<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1997
REGISTRATION NO. 333-19729
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
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. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
[PINNACLE LETTERHEAD]
June , 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 10:00 a.m.,
local time, on Wednesday, July 30, 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 JULY 30, 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 10:00 a.m., local
time, on Wednesday, July 30, 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 June
16, 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
June , 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]
June , 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 Waterbird
Restaurant at the Indian Oak Resort, 558 Indian Boundary Road, Chesterton,
Indiana, at 10:00 a.m., local time, on Wednesday, July 30, 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 JULY 30, 1997
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of
Indiana Federal Corporation ("IFC") will be held at Waterbird Restaurant at the
Indian Oak Resort, 558 Indian Boundary Road, Chesterton, Indiana at 10:00 a.m.,
local time, on Wednesday, July 30, 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 June 16,
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
June , 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]
June , 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of CB
Bancorp, Inc. ("CB"), which will be held at Michigan City Holiday Inn, 5820
South Franklin Street, Michigan City, Indiana 46360, at 10:00 a.m., local time,
on Wednesday, July 30, 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 JULY 30, 1997
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of CB Bancorp,
Inc. ("CB") will be held at Michigan City Holiday Inn, 5820 South Franklin
Street, Michigan City, Indiana 46360, at 10:00 a.m., local time, on Wednesday,
July 30, 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 June 16,
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
June , 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.
<PAGE>
<TABLE>
<S> <C>
------------------------------------------------ ------------------------------------------------
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
------------------------------------------- -------------------------------------------
</TABLE>
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 July 30, 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 July 30, 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 July 30, 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 June , 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 June , 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 Stock were $ , $ and $ ,
respectively, on June , 1997 (the last practicable trading day prior to the
mailing of this Joint Proxy Statement/Prospectus).
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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............................................................. 15
Certain Federal Income Tax Consequences................................................................. 16
Acquisition of Maco Bancorp, Inc........................................................................ 17
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....................................... 24
Comparative Per Share Data of Pinnacle Financial Services, Inc. and Indiana Federal Corporation......... 26
Comparative Per Share Data of Pinnacle Financial Services, Inc. and CB Bancorp, Inc..................... 27
Comparative Per Share Data of Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB
Bancorp, Inc.......................................................................................... 28
Comparative Stock Prices................................................................................ 29
THE COMPANIES............................................................................................. 31
Pinnacle Financial Services, Inc........................................................................ 31
Indiana Federal Corporation............................................................................. 32
CB Bancorp, Inc......................................................................................... 32
THE STOCKHOLDER MEETINGS.................................................................................. 33
Matters to be Considered................................................................................ 33
Votes Required.......................................................................................... 33
Voting of Proxies....................................................................................... 35
Revocability of Proxies................................................................................. 37
Record Dates; Shares Entitled to Vote; Quorums.......................................................... 38
No Dissenters' Rights/No Appraisal Rights............................................................... 38
Solicitation of Proxies................................................................................. 38
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THE MERGERS............................................................................................... 40
Structure............................................................................................... 40
Merger Consideration.................................................................................... 41
Backgrounds of the Mergers.............................................................................. 43
Reasons for the Mergers................................................................................. 48
Recommendations of the Boards of Directors.............................................................. 53
Opinions of Pinnacle Financial Advisors................................................................. 53
Opinion of IFC Financial Advisor........................................................................ 62
Opinion of CB Financial Advisor......................................................................... 68
Certain Forward-Looking Information..................................................................... 72
Summary of the IFC Merger Agreement..................................................................... 72
Summary of the CB Merger Agreement...................................................................... 79
Procedures for Exchange of Certificates................................................................. 86
No Solicitation of Transactions......................................................................... 87
Regulatory Approvals Required for the Mergers........................................................... 88
Interests of Certain Persons in the Mergers............................................................. 90
Anticipated Accounting Treatment........................................................................ 90
Resale of Pinnacle Common Stock; Restrictions on Transfer............................................... 91
No Dissenters' Rights/No Appraisal Rights............................................................... 92
Stock Option Agreements................................................................................. 92
PRO FORMA COMBINED FINANCIAL INFORMATION
Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro Forma Combined Statement
of Income Summary..................................................................................... 98
Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro Forma Combined
Statements of Income.................................................................................. 101
Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro Forma Combined Balance
Sheet................................................................................................. 106
Notes to Pinnacle Financial Services, Inc. and Indiana Federal Corporation Unaudited Pro Forma Combined
Financial Statements.................................................................................. 108
Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma Combined Statement of Income
Summary............................................................................................... 109
Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma Combined Statements of
Income................................................................................................ 112
Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma Combined Balance Sheet....... 123
Notes to Pinnacle Financial Services, Inc. and CB Bancorp, Inc. Unaudited Pro Forma Combined Financial
