from investing activities were $2.6 million and ($2.0) million for the nine
months ended December 31, 1996 and 1995, respectively. Cash flows from financing
activities consisted of deposit activity, new borrowings and the repayment of
borrowings. Net cash flow provided from financing activities were $20.6 million
and $53.4 million for the nine months ended December 31, 1996 and 1995.
Shareholders' equity at December 31, 1996 was $20.0 million, an increase of
$1.2 million or 6.2% over March 31, 1996, which represents net income for the
nine months ended December 31, 1996, adjustments for the Company's ESOP and
management recognition and retention plans, the purchase and issuance of
treasury stock and change in unrealized net appreciation on securities
available-for-sale.
The Bank is subject to three capital standards pursuant to regulations of
the Office of Thrift Supervision: a 1.5% tangible capital standard, a 3%
leverage (core and capital) ratio and an 8% risk based capital standard. Under
these capital requirements, at December 31, 1996, the Bank had:
- tangible capital of $17.6 million or 7.8% of total assets thereby
exceeding the 1.5% requirement ($3.4 million) by $14.2 million.
- core capital (tangible capital plus certain intangible assets) of $17.6
million or 7.8% of total assets thereby exceeding the 3.0% requirement
($6.8 million) by $10.8 million.
- risk-based capital (core capital plus allowance for loan losses) of $19.3
million or 13.7% of risk-based assets thereby exceeding the 8.0%
requirement ($11.3 million) by $8.0 million.
B-16
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
SFAS No. 125, Accounting for Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities, provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
and requires a consistent application of a financial-components approach that
focuses on control. Under that approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred and derecognizes liabilities when extinguished. SFAS
No. 125 also supersedes SFAS No. 122, and requires that servicing assets and
liabilities be subsequently measured by amortization in proportion to and over
the period of estimated net servicing income or loss and requires assessment in
proportion to and over the period of estimated net servicing income or loss and
requires assessment for asset impairment or increased obligation based on their
fair values. SFAS No. 125 applies to transfers and extinguishments occurring,
after December 31, 1996, and early or retroactive application is not permitted.
This statement is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
LEGISLATIVE MATTERS
RECENT DEVELOPMENTS
On December 31, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996(the "Funds Act") which, among other things, imposes a special
one-time assessment on SAIF member institutions, including the Bank, to
recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a special
assessment of 65.7 basis points on SAIF assessable deposits held as March 31,
1995 payable November 27, 1996. The special assessment was recognized as an
expense in the Company's second quarter of fiscal 1997 and is tax deductible.
The Bank took a charge of $723,000 as a result of the FDIC special assessment.
The Funds Act also spreads the obligations for payment of the Financing
Corporation("FICO") bonds across all SAIF and BIF members. Beginning on January
1, 1997, BIF deposits will be assessed for FICO payments at a rate of 20% of the
rate assessed on SAIF deposits. Based on current estimates by the FDIC, BIF
deposits will be assessed a FICO payment of 1.3 basis points, while SAIF
deposits will pay an estimated 6.5 basis points on the FICO bonds. Full pro rata
sharing of the FICO payments between BIF and SAIF members will occur on the
earlier of January 1, 2000 or the date the BIF and SAIF are merged. The Funds
Act specifies that the BIF and SAIF will be merged on January 1, 1999 provided
no savings associations remain as of that time.
As a result of the Funds Act, the FDIC recently proposed to lower SAIF
assessments to 0 to 27 basis points effective January 1, 1997; a range
comparable to that of BIF members. However, SAIF members will continue to make
the higher FICO payments described above. Management cannot predict the level of
FDIC insurance assessments on an on-going basis whether the savings association
charter will be eliminated or whether the BIF and SAIF will eventually be
merged.
B-17
<PAGE>
AVERAGE BALANCE SHEETS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995.
The following table sets forth certain information relating to the
consolidated statements of financial condition and reflects the yield on average
assets and the average cost of liabilities for the periods indicated. The yields
and costs include amortization of fees, discounts, and premiums which are
considered adjustments to yield.
AVERAGE BALANCE SHEETS
YIELD ANALYSIS
<TABLE>
<CAPTION>
THREE MONTHS ENDED DEC. 31, THREE MONTHS ENDED DEC. 31,
----------------------------------- -----------------------------------
1996 1995
----------------------------------- -----------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE(A) INTEREST COST BALANCE(A) INTEREST COST
----------- --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net...................................... $ 172,297 $ 3,771 8.75% $ 157,315 $ 3,507 8.92%
Mortgage-backed securities...................... 9,405 159 6.76% 10,002 164 6.56%
Interest earning deposits and federal funds
sold.......................................... 970 12 4.95% 1,001 17 6.79%
Securities...................................... 10,099 161 6.38% 8,291 140 6.75%
----------- --------- --- ----------- --------- ---
Total interest-earning assets................. 192,771 4,103 8.51% 176,609 3,828 8.67%
--------- --- --------- ---
Noninterest-earning assets (b).................... 14,470 11,277
----------- -----------
Total assets.................................. $ 207,241 $ 187,886
----------- -----------
----------- -----------
Interest-bearing liabilities:
Deposits........................................ $ 131,361 $ 1,474 4.49% $ 121,380 $ 1,385 4.56%
Borrowed Funds.................................. 40,340 570 5.65% 35,294 558 6.32%
----------- --------- --- ----------- --------- ---
Total interest-bearing liabilities............ 171,701 2,044 4.76% 156,674 1,943 4.96%
--------- --- --------- ---
Noninterest-bearing liabilities (c)............... 15,738 13,305
----------- -----------
Total liabilities............................. 187,439 169,979
Stockholders' equity.............................. 19,802 17,907
----------- -----------
Total liabilities and equity.................. $ 207,241 $ 187,886
----------- -----------
----------- -----------
Net interest income/Net rate spread............... $ 2,059 3.75% $ 1,885 3.71%
--------- --- --------- ---
--------- --- --------- ---
Net interest-earning assets/net interest rate
margin.......................................... $ 21,070 4.27% $ 19,935 4.27%
----------- --- ----------- ---
----------- --- ----------- ---
Ratio of average interest-earning assets to
average interest-bearing liabilities............ 1.12x 1.13x
</TABLE>
- ------------------------
(a) Average balances, which are stated in thousands, are derived from average
daily balances.
(b) Includes average investment in life insurance policies of $2,426,000 and
$2,309,000 for the three months ended December 31, 1996 and December 31,
1995, respectively. The Company realized non-interest income of $26,000 and
$33,000 on it's outstanding investment in these policies over the same
respective time periods.
(c) Includes non-interest bearing deposit accounts.
B-18
<PAGE>
AVERAGE BALANCE SHEETS FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995.
The following table sets forth certain information relating to the
consolidated statements of financial condition and reflects the yield on average
assets and the average cost of liabilities for the periods indicated. The yields
and costs include amortization of fees, discounts, and premiums which are
considered adjustments to yield.
AVERAGE BALANCE SHEETS
YIELD ANALYSIS
<TABLE>
<CAPTION>
NINE MONTHS ENDED DEC. 31, NINE MONTHS ENDED DEC. 31,
----------------------------------------- -----------------------------------------
1996 1995
----------------------------------------- -----------------------------------------
AVERAGE AVERAGE YIELD/ AVERAGE AVERAGEYIELD/
BALANCE(A) INTEREST COST BALANCE(A) INTEREST COST
----------- --------- ----------------- ----------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net.......................... $ 169,127 $ 11,089 8.74% $ 142,558 $ 9,403 8.79%
Mortgage-backed securities.......... 9,626 484 6.70% 10,617 524 6.55%
Interest earning deposits and
federal funds sold................ 591 22 4.96% 1,093 55 6.68%
Securities.......................... 9,393 447 6.35% 8,293 420 6.72%
----------- --------- --- ----------- --------- ---
Total interest-earning assets..... 188,737 12,042 8.51% 162,561 10,402 8.49%
--------- --- --------- ---
Noninterest-earning assets(b)....... 12,149 9,093
----------- -----------
Total assets...................... $ 200,886 $ 171,654
----------- -----------
----------- -----------
Interest-bearing liabilities:
Deposits............................ $ 125,627 $ 4,154 4.41% $ 114,175 $ 3,765 4.38%
Borrowed Funds...................... 42,465 1,801 5.65% 29,023 1,369 6.26%
----------- --------- --- ----------- --------- ---
Total interest-bearing
liabilities..................... 168,092 5,955 4.72% 143,198 5,134 4.76%
--------- --- --------- ---
Noninterest-bearing liabilities(c).... 13,466 11,190
----------- -----------
Total liabilities................. 181,558 154,388
Stockholders' equity.................. 19,328 17,266
----------- -----------
Total liabilities and equity.......... $ 200,886 $ 171,654
----------- -----------
----------- -----------
Net interest income/ Net rate
spread.............................. $ 6,087 3.78% $ 5,268 3.73%
--------- --- --------- ---
--------- --- --------- ---
Net interest-earning assets/ net
interest rate margin................ $ 20,645 4.28% $ 19,363 4.30%
----------- --- ----------- ---
----------- --- ----------- ---
Ratio of average interest-earning
assets to average interest-bearing
liabilities......................... 1.12x 1.14x
</TABLE>
- ------------------------
(a) Average balances, which are stated in thousands, are derived from average
daily balances.
(b) Includes average investment in life insurance policies of $2,418,000 and
$2,183,000 for the six months ended December 31, 1996 and December 31, 1995,
respectively. The Company realized non-interest income of $79,000 and
$101,000 on its outstanding investment in these policies over the same
respective time periods.
(c) Includes non-interest bearing deposit accounts.
B-19
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not involved in any legal proceedings of a material nature at
this time other than those occurring in the ordinary course of business which in
the aggregate involves amounts which are believed by management to be immaterial
to the financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a). Exhibits
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of CB Bancorp, Inc.*
3.2 Bylaws of CB Bancorp, Inc.*
10.1 Amended and restated employee agreement between CB Bancorp, Inc. and
Joseph F. Heffernan dated November 29, 1996.
27 Financial Data Schedule (filed herewith)
* Incorporated by reference to Registration Statement of Form S-1, as
amended, filed on September 11, 1992, registration Number 33-51882.
</TABLE>
(b). Reports on Form 8-K
None
B-20
<PAGE>
CB-BANCORP, INC.
SIGNATURES
Pursuant to the requirements 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.
<TABLE>
<S> <C>
CB Bancorp, Inc.
Dated: By: /s/ JOSEPH F. HEFFERNAN
-----------------------------------------
Joseph F. Heffernan
President and Chief Executive Officer
Dated: By: /s/ GEORGE L. KOEHM
-----------------------------------------
George L. Koehm
Vice President and Chief Financial
Officer
Dated: By: /s/ DANIEL R. BURESH
-----------------------------------------
Daniel R. Buresh
Vice President, Controller and
Principal Accounting Officer
</TABLE>
B-21
<PAGE>
ANNEX C
AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 14, 1996 BETWEEN
PINNACLE FINANCIAL SERVICES INC.
AND INDIANA FEDERAL CORPORATION
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of November 14, 1996, by and between
PINNACLE FINANCIAL SERVICES, INC., a Michigan corporation ("Pinnacle"), and
INDIANA FEDERAL CORPORATION, a Delaware corporation ("IFC").
WITNESSETH:
WHEREAS, the Boards of Directors of Pinnacle and IFC have determined that it
is in the best interests of their respective companies and their stockholders to
consummate the business combination transaction provided for herein in which IFC
will, subject to the terms and conditions set forth herein, merge with and into
Pinnacle (the "Merger"), so that Pinnacle is the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") in the Merger; and
WHEREAS, it is the intent of the respective Boards of Directors of Pinnacle
and IFC that the Merger be structured as a "merger of equals" of Pinnacle and
IFC and that the Surviving Corporation be governed and operated on this basis;
and
WHEREAS, as a condition to, and immediately after the execution of, this
Agreement, Pinnacle and IFC are entering into a Pinnacle stock option agreement
(the "Pinnacle Option Agreement") attached hereto as Exhibit A; and
WHEREAS, as a condition to, and immediately after the execution of, this
Agreement, Pinnacle and IFC are entering into an IFC stock option agreement (the
"IFC Option Agreement"; and together with the Pinnacle Option Agreement, the
"Option Agreements") attached hereto as Exhibit B; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this Agreement, in
accordance with the Michigan Business Corporation Act, as amended (the "MBCA"),
the Delaware General Corporation Law, as amended (the "DGCL"), at the Effective
Time (as defined in Section 1.2), IFC shall merge with and into Pinnacle.
Pinnacle shall be the Surviving Corporation in the Merger, and shall continue
its corporate existence under the laws of the State of Michigan. Upon
consummation of the Merger, the separate corporate existence of IFC shall
terminate.
1.2 EFFECTIVE TIME. The Merger shall become effective as set forth in
certificates of merger (each, a "Certificate of Merger"), which shall specify an
effective date and time no earlier than the filing thereof with the appropriate
authorities of the State of Michigan, and with the appropriate authorities of
the State of Delaware, on the Closing Date (as defined in Section 9.1), or as
soon thereafter as practicable. The term "Effective Time" shall be the date and
time when the Merger becomes effective, as set forth in each Certificate of
Merger having been filed in accordance with the MBCA and DGCL.
1.3 EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
shall have the effects set forth in the MBCA and the DGCL.
1.4 CONVERSION OF IFC COMMON STOCK. At the Effective Time, in each case,
subject to Section 2.2(e), by virtue of the Merger and without any action on the
part of Pinnacle, IFC or the holder of any of the following securities:
(a) Each share of the common stock, par value $0.01 per share, of IFC
(the "IFC Common Stock") issued and outstanding immediately prior to the
Effective Time (other than shares of IFC
C-1
<PAGE>
Common Stock held (x) in IFC's treasury or (y) directly or indirectly by IFC
or Pinnacle or any of their respective wholly-owned Subsidiaries (as defined
in Section 3.1) (except for Trust Account Shares and DPC shares, as such
terms are defined in Section 1.4(c) and as set forth in the IFC Disclosure
Schedule)), shall be converted into the right to receive one (1) share (the
"Exchange Ratio") of the common stock, without par value, of Pinnacle (the
"Pinnacle Common Stock").
(b) All of the shares of IFC Common Stock converted into Pinnacle Common
Stock pursuant to this Article I shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist as of the Effective
Time, and each certificate (each a "Common Certificate") previously
representing any such shares of IFC Common Stock shall thereafter represent
the right to receive a certificate representing the number of whole shares
of Pinnacle Common Stock into which the shares of IFC Common Stock
represented by such Common Certificate have been converted pursuant to this
Section 1.4 and Section 2.2. Common Certificates previously representing
shares of IFC Common Stock shall be exchanged for certificates representing
whole shares of Pinnacle Common Stock issued in consideration therefor upon
the surrender of such Common Certificates in accordance with Section 2.2,
without any interest thereon. If, prior to the Effective Time, the
outstanding shares of Pinnacle Common Stock or IFC Common Stock shall have
been increased, decreased, changed into or exchanged for a different number
or kind of shares or securities as a result of a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse
stock split, or other similar change in capitalization, then an appropriate
and proportionate adjustment shall be made to the Exchange Ratio.
(c) At the Effective Time, all shares of IFC Common Stock that are owned
by IFC as treasury stock and all shares of IFC Common Stock that are owned,
directly or indirectly, by IFC or Pinnacle or any of their respective
wholly-owned Subsidiaries (other than shares of IFC Common Stock held,
directly or indirectly, in trust accounts, managed accounts and the like or
otherwise held in a fiduciary capacity that are beneficially owned by third
parties (any such shares, and shares of Pinnacle Common Stock which are
similarly held, whether held directly or indirectly by IFC or Pinnacle, as
the case may be, being referred to herein as "Trust Account Shares") and
other than any shares of IFC Common Stock held by IFC or Pinnacle or any of
their respective Subsidiaries in respect of a debt previously contracted
(any such shares of IFC Common Stock, and shares of Pinnacle Common Stock
which are similarly held, whether held directly or indirectly by IFC or
Pinnacle or any of their respective Subsidiaries, being referred to herein
as "DPC Shares") and as set forth in the IFC Disclosure Schedule) shall be
cancelled and shall cease to exist and no stock of Pinnacle or other
consideration shall be delivered in exchange therefor.
1.5 PINNACLE COMMON STOCK. At and after the Effective Time, each share of
Pinnacle Common Stock issued and outstanding immediately prior to the Closing
Date shall remain an issued and outstanding share of common stock of the
Surviving Corporation and shall not be affected by the Merger. All shares of
Pinnacle Common Stock that are owned by IFC or any of its wholly-owned
Subsidiaries (other than Trust Account Shares and DPC Shares) shall become
treasury stock of Pinnacle.
1.6 OPTIONS.
(a) At the Effective Time, each option granted by IFC to purchase shares of
IFC Common Stock which is outstanding and unexercised immediately prior thereto
(excluding any and all IFC Rights (as hereinafter defined), all of which shall
have been redeemed, and thereby extinguished, terminated and cancelled without
any right of exercise, prior to the Effective Time) shall cease to represent a
right to acquire shares of IFC Common Stock and shall be converted automatically
into an option to purchase shares of Pinnacle Common Stock in an amount and at
an exercise price determined as provided below
C-2
<PAGE>
(and subject to the terms of the IFC benefit plans under which they were issued
(collectively, the "IFC Stock Plans") and the agreements evidencing grants
thereunder):
(i) The number of shares of Pinnacle Common Stock to be subject to the
new option shall be equal to the number of shares of IFC Common Stock
subject to the original option; and
(ii) The exercise price per share of Pinnacle Common Stock under the new
option shall be equal to the exercise price per share of IFC Common Stock
under the original option.
The adjustment provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code")) shall be and is intended to be effected in a manner
which is consistent with Section 424(a) of the Code. The duration and other
terms of the new option shall be the same as the original option except that all
references to IFC shall be deemed to be references to Pinnacle.
(b) At the Effective Time, each option granted by Pinnacle to purchase
shares of Pinnacle Common Stock which is outstanding and unexercised immediately
prior thereto shall continue to represent a right to acquire shares of Pinnacle
Common Stock and shall remain an issued and outstanding option to purchase from
the Surviving Corporation shares of Pinnacle Common Stock in the same amount and
at the same exercise price subject to the terms of the Pinnacle benefit plans
under which they were issued (collectively, the "Pinnacle Stock Plans") and the
agreements evidencing grants thereunder, and shall not be affected by the
Merger.
1.7 ARTICLES OF INCORPORATION. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Articles of Incorporation of Pinnacle
shall be the Articles of Incorporation of the Surviving Corporation, until
thereafter amended in accordance with applicable law.
1.8 BYLAWS. Subject to the terms and conditions of this Agreement, at the
Effective Time, the Bylaws of Pinnacle, with appropriate amendments to
incorporate the provisions of Section 1.11 of this Agreement, shall be the
Bylaws of the Surviving Corporation until thereafter amended in accordance with
applicable law.
1.9 TAX CONSEQUENCES; ACCOUNTING TREATMENT. It is intended that (i) the
Merger shall constitute a reorganization within the meaning of Section
368(a)(i)(A) of the Code, (ii) this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code, and (iii) the
Merger shall qualify for "pooling of interests" accounting treatment under
Accounting Principles Board Opinion No. 16 and SEC Accounting Series Releases
130 and 135, as amended.
1.10 MANAGEMENT. At the Effective Time, Mr. Richard L. Schanze shall be
the Chairman of the Board and the Chief Executive Officer of the Surviving
Corporation, and Mr. Donald A. Lesch shall be the Vice Chairman, President and
Chief Operating Officer of the Surviving Corporation.
1.11 BOARD OF DIRECTORS. At the Effective Time, the Board of Directors of
the Surviving Corporation shall consist of ten (10) persons, with Mr. Schanze,
as well as Mr. Arnold L. Weaver and three (3) other persons, to be named as
directors of the Surviving Corporation on behalf of the Board of Directors of
Pinnacle, and with Mr. Lesch, as well as Mr. Howard Silverman and three (3)
other persons, to be named as directors of the Surviving Corporation on behalf
of the Board of Directors of IFC. Under the terms of the Standstill Agreement
dated as of December 1, 1995, between Pinnacle and Mr. Cyrus A. Ansary, Pinnacle
has certain obligations to nominate Mr. Ansary for election as a director of
Pinnacle. In the event that Pinnacle, as the Surviving Corporation, becomes
obligated to nominate Mr. Ansary as a director of the Surviving Corporation,
then the Board of Directors shall be increased in size to a total of twelve (12)
persons, and Mr. Ansary shall be nominated as a director of the Surviving
Corporation pursuant to the terms of the Standstill Agreement dated as of
December 1, 1995, between Pinnacle and Mr. Ansary, and the Chairman shall
nominate for approval by the Board of Directors a twelfth person as a director
of the Surviving Corporation. Whenever the Board of Directors is comprised of
ten (10) or fewer persons, action
C-3
<PAGE>
of the Board within the meaning of Section 523 of the MBCA, and for all other
purposes, shall require the favorable vote of six (6) or more of the directors,
and whenever the Board of Directors is comprised of eleven (11) or twelve (12)
persons, action of the Board within the meaning of Section 523 of the MBCA, and
for all other purposes, shall require the favorable vote of seven (7) or more of
the directors.
1.12 HEADQUARTERS OF SURVIVING CORPORATION. At the Effective Time, the
headquarters and principal executive offices of the Surviving Corporation shall
be located in Valparaiso, Indiana.
1.13 BANK MERGER. At the Bank Merger Effective Time (as hereinafter
defined), Indiana Federal Bank for Savings, a federal savings bank ("IndFed
Bank"), the wholly-owned subsidiary of IFC, shall be merged (the "Bank Merger")
with and into Pinnacle Bank, a Michigan banking corporation ("Pinnacle Bank"),
the wholly-owned subsidiary of Pinnacle, pursuant to the terms and conditions
set forth herein and in the Agreement and Plan of Merger and Consolidation
substantially in the form attached hereto as Exhibit C (the "Bank Merger
Agreement"). Upon consummation of the Bank Merger, the separate existence of
IndFed Bank shall cease, and Pinnacle Bank shall continue as the surviving
institution of the Bank Merger. The name of Pinnacle Bank, as the surviving
institution of the Bank Merger, shall be "Pinnacle Bank". From and after the
Bank Merger Effective Time (as hereinafter defined), Pinnacle Bank as the
surviving institution of the Bank Merger shall possess all of the properties and
rights and be subject to all of the liabilities and obligations of Pinnacle Bank
and IndFed Bank. The Bank Merger shall become effective at the time the Bank
Merger Agreement for such merger is endorsed and declared effective by the
Financial Institutions Bureau of the State of Michigan (the "Bank Merger
Effective Time"). The parties shall cause the Bank Merger to become effective as
soon as practical following the Merger. At the Bank Merger Effective Time:
(a) each share of IndFed Bank common stock issued and outstanding
immediately prior thereto shall, by virtue of the Bank Merger, be cancelled.
No new shares of the capital stock or other securities or obligations of
IndFed Bank shall be issued or be deemed issued with respect to or in
exchange for such cancelled shares, and such cancelled shares of common
stock of IndFed Bank shall not be converted into any shares or other
securities or obligations of any other entity;
(b) each share of Pinnacle Bank common stock issued and outstanding
immediately prior thereto shall remain an issued and outstanding share of
common stock of Pinnacle Bank as the surviving institution and shall not be
affected by the Bank Merger;
(c) the charter and bylaws of Pinnacle Bank, as then in effect, shall be
the Charter and Bylaws of Pinnacle Bank as the surviving institution of the
Bank Merger, and may thereafter be amended in accordance with applicable
law; and
(d) the directors of Pinnacle Bank as the surviving institution
following the Bank Merger shall consist of eighteen (18) persons, with nine
(9) persons to be named as directors by the Board of Directors of Pinnacle
Bank and nine (9) persons to be named as directors by the Board of Directors
of IndFed Bank; and the executive officers of Pinnacle Bank as the surviving
institution following the Bank Merger shall be those appointed by the Board
of Directors of the surviving institution upon consummation of the Bank
Merger, on the basis of recommendations made by Mr. Schanze, as the Chairman
of the parent Surviving Corporation, Mr. Lesch, as the Vice Chairman of the
parent Surviving Corporation, and an outside consulting service to be
engaged and charged with reviewing and evaluating the qualifications of
candidates.
ARTICLE II
EXCHANGE OF SHARES
2.1 PINNACLE TO MAKE SHARES AVAILABLE. At or prior to the Effective Time,
Pinnacle shall deposit, or shall cause to be deposited, with Harris Trust and
Savings Bank, Chicago, Illinois, or another bank or trust company reasonably
acceptable to each of Pinnacle and IFC (the "Exchange Agent"), for the benefit
of
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the holders of Common Certificates, for exchange in accordance with this Article
II, certificates representing the shares of Pinnacle Common Stock (such
certificates for shares of Pinnacle Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") to be issued pursuant to Section 1.4 and Section 2.2(a) in
exchange for outstanding shares of IFC Common Stock.
2.2 EXCHANGE OF SHARES.
(a) As soon as practicable after the Effective Time, and in no event later
than five (5) business days thereafter, the Exchange Agent shall mail to each
holder of record of one or more Common Certificates a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Common Certificates shall pass, only upon delivery of the Common
Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the Common Certificates in exchange for certificates representing
the shares of Pinnacle Common Stock into which the shares of IFC Common Stock
represented by such Common Certificate or Common Certificates shall have been
converted pursuant to this Agreement. Upon proper surrender of a Common
Certificate for exchange and cancellation to the Exchange Agent, together with
such properly completed letter of transmittal, duly executed, the holder of such
Common Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Pinnacle Common Stock to
which such holder of IFC Common Stock shall have become entitled pursuant to the
provisions of Article I, and the Common Certificate so surrendered shall
forthwith be cancelled. No interest will be paid or accrued on any unpaid
dividends and distributions payable to holders of Common Certificates.
(b) No dividends or other distributions declared with respect to Pinnacle
Common Stock with a record date following the Effective Time shall be paid to
the holder of any unsurrendered Common Certificate until the holder thereof
shall surrender such Common Certificate in accordance with this Article II.
(c) If any certificate representing shares of Pinnacle Common Stock is to be
issued in a name other than that in which the Common Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the Common Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper
form for transfer, and that the person requesting such exchange shall pay to the
Exchange Agent in advance any transfer or other taxes required by reason of the
issuance of a certificate representing shares of Pinnacle Common Stock in any
name other than that of the registered holder of the Common Certificate
surrendered, or required for any other reason, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of IFC of shares of IFC Common Stock which were issued and
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Common Certificates representing such shares are presented for transfer to
the Exchange Agent, they shall be cancelled and exchanged for certificates
representing shares of Pinnacle Common Stock as provided in this Article II.
(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Pinnacle Common Stock
shall be issued upon the surrender for exchange of Common Certificates.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of IFC for 12 months after the Effective Time shall be paid to
Pinnacle. Any stockholders of IFC who have not theretofore complied with this
Article II shall thereafter look only to Pinnacle for payment of the shares of
Pinnacle Common Stock and any unpaid dividends and distributions on the Pinnacle
Common Stock deliverable in respect of each share of IFC Common Stock such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon. Notwithstanding the foregoing, none of IFC,
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Pinnacle, the Exchange Agent or any other person shall be liable to any former
holder of shares of IFC Common Stock for any amount delivered in good faith to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(g) In the event any Common Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Common Certificate to be lost, stolen or destroyed and, if reasonably
required by Pinnacle or the Exchange Agent, the posting by such person of a bond
in such amount as Pinnacle may determine is reasonably necessary as indemnity
against any claim that may be made against it with respect to such Common
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Common Certificate the shares of Pinnacle Common Stock deliverable in
respect thereof pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PINNACLE
Except as disclosed in the Pinnacle disclosure schedule delivered to IFC
concurrently herewith (the "Pinnacle Disclosure Schedule"), Pinnacle hereby
represents and warrants to IFC as follows:
3.1 CORPORATE ORGANIZATION.
(a) Pinnacle is a corporation duly organized, validly existing and in good
standing under the laws of the State of Michigan. Pinnacle has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted, and is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect on Pinnacle. As used in this Agreement, the term
"Material Adverse Effect" means, with respect to IFC, Pinnacle or the Surviving
Corporation, as the case may be, a material adverse effect on the business,
results of operations, financial condition, or (insofar as they can reasonably
be foreseen) prospects of such party and its Subsidiaries taken as a whole,
excluding for this purpose only, however, the payment and/or incurrence of (i)
the one-time special assessment on institutions holding deposits subject to
assessment by the Savings Association Insurance Fund ("SAIF") pursuant to The
Deposit Insurance Funds Act of 1996 ("Funds Act") intended to increase SAIF's
net worth as of October 1, 1996 to 1.25 percent of SAIF-insured deposits, and
(ii) transactional expenses by IFC or Pinnacle in connection with the Merger, to
the extent having such an effect. As used in this Agreement, the word
"Subsidiary" when used with respect to any party means any bank, savings and
loan institution, corporation, partnership, limited liability company, or other
organization, whether incorporated or unincorporated, which is consolidated with
such party for financial reporting purposes. Pinnacle is duly registered as a
bank holding company under the Bank Holding Company Act of 1956, as amended (the
"BHC Act") and as a savings and loan holding company under the Home Owners' Loan
Act ("HOLA"). True and complete copies of the Articles of Incorporation and
Bylaws of Pinnacle, as in effect as of the date of this Agreement, have
previously been made available by Pinnacle to IFC.
(b) Each Pinnacle Subsidiary (i) is duly organized and validly existing as a
bank, savings and loan institution, corporation, partnership or limited
liability company under the laws of its jurisdiction of organization, (ii) is
duly qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse Effect on Pinnacle, and
(iii) has all requisite corporate power and authority to own or lease its
properties and assets and to carry on its business as now conducted.
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(c) The minute books of Pinnacle accurately reflect in all material respects
all corporate actions held or taken since January 1, 1994 of its stockholders
and Board of Directors (including committees of the Board of Directors of
Pinnacle).
3.2 CAPITALIZATION.
(a) The authorized capital stock of Pinnacle consists of (i) 15,000,000
shares of Pinnacle Common Stock, of which as of November 11, 1996, 5,976,548
shares were issued and outstanding and no shares were held in treasury. All of
the issued and outstanding shares of Pinnacle Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. As of the date of this Agreement, except pursuant to the terms of the
Pinnacle Option Agreement and the Pinnacle Stock Plans, Pinnacle does not have
and is not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of Pinnacle Common Stock or any other equity securities of
Pinnacle or any securities representing the right to purchase or otherwise
receive any shares of Pinnacle Common Stock or any other equity securities of
Pinnacle. As of November 11, 1996, no shares of Pinnacle Common Stock were
reserved for issuance, except for (i) 496,261 shares reserved for issuance upon
the exercise of stock options pursuant to the Pinnacle Stock Plans. Since
January 1, 1996, Pinnacle has not issued any shares of Pinnacle Common Stock or
other equity securities of Pinnacle, or any securities convertible into or
exercisable for any shares of Pinnacle Common Stock or other equity securities
of Pinnacle, other than pursuant to the exercise of employee stock options
granted prior to such date. The shares of Pinnacle Common Stock to be issued
pursuant to the Merger will be duly authorized and validly issued and, at the
Effective Time, all such shares will be fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof.
(b) Pinnacle owns, directly or indirectly, all of the issued and outstanding
shares of capital stock of each of the Pinnacle Subsidiaries, free and clear of
any liens, pledges, charges, encumbrances and security interests whatsoever
("Liens"), and all of such shares are duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. No Pinnacle Subsidiary has or is
bound by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of capital stock or any other equity security of such Subsidiary or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of such Subsidiary.
3.3 AUTHORITY; NO VIOLATION.
(a) Pinnacle has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of Pinnacle. The Board of Directors of Pinnacle has directed
that this Agreement and the transactions contemplated hereby be submitted to
Pinnacle's stockholders for approval at a meeting of such stockholders and,
except for the adoption of this Agreement by the affirmative vote of the holders
of a majority of the outstanding shares of Pinnacle Common Stock, no other
corporate proceedings on the part of Pinnacle are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Pinnacle and (assuming due
authorization, execution and delivery by IFC) constitutes a valid and binding
obligation of Pinnacle, enforceable against Pinnacle in accordance with its
terms.
(b) Neither the execution and delivery of this Agreement by Pinnacle nor the
consummation by Pinnacle of the transactions contemplated hereby, nor compliance
by Pinnacle with any of the terms or provisions hereof, will (i) violate any
provision of the Articles of Incorporation or Bylaws of Pinnacle or (ii)
assuming that the consents and approvals referred to in Section 3.4 are duly
obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Pinnacle or any of its
Subsidiaries or any of their respective properties or assets, or (y) violate,
conflict with, result in
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a breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of Pinnacle or any of its Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Pinnacle or
any of its Subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected, except (in the case of clause (y)
above) for such violations, conflicts, breaches or defaults which, either
individually or in the aggregate, will not have or be reasonably likely to have
a Material Adverse Effect on Pinnacle or the Surviving Corporation.
3.4 CONSENTS AND APPROVALS. Except for (i) the filing of applications and
notices, as applicable, with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the BHC Act and approval of such
applications and notices, (ii) the filing of any required applications with the
Office of Thrift Supervision (the "OTS"), (iii) the filing of any required
applications or notices with any state or foreign agencies and approval of such
applications and notices (the "State Approvals"), (iv) the filing with the
Securities and Exchange Commission (the "SEC") of a joint proxy statement in
definitive form relating to the meetings of Pinnacle's and IFC's stockholders to
be held in connection with this Agreement and the transactions contemplated
hereby (the "Joint Proxy Statement") and the registration statement on Form S-4
(the "S-4") in which the Joint Proxy Statement will be included as a prospectus,
(v) the filing of Certificates of Merger with the appropriate authorities of the
State of Michigan pursuant to the MBCA and with the appropriate officials of the
State of Delaware pursuant to the DGCL, (vi) any notices to or filings with the
Small Business Administration ("SBA"), (vii) any consent, authorizations,
approvals, filings or exemptions in connection with compliance with the
applicable provisions of federal and state securities laws relating to the
regulation of broker-dealers or investment advisers, and federal commodities
laws relating to the regulation of futures commission merchants and the rules
and regulations thereunder and of any applicable industry self-regulatory
organization ("SRO"), and the rules of NASDAQ, or which are required under
consumer finance, mortgage banking and other similar laws, (viii) such filings
and approvals as are required to be made or obtained under the securities or
"Blue Sky" laws of various states in connection with the issuance of the shares
of Pinnacle Common Stock pursuant to this Agreement, and (ix) the approval of
this Agreement by the requisite vote of the stockholders of Pinnacle and IFC, no
consents or approvals of or filings or registrations with any court,
administrative agency or commission or other governmental authority or
instrumentality (each a "Governmental Entity") or with any third party are
necessary in connection with (A) the execution and delivery by Pinnacle of this
Agreement and (B) the consummation by Pinnacle of the Merger and the other
transactions contemplated hereby.
3.5 REPORTS. Pinnacle and each of its Subsidiaries have timely filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since January 1,
1994 with (i) the Federal Reserve Board, (ii) the Federal Deposit Insurance
Corporation, (iii) any state regulatory authority (each a "State Regulator"),
(iv) the Office of the Comptroller of the Currency (the "OCC"), (v) the OTS,
(vi) the SEC and (vii) any SRO (collectively "Regulatory Agencies"), and all
other reports and statements required to be filed by them since January 1, 1994,
including, without limitation, any report or statement required to be filed
pursuant to the laws, rules or regulations of the United States, any state, or
any Regulatory Agency and have paid all fees and assessments due and payable in
connection therewith, except where the failure to file such report, registration
or statement or to pay such fees and assessments, either individually or in the
aggregate, will not have a Material Adverse Effect on Pinnacle. Except for
normal examinations conducted by a Regulatory Agency in the regular course of
the business of Pinnacle and its Subsidiaries, no Regulatory Agency has
initiated any proceeding or, to the best knowledge of Pinnacle, investigation
into the business or operations of Pinnacle or any of its Subsidiaries since
January 1, 1994, except where such proceedings or investigation are not likely,
either individually or in the aggregate, to have a Material Adverse Effect on
Pinnacle. There is no unresolved violation, criticism, or exception by any
Regulatory Agency with respect
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to any report or statement relating to any examinations of Pinnacle or any of
its Subsidiaries which, in the reasonable judgment of Pinnacle, is likely,
either individually or in the aggregate, to have a Material Adverse Effect on
Pinnacle.
3.6 FINANCIAL STATEMENTS. Pinnacle has previously made available to IFC
copies of (a) the consolidated balance sheets of Pinnacle and its Subsidiaries
as of December 31, for the fiscal years 1994 and 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the fiscal years 1993 through 1995, inclusive, as reported in
Pinnacle's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 filed with the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), in each case accompanied by the audit report of KPMG Peat
Marwick LLP, independent public accountants with respect to Pinnacle, and (b)
the unaudited consolidated balance sheet of Pinnacle and its Subsidiaries as of
June 30, 1996 and the related unaudited consolidated statements of income, cash
flows and changes in stockholders' equity for the six-month period then ended as
reported in Pinnacle's Quarterly Report on Form 10-Q for the period ended June
30, 1996 filed with the SEC under the Exchange Act (the "Pinnacle June 30, 1996
Form 10-Q"). The December 31, 1995 consolidated balance sheet of Pinnacle
(including the related notes, where applicable) fairly presents the consolidated
financial position of Pinnacle and its Subsidiaries as of the date thereof, and
the other financial statements referred to in this Section 3.6 (including the
related notes, where applicable) fairly present (subject, in the case of the
unaudited statements, to recurring audit adjustments normal in nature and
amount) the results of the consolidated operations and changes in stockholders'
equity and consolidated financial position of Pinnacle and its Subsidiaries for
the respective fiscal periods or as of the respective dates therein set forth;
each of such statements (including the related notes, where applicable) comply
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto; and each of
such statements (including the related notes, where applicable) has been
prepared in all material respects in accordance with generally accepted
accounting principles ("GAAP") consistently applied during the periods involved,
except, in each case, as indicated in such statements or in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-Q. The books
and records of Pinnacle and its Subsidiaries have been, and are being,
maintained in all material respects in accordance with GAAP and any other
applicable legal and accounting requirements and reflect only actual
transactions.
3.7 BROKER'S FEES. Neither Pinnacle nor any Pinnacle Subsidiary nor any of
their respective officers or directors has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with the Merger or related transactions contemplated by this
Agreement or the Option Agreements, other than The Chicago Corporation (a copy
of which engagement agreement has been disclosed by Pinnacle to IFC) whose fees,
commissions and expenses shall be paid by Pinnacle.
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as publicly disclosed in Pinnacle Reports (as defined in Section
3.12) filed prior to the date hereof, since December 31, 1995, (i) Pinnacle and
its Subsidiaries taken as a whole have not incurred any material liability,
except in the ordinary course of their business, and (ii) no event has occurred
which has had, individually or in the aggregate, a Material Adverse Effect on
Pinnacle or the Surviving Corporation.
(b) Except as publicly disclosed in Pinnacle Reports filed prior to the date
hereof, since December 31, 1995, Pinnacle and its Subsidiaries have carried on
their respective businesses in all material respects in the ordinary and usual
course.
(c) Since December 31, 1995, neither Pinnacle nor any of its Subsidiaries
has (i) except for such actions as are in the ordinary course of business
consistent with past practice or except as required by applicable law, (A)
increased the wages, salaries, compensation, pension, or other fringe benefits
or perquisites payable to any executive officer, employee, or director from the
amount thereof in effect as of December 31, 1995, or (B) granted any severance
or termination pay, entered into any contract to make or grant any severance or
termination pay, or paid any bonuses in excess of Pinnacle's 1995 salary and
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employee benefits expenses, or (ii) suffered any strike, work stoppage,
slowdown, or other labor disturbance which, in the reasonable judgment of
Pinnacle, is likely, either individually or in the aggregate, to have a Material
Adverse Effect on Pinnacle.
3.9 LEGAL PROCEEDINGS.
(a) Neither Pinnacle nor any of its Subsidiaries is a party to any, and
there are no pending or, to the best of Pinnacle's knowledge, threatened,
material legal, administrative, arbitral or other proceedings, claims, actions
or governmental or regulatory investigations of any nature against Pinnacle or
any of its Subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Agreement or the Pinnacle Option Agreement as
to which there is a reasonable probability of an adverse determination and
which, if adversely determined, would, individually or in the aggregate, have a
Material Adverse Effect on Pinnacle.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction (other than those that apply to similarly situated bank holding
companies, savings and loan holding companies banks, or savings institutions)
imposed upon Pinnacle, any of its Subsidiaries or the assets of Pinnacle or any
of its Subsidiaries which has had, or might reasonably be expected to have, a
Material Adverse Effect on Pinnacle.
3.10 TAXES AND TAX RETURNS.
(a) Each of Pinnacle and its Subsidiaries has duly filed all federal, state,
county, foreign and, to the best of Pinnacle's knowledge, local information
returns and tax returns required to be filed by it on or prior to the date
hereof (all such returns being accurate and complete in all material respects)
and has duly paid or made provisions for the payment of all Taxes (as defined in
Section 3.10(b)) and other governmental charges which have been incurred or are
due or claimed to be due from it by federal, state, county, foreign or local
taxing authorities on or prior to the date of this Agreement (including, without
limitation, if and to the extent applicable, those due in respect of its
properties, income, business, capital stock, deposits, franchises, licenses,
sales and payrolls) other than (i) Taxes or other charges which are not yet
delinquent or are being contested in good faith and have not been finally
determined, or (ii) information returns, tax returns, Taxes or other
governmental charges the failure to file, pay or make provision for, either
individually or in the aggregate, are not likely, in the reasonable judgment of
Pinnacle, to have a Material Adverse Effect on Pinnacle. The income tax returns
of Pinnacle and its Subsidiaries have been examined by the Internal Revenue
Service (the "IRS") and any liability with respect thereto has been satisfied
for all years to and including 1993, and either no material deficiencies were
asserted as a result of such examination for which Pinnacle does not have
adequate reserves or all such deficiencies were satisfied. To the best of
Pinnacle's knowledge, there are no material disputes pending, or claims asserted
for, Taxes or assessments upon Pinnacle or any of its Subsidiaries for which
Pinnacle does not have adequate reserves, nor has Pinnacle or any of its
Subsidiaries given any currently effective waivers extending the statutory
period of limitation applicable to any federal, state, county or local income
tax return for any period. In addition, (A) proper and accurate amounts have
been withheld by Pinnacle and its Subsidiaries from their employees for all
prior periods in compliance in all material respects with the tax withholding
provisions of applicable federal, state and local laws, except where failure to
do so would not have a Material Adverse Effect on Pinnacle, (B) federal, state,
county and local returns which are accurate and complete in all material
respects have been filed by Pinnacle and its Subsidiaries for all periods for
which returns were due with respect to income tax withholding, Social Security
and unemployment taxes, except where failure to do so would not have a Material
Adverse Effect on Pinnacle, (C) the amounts shown on such federal, state, local
or county returns to be due and payable have been paid in full or adequate
provision therefor has been included by Pinnacle in its consolidated financial
statements as of December 31, 1995, except where
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failure to do so would not have a Material Adverse Effect on Pinnacle and (D)
there are no Tax liens upon any property or assets of Pinnacle or its
Subsidiaries except liens for current taxes not yet due or liens that would not
have a Material Adverse Effect on Pinnacle. Neither Pinnacle nor any of its
Subsidiaries has been required to include in income any adjustment pursuant to
Section 481 of the Code by reason of a voluntary change in accounting method
initiated by Pinnacle or any of its Subsidiaries, and the IRS has not initiated
or proposed any such adjustment or change in accounting method, in either case
which has had or is reasonably likely to have a Material Adverse Effect on
Pinnacle. Except as set forth in the financial statements described in Section
3.6, neither Pinnacle nor any of its Subsidiaries has entered into a transaction
which is being accounted for as an installment obligation under Section 453 of
the Code, which would be reasonably likely to have a Material Adverse Effect on
Pinnacle.