Statements............................................................................................ 126
Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp, Inc. Unaudited Pro Forma
Combined Statement of Income Summary.................................................................. 127
Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp, Inc. Unaudited Pro Forma
Combined Statements of Income......................................................................... 130
Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp, Inc. Unaudited Pro Forma
Combined Balance Sheet................................................................................ 141
Notes to Pinnacle Financial Services, Inc., Indiana Federal Corporation and CB Bancorp, Inc. Unaudited
Pro Forma Combined Financial Statements............................................................... 144
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INTERESTS OF CERTAIN PERSONS IN THE MERGERS............................................................... 145
Directors............................................................................................... 145
Executive Officers...................................................................................... 145
Subsidiary Bank Mergers................................................................................. 146
Other Matters........................................................................................... 147
MANAGEMENT AND OPERATIONS AFTER THE MERGERS............................................................... 151
Directors............................................................................................... 151
Executive Officers...................................................................................... 152
Subsidiary Bank Mergers................................................................................. 153
Post-Merger Dividend Policy............................................................................. 154
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................................................... 155
ACQUISITION OF MACO BANCORP, INC.......................................................................... 156
General................................................................................................. 156
Standstill Agreement.................................................................................... 156
Transfer Agreements; Indemnification Agreement; Escrow Agreement; Non-Competition Agreement............. 157
Potential Adverse Tax Consequences...................................................................... 159
CERTAIN REGULATORY CONSIDERATIONS......................................................................... 160
General................................................................................................. 160
Payment of Dividends.................................................................................... 161
Certain Transactions with Affiliates.................................................................... 162
Capital................................................................................................. 163
Support of Subsidiary Banks............................................................................. 165
FDIC Insurance Assessments.............................................................................. 166
Regulation of Proposed Acquisitions..................................................................... 167
Recent Legislation...................................................................................... 168
Qualified Thrift Lender ("QTL") Test.................................................................... 168
Mortgage Regulation..................................................................................... 168
DESCRIPTION OF PINNACLE COMMON STOCK...................................................................... 171
COMPARISON OF STOCKHOLDERS' RIGHTS........................................................................ 172
General................................................................................................. 172
Board of Directors; Removal of Directors................................................................ 172
Stockholder Voting Requirements......................................................................... 174
Anti-Takeover Laws and Charter Provisions............................................................... 176
Special Meetings of Stockholders........................................................................ 177
Director Liability and Indemnification.................................................................. 178
IFC Rights Agreement.................................................................................... 178
Payment of Dividends.................................................................................... 179
Charter Amendments...................................................................................... 179
Other Matters........................................................................................... 180
INFORMATION REGARDING THE PINNACLE ANNUAL MEETING......................................................... 181
Election of Directors................................................................................... 181
Board of Directors Meetings and Committees.............................................................. 182
Directors Compensation and Benefits..................................................................... 183
Compensation Committee Interlocks and Insider Participation............................................. 183
Executive Compensation.................................................................................. 184
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Compensation Committee Report on Executive Compensation................................................. 186
Shareholder Return Performance Presentation............................................................. 187
Indebtedness of Management.............................................................................. 187
Section 16(a) Beneficial Ownership Reporting Compliance................................................. 188
Beneficial Ownership of Pinnacle Common Stock........................................................... 189
Other Matters........................................................................................... 190
INFORMATION REGARDING THE IFC ANNUAL MEETING.............................................................. 191
Election of Directors................................................................................... 191
Board of Directors Meetings and Committees.............................................................. 192
Director Compensation and Benefits...................................................................... 193
Compensation Committee Interlocks and Insider Participation............................................. 194
Executive Compensation.................................................................................. 194
Compensation Committee Report on Executive Compensation................................................. 196
Shareholder Return Performance Presentation............................................................. 198
Indebtedness of Management.............................................................................. 199
Section 16(a) Beneficial Ownership Reporting Compliance................................................. 199
Ratification of the Appointment of Independent Auditors................................................. 199
Other Matters........................................................................................... 199
LEGAL MATTERS............................................................................................. 199
EXPERTS................................................................................................... 200
STOCKHOLDER PROPOSALS..................................................................................... 200
ANNEXES
Annex A--CB Bancorp, Inc. Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997
Annex B--Agreement and Plan of Merger dated as of November 14, 1996 between Pinnacle Financial Services, Inc. and
Indiana Federal Corporation (without exhibits)
Annex C--First Amendment to Agreement and Plan of Merger dated as of February 27, 1997 between Pinnacle Financial
Services, Inc. and Indiana Federal Corporation
Annex D--Agreement and Plan of Merger dated as of March 1, 1997 between Pinnacle Financial Services, Inc. and CB
Bancorp, Inc. (without exhibits)
Annex E--Opinion of ABN AMRO Chicago Corporation
Annex F--Opinion of PL Capital, LLC
Annex G--Opinion of Sandler O'Neill & Partners, L.P.