(b) As used in this Agreement, the term "Tax" or "Taxes" means all federal,
state, county, local, and foreign income, excise, gross receipts, gross income,
ad valorem, profits, gains, property, capital, sales, transfer, use, payroll,
employment, severance, withholding, duties, intangibles, franchise, backup
withholding, and other taxes, charges, levies or like assessments together with
all penalties and additions to tax and interest thereon.
(c) Any amount that is reasonably likely to be received (whether in cash or
property or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer or director of Pinnacle
or any of its affiliates who is a "Disqualified Individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any employment,
severance or termination agreement, other compensation arrangement or Pinnacle
Benefit Plan (as defined in Section 3.11(a)) currently in effect should not be
characterized as an "excess parachute payment" (as such term is defined in
Section 280G(b)(1) of the Code).
(d) No disallowance of a deduction under Section 162(m) of the Code for
employee remuneration of any amount paid or payable by Pinnacle or any
Subsidiary of Pinnacle under any contract, plan, program, arrangement or
understanding would be reasonably likely to have a Material Adverse Effect on
Pinnacle.
3.11 EMPLOYEES.
(a) The Pinnacle Disclosure Schedule sets forth a true and complete list of
each material employee benefit plan, arrangement or agreement that is maintained
as of the date of this Agreement (the "Pinnacle Benefit Plans") by Pinnacle or
any of its Subsidiaries or by any affiliated trade or business, whether or not
incorporated (an "ERISA Affiliate"), all of which together with Pinnacle would
be deemed a "single employer" within the meaning of Section 4001 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Pinnacle has heretofore delivered to IFC true and complete copies of
each of the Pinnacle Benefit Plans and certain related documents, including, but
not limited to, (i) the actuarial report for such Pinnacle Benefit Plan (if
applicable) for each of the last two years, and (ii) the most recent
determination letter from the IRS (if applicable) for such Plan.
(c) (i) Each of the Pinnacle Benefit Plans has been operated and
administered in all material respects in compliance with applicable laws,
including, but not limited to, ERISA and the Code, (ii) each of the Pinnacle
Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of
the Code is so qualified, (iii) with respect to each Plan which is subject to
Title IV of ERISA, the present value of accrued benefits under such Plan, based
upon the actuarial assumptions used for funding purposes in the most recent
actuarial report prepared by such Plan's actuary with respect to such Plan, did
not, as of its latest valuation date, exceed the then current value of the
assets of such Plan allocable to such accrued benefits, (iv) no Pinnacle Benefit
Plan provides benefits, including, without limitation, death or medical benefits
(whether or not insured), with respect to current or former employees of
Pinnacle, its Subsidiaries or any ERISA Affiliate beyond their retirement or
other termination of service, other than (A) coverage mandated by applicable
law, (B) death benefits or retirement benefits under any "employee pension plan"
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(as such term is defined in Section 3(2) of ERISA), (C) deferred compensation
benefits accrued as liabilities on the books of Pinnacle, its Subsidiaries or
the ERISA Affiliates or (D) benefits the full cost of which is borne by the
current or former employee (or his beneficiary), (v) no material liability under
Title IV of ERISA has been incurred by Pinnacle, its Subsidiaries or any ERISA
Affiliate that has not been satisfied in full, and no condition exists that
presents a material risk to Pinnacle, its Subsidiaries or any ERISA Affiliate of
incurring a material liability thereunder, (vi) no Plan is a "multiemployer
pension plan" (as such term is defined in Section 3(37) of ERISA), (vii) all
contributions or other amounts payable by Pinnacle or its Subsidiaries as of the
Effective Time with respect to each Pinnacle Benefit Plan in respect of current
or prior plan years have been paid or accrued in accordance with GAAP and
Section 412 of the Code, (viii) neither Pinnacle, its Subsidiaries nor any ERISA
Affiliate has engaged in a transaction in connection with which Pinnacle, its
Subsidiaries or any ERISA Affiliate reasonably could be subject to either a
material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a
material tax imposed pursuant to Section 4975 or 4976 of the Code, and (ix) to
the best knowledge of Pinnacle there are no pending, threatened or anticipated
claims (other than routine claims for benefits) by, on behalf of or against any
of the Pinnacle Benefit Plans or any trusts related thereto which are, in the
reasonable judgment of Pinnacle, likely, either individually or in the
aggregate, to have a Material Adverse Effect on Pinnacle.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director or any
employee of Pinnacle or any of its affiliates from Pinnacle or any of its
affiliates under any Pinnacle Benefit Plan or otherwise, (ii) materially
increase any benefits otherwise payable under any Pinnacle Benefit Plan or (iii)
result in any acceleration of the time of payment or vesting of any such
benefits to any material extent.
3.12 SEC REPORTS. Pinnacle has previously made available to IFC an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1994 by
Pinnacle with the SEC pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act (the "Pinnacle Reports") and prior to the
date hereof and (b) communication mailed by Pinnacle to its stockholders since
January 1, 1994 and prior to the date hereof, and no such registration
statement, prospectus, report, schedule, proxy statement or communication
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except that information as of a later date shall be deemed to modify
information as of an earlier date. Since January 1, 1994, Pinnacle has timely
filed all Pinnacle Reports and other documents required to be filed by it under
the Securities Act and the Exchange Act, and, as of their respective dates, all
Pinnacle Reports complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
3.13 COMPLIANCE WITH APPLICABLE LAW. Pinnacle and each of its Subsidiaries
hold all material licenses, franchises, permits and authorizations necessary for
the lawful conduct of their respective businesses under and pursuant to all, and
have complied in all material respects with and are not in default in any
material respect under any, applicable law, statute, order, rule, regulation,
policy and/or guideline of any Governmental Entity relating to Pinnacle or any
of its Subsidiaries, except where the failure to hold such license, franchise,
permit or authorization or such noncompliance or default would not, individually
or in the aggregate, have a Material Adverse Effect on Pinnacle.
3.14 CERTAIN CONTRACTS.
(a) Neither Pinnacle nor any of its Subsidiaries is a party to or bound by
any contract, arrangement, commitment or understanding (whether written or oral)
(i) with respect to the employment of any directors, officers or employees other
than in the ordinary course of business consistent with past practice,
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(ii) which, upon the consummation of the transactions contemplated by this
Agreement will (either alone or upon the occurrence of any additional acts or
events) result in any payment (whether of severance pay or otherwise) becoming
due from IFC, Pinnacle, the Surviving Corporation, or any of their respective
Subsidiaries to any officer or employee thereof, (iii) which is a "material
contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the
SEC) to be performed after the date of this Agreement that has not been filed or
incorporated by reference in the Pinnacle Reports, (iv) which materially
restricts the conduct of any line of business by Pinnacle, (v) with or to a
labor union or guild (including any collective bargaining agreement) or (vi)
(including any stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan) any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement, or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement. Pinnacle has previously made
available to IFC true and correct copies of all employment and deferred
compensation agreements which are in writing and to which Pinnacle is a party.
Each contract, arrangement, commitment or understanding of the type described in
this Section 3.14(a), whether or not set forth in the Pinnacle Disclosure
Schedule, is referred to herein as a "Pinnacle Contract", and neither Pinnacle
nor any of its Subsidiaries knows of, or has received notice of, any violation
of the above by any of the other parties thereto which, individually or in the
aggregate, would have a Material Adverse Effect on Pinnacle.
(b) (i) Each Pinnacle Contract is valid and binding on Pinnacle or any of
its Subsidiaries, as applicable, and in full force and effect, (ii) Pinnacle and
each of its Subsidiaries has in all material respects performed all obligations
required to be performed by it to date under each Pinnacle Contract, except
where such noncompliance, individually or in the aggregate, would not have a
Material Adverse Effect on Pinnacle, and (iii) no event or condition exists
which constitutes or, after notice or lapse of time or both, would constitute, a
material default on the part of Pinnacle or any of its Subsidiaries under any
such Pinnacle Contract, except where such default, individually or in the
aggregate, would not have a Material Adverse Effect on Pinnacle.
3.15 AGREEMENTS WITH REGULATORY AGENCIES. Neither Pinnacle nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has been since
January 1, 1994, a recipient of any supervisory letter from, or since January 1,
1994, has adopted any board resolutions at the request of any Regulatory Agency
or other Governmental Entity that currently restricts in any material respect
the conduct of its business or that in any material manner relates to its
capital adequacy, its credit policies, its management or its business (each,
whether or not set forth in the Pinnacle Disclosure Schedule, a "Pinnacle
Regulatory Agreement"), nor has Pinnacle or any of its Subsidiaries been advised
since January 1, 1994, by any Regulatory Agency or other Governmental Entity
that it is considering issuing or requesting any such Regulatory Agreement.
3.16 OTHER ACTIVITIES OF PINNACLE AND ITS SUBSIDIARIES.
(a) Neither Pinnacle nor any of its Subsidiaries that is neither a bank, a
bank operating subsidiary or a bank service corporation, directly or indirectly,
engages in any activity prohibited by the Federal Reserve Board or the OTS.
Without limiting the generality of the foregoing, any equity investment of
Pinnacle and each Subsidiary that is not a bank, a bank operating subsidiary or
a bank service corporation is not prohibited by the Federal Reserve Board or the
OTS.
(b) To Pinnacle's knowledge, each Pinnacle Subsidiary which is a federally
insured bank or savings institution (a "Pinnacle Bank Subsidiary") currently
performs all personal trust, corporate trust and other fiduciary activities
("Trust Activities") with requisite authority under applicable law of
Governmental Entities and in accordance in all material respects with the
agreed-upon terms of the agreements and instruments governing such Trust
Activities, sound fiduciary principles and applicable law and regulation
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(specifically including, but not limited to, Section 9 of Title 12 of the Code
of Federal Regulations); there is no investigation or inquiry by any
Governmental Entity pending, or to the knowledge of Pinnacle, threatened,
against or affecting Pinnacle, or any Significant Subsidiary thereof relating to
the compliance by Pinnacle or any such Significant Subsidiary (as such term is
defined in Rule 1-02(w) of Regulation S-X of the SEC) with sound fiduciary
principles and applicable regulations; and except where any such failure would
not have a Material Adverse Effect on Pinnacle, each employee of a Pinnacle Bank
Subsidiary had the authority to act in the capacity in which he or she acted
with respect to Trust Activities, in each case, in which such employee held
himself or herself out as a representative of a Pinnacle Bank Subsidiary; and
each Pinnacle Bank Subsidiary has established policies and procedures for the
purpose of complying with applicable laws of Governmental Entities relating to
Trust Activities, has followed such policies and procedures in all material
respects and has performed appropriate internal audit reviews of, and has
engaged independent accountants to perform audits of, Trust Activities, which
audits since January 1, 1994 have disclosed no material violations of applicable
laws of Governmental Entities or such policies and procedures.
3.17 INVESTMENT SECURITIES. Each of Pinnacle and its Subsidiaries has good
and marketable title to all securities held by it (except securities sold under
repurchase agreements or held in any fiduciary or agency capacity), free and
clear of any Lien, except to the extent such securities are pledged in the
ordinary course of business consistent with prudent banking practices to secure
obligations of Pinnacle or any of its Subsidiaries. Such securities are valued
on the books of Pinnacle in accordance with GAAP.
3.18 INTEREST RATE RISK MANAGEMENT INSTRUMENTS. All interest rate swaps,
caps, floors and option agreements and other interest rate risk management
arrangements, whether entered into for the account of Pinnacle or for the
account of a customer of Pinnacle or one of its Subsidiaries, were entered into
in the ordinary course of business and, to Pinnacle's knowledge, in accordance
with prudent banking practice and applicable rules, regulations and policies of
any Regulatory Authority and with counterparties believed to be financially
responsible at the time and are legal, valid and binding obligations of Pinnacle
or one of its Subsidiaries enforceable in accordance with their terms (except as
may be limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the rights of creditors generally and the availability of
equitable remedies), and are in full force and effect. Pinnacle and each of its
Subsidiaries have duly performed in all material respects all of their material
obligations thereunder to the extent that such obligations to perform have
accrued; and, to Pinnacle's knowledge, there are no material breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
3.19 UNDISCLOSED LIABILITIES. Except for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of Pinnacle
included in the Pinnacle June 30, 1996 Form 10-Q and for liabilities incurred in
the ordinary course of business consistent with past practice since June 30,
1996, neither Pinnacle nor any of its Subsidiaries has incurred any liability of
any nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due) that, either alone or when combined with all
similar liabilities, has had, or could reasonably be expected to have, a
Material Adverse Effect on Pinnacle.
3.20 ENVIRONMENTAL LIABILITY. Except as set forth in the Pinnacle
Disclosure Schedule, there are no legal, administrative, arbitral or other
proceedings, claims, actions, causes of action, private environmental
investigations or remediation activities or governmental investigations of any
nature seeking to impose, or that could reasonably be expected to result in the
imposition, on Pinnacle or any of the Pinnacle Subsidiaries of any liability or
obligation arising under common law or under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), pending or threatened against Pinnacle or any of
the Pinnacle Subsidiaries, which liability or obligation could reasonably be
expected to have a Material Adverse Effect on Pinnacle. To the knowledge of
Pinnacle, there is no reasonable basis for any such proceeding, claim, action or
governmental investigation that would impose any material liability or
obligation that could reasonably be expected to have a Material Adverse
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Effect on Pinnacle. Neither Pinnacle nor any of the Pinnacle Subsidiaries is
subject to any agreement, order, judgment, decree, letter or memorandum by or
with any court, governmental authority, regulatory agency or third party
imposing any material liability or obligation that could reasonably be expected
to have a Material Adverse Effect on Pinnacle.
3.21 STATE TAKEOVER LAWS. The Board of Directors of Pinnacle has approved
the transactions contemplated by this Agreement and the Option Agreements and
taken such action such that the provisions of Chapter 7A of the MBCA and any
other provisions of any state or local "takeover" law applicable to Pinnacle
will not apply to this Agreement or the Option Agreements or any of the
transactions contemplated hereby or thereby.
3.22 POOLING OF INTERESTS. Pinnacle has no reason to believe that the
Merger will not qualify as a "pooling of interests" for accounting purposes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF IFC
Except as disclosed in the IFC disclosure schedule delivered to Pinnacle
concurrently herewith (the "IFC Disclosure Schedule") IFC hereby represents and
warrants to Pinnacle as follows:
4.1 CORPORATE ORGANIZATION.
(a) IFC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. IFC has the corporate power
and authority to own or lease all of its properties and assets and to carry on
its business as it is now being conducted, and is duly licensed or qualified to
do business in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or leased
by it makes such licensing or qualification necessary, except where the failure
to be so licensed or qualified would not have a Material Adverse Effect on IFC.
IFC is duly registered as a savings and loan holding company under the HOLA.
True and complete copies of the Certificate of Incorporation and Bylaws of IFC,
as in effect as of the date of this Agreement, have previously been made
available by IFC to Pinnacle.
(b) Each IFC Subsidiary (i) is duly organized and validly existing as a
bank, savings and loan institution, corporation, partnership or limited
liability company under the laws of its jurisdiction of organization, (ii) is
duly qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse Effect on IFC, and
(iii) has all requisite corporate power and authority to own or lease its
properties and assets and to carry on its business as now conducted.
(c) The minute books of IFC accurately reflect in all material respects all
corporate actions held or taken since January 1, 1994 of its stockholders and
Board of Directors (including committees of the Board of Directors of IFC).
4.2 CAPITALIZATION.
(a) The authorized capital stock of IFC consists of (i) 5,000,000 shares of
serial preferred stock, par value $0.01 per share, none of which as of November
11, 1996 were issued or outstanding; and (ii) 10,000,000 shares of IFC Common
Stock, of which as of November 11, 1996, 4,751,131 shares were issued and
outstanding and 1,110,000 shares were held in treasury. All of the issued and
outstanding shares of IFC Common Stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. As of the date of this
Agreement, except pursuant to the terms of the IFC Option Agreement (as
hereinafter defined), the IFC Rights Agreement and the IFC Stock Plans, IFC does
not have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the
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purchase or issuance of any shares of IFC Common Stock or any other equity
securities of IFC or any securities representing the right to purchase or
otherwise receive any shares of IFC Common Stock or any other equity securities
of IFC. As of November 11, 1996, no shares of IFC Common Stock were reserved for
issuance, except for (i) 253,089 shares reserved for issuance upon the exercise
of stock options pursuant to the IFC Stock Plans, and (ii) shares reserved for
issuance pursuant to the IFC Rights Agreement. Since January 1, 1996, IFC has
not issued any shares of IFC Common Stock or other equity securities of IFC, or
any securities convertible into or exercisable for any shares of IFC Common
Stock or other equity securities of IFC, other than pursuant to the exercise of
employee stock options granted prior to such date.
(b) As of November 11, 1996, there are issued and outstanding up to
4,751,131 rights in respect of shares of IFC Common Stock (the "IFC Rights"),
subject to terms and conditions of the Stockholder Protection Rights Agreement
dated as of February 26, 1992, as amended by the Amendment to Stockholder
Protection Rights Agreement dated as of November 14, 1996 (the "IFC Rights
Agreement"), between IFC and Harris Trust and Savings Bank, as Rights Agent. As
of the date of this Agreement, the Separation Time (as defined in the IFC Rights
Agreement) has not occurred, the Amendment to Stockholder Protection Rights
Agreement dated as of November 14, 1996, has been entered into and is effective
and in full force and effect, the entering into of this Agreement and/or the IFC
Stock Option Agreement and/or the consummation of the transactions contemplated
hereby and/or thereby have been exempted from the application of the IFC Rights
Agreement and do not and will not cause a Separation Time to occur, and all IFC
Rights are redeemable by IFC at a cost to IFC of not more than $0.01 per each of
the shares of IFC Common Stock issued and outstanding.
(c) IFC owns, directly or indirectly, all of the issued and outstanding
shares of capital stock of each of the IFC Subsidiaries, free and clear of any
Liens, and all of such shares are duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. No IFC Subsidiary has or is bound
by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of capital stock or any other equity security of such Subsidiary or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of such Subsidiary.
4.3 AUTHORITY; NO VIOLATION.
(a) IFC has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of IFC. The Board of Directors of IFC has directed that this Agreement
and the transactions contemplated hereby be submitted to IFC's stockholders for
approval at a meeting of such stockholders and, except for the adoption of this
Agreement by the affirmative vote of the holders of a majority of the
outstanding shares of IFC Common Stock, no other corporate proceedings on the
part of IFC are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by IFC and (assuming due authorization, execution and
delivery by Pinnacle) constitutes a valid and binding obligation of IFC,
enforceable against IFC in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by IFC nor the
consummation by IFC of the transactions contemplated hereby, nor compliance by
IFC with any of the terms or provisions hereof, will (i) violate any provision
of the Certificate of Incorporation or Bylaws of IFC or (ii) assuming that the
consents and approvals referred to in Section 4.4 are duly obtained, (x) violate
any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to IFC or any of its Subsidiaries or any of their
respective properties or assets, or (y) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any
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Lien upon any of the respective properties or assets of IFC or any of its
Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which IFC or any of its Subsidiaries is a party, or
by which they or any of their respective properties or assets may be bound or
affected, except (in the case of clause (y) above) for such violations,
conflicts, breaches or defaults which, either individually or in the aggregate,
will not have or be reasonably likely to have a Material Adverse Effect on IFC
or the Surviving Corporation; provided, however, that prior to the date hereof,
IFC has secured a waiver of Harris Trust and Savings Bank under the loan,
security agreement and guaranty for the benefit of the IFC Employee Stock
Ownership Plan ("ESOP") so that this Agreement and the Merger shall not cause
any breach, default or acceleration under said IFC ESOP loan arrangement.
4.4 CONSENTS AND APPROVALS. Except for (i) the filing of applications and
notices, as applicable, with the Federal Reserve Board under the BHC Act and
approval of such applications and notices, (ii) the filing of any required
applications with the OTS, (iii) the filing of any required applications or
notices for, and the receipt of, the State Approvals, (iv) the filing with the
SEC of the Joint Proxy Statement and the S-4 in which the Joint Proxy Statement
will be included as a prospectus, (v) the filing of Certificates of Merger with
the appropriate authorities of the State of Michigan pursuant to the MBCA and
with the appropriate officials of the State of Delaware pursuant to the DGCL,
(vi) any notices to or filings with the SBA, (vii) any consent, authorizations,
approvals, filings or exemptions in connection with compliance with the
applicable provisions of federal and state securities laws relating to the
regulation of broker-dealers or investment advisers, and federal commodities
laws relating to the regulation of futures commission merchants and the rules
and regulations thereunder and of any applicable industry SRO, and the rules of
NASDAQ, or which are required under consumer finance, mortgage banking and other
similar laws, (viii) such filings and approvals as are required to be made or
obtained under the securities or "Blue Sky" laws of various states in connection
with the issuance of the shares of Pinnacle Common Stock pursuant to this
Agreement, and (ix) the approval of this Agreement by the requisite vote of the
stockholders of Pinnacle and IFC, no consents or approvals of or filings or
registrations with any Governmental Entity or with any third party are necessary
in connection with (A) the execution and delivery by IFC of this Agreement and
(B) the consummation by IFC of the Merger and the other transactions
contemplated hereby.
4.5 REPORTS. IFC and each of its Subsidiaries have timely filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since January 1,
1994 with any of the Regulatory Agencies, and all other reports and statements
required to be filed by them since January 1, 1994, including, without
limitation, any report or statement required to be filed pursuant to the laws,
rules or regulations of the United States, any state, or any Regulatory Agency
and have paid all fees and assessments due and payable in connection therewith,
except where the failure to file such report, registration or statement or to
pay such fees and assessments, either individually or in the aggregate, will not
have a Material Adverse Effect on IFC. Except for normal examinations conducted
by a Regulatory Agency in the regular course of the business of IFC and its
Subsidiaries, no Regulatory Agency has initiated any proceeding or, to the best
knowledge of IFC, investigation into the business or operations of IFC or any of
its Subsidiaries since January 1, 1994, except where such proceedings or
investigation are not likely, either individually or in the aggregate, to have a
Material Adverse Effect on IFC. There is no unresolved violation, criticism, or
exception by any Regulatory Agency with respect to any report or statement
relating to any examinations of IFC or any of its Subsidiaries which, in the
reasonable judgment of IFC, is likely, either individually or in the aggregate,
to have a Material Adverse Effect on IFC.
4.6 FINANCIAL STATEMENTS. IFC has previously made available to Pinnacle
copies of (a) the consolidated balance sheets of IFC and its Subsidiaries as of
December 31, for the fiscal years 1994 and 1995, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
fiscal years 1993 through 1995, inclusive, as reported in IFC's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 filed with the SEC under
the Exchange Act, in each case accompanied by the
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audit report of Ernst & Young LLP, independent public accountants with respect
to IFC, and (b) the unaudited consolidated balance sheet of IFC and its
Subsidiaries as of June 30, 1996 and the related unaudited consolidated
statements of income and cash flows for the six-month period then ended as
reported in IFC's Quarterly Report on Form 10-Q for the period ended June 30,
1996 filed with the SEC under the Exchange Act (the "IFC June 30, 1996 Form
10-Q"). The December 31, 1995 consolidated balance sheet of IFC (including the
related notes, where applicable) fairly presents the consolidated financial
position of IFC and its Subsidiaries as of the date thereof, and the other
financial statements referred to in this Section 4.6 (including the related
notes, where applicable) fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount) the
results of the consolidated operations and changes in stockholders' equity and
consolidated financial position of IFC and its Subsidiaries for the respective
fiscal periods or as of the respective dates therein set forth; each of such
statements (including the related notes, where applicable) comply in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto; and each of such
statements (including the related notes, where applicable) has been prepared in
all material respects in accordance with GAAP consistently applied during the
periods involved, except, in each case, as indicated in such statements or in
the notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q. The books and records of IFC and its Subsidiaries have been, and are
being, maintained in all material respects in accordance with GAAP and any other
applicable legal and accounting requirements and reflect only actual
transactions.
4.7 BROKER'S FEES. Neither IFC nor any IFC Subsidiary nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with the Merger or related transactions contemplated by this Agreement or the
Option Agreements, other than Sandler O'Neill & Partners, L.P. ("Sandler
O'Neill") (a copy of which engagement agreement has been disclosed by IFC to
Pinnacle) whose fees, commissions and expenses shall be paid by IFC.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as publicly disclosed in IFC Reports (as defined in Section 4.12)
filed prior to the date hereof, since December 31, 1995, (i) IFC and its
Subsidiaries taken as a whole have not incurred any material liability, except
in the ordinary course of their business, and (ii) no event has occurred which
has had, individually or in the aggregate, a Material Adverse Effect on IFC or
the Surviving Corporation.
(b) Except as publicly disclosed in IFC Reports filed prior to the date
hereof, since December 31, 1995, IFC and its Subsidiaries have carried on their
respective businesses in all material respects in the ordinary and usual course.
(c) Since December 31, 1995, neither IFC nor any of its Subsidiaries has (i)
except for such actions as are in the ordinary course of business consistent
with past practice or except as required by applicable law, (A) increased the
wages, salaries, compensation, pension, or other fringe benefits or perquisites
payable to any executive officer, employee, or director from the amount thereof
in effect as of December 31, 1995, or (B) granted any severance or termination
pay, entered into any contract to make or grant any severance or termination
pay, or paid any bonuses in excess of IFC's 1995 salary and employee benefits
expenses, or (ii) suffered any strike, work stoppage, slowdown, or other labor
disturbance which, in the reasonable judgment of IFC, is likely, either
individually or in the aggregate, to have a Material Adverse Effect on IFC.
4.9 LEGAL PROCEEDINGS.
(a) Neither IFC nor any of its Subsidiaries is a party to any, and there are
no pending or, to the best of IFC's knowledge, threatened, material legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature against IFC or any of its
Subsidiaries or challenging the validity or propriety of the transactions
contemplated by this Agreement or the IFC Option Agreement as to which there is
a reasonable probability of an adverse determination and which, if adversely
determined, would, individually or in the aggregate, have a Material Adverse
Effect on IFC.
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(b) There is no injunction, order, judgment, decree, or regulatory
restriction (other than those that apply to similarly situated bank holding
companies, savings and loan holding companies banks, or savings institutions)
imposed upon IFC, any of its Subsidiaries or the assets of IFC or any of its
Subsidiaries which has had, or might reasonably be expected to have, a Material
Adverse Effect on IFC.
4.10 TAXES AND TAX RETURNS.
(a) Each of IFC and its Subsidiaries has duly filed all federal, state,
county, foreign and, to the best of IFC's knowledge, local information returns
and tax returns required to be filed by it on or prior to the date hereof (all
such returns being accurate and complete in all material respects) and has duly
paid or made provisions for the payment of all Taxes and other governmental
charges which have been incurred or are due or claimed to be due from it by
federal, state, county, foreign or local taxing authorities on or prior to the
date of this Agreement (including, without limitation, if and to the extent
applicable, those due in respect of its properties, income, business, capital
stock, deposits, franchises, licenses, sales and payrolls) other than (i) Taxes
or other charges which are not yet delinquent or are being contested in good
faith and have not been finally determined, or (ii) information returns, tax
returns, Taxes or other governmental charges the failure to file, pay or make
provision for, either individually or in the aggregate, are not likely, in the
reasonable judgment of IFC, to have a Material Adverse Effect on IFC. The income
tax returns of IFC and its Subsidiaries have been examined by the IRS and any
liability with respect thereto has been satisfied for all years to and including
1993, and either no material deficiencies were asserted as a result of such
examination for which IFC does not have adequate reserves or all such
deficiencies were satisfied. To the best of IFC's knowledge, there are no
material disputes pending, or claims asserted for, Taxes or assessments upon IFC
or any of its Subsidiaries for which IFC does not have adequate reserves, nor
has IFC or any of its Subsidiaries given any currently effective waivers
extending the statutory period of limitation applicable to any federal, state,
county or local income tax return for any period. In addition, (A) proper and
accurate amounts have been withheld by IFC and its Subsidiaries from their
employees for all prior periods in compliance in all material respects with the
tax withholding provisions of applicable federal, state and local laws, except
where failure to do so would not have a Material Adverse Effect on IFC, (B)
federal, state, county and local returns which are accurate and complete in all
material respects have been filed by IFC and its Subsidiaries for all periods
for which returns were due with respect to income tax withholding, Social
Security and unemployment taxes, except where failure to do so would not have a
Material Adverse Effect on IFC, (C) the amounts shown on such federal, state,
local or county returns to be due and payable have been paid in full or adequate
provision therefor has been included by IFC in its consolidated financial
statements as of December 31, 1995, except where failure to do so would not have
a Material Adverse Effect on IFC and (D) there are no Tax liens upon any
property or assets of IFC or its Subsidiaries except liens for current taxes not
yet due or liens that would not have a Material Adverse Effect on IFC. Neither
IFC nor any of its Subsidiaries has been required to include in income any
adjustment pursuant to Section 481 of the Code by reason of a voluntary change
in accounting method initiated by IFC or any of its Subsidiaries, and the IRS
has not initiated or proposed any such adjustment or change in accounting
method, in either case which has had or is reasonably likely to have a Material
Adverse Effect on IFC. Except as set forth in the financial statements described
in Section 4.6, neither IFC nor any of its Subsidiaries has entered into a
transaction which is being accounted for as an installment obligation under
Section 453 of the Code, which would be reasonably likely to have a Material
Adverse Effect on IFC.
(b) Any amount that is reasonably likely to be received (whether in cash or
property or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer or director of IFC or
any of its affiliates who is a "Disqualified Individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any employment,
severance or termination agreement, other compensation arrangement or IFC
Benefit Plan (as defined in Section 4.11(a)) currently in effect should not be
characterized as an "excess parachute payment" (as such term is defined in
Section 280G(b)(1) of the Code).
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(c) No disallowance of a deduction under Section 162(m) of the Code for
employee remuneration of any amount paid or payable by IFC or any Subsidiary of
IFC under any contract, plan, program, arrangement or understanding would be
reasonably likely to have a Material Adverse Effect on IFC.
4.11 EMPLOYEES.
(a) The IFC Disclosure Schedule sets forth a true and complete list of each
material employee benefit plan, arrangement or agreement that is maintained as
of the date of this Agreement (the "IFC Benefit Plans") by IFC or any of its
Subsidiaries or by any ERISA Affiliate, all of which together with IFC would be
deemed a "single employer" within the meaning of Section 4001 of ERISA.
(b) IFC has heretofore delivered to Pinnacle true and complete copies of
each of the IFC Benefit Plans and certain related documents, including, but not
limited to, (i) the actuarial report for such IFC Benefit Plan (if applicable)
for each of the last two years, and (ii) the most recent determination letter
from the IRS (if applicable) for such Plan.
(c) (i) Each of the IFC Benefit Plans has been operated and administered in
all material respects in compliance with applicable laws, including, but not
limited to, ERISA and the Code, (ii) each of the IFC Benefit Plans intended to
be "qualified" within the meaning of Section 401(a) of the Code is so qualified,
(iii) with respect to each Plan which is subject to Title IV of ERISA, the
present value of accrued benefits under such Plan, based upon the actuarial
assumptions used for funding purposes in the most recent actuarial report
prepared by such Plan's actuary with respect to such Plan, did not, as of its
latest valuation date, exceed the then current value of the assets of such Plan
allocable to such accrued benefits, (iv) no IFC Benefit Plan provides benefits,
including, without limitation, death or medical benefits (whether or not
insured), with respect to current or former employees of IFC, its Subsidiaries
or any ERISA Affiliate beyond their retirement or other termination of service,
other than (A) coverage mandated by applicable law, (B) death benefits or
retirement benefits under any "employee pension plan" (as such term is defined
in Section 3(2) of ERISA), (C) deferred compensation benefits accrued as
liabilities on the books of IFC, its Subsidiaries or the ERISA Affiliates or (D)
benefits the full cost of which is borne by the current or former employee (or
his beneficiary), (v) no material liability under Title IV of ERISA has been
incurred by IFC, its Subsidiaries or any ERISA Affiliate that has not been
satisfied in full, and no condition exists that presents a material risk to IFC,
its Subsidiaries or any ERISA Affiliate of incurring a material liability
thereunder, (vi) no Plan is a "multiemployer pension plan" (as such term is
defined in Section 3(37) of ERISA), (vii) all contributions or other amounts
payable by IFC or its Subsidiaries as of the Effective Time with respect to each
IFC Benefit Plan in respect of current or prior plan years have been paid or
accrued in accordance with GAAP and Section 412 of the Code, (viii) neither IFC,
its Subsidiaries nor any ERISA Affiliate has engaged in a transaction in
connection with which IFC, its Subsidiaries or any ERISA Affiliate reasonably
could be subject to either a material civil penalty assessed pursuant to Section
409 or 502(i) of ERISA or a material tax imposed pursuant to Section 4975 or
4976 of the Code, and (ix) to the best knowledge of IFC there are no pending,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the IFC Benefit Plans or any trusts related thereto
which are, in the reasonable judgment of IFC, likely, either individually or in
the aggregate, to have a Material Adverse Effect on IFC.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director or any
employee of IFC or any of its affiliates from IFC or any of its affiliates under
any IFC Benefit Plan or otherwise, (ii) materially increase any benefits
otherwise payable under any IFC Benefit Plan or (iii) result in any acceleration
of the time of payment or vesting of any such benefits to any material extent.
4.12 SEC REPORTS. IFC has previously made available to Pinnacle an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1994 by
IFC with the SEC pursuant to the Securities Act or the Exchange Act (the "IFC
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Reports") and prior to the date hereof and (b) communication mailed by IFC to
its stockholders since January 1, 1994 and prior to the date hereof, and no such
registration statement, prospectus, report, schedule, proxy statement or
communication contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading, except that information as of a later date shall be deemed
to modify information as of an earlier date. Since January 1, 1994, IFC has
timely filed all IFC Reports and other documents required to be filed by it
under the Securities Act and the Exchange Act, and, as of their respective
dates, all IFC Reports complied in all material respects with the published
rules and regulations of the SEC with respect thereto.
4.13 COMPLIANCE WITH APPLICABLE LAW. IFC and each of its Subsidiaries hold
all material licenses, franchises, permits and authorizations necessary for the
lawful conduct of their respective businesses under and pursuant to all, and
have complied in all material respects with and are not in default in any
material respect under any, applicable law, statute, order, rule, regulation,
policy and/or guideline of any Governmental Entity relating to IFC or any of its
Subsidiaries, except where the failure to hold such license, franchise, permit
or authorization or such noncompliance or default would not, individually or in
the aggregate, have a Material Adverse Effect on IFC.
4.14 CERTAIN CONTRACTS.
(a) Neither IFC nor any of its Subsidiaries is a party to or bound by any
contract, arrangement, commitment or understanding (whether written or oral) (i)
with respect to the employment of any directors, officers or employees other
than in the ordinary course of business consistent with past practice, (ii)
which, upon the consummation of the transactions contemplated by this Agreement
will (either alone or upon the occurrence of any additional acts or events)
result in any payment (whether of severance pay or otherwise) becoming due from
IFC, Pinnacle, the Surviving Corporation, or any of their respective
Subsidiaries to any officer or employee thereof, (iii) which is a "material
contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the
SEC) to be performed after the date of this Agreement that has not been filed or
incorporated by reference in the IFC Reports, (iv) which materially restricts
the conduct of any line of business by IFC, (v) with or to a labor union or
guild (including any collective bargaining agreement) or (vi) (including any
stock option plan, stock appreciation rights plan, restricted stock plan or
stock purchase plan) any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement, or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. IFC has previously made available to Pinnacle
true and correct copies of all employment and deferred compensation agreements
which are in writing and to which IFC is a party. Each contract, arrangement,
commitment or understanding of the type described in this Section 4.14(a),
whether or not set forth in the IFC Disclosure Schedule, is referred to herein
as an "IFC Contract", and neither IFC nor any of its Subsidiaries knows of, or
has received notice of, any violation of the above by any of the other parties
thereto which, individually or in the aggregate, would have a Material Adverse
Effect on IFC.
(b) (i) Each IFC Contract is valid and binding on IFC or any of its
Subsidiaries, as applicable, and in full force and effect, (ii) IFC and each of
its Subsidiaries has in all material respects performed all obligations required
to be performed by it to date under each IFC Contract, except where such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect on IFC, and (iii) no event or condition exists which constitutes
or, after notice or lapse of time or both, would constitute, a material default
on the part of IFC or any of its Subsidiaries under any such IFC Contract,
except where such default, individually or in the aggregate, would not have a
Material Adverse Effect on IFC.
4.15 AGREEMENTS WITH REGULATORY AGENCIES. Neither IFC nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is
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subject to any order or directive by, or has been since January 1, 1994, a
recipient of any supervisory letter from, or since January 1, 1994, has adopted
any board resolutions at the request of any Regulatory Agency or other
Governmental Entity that currently restricts in any material respect the conduct
of its business or that in any material manner relates to its capital adequacy,
its credit policies, its management or its business (each, whether or not set
forth in the IFC Disclosure Schedule, an "IFC Regulatory Agreement"), nor has
IFC or any of its Subsidiaries been advised since January 1, 1994, by any
Regulatory Agency or other Governmental Entity that it is considering issuing or
requesting any such Regulatory Agreement.
4.16 OTHER ACTIVITIES OF IFC AND ITS SUBSIDIARIES.
(a) Neither IFC nor any of its Subsidiaries that is neither a bank, a bank
operating subsidiary or a bank service corporation, directly or indirectly,
engages in any activity prohibited by the Federal Reserve Board or the OTS.
Without limiting the generality of the foregoing, any equity investment of IFC
and each Subsidiary that is not a bank, a bank operating subsidiary or a bank
service corporation is not prohibited by the Federal Reserve Board or the OTS.
(b) To IFC's knowledge, each IFC Subsidiary which is a federally insured
bank or savings institution (an "IFC Bank Subsidiary") currently performs all
Trust Activities with requisite authority under applicable law of Governmental
Entities and in accordance in all material respects with the agreed-upon terms
of the agreements and instruments governing such Trust Activities, sound
fiduciary principles and applicable law and regulation (specifically including,
but not limited to, Section 9 of Title 12 of the Code of Federal Regulations);
there is no investigation or inquiry by any Governmental Entity pending, or to
the knowledge of IFC, threatened, against or affecting IFC, or any Significant
Subsidiary thereof relating to the compliance by IFC or any such Significant
Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X of the
SEC) with sound fiduciary principles and applicable regulations; and except
where any such failure would not have a Material Adverse Effect on IFC, each
employee of a IFC Bank Subsidiary had the authority to act in the capacity in
which he or she acted with respect to Trust Activities, in each case, in which
such employee held himself or herself out as a representative of a IFC Bank
Subsidiary; and each IFC Bank Subsidiary has established policies and procedures
for the purpose of complying with applicable laws of Governmental Entities
relating to Trust Activities, has followed such policies and procedures in all
material respects and has performed appropriate internal audit reviews of, and
has engaged independent accountants to perform audits of, Trust Activities,
which audits since January 1, 1994 have disclosed no material violations of
applicable laws of Governmental Entities or such policies and procedures.
4.17 INVESTMENT SECURITIES. Each of IFC and its Subsidiaries has good and
marketable title to all securities held by it (except securities sold under
repurchase agreements or held in any fiduciary or agency capacity), free and
clear of any Lien, except to the extent such securities are pledged in the
ordinary course of business consistent with prudent banking practices to secure
obligations of IFC or any of its Subsidiaries. Such securities are valued on the
books of IFC in accordance with GAAP.
4.18 INTEREST RATE RISK MANAGEMENT INSTRUMENTS. All interest rate swaps,
caps, floors and option agreements and other interest rate risk management
arrangements, whether entered into for the account of IFC or for the account of
a customer of IFC or one of its Subsidiaries, were entered into in the ordinary
course of business and, to IFC's knowledge, in accordance with prudent banking
practice and applicable rules, regulations and policies of any Regulatory
Authority and with counterparties believed to be financially responsible at the
time and are legal, valid and binding obligations of IFC or one of its
Subsidiaries enforceable in accordance with their terms (except as may be
limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the rights of creditors generally and the availability of equitable
remedies), and are in full force and effect. IFC and each of its Subsidiaries
have duly performed in all material respects all of their material obligations
thereunder to the extent that such obligations to perform have accrued; and, to
IFC's knowledge, there are no material breaches, violations or defaults or
allegations or assertions of such by any party thereunder.
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4.19 UNDISCLOSED LIABILITIES. Except for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of IFC included
in the IFC June 30, 1996 Form 10-Q and for liabilities incurred in the ordinary
course of business consistent with past practice since June 30, 1996, neither
IFC nor any of its Subsidiaries has incurred any liability of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether due
or to become due) that, either alone or when combined with all similar
liabilities, has had, or could reasonably be expected to have, a Material
Adverse Effect on IFC.