Annex H--Opinion of Charles Webb & Company, a division of Keefe, Bruyette & Woods, Inc.
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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. 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
2
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Report on Form 8-K dated March 3, 1997 and its Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1997, as amended).
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, as amended (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 (including IFC's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1997).
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, 1997, as amended (the "1997 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 1997 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 on Form 10-KSB for the fiscal year ended March 31, 1997
has been reproduced and attached to this Joint Proxy Statement/Prospectus as
Annex A.
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 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.
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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 WEDNESDAY, JULY 23, 1997.
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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 $819 million at March 31, 1997, 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.," and "ANNEX A--CB
BANCORP, INC. ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED MARCH 31,
1997."
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.
5
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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 10:00
a.m., local time, on Wednesday, July 30, 1997. See "THE STOCKHOLDER MEETINGS."
IFC. The 1997 Annual Meeting of Stockholders of IFC will be held at The
Porter County Expo Center, 215 East Division Road, Valparaiso, Indiana, at 10:00
a.m., local time, on Wednesday, July 30, 1997. See "THE STOCKHOLDER MEETINGS."
CB. A special meeting of the stockholders of CB will be held at Michigan
City Holiday Inn, 5820 South Franklin Street, Michigan City, Indiana 46360, at
10:00 a.m., local time, on Wednesday, July 30, 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 B 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 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 D 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 June 16, 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 June 16, 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 June 16, 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 June 16, 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 June 16, 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 June 16, 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
June 16, 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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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 June 16, 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 of June 16, 1997, directors and executive officers of IFC and their
affiliates were beneficial owners of 581,225, or 12.1%, of the outstanding
shares of IFC Common Stock (including 126,451 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 June 16, 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 June 16, 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 June 16, 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 June 16, 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 June 16, 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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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 June 16, 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 June 16, 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 June 16, 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 June 16, 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 June 16, 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 June 16, 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 June 16, 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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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, and its written opinion as of June ,
1997, that, as of such dates, 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
E.
PL Capital, LLC has delivered to the Pinnacle Board its oral opinion as of
February 27, 1997, and its written opinion as of June , 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 F.
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 June ,
1997, that, as of such dates, the IFC Exchange Ratio
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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 G.