4.20 ENVIRONMENTAL LIABILITY. Except as set forth in the IFC Disclosure
Schedule, there are no legal, administrative, arbitral or other proceedings,
claims, actions, causes of action, private environmental investigations or
remediation activities or governmental investigations of any nature seeking to
impose, or that could reasonably be expected to result in the imposition, on IFC
or any of the IFC Subsidiaries of any liability or obligation arising under
common law or under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, CERCLA, pending or
threatened against IFC or any of the IFC Subsidiaries, which liability or
obligation could reasonably be expected to have a Material Adverse Effect on
IFC. To the knowledge of IFC, there is no reasonable basis for any such
proceeding, claim, action or governmental investigation that would impose any
material liability or obligation that could reasonably be expected to have a
Material Adverse Effect on IFC. Neither IFC nor any of the IFC Subsidiaries is
subject to any agreement, order, judgment, decree, letter or memorandum by or
with any court, governmental authority, regulatory agency or third party
imposing any material liability or obligation that could reasonably be expected
to have a Material Adverse Effect on IFC.
4.21 STATE TAKEOVER LAWS; REDEMPTION OF IFC RIGHTS. The Board of Directors
of IFC has approved the transactions contemplated by this Agreement and the
Option Agreements and taken such action (i) such that the provisions of Section
9 of the Certificate of Incorporation of IFC pertaining to certain "Business
Combinations" shall not be applicable to the transactions contemplated by this
Agreement and the Option Agreements, and the provisions of Section 203 of the
DGCL and any other provision of any state or local "takeover" law applicable to
IFC will not apply to this Agreement or the Option Agreements or any of the
transactions contemplated hereby or thereby, and (ii) to redeem the IFC Rights
prior to the Effective Time at a cost to IFC of not more than $0.01 (the
"Redemption Price") per each of the shares of IFC Common Stock issued and
outstanding, such that all of said IFC Rights will have been extinguished,
terminated and cancelled prior to the Effective Time, without any right of
exercise, and shall only represent the right to receive the Redemption Price in
cash from IFC or the Surviving Corporation following the Merger.
4.22 POOLING OF INTERESTS. IFC has no reason to believe that the Merger
will not qualify as a "pooling of interests" for accounting purposes.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME. During the period
from the date of this Agreement to the Effective Time, except as expressly
contemplated or permitted by this Agreement (including the Pinnacle Disclosure
Schedule and the IFC Disclosure Schedule) or the Option Agreements, each of
Pinnacle and IFC shall, and shall cause each of their respective Subsidiaries
to, (a) conduct its business in the usual, regular and ordinary course
consistent with past practice, (b) use reasonable best efforts to maintain and
preserve intact its business organization, employees and advantageous business
relationships and retain the services of its key officers and key employees and
(c) take no action which would adversely affect or delay the ability of either
Pinnacle or IFC to obtain any necessary approvals of any Regulatory Agency or
other governmental authority required for the transactions contemplated hereby
or to perform its covenants and agreements under this Agreement or the Option
Agreements.
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5.2 FORBEARANCES. During the period from the date of this Agreement to the
Effective Time, except as set forth in the Pinnacle Disclosure Schedule or the
IFC Disclosure Schedule, as the case may be, and, except as expressly
contemplated or permitted by this Agreement or the Option Agreements, neither
Pinnacle nor IFC shall, and neither Pinnacle nor IFC shall permit any of their
respective Subsidiaries to, without the prior written consent of the other:
(a) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money (other than short-term
indebtedness incurred to refinance short-term indebtedness and indebtedness
of Pinnacle or any of its Subsidiaries to Pinnacle or any of its
Subsidiaries, on the one hand, or of IFC or any of its Subsidiaries to IFC
or any of its Subsidiaries, on the other hand), assume, guarantee, endorse
or otherwise as an accommodation become responsible for the obligations of
any other individual, corporation or other entity, or make any loan or
advance (it being understood and agreed that incurrence of indebtedness in
the ordinary course of business shall include, without limitation, the
creation of deposit liabilities, purchases of Federal funds, sales of
certificates of deposit and entering into repurchase agreements);
(b) (i) adjust, split, combine or reclassify any capital stock; (ii)
make, declare or pay any dividend or make any other distribution on, or
directly or indirectly redeem, purchase or otherwise acquire, any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock (except, (A) in the case of
Pinnacle, for regular quarterly cash dividends on Pinnacle Common Stock at a
rate not in excess of $0.25 per share of Pinnacle Common Stock, (B) in the
case of IFC, for regular quarterly cash dividends on IFC Common Stock at a
rate not in excess of $0.21 per share of IFC Common Stock, (C) for dividends
paid by any of the Subsidiaries of each of Pinnacle and IFC to Pinnacle or
IFC or any of their Subsidiaries, respectively, and (D) for dividends paid
in the ordinary course of business by any subsidiaries (whether or not
wholly owned) of each of Pinnacle and IFC), (iii) grant any stock
appreciation rights or grant any individual, corporation or other entity any
right to acquire any shares of its capital stock (and no further or
additional options to purchase stock shall be granted pursuant to the
Pinnacle Stock Plans or the IFC Stock Plans, except as otherwise agreed in
writing by Pinnacle and IFC) or (iv) issue any additional shares of capital
stock except pursuant to (A) the exercise of stock options or warrants
outstanding as of the date hereof, (B) the Option Agreements, or (C) as
permitted unless clause (iii) above;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties or assets to any individual, corporation or other entity
other than a Subsidiary, or cancel, release or assign any indebtedness to
any such person or any claims held by any such person, except in the
ordinary course of business consistent with past practice or pursuant to
contracts or agreements in force at the date of this Agreement;
(d) except for transactions in the ordinary course of business
consistent with past practice or pursuant to contracts or agreements in
force at the date of this Agreement, make any material investment either by
purchase of stock or securities, contributions to capital, property
transfers, or purchase of any property or assets of any other individual,
corporation or other entity other than a Subsidiary thereof;
(e) except for transactions in the ordinary course of business
consistent with past practice, enter into or terminate any material contract
or agreement, or make any change in any of its material leases or contracts,
other than renewals of contracts and leases without material adverse changes
of terms;
(f) increase in any manner the compensation or fringe benefits of any of
its employees or pay any pension or retirement allowance not required by any
existing plan or agreement to any such employees or become a party to, amend
or commit itself to any pension, retirement, profit-sharing or welfare
benefit plan or agreement or employment agreement with or for the benefit of
any employee other than in the ordinary course of business consistent with
past practice or accelerate the vesting of any stock options or other
stock-based compensation;
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(g) solicit, encourage or authorize or permit any individual,
corporation or other entity to solicit from any third party any inquiries or
proposals relating to the disposition of its business or assets, or the
acquisition of its voting securities, or the merger or business combination
of it or any of its Subsidiaries with any corporation or other entity other
than as provided by this Agreement (and each party shall promptly notify the
other of all of the relevant details relating to all inquiries and proposals
which it may receive relating to any of such matters);
(h) settle any claim, action or proceeding involving money damages,
except in the ordinary course of business consistent with past practice;
(i) take any action that would prevent or impede the Merger from
qualifying (i) for "pooling of interests" accounting treatment or (ii) as a
reorganization within the meaning of Section 368 of the Code; provided,
however, that nothing contained herein shall limit the ability of Pinnacle
or IFC to exercise its rights under the Pinnacle Option Agreement or the IFC
Option Agreement, as the case may be;
(j) amend its Certificate of Incorporation or Articles of Incorporation,
as the case may be, or its Bylaws, except as contemplated by this Agreement;
(k) other than in prior consultation with the other party to this
Agreement, restructure or materially change its investment securities
portfolio or its gap position, through purchases, sales or otherwise, or the
manner in which the portfolio is classified or reported;
(l) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time prior
to the Effective Time, or in any of the conditions to the Merger set forth
in Article VII not being satisfied or in a violation of any provision of
this Agreement, except, in every case, as may be required by applicable law;
or
(m) agree to, or make any commitment to, take any of the actions
prohibited by this Section 5.2.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 REGULATORY MATTERS.
(a) Pinnacle and IFC shall promptly prepare and file with the SEC the Joint
Proxy Statement and Pinnacle shall promptly prepare and file with the SEC the
S-4, in which the Joint Proxy Statement will be included as a prospectus. Each
of Pinnacle and IFC shall use all reasonable efforts to have the S-4 declared
effective under the Securities Act as promptly as practicable after such filing,
and Pinnacle and IFC shall thereafter mail or deliver the Joint Proxy Statement
to their respective stockholders. Pinnacle shall also use all reasonable efforts
to obtain all necessary state securities law or "Blue Sky" permits and approvals
required to carry out the transactions contemplated by this Agreement, and IFC
shall furnish all information concerning IFC and the holders of IFC Common Stock
as may be reasonably requested in connection with any such action.
(b) The parties hereto shall cooperate with each other and use their best
efforts to promptly prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Entities which are necessary or advisable to consummate
the transactions contemplated by this Agreement (including, without limitation,
the Merger), and to comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such Governmental Entities.
Pinnacle and IFC shall have the right to review in advance, and, to the extent
practicable, each will consult the other on, in each case subject to applicable
laws relating to the exchange of information, all the information relating to
Pinnacle or IFC, as the case may be, and any of their respective Subsidiaries,
which appear in any filing
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made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto shall
act reasonably and as promptly as practicable. The parties hereto agree that
they will consult with each other with respect to the obtaining of all permits,
consents, approvals and authorizations of all third parties and Governmental
Entities necessary or advisable to consummate the transactions contemplated by
this Agreement and each party will keep the other apprised of the status of
matters relating to completion of the transactions contemplated herein.
(c) Pinnacle and IFC shall, upon request, furnish each other with all
information concerning themselves, their Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with the Joint Proxy Statement, the S-4 or any other statement,
filing, notice or application made by or on behalf of Pinnacle, IFC or any of
their respective Subsidiaries to any Governmental Entity in connection with the
Merger and the other transactions contemplated by this Agreement.
(d) Pinnacle and IFC shall promptly advise each other upon receiving any
communication from any Governmental Entity whose consent or approval is required
for consummation of the transactions contemplated by this Agreement which causes
such party to believe that there is a reasonable likelihood that any Requisite
Regulatory Approval will not be obtained or that the receipt of any such
approval will be materially delayed.
6.2 ACCESS TO INFORMATION.
(a) Upon reasonable notice and subject to applicable laws relating to the
exchange of information, each of Pinnacle and IFC shall, and shall cause each of
their respective Subsidiaries to, afford to the officers, employees,
accountants, counsel and other representatives of the other party, access,
during normal business hours during the period prior to the Effective Time, to
all its properties, books, contracts, commitments and records and, during such
period, each of Pinnacle and IFC shall, and shall cause their respective
Subsidiaries to, make available to the other party (i) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal securities laws or
federal or state banking laws, savings and loan or savings association laws
(other than reports or documents which Pinnacle or IFC, as the case may be, is
not permitted to disclose under applicable law) and (ii) all other information
concerning its business, properties and personnel as such party may reasonably
request. Neither Pinnacle nor IFC nor any of their respective Subsidiaries shall
be required to provide access to or to disclose information where such access or
disclosure would violate or prejudice the rights of Pinnacle's or IFC's, as the
case may be, customers, jeopardize the attorney-client privilege of the
institution in possession or control of such information or contravene any law,
rule, regulation, order, judgment, decree, fiduciary duty or binding agreement
entered into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(b) Each of Pinnacle and IFC agrees to keep confidential, and not divulge to
any other party or person (other than employees of, and attorneys, accountants,
financial advisors and other representatives for, any said party), all
non-public documents, information, records and financial statements received
from the other and, in addition, any and all reports, information and financial
information obtained through audits or other reviews conducted pursuant to this
Agreement (unless readily ascertainable from public or published information, or
trade sources, or already known or subsequently developed by a party
independently of any investigation or received from a third party not under an
obligation to the other party to keep such information confidential), and to use
the same only in connection with the transactions contemplated by this
Agreement; and if the transactions contemplated hereby are not consummated for
any reason, each party agrees to promptly return to the other party all written
materials furnished by the other party, and all copies thereof, in connection
with such investigation, and to destroy all documents and records in its
possession containing extracts or summaries of any such non-public information.
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(c) No investigation by either of the parties or their respective
representatives shall affect the representations, warranties, covenants or
conditions of the other set forth herein.
6.3 STOCKHOLDERS' APPROVALS. Each of Pinnacle and IFC shall call a meeting
of its stockholders to be held as soon as reasonably practicable for the purpose
of voting upon the requisite stockholder approvals required in connection with
this Agreement and the Merger, and each shall use its best efforts to cause such
meetings to occur on the same date. Pinnacle and IFC will, through their
respective Boards of Directors, subject to their respective fiduciary
obligations as determined by the respective Boards of Directors, recommend to
their respective stockholders approval of this Agreement and the Merger.
6.4 LEGAL CONDITIONS TO MERGER. Each of Pinnacle and IFC shall, and shall
cause its Subsidiaries to, use their best efforts (a) to take, or cause to be
taken, all actions necessary, proper or advisable to comply promptly with all
legal requirements which may be imposed on such party or its Subsidiaries with
respect to the Merger and, subject to the conditions set forth in Article VII
hereof, to consummate the transactions contemplated by this Agreement and (b) to
obtain (and to cooperate with the other party to obtain) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity and any other third party which is required to be obtained by Pinnacle or
IFC or any of their respective Subsidiaries in connection with the Merger and
the other transactions contemplated by this Agreement.
6.5 AFFILIATES; PUBLICATION OF COMBINED FINANCIAL RESULTS.
(a) Each of Pinnacle and IFC shall use its best efforts to cause each
director, executive officer and other person who is an "affiliate" (for purposes
of Rule 145 under the Securities Act and for purposes of qualifying the Merger
for "pooling of interests" accounting treatment) of such party to deliver to the
other party hereto, as soon as practicable after the date of this Agreement, and
prior to the date of the stockholders' meetings called by Pinnacle and IFC to
approve this Agreement, a written agreement, in the form of Exhibit D hereto,
providing that such person will not sell, pledge, transfer or otherwise dispose
of any shares of Pinnacle Common Stock or IFC Common Stock held by such
"affiliate" and, in the case of the "affiliates" of IFC, the shares of Pinnacle
Common Stock to be received by such "affiliate" in the Merger: (i) in the case
of shares of Pinnacle Common Stock to be received by "affiliates" of IFC in the
Merger, except in compliance with the applicable provisions of the Securities
Act and the rules and regulations thereunder; and (ii) except to the extent and
under the conditions permitted therein, during the period commencing 30 days
prior to the Merger and ending at the time of the publication of financial
results covering at least 30 days of combined operations of Pinnacle and IFC.
(b) The Surviving Corporation shall use its best efforts to publish as
promptly as reasonably practical but in no event later than 90 days after the
end of the first month after the Effective Time in which there are at least 30
days of post-Merger combined operations (which month may be the month in which
the Effective Time occurs), combined sales and net income figures as
contemplated by and in accordance with the terms of SEC Accounting Series
Release No. 135.
6.6 NASDAQ LISTING. Pinnacle shall cause the shares of Pinnacle Common
Stock to be issued in the Merger to be approved for trading and reporting on
NASDAQ, National Market System, subject to official notice of issuance, prior to
the Effective Time.
6.7 EMPLOYEE BENEFIT PLANS.
(a) From and after the Effective Time, unless otherwise mutually determined,
the Pinnacle Benefit Plans and IFC Benefit Plans in effect as of the date of
this Agreement shall remain in effect with respect to employees of Pinnacle or
IFC (or their Subsidiaries) covered by such plans at the Effective Time until
such time as the Surviving Corporation shall, subject to applicable law, the
terms of this Agreement and the terms of such plans, adopt new benefit plans
with respect to employees of the Surviving Corporation and its Subsidiaries in
substantial conformance with the Pinnacle Benefit Plans in effect as of the
Effective Time, in replacement and substitution for the IFC Benefit Plans
(including, without limitation, non-
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qualified stock option agreements, incentive stock option agreements, the IFC
ESOP, deferred compensation plans and agreements, supplemental retirement income
agreements, severance agreements, employment agreements and stock option and
incentive plans benefitting current or former directors, officers or employees
of IFC or its Subsidiaries, or their predecessors) which shall be cancelled,
terminated or frozen to the extent permitted by applicable law (the "New Benefit
Plans"). Prior to the Closing Date, Pinnacle and IFC shall cooperate in
reviewing, evaluating and analyzing the Pinnacle Benefit Plans and IFC Benefit
Plans with a view towards developing appropriate New Benefit Plans for the
employees covered thereby subsequent to the Merger in substantial conformance
with the Pinnacle Benefit Plans in effect as of the Effective Time, in
replacement and substitution for the IFC Benefit Plans which shall be cancelled,
terminated or frozen to the extent permitted by applicable law. It is the
intention of Pinnacle and IFC to develop New Benefit Plans, effective as of the
Effective Time, which, among other things, (i) treat similarly situated
employees on a substantially equivalent basis, taking into account all relevant
factors, including, without limitation, duties, geographic location, tenure,
qualifications and abilities, and (ii) do not discriminate between employees of
the Surviving Corporation who were covered by Pinnacle Benefit Plans, on the one
hand, and those covered by IFC Benefit Plans, on the other, prior to the
Effective Time, but (iii) with the overall view that the IFC Benefit Plans would
be cancelled, terminated or frozen, and replaced by the Pinnacle Benefit Plans
for times following the Effective Time to the extent permitted by applicable
law.
(b) The foregoing notwithstanding, the Surviving Corporation agrees to honor
in accordance with their terms all benefits vested as of the date hereof under
the Pinnacle Benefit Plans or the IFC Benefit Plans or under other contracts,
arrangements, commitments, or understandings described in the Pinnacle
Disclosure Schedule and the IFC Disclosure Schedule.
(c) Nothing in this Section 6.7 shall be interpreted as preventing the
Surviving Corporation from amending, modifying or terminating any Pinnacle
Benefit Plans, IFC Benefit Plans, or other contracts, arrangements, commitments
or understandings, in accordance with their terms and applicable law.
6.8 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) In the event of any threatened or actual claim, action, suit, proceeding
or investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any individual who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Time, a director or officer or
employee of IFC or any of its Subsidiaries, including any entity specified in
the IFC Disclosure Schedule (the "Indemnified Parties"), is, or is threatened to
be, made a party based in whole or in part on, or arising in whole or in part
out of, or pertaining to (i) the fact that he is or was a director, officer or
employee of IFC, any of the IFC Subsidiaries or any entity specified in the IFC
Disclosure Schedule, or any of their respective predecessors or (ii) this
Agreement, the Option Agreements or any of the transactions contemplated hereby
or thereby, whether in any case asserted or arising before or after the
Effective Time, the parties hereto agree to cooperate and use their best efforts
to defend against and respond thereto. It is understood and agreed that after
the Effective Time, Pinnacle shall indemnify and hold harmless, as and to the
fullest extent permitted by law (and, as relates to acts or times prior to the
Effective Time, to the fullest extent permitted by law pertaining to IFC or any
of its Subsidiaries at such time, including the provisions of Section 11 of
IFC's Certificate of Incorporation), each such Indemnified Party against any
losses, claims, damages, liabilities, costs, expenses (including reasonable
attorney's fees and expenses in advance of the final disposition of any claim,
suit, proceeding or investigation to each Indemnified Party to the fullest
extent permitted by law upon receipt of any undertaking required by applicable
law), judgments, fines and amounts paid in settlement in connection with any
such threatened or actual claim, action, suit, proceeding or investigation, and
in the event of any such threatened or actual claim, action, suit, proceeding or
investigation (whether asserted of arising before or after the Effective Time),
the Indemnified Parties may retain counsel reasonably satisfactory to them after
consultation with Pinnacle; provided, however, that (A) Pinnacle shall have the
right to assume the defense thereof and upon such assumption Pinnacle shall not
be liable to any Indemnified Party for any legal expenses of other counsel or
any other expenses
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subsequently incurred by any Indemnified Party in connection with the defense
thereof, except that if Pinnacle elects not to assume such defense or counsel
for the Indemnified Parties reasonably advises the Indemnified Parties that
there are issues which raise conflicts of interest between Pinnacle and the
Indemnified Parties, the Indemnified Parties may retain counsel reasonably
satisfactory to them after consultation with Pinnacle, and Pinnacle shall pay
the reasonable fees and expenses of such counsel for the Indemnified Parties,
(B) Pinnacle shall be obligated pursuant to this paragraph to pay for only one
firm of counsel for all Indemnified Parties, unless an Indemnified Party shall
have reasonably concluded, based on the advice of counsel, that in order to be
adequately represented, separate counsel is necessary for such Indemnified
Party, in which case, Pinnacle shall be obligated to pay for such separate
counsel, (C) Pinnacle shall not be liable for any settlement effected without
its prior written consent (which consent shall not be unreasonably withheld) and
(D) Pinnacle shall have no obligation hereunder to any Indemnified Party when
and if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and nonappealable, that indemnification of
such Indemnified Party in the manner contemplated hereby is prohibited by
applicable law. Any Indemnified Party wishing to claim Indemnification under
this Section 6.8, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify Pinnacle thereof, provided that the failure to so
notify shall not affect the obligations of Pinnacle under this Section 6.8
except to the extent such failure to notify materially prejudices Pinnacle.
Pinnacle's obligations under this Section 6.8 continue in full force and effect
for a period of six years from the Effective Time (or the period of the
applicable statute of limitations, if longer); provided, however, that all
rights to indemnification in respect of any claim (a "Claim") asserted or made
within such period shall continue until the final disposition of such Claim.
(b) Pinnacle shall use its best efforts to cause the individuals serving as
officers and directors of IFC, its Subsidiaries or any entity specified in the
IFC Disclosure Schedule immediately prior to the Effective Time to be covered
for a period of six (6) years from the Effective Time (or the period of the
applicable statute of limitations, if longer) by the directors' and officers'
liability insurance policy maintained by IFC or any of the IFC Subsidiaries
(provided that Pinnacle may substitute therefor policies of the same or
substantially similar coverage and amounts containing terms and conditions which
are not less advantageous in any material respect than such policy) with respect
to acts or omissions occurring prior to the Effective Time which were committed
by such officers and directors in their capacity as such; provided, however,
that in no event shall Pinnacle be required to expend more than 150% of the
current amount expended by IFC or any of the IFC Subsidiaries (the "Insurance
Amount") to maintain or procure insurance coverage pursuant hereto; and
provided, further, that if Pinnacle is unable to maintain or obtain the
insurance called for by this Section 6.8(b), Pinnacle shall use its best efforts
to obtain as much comparable insurance as available for the Insurance Amount.
(c) In the event Pinnacle or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Pinnacle
assume the obligations set forth in this Section 6.8.
(d) The provisions of this Section 6.8 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives.
6.9 ADDITIONAL AGREEMENTS. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement (including, without limitation, any merger between a Subsidiary of
Pinnacle and a Subsidiary of IFC) or to vest the Surviving Corporation with full
title to all properties, assets, rights, approvals, immunities and franchises of
any of the parties to the Merger, the proper officers and directors of each
party to this Agreement and their respective Subsidiaries shall take all such
necessary action as may be reasonably requested by, and at the sole expense of,
Pinnacle.
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6.10 ADVICE OF CHANGES. Pinnacle and IFC shall promptly advise the other
party of any change or event having a Material Adverse Effect on it or which it
believes would or would be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants contained herein.
6.11 DIVIDENDS. After the date of this Agreement, each of Pinnacle and IFC
shall coordinate with the other the declaration of any dividends in respect of
Pinnacle Common Stock and IFC Common Stock and the record dates and payment
dates relating thereto, it being the intention of the parties hereto that
holders of Pinnacle Common Stock or IFC Common Stock shall not receive two
dividends, or fail to receive one dividend, for any quarter with respect to
their shares of Pinnacle Common Stock and/or IFC Common Stock and any shares of
Pinnacle Common Stock any such holder receives in exchange therefor in the
Merger.
6.12 NEGOTIATIONS WITH OTHER PARTIES. So long as this Agreement remains in
effect and no notice of termination has been given under this Agreement, neither
Pinnacle, on the one hand, nor IFC, on the other hand, shall authorize or
knowingly permit any of its representatives, directly or indirectly, to
entertain, solicit or encourage negotiations with any person or entity or any
group of persons or entities other than the other party to this Agreement or any
of its affiliates (a "Potential Acquiror") concerning any "Acquisition Proposal"
(as hereinafter defined) other than pursuant to this Agreement. The preceding
sentence shall not be construed to prohibit the Board of Directors of Pinnacle,
on the one hand, or IFC, on the other hand, from providing, or authorizing or
permitting their respective representatives to provide, to any person making an
unsolicited Acquisition Proposal, any information that is public or published
information or readily ascertainable from such information, or from discussing
and considering any such unsolicited Acquisition Proposal if it is advised in
writing by legal counsel that such actions are advisable under applicable law in
order to discharge their fiduciary duties to stockholders. As used in this
Agreement, "Acquisition Proposal" means any (i) proposal pursuant to which any
corporation, partnership, person or other entity or group, other than Pinnacle
or IFC, would acquire or participate in a merger or other business combination
involving Pinnacle or any of the Pinnacle Bank Subsidiaries, on the one hand, or
IFC or any of the IFC Bank Subsidiaries, on the other hand, directly or
indirectly; (ii) proposal by which any corporation, partnership, person or other
entity or group, other than Pinnacle or IFC, would acquire the right to vote 10%
or more of the capital stock of Pinnacle or any of the Pinnacle Bank
Subsidiaries, on the one hand, or IFC or any of the IFC Bank Subsidiaries, on
the other hand, entitled to vote thereon for the election of directors; (iii)
acquisition of 10% or more of the assets of Pinnacle or any of the Pinnacle Bank
Subsidiaries, on the one hand, or IFC or any of the IFC Bank Subsidiaries, on
the other hand, other than in the ordinary course of business; or (iv)
acquisition in excess of 10% of the outstanding capital stock of Pinnacle or any
of the Pinnacle Bank Subsidiaries, on the one hand, or IFC or any of the IFC
Bank Subsidiaries, on the other hand, other than as contemplated by this
Agreement.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the respective
requisite affirmative votes of the holders of Pinnacle Common Stock and IFC
Common Stock entitled to vote thereon.
(b) NASDAQ LISTING. The shares of Pinnacle Common Stock which shall be
issued to the stockholders of IFC upon consummation of the Merger shall have
been authorized for trading and reporting on the NASDAQ, National Market
System, subject to official notice of issuance.
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(c) OTHER APPROVALS. All regulatory approvals required to consummate
the transactions contemplated hereby shall have been obtained and shall
remain in full force and effect and all statutory waiting periods in respect
thereof shall have expired (all such approvals and the expiration of all
such waiting periods being referred to herein as the "Requisite Regulatory
Approvals").
(d) S-4. The S-4 shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the S-4 shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition (an "Injunction") preventing the consummation
of the Merger or any of the other transactions contemplated by this
Agreement shall be in effect. No statute, rule, regulation, order,
injunction or decree shall have been enacted, entered, promulgated or
enforced by any Governmental Entity which prohibits, materially restricts or
makes illegal consummation of the Merger.
(f) FEDERAL TAX OPINION. Pinnacle and IFC each shall have received an
opinion of their respective tax counsel, addressed to Pinnacle or IFC, as
the case may be, in form and substance reasonably satisfactory to Pinnacle
and IFC, dated as of the Effective Time, substantially to the effect that,
on the basis of facts, representations and assumptions set forth in such
opinion which are consistent with the state of facts existing at the
Effective Time:
(i) The Merger will constitute a tax free reorganization under
Section 368(a)(1)(A) of the Code and Pinnacle and IFC will each be a
party to the reorganization;
(ii) No gain or loss will be recognized by Pinnacle or IFC as a
result of the Merger;
(iii) No gain or loss will be recognized by the stockholders of IFC
who exchange their IFC Common Stock solely for Pinnacle Common Stock
pursuant to the Merger (except with respect to cash received in lieu of a
fractional share interest in Pinnacle Common Stock);
(iv) The tax basis of the Pinnacle Common Stock received by
stockholders who exchange all of their IFC Common Stock solely for
Pinnacle Common Stock in the Merger will be the same as the tax basis of
the IFC Common Stock surrendered in exchange therefor (reduced by any
amount allocable to a fractional share interest for which cash is
received); and
(v) The holding period of Pinnacle Common Stock received by
stockholders of IFC in the Merger will include the period during which
the shares of IFC Common Stock surrendered in exchange therefor were
held; provided, such IFC Common Stock was held as a capital asset by the
holder of such IFC Common Stock at the Effective Time. In rendering such
opinion, counsel may require and rely upon representations contained in
certificates of officers of Pinnacle, IFC and others.
(g) POOLING OF INTERESTS. Pinnacle and IFC shall each have received a
letter, effective as of the Effective Time, from their respective
independent accountants addressed to Pinnacle or IFC, as the case may be, to
the effect that the Merger will qualify for "pooling of interests"
accounting treatment.
7.2 CONDITIONS TO OBLIGATION OF PINNACLE. The obligation of Pinnacle to
effect the Merger is also subject to the satisfaction or waiver by Pinnacle at
or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of IFC set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except (i) to the extent such
representations and warranties speak as of an earlier date and (ii) for any
changes to the IFC Disclosure Schedule that are disclosed by IFC to Pinnacle
in the form of an updated IFC disclosure schedule delivered to Pinnacle as
of the Closing Date (the "Closing Date IFC
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Disclosure Schedule")) as of the Closing Date as though made on and as of
the Closing Date. Pinnacle shall have received a certificate signed on
behalf of IFC by the Chief Executive Officer and the Chief Financial Officer
of IFC to the foregoing effect, and to which any Closing Date IFC Disclosure
Schedule shall be appended.
(b) PERFORMANCE OF OBLIGATIONS OF IFC. IFC shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Pinnacle shall have received
a certificate signed on behalf of IFC by the Chief Executive Officer and the
Chief Financial Officer of IFC to such effect.
(c) IFC RIGHTS REDEEMED. The IFC Rights shall have been redeemed at a
cost to IFC of not more than $0.01 (the "Redemption Price") per each of the
shares of the IFC Common Stock issued and outstanding, such that all of said
IFC Rights have been extinguished, terminated and cancelled, without any
right of exercise, and shall only represent the rights to receive the
Redemption Price in cash from IFC or the Surviving Corporation following the
Merger.
(d) COMFORT LETTERS. Pinnacle shall have received "comfort" letters
from Ernst & Young, L.L.P., dated (x) the effective date of the S-4 and (y)
not earlier than five (5) days preceding the Closing Date, in each case
substantially to the effect that: (i) based upon a review (and audit of
year-end statements) of IFC's consolidated financial statements dated as of
December 31, 1995, June 30, 1996, each subsequent year-end and quarter-end
and the most recent interim month-end consolidated financial statements of
IFC available prior to the date of any said letter, nothing has come to
their attention that has caused them to believe that any adjustments would
be required to be made to restate said financial statements in a manner
conforming to GAAP, other than such adjustments, if any, as are specifically
noted and disclosed, none of which adjustments shall be materially adverse;
(ii) they are independent public accountants with respect to IFC and the IFC
Subsidiaries within the meaning of the Securities Act and the Exchange Act
and the applicable published rules and regulations thereunder; (iii) in
their opinion, the audited consolidated financial statements of IFC examined
by them and included or incorporated by reference in the S-4 and the
prospectus and reported therein by them, comply as to form in all material
respects with the applicable accounting requirements of the Exchange Act,
the Securities Act and the applicable published rules and regulations
thereunder, as appropriate; (iv) on the basis of certain procedures and
inquiries including a reading of the latest available unaudited interim
consolidated financial statements of IFC, inquiries of officials of IFC
responsible for financial and accounting matters, and a reading of the
minutes of the Boards of Directors and stockholders of IFC and the IFC
Subsidiaries (which procedures and inquiries do not constitute an
examination made in accordance with generally accepted auditing standards
and would not necessarily reveal material adverse changes in the
consolidated financial position or results of operations of IFC), nothing
came to their attention that caused them to believe that (A) the unaudited
consolidated financial statements of IFC included or incorporated by
reference in the S-4 and the prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Exchange Act and the Securities Act, as appropriate, or that the unaudited
consolidated financial statements are not in conformity with GAAP applied on
a basis consistent with that of the audited consolidated financial
statements or that as of the most recent month-end preceding the Closing
Date there has been any material change in the capital stock of IFC, except
as a result of the exercise of employee stock options granted prior to June
30, 1996, or the IFC Subsidiaries or any increase in consolidated long-term
debt of IFC or the IFC Subsidiaries or any reduction in consolidated
stockholders' equity as compared with the amounts of those items set out in
the audited consolidated statement of condition at December 31, 1995 and
with any subsequent unaudited consolidated statement of condition included
or incorporated by reference in the S-4 and the prospectus, except for
changes and the amount of such reduction, if any, derived from IFC's
accounts and records, which are described in such letter or are set forth in
the S-4 and the prospectus, or (B) since December 31, 1995 any dividends
were paid on the IFC Common Stock except as
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described in such letter; and (v) in addition to the limited procedures
referred to in clause (iv) above, they have carried out certain specified
procedures with respect to certain accounts or percentages and financial
information which appear in the S-4 and the prospectus and which have been
reasonably specified by Pinnacle, as described in such letter.
(e) LEGAL OPINION. IFC shall have delivered to Pinnacle an opinion,
dated the Closing Date, of counsel for IFC, satisfactory to Pinnacle and its
counsel, to the effect set forth on Exhibit E. Such opinion shall also cover
such other matters incident to the transactions herein contemplated as
Pinnacle and its counsel may reasonably request. In rendering their opinion,
counsel to IFC may rely on certificates of officers of IFC, opinions of
other counsel, the authenticity of all signatures on documents believed to
be genuine and such other evidence as they may deem necessary or desirable.
(f) FAIRNESS OPINION. Pinnacle shall have received the favorable
opinion from The Chicago Corporation in connection with the deliberations of
its Board of Directors approving this Agreement and the Option Agreements
and confirmed at or about the time the S-4 is declared effective and the
Joint Proxy Statement is distributed that consummation of the Merger
transaction contemplated by this Agreement upon the terms and conditions
provided in this Agreement is fair to the stockholders of Pinnacle from a
financial point of view.
(g) NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred which has, or is likely to have, a Materially Adverse Effect on IFC
or upon the right of IFC or any of the IFC Subsidiaries to conduct their
businesses as presently conducted.
7.3 CONDITIONS TO OBLIGATION OF IFC. The obligation of IFC to effect the
Merger is also subject to the satisfaction or waiver by IFC at or prior to the
Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Pinnacle set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except (i) to the
extent such representations and warranties speak as of an earlier date and
(ii) for any changes to the Pinnacle Disclosure Schedule that are disclosed
by Pinnacle to IFC in the form of an updated Pinnacle disclosure schedule
delivered to IFC as of the Closing Date (the "Closing Date Pinnacle
Disclosure Schedule")) as of the Closing Date as though made on and as of
the Closing Date. IFC shall have received a certificate signed on behalf of
Pinnacle by the Chief Executive Officer and the Chief Financial Officer of
Pinnacle to the foregoing effect, and to which any Closing Date Pinnacle
Disclosure Schedule shall be appended.
(b) PERFORMANCE OF OBLIGATIONS OF PINNACLE. Pinnacle shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and IFC shall
have received a certificate signed on behalf of Pinnacle by the Chief
Executive Officer and the Chief Financial Officer of Pinnacle to such
effect.
(c) COMFORT LETTERS. IFC shall have received "comfort" letters from
KPMG Peat Marwick, L.L.P., dated (x) the effective date of the S-4 and (y)
not earlier than five (5) days preceding the Closing Date, in each case
substantially to the effect that: (i) based upon a review (and audit of
year-end statements) of Pinnacle's consolidated financial statements dated
as of December 31, 1995, June 30, 1996, each subsequent year-end and
quarter-end and the most recent interim month-end consolidated financial
statements of Pinnacle available prior to the date of any said letter,
nothing has come to their attention that has caused them to believe that any
adjustments would be required to be made to restate said financial
statements in a manner conforming to GAAP, other than such adjustments, if
any, as are specifically noted and disclosed, none of which adjustments
shall be materially adverse; (ii) they are independent public accountants
with respect to Pinnacle and the Pinnacle Subsidiaries within the meaning of
the Securities Act and the Exchange Act and the applicable published rules
and regulations thereunder; (iii) in their opinion, the audited consolidated
financial statements of Pinnacle examined by them and included or
incorporated by reference in the
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<PAGE>
S-4 and the prospectus and reported therein by them, comply as to form in
all material respects with the applicable accounting requirements of the
Exchange Act, the Securities Act and the applicable published rules and
regulations thereunder, as appropriate; (iv) on the basis of certain
procedures and inquiries including a reading of the latest available
unaudited interim consolidated financial statements of Pinnacle, inquiries
of officials of Pinnacle responsible for financial and accounting matters,
and a reading of the minutes of the Boards of Directors and stockholders of
Pinnacle and the Pinnacle Subsidiaries (which procedures and inquiries do
not constitute an examination made in accordance with generally accepted
auditing standards and would not necessarily reveal material adverse changes
in the consolidated financial position or results of operations of
Pinnacle), nothing came to their attention that caused them to believe that
(A) the unaudited consolidated financial statements of Pinnacle included or
incorporated by reference in the S-4 and the prospectus do not comply as to
form in all material respects with the applicable accounting requirements of
the Exchange Act and the Securities Act, as appropriate, or that the
unaudited consolidated financial statements are not in conformity with GAAP
applied on a basis consistent with that of the audited consolidated
financial statements or that as of the most recent month-end preceding the
Closing Date there has been any material change in the capital stock of
Pinnacle, except as a result of the exercise of employee stock options
granted prior to June 30, 1996, or the Pinnacle Subsidiaries or any increase
in consolidated long-term debt of Pinnacle or the Pinnacle Subsidiaries or
any reduction in consolidated stockholders' equity as compared with the
amounts of those items set out in the audited consolidated statement of
condition at December 31, 1995 and with any subsequent unaudited
consolidated statement of condition included or incorporated by reference in
the S-4 and the prospectus, except for changes and the amount of such
reduction, if any, derived from Pinnacle's accounts and records, which are
described in such letter or are set forth in the S-4 and the prospectus, or
(B) since December 31, 1995 any dividends were paid on the Pinnacle Common
Stock except as described in such letter; and (v) in addition to the limited
procedures referred to in clause (iv) above, they have carried out certain
specified procedures with respect to certain accounts or percentages and
financial information which appear in the S-4 and the prospectus and which
have been reasonably specified by IFC, as described in such letter.
(d) LEGAL OPINION. Pinnacle shall have delivered to IFC an opinion,
dated the Closing Date, of counsel for Pinnacle, satisfactory to IFC and its
counsel, to the effect set forth on Exhibit F. Such opinion shall also cover
such other matters incident to the transactions herein contemplated as IFC
and its counsel may reasonably request. In rendering their opinion, counsel
to Pinnacle may rely on certificates of officers of Pinnacle, opinions of
other counsel, the authenticity of all signatures on documents believed to
be genuine and such other evidence as they may deem necessary or desirable.
(e) FAIRNESS OPINION. IFC shall have received the favorable opinion
from Sandler O'Neill in connection with the deliberations of its Board of
Directors approving this Agreement and the Option Agreements and confirmed
at or about the time the S-4 is declared effective and the Joint Proxy
Statement is distributed that consummation of the Merger transaction
contemplated by this Agreement upon the terms and conditions provided in
this Agreement is fair to the stockholders of IFC from a financial point of
view.
(f) NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred which has, or is likely to have, a Materially Adverse Effect on
Pinnacle or upon the right of Pinnacle or any of the Pinnacle Subsidiaries
to conduct their businesses as presently conducted.
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<PAGE>
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of Pinnacle or IFC:
(a) by mutual consent of Pinnacle and IFC in a written instrument, if
the Board of Directors of each so determines by a vote of a majority of the
members of its entire Board;
(b) by either the Board of Directors of Pinnacle or the Board of
Directors of IFC if any Governmental Entity which must grant a Requisite
Regulatory Approval has denied approval of the Merger and such denial has
become final and nonappealable or any Governmental Entity of competent
jurisdiction shall have issued a final nonappealable order permanently
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement;
(c) by either the Board of Directors of Pinnacle or the Board of
Directors of IFC if the Merger shall not have been consummated on or before
the first anniversary of the date of this Agreement, unless the failure of
the Closing (as defined in Section 9.1) to occur by such date shall be due
to the failure of the party seeking to terminate this Agreement to perform
or observe the covenants and agreements of such party set forth herein;
(d) by either the Board of Directors of Pinnacle or the Board of
Directors of IFC (provided that the terminating party is not then in
material breach of any representation, warranty, covenant or other agreement
contained herein) if there shall have been a material breach of any of the
covenants or agreements or any of the representations or warranties set
forth in this Agreement on the part of the other party, which breach is not
cured within forty-five (45) days following written notice to the party
committing such breach, or which breach, by its nature or timing, cannot be
cured prior to the Closing Date;
(e) by either Pinnacle or IFC if any approval of the stockholders of
Pinnacle or IFC required for the consummation of the Merger shall not have
been obtained by reason of the failure to obtain the required vote at a duly
held meeting of stockholders or at any adjournment or postponement thereof;
(f) by either Pinnacle or IFC if any of the conditions specified by
Article VII to the obligation of the terminating party have not been
satisfied on the Closing Date; or
(g) by Pinnacle if the Closing Date IFC Disclosure Schedule discloses
any change from the IFC Disclosure Schedule which has, or is likely to have,
a Material Adverse Effect on IFC or any of the IFC Subsidiaries; or by IFC
if the Closing Date Pinnacle Disclosure Schedule discloses any change from
the Pinnacle Disclosure Schedule which has, or is likely to have, a Material
Adverse Effect on Pinnacle or any of the Pinnacle Subsidiaries.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either Pinnacle or IFC as provided in Section 8.1, this Agreement shall
forthwith become void and have no effect, and none of Pinnacle, IFC, any of
their respective Subsidiaries or any of the officers or directors of any of them
shall have any liability of any nature whatsoever hereunder, or in connection
with the transactions contemplated hereby, except that (i) Sections 6.2(b), 8.2,
9.2 and 9.3, shall survive any termination of this Agreement, and (ii)
notwithstanding anything to the contrary contained in this Agreement, neither
Pinnacle nor IFC shall be relieved or released from any liabilities or damages
arising out of its willful breach of any provision of this Agreement.
8.3 AMENDMENT. Subject to compliance with applicable law, this Agreement
may be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of Pinnacle
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<PAGE>
or IFC; provided, however, that after any approval of the transactions
contemplated by this Agreement by the respective stockholders of Pinnacle or
IFC, there may not be, without further approval of such stockholders, any
amendment of this Agreement which changes the amount or the form of the
consideration to be delivered to the holders of IFC Common Stock hereunder other
than as contemplated by this Agreement. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein; provided, however,
that after any approval of the transactions contemplated by this Agreement by
the respective stockholders of Pinnacle or IFC, there may not be, without
further approval of such stockholders, any extension or waiver of this Agreement
or any portion thereof which reduces the amount or changes the form of the
consideration to be delivered to the holders of IFC Common Stock hereunder other
than as contemplated by this Agreement. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party, but such extension or waiver
or failure to insist on strict compliance with an obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1 CLOSING. Subject to the terms and conditions of this Agreement and the
Option Agreements, the closing of the Merger (the "Closing") will take place at
10:00 a.m. on a date and at a place to be specified by the parties, which shall
be no later than five (5) business days after the satisfaction or waiver
(subject to applicable law) of the latest to occur of the conditions set forth
in Article VII hereof, unless extended by mutual agreement of the parties (the
"Closing Date").
9.2 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement (other than pursuant to the
Option Agreements, which shall terminate in accordance with their terms) shall
survive the Effective Time, except for those covenants and agreements contained
herein and therein which by their terms apply in whole or in part after the
Effective Time.
9.3 EXPENSES. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense; provided, however, that the costs and expenses of
printing and mailing the Joint Proxy Statement, and all filing and other fees
paid to the SEC in connection with the Merger, shall be borne equally by
Pinnacle and IFC.
9.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Pinnacle to:
Pinnacle Financial Services, Inc.
830 Pleasant Street
St. Joseph, Michigan 49085
Attention: Richard L. Schanze, Chairman and CEO
Fax: (616) 853-5567
C-36
<PAGE>
with copies to:
Miller, Canfield, Paddock and Stone, P.L.C.
1400 N. Woodward Ave., Suite 100
Bloomfield Hills, Michigan 48304
Attention: J. Kevin Trimmer, Esq.
Fax: (810) 258-3036
and
(b) if to IFC, to:
Indiana Federal Corporation
56 Washington Street
Valparaiso, Indiana 46383
Attention: Donald A. Lesch, Chairman and CEO
Fax: (219) 464-2041
with copies to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005-3934
Attention: James S. Fleischer Esq.
Fax: (202) 682-0354
9.5 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". No provision of this Agreement shall be construed to require
Pinnacle, IFC or any of their respective Subsidiaries or affiliates to take any
action which would violate any applicable law, rule or regulation.
9.6 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
9.7 ENTIRE AGREEMENT. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof other than the Option
Agreements and the Confidentiality Agreement.
9.8 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law.
9.9 SEVERABILITY. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.10 PUBLICITY. Except as otherwise required by applicable law or the
rules of NASDAQ, neither Pinnacle nor IFC shall, or shall permit any of its
Subsidiaries to, issue or cause the publication of any press
C-37
<PAGE>
release or other public announcement with respect to, or otherwise make any
public statement concerning, the transactions contemplated by this Agreement
without the consent of the other party, which consent shall not be unreasonably
withheld.
9.11 ASSIGNMENT; THIRD PARTY BENEFICIARIES. Neither this Agreement nor any
of the rights, interests or obligations shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns. Except as otherwise specifically
provided in Section 6.8, this Agreement (including the documents and instruments
referred to herein) is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
IN WITNESS WHEREOF, Pinnacle and IFC have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
PINNACLE FINANCIAL SERVICES, INC.
By: ______/s/ Richard L. Schanze______
Richard L. Schanze
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
INDIANA FEDERAL CORPORATION
By: ________/s/ Donald A. Lesch_______
Donald A. Lesch
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
C-38
<PAGE>
ANNEX D
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 27, 1997 BETWEEN
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
<PAGE>
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "Amendment"), dated as
of February 27, 1997, between PINNACLE FINANCIAL SERVICES, INC., a Michigan
corporation ("Pinnacle"), and INDIANA FEDERAL CORPORATION, a Delaware
corporation ("IFC").
WITNESSETH:
WHEREAS, Pinnacle and IFC entered into an Agreement and Plan of Merger dated
November 14, 1996 (the "Agreement"), but subsequently have determined that
certain amendments to the Agreement are necessary and appropriate and therefore
wish to amend the Agreement as set forth herein;
NOW THEREFORE, in consideration of the premises and the mutual and dependent
promises hereinafter contained, the parties do represent, warrant, covenant and
agree as follows:
1. Section 1.11 of the Agreement shall be and hereby is amended and
restated in its entirety to read as follows:
"1.11 BOARD OF DIRECTORS. At the Effective Time, the persons who shall
be the directors of the Surviving Corporation shall be determined as
follows:
(a) In the event that the transactions provided for under the terms
of the Agreement and Plan of Merger (the "CB Merger Agreement") between
Pinnacle and CB Bancorp, Inc., a Delaware corporation ("CB"), have been
consummated and become effective, then the Board of Directors of the
Surviving Corporation shall consist of Mr. Richard L. Schanze, as well as
Mr. Arnold L. Weaver and three (3) other persons named as directors of
the Surviving Corporation on behalf of the Board of Directors of
Pinnacle, and Mr. Donald A. Lesch, as well as Mr. Howard Silverman and
three (3) other persons named as directors of the Surviving Corporation
on behalf of the Board of Directors of IFC, and Mr. Joseph F. Heffernan.
(b) In the event that the transactions provided for under the terms
of the CB Merger Agreement have not been consummated and become
effective, then the Board of Directors of the Surviving Corporation shall
consist of Mr. Richard L. Schanze, as well as Mr. Arnold L. Weaver and
three (3) other persons named as directors of the Surviving Corporation
on behalf of the Board of Directors of Pinnacle, and Mr. Donald A. Lesch,
as well as Mr. Howard Silverman and three (3) other persons named as
directors of the Surviving Corporation on behalf of the Board of
Directors of IFC; provided, that, in the event that the transactions
provided for under the terms of the CB Merger Agreement subsequently are
consummated and become effective, then the Board of Directors of the
Surviving Corporation shall consist of those persons named as directors
of the Surviving Corporation in the preceding clause of this subsection
(b) and, in addition, Mr. Joseph F. Heffernan shall be named as a
director of the Surviving Corporation.
(c) In any case, at and following the Effective Time, under the terms
of the Standstill Agreement dated as of December 1, 1995, between
Pinnacle and Mr. Cyrus A. Ansary, Pinnacle may have certain obligations
to nominate Mr. Ansary for election as a director of Pinnacle and said
agreement shall be binding on Pinnacle as the Surviving Corporation. In
the event that Pinnacle, as the Surviving Corporation, becomes obligated
to nominate Mr. Ansary as a director of the Surviving Corporation, then
the Board of Directors at that time shall be increased in size by two (2)
persons, and Mr. Ansary shall be nominated as a director of the Surviving
Corporation pursuant to the terms of the Standstill Agreement dated as of
December 1, 1995, between Pinnacle and Mr. Ansary, and the Chairman shall
nominate for approval by the Board of Directors an additional person as a
director of the Surviving Corporation.
(d) Whenever the Board of Directors of the Surviving Corporation is
comprised of ten (10) or fewer persons, action of the Board within the
meaning of Section 523 of the MBCA, and for all other purposes, shall
require the favorable vote of six (6) or more of the directors, and
whenever the Board of Directors of the Surviving Corporation is comprised
of eleven (11) or
D-1
<PAGE>
twelve (12) persons, action of the Board within the meaning of Section
523 of the MBCA, and for all other purposes, shall require the favorable
vote of seven (7) or more of the directors."
2. Subsection (d) of Section 1.13 of the Agreement shall be and hereby is
amended and restated in its entirety to read as follows:
"(d) the directors of Pinnacle Bank as the surviving institution
following the Bank Merger shall be determined as follows:
(i) In the event that the transactions provided for under the terms
of Section 1.13 of the CB Merger Agreement have been consummated and
become effective, then the Board of Directors of Pinnacle Bank as the
surviving institution shall consist of twenty-one (21) persons with nine
(9) persons to be named as directors by the Board of Directors of
Pinnacle Bank, nine (9) persons to be named as directors by the Board of
Directors of IndFed Bank, and three (3) persons to be named as directors
by the Board of Directors of Community Bank, a federal savings bank (one
of which persons shall be Mr. Joseph F. Heffernan);
(ii) In the event that the transactions provided for under the terms
of Section 1.13 of the CB Merger Agreement have not been consummated and
become effective, then the Board of Directors of the surviving
institution shall consist of eighteen (18) persons with nine (9) persons
to be named as directors by the Board of Directors of Pinnacle Bank and
nine (9) persons to be named as directors by IndFed Bank; provided, that,
in the event that the transactions provided for under the terms of
Section 1.13 of the CB Merger Agreement subsequently are consummated and
become effective, then the Board of Directors of the surviving
institution shall consist of those persons named as directors of the
surviving institution in the preceding clause of this subsection (d)(ii)
and, in addition, three (3) persons named as directors by the Board of
Directors of Community Bank, a federal savings bank (one of which persons
shall be Mr. Joseph F. Heffernan) shall be named as directors of the
surviving institution; and
(iii) The executive officers of Pinnacle Bank as the surviving
institution following the Bank Merger shall be those appointed by the
Board of Directors of the surviving institution upon consummation of the
Bank Merger, on the basis of recommendations made by Mr. Schanze, as the
Chairman of the parent Surviving Corporation, Mr. Lesch, as the Vice
Chairman of the parent Surviving Corporation, and an outside consulting
service to be engaged and charged with reviewing and evaluating the
qualifications of candidates."
3. The meaning of the term "Material Adverse Effect", as defined in Section
3.1 of the Agreement, and used in and throughout the Agreement, shall be amended
and restated in its entirety to provide as follows:
"As used in this Agreement, the term "Material Adverse Effect" means, with
respect to IFC, Pinnacle or the Surviving Corporation, as the case may be, a
material adverse effect on the business, results of operations, financial
condition, or (insofar as they can reasonably be foreseen) prospects of such
party and its Subsidiaries taken as a whole, excluding for this purpose
only, however, (i) the payment and/or incurrence of (1) the one-time special
assessment on institutions holding deposits subject to assessment by the
Savings Association Insurance Fund ("SAIF") pursuant to The Deposit
Insurance Funds Act of 1996 ("Funds Act") intended to increase SAIF's net
worth as of October 1, 1996 to 1.25 percent of SAIF-insured deposits, and
(2) transactional expenses by IFC or Pinnacle in connection with the Merger,
(ii) the effects upon Pinnacle of the merger transaction, and all
transactional expenses with respect thereto, contemplated by the CB Merger
Agreement, whether or not consummated, and (iii) the effects upon Pinnacle
of the branch office swap transactions, and all transactional expenses with
respect thereto, contemplated by the Purchase and Assumption Agreement
executed, or to be executed, between Shoreline Bank, as Seller, and Pinnacle
Bank, as Buyer, and the Purchase and Assumption Agreement executed, or to be
executed, between Pinnacle Bank, as Seller, and Shoreline
D-2
<PAGE>
Bank, as Buyer (collectively, the "Branch Office Swap Agreements"), whether
or not consummated, in any said case to the extent having such an effect."
4. The entering into and performance of the CB Merger Agreement, and/or the
Branch Office Swap Agreements, and consummation of the transactions contemplated
thereby, by Pinnacle are hereby ratified, approved and authorized, and are and
shall be deemed to be expressly permitted for all purposes under the Agreement
and the Option Agreements (defined herein as in the Agreement) and shall not
constitute a "triggering event" under any Option Agreement.
5. Except as amended hereby, the Agreement is ratified and confirmed in all
respects.
[THIS SPACE INTENTIONALLY LEFT BLANK]
D-3
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed by and on behalf
of each of the parties hereto as of the date first above written.
PINNACLE FINANCIAL SERVICES, INC.
By: ______/s/ Richard L. Schanze______
Richard L. Schanze
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
INDIANA FEDERAL CORPORATION
By: ________/s/ Donald A. Lesch_______
Donald A. Lesch
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
D-4
<PAGE>
ANNEX E
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 1, 1997 BETWEEN
PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of March 1, 1997, by and between
PINNACLE FINANCIAL SERVICES, INC., a Michigan corporation ("Pinnacle"), and CB
BANCORP, INC., a Delaware corporation ("CB").
WITNESSETH:
WHEREAS, the Boards of Directors of Pinnacle and CB have determined that it
is in the best interests of their respective companies and their stockholders to
consummate the business combination transaction provided for herein in which CB
will, subject to the terms and conditions set forth herein, merge with and into
Pinnacle (the "Merger"), so that Pinnacle is the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") in the Merger; and
WHEREAS, as a condition to, and immediately after the execution of, this
Agreement, Pinnacle and CB are entering into a CB stock option agreement (the
"CB Option Agreement") attached hereto as Exhibit A; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this Agreement, in
accordance with the Michigan Business Corporation Act, as amended (the "MBCA"),
and the Delaware General Corporation Law, as amended (the "DGCL"), at the
Effective Time (as defined in Section 1.2), CB shall merge with and into
Pinnacle. Pinnacle shall be the Surviving Corporation in the Merger, and shall
continue its corporate existence under the laws of the State of Michigan. Upon
consummation of the Merger, the separate corporate existence of CB shall
terminate.
1.2 EFFECTIVE TIME. The Merger shall become effective as set forth in
certificates of merger (each, a "Certificate of Merger"), which shall specify an
effective date and time no earlier than the filing thereof with the appropriate
authorities of the State of Michigan, and with the appropriate authorities of
the State of Delaware, on the Closing Date (as defined in Section 9.1), or as
soon thereafter as practicable. The term "Effective Time" shall be the date and
time when the Merger becomes effective, as set forth in each Certificate of
Merger having been filed in accordance with the MBCA and DGCL.
1.3 EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
shall have the effects set forth in the MBCA and the DGCL.
1.4 CONVERSION OF CB COMMON STOCK. At the Effective Time, in each case,
subject to Section 2.2(e), by virtue of the Merger and without any action on the
part of Pinnacle, CB or the holder of any of the following securities:
(a) Each share of the common stock, par value $0.01 per share, of CB
(the "CB Common Stock") issued and outstanding immediately prior to the
Effective Time (other than shares of CB Common Stock held (x) in CB's
treasury or (y) directly or indirectly by CB or Pinnacle or any of their
respective wholly-owned Subsidiaries (as defined in Section 3.1) (except for
Trust Account Shares and DPC shares, as such terms are defined in Section
1.4(c) and as set forth in the CB Disclosure Schedule)), shall be converted
into the right to receive that number of shares of the common stock, without
par value, of Pinnacle (the "Pinnacle Common Stock") determined by dividing
$35.00 (the "Exchange Value") by the average (the "Average Price") of the
daily averages of the closing bid and the closing ask prices per share of
Pinnacle Common Stock as reported by the Nasdaq National
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<PAGE>
Market for the period of fifteen (15) business days ending on the fifth
(5th) business day prior to the Closing Date; provided, however, that (i) in
the event the Average Price as determined under the foregoing provision is
$29.00 or higher, the Exchange Value shall be divided by $29.00 (resulting
in the fractional number 1.2069) rather than said Average Price (so that, in
such case, each share of CB Common Stock issued and outstanding so
converted, would be converted into the right to receive 1.2069 shares of
Pinnacle Common Stock), and (ii) in the event the Average Price as
determined under the foregoing provision is $23.00 or lower, the Exchange
Value shall be divided by $23.00 (resulting in the fractional number 1.5217)
rather than said Average Price (so that, in such case, each share of CB
Common Stock issued and outstanding so converted, would be converted into
the right to receive 1.5217 shares of Pinnacle Common Stock); and provided,
further, no fractional shares of Pinnacle Common Stock shall be issued
pursuant hereto and, in lieu thereof, any said fractional shares shall be
paid the cash equivalent value thereof based on the Average Price.
(b) All of the shares of CB Common Stock converted into the right to
receive shares of Pinnacle Common Stock, and cash in lieu of fractional
shares, pursuant to this Article I shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist as of the Effective
Time, and each certificate (each a "Common Certificate") previously
representing any such shares of CB Common Stock shall thereafter represent
the right to receive (i) a certificate representing the number of whole
shares, and (ii) cash in lieu of any fractional share, of Pinnacle Common
Stock into which the shares of CB Common Stock represented by such Common
Certificate have been converted pursuant to this Section 1.4 and Section
2.2. Common Certificates previously representing shares of CB Common Stock
shall be exchanged for certificates representing whole shares, and cash in
lieu of fractional shares, of Pinnacle Common Stock upon the surrender of
such Common Certificates in accordance with Section 2.2, without any
interest thereon. If, prior to the Effective Time, the outstanding shares of
CB Common Stock shall have been increased, decreased, changed into or
exchanged for a different number or kind of shares or securities as a result
of a reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split, or other similar change in capitalization,
then an appropriate and proportionate adjustment shall be made to the
Exchange Value.
(c) At the Effective Time, all shares of CB Common Stock that are owned
by CB as treasury stock and all shares of CB Common Stock that are owned,
directly or indirectly, by CB or Pinnacle or any of their respective
wholly-owned Subsidiaries (other than shares of CB Common Stock held,
directly or indirectly, in trust accounts, managed accounts and the like or
otherwise held in a fiduciary capacity that are beneficially owned by third
parties (any such shares, and shares of Pinnacle Common Stock which are
similarly held, whether held directly or indirectly by CB or Pinnacle, as
the case may be, being referred to herein as "Trust Account Shares") and
other than any shares of CB Common Stock held by CB or Pinnacle or any of
their respective wholly-owned Subsidiaries in respect of a debt previously
contracted (any such shares of CB Common Stock, and shares of Pinnacle
Common Stock which are similarly held, whether held directly or indirectly
by CB or Pinnacle or any of their respective Subsidiaries, being referred to
herein as "DPC Shares") and as set forth in the CB Disclosure Schedule)
shall be cancelled and shall cease to exist and no stock of Pinnacle or
other consideration shall be delivered in exchange therefor.
1.5 PINNACLE COMMON STOCK. At and after the Effective Time, each share of
Pinnacle Common Stock issued and outstanding immediately prior to the Closing
Date shall remain an issued and outstanding share of common stock of the
Surviving Corporation and shall not be affected by the Merger. All shares of
Pinnacle Common Stock that are owned by CB or any of its wholly-owned
Subsidiaries (other than Trust Account Shares and DPC Shares) shall become
treasury stock of Pinnacle.
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1.6 OPTIONS.
At the Effective Time, each option granted by CB to purchase shares of CB
Common Stock (including any option that has been awarded but has not yet vested)
which is outstanding and unexercised immediately prior thereto shall cease to
represent the option to acquire shares of CB Common Stock and shall be converted
automatically into the right to receive shares of Pinnacle Common Stock in an
amount determined by dividing the difference between the Exchange Value and the
exercise price of such option by the Average Price.
1.7 ARTICLES OF INCORPORATION. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Articles of Incorporation of Pinnacle
shall be the Articles of Incorporation of the Surviving Corporation, until
thereafter amended in accordance with applicable law.
1.8 BYLAWS. Subject to the terms and conditions of this Agreement, at the
Effective Time, the Bylaws of Pinnacle, with appropriate amendments to
incorporate the provisions of Section 1.11(d) of this Agreement, shall be the
Bylaws of the Surviving Corporation, until thereafter amended in accordance with
applicable law.
1.9 TAX CONSEQUENCES; ACCOUNTING TREATMENT. It is intended that (i) the
Merger shall constitute a reorganization within the meaning of Section
368(a)(i)(A) of the Code, (ii) this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code, and (iii) the
Merger shall qualify for "pooling of interests" accounting treatment under
Accounting Principles Board Opinion No. 16 and SEC Accounting Series Releases
130 and 135, as amended.
1.10 MANAGEMENT. At the Effective Time, those persons who are the officers
of Pinnacle immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, serving in the same officer capacities, respectively,
together with such other persons who may be appointed as officers of the
Surviving Corporation by the Board of Directors of the Surviving Corporation.
1.11 BOARD OF DIRECTORS. At the Effective Time, the persons who shall be
the directors of the Surviving Corporation shall be determined as follows:
(a) In the event that the transactions provided for under the terms of
the Agreement and Plan of Merger dated as of November 14, 1996 (the "IFC
Merger Agreement"), between Pinnacle and Indiana Federal Corporation, a
Delaware corporation ("IFC"), have been consummated and become effective,
then the Board of Directors of the Surviving Corporation shall consist of
Mr. Richard L. Schanze, as well as Mr. Arnold L. Weaver and three (3) other
persons named as directors of the Surviving Corporation on behalf of the
Board of Directors of Pinnacle, and Mr. Donald A. Lesch, as well as Mr.
Howard Silverman and three (3) other persons named as directors of the
Surviving Corporation on behalf of the Board of Directors of IFC, and Mr.
Joseph F. Heffernan.
(b) In the event that the transactions provided for under the terms of
the IFC Merger Agreement have not been consummated and become effective,
then the Board of Directors of the Surviving Corporation shall be comprised
of those persons who are the directors of Pinnacle immediately prior to the
Effective Time and Mr. Joseph F. Heffernan; provided, that, in the event
that the transactions provided for under the terms of the IFC Merger
Agreement subsequently are consummated and become effective, then the Board
of Directors of the Surviving Corporation shall consist of Mr. Richard L.
Schanze, as well as Mr. Arnold L. Weaver and three (3) other persons named
as directors of the Surviving Corporation on behalf of the Board of
Directors of Pinnacle, and Mr. Donald A. Lesch, as well as Mr. Howard
Silverman and three (3) other persons named as directors of the Surviving
Corporation on behalf of the Board of Directors of IFC, and Mr. Joseph F.
Heffernan.
(c) In any case, at and following the Effective Time, under the terms of
the Standstill Agreement dated as of December 1, 1995, between Pinnacle and
Mr. Cyrus A. Ansary, Pinnacle has certain
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obligations to nominate Mr. Ansary for election as a director of Pinnacle
and said agreement shall be binding on Pinnacle as the Surviving
Corporation. In the event that Pinnacle, as the Surviving Corporation,
becomes obligated to nominate Mr. Ansary as a director of the Surviving
Corporation, then the Board of Directors at that time shall be increased in
size by two (2) persons, and Mr. Ansary shall be nominated as a director of
the Surviving Corporation pursuant to the terms of the Standstill Agreement
dated as of December 1, 1995, between Pinnacle and Mr. Ansary, and the
Chairman shall nominate for approval by the Board of Directors an additional
person as a director of the Surviving Corporation.
(d) Whenever the Board of Directors is comprised of ten (10) or fewer
persons, action of the Board within the meaning of Section 523 of the MBCA,
and for all other purposes, shall require the favorable vote of six (6) or
more of the directors, and whenever the Board of Directors is comprised of
eleven (11) or twelve (12) persons, action of the Board within the meaning
of Section 523 of the MBCA, and for all other purposes, shall require the
favorable vote of seven (7) or more of the directors.
1.12 HEADQUARTERS OF SURVIVING CORPORATION. At the Effective Time, the
headquarters and principal executive offices of Pinnacle immediately prior to
the Effective Time shall be the headquarters and principal executive offices of
the Surviving Corporation.
1.13 BANK MERGER. At the Bank Merger Effective Time (as hereinafter
defined), Community Bank, a federal savings bank ("CB Bank"), the wholly-owned
subsidiary of CB, shall be merged (the "Bank Merger") with and into Pinnacle
Bank, a Michigan banking corporation ("Pinnacle Bank"), the wholly-owned
subsidiary of Pinnacle, pursuant to the terms and conditions set forth herein
and in the Agreement and Plan of Merger and Consolidation substantially in the
form attached hereto as Exhibit B (the "Bank Merger Agreement"). Upon
consummation of the Bank Merger, the separate existence of CB Bank shall cease,
and Pinnacle Bank shall continue as the surviving institution of the Bank
Merger. The name of Pinnacle Bank, as the surviving institution of the Bank
Merger, shall be "Pinnacle Bank". From and after the Bank Merger Effective Time
(as hereinafter defined), Pinnacle Bank as the surviving institution of the Bank
Merger shall possess all of the properties and rights and be subject to all of
the liabilities and obligations of Pinnacle Bank and CB Bank. The Bank Merger
shall become effective at the time the Bank Merger Agreement for such merger is
endorsed and declared effective by the Financial Institutions Bureau of the
State of Michigan (the "Bank Merger Effective Time"). The parties shall cause
the Bank Merger to become effective as soon as practical following the Merger.
At the Bank Merger Effective Time:
(a) each share of CB Bank common stock issued and outstanding
immediately prior thereto shall, by virtue of the Bank Merger, be cancelled.
No new shares of the capital stock or other securities or obligations of CB
Bank shall be issued or be deemed issued with respect to or in exchange for
such cancelled shares, and such cancelled shares of common stock of CB Bank
shall not be converted into any shares or other securities or obligations of
any other entity;
(b) each share of Pinnacle Bank common stock issued and outstanding
immediately prior thereto shall remain an issued and outstanding share of
common stock of Pinnacle Bank as the surviving institution and shall not be
affected by the Bank Merger;
(c) the charter and bylaws of Pinnacle Bank, as then in effect, shall be
the Charter and Bylaws of Pinnacle Bank as the surviving institution of the
Bank Merger, and may thereafter be amended in accordance with applicable
law; and
(d) the directors of Pinnacle Bank as the surviving institution
following the Bank Merger shall be determined as follows:
(i) In the event that the transactions provided for under the terms
of the Agreement and Plan of Merger and Consolidation to be entered into
by and between Indiana Federal Bank for Savings and Pinnacle Bank
pursuant to the IFC Merger Agreement (the "InFed Bank Merger
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Agreement") have been consummated and become effective, then the Board of
Directors of Pinnacle Bank as the surviving institution shall consist of
twenty-one (21) persons with eighteen (18) persons to be named as
directors as provided in the IFC Merger Agreement and three (3) persons
to be named as directors by the Board of Directors of CB Bank (one of
which persons shall be Mr. Joseph F. Heffernan).
(ii) In the event that the transactions provided for under the terms
of the InFed Bank Merger Agreement have not been consummated and become
effective, then the Board of Directors of Pinnacle Bank as the surviving
institution shall be comprised of those persons who are the directors of
Pinnacle Bank immediately prior to the Bank Merger Effective Time and two
(2) persons to be named as directors by the Board of Directors of CB Bank
(one of which persons shall be Mr. Joseph F. Heffernan); provided,
however, that in the event that the transactions provided for under the
terms of the InFed Bank Merger Agreement subsequently are consummated and
become effective, then the Board of Directors of Pinnacle Bank as the
surviving institution shall consist of twenty-one (21) persons with
eighteen (18) persons to be named as directors as provided in the IFC
Merger Agreement and three (3) persons to be named as directors by the
Board of Directors of CB Bank.
ARTICLE II
EXCHANGE OF SHARES
2.1 PINNACLE TO MAKE SHARES AND CASH IN LIEU OF FRACTIONAL SHARES
AVAILABLE. Prior to the Effective Time, Pinnacle shall deposit, or shall cause
to be deposited, with Harris Trust and Savings Bank, Chicago, Illinois, or
another bank or trust company reasonably acceptable to each of Pinnacle and CB
(the "Exchange Agent"), for the benefit of the holders of Common Certificates,
for exchange in accordance with this Article II, certificates representing the
shares of Pinnacle Common Stock and cash for payment of consideration in lieu of
fractional shares (such certificates for shares of Pinnacle Common Stock,
together with cash for payment of consideration in lieu of fractional shares,
and any dividends or distributions with respect to any whole shares of Pinnacle
Common Stock, being hereinafter referred to as the "Exchange Fund") to be issued
and paid pursuant to Section 1.4 and Section 2.2(a) in exchange for outstanding
shares of CB Common Stock.
2.2 EXCHANGE OF SHARES.
(a) As soon as practicable after the Effective Time, and in no event later
than five (5) business days thereafter, the Exchange Agent shall mail to each
holder of record of one or more Common Certificates a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Common Certificates shall pass, only upon delivery of the Common
Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the Common Certificates in exchange for certificates representing
the shares of Pinnacle Common Stock and any cash in lieu of fractional shares
into which the shares of CB Common Stock represented by such Common Certificate
or Common Certificates shall have been converted pursuant to this Agreement.
Upon proper surrender of a Common Certificate for exchange and cancellation to
the Exchange Agent, together with such properly completed letter of transmittal,
duly executed, the holder of such Common Certificate shall be entitled to
receive in exchange therefor, as applicable, (i) a certificate representing that
number of whole shares of Pinnacle Common Stock, and (ii) a check representing
the amount of any cash in lieu of fractional shares, to which such holder of CB
Common Stock shall have become entitled pursuant to the provisions of Article I,
and the Common Certificate so surrendered shall forthwith be cancelled. No
interest will be paid or accrued on any cash in lieu of fractional shares or on
any unpaid dividends and distributions payable to holders of Common
Certificates.
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(b) No dividends or other distributions declared with respect to Pinnacle
Common Stock with a record date following the Effective Time shall be paid to
the holder of any unsurrendered Common Certificate until the holder thereof
shall surrender such Common Certificate in accordance with this Article II.
(c) If any certificate representing shares of Pinnacle Common Stock is to be
issued in a name other than that in which the Common Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the Common Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper
form for transfer, and that the person requesting such exchange shall pay to the
Exchange Agent in advance any transfer or other taxes required by reason of the
issuance of a certificate representing shares of Pinnacle Common Stock in any
name other than that of the registered holder of the Common Certificate
surrendered, or required for any other reason, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of CB of shares of CB Common Stock which were issued and
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Common Certificates representing such shares are presented for transfer to
the Exchange Agent, they shall be cancelled and exchanged for certificates
representing shares of Pinnacle Common Stock and cash in lieu of fractional
shares as provided in this Article II.
(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Pinnacle Common Stock
shall be issued upon the surrender for exchange of Common Certificates, no
dividend or distribution with respect to Pinnacle Common Stock shall be payable
on or with respect to any fractional share, and such fractional share interests
shall not entitle the owner thereof to vote or to any other rights of a
stockholder of CB. In lieu of the issuance of any such fractional share,
Pinnacle shall pay to each former stockholder of CB who otherwise would be
entitled to receive such fractional share an amount in cash determined by
multiplying (i) the Average Price by (ii) the fraction of a share (rounded to
the nearest thousandth when expressed as an Arabic number) of Pinnacle Common
Stock to which such holder would otherwise be entitled to receive pursuant to
Section 1.4.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of CB for twelve (12) months after the Effective Time shall be paid
to Pinnacle. Any stockholders of CB who have not theretofore complied with this
Article II shall thereafter look only to Pinnacle for payment of the shares of
Pinnacle Common Stock, cash in lieu of any fractional shares and any unpaid
dividends and distributions on whole shares of Pinnacle Common Stock deliverable
in respect of each share of CB Common Stock such stockholder holds as determined
pursuant to this Agreement, in each case, without any interest thereon.
Notwithstanding the foregoing, none of CB, Pinnacle, the Exchange Agent or any
other person shall be liable to any former holder of shares of CB Common Stock
for any amount delivered in good faith to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(g) In the event any Common Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Common Certificate to be lost, stolen or destroyed and, if reasonably
required by Pinnacle or the Exchange Agent, the posting by such person of a bond
in such amount as Pinnacle or the Exchange Agent may determine is reasonably
necessary as indemnity against any claim that may be made against it with
respect to such Common Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Common Certificate the shares of Pinnacle
Common Stock and any cash in lieu of fractional shares deliverable in respect
thereof pursuant to this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PINNACLE
Except as disclosed in the Pinnacle disclosure schedule delivered to CB
concurrently herewith (the "Pinnacle Disclosure Schedule"), Pinnacle hereby
represents and warrants to CB as follows:
3.1 CORPORATE ORGANIZATION.
(a) Pinnacle is a corporation duly organized, validly existing and in good
standing under the laws of the State of Michigan. Pinnacle has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted, and is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect on Pinnacle. As used in this Agreement, the term
"Material Adverse Effect" means, with respect to CB, Pinnacle or the Surviving
Corporation, as the case may be, a material adverse effect on the on-going
business (including the continuing right and ability to conduct said business
and generate earnings therefrom), results of operations or financial condition
of such party and its Subsidiaries taken as a whole, excluding for this purpose
only, however, (i) the payment and/or incurrence of transactional expenses by CB
or Pinnacle in connection with the Merger; (ii) the effects upon Pinnacle to the
extent disclosed by the Pinnacle Disclosure Schedule delivered to CB with this
Agreement (and including the disclosure schedules of Pinnacle and IFC referenced
in the IFC Merger Agreement, copies of which have been delivered by Pinnacle to
CB, but excluding any Material Adverse Effect that may be subsequently disclosed
by a closing date disclosure schedule delivered pursuant to the IFC Merger
Agreement) of the transactions contemplated by, and all transactional expenses
associated with the transactions contemplated by, the IFC Merger Agreement,
whether or not consummated, the Pinnacle stock option agreement dated as of
November 14, 1996 between Pinnacle and IFC, and the IFC stock option agreement
dated as of November 14, 1996 between Pinnacle and IFC (said stock option
agreements being the "Pinnacle/IFC Stock Option Agreements"), and (iii) the
effects upon Pinnacle of the transactions contemplated by, and all transactional
expenses associated with the transactions, contemplated by, the Purchase and
Assumption Agreement executed, or to be executed, between Shoreline Bank, as
Seller, and Pinnacle Bank, as Buyer, and the Purchase and Assumption Agreement
executed, or to be executed, between Pinnacle Bank, as Seller, and Shoreline
Bank, as Buyer (collectively, the "Branch Office Swap Agreements"), whether or
not consummated, in any said case to the extent having such an effect. As used
in this Agreement, the word "Subsidiary" when used with respect to any party
means any bank, savings and loan institution, corporation, partnership, limited
liability company, or other organization, whether incorporated or
unincorporated, which is consolidated with such party for financial reporting
purposes. Pinnacle is duly registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). True and complete
copies of the Articles of Incorporation and Bylaws of Pinnacle, as in effect as
of the date of this Agreement, have previously been made available by Pinnacle
to CB.
(b) Each Pinnacle Subsidiary (i) is duly organized and validly existing as a
bank, savings and loan institution, corporation, partnership or limited
liability company under the laws of its jurisdiction of organization, (ii) is
duly qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse Effect on Pinnacle, and
(iii) has all requisite corporate power and authority to own or lease its
properties and assets and to carry on its business as now conducted.
(c) The minute books of Pinnacle accurately reflect in all material respects
all corporate actions held or taken since January 1, 1994 of its stockholders
and Board of Directors (including committees of the Board of Directors of
Pinnacle).
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3.2 CAPITALIZATION.
(a) The authorized capital stock of Pinnacle consists of (i) 15,000,000
shares of Pinnacle Common Stock, of which as of February 26, 1997, 5,977,860
shares were issued and outstanding and no shares were held in treasury. All of
the issued and outstanding shares of Pinnacle Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. As of the date of this Agreement, except pursuant to the terms of (i)
those options to purchase shares of Pinnacle Common Stock issued or issuable
under Pinnacle benefit plans (the "Pinnacle Stock Plans"), (ii) the Pinnacle/IFC
Stock Option Agreements, and (iii) the IFC Merger Agreement, Pinnacle does not
have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the purchase or
issuance of any shares of Pinnacle Common Stock or any other equity securities
of Pinnacle or any securities representing the right to purchase or otherwise
receive any shares of Pinnacle Common Stock or any other equity securities of
Pinnacle. As of February 26, 1997, no shares of Pinnacle Common Stock were
reserved for issuance, except for (i) 494,949 shares reserved for issuance upon
the exercise of stock options pursuant to the Pinnacle Stock Plans and (ii)
shares reserved for issuance pursuant to the Pinnacle/IFC Stock Option
Agreements and the IFC Merger Agreement. Since January 1, 1996, Pinnacle has not
issued any shares of Pinnacle Common Stock or other equity securities of
Pinnacle, or any securities convertible into or exercisable for any shares of
Pinnacle Common Stock or other equity securities of Pinnacle, other than
pursuant to (i) the exercise of employee stock options granted prior to such
date, (ii) the Pinnacle/ IFC Stock Option Agreements, and (iii) the IFC Merger
Agreement. The shares of Pinnacle Common Stock to be issued pursuant to the
Merger will be duly authorized and validly issued and, at the Effective Time,
all such shares will be fully paid, nonassessable and free of preemptive rights,
with no personal liability attaching to the ownership thereof.
(b) Pinnacle owns, directly or indirectly, all of the issued and outstanding
shares of capital stock of each of the Pinnacle Subsidiaries, free and clear of
any liens, pledges, charges, encumbrances and security interests whatsoever
("Liens"), and all of such shares are duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. No Pinnacle Subsidiary has or is
bound by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of capital stock or any other equity security of such Subsidiary or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of such Subsidiary.
3.3 AUTHORITY; NO VIOLATION.
(a) Pinnacle has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of Pinnacle. The Board of Directors of Pinnacle has directed
that this Agreement and the transactions contemplated hereby be submitted to
Pinnacle's stockholders for approval at a meeting of such stockholders and,
except for the adoption of this Agreement by the affirmative vote of the holders
of a majority of the outstanding shares of Pinnacle Common Stock, no other
corporate proceedings on the part of Pinnacle are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Pinnacle and (assuming due
authorization, execution and delivery by CB) constitutes a valid and binding
obligation of Pinnacle, enforceable against Pinnacle in accordance with its
terms.
(b) Neither the execution and delivery of this Agreement by Pinnacle nor the
consummation by Pinnacle of the transactions contemplated hereby, nor compliance
by Pinnacle with any of the terms or provisions hereof, will (i) violate any
provision of the Articles of Incorporation or Bylaws of Pinnacle or (ii)
assuming that the consents and approvals referred to in Section 3.4 are duly
obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Pinnacle or any of its
Subsidiaries or any of their respective properties or assets, or (y) violate,
conflict with, result in
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a breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of Pinnacle or any of its Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Pinnacle or
any of its Subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected, except (in the case of clause (y)
above) for such violations, conflicts, breaches or defaults which, either
individually or in the aggregate, will not have or be reasonably likely to have
a Material Adverse Effect on Pinnacle or the Surviving Corporation.
3.4 CONSENTS AND APPROVALS. Except for (i) the filing of applications and
notices, as applicable, with
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") under the BHC Act and approval of such applications and notices, (ii)
the filing of any required applications with the Office of Thrift Supervision
(the "OTS"), (iii) the filing of any required applications or notices with any
state or foreign agencies and approval of such applications and notices (the
"State Approvals"), (iv) the filing with the Securities and Exchange Commission
(the "SEC") of a joint proxy statement in definitive form relating to the
meetings of Pinnacle's and CB's stockholders to be held in connection with this
Agreement and the transactions contemplated hereby (and, if applicable, the
meetings of Pinnacle's and IFC's stockholders to be held in connection with the
IFC Merger Agreement and the transactions contemplated thereby) (the "Joint
Proxy Statement") and the registration statement on Form S-4 (the "S-4") in
which the Joint Proxy Statement will be included as a prospectus (which Joint
Proxy Statement and S-4 may also describe the transactions contemplated by the
IFC Merger Agreement), (v) the filing of Certificates of Merger with the
appropriate authorities of the State of Michigan pursuant to the MBCA and with
the appropriate officials of the State of Delaware pursuant to the DGCL, (vi)
any notices to or filings with the Small Business Administration ("SBA"), (vii)
any consent, authorizations, approvals, filings or exemptions in connection with
compliance with the applicable provisions of federal and state securities laws
relating to the regulation of broker-dealers or investment advisers, and federal
commodities laws relating to the regulation of futures commission merchants and
the rules and regulations thereunder and of any applicable industry self-
regulatory organization ("SRO"), and the rules of Nasdaq, or which are required
under consumer finance, mortgage banking and other similar laws, (viii) such
filings and approvals as are required to be made or obtained under the
securities or "Blue Sky" laws of various states in connection with the issuance
of the shares of Pinnacle Common Stock pursuant to this Agreement, and (ix) the
approval of this Agreement by the requisite vote of the stockholders of Pinnacle
and CB, no consents or approvals of or filings or registrations with any court,
administrative agency or commission or other governmental authority or
instrumentality (each a "Governmental Entity") or with any third party are
necessary in connection with (A) the execution and delivery by Pinnacle of this
Agreement and (B) the consummation by Pinnacle of the Merger and the other
transactions contemplated hereby.
3.5 REPORTS. Pinnacle and each of its Subsidiaries have timely filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since January 1,
1994 with (i) the Federal Reserve Board, (ii) the Federal Deposit Insurance
Corporation, (iii) any state regulatory authority (each a "State Regulator"),
(iv) the Office of the Comptroller of the Currency (the "OCC"), (v) the OTS,
(vi) the SEC and (vii) any SRO (collectively "Regulatory Agencies"), and all
other reports and statements required to be filed by them since January 1, 1994,
including, without limitation, any report or statement required to be filed
pursuant to the laws, rules or regulations of the United States, any state, or
any Regulatory Agency and have paid all fees and assessments due and payable in
connection therewith, except where the failure to file such report, registration
or statement or to pay such fees and assessments, either individually or in the
aggregate, will not have a Material Adverse Effect on Pinnacle. Except for
normal examinations conducted by a Regulatory Agency in the regular course of
the business of Pinnacle and its Subsidiaries, no Regulatory Agency has
initiated any proceeding or, to the best knowledge of Pinnacle, investigation
into the business
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or operations of Pinnacle or any of its Subsidiaries since January 1, 1994,
except where such proceedings or investigation are not likely, either
individually or in the aggregate, to have a Material Adverse Effect on Pinnacle.
There is no unresolved violation, criticism, or exception by any Regulatory
Agency with respect to any report or statement relating to any examinations of
Pinnacle or any of its Subsidiaries which, in the reasonable judgment of
Pinnacle, is likely, either individually or in the aggregate, to have a Material
Adverse Effect on Pinnacle.