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 June , 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 H. 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
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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 (except with respect to cash received
in lieu of a fractional share interest). 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
16
<PAGE>
stockholder of First Federal Savings Bank of Indiana, a federal savings bank
that was merged with and into 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 and for each of the three month periods ended
March 31, 1997 and 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." In the opinion of
management of Pinnacle, the data presented for the three month periods ended
March 31, 1997 and 1996 reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such data. Results
for the three month periods ended March 31, 1997 and 1996 are not necessarily
indicative of results that may be expected for any other interim period or the
year as a whole.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
AT OR FOR THE THREE --------- --------- --------- --------- ---------
MONTHS ENDED
MARCH 31,
------------------------
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME:
Interest income................. $ 20,065 $ 17,158 $ 73,969 $ 37,495 $ 28,968 $ 29,349 $ 26,249
Interest expense................ 11,015 9,289 39,693 18,151 11,862 12,420 12,587
Net interest income............. 9,050 7,869 34,276 19,344 17,106 16,929 13,662
Provision for loan losses....... 235 80 375 225 125 360 1,094
Noninterest income.............. 1,891 1,584 7,308 4,586 3,756 4,174 3,857
Noninterest expense(1).......... 6,189 5,751 26,956 14,636 13,114 13,451 10,355
Income before income tax........ 4,517 3,622 14,253 9,069 7,623 7,292 6,070
Provision for income tax........ 1,547 1,178 5,101 2,610 2,333 2,255 1,792
Extraordinary items/accounting
changes....................... -- -- -- -- -- -- --
----------- ----------- --------- --------- --------- --------- ---------
Net income...................... $ 2,970 $ 2,444 $ 9,152 $ 6,459 $ 5,290 $ 5,037 $ 4,278
----------- ----------- --------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- --------- ---------
PER SHARE DATA:(2)
Net income per share............ $ 0.50 $ 0.42 $ 1.55 $ 1.62 $ 1.38 $ 1.32 $ 1.12
Cash dividends declared per
share......................... 0.24 0.19 0.82 0.76 0.62 0.53 0.48
Book value per share............ 12.59 12.51 13.06 12.75 9.20 8.86 7.98
Tangible book value per share... 10.39 9.95 10.81 10.09 8.46 8.02 7.02
BALANCE SHEET DATA:
Total assets.................... $1,097,791 $ 935,471 $1,069,121 $ 911,446 $ 409,438 $ 409,572 $ 394,880
Loans........................... 615,024 543,142 609,564 518,459 290,330 264,010 262,623
Allowance for loan losses....... 5,651 5,803 5,643 5,852 5,014 5,215 5,881
Securities...................... 412,925 332,826 372,157 287,532 91,533 119,889 96,080
Deposits........................ 757,922 716,659 761,269 703,100 352,037 363,014 352,319
Stockholders' equity............ 75,290 73,498 78,049 74,896 35,148 33,878 30,494
PERFORMANCE RATIOS:(3)
Return on average assets(1)..... 1.14% 1.05% 0.94% 1.36% 1.30% 1.27% 1.32%
Return on average stockholders'
equity(1)..................... 15.62 13.03 12.34 15.91 15.40 15.77 14.73
Net interest margin............. 3.73 3.68 3.79 4.43 4.61 4.67 4.69
Non-interest income to average
assets........................ 0.72 0.68 0.75 0.96 0.92 1.05 1.19
Non-interest expense to average
assets(1)..................... 2.36 2.48 2.76 3.07 3.22 3.39 3.19
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL:(4)
Stockholders' equity to
assets........................ 6.68% 7.86% 7.30% 8.22% 8.58% 8.27% 7.72%
Tier 1 capital to total
assets........................ 6.24 6.61 6.24 6.62 8.62 7.87 7.37
Tier 1 capital to risk based
assets........................ 12.45 12.03 11.99 11.97 12.70 12.59 11.59
</TABLE>
- ------------------------
(1) The amount shown for December 31, 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) Performance ratios for the three months ended March 31, 1997 and March 31,
1996 are stated on an annualized basis.