3.6 FINANCIAL STATEMENTS. Pinnacle has previously made available to CB
copies of (a) the consolidated balance sheets of Pinnacle and its Subsidiaries
as of December 31, for the fiscal years 1994 and 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the fiscal years 1993 through 1995, inclusive, as reported in
Pinnacle's Annual Report on Form 10-K for the fiscal year ended December 31,
1995 filed with the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), in each case accompanied by the audit report of KPMG Peat
Marwick LLP, independent public accountants with respect to Pinnacle, and (b)
the unaudited consolidated balance sheet of Pinnacle and its Subsidiaries as of
September 30, 1996 and the related unaudited consolidated statements of income,
cash flows and changes in stockholders' equity for the nine-month period then
ended as reported in Pinnacle's Quarterly Report on Form 10-Q for the period
ended September 30, 1996 filed with the SEC under the Exchange Act (the
"Pinnacle September 30, 1996 Form 10-Q"). The December 31, 1995 consolidated
balance sheet of Pinnacle (including the related notes, where applicable) fairly
presents the consolidated financial position of Pinnacle and its Subsidiaries as
of the date thereof, and the other financial statements referred to in this
Section 3.6 (including the related notes, where applicable) fairly present
(subject, in the case of the unaudited statements, to recurring audit
adjustments normal in nature and amount) the results of the consolidated
operations and changes in stockholders' equity and consolidated financial
position of Pinnacle and its Subsidiaries for the respective fiscal periods or
as of the respective dates therein set forth; each of such statements (including
the related notes, where applicable) comply in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto; and each of such statements (including the
related notes, where applicable) has been prepared in all material respects in
accordance with generally accepted accounting principles ("GAAP") consistently
applied during the periods involved, except, in each case, as indicated in such
statements or in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q. The books and records of Pinnacle and its Subsidiaries
have been, and are being, maintained in all material respects in accordance with
GAAP and any other applicable legal and accounting requirements. All financial
statements and reports filed by or on behalf of Pinnacle with any Regulatory
Agency shall be furnished to CB as soon as practicable after being filed with
such Regulatory Agency.
3.7 BROKER'S FEES. Neither Pinnacle nor any Pinnacle Subsidiary nor any of
their respective officers or directors has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with the Merger or related transactions contemplated by this
Agreement, other than PL Capital, L.L.C. (a copy of which engagement agreement
has been disclosed by Pinnacle to CB) whose fees, commissions and expenses shall
be paid by Pinnacle.
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as publicly disclosed in reports filed by Pinnacle with
Regulatory Agencies (the "Pinnacle Reports") prior to the date hereof, and
except for the one-time special assessment on institutions holding deposits
subject to assessment by the Savings Association Insurance Fund ("SAIF")
pursuant to the Deposit Insurance Funds Act of 1996 ("Funds Act") intended to
increase SAIF's net worth as of October 1, 1996 to 1.25 percent of SAIF insured
deposits, since December 31, 1995, (i) Pinnacle and its Subsidiaries taken as a
whole have not incurred any material liability, except in the ordinary course of
their business, and (ii) no event has occurred which has had, individually or in
the aggregate, a Material Adverse Effect on Pinnacle or the Surviving
Corporation.
(b) Except as publicly disclosed in Pinnacle Reports filed prior to the date
hereof, since December 31, 1995, Pinnacle and its Subsidiaries have carried on
their respective businesses in all material respects in the ordinary and usual
course.
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(c) Since December 31, 1995, neither Pinnacle nor any of its Subsidiaries
has (i) except for such actions as are in the ordinary course of business
consistent with past practice or except as required by applicable law, (A)
increased the wages, salaries, compensation, pension, or other fringe benefits
or perquisites payable to any executive officer, employee, or director from the
amount thereof in effect as of December 31, 1995, or (B) granted any severance
or termination pay, entered into any contract to make or grant any severance or
termination pay, or paid any bonuses in excess of Pinnacle's 1995 salary and
employee benefits expenses, or (ii) suffered any strike, work stoppage,
slowdown, or other labor disturbance which, in the reasonable judgment of
Pinnacle, is likely, either individually or in the aggregate, to have a Material
Adverse Effect on Pinnacle.
3.9 LEGAL PROCEEDINGS.
(a) Neither Pinnacle nor any of its Subsidiaries is a party to any, and
there are no pending or, to the best of Pinnacle's knowledge, threatened,
material legal, administrative, arbitral or other proceedings, claims, actions
or governmental or regulatory investigations of any nature against Pinnacle or
any of its Subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Agreement as to which there is a reasonable
probability of an adverse determination and which, if adversely determined,
would, individually or in the aggregate, have a Material Adverse Effect on
Pinnacle.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction (other than those that apply to similarly situated bank holding
companies, savings and loan holding companies, banks, or savings institutions)
imposed upon Pinnacle, any of its Subsidiaries or the assets of Pinnacle or any
of its Subsidiaries which has had, or might reasonably be expected to have, a
Material Adverse Effect on Pinnacle.
3.10 TAXES AND TAX RETURNS.
(a) Each of Pinnacle and its Subsidiaries has duly filed all federal, state,
county, foreign and, to the best of Pinnacle's knowledge, local information
returns and tax returns required to be filed by it on or prior to the date
hereof (all such returns being accurate and complete in all material respects)
and has duly paid or made provisions for the payment of all Taxes (as defined in
Section 3.10(b)) and other governmental charges which have been incurred or are
due or claimed to be due from it by federal, state, county, foreign or local
taxing authorities on or prior to the date of this Agreement (including, without
limitation, if and to the extent applicable, those due in respect of its
properties, income, business, capital stock, deposits, franchises, licenses,
sales and payrolls) other than (i) Taxes or other charges which are not yet
delinquent or are being contested in good faith and have not been finally
determined, or (ii) information returns, tax returns, Taxes or other
governmental charges the failure to file, pay or make provision for, either
individually or in the aggregate, are not likely, in the reasonable judgment of
Pinnacle, to have a Material Adverse Effect on Pinnacle. The income tax returns
of Pinnacle and its Subsidiaries have been examined by the Internal Revenue
Service (the "IRS") and any liability with respect thereto has been satisfied
for all years to and including 1993, and either no material deficiencies were
asserted as a result of such examination for which Pinnacle does not have
adequate reserves or all such deficiencies were satisfied. To the best of
Pinnacle's knowledge, there are no material disputes pending, or claims asserted
for, Taxes or assessments upon Pinnacle or any of its Subsidiaries for which
Pinnacle does not have adequate reserves, nor has Pinnacle or any of its
Subsidiaries given any currently effective waivers extending the statutory
period of limitation applicable to any federal, state, county or local income
tax return for any period. In addition, (A) proper and accurate amounts have
been withheld by Pinnacle and its Subsidiaries from their employees for all
prior periods in compliance in all material respects with the tax withholding
provisions of applicable federal, state and local laws, except where failure to
do so would not have a Material Adverse Effect on Pinnacle, (B) federal, state,
county and local returns which are accurate and complete in all material
respects have been filed by Pinnacle and its Subsidiaries for all periods for
which returns were due with respect to income tax withholding, Social Security
and unemployment taxes, except where failure to do so would not have a Material
Adverse Effect on Pinnacle, (C) the amounts shown on such federal, state, local
or county returns to be due and payable have been paid in full or adequate
provision therefor has
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been included by Pinnacle in its consolidated financial statements as of
December 31, 1995, except where failure to do so would not have a Material
Adverse Effect on Pinnacle and (D) there are no Tax liens upon any property or
assets of Pinnacle or its Subsidiaries except liens for current taxes not yet
due or liens that would not have a Material Adverse Effect on Pinnacle. Neither
Pinnacle nor any of its Subsidiaries has been required to include in income any
adjustment pursuant to Section 481 of the Code by reason of a voluntary change
in accounting method initiated by Pinnacle or any of its Subsidiaries, and the
IRS has not initiated or proposed any such adjustment or change in accounting
method, in either case which has had or is reasonably likely to have a Material
Adverse Effect on Pinnacle. Except as set forth in the financial statements
described in Section 3.6, neither Pinnacle nor any of its Subsidiaries has
entered into a transaction which is being accounted for as an installment
obligation under Section 453 of the Code, which would be reasonably likely to
have a Material Adverse Effect on Pinnacle.
(b) As used in this Agreement, the term "Tax" or "Taxes" means all federal,
state, county, local, and foreign income, excise, gross receipts, gross income,
ad valorem, profits, gains, property, capital, sales, transfer, use, payroll,
employment, severance, withholding, duties, intangibles, franchise, backup
withholding, and other taxes, charges, levies or like assessments together with
all penalties and additions to tax and interest thereon.
3.11 EMPLOYEES.
(a) The Pinnacle Disclosure Schedule sets forth a true and complete list of
each material employee benefit plan, arrangement or agreement that is maintained
as of the date of this Agreement (the "Pinnacle Benefit Plans") by Pinnacle or
any of its Subsidiaries or by any affiliated trade or business, whether or not
incorporated (an "ERISA Affiliate"), all of which together with Pinnacle would
be deemed a "single employer" within the meaning of Section 4001 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Pinnacle has heretofore delivered to CB true and complete copies of each
of the Pinnacle Benefit Plans and certain related documents, including, but not
limited to, (i) the actuarial report for such Pinnacle Benefit Plan (if
applicable) for each of the last two years, and (ii) the most recent
determination letter from the IRS (if applicable) for such Plan.
(c) (i) Each of the Pinnacle Benefit Plans has been operated and
administered in all material respects in compliance with applicable laws,
including, but not limited to, ERISA and the Code, (ii) each of the Pinnacle
Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of
the Code is so qualified, (iii) with respect to each Pinnacle Benefit Plan which
is subject to Title IV of ERISA, the present value of accrued benefits under
such Pinnacle Benefit Plan, based upon the actuarial assumptions used for
funding purposes in the most recent actuarial report prepared by such Pinnacle
Benefit Plan's actuary with respect to such Pinnacle Benefit Plan, did not, as
of its latest valuation date, exceed the then current value of the assets of
such Pinnacle Benefit Plan allocable to such accrued benefits, (iv) no Pinnacle
Benefit Plan provides benefits, including, without limitation, death or medical
benefits (whether or not insured), with respect to current or former employees
of Pinnacle, its Subsidiaries or any ERISA Affiliate beyond their retirement or
other termination of service, other than (A) coverage mandated by applicable
law, (B) death benefits or retirement benefits under any "employee pension plan"
(as such term is defined in Section 3(2) of ERISA), (C) deferred compensation
benefits accrued as liabilities on the books of Pinnacle, its Subsidiaries or
the ERISA Affiliates or (D) benefits the full cost of which is borne by the
current or former employee (or his beneficiary), (v) no material liability under
Title IV of ERISA has been incurred by Pinnacle, its Subsidiaries or any ERISA
Affiliate that has not been satisfied in full, and no condition exists that
presents a material risk to Pinnacle, its Subsidiaries or any ERISA Affiliate of
incurring a material liability thereunder, (vi) no Pinnacle Benefit Plan is a
"multiemployer pension plan" (as such term is defined in Section 3(37) of
ERISA), (vii) all contributions or other amounts payable by Pinnacle or its
Subsidiaries as of the Effective Time with respect to each Pinnacle Benefit Plan
in respect of current or prior plan years have been paid or accrued in
accordance with GAAP and Section 412 of the Code, (viii) neither Pinnacle, its
Subsidiaries nor any ERISA Affiliate has engaged in a transaction in
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connection with which Pinnacle, its Subsidiaries or any ERISA Affiliate
reasonably could be subject to either a material civil penalty assessed pursuant
to Section 409 or 502(i) of ERISA or a material tax imposed pursuant to Section
4975 or 4976 of the Code, and (ix) to the best knowledge of Pinnacle there are
no pending, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Pinnacle Benefit Plans or any
trusts related thereto which are, in the reasonable judgment of Pinnacle,
likely, either individually or in the aggregate, to have a Material Adverse
Effect on Pinnacle.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director or any
employee of Pinnacle or any of its affiliates from Pinnacle or any of its
affiliates under any Pinnacle Benefit Plan or otherwise, (ii) materially
increase any benefits otherwise payable under any Pinnacle Benefit Plan or (iii)
result in any acceleration of the time of payment or vesting of any such
benefits to any material extent.
3.12 SEC REPORTS. Pinnacle has previously made available to CB an accurate
and complete copy of each (a) final registration statement, prospectus, report,
schedule and definitive proxy statement filed since January 1, 1994 by Pinnacle
with the SEC pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act (the "Pinnacle Reports") and prior to the date hereof
and (b) communication mailed by Pinnacle to its stockholders since January 1,
1994 and prior to the date hereof, and no such registration statement,
prospectus, report, schedule, proxy statement or communication contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading,
except that information as of a later date shall be deemed to modify information
as of an earlier date. Since January 1, 1994, Pinnacle has timely filed all
Pinnacle Reports and other documents required to be filed by it under the
Securities Act and the Exchange Act, and, as of their respective dates, all
Pinnacle Reports complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
3.13 COMPLIANCE WITH APPLICABLE LAW. Pinnacle and each of its Subsidiaries
hold all material licenses, franchises, permits and authorizations necessary for
the lawful conduct of their respective businesses under and pursuant to all, and
have complied in all material respects with and are not in default in any
material respect under any, applicable law, statute, order, rule, regulation,
policy and/or guideline of any Governmental Entity relating to Pinnacle or any
of its Subsidiaries, except where the failure to hold such license, franchise,
permit or authorization or such noncompliance or default would not, individually
or in the aggregate, have a Material Adverse Effect on Pinnacle.
3.14 CERTAIN CONTRACTS.
(a) Neither Pinnacle nor any of its Subsidiaries is a party to or bound by
any contract, arrangement, commitment or understanding (whether written or oral)
(i) with respect to the employment of any directors, officers or employees other
than in the ordinary course of business consistent with past practice, (ii)
which, upon the consummation of the transactions contemplated by this Agreement
will (either alone or upon the occurrence of any additional acts or events)
result in any payment (whether of severance pay or otherwise) becoming due from
CB, Pinnacle, the Surviving Corporation, or any of their respective Subsidiaries
to any officer or employee thereof, (iii) which is a "material contract" (as
such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) to be
performed after the date of this Agreement that has not been filed or
incorporated by reference in the Pinnacle Reports, (iv) which materially
restricts the conduct of any line of business by Pinnacle, (v) with or to a
labor union or guild (including any collective bargaining agreement) or (vi)
(including any stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan) any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement, or the
value of any of the benefits of which will be calculated on the basis of any of
the
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transactions contemplated by this Agreement. Pinnacle has previously made
available to CB true and correct copies of all employment and deferred
compensation agreements which are in writing and to which Pinnacle is a party.
Each contract, arrangement, commitment or understanding of the type described in
this Section 3.14(a), whether or not set forth in the Pinnacle Disclosure
Schedule, is referred to herein as a "Pinnacle Contract", and neither Pinnacle
nor any of its Subsidiaries knows of, or has received notice of, any violation
of the above by any of the other parties thereto which, individually or in the
aggregate, would have a Material Adverse Effect on Pinnacle.
(b) (i) Each Pinnacle Contract is valid and binding on Pinnacle or any of
its Subsidiaries, as applicable, and in full force and effect, (ii) Pinnacle and
each of its Subsidiaries has in all material respects performed all obligations
required to be performed by it to date under each Pinnacle Contract, except
where such noncompliance, individually or in the aggregate, would not have a
Material Adverse Effect on Pinnacle, and (iii) no event or condition exists
which constitutes or, after notice or lapse of time or both, would constitute, a
material default on the part of Pinnacle or any of its Subsidiaries under any
such Pinnacle Contract, except where such default, individually or in the
aggregate, would not have a Material Adverse Effect on Pinnacle.
3.15 AGREEMENTS WITH REGULATORY AGENCIES. Neither Pinnacle nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has been since
January 1, 1994, a recipient of any supervisory letter from, or since January 1,
1994, has adopted any board resolutions at the request of any Regulatory Agency
or other Governmental Entity that currently restricts in any material respect
the conduct of its business or that in any material manner relates to its
capital adequacy, its credit policies, its management or its business (each,
whether or not set forth in the Pinnacle Disclosure Schedule, a "Pinnacle
Regulatory Agreement"), nor has Pinnacle or any of its Subsidiaries been advised
since January 1, 1994, by any Regulatory Agency or other Governmental Entity
that it is considering issuing or requesting any such Regulatory Agreement.
3.16 OTHER ACTIVITIES OF PINNACLE AND ITS SUBSIDIARIES.
(a) Neither Pinnacle nor any of its Subsidiaries that is neither a bank, a
bank operating subsidiary or a bank service corporation, directly or indirectly,
engages in any activity prohibited by the Federal Reserve Board or the OTS.
Without limiting the generality of the foregoing, any equity investment of
Pinnacle and each Subsidiary that is not a bank, a bank operating subsidiary or
a bank service corporation is not prohibited by the Federal Reserve Board or the
OTS.
(b) Each Pinnacle Subsidiary which is a federally insured bank or savings
institution (a "Pinnacle Bank Subsidiary") currently performs all personal
trust, corporate trust and other fiduciary activities ("Trust Activities") with
requisite authority under applicable law of Governmental Entities and in
accordance in all material respects with the agreed-upon terms of the agreements
and instruments governing such Trust Activities, sound fiduciary principles and
applicable law and regulation (specifically including, but not limited to,
Section 9 of Title 12 of the Code of Federal Regulations) where the failure to
so perform would have a Material Adverse Effect on Pinnacle; there is no
investigation or inquiry of a material nature by any Governmental Entity
pending, or to the knowledge of Pinnacle, threatened, against or affecting
Pinnacle, or any Significant Subsidiary thereof relating to the compliance by
Pinnacle or any such Significant Subsidiary (as such term is defined in Rule
1-02(w) of Regulation S-X of the SEC) with sound fiduciary principles and
applicable regulations; and except where any such failure would not have a
Material Adverse Effect on Pinnacle, each employee of a Pinnacle Bank Subsidiary
had the authority to act in the capacity in which he or she acted with respect
to Trust Activities, in each case, in which such employee held himself or
herself out as a representative of a Pinnacle Bank Subsidiary; and each Pinnacle
Bank Subsidiary has established policies and procedures for the purpose of
complying with applicable laws of Governmental Entities relating to Trust
Activities, has followed such policies and procedures in all material respects
and has performed appropriate internal audit reviews of, and has engaged
independent
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accountants to perform audits of, Trust Activities, which audits since January
1, 1994 have disclosed no material violations of applicable laws of Governmental
Entities or such policies and procedures.
3.17 INVESTMENT SECURITIES. Each of Pinnacle and its Subsidiaries has good
and marketable title to all securities held by it (except securities sold under
repurchase agreements or held in any fiduciary or agency capacity), free and
clear of any Lien, except to the extent such securities are pledged in the
ordinary course of business consistent with prudent banking practices to secure
obligations of Pinnacle or any of its Subsidiaries. Such securities are valued
on the books of Pinnacle in accordance with GAAP.
3.18 INTEREST RATE RISK MANAGEMENT INSTRUMENTS. All interest rate swaps,
caps, floors and option agreements and other interest rate risk management
arrangements, whether entered into for the account of Pinnacle or for the
account of a customer of Pinnacle or one of its Subsidiaries, were entered into
in the ordinary course of business and, to Pinnacle's knowledge, in accordance
with prudent banking practice and applicable rules, regulations and policies of
any Regulatory Authority and with counterparties believed to be financially
responsible at the time and are legal, valid and binding obligations of Pinnacle
or one of its Subsidiaries enforceable in accordance with their terms (except as
may be limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the rights of creditors generally and the availability of
equitable remedies), and are in full force and effect. Pinnacle and each of its
Subsidiaries have duly performed in all material respects all of their material
obligations thereunder to the extent that such obligations to perform have
accrued; and, to Pinnacle's knowledge, there are no material breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
3.19 UNDISCLOSED LIABILITIES. Except for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of Pinnacle
included in the Pinnacle September 30, 1996 Form 10-Q and for liabilities
incurred in the ordinary course of business consistent with past practice since
September 30, 1996, neither Pinnacle nor any of its Subsidiaries has incurred
any liability of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether due or to become due) that, either alone or when combined
with all similar liabilities, has had, or could reasonably be expected to have,
a Material Adverse Effect on Pinnacle.
3.20 ENVIRONMENTAL LIABILITY. Except as set forth in the Pinnacle
Disclosure Schedule, there are no legal, administrative, arbitral or other
proceedings, claims, actions, causes of action, private environmental
investigations or remediation activities or governmental investigations of any
nature seeking to impose, or that could reasonably be expected to result in the
imposition, on Pinnacle or any of the Pinnacle Subsidiaries of any liability or
obligation arising under common law or under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), pending or threatened against Pinnacle or any of
the Pinnacle Subsidiaries, which liability or obligation could reasonably be
expected to have a Material Adverse Effect on Pinnacle. To the knowledge of
Pinnacle, there is no reasonable basis for any such proceeding, claim, action or
governmental investigation that would impose any material liability or
obligation that could reasonably be expected to have a Material Adverse Effect
on Pinnacle. Neither Pinnacle nor any of the Pinnacle Subsidiaries is subject to
any agreement, order, judgment, decree, letter or memorandum by or with any
court, governmental authority, regulatory agency or third party imposing any
material liability or obligation that could reasonably be expected to have a
Material Adverse Effect on Pinnacle.
3.21 STATE TAKEOVER LAWS. The Board of Directors of Pinnacle has approved
the transactions contemplated by this Agreement and taken such action such that
the provisions of Chapter 7A of the MBCA and any other provisions of any state
or local "takeover" law applicable to Pinnacle will not apply to this Agreement
or any of the transactions contemplated hereby.
3.22 POOLING OF INTERESTS. Pinnacle has no reason to believe that the
Merger will not qualify as a "pooling of interests" for accounting purposes.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CB
Except as disclosed in the CB disclosure schedule delivered to Pinnacle
concurrently herewith (the "CB Disclosure Schedule"), CB hereby represents and
warrants to Pinnacle as follows:
4.1 CORPORATE ORGANIZATION.
(a) CB is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. CB has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified would not have a Material Adverse Effect on CB. CB
is duly registered as a savings and loan holding company under the Home Owners'
Loan Act ("HOLA"). True and complete copies of the Certificate of Incorporation
and Bylaws of CB, as in effect as of the date of this Agreement, have previously
been made available by CB to Pinnacle.
(b) Each CB Subsidiary (i) is duly organized and validly existing as a bank,
savings and loan institution, corporation, partnership or limited liability
company under the laws of its jurisdiction of organization, (ii) is duly
qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse Effect on CB, and (iii)
has all requisite corporate power and authority to own or lease its properties
and assets and to carry on its business as now conducted.
(c) The minute books of CB accurately reflect in all material respects all
corporate actions held or taken since January 1, 1994 of its stockholders and
Board of Directors (including committees of the Board of Directors of CB).
4.2 CAPITALIZATION.
(a) The authorized capital stock of CB consists of (i) 500,000 shares of
preferred stock, par value $0.01 per share, none of which as of February 28,
1997 were issued or outstanding; and (ii) 1,500,000 shares of CB Common Stock,
of which as of February 28, 1997, 1,161,997 shares were issued and outstanding
and 122,241 shares were held in treasury. All of the issued and outstanding
shares of CB Common Stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. As of the date of this Agreement,
except pursuant to the terms of (i) those options to purchase shares of CB
Common Stock issued or issuable under CB benefit plans (the "CB Stock Plans"),
and (ii) the CB Option Agreement, CB does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the purchase or issuance of any shares of CB Common
Stock or any other equity securities of CB or any securities representing the
right to purchase or otherwise receive any shares of CB Common Stock or any
other equity securities of CB. As of February 28, 1997, no shares of CB Common
Stock were reserved for issuance, except for 94,883 shares reserved for issuance
upon the exercise of stock options pursuant to the CB Stock Plans. Since January
1, 1996, CB has not issued any shares of CB Common Stock or other equity
securities of CB, or any securities convertible into or exercisable for any
shares of CB Common Stock or other equity securities of CB, other than pursuant
to the exercise of employee stock options granted prior to such date.
(b) CB owns, directly or indirectly, all of the issued and outstanding
shares of capital stock of each of the CB Subsidiaries, free and clear of any
Liens, and all of such shares are duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. No CB Subsidiary has or is bound
by any outstanding subscriptions, options,
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warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any shares of capital stock or any other equity security
of such Subsidiary or any securities representing the right to purchase or
otherwise receive any shares of capital stock or any other equity security of
such Subsidiary.
4.3 AUTHORITY; NO VIOLATION.
(a) CB has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of CB. The Board of Directors of CB has directed that this Agreement
and the transactions contemplated hereby be submitted to CB's stockholders for
approval at a meeting of such stockholders and, except for the adoption of this
Agreement by the affirmative vote of the holders of a majority of the
outstanding shares of CB Common Stock, no other corporate proceedings on the
part of CB are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by CB and (assuming due authorization, execution and
delivery by Pinnacle) constitutes a valid and binding obligation of CB,
enforceable against CB in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by CB nor the
consummation by CB of the transactions contemplated hereby, nor compliance by CB
with any of the terms or provisions hereof, will (i) violate any provision of
the Certificate of Incorporation or Bylaws of CB or (ii) assuming that the
consents and approvals referred to in Section 4.4 are duly obtained, (x) violate
any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to CB or any of its Subsidiaries or any of their
respective properties or assets, or (y) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of CB or any of its Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which CB or any of its
Subsidiaries is a party, or by which they or any of their respective properties
or assets may be bound or affected, except (in the case of clause (y) above) for
such violations, conflicts, breaches or defaults which, either individually or
in the aggregate, will not have or be reasonably likely to have a Material
Adverse Effect on CB or the Surviving Corporation.
4.4 CONSENTS AND APPROVALS. Except for (i) the filing of applications and
notices, as applicable, with the Federal Reserve Board under the BHC Act and
approval of such applications and notices, (ii) the filing of any required
applications with the OTS, (iii) the filing of any required applications or
notices for, and the receipt of, the State Approvals, (iv) the filing with the
SEC of the Joint Proxy Statement and the S-4 in which the Joint Proxy Statement
will be included as a prospectus, (v) the filing of Certificates of Merger with
the appropriate authorities of the State of Michigan pursuant to the MBCA and
with the appropriate officials of the State of Delaware pursuant to the DGCL,
(vi) any notices to or filings with the SBA, (vii) any consent, authorizations,
approvals, filings or exemptions in connection with compliance with the
applicable provisions of federal and state securities laws relating to the
regulation of broker-dealers or investment advisers, and federal commodities
laws relating to the regulation of futures commission merchants and the rules
and regulations thereunder and of any applicable industry SRO, and the rules of
Nasdaq, or which are required under consumer finance, mortgage banking and other
similar laws, (viii) such filings and approvals as are required to be made or
obtained under the securities or "Blue Sky" laws of various states in connection
with the issuance of the shares of Pinnacle Common Stock pursuant to this
Agreement, and (ix) the approval of this Agreement by the requisite vote of the
stockholders of Pinnacle and CB, no consents or approvals of or filings or
registrations with any Governmental Entity or with any third party are necessary
in connection with (A) the execution and delivery by CB of this
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Agreement and (B) the consummation by CB of the Merger and the other
transactions contemplated hereby.
4.5 REPORTS. CB and each of its Subsidiaries have timely filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since January 1,
1994 with any of the Regulatory Agencies, and all other reports and statements
required to be filed by them since January 1, 1994, including, without
limitation, any report or statement required to be filed pursuant to the laws,
rules or regulations of the United States, any state, or any Regulatory Agency
and have paid all fees and assessments due and payable in connection therewith,
except where the failure to file such report, registration or statement or to
pay such fees and assessments, either individually or in the aggregate, will not
have a Material Adverse Effect on CB. Except for normal examinations conducted
by a Regulatory Agency in the regular course of the business of CB and its
Subsidiaries, no Regulatory Agency has initiated any proceeding or, to the best
knowledge of CB, investigation into the business or operations of CB or any of
its Subsidiaries since January 1, 1994, except where such proceedings or
investigation are not likely, either individually or in the aggregate, to have a
Material Adverse Effect on CB. There is no unresolved violation, criticism, or
exception by any Regulatory Agency with respect to any report or statement
relating to any examinations of CB or any of its Subsidiaries which, in the
reasonable judgment of CB, is likely, either individually or in the aggregate,
to have a Material Adverse Effect on CB.
4.6 FINANCIAL STATEMENTS. CB has previously made available to Pinnacle
copies of (a) the consolidated balance sheets of CB and its Subsidiaries as of
March 31, for the fiscal years 1995 and 1996, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
fiscal years 1994 through 1996, inclusive, as reported in CB's Annual Report on
Form 10-K for the fiscal year ended March 31, 1996 filed with the SEC under the
Exchange Act, in each case accompanied by the audit report of Crowe Chizek &
Company, L.L.P., independent public accountants with respect to CB, and (b) the
unaudited consolidated balance sheet of CB and its Subsidiaries as of December
31, 1996 and the related unaudited consolidated statements of income, cash flows
and changes in stockholders' equity for the nine-month period then ended as
reported in CB's Quarterly Report on Form 10-Q for the period ended December 31,
1996 filed with the SEC under the Exchange Act (the "CB December 31, 1996 Form
10-Q"). The March 31, 1996 consolidated balance sheet of CB (including the
related notes, where applicable) fairly presents the consolidated financial
position of CB and its Subsidiaries as of the date thereof, and the other
financial statements referred to in this Section 4.6 (including the related
notes, where applicable) fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount) the
results of the consolidated operations and changes in stockholders' equity and
consolidated financial position of CB and its Subsidiaries for the respective
fiscal periods or as of the respective dates therein set forth; each of such
statements (including the related notes, where applicable) comply in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto; and each of such
statements (including the related notes, where applicable) has been prepared in
all material respects in accordance with GAAP consistently applied during the
periods involved, except, in each case, as indicated in such statements or in
the notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q. The books and records of CB and its Subsidiaries have been, and are being,
maintained in all material respects in accordance with GAAP and any other
applicable legal and accounting requirements. All financial statements and
reports filed by or on behalf of CB with any regulatory agency shall be
furnished to Pinnacle as soon as practicable after being filed with such
Regulatory Agency.
4.7 BROKER'S FEES. Neither CB nor any CB Subsidiary nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with the Merger or related transactions contemplated by this Agreement, other
than Charles Webb & Company, a division of Keefe, Bruyette & Woods, Inc.
("Charles Webb &
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Company") (a copy of which engagement agreement has been disclosed by CB to
Pinnacle) whose fees, commissions and expenses shall be paid by CB.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as publicly disclosed in CB Reports (as defined in Section 4.12)
filed prior to the date hereof, and except for the one-time special assessment
on institutions holding deposits subject to assessment by SAIF pursuant to the
Funds Act intended to increase SAIF's net worth as of October 1, 1996 to 1.25
percent on SAIF deposits, since March 31, 1996, (i) CB and its Subsidiaries
taken as a whole have not incurred any material liability, except in the
ordinary course of their business, and (ii) no event has occurred which has had,
individually or in the aggregate, a Material Adverse Effect on CB or the
Surviving Corporation.
(b) Except as publicly disclosed in CB Reports filed prior to the date
hereof, since March 31, 1996, CB and its Subsidiaries have carried on their
respective businesses in all material respects in the ordinary and usual course.
(c) Since March 31, 1996, neither CB nor any of its Subsidiaries has (i)
except for such actions as are in the ordinary course of business consistent
with past practice or except as required by applicable law, (A) increased the
wages, salaries, compensation, pension, or other fringe benefits or perquisites
payable to any executive officer, employee, or director from the amount thereof
in effect as of March 31, 1996, or (B) granted any severance or termination pay,
entered into any contract to make or grant any severance or termination pay, or
paid any bonuses in excess of CB's 1995 salary and employee benefits expenses,
or (ii) suffered any strike, work stoppage, slowdown, or other labor disturbance
which, in the reasonable judgment of CB, is likely, either individually or in
the aggregate, to have a Material Adverse Effect on CB.
4.9 LEGAL PROCEEDINGS.
(a) Neither CB nor any of its Subsidiaries is a party to any, and there are
no pending or, to the best of CB's knowledge, threatened, material legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature against CB or any of its Subsidiaries
or challenging the validity or propriety of the transactions contemplated by
this Agreement or the CB Option Agreement as to which there is a reasonable
probability of an adverse determination and which, if adversely determined,
would, individually or in the aggregate, have a Material Adverse Effect on CB.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction (other than those that apply to similarly situated bank holding
companies, savings and loan holding companies banks, or savings institutions)
imposed upon CB, any of its Subsidiaries or the assets of CB or any of its
Subsidiaries which has had, or might reasonably be expected to have, a Material
Adverse Effect on CB.
4.10 TAXES AND TAX RETURNS.
(a) Each of CB and its Subsidiaries has duly filed all federal, state,
county, foreign and, to the best of CB's knowledge, local information returns
and tax returns required to be filed by it on or prior to the date hereof (all
such returns being accurate and complete in all material respects) and has duly
paid or made provisions for the payment of all Taxes and other governmental
charges which have been incurred or are due or claimed to be due from it by
federal, state, county, foreign or local taxing authorities on or prior to the
date of this Agreement (including, without limitation, if and to the extent
applicable, those due in respect of its properties, income, business, capital
stock, deposits, franchises, licenses, sales and payrolls) other than (i) Taxes
or other charges which are not yet delinquent or are being contested in good
faith and have not been finally determined, or (ii) information returns, tax
returns, Taxes or other governmental charges the failure to file, pay or make
provision for, either individually or in the aggregate, are not likely, in the
reasonable judgment of CB, to have a Material Adverse Effect on CB. The income
tax returns of CB and its Subsidiaries have not been examined by the IRS. No
material deficiencies were asserted as a result of such examination for which CB
does not have adequate reserves or all such deficiencies were satisfied.
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To the best of CB's knowledge, there are no material disputes pending, or claims
asserted for, Taxes or assessments upon CB or any of its Subsidiaries for which
CB does not have adequate reserves, nor has CB or any of its Subsidiaries given
any currently effective waivers extending the statutory period of limitation
applicable to any federal, state, county or local income tax return for any
period. In addition, (A) proper and accurate amounts have been withheld by CB
and its Subsidiaries from their employees for all prior periods in compliance in
all material respects with the tax withholding provisions of applicable federal,
state and local laws, except where failure to do so would not have a Material
Adverse Effect on CB, (B) federal, state, county and local returns which are
accurate and complete in all material respects have been filed by CB and its
Subsidiaries for all periods for which returns were due with respect to income
tax withholding, Social Security and unemployment taxes, except where failure to
do so would not have a Material Adverse Effect on CB, (C) the amounts shown on
such federal, state, local or county returns to be due and payable have been
paid in full or adequate provision therefor has been included by CB in its
consolidated financial statements as of March 31, 1996, except where failure to
do so would not have a Material Adverse Effect on CB and (D) there are no Tax
liens upon any property or assets of CB or its Subsidiaries except liens for
current taxes not yet due or liens that would not have a Material Adverse Effect
on CB. Neither CB nor any of its Subsidiaries has been required to include in
income any adjustment pursuant to Section 481 of the Code by reason of a
voluntary change in accounting method initiated by CB or any of its
Subsidiaries, and the IRS has not initiated or proposed any such adjustment or
change in accounting method, in either case which has had or is reasonably
likely to have a Material Adverse Effect on CB. Except as set forth in the
financial statements described in Section 4.6, neither CB nor any of its
Subsidiaries has entered into a transaction which is being accounted for as an
installment obligation under Section 453 of the Code, which would be reasonably
likely to have a Material Adverse Effect on CB.
(b) Any amount that is reasonably likely to be received (whether in cash or
property or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer or director of CB or any
of its affiliates who is a "Disqualified Individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or CB Benefit Plan (as
defined in Section 4.11(a)) currently in effect should not be characterized as
an "excess parachute payment" (as such term is defined in Section 280G(b)(1) of
the Code).
(c) No disallowance of a deduction under Section 162(m) of the Code for
employee remuneration of any amount paid or payable by CB or any Subsidiary of
CB under any contract, plan, program, arrangement or understanding would be
reasonably likely to have a Material Adverse Effect on CB.
4.11 EMPLOYEES.
(a) The CB Disclosure Schedule sets forth a true and complete list of each
material employee benefit plan, arrangement or agreement that, as of the date of
this Agreement, either is maintained by CB or any of its Subsidiaries or any
ERISA Affiliate, all of which together with CB would be deemed a "single
employer" within the meaning of Section 4001 of ERISA, or if not currently
maintained under which CB or any of its Subsidiaries or any ERISA Affiliate has
any liability to any current or former employees (the "CB Benefit Plans").
(b) CB has heretofore delivered to Pinnacle true and complete copies of each
of the CB Benefit Plans and certain related documents, including, but not
limited to, (i) the actuarial report for such CB Benefit Plan (if applicable)
for each of the last five years, (ii) the most recent determination letter from
the IRS (if applicable) for such CB Benefit Plan, (iii) the annual reports for
the most recent five years (Form 5500 series including all schedules thereto),
(iv) all agreements regarding plan assets with respect to the CB Benefit Plans,
and (v) a copy of the most recent summary plan description (if applicable) of
each CB Benefit Plan, together with any modifications thereto. To CB's
knowledge, such actuarial reports fairly present the financial condition and
results of operations of each such CB Benefit Plan in accordance with GAAP.
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(c) (i) Each of the CB Benefit Plans has been operated and administered in
all material respects in compliance with applicable laws, including, but not
limited to, ERISA and the Code, (ii) each of the CB Benefit Plans intended to be
"qualified" within the meaning of Section 401(a) of the Code is so qualified,
(iii) with respect to each CB Benefit Plan which is subject to Title IV of
ERISA, and any "multiple employer pension plan" (as defined in Section 413(e) of
the Internal Revenue Code of 1986, as amended (the "Code")), the present value
of accrued benefits under such CB Benefit Plan, (A) assuming all benefits are
fully vested on a plan termination basis and based upon the actuarial
assumptions used for funding purposes in the most recent actuarial report
prepared by such CB Benefit Plan's actuary with respect to such CB Benefit Plan,
did not, as of its latest valuation date, exceed the then current value of the
assets of such CB Benefit Plan allocable to such accrued benefits, and (B) since
the last valuation date for each such CB Benefit Plan and each ERISA Affiliate,
no event has occurred or circumstance exists that would increase the amount of
benefits under any such CB Benefit Plan or that would cause the excess of CB
Benefit Plan assets over benefit liabilities (as defined in Section 4001 of
ERISA) to decrease, or the amount by which benefit liabilities exceed assets to
increase, (iv) no reportable event (as defined in Section 4043 of ERISA and in
the regulations issued thereunder) has occurred, (v) no CB Benefit Plan provides
benefits, including, without limitation, death or medical benefits (whether or
not insured), with respect to current or former employees of CB, its
Subsidiaries or any ERISA Affiliate beyond their retirement or other termination
of service, other than (A) coverage mandated by applicable law, (B) death
benefits or retirement benefits under any "employee pension plan" (as such term
is defined in Section 3(2) of ERISA), (C) deferred compensation benefits accrued
as liabilities on the books of CB, its Subsidiaries or the ERISA Affiliates or
(D) benefits the full cost of which is borne by the current or former employee
(or his beneficiary), (vi) no material liability under Title IV of ERISA has
been incurred by CB, its Subsidiaries or any ERISA Affiliate that has not been
satisfied in full, and no condition exists that presents a material risk to CB,
its Subsidiaries or any ERISA Affiliate of incurring a material liability
thereunder, (vii) none of CB, its Subsidiaries or any ERISA Affiliate (A) has
ever established, maintained, or contributed to or otherwise participated in, or
had an obligation to maintain, contribute to, or otherwise participate in, any
multiple employer pension plan or any "multiemployer pension plan" (as such term
is defined in Section 3(37) of ERISA) or (B) has withdrawn from any multiple
employer pension plan or any multiemployer pension plan with respect to which
there is any outstanding liability as of the date of this Agreement, (viii) the
Merger does not present a risk of, and shall not cause, or could cause, the
occurrence of any withdrawal from, or the participation, termination,
reorganization, or insolvency of, any multiple employer pension plan or any
multiemployer pension plan that could result in any liability of any of
Pinnacle, Pinnacle's Subsidiaries, CB, its Subsidiaries, or any ERISA Affiliate
of any of the foregoing, to any multiple employer pension plan or any
multiemployer pension plan, (ix) none of CB, its Subsidiaries or any ERISA
Affiliate has received notice from any multiple employer pension plan or any
multiemployer pension plan that such multiemployer pension plan is in
reorganization or is insolvent, that increased contributions may be required to
avoid a reduction in plan benefits or the imposition of any excise tax, or that
such multiple employer pension plan or such multiemployer pension plan intends
to terminate or has terminated, (x) no multiple employer pension plan and no
multiemployer pension plan to which CB, its Subsidiaries or any ERISA Affiliate
contributes or has contributed is a party to any pending merger or asset or
liability transfer or is subject to any proceeding brought by the Pension
Benefit Guaranty Corporation, (xi) each of CB and its Subsidiaries has the right
to modify and terminate benefits to retirees (other than pensions) with respect
to both retired and active employees, (xii) all contributions or other amounts
payable by CB or its Subsidiaries as of the Effective Time with respect to each
CB Benefit Plan in respect of current or prior plan years have been paid or
accrued in accordance with GAAP and Section 412 of the Code, (xiii) neither CB,
its Subsidiaries nor any ERISA Affiliate has engaged in a transaction in
connection with which CB, its Subsidiaries or any ERISA Affiliate reasonably
could be subject to either a material civil penalty assessed pursuant to Section
409 or 502(i) of ERISA or a material tax imposed pursuant to Section 4975 or
4976 of the Code, and (xiv) to the best knowledge of CB there are no pending,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of
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the CB Benefit Plans or any trusts related thereto which are, in the reasonable
judgment of CB, likely, either individually or in the aggregate, to have a
Material Adverse Effect on CB.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director or any
employee of CB or any of its affiliates from CB or any of its affiliates under
any CB Benefit Plan or otherwise, (ii) materially increase any benefits
otherwise payable under any CB Benefit Plan or (iii) result in any acceleration
of the time of payment or vesting of any such benefits to any material extent.
4.12 SEC REPORTS. CB has previously made available to Pinnacle an accurate
and complete copy of each (a) final registration statement, prospectus, report,
schedule and definitive proxy statement filed since January 1, 1994 by CB with
the SEC pursuant to the Securities Act or the Exchange Act (the "CB Reports")
and prior to the date hereof and (b) communication mailed by CB to its
stockholders since January 1, 1994 and prior to the date hereof, and no such
registration statement, prospectus, report, schedule, proxy statement or
communication contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading, except that information as of a later date shall be deemed
to modify information as of an earlier date. Since January 1, 1994, CB has
timely filed all CB Reports and other documents required to be filed by it under
the Securities Act and the Exchange Act, and, as of their respective dates, all
CB Reports complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
4.13 COMPLIANCE WITH APPLICABLE LAW. CB and each of its Subsidiaries hold
all material licenses, franchises, permits and authorizations necessary for the
lawful conduct of their respective businesses under and pursuant to all, and
have complied in all material respects with and are not in default in any
material respect under any, applicable law, statute, order, rule, regulation,
policy and/or guideline of any Governmental Entity relating to CB or any of its
Subsidiaries, except where the failure to hold such license, franchise, permit
or authorization or such noncompliance or default would not, individually or in
the aggregate, have a Material Adverse Effect on CB.
4.14 CERTAIN CONTRACTS.
(a) Neither CB nor any of its Subsidiaries is a party to or bound by any
contract, arrangement, commitment or understanding (whether written or oral) (i)
with respect to the employment of any directors, officers or employees other
than in the ordinary course of business consistent with past practice, (ii)
which, upon the consummation of the transactions contemplated by this Agreement
will (either alone or upon the occurrence of any additional acts or events)
result in any payment (whether of severance pay or otherwise) becoming due from
CB, Pinnacle, the Surviving Corporation, or any of their respective Subsidiaries
to any officer or employee thereof, (iii) which is a "material contract" (as
such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) to be
performed after the date of this Agreement that has not been filed or
incorporated by reference in the CB Reports, (iv) which materially restricts the
conduct of any line of business by CB, (v) with or to a labor union or guild
(including any collective bargaining agreement) or (vi) (including any CB
Benefit Plan, stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan) any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement, or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement. CB has previously made
available to Pinnacle true and correct copies of all employment and deferred
compensation agreements which are in writing and to which CB is a party. Each
contract, arrangement, commitment or understanding of the type described in this
Section 4.14(a), whether or not set forth in the CB Disclosure Schedule, is
referred to herein as a "CB Contract", and neither CB nor any of its
Subsidiaries knows of, or has received notice of, any violation of the above by
any of the other parties thereto which, individually or in the aggregate, would
have a Material Adverse Effect on CB.
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(b) (i) Each CB Contract is valid and binding on CB or any of its
Subsidiaries, as applicable, and in full force and effect, (ii) CB and each of
its Subsidiaries has in all material respects performed all obligations required
to be performed by it to date under each CB Contract, except where such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect on CB, and (iii) no event or condition exists which constitutes
or, after notice or lapse of time or both, would constitute, a material default
on the part of CB or any of its Subsidiaries under any such CB Contract, except
where such default, individually or in the aggregate, would not have a Material
Adverse Effect on CB.
4.15 AGREEMENTS WITH REGULATORY AGENCIES. Neither CB nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has been since
January 1, 1994, a recipient of any supervisory letter from, or since January 1,
1994, has adopted any board resolutions at the request of any Regulatory Agency
or other Governmental Entity that currently restricts in any material respect
the conduct of its business or that in any material manner relates to its
capital adequacy, its credit policies, its management or its business (each,
whether or not set forth in the CB Disclosure Schedule, a "CB Regulatory
Agreement"), nor has CB or any of its Subsidiaries been advised since January 1,
1994, by any Regulatory Agency or other Governmental Entity that it is
considering issuing or requesting any such Regulatory Agreement.
4.16 OTHER ACTIVITIES OF CB AND ITS SUBSIDIARIES.
(a) Neither CB nor any of its Subsidiaries that is neither a bank, a bank
operating subsidiary or a bank service corporation, directly or indirectly,
engages in any activity prohibited by the OTS. Without limiting the generality
of the foregoing, any equity investment of CB and each Subsidiary that is not a
bank, a bank operating subsidiary or a bank service corporation is not
prohibited by the Federal Reserve Board or the OTS.
(b) No CB Subsidiary which is a federally insured bank or savings
institution (a "CB Bank Subsidiary") currently performs any Trust Activities.
4.17 INVESTMENT SECURITIES. Each of CB and its Subsidiaries has good and
marketable title to all securities held by it (except securities sold under
repurchase agreements or held in any fiduciary or agency capacity), free and
clear of any Lien, except to the extent such securities are pledged in the
ordinary course of business consistent with prudent banking practices to secure
obligations of CB or any of its Subsidiaries. Such securities are valued on the
books of CB in accordance with GAAP.
4.18 INTEREST RATE RISK MANAGEMENT INSTRUMENTS. All interest rate swaps,
caps, floors and option agreements and other interest rate risk management
arrangements, whether entered into for the account of CB or for the account of a
customer of CB or one of its Subsidiaries, were entered into in the ordinary
course of business and, to CB's knowledge, in accordance with prudent banking
practice and applicable rules, regulations and policies of any Regulatory
Authority and with counterparties believed to be financially responsible at the
time and are legal, valid and binding obligations of CB or one of its
Subsidiaries enforceable in accordance with their terms (except as may be
limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the rights of creditors generally and the availability of equitable
remedies), and are in full force and effect. CB and each of its Subsidiaries
have duly performed in all material respects all of their material obligations
thereunder to the extent that such obligations to perform have accrued; and, to
CB's knowledge, there are no material breaches, violations or defaults or
allegations or assertions of such by any party thereunder.
4.19 UNDISCLOSED LIABILITIES. Except for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of CB included
in the CB December 31, 1996 Form 10-Q and for liabilities incurred in the
ordinary course of business consistent with past practice since December 31,
1996, neither CB nor any of its Subsidiaries has incurred any liability of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due) that, either alone or when
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combined with all similar liabilities, has had, or could reasonably be expected
to have, a Material Adverse Effect on CB.
4.20 ENVIRONMENTAL LIABILITY. Except as set forth in the CB Disclosure
Schedule, there are no legal, administrative, arbitral or other proceedings,
claims, actions, causes of action, private environmental investigations or
remediation activities or governmental investigations of any nature seeking to
impose, or that could reasonably be expected to result in the imposition, on CB
or any of the CB Subsidiaries of any liability or obligation arising under
common law or under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended
("CERCLA"), pending or threatened against CB or any of the CB Subsidiaries,
which liability or obligation could reasonably be expected to have a Material
Adverse Effect on CB. To the knowledge of CB, there is no reasonable basis for
any such proceeding, claim, action or governmental investigation that would
impose any material liability or obligation that could reasonably be expected to
have a Material Adverse Effect on CB. Neither CB nor any of the CB Subsidiaries
is subject to any agreement, order, judgment, decree, letter or memorandum by or
with any court, governmental authority, regulatory agency or third party
imposing any material liability or obligation that could reasonably be expected
to have a Material Adverse Effect on CB.
4.21 STATE TAKEOVER LAWS AND CHARTER PROVISIONS. The Board of Directors of
CB has approved the transactions contemplated by this Agreement and taken such
action such that the provisions of the Certificate of Incorporation of CB
pertaining to certain "Business Combinations" shall not be applicable to the
transactions contemplated by this Agreement, and the provisions of Section 203
of the DGCL and any other provision of any state or local "takeover" law
applicable to CB will not apply to this Agreement or any of the transactions
contemplated hereby.
4.22 POOLING OF INTERESTS. CB has no reason to believe that the Merger
will not qualify as a "pooling of interests" for accounting purposes.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME. During the period
from the date of this Agreement to the Effective Time, except as expressly
contemplated or permitted by this Agreement (including the Pinnacle Disclosure
Schedule and the CB Disclosure Schedule), and the IFC Merger Agreement
(including the disclosure schedules of Pinnacle and IFC referenced therein),
Pinnacle shall, and shall cause each of its Subsidiaries to, (a) conduct its
business in the usual, regular and ordinary course consistent with past
practice, (b) use reasonable best efforts to maintain and preserve intact its
business organization, employees and advantageous business relationships and
retain the services of its key officers and key employees; and (c) use
reasonable best efforts to avoid taking any action which would adversely affect
or delay the ability of either Pinnacle or CB to obtain any necessary approvals
of any Regulatory Agency or other governmental authority required for the
transactions contemplated hereby or to perform its covenants and agreements
under this Agreement.
5.2 CONDUCT OF CB BUSINESSES PRIOR TO THE EFFECTIVE TIME. During the
period from the date of this Agreement to the Effective Time, except as
expressly contemplated or permitted by this Agreement (including the CB
Disclosure Schedule), CB shall, and shall cause each of its Subsidiaries to, (a)
conduct its business in the usual, regular and ordinary course consistent with
past practice, (b) use reasonable best efforts to maintain and preserve intact
its business organization, employees and advantageous business relationships and
retain the services of its key officers and key employees, (c) use reasonable
best efforts to avoid taking any action which would adversely affect or delay
the ability of either Pinnacle or CB to obtain any necessary approvals of any
Regulatory Agency or other governmental authority required for the transactions
contemplated hereby or to perform its covenants and agreements under this
Agreement, and (d) in a manner consistent with past practice and prudent banking
standards, charge off or establish
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provisions for all of its loans, receivables and other assets, or portions
thereof, deemed uncollectible by CB in accordance with generally accepted
accounting principles, applicable law or regulation, or classified as 'loss' or
as directed by any regulatory authority; and, in a manner consistent with past
practice and prudent banking standards, maintain its allowance for loan losses
at a level which is adequate to provide for all known and reasonably expected
losses on assets outstanding and other inherent risks in its loan portfolio.
5.3 FORBEARANCES OF PINNACLE. During the period from the date of this
Agreement to the Effective Time, except as set forth in the Pinnacle Disclosure
Schedule and, except as expressly contemplated or permitted by this Agreement or
the IFC Merger Agreement (including the disclosure schedules of Pinnacle and IFC
referenced therein), Pinnacle shall not, without the prior written consent of
CB:
(a) take any action that would prevent or impede the Merger from
qualifying (i) for "pooling of interests" accounting treatment or (ii) as a
reorganization within the meaning of Section 368 of the Code; provided,
however, that nothing contained herein shall limit the ability of Pinnacle
to exercise its rights under the IFC Merger Agreement, Pinnacle/IFC Stock
Option Agreements and the CB Option Agreement;
(b) amend its Articles of Incorporation or its Bylaws; or
(c) agree to, or make any commitment to, take any of the actions
prohibited by this Section 5.3.
5.4 FORBEARANCES OF CB. During the period from the date of this Agreement
to the Effective Time, except as set forth in the CB Disclosure Schedule and,
except as expressly contemplated or permitted by this Agreement, CB shall not,
and CB shall not permit any of its respective Subsidiaries to, without the prior
written consent of Pinnacle:
(a) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money (other than short-term
indebtedness incurred to refinance short-term indebtedness and indebtedness
of CB or any of its Subsidiaries to CB or any of its Subsidiaries), assume,
guarantee, endorse or otherwise as an accommodation become responsible for
the obligations of any other individual, corporation or other entity, or
make any loan or advance (it being understood and agreed that incurrence of
indebtedness in the ordinary course of business shall include, without
limitation, the creation of deposit liabilities, purchases of Federal funds,
sales of certificates of deposit and entering into repurchase agreements);
provided, however, that CB may continue to access lines of credit to fund
the Mortgage Loan Reverse Repurchase Program currently operated by CB Bank
in such amounts as are reasonably necessary to operate that program;
(b) (i) adjust, split, combine or reclassify any capital stock; (ii)
make, declare or pay any dividend or make any other distribution on, or
directly or indirectly redeem, purchase or otherwise acquire, any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock; (iii) grant any stock
appreciation rights or grant any individual, corporation or other entity any
right to acquire any shares of its capital stock (and no further or
additional options to purchase stock shall be granted pursuant to the CB
Stock Plans); or (iv) issue any additional shares of capital stock except
pursuant to (A) the exercise of stock options or warrants outstanding as of
the date hereof, or (B) the CB Option Agreement;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties or assets to any individual, corporation or other entity
other than a Subsidiary, or cancel, release or assign any indebtedness to
any such person or any claims held by any such person, except in the
ordinary course of business consistent with past practice or pursuant to
contracts or agreements in force at the date of this Agreement; provided,
however, that CB may continue to pursue workouts with the borrowers of those
loans listed in Section 5.4(c) of the CB Disclosure Schedule and such other
loans as CB's management deems prudent to workout in their reasonable
judgement;
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(d) except for transactions in the ordinary course of business
consistent with past practice or pursuant to contracts or agreements in
force at the date of this Agreement, make any material investment either by
purchase of stock or securities, contributions to capital, property
transfers, or purchase of any property or assets of any other individual,
corporation or other entity other than a Subsidiary thereof;
(e) except for transactions in the ordinary course of business
consistent with past practice, enter into or terminate any material contract
or agreement, or make any change in any of its material leases or contracts,
other than renewals of contracts and leases without material adverse changes
of terms;
(f) increase in any manner the compensation or fringe benefits of any of
its employees or pay any pension or retirement allowance not required by any
existing plan or agreement to any such employees or become a party to, amend
or commit itself to any pension, retirement, profit-sharing or welfare
benefit plan or agreement or employment agreement with or for the benefit of
any employee other than in the ordinary course of business consistent with
past practice or accelerate the vesting of any stock options or other
stock-based compensation;
(g) solicit, encourage or authorize or permit any individual,
corporation or other entity to solicit from any third party any inquiries or
proposals relating to the disposition of its business or assets, or the
acquisition of its voting securities, or the merger or business combination
of it or any of its Subsidiaries with any corporation or other entity other
than as provided by this Agreement (and CB shall promptly notify Pinnacle of
all of the relevant details relating to all inquiries and proposals which it
may receive relating to any of such matters);
(h) settle any claim, action or proceeding involving money damages,
except in the ordinary course of business consistent with past practice;
(i) take any action that would prevent or impede the Merger from
qualifying (i) for 'pooling of interests' accounting treatment or (ii) as a
reorganization within the meaning of Section 368 of the Code; provided,
however, that nothing contained herein shall limit the ability of Pinnacle
to exercise its rights under the CB Option Agreement;
(j) amend its Certificate of Incorporation or its Bylaws;
(k) other than in prior consultation with Pinnacle, restructure or
materially change its investment securities portfolio or its gap position,
through purchases, sales or otherwise, or the manner in which the portfolio
is classified or reported;
(l) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time prior
to the Effective Time, or in any of the conditions to the Merger set forth
in Article VII not being satisfied or in a violation of any provision of
this Agreement, except, in every case, as may be required by applicable law;
or
(m) agree to, or make any commitment to, take any of the actions
prohibited by this Section 5.4.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 REGULATORY MATTERS.
(a) Pinnacle and CB shall promptly prepare and file with the SEC the Joint
Proxy Statement and Pinnacle shall promptly prepare and file with the SEC the
S-4, in which the Joint Proxy Statement will be included as a prospectus. Each
of Pinnacle and CB shall use all reasonable efforts to have the S-4 declared
effective under the Securities Act as promptly as practicable after such filing,
and Pinnacle and CB shall thereafter mail or deliver the Joint Proxy Statement
to their respective stockholders. Pinnacle shall also use
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all reasonable efforts to obtain all necessary state securities law or "Blue
Sky" permits and approvals required to carry out the transactions contemplated
by this Agreement, and CB shall furnish all information concerning CB and the
holders of CB Common Stock as may be reasonably requested in connection with any
such action.
(b) The parties hereto shall cooperate with each other and use their best
efforts to promptly prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Entities which are necessary or advisable to consummate
the transactions contemplated by this Agreement (including, without limitation,
the Merger), and to comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such Governmental Entities.
Pinnacle and CB shall have the right to review in advance, and, to the extent
practicable, each will consult the other on, in each case subject to applicable
laws relating to the exchange of information, all the information relating to
Pinnacle or CB, as the case may be, and any of their respective Subsidiaries,
which appear in any filing made with, or written materials submitted to, any
third party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto shall act reasonably and as promptly as practicable. The parties
hereto agree that they will consult with each other with respect to the
obtaining of all permits, consents, approvals and authorizations of all third
parties and Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
apprised of the status of matters relating to completion of the transactions
contemplated herein.
(c) Pinnacle and CB shall, upon request, furnish each other with all
information concerning themselves, their Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with the Joint Proxy Statement, the S-4 or any other statement,
filing, notice or application made by or on behalf of Pinnacle, CB or any of
their respective Subsidiaries to any Governmental Entity in connection with the
Merger and the other transactions contemplated by this Agreement.
(d) Pinnacle and CB shall promptly advise each other upon receiving any
communication from any Governmental Entity whose consent or approval is required
for consummation of the transactions contemplated by this Agreement which causes
such party to believe that there is a reasonable likelihood that any Requisite
Regulatory Approval will not be obtained or that the receipt of any such
approval will be materially delayed.
6.2 ACCESS TO INFORMATION.
(a) Upon reasonable notice and subject to applicable laws relating to the
exchange of information, each of Pinnacle and CB shall, and shall cause each of
their respective Subsidiaries to, afford to the officers, employees,
accountants, counsel and other representatives of the other party, access,
during normal business hours during the period prior to the Effective Time, to
all its properties, books, contracts, commitments and records and, during such
period, each of Pinnacle and CB shall, and shall cause their respective
Subsidiaries to, make available to the other party (i) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal securities laws or
federal or state banking laws, savings and loan or savings association laws
(other than reports or documents which Pinnacle or CB, as the case may be, is
not permitted to disclose under applicable law) and (ii) all other information
concerning its business, properties and personnel as such party may reasonably
request. Neither Pinnacle nor CB nor any of their respective Subsidiaries shall
be required to provide access to or to disclose information where such access or
disclosure would violate or prejudice the rights of Pinnacle's or CB's, as the
case may be, customers, jeopardize the attorney-client privilege of the
institution in possession or control of such information or contravene any law,
rule, regulation, order, judgment, decree, fiduciary duty or binding agreement
entered into prior to the date of
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this Agreement. The parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
(b) Each of Pinnacle and CB agrees to keep confidential, and not divulge to
any other party or person (other than employees of, and attorneys, accountants,
financial advisors and other representatives for, any said party), all
non-public documents, information, records and financial statements received
from the other and, in addition, any and all reports, information and financial
information obtained through audits or other reviews conducted pursuant to this
Agreement (unless readily ascertainable from public or published information, or
trade sources, or already known or subsequently developed by a party
independently of any investigation or received from a third party not under an
obligation to the other party to keep such information confidential), and to use
the same only in connection with the transactions contemplated by this
Agreement; and if the transactions contemplated hereby are not consummated for
any reason, each party agrees to promptly return to the other party all written
materials furnished by the other party, and all copies thereof, in connection
with such investigation, and to destroy all documents and records in its
possession containing extracts or summaries of any such non-public information.
(c) No investigation by either of the parties or their respective
representatives shall affect the representations, warranties, covenants or
conditions of the other set forth herein.
6.3 STOCKHOLDERS' APPROVALS. Each of Pinnacle and CB shall call a meeting
of its stockholders to be held as soon as reasonably practicable for the purpose
of voting upon the requisite stockholder approvals required in connection with
this Agreement and the Merger, and each shall use its best efforts to cause such
meetings to occur on the same date. Pinnacle and CB will, through their
respective Boards of Directors, subject to their respective fiduciary
obligations as determined by the respective Boards of Directors, recommend to
their respective stockholders approval of this Agreement and the Merger.
6.4 LEGAL CONDITIONS TO MERGER. Each of Pinnacle and CB shall, and shall
cause its Subsidiaries to, use their best efforts (a) to take, or cause to be
taken, all actions necessary, proper or advisable to comply promptly with all
legal requirements which may be imposed on such party or its Subsidiaries with
respect to the Merger and, subject to the conditions set forth in Article VII
hereof, to consummate the transactions contemplated by this Agreement and (b) to
obtain (and to cooperate with the other party to obtain) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity and any other third party which is required to be obtained by Pinnacle or
CB or any of their respective Subsidiaries in connection with the Merger and the
other transactions contemplated by this Agreement.
6.5 AFFILIATES; PUBLICATION OF COMBINED FINANCIAL RESULTS.
(a) Each of Pinnacle and CB shall use its best efforts to cause each
director, executive officer and other person who is an "affiliate" (for purposes
of Rule 145 under the Securities Act and for purposes of qualifying the Merger
for "pooling of interests" accounting treatment) of such party to deliver to the
other party hereto, as soon as practicable after the date of this Agreement, and
prior to the date of the stockholders' meetings called by Pinnacle and CB to
approve this Agreement, a written agreement, in the form of Exhibit C hereto,
providing that such person will not sell, pledge, transfer or otherwise dispose
of any shares of Pinnacle Common Stock or CB Common Stock held by such
"affiliate" and, in the case of the "affiliates" of CB, the shares of Pinnacle
Common Stock to be received by such "affiliate" in the Merger: (i) in the case
of shares of Pinnacle Common Stock to be received by "affiliates" of CB in the
Merger, except in compliance with the applicable provisions of the Securities
Act and the rules and regulations thereunder; and (ii) except to the extent and
under the conditions permitted therein, during the period commencing 30 days
prior to the Merger and ending at the time of the publication of financial
results covering at least 30 days of combined operations of Pinnacle and CB.
(b) The Surviving Corporation shall use its best efforts to publish as
promptly as reasonably practical but in no event later than 90 days after the
end of the first month after the Effective Time in which there are at least 30
days of post-Merger combined operations (which month may be the month in which
the
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Effective Time occurs), combined sales and net income figures as contemplated by
and in accordance with the terms of SEC Accounting Series Release No. 135.
6.6 NASDAQ NATIONAL MARKET LISTING. Pinnacle shall cause the shares of
Pinnacle Common Stock to be issued in the Merger to be approved for trading and
reporting on the Nasdaq National Market, subject to official notice of issuance,
prior to the Effective Time.
6.7 EMPLOYEE BENEFIT PLANS.
(a) From and after the Effective Time, unless otherwise mutually determined,
the employee benefit plans, arrangements and agreements maintained by Pinnacle
(the "Pinnacle Benefit Plans") and CB Benefit Plans in effect as of the date of
this Agreement shall remain in effect with respect to employees of Pinnacle or
CB (or their Subsidiaries) covered by such plans at the Effective Time until
such time as the Surviving Corporation shall, subject to applicable law, the
terms of this Agreement and the terms of such plans, adopt new benefit plans
(the "New Benefit Plans") with respect to employees of the Surviving Corporation
and its Subsidiaries in substantial conformance with the Pinnacle Benefit Plans
in effect as of the Effective Time, in replacement and substitution for the CB
Benefit Plans (including, without limitation, non-qualified stock option
agreements, incentive stock option agreements, the Employee Stock Ownership Plan
maintained by CB Bank (the "CB Bank ESOP"), deferred compensation plans and
agreements, supplemental retirement income agreements, severance agreements,
employment agreements and stock option and incentive plans benefitting current
or former directors, officers or employees of CB or its Subsidiaries, or their
predecessors) which shall be cancelled, terminated or frozen to the extent
permitted by applicable law. Prior to the Closing Date, Pinnacle shall review,
evaluate and analyze the Pinnacle Benefit Plans and CB Benefit Plans and shall
develop and propose appropriate New Benefit Plans for the employees covered
thereby subsequent to the Merger in substantial conformance with the Pinnacle
Benefit Plans in effect as of the Effective Time, in replacement and
substitution for the CB Benefit Plans which shall be cancelled, terminated or
frozen to the extent permitted by applicable law. It is the intention of
Pinnacle and CB that Pinnacle shall develop New Benefit Plans, effective as of
the Effective Time, or as soon thereafter as permitted by law and practicable,
which, among other things, (i) treat similarly situated employees on a
substantially equivalent basis, taking into account all relevant factors,
including, without limitation, duties, geographic location, tenure,
qualifications and abilities, and (ii) do not discriminate between employees of
the Surviving Corporation who were covered by Pinnacle Benefit Plans, on the one
hand, and those covered by CB Benefit Plans, on the other, prior to the
Effective Time, but (iii) with the overall view that the CB Benefit Plans would
be cancelled, terminated or frozen, and replaced by the Pinnacle Benefit Plans
for times following the Effective Time to the extent permitted by applicable
law. The New Benefit Plans (x) shall treat CB's employees who become employees
of Pinnacle ("Continuing Employee") at the Effective Time as new employees, but
shall provide credit, in accordance with the terms of the applicable CB Benefit
Plan, for purposes of vesting and eligibility to participate (but not for
purposes of benefit accrual), for each Continuing Employee's service with CB
immediately prior to the Effective Time, and (y) shall not deprive Continuing
Employees and their covered dependents of any partial or complete coverage in
connection with any preexisting condition or previous medical treatments.
(b) Immediately prior to the Effective Time, CB shall make certain payments
to Messrs. Joseph Heffernan, George L. Koehm, Daniel R. Buresh, James D. Neff,
Allen E. Jones and Marvin L. Kominiarek, Jr. in the amounts set forth for each
said individual, respectively, in the Acknowledgments executed and delivered by
each such individual in the forms attached hereto as Exhibits D-1, D-2, D-3,
D-4, D-5 and D-6, respectively (the "Acknowledgments"); and, as set forth in and
provided by said Acknowledgments, in consideration of said payments, (i) the
Employment Agreement dated as of December 23, 1992, as amended, among CB, CB
Bank and Mr. Joseph Heffernan (the "Bank Employment Agreement"), (ii) each of
the Change in Control Agreements dated as of December 23, 1992 between CB Bank
and each of Messrs. George L. Koehm, Daniel R. Buresh, James D. Neff, Allen E.
Jones and Marvin L. Kominiarek, Jr. (the "Bank Change in Control Agreements"),
(iii) the Employment Agreement
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dated as of December 23, 1992, as amended, between CB and Mr. Joseph Heffernan
(the "CB Employment Agreement"), and (iv) each of the Change in Control
Agreements dated as of December 23, 1992 between CB and each of Messrs. George
L. Koehm, Daniel R. Buresh, Allen E. Jones, and Marvin L. Kominiarek, Jr. (the
"CB Change in Control Agreements"), shall be deemed to be fully satisfied and
terminated for all purposes.
(c) Upon the Effective Time, Pinnacle shall offer to employ on an "at will"
basis each of Messrs. Joseph Heffernan, George L. Koehm, Daniel R. Buresh and
James D. Neff, respectively, with certain terms regarding base salary amounts,
insurance coverages and severance benefits as provided in Severance Agreements
with each of said persons in the forms attached hereto as Exhibits E-1, E-2, E-3
and E-4, respectively (the "Severance Agreements"). In the event that any said
person declines such employment at and following the Effective Time and does not
enter into his respective Severance Agreement with Pinnacle, CB shall make a
severance payment immediately prior to the Effective Time to said person in the
amount specified for said person in his respective Acknowledgment and Pinnacle
shall provide said person with certain continuing insurance coverages as set
forth in and provided by said person's respective Acknowledgment.
(d) At or immediately prior to the Effective Time, and in connection with
the Merger, CB shall make payments under the Outside Directors' Emeritus Plan
(the "Directors' Emeritus Plan") to those directors of CB and CB Bank who are
eligible to receive benefits thereunder in the amounts set forth in the CB
Disclosure Schedule, which accurately sets forth all such amounts payable
thereunder. CB covenants, represents and warrants to Pinnacle (i) that the CB
Disclosure Schedule includes a true and complete list of all persons eligible to
receive benefits under the Directors' Emeritus Plan and the amount of benefits
payable to each person so listed at the Effective Time and in connection with
the Merger, (ii) that except as otherwise disclosed in such list no one is
entitled to receive any benefits under the Directors' Emeritus Plan, (iii) that
the payment to each person so listed of the corresponding amounts so listed
shall, in each case, constitute full and complete satisfaction of all
liabilities and obligations of CB, CB Bank and Pinnacle under the Directors'
Emeritus Plan, and (iv) that upon the payment of all such amounts the Directors'
Emeritus Plan shall terminate and be of no further force or effect.
(e) On or prior to the Effective Time, CB will terminate the Board of
Directors Deferred Compensation Plan and shall pay to those directors who have
deferred board fees under such plan such balances as are then held under such
plan for such directors. CB covenants, represents and warrants to Pinnacle (i)
that the CB Disclosure Schedule includes a true and complete list of all
directors who have deferred board fees under such plan and the balances payable
to such persons under such plan, (ii) that except as otherwise disclosed in such
list no one is entitled to receive any benefits under such plan, (iii) that the
payment to each person so listed of the corresponding balance so listed shall,
in each case, constitute full and complete satisfaction of all liabilities and
obligations of CB, CB Bank and Pinnacle under such plan, and (iv) that upon the
payment of all such amounts such plan shall terminate and be of no further force
or effect.
(f) CB shall fund the secular trusts under CB's Supplemental Retirement Plan
(the "CB SERP") with the contributions required for 1997 prior to the Effective
Time, as set forth on the CB Disclosure Schedule. Pinnacle acknowledges that the
"change in control" provisions of the CB SERP will be triggered by the Merger
and that, consequently, CB will be obligated to make certain payments under the
CB SERP at the Effective Time and in the amounts set forth in the CB Disclosure
Schedule, which accurately sets forth all amounts payable thereunder. CB may
contribute to the secular trusts under the CB SERP the minimum amount of funds
necessary to satisfy all amounts so due thereunder in connection with the Merger
as set forth in the CB Disclosure Schedule and Pinnacle agrees that after the
secular trusts under the CB SERP are funded with all amounts so due, the secular
trusts may make payments at the Effective Time to the officers set forth in the
CB Disclosure Schedule in the amounts set forth in the CB Disclosure Schedule.
CB covenants, represents and warrants to Pinnacle (i) that the CB Disclosure
Schedule includes a true and complete list of all persons eligible to receive
benefits under the CB SERP and the benefits
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payable to such persons under the CB SERP, (ii) that except as otherwise
disclosed in such list no one is entitled to receive any benefits under the CB
SERP, and (iii) that the payment to each person so listed of the corresponding
benefits so listed shall, in each case, constitute full and complete
satisfaction of all liabilities and obligations of CB, CB Bank and Pinnacle
under the CB SERP.
(g) During the period commencing on the date of this Agreement and ending on
the Effective Time, CB may make contributions to its Employee Stock Ownership
Plan (the "CB Bank ESOP"), including but not limited to amounts required to make
scheduled principal and interest payments with respect to the indebtedness of
the CB Bank ESOP to CB as of the date of this Agreement during each calendar
quarter pro-rated on a daily basis for partial quarters from the date of this
Agreement through the Effective Time; provided, however, that such contributions
shall be conditioned on their being allowed as a deduction by CB for federal
income tax purposes and shall be returned to CB or its successors to the extent
that any such deduction shall be disallowed. Prior to making any contribution to
the CB Bank ESOP, CB shall deliver to Pinnacle a certified copy of a resolution
adopted by CB's Board of Directors authorizing such contribution, stating the
specific dollar amount thereof, and expressly providing for the contingency set
forth in the preceding sentence. CB shall take such actions as are necessary to
cause the termination of the CB Bank ESOP immediately prior to the Effective
Time, conditioned upon receipt from the Internal Revenue Service of a
determination letter confirming that such termination does not adversely affect
the qualification of the CB Bank ESOP under sections 401(a) or 409 of the Code.
CB shall select such counsel and other professional advisors as it shall
determine to be necessary or appropriate to advise it in connection with the
termination. All assets of the CB Bank ESOP remaining after the satisfaction of
any outstanding indebtedness and the payment of all expenses, shall, to the
extent permissible under applicable law, be allocated to the individual accounts
of eligible participants and distributed to them as soon as practicable
following the later of the date of receipt of a favorable determination letter
or the Effective Time. In the event that such a favorable determination letter
is not obtained, Pinnacle will, to the extent reasonably practical, maintain the
CB Bank ESOP until all plan assets may be distributed on a tax-qualified basis
to participants participating in the CB Bank ESOP at the Effective Time. In the
event that the CB Bank ESOP is not completely distributed prior to the Effective
Time, Pinnacle shall assume sponsorship of the CB Bank ESOP, and shall appoint a
successor plan administrator who shall be such person as Pinnacle shall select
with prior written approval of CB (which approval shall not be unreasonably
withheld), for the purpose of completing the termination of the ESOP and the
distribution of its assets. Notwithstanding anything to the contrary herein
express or applied, neither Pinnacle nor CB, nor any of their respective
Subsidiaries, shall take any action with respect to the CB Bank ESOP that would
result in a violation of Section 415 of the Code.
(h) CB may, but shall not be required to, terminate its 401(k) Financial
Institutions Thrift Plan (the "CB 401(k) Plan") as of any date prior to the
Effective Time, conditioned upon receipt from the Internal Revenue Service of a
determination letter confirming that such termination does not adversely affect
the qualification of the CB 401(k) Plan under Section 401(a) of the Code. CB
shall select such counsel and other professional advisors as it shall determine
to be necessary or appropriate to advise it and Pinnacle in connection with the
termination. All assets of the CB 401(k) Plan remaining after the satisfaction
of any outstanding indebtedness and the payment of all expenses, shall, to the
extent permissible under applicable law and without liability to CB or Pinnacle,
be allocated to the individual accounts of eligible participants and distributed
to them as soon as practicable following the later of the date of receipt of a
favorable determination letter or the Effective Time. In the event that the CB
401(k) Plan is not completely distributed prior to the Effective Time, at the
Effective Time, Pinnacle shall assume sponsorship of the CB 401(k) Plan, and
shall appoint a successor plan administrator who shall be such person as
Pinnacle shall select with the prior written approval of CB (which approval
shall not be unreasonably withheld) for the purpose of completing the
termination of the 401(k) Plan and the distribution of its assets to the extent
permissible under applicable law and without liability to CB or Pinnacle.
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(i) Subject to the requirements of ERISA and the Code, prior to the
Effective Time, CB shall take all action necessary to withdraw from the
Financial Institutions Retirement Fund ("Retirement Fund"), through which CB
currently sponsors its defined benefit pension plan (the "CB Plan"). Such
withdrawal shall take place so that there is no qualified successor plan (as
defined in the Retirement Fund) in existence at any applicable time. If, and
only if, assuming all Retirement Fund benefits are vested on a plan termination
basis and are based upon the most recent actuarial assumptions prepared by the
Retirement Fund's actuary, the total of such benefits exceed, on the withdrawal
date, the then current value of the assets of such Retirement Fund, CB may
increase the CB Plan benefits to the extent of such excess, less (1) any
expenses incurred in connection with the withdrawal from participation in the
Retirement Fund and increasing CB Plan benefits; and (2) the continuing
administrative costs and expenses of retirants' benefits remaining in the
Retirement Fund. Notwithstanding the foregoing or anything to the contrary,
withdrawal from the Retirement Fund shall not occur or be permitted in the event
it would create a liability for which CB or Pinnacle would be responsible. Prior
to withdrawing from the Retirement Fund or increasing CB Plan benefits, CB shall
deliver to Pinnacle a copy of all resolutions adopted by CB's Board to effect
the withdrawal from participation in the Retirement Fund and the amendment of
the CB Plan and for the contingencies outlined in this Section 6.7(i) and shall
deliver to Pinnacle all other documentation relating to the withdrawal from
participation and amendment of the CB Plan.
(j) Subject to and except as otherwise expressly provided in the provisions
of this Section 6.7, the Surviving Corporation agrees to honor in accordance
with their terms all benefits vested as of the Effective Time under the Pinnacle
Benefit Plans or the CB Benefit Plans or under other contracts, arrangements,
commitments, or understandings described in the Pinnacle Disclosure Schedule and
the CB Disclosure Schedule.
(k) Except to the extent otherwise expressly provided in this Agreement,
nothing in this Section 6.7 shall be interpreted as preventing the Surviving
Corporation from amending, modifying or terminating any Pinnacle Benefit Plans,
CB Benefit Plans, or other contracts, arrangements, commitments or
understandings, in accordance with their terms and applicable law.
6.8 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) In the event of any threatened or actual claim, action, suit, proceeding
or investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any individual who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Time, a director or officer or
employee of CB or any of its Subsidiaries, including any entity specified in the
CB Disclosure Schedule (the "Indemnified Parties"), is, or is threatened to be,
made a party based in whole or in part on, or arising in whole or in part out
of, or pertaining to (i) the fact that he is or was a director, officer or
employee of CB, any of the CB Subsidiaries or any entity specified in the CB
Disclosure Schedule, or any of their respective predecessors or (ii) this
Agreement, the Option Agreements or any of the transactions contemplated hereby
or thereby, whether in any case asserted or arising before or after the
Effective Time, the parties hereto agree to cooperate and use their best efforts
to defend against and respond thereto. It is understood and agreed that after
the Effective Time, Pinnacle shall indemnify and hold harmless, as and to the
fullest extent permitted by law (and, as relates to acts or times prior to the
Effective Time, to the fullest extent permitted by law pertaining to CB or any
of its Subsidiaries at such time, including the provisions of Section 11 of CB's
Certificate of Incorporation), each such Indemnified Party against any losses,
claims, damages, liabilities, costs, expenses (including reasonable attorney's
fees and expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the fullest extent
permitted by law upon receipt of any undertaking required by applicable law),
judgments, fines and amounts paid in settlement in connection with any such
threatened or actual claim, action, suit, proceeding or investigation, and in
the event of any such threatened or actual claim, action, suit, proceeding or
investigation (whether asserted of arising before or after the Effective Time),
the Indemnified Parties may retain counsel reasonably satisfactory to them after
consultation with Pinnacle; provided, however, that (A) Pinnacle shall
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have the right to assume the defense thereof and upon such assumption Pinnacle
shall not be liable to any Indemnified Party for any legal expenses of other
counsel or any other expenses subsequently incurred by any Indemnified Party in
connection with the defense thereof, except that if Pinnacle elects not to
assume such defense or counsel for the Indemnified Parties reasonably advises
the Indemnified Parties that there are issues which raise conflicts of interest
between Pinnacle and the Indemnified Parties, the Indemnified Parties may retain
counsel reasonably satisfactory to them after consultation with Pinnacle, and
Pinnacle shall pay the reasonable fees and expenses of such counsel for the
Indemnified Parties, (B) Pinnacle shall be obligated pursuant to this paragraph
to pay for only one firm of counsel for all Indemnified Parties, unless an
Indemnified Party shall have reasonably concluded, based on the advice of
counsel, that in order to be adequately represented, separate counsel is
necessary for such Indemnified Party, in which case, Pinnacle shall be obligated
to pay for such separate counsel, (C) Pinnacle shall not be liable for any
settlement effected without its prior written consent (which consent shall not
be unreasonably withheld) and (D) Pinnacle shall have no obligation hereunder to
any Indemnified Party when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and
nonappealable, that indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law. Any Indemnified Party
wishing to claim Indemnification under this Section 6.8, upon learning of any
such claim, action, suit, proceeding or investigation, shall notify Pinnacle
thereof, provided that the failure to so notify shall not affect the obligations
of Pinnacle under this Section 6.8 except to the extent such failure to notify
materially prejudices Pinnacle. Pinnacle's obligations under this Section 6.8
continue in full force and effect for a period of six years from the Effective
Time (or the period of the applicable statute of limitations, if longer);
provided, however, that all rights to indemnification in respect of any claim (a
"Claim") asserted or made within such period shall continue until the final
disposition of such Claim.
(b) Pinnacle shall use its best efforts to cause the individuals serving as
officers and directors of CB, its Subsidiaries or any entity specified in the CB
Disclosure Schedule immediately prior to the Effective Time to be covered for a
period of six (6) years from the Effective Time (or the period of the applicable
statute of limitations, if longer) by the directors' and officers' liability
insurance policy maintained by CB or any of the CB Subsidiaries (provided that
Pinnacle may substitute therefor policies of the same or substantially similar
coverage and amounts containing terms and conditions which are not less
advantageous in any material respect than such policy) with respect to acts or
omissions occurring prior to the Effective Time which were committed by such
officers and directors in their capacity as such; provided, however, that in no
event shall Pinnacle be required to expend more than 150% of the current amount
expended by CB or any of the CB Subsidiaries (the "Insurance Amount") to
maintain or procure insurance coverage pursuant hereto; and provided, further,
that if Pinnacle is unable to maintain or obtain the insurance called for by
this Section 6.8(b), Pinnacle shall use its best efforts to obtain as much
comparable insurance as available for the Insurance Amount.
(c) In the event Pinnacle or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Pinnacle
assume the obligations set forth in this Section 6.8.
(d) The provisions of this Section 6.8 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives.
6.9 ADDITIONAL AGREEMENTS. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement (including, without limitation, any merger between a Subsidiary of
Pinnacle and a Subsidiary of CB) or to vest the Surviving Corporation with full
title to all properties, assets, rights, approvals, immunities and franchises of
any of the parties to the Merger, the proper officers and directors of each
party to this Agreement and their respective Subsidiaries shall take all such
necessary action as may be reasonably requested by, and at the sole expense of,
Pinnacle.
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6.10 ADVICE OF CHANGES. Pinnacle and CB shall promptly advise the other
party of any change or event having a Material Adverse Effect on it or which it
believes would or would be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants contained herein.
6.11 NEGOTIATIONS WITH OTHER PARTIES. So long as this Agreement remains in
effect and no notice of termination has been given under this Agreement, CB
shall not authorize or knowingly permit any of its representatives, directly or
indirectly, to entertain, solicit or encourage negotiations with any person or
entity or any group of persons or entities (a "Potential Acquiror") concerning
any "Acquisition Proposal" (as hereinafter defined) other than Pinnacle pursuant
to this Agreement. The preceding sentence shall not be construed to prohibit the
Board of Directors of CB from providing, or authorizing or permitting their
respective representatives to provide, to any person making an unsolicited
Acquisition Proposal, any information that is public or published information or
readily ascertainable from such information, or from discussing and considering
any such unsolicited Acquisition Proposal if it is advised in writing by legal
counsel that such actions are advisable under applicable law in order to
discharge their fiduciary duties to stockholders. As used in this Agreement,
"Acquisition Proposal" means any (i) proposal pursuant to which any corporation,
partnership, person or other entity or group, other than Pinnacle, would acquire
or participate in a merger or other business combination involving CB or any of
the CB Bank Subsidiaries, directly or indirectly; (ii) proposal by which any
corporation, partnership, person or other entity or group, other than Pinnacle,
would acquire the right to vote 10% or more of the capital stock of CB or any of
the CB Bank Subsidiaries entitled to vote thereon for the election of directors;
(iii) acquisition of 10% or more of the assets of CB or any of the CB Bank
Subsidiaries, other than in the ordinary course of business; or (iv) acquisition
in excess of 10% of the outstanding capital stock of CB or any of the CB Bank
Subsidiaries, other than as contemplated by this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) STOCKHOLDER APPROVALS. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the respective
requisite affirmative votes of the holders of Pinnacle Common Stock and CB
Common Stock entitled to vote thereon.
(b) NASDAQ LISTING. The shares of Pinnacle Common Stock which shall be
issued to the stockholders of CB upon consummation of the Merger shall have
been authorized for trading and reporting on the Nasdaq National Market,
subject to official notice of issuance.
(c) OTHER APPROVALS. All regulatory approvals required to consummate
the transactions contemplated hereby shall have been obtained and shall
remain in full force and effect and all statutory waiting periods in respect
thereof shall have expired (all such approvals and the expiration of all
such waiting periods being referred to herein as the "Requisite Regulatory
Approvals").
(d) S-4. The S-4 shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the S-4 shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition (an "Injunction") preventing the consummation
of the Merger or any of the other transactions contemplated by this
Agreement shall be in effect. No statute, rule, regulation, order,
injunction or decree shall have been enacted,
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entered, promulgated or enforced by any Governmental Entity which prohibits,
materially restricts or makes illegal consummation of the Merger.
(f) FEDERAL TAX OPINION. Pinnacle and CB each shall have received an
opinion of their respective tax counsel, addressed to Pinnacle or CB, as the
case may be, in form and substance reasonably satisfactory to Pinnacle and
CB, dated as of the Effective Time, substantially to the effect that, on the
basis of facts, representations and assumptions set forth in such opinion
which are consistent with the state of facts existing at the Effective Time:
(i) The Merger will constitute a tax free reorganization under
Section 368(a)(1)(A) of the Code and Pinnacle and CB will each be a party
to the reorganization;
(ii) No gain or loss will be recognized by Pinnacle or CB as a
result of the Merger;
(iii) No gain or loss will be recognized by the stockholders of CB
who exchange their CB Common Stock solely for Pinnacle Common Stock
pursuant to the Merger (except with respect to cash received in lieu of a
fractional share interest in Pinnacle Common Stock);
(iv) The tax basis of the Pinnacle Common Stock received by
stockholders who exchange all of their CB Common Stock solely for
Pinnacle Common Stock in the Merger will be the same as the tax basis of
the CB Common Stock surrendered in exchange therefor (reduced by any
amount allocable to a fractional share interest for which cash is
received); and
(v) The holding period of Pinnacle Common Stock received by
stockholders of CB in the Merger will include the period during which the
shares of CB Common Stock surrendered in exchange therefor were held;
provided, such CB Common Stock was held as a capital asset by the holder
of such CB Common Stock at the Effective Time. In rendering such opinion,
counsel may require and rely upon representations contained in
certificates of officers of Pinnacle, CB and others.
(g) POOLING OF INTERESTS. Pinnacle and CB shall each have received a
letter, effective as of the Effective Time, from their respective
independent accountants addressed to Pinnacle or CB, as the case may be, to
the effect that the Merger will qualify for "pooling of interests"
accounting treatment.
7.2 CONDITIONS TO OBLIGATION OF PINNACLE. The obligation of Pinnacle to
effect the Merger is also subject to the satisfaction or waiver by Pinnacle at
or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of CB set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except (i) to the extent such
representations and warranties speak as of an earlier date and (ii) for any
changes to the CB Disclosure Schedule that are disclosed by CB to Pinnacle
in the form of an updated CB disclosure schedule delivered to Pinnacle as of
the Closing Date (the "Closing Date CB Disclosure Schedule")) as of the
Closing Date as though made on and as of the Closing Date. Pinnacle shall
have received a certificate signed on behalf of CB by the Chief Executive
Officer and the Chief Financial Officer of CB to the foregoing effect, and
to which any Closing Date CB Disclosure Schedule shall be appended.
(b) PERFORMANCE OF OBLIGATIONS OF CB. CB shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Pinnacle shall have received
a certificate signed on behalf of CB by the Chief Executive Officer and the
Chief Financial Officer of CB to such effect.
(c) ENVIRONMENTAL MATTERS. On or before April 30, 1997, Pinnacle shall
have received, reviewed and approved an assessment report or reports of a
firm or firms of environmental engineers or consultants satisfactory to
Pinnacle concluding, in effect, that there are no present or past conditions
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relating to any properties of CB or any of the CB Subsidiaries involving or
resulting from a past or present storage, spill, discharge, leak, emission,
injection, escape, dumping or release of any kind whatsoever of any
substance or exposure of any type of any workplace or to any medium,
including, but not limited to, air, land, surface waters or underground
waters, or from any generation, transportation, treatment, storage or
disposal of waste materials, raw materials or products of any kind or from
the storage, use or handling of any hazardous or toxic materials or other
substances.
(d) COMFORT LETTERS. Pinnacle shall have received "comfort" letters
from Crowe Chizek & Company, L.L.P., dated (x) the effective date of the S-4
and (y) not earlier than five (5) days preceding the Closing Date, in each
case substantially to the effect that: (i) based upon a review (and audit of
year-end statements) of CB's consolidated financial statements dated as of
March 31, 1996, September 30, 1996, each subsequent year-end and quarter-end
and the most recent interim month-end consolidated financial statements of
CB available prior to the date of any said letter, nothing has come to their
attention that has caused them to believe that any adjustments would be
required to be made to restate said financial statements in a manner
conforming to GAAP; (ii) they are independent public accountants with
respect to CB and the CB Subsidiaries within the meaning of the Securities
Act and the Exchange Act and the applicable published rules and regulations
thereunder; (iii) in their opinion, the audited consolidated financial
statements of CB examined by them and included or incorporated by reference
in the S-4 and the prospectus and reported therein by them, comply as to
form in all material respects with the applicable accounting requirements of
the Exchange Act, the Securities Act and the applicable published rules and
regulations thereunder, as appropriate; (iv) on the basis of certain
procedures and inquiries including a reading of the latest available
unaudited interim consolidated financial statements of CB, inquiries of
officials of CB responsible for financial and accounting matters, and a
reading of the minutes of the Boards of Directors and stockholders of CB and
the CB Subsidiaries (which procedures and inquiries do not constitute an
examination made in accordance with generally accepted auditing standards
and would not necessarily reveal any material changes in the consolidated
financial position or results of operations of CB), nothing came to their
attention that caused them to believe that (A) the unaudited consolidated
financial statements of CB included or incorporated by reference in the S-4
and the prospectus do not comply as to form in all material respects with
the applicable accounting requirements of the Exchange Act and the
Securities Act, as appropriate, or that the unaudited consolidated financial
statements are not in conformity with GAAP applied on a basis consistent
with that of the audited consolidated financial statements or that as of the
most recent month-end preceding the Closing Date there has been any material
change in the capital stock of CB, except as a result of the exercise of
employee stock options granted prior to September 30, 1996, or the CB
Subsidiaries or any increase in consolidated long-term debt of CB or the CB
Subsidiaries or any reduction in consolidated stockholders' equity as
compared with the amounts of those items set out in the audited consolidated
statement of condition at March 31, 1996 and with any subsequent unaudited
consolidated statement of condition included or incorporated by reference in
the S-4 and the prospectus, except for changes and the amount of such
reduction, if any, derived from CB's accounts and records, which are
described in such letter or are set forth in the S-4 and the prospectus, or
(B) since March 31, 1996 any dividends were paid on the CB Common Stock
except as described in such letter; and (v) in addition to the limited
procedures referred to in clause (iv) above, they have carried out certain
specified procedures with respect to certain accounts or percentages and
financial information which appear in the S-4 and the prospectus and which
have been reasonably specified by Pinnacle, as described in such letter.
(e) LEGAL OPINION. CB shall have delivered to Pinnacle an opinion,
dated the Closing Date, of counsel for CB, satisfactory to Pinnacle and its
counsel, to the effect set forth on Exhibit F. In rendering their opinion,
counsel to CB may rely on certificates of officers of CB, opinions of other
counsel, the authenticity of all signatures on documents believed to be
genuine and such other evidence as they may deem necessary or desirable.
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(f) FAIRNESS OPINION. Pinnacle shall have received the favorable
opinion from PL Capital, L.L.C. or other investment banking advisory firm
satisfactory to Pinnacle in connection with the deliberations of its Board
of Directors approving this Agreement and confirmed at or about the time the
S-4 is declared effective and the Joint Proxy Statement is distributed that
consummation of the Merger transaction contemplated by this Agreement upon
the terms and conditions provided in this Agreement is fair to the
stockholders of Pinnacle from a financial point of view.
(g) NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred since December 31, 1996 which has, or is likely to have, a
Materially Adverse Effect on CB or upon the right of CB or any of the CB
Subsidiaries to conduct, or the continuing successful operation of, any
material or significant part of their businesses as presently conducted,
including, without limitation, the Mortgage Loan Reverse Repurchase Program
operated by CB Bank.
(h) NET WORTH. The difference between the total consolidated assets of
CB and the total consolidated liabilities of CB (the "Net Worth") as of the
last day of the calendar month immediately preceding the Closing Date (the
"Determination Date"), as determined in accordance with generally accepted
accounting principles consistently applied shall be not less than the Net
Worth shown on the December 31, 1996 consolidated balance sheet of CB, after
taking into account any and all dividends paid or declared or other
distributions made, but excluding any and all costs and expenses incurred by
CB with respect to the Merger transaction through and including the Closing
Date. In calculating said Net Worth it shall be assumed that the value of
CB's securities held for sale is, as of the Determination Date, equivalent
to its value on December 31, 1996. Purchaser shall have received a
certificate to said effect signed by appropriate officers of CB and by Crowe
Chizek & Company, L.L.P.
(i) EMPLOYMENT MATTERS. The Acknowledgments described in Section
6.7(b) shall have been executed and delivered by the respective parties
thereto as provided in Section 6.7 of this Agreement.
7.3 CONDITIONS TO OBLIGATION OF CB. The obligation of CB to effect the
Merger is also subject to the satisfaction or waiver by CB at or prior to the
Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Pinnacle set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except (i) to the
extent such representations and warranties speak as of an earlier date and
(ii) for any changes to the Pinnacle Disclosure Schedule that are disclosed
by Pinnacle to CB in the form of an updated Pinnacle disclosure schedule
delivered to CB as of the Closing Date, including copies of updated
disclosure schedules of Pinnacle and IFC delivered with respect to the IFC
Merger Agreement (the "Closing Date Pinnacle Disclosure Schedule")) as of
the Closing Date as though made on and as of the Closing Date. CB shall have
received a certificate signed on behalf of Pinnacle by the Chief Executive
Officer and the Chief Financial Officer of Pinnacle to the foregoing effect,
and to which any Closing Date Pinnacle Disclosure Schedule shall be
appended.
(b) PERFORMANCE OF OBLIGATIONS OF PINNACLE. Pinnacle shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and CB shall
have received a certificate signed on behalf of Pinnacle by the Chief
Executive Officer and the Chief Financial Officer of Pinnacle to such
effect.
(c) COMFORT LETTERS. CB shall have received "comfort" letters from
KPMG Peat Marwick, L.L.P., dated (x) the effective date of the S-4 and (y)
not earlier than five (5) days preceding the Closing Date, in each case
substantially to the effect that: (i) based upon a review (and audit of
year-end statements) of Pinnacle's consolidated financial statements dated
as of December 31, 1995, September 30, 1996, each subsequent year-end and
quarter-end and the most recent interim month-end consolidated financial
statements of Pinnacle available prior to the date of any said letter,
nothing has come to their attention that has caused them to believe that any
adjustments would be required to be made to restate said financial
statements in a manner conforming to GAAP, other than such
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adjustments, if any, as are specifically noted and disclosed, none of which
adjustments shall be materially adverse; (ii) they are independent public
accountants with respect to Pinnacle and the Pinnacle Subsidiaries within
the meaning of the Securities Act and the Exchange Act and the applicable
published rules and regulations thereunder; (iii) in their opinion, the
audited consolidated financial statements of Pinnacle examined by them and
included or incorporated by reference in the S-4 and the prospectus and
reported therein by them, comply as to form in all material respects with
the applicable accounting requirements of the Exchange Act, the Securities
Act and the applicable published rules and regulations thereunder, as
appropriate; (iv) on the basis of certain procedures and inquiries including
a reading of the latest available unaudited interim consolidated financial
statements of Pinnacle, inquiries of officials of Pinnacle responsible for
financial and accounting matters, and a reading of the minutes of the Boards
of Directors and stockholders of Pinnacle and the Pinnacle Subsidiaries
(which procedures and inquiries do not constitute an examination made in
accordance with generally accepted auditing standards and would not
necessarily reveal material adverse changes in the consolidated financial
position or results of operations of Pinnacle), nothing came to their
attention that caused them to believe that the unaudited consolidated
financial statements of Pinnacle included or incorporated by reference in
the S-4 and the prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Exchange Act and the
Securities Act, as appropriate, or that the unaudited consolidated financial
statements are not in conformity with GAAP applied on a basis consistent
with that of the audited consolidated financial statements or that as of the
most recent month-end preceding the Closing Date there has been any material
change in the capital stock of Pinnacle, except as a result of the exercise
of employee stock options granted prior to September 30, 1996, or the
Pinnacle Subsidiaries or any increase in consolidated long-term debt of
Pinnacle or the Pinnacle Subsidiaries or any reduction in consolidated
stockholders' equity as compared with the amounts of those items set out in
the audited consolidated statement of condition at December 31, 1995 and
with any subsequent unaudited consolidated statement of condition included
or incorporated by reference in the S-4 and the prospectus, except for
changes and the amount of such reduction, if any, derived from Pinnacle's
accounts and records, which are described in such letter or are set forth in
the S-4 and the prospectus; and (v) in addition to the limited procedures
referred to in clause (iv) above, they have carried out certain specified
procedures with respect to certain accounts or percentages and financial
information which appear in the S-4 and the prospectus and which have been
reasonably specified by CB, as described in such letter.
(d) LEGAL OPINION. Pinnacle shall have delivered to CB an opinion,
dated the Closing Date, of counsel for Pinnacle, satisfactory to CB and its
counsel, to the effect set forth on Exhibit G. In rendering their opinion,
counsel to Pinnacle may rely on certificates of officers of Pinnacle,
opinions of other counsel, the authenticity of all signatures on documents
believed to be genuine and such other evidence as they may deem necessary or
desirable.
(e) FAIRNESS OPINION. CB shall have received the favorable opinion
from Charles Webb & Company in connection with the deliberations of its
Board of Directors approving this Agreement and confirmed at or about the
time the S-4 is declared effective and the Joint Proxy Statement is
distributed that consummation of the Merger transaction contemplated by this
Agreement upon the terms and conditions provided in this Agreement is fair
to the stockholders of CB from a financial point of view.
(f) NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred since December 31, 1996 which has, or is likely to have, a
Materially Adverse Effect on Pinnacle or upon the right of Pinnacle or any
of the Pinnacle Subsidiaries to conduct, or the continuing successful
operation of, any material or significant part of their businesses as
presently conducted.
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ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of Pinnacle or CB:
(a) by mutual consent of Pinnacle and CB in a written instrument, if the
Board of Directors of each so determines by a vote of a majority of the
members of its entire Board;
(b) by either the Board of Directors of Pinnacle or the Board of
Directors of CB if any Governmental Entity which must grant a Requisite
Regulatory Approval has denied approval of the Merger and such denial has
become final and nonappealable or any Governmental Entity of competent
jurisdiction shall have issued a final nonappealable order permanently
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement;
(c) by either the Board of Directors of Pinnacle or the Board of
Directors of CB if the Merger shall not have been consummated on or before
the first anniversary of the date of this Agreement, unless the failure of
the Closing (as defined in Section 9.1) to occur by such date shall be due
to the failure of the party seeking to terminate this Agreement to perform
or observe the covenants and agreements of such party set forth herein;
(d) by either the Board of Directors of Pinnacle or the Board of
Directors of CB (provided that the terminating party is not then in material
breach of any representation, warranty, covenant or other agreement
contained herein) if there shall have been a material breach of any of the
covenants or agreements or any of the representations or warranties set
forth in this Agreement on the part of the other party, which breach is not
cured within forty-five (45) days following written notice to the party
committing such breach, or which breach, by its nature or timing, cannot be
cured prior to the Closing Date;
(e) by either Pinnacle or CB if any approval of the stockholders of
Pinnacle or CB required for the consummation of the Merger shall not have
been obtained by reason of the failure to obtain the required vote at a duly
held meeting of stockholders or at any adjournment or postponement thereof;
(f) by either Pinnacle or CB if any of the conditions specified by
Article VII to the obligation of the terminating party have not been
satisfied on the Closing Date (provided that the failure of satisfaction of
any said condition shall not have been caused by the material breach of the
terminating party);
(g) by Pinnacle if the Closing Date CB Disclosure Schedule discloses any
change from the CB Disclosure Schedule which has, or is likely to have, a
Material Adverse Effect on CB or any of the CB Subsidiaries; or by CB if the
Closing Date Pinnacle Disclosure Schedule (including copies of updated
disclosure schedules of Pinnacle and IFC delivered with respect to the IFC
Merger Agreement) discloses any change from the Pinnacle Disclosure Schedule
which has, or is likely to have, a Material Adverse Effect on Pinnacle or
any of the Pinnacle Subsidiaries; or
(h) by CB if prior to the Closing Date there becomes a reasonable
likelihood that the tax free reorganization treatment for federal income tax
purposes accorded to the merger of Maco Bancorp, Inc. with and into Pinnacle
effective December 1, 1995, will not be sustained.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either Pinnacle or CB as provided in Section 8.1, this Agreement shall
forthwith become void and have no effect, and none of Pinnacle, CB, any of their
respective Subsidiaries or any of the officers or directors of any of them shall
have any liability of any nature whatsoever hereunder, or in connection with the
transactions contemplated hereby, except that (i) Sections 6.2(b), 8.2, 9.2 and
9.3, shall survive any termination of this Agreement, and
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(ii) notwithstanding anything to the contrary contained in this Agreement,
neither Pinnacle nor CB shall be relieved or released from any liabilities or
damages arising out of its willful breach of any provision of this Agreement.
8.3 AMENDMENT. Subject to compliance with applicable law, this Agreement
may be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of Pinnacle
or CB; provided, however, that after any approval of the transactions
contemplated by this Agreement by the respective stockholders of Pinnacle or CB,
there may not be, without further approval of such stockholders, any amendment
of this Agreement which changes the amount or the form of the consideration to
be delivered to the holders of CB Common Stock hereunder other than as
contemplated by this Agreement. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein; provided, however,
that after any approval of the transactions contemplated by this Agreement by
the respective stockholders of Pinnacle or CB, there may not be, without further
approval of such stockholders, any extension or waiver of this Agreement or any
portion thereof which reduces the amount or changes the form of the
consideration to be delivered to the holders of CB Common Stock hereunder other
than as contemplated by this Agreement. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party, but such extension or waiver
or failure to insist on strict compliance with an obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1 CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date
and at a place to be specified by the parties, which shall be no later than five
(5) business days after the satisfaction or waiver (subject to applicable law)
of the latest to occur of the conditions set forth in Article VII hereof, unless
extended by mutual agreement of the parties (the "Closing Date").
9.2 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement (other than pursuant to the
CB Option Agreement, which shall terminate in accordance with its terms) shall
survive the Effective Time, except for those covenants and agreements contained
herein and therein which by their terms apply in whole or in part after the
Effective Time.
9.3 EXPENSES. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense; provided, however, that two-thirds of the costs and
expenses of printing and mailing the Joint Proxy Statement in connection with
the Merger shall be borne by Pinnacle and the balance thereof, up to a maximum
amount not to exceed $25,000, shall be borne by CB.
9.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail
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(return receipt requested) or delivered by an express courier (with
confirmation) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Pinnacle to:
Pinnacle Financial Services, Inc.
830 Pleasant Street
St. Joseph, Michigan 49085
Attention: Richard L. Schanze, Chairman and CEO
Fax: (616) 853-5567
with copies to:
Miller, Canfield, Paddock and Stone, P.L.C.
1400 N. Woodward Ave., Suite 100
Bloomfield Hills, Michigan 48304
Attention: J. Kevin Trimmer, Esq.
Fax: (810) 258-3036
and
(b) if to CB, to:
CB Bancorp, Inc.
126 East Fourth Street
Michigan City, Indiana 46360
Attention: Joseph F. Heffernan, Chairman, President and CEO
Fax: (202) 966-9409
with copies to:
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Attention: Lori M. Beresford, Esq.
Fax: (202) 966-9409
9.5 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". No provision of this Agreement shall be construed to require
Pinnacle, CB or any of their respective Subsidiaries or affiliates to take any
action which would violate any applicable law, rule or regulation.
9.6 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
9.7 ENTIRE AGREEMENT. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
9.8 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law.
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9.9 SEVERABILITY. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.10 PUBLICITY. Except as otherwise required by applicable law or the
rules of NASDAQ, neither Pinnacle nor CB shall, or shall permit any of its
Subsidiaries to, issue or cause the publication of any press release or other
public announcement with respect to, or otherwise make any public statement
concerning, the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld.
9.11 ASSIGNMENT; THIRD PARTY BENEFICIARIES. Neither this Agreement nor any
of the rights, interests or obligations shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns. Except as otherwise specifically
provided in Section 6.8, this Agreement (including the documents and instruments
referred to herein) is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
9.12 OTHER TRANSACTIONS. Prior to the date hereof, CB has been provided
with copies of, and CB has reviewed, the IFC Merger Agreement (including the
disclosure schedules of Pinnacle and IFC referenced therein), the Pinnacle/IFC
Stock Option Agreements and the Branch Office Swap Agreements. The entering into
and performance of the IFC Merger Agreement, the Pinnacle/IFC Stock Option
Agreements and/or the Branch Office Swap Agreements, and consummation of the
transactions contemplated thereby, by Pinnacle are hereby ratified, approved and
authorized by CB, and are and shall be deemed to be expressly permitted for all
purposes under this Agreement. Immediately after the execution of this
Agreement, Pinnacle and CB shall execute and deliver the CB Option Agreement.
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IN WITNESS WHEREOF, Pinnacle and CB have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
PINNACLE FINANCIAL SERVICES, INC.
By: /s/ RICHARD L. SCHANZE
-----------------------------------------
Richard L. Schanze
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CB BANCORP, INC.
By: /s/ JOSEPH F. HEFFERNAN
-----------------------------------------
Joseph F. Heffernan
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
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ANNEX F
FORM OF OPINION OF ABN AMRO CHICAGO CORPORATION
ABN AMRO 208 South LaSalle Street
Chicago Corporation Chicago, Illinois 60604
(312) 855-7600
, 1997
Board of Directors
Pinnacle Financial Services, Inc.
830 Pleasant Street
St. Joseph, MI 49085-1265
Members of the Board:
Pinnacle Financial Services, Inc., a Michigan corporation ("Pinnacle"), and
Indiana Federal Corporation, a Delaware corporation ("IFC"), have entered into
an Agreement and Plan of Reorganization, dated as of November 14, 1996, as
amended (the "IFC Merger Agreement"), pursuant to which IFC will be merged with
and into Pinnacle, which will be the surviving entity (the "IFC Merger").
Pursuant to the IFC Merger, as more fully described in the IFC Merger Agreement,
each share of common stock of IFC, $.01 par value, issued and outstanding (the
"IFC Common Stock") shall be converted into the right to receive 1.0 share of
common stock, no par value, of Pinnacle (the "Pinnacle Common Stock").
You have requested our opinion as to the fairness of the consideration to be
paid (the "IFC Merger Consideration"), from a financial point of view, to the
shareholders of Pinnacle, as of the date hereof.
During the course of our engagement, we have, among other things: (i)
reviewed the financial terms and conditions of the IFC Merger Agreement, the
Joint Proxy Statement/Prospectus and certain related documents; (ii) reviewed
certain publicly available financial and other data, including the audited and
unaudited recent financial statements of Pinnacle and IFC, as well as certain
other relevant internally-generated Pinnacle and IFC reports relating to
asset/liability management, asset quality and so forth, as made available to us;
(iii) reviewed and analyzed other material bearing upon the financial and
operating condition of Pinnacle and IFC and material prepared in connection with
the proposed transaction; (iv) reviewed the operating characteristics of certain
other financial institutions deemed relevant to the contemplated transaction;
(v) reviewed the nature and terms of recent sale and merger transactions
involving banks, thrifts, bank and thrift holding companies and other financial
institutions that we considered relevant; (vi) reviewed historical and current
market data for Pinnacle Common Stock and IFC Common Stock; (vii) conducted
meetings with members of the senior managements of Pinnacle and IFC for the
purpose of reviewing the future prospects of Pinnacle and IFC, the strategic
objectives of each, and the possible financial benefits which might be realized
following the IFC Merger; (viii) reviewed certain information, including
forecasts pertaining to prospective cost savings and revenue enhancements
relative to the IFC Merger; (ix) evaluated the pro forma ownership of Pinnacle
Common Stock by IFC shareholders, relative to the pro forma contribution of
IFC's assets, liabilities, equity and earnings to Pinnacle; and (x) performed
such other analyses and examinations as we deemed appropriate.
In rendering this opinion, we have relied upon, without independent
verification, the accuracy and completeness of the financial and other
information and representations provided to us by Pinnacle and IFC. We have
relied upon the managements of Pinnacle and IFC as to the reasonableness and
achievability of the financial forecasts and projections (and the assumptions
and bases therefore) provided to us, and have assumed that such forecasts and
projections are the best available estimates of management. We are not experts
in the evaluation of loan portfolios or the allowances for loan losses with
respect thereto and have assumed that such allowances by Pinnacle and IFC are in
the aggregate adequate to cover such losses.
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In addition, we have not reviewed individual credit files nor have we made an
independent appraisal of the assets and liabilities of Pinnacle and IFC or any
of their subsidiaries and we have not been furnished with any such evaluation or
appraisal. Finally, we have assumed, with your consent, that the IFC Merger will
be recorded as a pooling of interests in accordance with generally accepted
accounting principles.
Further, our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
ABN AMRO Chicago Corporation ("AACC"), as part of its investment banking
business, is continually engaged in the valuation of banks and bank holding
companies and thrifts and thrift holding companies in connection with mergers
and acquisitions as well as initial and secondary offerings of securities and
valuations for other purposes. AACC is a member of all principal U.S. securities
exchanges and may from time to time purchase securities from, and sell
securities to, Pinnacle or IFC and, either directly or through affiliates, buy
or sell the equity securities of Pinnacle or IFC as principal or for the
accounts of customers. Two affiliates of AACC manage limited partnerships which
invest in publicly-traded securities of financial institutions. Additionally,
AACC manages two group trusts which invest in publicly-traded securities of
financial institutions. Together, these investment pools, known as The Banc
Funds, have reported ownership of 41,100 shares of Pinnacle Common Stock and
37,515 shares of IFSL Common Stock.
The Board of Directors has requested that AACC issue this opinion and AACC
will receive a fee from Pinnacle for delivering this opinion to be used in
evaluating the proposed merger. A portion of such fee is contingent upon the
closing of the IFC Merger.
This opinion is limited to the fairness, from a financial point of view, to
the holders of Pinnacle Common Stock, of the IFC Merger Consideration. Moreover,
this letter, and the opinion expressed herein, is directed to the Board of
Directors of Pinnacle and does not constitute a recommendation to any
shareholder as to who such shareholder should vote on the IFC Merger.
Based on the foregoing and our experience as investment bankers, we are of
the opinion that, as of the date hereof, the IFC Merger Consideration to be paid
to the shareholders of IFC as described in the IFC Merger Agreement is fair from
a financial point of view to the shareholders of Pinnacle.
Sincerely,
ABN AMRO Chicago Corporation
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ANNEX G
FORM OF OPINION OF PL CAPITAL LLC
, 1997
Board of Directors
Pinnacle Financial Services, Inc.
830 Pleasant Street
St. Joseph, MI 49085-1265
Members of the Board:
Pinnacle Financial Services, Inc. ("Pinnacle") and CB Bancorp, Inc. ("CB")
entered into an Agreement and Plan of Merger dated as of March 1, 1997 (the "CB
Merger Agreement") pursuant to which CB will be merged with and into Pinnacle in
a transaction (the "CB Merger") in which each issued and outstanding shares of
CB's common stock (the "CB Shares") and each option to purchase one share of CB
common stock will be converted, as more fully described in the CB Merger
Agreement, into the right to receive a number of shares of the common stock of
Pinnacle ("Pinnacle Shares") equal to $35.00 of market value as of the effective
date of the CB Merger, subject to adjustment as more fully described in the CB
Merger Agreement (the "CB Exchange Ratio"). The terms and conditions of the CB
Merger are more fully set forth in the CB Merger Agreement and certain related
agreements, including the CB Option Agreement dated March 1, 1997 (the "CB
Option Agreement") pursuant to which CB granted Pinnacle an option to purchase
up to 115,037 shares of CB common stock at a price of $28.50 upon the occurrence
of certain events.
You have asked us whether, in our opinion, the consideration to be paid is fair
to Pinnacle's stockholders from a financial point of view, as of the date
hereof.
In arriving at our opinion set forth below, we have, among other things:
- Reviewed Pinnacle's Annual Reports to Shareholders, Pinnacle's Annual
Reports on Form 10-K and related financial information for each of the
fiscal years in the three year period ended December 31, 1995 and
Pinnacle's Quarterly Reports on Form 10-Q and related unaudited financial
information for each of the three month periods ended September 30, 1996,
June 30, 1996 and March 31, 1996;
- Reviewed CB's Annual Report to Shareholders, CB's Annual Reports on Form
10-K and related financial information for each of the fiscal years in the
three year period ended March 31, 1996 and CB's Quarterly Reports on Form
10-Q and related unaudited financial information for each of the three
month periods ended December 31, 1996, September 30, 1996 and June 30,
1996;
- Reviewed the financial terms and conditions of the CB Merger Agreement and
the related CB Option Agreement;
- Reviewed certain limited financial information, including forecasts and
assumptions, relating to the respective financial condition, results of
operations, businesses and prospects of Pinnacle and CB, furnished to us
by Pinnacle and CB;
- Conducted certain limited discussions with members of senior management of
Pinnacle and of CB concerning the respective financial condition, results
of operations, businesses and prospects of Pinnacle and CB and their
respective view as to the current and prospective financial performance of
Pinnacle, CB and the combined entity, as the case may be, following the CB
Merger;
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- Reviewed the historical and current market prices and trading activity for
CB shares and Pinnacle Shares and compared them with those of certain
publicly traded companies which we deemed reasonably comparable to CB and
Pinnacle;
- Compared the respective financial and operating performance of Pinnacle
and CB with those of certain other banks, thrifts and other companies
which we deemed reasonably comparable;
- Compared the financial terms of the CB Merger contemplated by the CB
Merger Agreement with the financial terms, to the extent publicly
available, of certain other mergers and acquisitions which we deemed
reasonably comparable;
- Reviewed the amount and timing of the projected cost savings and revenue
enhancements for CB and Pinnacle following the CB Merger as prepared and
discussed with us by senior management of Pinnacle and CB;
- Considered, based upon information provided by Pinnacle and CB, the pro
forma effects of the CB Merger on Pinnacle's capital ratios and projected
earnings, book and tangible book value per share; and
- Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we deemed
necessary to the rendering of this opinion.
In preparing our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information supplied or otherwise made
available to us for purposes of this opinion. We have not independently verified
(and have not assumed any responsibility for) such information or undertaken an
independent evaluation or appraisal of any of the assets or liabilities of
Pinnacle or CB, or their respective subsidiaries. We have further relied on the
assurances of management of Pinnacle and CB that they are not aware of any facts
that would make such information provided inaccurate or misleading. We have also
relied upon the accuracy and completeness of the representations and warranties
of Pinnacle and CB set forth in the CB Merger Agreement. We have not made an
independent evaluation of the adequacy of the allowance for loan losses of
Pinnacle or CB, and we have assumed that the aggregate allowance for loan losses
of Pinnacle and CB are adequate and will be adequate on a pro forma basis for
the combined entity. We have also relied upon senior managements of Pinnacle and
CB as to the reasonableness and achievability of the financial and operating
forecasts (and the assumptions and bases therefore) provided to, and discussed
with us. In that regard, we have assumed with your consent that such information
reflect the best currently available estimates and judgment of the senior
management of Pinnacle and CB as to the expected future financial performance of
Pinnacle, CB, and the combined entity, as the case may be. Our opinion is
necessarily based on economic, market, regulatory and other conditions as in
effect on, and the information made available to us as of, the date hereof. We
have also assumed that there has been no material change in Pinnacle's and CB's
assets, liabilities, financial condition, results of operations, business or
prospects since the date of the last financial statements made available to us
by Pinnacle and CB. Furthermore, we express no opinion on matters of a legal,
regulatory, tax or accounting nature related to the CB Merger and the related
transactions contemplated by the CB Merger Agreement and have relied on advice
of counsel to Pinnacle as to all legal matters with respect to Pinnacle,
Pinnacle's Board of Directors, the CB Merger Agreement, the CB Option Agreement
and the CB Merger.
Our opinion has been rendered without regard to any restrictions, obligations,
undertakings or divestitures which may be imposed or required in the course of
obtaining regulatory approvals for, or subsequent to, the CB Merger. We have
assumed, with your consent, that the CB Merger will be accounted for as a
pooling of interests for financial reporting and regulatory purposes, in
accordance with applicable generally accepted and regulatory accounting
principles.
We have been retained by the Board of Directors of Pinnacle as an independent
contractor to act as financial advisor to Pinnacle with respect to the CB Merger
and will receive a fee for our services, which is
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contingent upon closing of the CB Merger. We have within the past two years
provided financial advisory and other related services to Pinnacle and received
customary fees for the rendering of such services.
Our opinion is directed to the Board of Directors of Pinnacle and does not
constitute a recommendation to any stockholder of Pinnacle or CB as to how such
stockholder should vote at any stockholder meeting of Pinnacle or CB that may be
held in connection with the approval of the CB Merger Agreement and the CB
Merger. This opinion is directed only to the fairness of the consideration paid,
from a financial point of view, to Pinnacle's stockholders. Furthermore, our
opinion may not be relied upon by any other person or used for nay other
purpose, reproduced, disseminated, quoted from or referred to without PL
Capital, LLC's written request.
We consent to the reference to our Firm in the Joint Proxy Statement/Prospectus
related to the CB Merger and to the inclusion of our opinion as an exhibit to
such documents, as required.
On the basis of, and subject to the foregoing as well as such other matters as
we consider relevant, we are of the opinion that the consideration paid is fair
to Pinnacle's stockholders from a financial point of view.
Respectfully submitted,
PL Capital, LLC
Chicago, Illinois
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ANNEX H
FORM OF OPINION OF SANDLER O'NEILL & PARTNERS, L.P.
, 199
Board of Directors
Indiana Federal Corporation
56 Washington Street
Valparaiso, IN 46383
Ladies and Gentlemen:
Indiana Federal Corporation (the "Company") and Pinnacle Financial Services,
Inc. ("Pinnacle") have entered into an Agreement and Plan of Merger, dated as of
November 14, 1996, as amended (the "IFC Merger Agreement"), pursuant to which
the Company will be merged with and into Pinnacle (the "IFC Merger"). Under the
terms of the IFC Merger Agreement, upon consummation of the IFC Merger, each
outstanding share of the Company's common stock, par value $.01 per share (the
"Company Shares"), other than certain shares specified in the Agreement, will be
converted into the right to receive 1.0 share (the "IFC Exchange Ratio") of the
common stock, without par value, of Pinnacle (the "Pinnacle Shares"), subject to
possible adjustment as set forth in the Agreement. The terms and conditions of
the IFC Merger are more fully set forth in the IFC Merger Agreement. You have
requested our opinion as to the fairness, from a financial point of view, of the
IFC Exchange Ratio to the holders of the Company Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions.
In connection with this opinion, we have reviewed, among other things: (i) a
draft of the IFC Merger Agreement and exhibits thereto; (ii) the Stock Option
Agreements, dated as of November 14, 1996, by and between Pinnacle and the
Company; (iii) Pinnacle's audited consolidated financial statements and
management's discussion and analysis of the financial condition and results of
operations contained in its annual report to shareholders for the year ended
December 31, 1995; (iv) the Company's audited consolidated financial statements
and management's discussion and analysis of the financial condition and results
of operations contained in its annual reports to shareholders for the fiscal
year ended December 31, 1995; (v) Pinnacle's unaudited consolidated financial
statements and management's discussion and analysis of the financial condition
and results of operations contained in its Quarterly Reports on Form 10-Q for
the quarters ended March 31, June 30, and September 30, 1996, respectively; (vi)
the Company's unaudited consolidated financial statements and management's
discussion and analysis of the financial condition and results of operations
contained in its Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30, and September 30, 1996, respectively; (vii) certain financial analyses
and forecasts of the Company prepared by and reviewed with management of the
Company and the views of senior management of the Company regarding the
Company's past and current business operations, results thereof, financial
condition and future prospects; (viii) certain financial analyses and forecasts
of Pinnacle prepared by and reviewed with management of Pinnacle and the views
of senior management of Pinnacle regarding Pinnacle's past and current business
operations, results thereof, financial condition and future prospects; (ix) the
pro forma impact of the IFC Merger on the combined companies; (x) the historical
reported price and trading activity for Pinnacle's and the Company's common
stock, including a comparison of certain financial and stock market information
for Pinnacle and the Company with similar information for certain other
companies the securities of which are publicly traded; (xi) the financial terms
of recent business combinations in the savings institution and banking
industries; (xii) the current market environment
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generally and the banking environment in particular; and (xiii) such other
information, financial studies, analyses and investigations and financial,
economic and market criteria as we considered relevant. We were not asked to,
and did not, solicit indications of interest in a potential transaction from
other third parties.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information reviewed by and discussed with us,
and we did not make an independent evaluation or appraisal of the specific
assets, the collateral securing assets or the liabilities of Pinnacle or the
Company or any other their subsidiaries, or the collectibility of any such
assets (relying, where relevant, on the analyses and estimates of Pinnacle and
the Company). With respect to the financial projections reviewed with
management, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of the respective future financial performances of
Pinnacle and the Company and that such performances will be achieved. We have
also assumed that there has been no material change in Pinnacle's or the
Company's assets, financial condition, results of operations, business or
prospects since September 30, 1996, the date of the last financial statements
noted above. We have assumed that the IFC Merger will qualify for pooling of
interests accounting treatment and have further assumed that Pinnacle and the
Company will remain as a going concern for all periods relevant to our analyses
and that the conditions precedent in the IFC Merger Agreement are not waived.
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of, the date hereof.
Events occurring after the date hereof could materially affect the assumptions
used in preparing this opinion. We have not undertaken to reaffirm or revise
this opinion or otherwise comment upon events occurring after the date hereof.
We have acted as the Company's financial advisor in connection with the IFC
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the IFC Merger. We will also receive a fee
for rendering this opinion. We have also provided and continue to provide
general financial advisory services for the Company and have received and will
continue to receive fees for such services.
In the ordinary course of our business, we may actively trade the equity
securities of Pinnacle and the Company for our own account and for the accounts
of our customers and, accordingly, may at any time hold a long or short position
in such securities.
Our opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote at any meeting of stockholders called to consider and
vote upon the IFC Merger. Our opinion is not to be quoted or referred to, in
whole or in part, in a registration statement, prospectus, proxy statement or in
any other document, nor shall this opinion be used for any other purposes,
without Sandler O'Neill's prior written consent.
Based upon and subject to the foregoing, it is our opinion that the IFC
Exchange Ratio is fair, from a financial point of view, to the holders of the
Company Shares.
Very truly yours,
H-2
<PAGE>
ANNEX I
FORM OF OPINION OF CHARLES WEBB & COMPANY
March 1, 1997
Board of Directors
CB Bancorp, Inc.
126 East Fourth Street
Michigan City, Indiana 46360
Dear Gentlemen:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
CB Bancorp, Inc. (the "Company"), of the consideration to be received by such
stockholders in the merger (the "Merger") between the Company and Pinnacle
Financial Services, Inc., a Michigan Corporation ("Pinnacle"). We have not been
requested to opine as to, and our opinion does not in any matter address, the
Company's underlying business decision to proceed with or effect the Merger.
Pursuant to the Agreement and Plan of Merger, dated March 1, 1997, by and
between the Company and Pinnacle (the "Agreement"), at the effective time of the
Merger, Pinnacle will acquire all of the Company's issued and outstanding shares
of common stock (1,161,997 shares as of the date of the Agreement) and the
holders of such shares of common stock will receive in exchange for each share
of Company common stock such number of shares of common stock of Pinnacle as
determined by dividing $35.00 (the "Exchange Value") by the average (the
"Average Price") of the daily averages of the closing bid and the closing ask
prices per share of Pinnacle common stock as reported by the Nasdaq National
Market for the period of fifteen business days ending on the fifth business day
prior to the Closing Date; provided however, that (i) in the event that the
Average Price as determined under the foregoing provision is $29.00 or higher,
the Exchange Value shall be divided by $29.00 (resulting in the fractional
number 1.2069) rather than said Average Price (so that in such case, each share
of CB Common Stock issued and outstanding so converted, would be converted into
the right to receive 1.2069 shares of Pinnacle common stock), and (ii) in the
event that the Average Price as determined under the foregoing provision is
$23.00 or lower, the Exchange Value shall be divided by $23.00 (resulting in the
fractional number 1.5217) rather than said Average Price (so that, in such case,
each share of CB Common Stock issued and outstanding so converted, would be
converted into the right to receive 1.5217 shares of Pinnacle common stock) and
subject to the terms and conditions set forth in the Agreement. In addition, the
holders of unexercised and outstanding options awarded pursuant to the Company's
1992 Stock Option Plan for Outside Directors and the 1992 Incentive Stock Option
Plan will receive, for each share subject to such option, such number of shares
of Pinnacle common stock as determined by dividing the difference between the
Exchange Value and the price the holder was required to pay for such share upon
the exercise of the option by the Average Price (94,883 unexercised options
outstanding as of the date of the Agreement). The complete terms of the proposed
transaction are described in the Agreement, and this summary is qualified in its
entirety by reference thereto.
Charles Webb & Company, as part of its investment banking business, is
regularly engaged in the evaluation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, and distributions of
listed and unlisted securities. We are familiar with the market for common
stocks of publicly traded banks, savings institutions and bank and savings
institution holding companies.
In connection with this opinion we reviewed certain financial and other
business data supplied to us by the Company including (i) the prospectus dated
November 9, 1992, for the Company's offering of common stock in connection with
the reorganization of Community Bank from the mutual to the stock form of
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<PAGE>
organization, (ii) Annual Reports, Proxy Statements and Form 10-Ks for the years
ended March 31, 1994, 1995 and 1996, (iii) Form 10-Qs for the quarters ended
December 31, 1996, September 30, 1996, and June 30, 1996, and (iv) certain other
information we deemed relevant. We discussed with senior management and the
boards of directors of the Company and its wholly owned subsidiary, Community
Bank, the current position and prospective outlook for the Company. We
considered historical quotations and the prices of recorded transactions in the
Company's common stock since its conversion to a stock holding company form and
public offering in December 1992. We reviewed financial and stock market data of
other savings institutions, particularly in the midwestern region of the United
States, and the financial and structural terms of several other recent
transactions involving mergers and acquisitions of savings institutions or
proposed changes of control of comparably situated companies.
For Pinnacle, we reviewed the audited financial statements for the fiscal
year ended December 31, 1995, quarterly financial statements (unaudited) for the
quarters ending March 31, 1996, June 30, 1996 and September 30, 1996, and
certain other information deemed relevant.
For purposes of this opinion we have relied, without independent
verification, on the accuracy and completeness of the material furnished to us
by the Company and Pinnacle and the material otherwise made available to us,
including information from published sources, and we have not made any
independent effort to verify such data. With respect to the financial
information, including forecasts and asset valuations we received from the
Company, we assumed (with your consent) that they had been reasonably prepared
reflecting the best currently available estimates and judgment of the Company's
management. In addition, we have not made or obtained any independent appraisals
or evaluations of the assets or liabilities, and potential and/or contingent
liabilities of the Company or Pinnacle. We have further relied on the assurances
of management of the Company and Pinnacle that they are not aware of any facts
that would make such information inaccurate or misleading. We express no opinion
on matters of a legal, regulatory, tax or accounting nature or the ability of
the Merger, as set forth in the Agreement, to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining
the necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to the Company or the ability to consummate the Merger. Our
opinion is based on the market, economic and other relevant considerations as
they exist and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to the Company in connection with the Merger and will receive a fee for
such services, a majority of which is contingent upon the consummation of the
Merger. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement by the Company in connection with the
Merger.
Based upon and subject to the foregoing, as outlined in the foregoing
paragraphs and based on such other matters as we considered relevant, it is our
opinion that as of the date hereof, the consideration to be received by the
stockholders of the Company in the Merger is fair, from a financial point of
view, to the stockholders of the Company.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of the Company used to
solicit stockholder approval of the Merger. It is understood that this letter is
directed to the Board of Directors of the Company in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation to
any stockholder as to how such stockholder should vote with respect to the
Merger.
Very truly yours,
Charles Webb & Company
A Division of Keefe, Bruyette & Woods,
Inc.
I-2
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Michigan Business Corporation Act, as amended ("MBCA"), provides that a
Michigan corporation, such as Pinnacle Financial Services, Inc. ("Pinnacle"),
may indemnify a director, officer, employee or agent of the corporation (an
"Indemnitee") against the Indemnitee's expenses and judgments, fines and amounts
paid in settlement actually and reasonably incurred in connection with any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation) involving the Indemnitee by reason
of the fact that the Indemnitee is or was a director, officer, employee or agent
of the corporation, if the Indemnitee acted in good faith and in a manner the
Indemnitee reasonably believed to be in or not opposed to the best interest of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The MBCA also
provides that in derivative actions, a corporation may indemnify a director,
officer, employee or agent of the corporation against expenses actually and
reasonably incurred by the Indemnitee to the extent that the Indemnitee is
successful on the merits or otherwise in any such action, suit or proceeding or
in the defense of any claim, issue or matter therein. Under the MBCA, no
indemnification shall be made with respect to any claim, issue or matter as to
which an Indemnitee shall have been adjudged to be liable to the corporation
unless and only to the extent that the court shall determine upon application
that, despite the adjudication of liability but in view of all of the
circumstances of the case, the Indemnitee is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. The MBCA also
generally permits the advancement of reasonable expenses and empowers the
corporation to purchase and maintain directors' and officers' insurance.
Article VI of the By-laws of Pinnacle contains provisions authorizing
indemnification of directors, officers, employees and agents of Pinnacle that
are substantially similar to those set forth in the MBCA and authorizes Pinnacle
to purchase directors' and officers' insurance.
Section 209 of the MBCA provides that the articles of incorporation of a
corporation may contain a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) under Section 551(1) (relating to liability for
unauthorized acquisitions or redemptions of, or dividends on, capital stock and
loans to director, officer, employee of subsidiary of the corporation) of the
MBCA, (iv) for any transaction from which the director derived an improper
personal benefit or (v) for an act or omission occurring prior to the date such
a provision becomes effective. At the 1989 Annual Meeting of Pinnacle's
stockholders, the stockholders approved an amendment to Pinnacle's Articles of
Incorporation to include such a provision. See Article VI of the Articles of
Incorporation of Pinnacle.
Pinnacle has entered into individual indemnity agreements with its officers
and directors whereby Pinnacle will indemnify each of its officers and directors
for any amount which they may be obligated to pay because of any claim made
against them because of any omission or neglect or breach of duty, including any
actual or alleged error or misstatements or misleading statement, committed or
suffered when acting in their capacities as officers, directors, employees and
agents of Pinnacle, its subsidiaries and certain other enterprises.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of Pinnacle pursuant to the provisions described in this Item 20 or
otherwise, Pinnacle has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by Pinnacle of expenses incurred or paid by a director, officer or
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<PAGE>
controlling person of Pinnacle 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, Pinnacle will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933, as amended, and will be governed by the final adjudication of such
issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. The following exhibits are filed as part of the registration
statement on Form S-4:
<TABLE>
<CAPTION>
ITEM 601
REGULATION S-K
EXHIBIT
REFERENCE NUMBER EXHIBIT DESCRIPTION
- ---------------- ------------------------------------------------------------------------------------------------
<C> <S>
(2)(a)/(10)(a) Agreement and Plan of Merger dated as of November 14, 1996 by and between Pinnacle Financial
Services, Inc. and Indiana Federal Corporation (without exhibits).*
A conformed copy of this Agreement and Plan of Merger (without exhibits) also is included as
Annex A to the Joint Proxy Statement/Prospectus which is part of this Registration Statement.
(2)(b)/(10)(v) First Amendment to Agreement and Plan of Merger dated as of February 27, 1997 by and between
Pinnacle Financial Services, Inc. and Indiana Federal Corporation (incorporated by reference to
Exhibit 10(b) of the Annual Report on Form 10-K of Pinnacle Financial Services, Inc. for the
year ended December 31, 1996).
A conformed copy of this First Amendment to Agreement and Plan of Merger (without exhibits) also
is included as Annex B to the Joint Proxy Statement/Prospectus which is part of this
Registration Statement.
(2)(c)/(10)(w) Agreement and Plan of Merger dated as of March 1, 1997 by and between Pinnacle Financial
Services, Inc. and CB Bancorp, Inc. (incorporated by reference to Exhibit 10(w) of the Annual
Report on Form 10-K of Pinnacle Financial Services, Inc. for the year ended December 31, 1996).
A conformed copy of the Agreement and Plan of Merger (without exhibits) also is included as
Annex C to the Joint Proxy Statement/Prospectus which is part of this Registration Statement.
(3)(a)/(4)(a) Restated Articles of Incorporation of Pinnacle Financial Services, Inc. as filed with the
Department of Commerce of the State of Michigan on December 6, 1996.*
(3)(b)/(4)(b) By-laws of Pinnacle Financial Services, Inc. (incorporated by reference to Exhibit (3)(b)/
(4)(b) of the Registration Statement on Form S-2 of Pinnacle Financial Services, Inc.
(registration no. 33-95974)).
(4)(c) Specimen certificate for Pinnacle Financial Services, Inc. Common Stock (incorporated by
reference to Exhibit (4)(c) of the Registration Statement on Form S-2 of Pinnacle Financial
Services, Inc. (registration no. 33-95974)).
(5)(a) Opinion and consent of Miller, Canfield, Paddock and Stone, P.L.C.**
(8)(a) Opinion and consent of Miller, Canfield, Paddock and Stone, P.L.C. (with respect to the merger
of Indiana Federal Corporation with and into Pinnacle Financial Services, Inc.).***
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
ITEM 601
REGULATION S-K
EXHIBIT
REFERENCE NUMBER EXHIBIT DESCRIPTION
- ---------------- ------------------------------------------------------------------------------------------------
<C> <S>
(8)(b) Opinion and consent of Miller, Canfield, Paddock and Stone, P.L.C. (with respect to the merger
of CB Bancorp, Inc. with and into Pinnacle Financial Services, Inc.).***
(8)(c) Opinion and consent of Silver, Freedman & Taff, L.L.P. (with respect to the merger of Indiana
Federal Corporation with and into Pinnacle Financial Services, Inc.).***
(8)(d) Opinion and consent of Muldoon, Murphy & Faucette (with respect to the merger of CB Bancorp,
Inc. with and into Pinnacle Financial Services, Inc.).***
(10)(b) Stock Option Agreement dated as of November 14, 1996 by and between Pinnacle Financial Services,
Inc. (as issuer) and Indiana Federal Corporation (as grantee).*
(10)(c) Stock Option Agreement dated as of November 14, 1996 by and between Pinnacle Financial Services,
Inc. (as grantee) and Indiana Federal Corporation (as issuer).*
(10)(d) Form of Agreement and Plan of Merger and Consolidation between Pinnacle Bank, a wholly-owned
subsidiary of Pinnacle Financial Services, Inc., and Indiana Federal Bank for Savings, a
wholly-owned subsidiary of Indiana Federal Corporation.*
(10)(e) First Amendment to Pinnacle Financial Services, Inc. Executive Long-Term Incentive Plan.*
(10)(f) Employment Severance Compensation Agreement dated April 30, 1996 by and among Pinnacle Financial
Services, Inc., The Peoples State Bank of St. Joseph and Richard L. Schanze.*
(10)(g) Employment Severance Compensation Agreement dated April 30, 1996 by and among Pinnacle Financial
Services, Inc., The Peoples State Bank of St. Joseph and Arnold L. Weaver.*
(10)(h) Employment Severance Compensation Agreement dated April 30, 1996 by and among Pinnacle Financial
Services, Inc., The Peoples State Bank of St. Joseph and Donald E. Radde.*
(10)(i) Employment Severance Compensation Agreement dated April 30, 1996 by and among Pinnacle Financial
Services, Inc., The Peoples State Bank of St. Joseph and David W. Kolhagen.*
(10)(j) The Retirement Plan for the Employees of Peoples State Bank of St. Joseph, as amended
(incorporated by reference to Exhibit (10)(i) of the Registration Statement on Form S-2 of
Pinnacle Financial Services, Inc. (registration no. 33-95974)).
(10)(k) Peoples State Bank of St. Joseph Savings Plan, as amended (incorporated by reference to Exhibit
(10)(j) of the Registration Statement on Form S-2 of Pinnacle Financial Services, Inc.
(registration no. 33-95974)).
(10)(l) Form of Deferred Compensation Agreement for Directors--Pinnacle Financial Services, Inc.
(incorporated by reference to Exhibit (10)(k) of the Registration Statement on Form S-2 of
Pinnacle Financial Services, Inc. (registration no. 33-95974)).
(10)(m) Form of Deferred Compensation Agreement for Directors--The Peoples State Bank of St. Joseph
(incorporated by reference to Exhibit (10)(l) of the Registration Statement on Form S-2 of
Pinnacle Financial Services, Inc. (registration no. 33-95974)).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
ITEM 601
REGULATION S-K
EXHIBIT
REFERENCE NUMBER EXHIBIT DESCRIPTION
- ---------------- ------------------------------------------------------------------------------------------------
<C> <S>
(10)(n) Pinnacle Financial Services, Inc. Executive Long-Term Incentive Plan (incorporated by reference
to Exhibit (10)(m) of the Registration Statement on Form S-2 of Pinnacle Financial Services,
Inc. (registration no. 33-95974)).
(10)(o) Transfer Agreement dated May 4, 1995 by and between Maco Bancorp, Inc. (the
predecessor-in-interest to Pinnacle Financial Services, Inc.) and Cyrus A. Ansary (incorporated
by reference to Exhibit (99)(a) of the Registration Statement on Form S-2 of Pinnacle Financial
Services, Inc. (registration no. 33-95974)).
(10)(p) Transfer Agreement dated as of May 4, 1995 by and between Maco Bancorp, Inc. (the
predecessor-in-interest to Pinnacle Financial Services, Inc.) and Investment Services
International Co. (incorporated by reference to Exhibit (99)(b) of the Registration Statement on
Form S-2 of Pinnacle Financial Services, Inc. (registration no. 33-95974)).
(10)(q) Non-Competition Agreement dated December 1, 1995 by and between Pinnacle Financial Services,
Inc. and Cyrus A. Ansary (incorporated by reference to Exhibit (10)(d) of the Current Report on
Form 8-K of Pinnacle Financial Services, Inc. dated December 1, 1995).
(10)(r) Escrow Agreement dated December 1, 1995 by and among Pinnacle Financial Services, Inc., Cyrus A.
Ansary and NationsBank Trust, N.A. (incorporated by reference to Exhibit (10)(e) of the Current
Report on Form 8-K of Pinnacle Financial Services, Inc. dated December 1, 1995).
(10)(s) Standstill Agreement entered into by and between Pinnacle Financial Services, Inc. and Cyrus A.
Ansary (incorporated by reference to Exhibit (10)(f) of the Current Report on Form 8-K of
Pinnacle Financial Services, Inc. dated December 1, 1995).
(10)(t) Indemnification Agreement dated December 1, 1995 and executed and delivered by Cyrus A. Ansary
in favor of Pinnacle Financial Services, Inc. (incorporated by reference to Exhibit (10)(g) of
the Current Report on Form 8-K of Pinnacle Financial Services, Inc. dated December 1, 1995).
(10)(u) Peoples State Bank of St. Joseph (now Pinnacle Bank) Deferred Compensation Plan for Executive
Officers.*
(10)(x) Stock Option Agreement dated as of February 27, 1997 by and between Pinnacle Financial Services,
Inc. (as grantee) and CB Bancorp, Inc. (as issuer) (incorporated by reference to Exhibit 10 of
the Annual Report on Form 10-K of Pinnacle Financial Services, Inc. for the year ended December
31, 1996).
(10)(y) Form of Agreement and Plan of Merger and Consolidation between Pinnacle Bank, a wholly-owned
subsidiary of Pinnacle Financial Services, Inc., and Community Bank, a wholly-owned subsidiary
of CB Bancorp, Inc. (incorporated by reference to Exhibit B of Exhibit 10(w) of the Annual
Report on Form 10-K of Pinnacle Financial Services, Inc. for the year ended December 31, 1996).
(21) List of subsidiaries of Pinnacle Financial Services, Inc. (incorporated by reference to Exhibit
21 of the Annual Report on Form 10-K of Pinnacle Financial Services, Inc. for the year ended
December 31, 1996).
(23)(a) Consent of Miller, Canfield, Paddock and Stone, P.L.C. (to be included in Exhibit 5(a)).
(23)(b) Consent of Miller, Canfield, Paddock and Stone, P.L.C. (to be included in Exhibit 8(a)).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
ITEM 601
REGULATION S-K
EXHIBIT
REFERENCE NUMBER EXHIBIT DESCRIPTION
- ---------------- ------------------------------------------------------------------------------------------------
<C> <S>
(23)(c) Consent of Miller, Canfield, Paddock and Stone, P.L.C. (to be included in Exhibit 8(b)).
(23)(d) Consent of Silver, Freedman & Taff, L.L.P. (to be included in Exhibit 8(c)).
(23)(e) Consent of Muldoon, Murphy & Faucette (to be included in Exhibit 8(d)).
(23)(f) Consent of KPMG Peat Marwick LLP, independent certified public accountants.**
(23)(g) Consent of Ernst & Young LLP, independent certified public accountants.**
(23)(h) Consent of Crowe, Chizek and Company LLP, independent certified public accountants.**
(24) Powers of Attorney (contained in signature pages of this Registration Statement).
(99)(a) Form of opinion of ABN AMRO Chicago Corporation, which is set forth in full as Annex F to the
Prospectus which is part of this Registration Statement.
(99)(b) Form of opinion of PL Capital, LLC, which is set forth in full as Annex G to the Prospectus
which is part of this Registration Statement.
(99)(c) Form of opinion of Sandler O'Neill & Partners L.P., which is set forth in full as Annex H to the
Prospectus which is part of this Registration Statement.
(99)(d) Form of opinion of Charles Webb & Company, which is set forth in full as Annex I to the
Prospectus which is part of this Registration Statement.
(99)(e) Consent of ABN AMRO Chicago Corporation.**
(99)(f) Consent of PL Capital, LLC.**
(99)(g) Consent of Sandler O'Neill & Partners L.P.**
(99)(h) Consent of Charles Webb & Company.**
(99)(i) Form of Proxy for Pinnacle Financial Services, Inc.**
(99)(j) Form of Proxy for Indiana Federal Corporation.**
(99)(k) Form of Proxy for CB Bancorp, Inc.**
</TABLE>
- ------------------------
*Previously filed.
**Filed herewith.
***To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES. Financial statement schedules have been
omitted because they are not required.
(c) INFORMATION PURSUANT TO ITEM 4(b). Not Applicable.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt by
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
II-5
<PAGE>
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934, as amended), 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, as amended; and, where interim financial information required to be
presented by Article 3 of Regulation S-X is 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:
(1) 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.
(2) 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 Securities Act of 1933, as amended, and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, as amended, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions as described in
Item 20 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 Securities Act of 1933, as amended, 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 Securities Act of 1933, as amended, and will be
governed by the final adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this amendment no. 1 to registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of St. Joseph, State of Michigan, on the 25th day of April, 1997.
PINNACLE FINANCIAL SERVICES, INC.,
a Michigan corporation
By: /s/ RICHARD L. SCHANZE
-----------------------------------------
Name: Richard L. Schanze
Title: CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment no. 1 to registration statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
Principal Executive Officer:
/s/ RICHARD L. SCHANZE
- ------------------------------ Chief Executive Officer April 25, 1997
Richard L. Schanze
Principal Financial Officer
and
Principal Accounting
Officer:
/s/ DAVID W. KOLHAGEN
- ------------------------------ Treasurer and Chief April 25, 1997
David W. Kolhagen Financial Officer
II-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment no. 1 to registration statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
*
- ------------------------------ Director April 25, 1997
John P. Cunningham
*
- ------------------------------ Director April 25, 1997
Charles R. Edinger
*
- ------------------------------ Director April 25, 1997
John D. Fetters
*
- ------------------------------ Director April 25, 1997
Terrence A. Friedman
/s/ RICHARD L. SCHANZE
- ------------------------------ Director and Chief April 25, 1997
Richard L. Schanze Executive Officer
*
- ------------------------------ Director April 25, 1997
Kay F. Varga
*
- ------------------------------ Director and President April 25, 1997
Arnold L. Weaver
*
- ------------------------------ Director April 25, 1997
Alton C. Wendzel
By: /s/ DAVID W. KOLHAGEN
-------------------------
Name: David W. Kolhagen
AS ATTORNEY-IN-FACT FOR
THE
PERSONS INDICATED
II-8
<PAGE>
[LETTERHEAD]
April 24, 1997
EXHIBIT 5
Pinnacle Financial Services, Inc.
830 Pleasant Street
St. Joseph, Michigan 49085
Re: Pinnacle Financial Services, Inc.
Registration Statement on Form S-4
Registration No. 333-19729
Ladies and Gentlemen:
We have acted as counsel to Pinnacle Financial Services, Inc., a Michigan
corporation ("Pinnacle"), and, at the request of Pinnacle, have examined the
registration statement on Form S-4, as amended (registration no. 333-19729) (the
"Registration Statement"), filed by Pinnacle with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), and the regulations promulgated thereunder. All capitalized terms not
otherwise defined herein are defined herein as in the Registration Statement.
The Registration Statement relates to, among other things, the registration
under the Act of 5,004,220 shares of common stock, no par value per share, of
Pinnacle ("Pinnacle Common Stock"), to be issued to shareholders of Indiana
Federal Corporation, a Delaware corporation ("IFC"), upon consummation of the
merger (the "IFC Merger") of IFC with and into Pinnacle and certain other
transactions. The IFC Merger and such other transactions are to be consummated
pursuant to (i) the Agreement and Plan of Merger dated as of November 14, 1996
(the "IFC Merger Agreement") by and between Pinnacle and IFC, and (ii) certain
related instruments and agreements described in the Registration Statement that
were executed, or are to be executed, in connection with the IFC Merger
Agreement (the "IFC Related Instruments").
The Registration Statement also relates to, among other things, the
registration under the Act of 1,917,479 shares of
<PAGE>
Pinnacle Financial Services, Inc. -2- April 24, 1997
Pinnacle Common Stock, to be issued to shareholders and option holders of CB
Bancorp, Inc., a Delaware corporation ("CB"), upon consummation of the merger
(the "CB Merger") of CB with and into Pinnacle and certain other transactions.
The CB Merger and such other transactions are to be consummated pursuant to (i)
the Agreement and Plan of Merger dated as of March 1, 1997 (the "CB Merger
Agreement") by and between Pinnacle and CB, and (ii) certain related instruments
and agreements described in the Registration Statement that were executed, or
are to be executed, in connection with the CB Merger Agreement (the "CB Related
Instruments").
Collectively, the IFC Merger and the CB Merger may hereinafter be referred
to as the "Mergers," and the IFC Merger Agreement and the CB Merger Agreement
may hereinafter be referred to as the "Merger Agreements."
It is our understanding that upon consummation of the IFC Merger, among
other things, (i) IFC will merge with and into Pinnacle, with Pinnacle, as the
surviving corporation, succeeding to all of the assets and liabilities of IFC;
and (ii) subject to certain exceptions, holders of common stock, $.01 par value
per share, of IFC (the "IFC Common Stock"), will receive one share of Pinnacle
Common Stock for each share of IFC Common Stock held.
It is our understanding that upon consummation of the CB Merger, among
other things, (i) CB will merge with and into Pinnacle, with Pinnacle, as the
surviving corporation, succeeding to all of the assets and liabilities of CB;
(ii) subject to certain exceptions, holders of common stock, $.01 par value per
share, of CB (the "CB Common Stock"), will receive for each share of CB Common
Stock held that number of shares of Pinnacle Common Stock determined by dividing
$35.00 by the average of the daily averages of the closing bid and the closing
ask prices per share of Pinnacle Common Stock as reported by the Nasdaq National
Market for the period of fifteen business days ending on the fifth business day
prior to the date of consummation of the CB Merger (the "Average Price");
PROVIDED, HOWEVER, (a) that in the event the Average Price is $29.00 or higher,
each share of CB Common Stock issued and outstanding so converted, would be
converted into the right to receive 1.2069 shares of Pinnacle Common Stock, and
(b) that in the event the Average Price is $23.00 or lower, each share of CB
Common Stock issued and outstanding so converted, would be converted into the
right to receive 1.5217 shares of Pinnacle Common Stock; and (iii) each option
granted by CB to purchase shares of CB Common Stock (including any option that
has been awarded but has not yet vested) which is then outstanding and
unexercised (the "CB Stock Options") will be converted automatically into the
right to receive shares of Pinnacle Common Stock in an amount determined by
dividing
<PAGE>
Pinnacle Financial Services, Inc. -3- April 24, 1997
the difference between $35.00 and the exercise price of such option by the
Average Price.
In the preparation of this opinion, we have examined originals or copies
identified to our satisfaction of (i) the Restated Articles of Incorporation of
Pinnacle, and all amendments thereto, as filed with the Department of Commerce
of the State of Michigan, (ii) the By-laws of Pinnacle, (iii) certain minutes of
Pinnacle made available to us by officers of Pinnacle, (iv) certain certificates
from officers of Pinnacle as to certain factual matters material to the opinion
expressed below, (v) the Certificate of Incorporation of IFC as filed with the
Secretary of State of the State of Delaware, (vi) the By-laws of IFC,
(vii) certain minutes of IFC made available to us by officers of IFC,
(viii) certain certificates from officers of IFC as to certain factual matters
material to the opinion expressed below, (ix) the Certificate of Incorporation
of CB as filed with the Secretary of State of the State of Delaware, (x) the By-
laws of CB, (xi) certain minutes of CB made available to us by officers of CB,
(xii) certain certificates from officers of CB as to certain factual matters
material to the opinion expressed below, and (xiii) the Registration Statement,
including the exhibits thereto. We have also examined originals or copies of
such documents, corporate records, certificates of public officials and other
instruments, and have conducted such other investigations of law and fact, as we
have deemed necessary or advisable for purposes of our opinion.
In our examinations, we have assumed, without investigation, the
genuineness of all signatures, the authenticity of all documents and instruments
submitted to us as originals, the conformity to the originals of all documents
and instruments submitted to us as certified or conformed copies and the
authenticity of the originals of such copies, the correctness of all
certificates, and the accuracy and completeness of all records, documents,
instruments and materials made available to us by Pinnacle, IFC, and CB.
In addition, in rendering this opinion we have assumed, without
investigation, (i) that the shares of Pinnacle Common Stock will be offered in
the manner and on the terms identified or referred to in the Registration
Statement, (ii) that all conditions to the IFC Merger have been, or will be,
met, (iii) that all conditions to the CB Merger have been, or will be, met, and
(iv) that the Mergers will be consummated in accordance with the terms of the
Registration Statement, the Merger Agreements, the IFC Related Instruments and
the CB Related Instruments. We have also relied, without independent
investigation, upon the representations
<PAGE>
Pinnacle Financial Services, Inc. -4- April 24, 1997
and warranties of the parties to the Merger Agreements set forth in the Merger
Agreements.
Our opinion is limited to the matters set forth herein and we express no
opinion other than as expressly set forth herein. Our opinion is expressed as
the date hereof and is based on laws currently in effect. Accordingly, the
conclusions set forth in this opinion are subject to change in the event that
any laws should change or be enacted in the future. We are under no obligation
to update this opinion or to otherwise communicate with you in the event of any
such change.
Based upon and subject to the foregoing, it is our opinion that:
1. assuming (i) the Registration Statement becomes and remains
effective under the Act and fully complies with all of the
requirements of the Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the regulations promulgated
thereunder, during all relevant periods, (ii) the Joint Proxy
Statement/Prospectus forming a part of the Registration Statement, and
the delivery procedures with respect thereto, fulfill all requirements
of the Act, the Exchange Act, and all applicable regulations
promulgated under the Act and the Exchange Act, throughout all
relevant periods, (iii) compliance with all federal and state
securities laws throughout all relevant periods, (iv) the IFC Merger
has become effective under applicable state law, and (v) the shares of
Pinnacle Common Stock are issued and delivered in the manner referred
to in the IFC Merger Agreement and the Registration Statement, upon
consummation of the IFC Merger the shares of Pinnacle Common Stock to
be issued to holders of shares of IFC Common Stock in connection with
the IFC Merger, when issued, will be validly issued, fully paid and
nonassessable; and
2. assuming (i) the Registration Statement becomes and remains
effective under the Act and fully complies with all of the
requirements of the Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the regulations promulgated
thereunder, during all relevant periods, (ii) the Joint Proxy
Statement/Prospectus forming a part of the Registration Statement, and
the delivery procedures with respect thereto, fulfill all requirements
of the Act, the Exchange Act, and all applicable regulations
promulgated
<PAGE>
Pinnacle Financial Services, Inc. -5- April 24, 1997
under the Act and the Exchange Act, throughout all relevant periods,
(iii) compliance with all federal and state securities laws throughout all
relevant periods, (iv) the CB Merger has become effective under applicable
state law, and (v) the shares of Pinnacle Common Stock are issued and
delivered in the manner referred to in the CB Merger Agreement and the
Registration Statement, upon consummation of the CB Merger the shares of
Pinnacle Common Stock to be issued to holders of shares of CB Common Stock
and to holders of the CB Stock Options in connection with the CB Merger,
when issued, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Joint Proxy Statement/Prospectus forming a part of the
Registration Statement. In giving such consent we do not hereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Act or the rules or regulations of the Securities and Exchange Commission
thereunder.
Sincerely,
Miller, Canfield, Paddock and
Stone, P.L.C.
<PAGE>
Exhibit 23(f)
KPMG Peat Marwick LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
The Board of Directors
Pinnacle Financial Services, Inc.:
We consent to the use of our reports included herein (or incorporated herein by
reference) and to the reference to our firm under the heading "Experts" in the
prospectus, as amended.
KPMG Peat Marwick LLP
Chicago, Illinois
April 22, 1997
<PAGE>
Exhibit 23(g)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the Joint
Proxy Statement of Pinnacle Financial Services, Inc., Indiana Federal
Corporation, and CB Bancorp, Inc., which is referred to and made a part of this
Prospectus and Amendment No. 1 to the Registration Statement (Form S-4 No.
333-19729) of Pinnacle Financial Services, Inc. for the registration of its
common stock and to the incorporation by reference of our report dated
February 28, 1997, with respect to the consolidated financial statements of
Indiana Federal Corporation, incorporated by reference in its Annual Report
(Form 10-K) for the year ended December 31, 1996, filed with the Securities and
Exchange Commission.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-66618) pertaining to the 1986 Stock Option and Incentive Plan
of Indiana Federal Corporation of our report dated February 28, 1997, with
respect to the consolidated financial statements of Indiana Federal Corporation
incorporated by reference in the Annual Report (Form 10-K) for the year ended
December 31, 1996.
Ernst & Young LLP
Chicago, Illinois
April 21, 1997
<PAGE>
Exhibit 23(h)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the Joint
Proxy Statement of Pinnacle Financial Services, Inc., Indiana Federal
Corporation, and CB Bancorp, Inc., which is referred to and made a part of this
Prospectus and Amendment No. 1 to the Registration Statement (Form S-4 No.
333-19729) of Pinnacle Financial Services, Inc. for the registration of its
common stock and to the incorporation by reference of our report dated
May 17, 1996, with respect to the consolidated financial statements of
CB Bancorp, Inc., incorporated by reference in its Annual Report (Form 10-K) for
the year ended March 31, 1996, filed with the Securities and Exchange
Commission.
Crowe, Chizek and Company LLP
South Bend, Indiana
April 23, 1997
<PAGE>
Exhibit 99(e)
ABN AMRO
Chicago Corporation
CONSENT OF ABN AMRO CHICAGO CORPORATION
We hereby consent to the use of the form of our opinion letter to the Board
of Directors of Pinnacle Financial Services, Inc. included as Annex F to the
Joint Proxy Statement/Prospectus relating to the proposed merger of Pinnacle
Financial Services, Inc. and Indiana Federal Corporation and to the references
to our firm and such opinion in such Joint Proxy Statement/Prospectus. In
giving such consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
ABN AMRO Chicago Corporation
April 24, 1997
<PAGE>
Exhibit 99(f)
CONSENT OF PL CAPITAL, LLC
We hereby consent to the use of the form of our opinion letter to the Board
of Directors of Pinnacle Financial Services, Inc. included as Annex G to the
Joint Proxy Statement/Prospectus relating to the proposed merger of Pinnacle
Financial Services, Inc. and CB Bancorp, Inc. and to the references to our firm
and such opinion in such Joint Proxy Statement/Prospectus. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
PL Capital, LLC
April 24, 1997
<PAGE>
Exhibit 99(g)
CONSENT OF SANDLER O'NEILL & PARTNERS, L.P.
We hereby consent to the use of our opinion letter to the Board of
Directors of Pinnacle Financial Services, Inc. included as Annex H to the Joint
Proxy Statement/Prospectus relating to the proposed merger of Pinnacle Financial
Services, Inc. and Indiana Federal Corporation and to the references to our firm
and such opinion in such Joint Proxy Statement/Prospectus. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Sandler O'Neill & Partners, L.P.
April 24, 1997
<PAGE>
Exhibit 99(h)
CONSENT OF CHARLES WEBB & COMPANY
We hereby consent to the use of the form of our opinion letter to the Board
of Directors of Pinnacle Financial Services, Inc. included as Annex I to the
Joint Proxy Statement/Prospectus relating to the proposed merger of Pinnacle
Financial Services, Inc. and CB Bancorp, Inc. and to the references to our firm
and such opinion in such Joint Proxy Statement/Prospectus. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Charles Webb & Company
April 24, 1997
<PAGE>
Exhibit 99(i)
[FRONT SIDE OF PROXY]
PROXY PINNACLE FINANCIAL SERVICES, INC. PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON ________, _____________, 1997
The Stockholder executing this Proxy appoints Richard L. Schanze, Arnold L.
Weaver, David W. Kolhagen, and John A. Newcomer, or any of them, each with full
power to appoint his substitute, attorneys and proxies to represent the
Stockholder and to vote and act with respect to all shares of common stock, no
par value per share, of Pinnacle Financial Services, Inc. ("Pinnacle") that the
Stockholder would be entitled to vote on all matters which come before the
Annual Meeting of Stockholders of Pinnacle referred to above (the "Pinnacle
Annual Meeting") and at any adjournment(s) or postponement(s) of the Pinnacle
Annual Meeting.
PLEASE MARK, SIGN AND DATE THIS PROXY.
RETURN THIS PROXY PROMPTLY USING THE ENCLOSED POSTAGE PAID RETURN ENVELOPE
(Continued and to be signed on reverse side.)
<PAGE>
[BACK SIDE OF PROXY]
1. The election of eight directors to the Board of Directors of Pinnacle for
terms expiring at the Annual Meeting of Stockholders to be held in the year
1998 and upon the election and qualification of their successors or upon
their earlier resignation or removal, namely: John R. Cunningham,
Charles R. Edinger, John D. Fetters, Terrence A. Friedman, Richard L.
Schanze, Kay F. Varga, Arnold L. Weaver, and Alton C. Wendzel.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL DIRECTOR NOMINEES
LISTED ABOVE.
Vote for all nominees Withhold authority
listed above. to
vote for all
nominees
listed above.
/ / / /
(INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY NOMINEE(S) LISTED ABOVE, LIST
NAME(S) OF NOMINEE(S) IN THE SPACE PROVIDED BELOW.)
-------------------------------------------------------
2. Approval and adoption of (a) the Agreement and Plan of Merger dated as of
November 14, 1996, as amended (the "IFC Merger Agreement"), between
Pinnacle and Indiana Federal Corporation ("IFC"), and (b) all of the
transactions contemplated by the IFC Merger Agreement (including, without
limitation, the merger of IFC with and into Pinnacle (the "IFC Merger"),
with Pinnacle being the surviving corporation, and the issuance of shares
of common stock, no par value per share, of Pinnacle ("Pinnacle Common
Stock") to holders of common stock, $.01 par value per share, of IFC ("IFC
Common Stock"). Upon consummation of the IFC Merger, among other things,
each issued and outstanding share of IFC Common Stock will be converted
into one (1) share of Pinnacle Common Stock.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
/ / FOR / / AGAINST / / ABSTAIN
3. Approval and adoption of (a) the Agreement and Plan of Merger dated as of
March 1, 1997 (the "CB Merger Agreement"), between Pinnacle and CB Bancorp,
Inc. ("CB"), and (b) all of the transactions contemplated by the CB Merger
Agreement (including, without limitation, the merger of CB with and into
Pinnacle (the "CB Merger"), with Pinnacle being the surviving corporation,
and the issuance of shares of common stock, no par value per share, of
Pinnacle ("Pinnacle Common Stock") to holders of common stock, $.01 par
value per share, of CB ("CB Common Stock"). Upon consummation of the CB
Merger, among other things, each issued and outstanding share of CB Common
Stock will be converted into shares of Pinnacle Common Stock pursuant to a
formula described in the accompanying Notice and Joint Proxy
Statement/Prospectus.
<PAGE>
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PINNACLE.
IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES OF PINNACLE COMMON STOCK
REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS
MADE, SUCH SHARES WILL BE VOTED FOR ELECTION OF ALL OF THE DIRECTOR NOMINEES
LISTED ABOVE, FOR THE APPROVAL AND ADOPTION OF THE IFC MERGER AGREEMENT AND ALL
OF THE TRANSACTIONS CONTEMPLATED THEREBY, AND FOR THE APPROVAL AND ADOPTION OF
THE CB MERGER AGREEMENT AND ALL OF THE TRANSACTIONS CONTEMPLATED THEREBY. THE
SHARES OF PINNACLE COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED IN THE
DISCRETION OF THE PROXIES ON ANY OTHER MATTERS WHICH MAY COME BEFORE THE
PINNACLE ANNUAL MEETING.
The undersigned Stockholder hereby (i) revokes any and all proxies
previously executed with respect to the Pinnacle Annual Meeting, and (ii)
acknowledges receipt of the Notice and Joint Proxy Statement/Prospectus for the
Pinnacle Annual Meeting.
Signature(s)
----------------------------------------
----------------------------------------
Please sign exactly as name appears on
this proxy. When shares are held by
joint tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by an authorized officer.
If a partnership, please sign in
partnership name by authorized person.
Dated: , 1997
------------------------
<PAGE>
Exhibit 99(j)
[FRONT SIDE OF PROXY]
PROXY INDIANA FEDERAL CORPORATION PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON ________, _____________, 1997
The Stockholder executing this Proxy appoints the Board of Directors of
Indiana Federal Corporation ("IFC"), with full power to appoint its substitute,
attorneys and proxies to represent the Stockholder and to vote and act with
respect to all shares of common stock, $.01 par value per share, of IFC that the
Stockholder would be entitled to vote on all matters which come before the
Annual Meeting of Stockholders of IFC referred to above (the "IFC Annual
Meeting") and at any adjournment(s) or postponement(s) of the IFC Annual
Meeting.
PLEASE MARK, SIGN AND DATE THIS PROXY.
RETURN THIS PROXY PROMPTLY USING THE ENCLOSED POSTAGE PAID RETURN ENVELOPE
(Continued and to be signed on reverse side.)
<PAGE>
[BACK SIDE OF PROXY]
1. The election of three directors to the Board of Directors of IFC for three
year terms expiring at the IFC Annual Meeting to be held in the year 2000
and upon the election and qualification of their successors or upon their
earlier resignation or removal, namely: Peter R. Candela, John R. Poncher,
M.D., and Byron Smith III.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL DIRECTOR NOMINEES
LISTED ABOVE.
Vote for all nominees Withhold authority
listed above. to
vote for all
nominees
listed above.
/ / / /
(INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY NOMINEE(S) LISTED ABOVE, LIST
NAME(S) OF NOMINEE(S) IN THE SPACE PROVIDED BELOW.)
----------------------------------------------------
2. Approval and adoption of the Agreement and Plan of Merger dated as of
November 14, 1996, as amended (the "IFC Merger Agreement"), between
Pinnacle Financial Services, Inc. ("Pinnacle") and IFC, and (b) all of the
transactions contemplated by the IFC Merger Agreement (including, without
limitation, the merger of IFC with and into Pinnacle (the "IFC Merger"),
with Pinnacle being the surviving corporation, and the issuance of shares
of common stock, no par value per share, of Pinnacle ("Pinnacle Common
Stock") to holders of common stock, $.01 par value per share, of IFC ("IFC
Common Stock"). Upon consummation of the IFC Merger, among other things,
each issued and outstanding share of IFC Common Stock will be converted
into one (1) share of Pinnacle Common Stock.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
/ / FOR / / AGAINST / / ABSTAIN
3. Ratification of the appointment of Ernst & Young LLP as independent
auditors for IFC for the fiscal year ending December 31, 1997.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF IFC. IF
THIS PROXY IS PROPERLY EXECUTED, THE SHARES OF IFC COMMON STOCK REPRESENTED BY
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, SUCH SHARES
WILL BE VOTED FOR THE ELECTION OF ALL DIRECTOR NOMINEES LISTED ABOVE, FOR THE
APPROVAL AND ADOPTION OF THE IFC MERGER AGREEMENT AND ALL OF THE TRANSACTIONS
CONTEMPLATED THEREBY, AND
<PAGE>
FOR THE RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF IFC. THE
SHARES OF IFC COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED IN THE
DISCRETION OF THE PROXIES ON ANY OTHER MATTERS WHICH MAY COME BEFORE THE ANNUAL
MEETING.
The undersigned Stockholder hereby (i) revokes any and all proxies
previously executed with respect to the IFC Annual Meeting, and (ii)
acknowledges receipt of the Notice and Joint Proxy Statement/Prospectus for the
IFC Annual Meeting.
Signature(s)
----------------------------------------
----------------------------------------
Please sign exactly as name appears on
this proxy. When shares are held by
joint tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by an authorized officer.
If a partnership, please sign in
partnership name by authorized person.
Dated: , 1997
------------------------
<PAGE>
Exhibit 99(k)
[FRONT SIDE OF PROXY]
PROXY CB BANCORP, INC. PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE
HELD ON ________, _____________, 1997
The Stockholder executing this Proxy appoints __________________,
___________________, __________________ and __________________, or any of them,
each with full power to appoint his substitute, attorneys and proxies to
represent the Stockholder and to vote and act with respect to all shares of
common stock, $.01 par value per share, of CB Bancorp, Inc. ("CB") that the
Stockholder would be entitled to vote on all matters which come before the
Special Meeting of Stockholders of CB referred to above (the "CB Special
Meeting") and at any adjournment(s) or postponement(s) of the CB Special
Meeting.
PLEASE MARK, SIGN AND DATE THIS PROXY.
RETURN THIS PROXY PROMPTLY USING THE ENCLOSED POSTAGE PAID RETURN ENVELOPE
(Continued and to be signed on reverse side.)
<PAGE>
[BACK SIDE OF PROXY]
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL THAT
FOLLOWS:
Approval and adoption of (a) the Agreement and Plan of Merger dated as of
March 1, 1997 (the "CB Merger Agreement"), between CB and Pinnacle
Financial Services, Inc. ("Pinnacle"), and (b) all of the transactions
contemplated by the CB Merger Agreement (including, without limitation, the
merger of CB with and into Pinnacle (the "CB Merger"), with Pinnacle being
the surviving corporation, and the issuance of shares of common stock, no
par value per share, of Pinnacle ("Pinnacle Common Stock") to holders of
common stock, $.01 par value per share, of CB ("CB Common Stock"). Upon
consummation of the CB Merger, each issued and outstanding share of CB
Common Stock will be converted into shares of Pinnacle Common Stock
pursuant to a formula described in the accompanying Notice and Joint Proxy
Statement/Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CB BANCORP,
INC. THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSAL LISTED.
IF ANY OTHER BUSINESS IS PRESENTED AT THE SPECIAL MEETING, INCLUDING WHETHER OR
NOT TO ADJOURN THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT.
The undersigned Stockholder hereby (i) revokes any and all proxies
previously executed with respect to the Special Meeting, and (ii) acknowledges
receipt of the Notice and Joint Proxy Statement/Prospectus for the CB Special
Meeting.
Signature(s)
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Please sign exactly as name appears on
this proxy. When shares are held by
joint tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by an authorized officer.
If a partnership, please sign in
partnership name by authorized person.
Dated: , 1997
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