(4) 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 and for each of the three month periods ended
March 31, 1997 and 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." In the opinion of management
of IFC, the data presented for the three month periods ended March 31, 1997 and
1996 reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such data. Results for the three month
periods ended March 31, 1997 and 1996 are not necessarily indicative of results
that may be expected for any other interim period or the year as a whole.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
AT OR FOR THE THREE MONTHS ------------ ------------ ------------
ENDED MARCH 31,
--------------------------
1997
------------ 1996
(UNAUDITED) ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME:
Interest income......................................... $ 15,487 $ 13,357 $ 56,859 $ 55,170 $ 43,573
Interest expense........................................ 8,746 7,311 31,859 29,855 22,365
Net interest income..................................... 6,741 6,046 25,000 25,315 21,208
Provision for loan losses............................... 240 50 1,115 177 179
Noninterest income...................................... 1,826 1,050 4,350 4,679 4,471
Noninterest expense(1).................................. 5,023 4,863 22,451 20,195 15,172
Income before income tax................................ 3,304 2,183 5,784 9,622 10,328
Provision for income tax................................ 1,024 546 1,161 2,318 3,066
Extraordinary items/accounting changes.................. -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net income.............................................. $ 2,280 $ 1,637 $ 4,623 $ 7,304 $ 7,262
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
PER SHARE DATA:(2)
Net income per share.................................... $ 0.47 $ 0.34 $ 0.96 $ 1.51 $ 1.50
Cash dividends declared per share....................... 0.18 0.28 0.82 0.86 0.72
Book value per share.................................... 15.03 14.88 14.97 14.98 13.81
Tangible book value per share........................... 14.12 13.82 14.02 13.89 13.11
BALANCE SHEET DATA:
Total assets............................................ $ 818,924 $ 717,720 $ 836,825 $ 721,333 $ 717,574
Loans................................................... 620,966 532,955 629,042 529,348 518,272
Allowance for loan losses............................... 6,908 6,640 7,458 6,655 6,101
Securities.............................................. 126,172 95,026 129,714 99,410 137,418
Deposits................................................ 550,389 546,880 569,078 532,896 510,475
Stockholders' equity.................................... 71,920 70,504 71,367 70,730 64,315
PERFORMANCE RATIOS:(3)
Return on average assets(1)............................. 1.10 % 0.91 % 0.61% 1.00% 1.19%
Return on average stockholders' equity(1)............... 12.73 9.27 6.51 10.74 11.28
Net interest margin..................................... 3.48 3.68 3.61 3.78 3.70
Non-interest income to average assets................... 0.88 0.58 0.57 0.64 0.73
Non-interest expense to average assets(1)............... 2.43 2.70 2.97 2.77 2.49
CAPITAL:(4)
Stockholders' equity to assets.......................... 8.78 % 9.82 % 8.53% 9.81% 8.96%
Tier 1 capital to total assets.......................... 8.38 9.18 7.99 9.05 8.84
Tier 1 capital to risk based assets..................... 12.12 14.19 11.49 14.06 14.68
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
CONSOLIDATED STATEMENT OF INCOME:
Interest income......................................... $ 46,744 $ 47,533
Interest expense........................................ 25,888 27,588
Net interest income..................................... 20,856 19,945
Provision for loan losses............................... 1,097 1,395
Noninterest income...................................... 4,579 3,710
Noninterest expense(1).................................. 13,678 12,388
Income before income tax................................ 10,660 9,872
Provision for income tax................................ 3,076 3,891
Extraordinary items/accounting changes.................. (429) 250
------------ ------------
Net income.............................................. $ 7,155 $ 6,231
------------ ------------
------------ ------------
PER SHARE DATA:(2)
Net income per share.................................... $ 1.45 $ 1.27
Cash dividends declared per share....................... 0.53 0.40
Book value per share.................................... 13.54 12.65
Tangible book value per share........................... 13.36 12.45
BALANCE SHEET DATA:
Total assets............................................ $ 639,148 $ 602,377
Loans................................................... 420,180 403,951
Allowance for loan losses............................... 5,356 4,392
Securities.............................................. 92,367 154,698
Deposits................................................ 430,829 416,081
Stockholders' equity.................................... 63,090 59,816
PERFORMANCE RATIOS:(3)
Return on average assets(1)............................. 1.13% 1.08%
Return on average stockholders' equity(1)............... 11.57 10.78
Net interest margin..................................... 3.48 3.65
Non-interest income to average assets................... 0.72 0.65
Non-interest expense to average assets(1)............... 2.15 2.16
CAPITAL:(4)
Stockholders' equity to assets.......................... 9.87% 9.93%
Tier 1 capital to total assets.......................... 9.75 9.78
Tier 1 capital to risk based assets..................... 17.03 15.96
</TABLE>
- ------------------------------
(1) The amount shown for December 31, 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) Performance ratios for the three months ended March 31, 1997 and March 31,
1996 are stated on an annualized basis.
(4) 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, 1997. The following table should be read in conjunction with the
CB Bancorp, Inc. Annual Report on Form 10-KSB for the fiscal year ended March
31, 1997 and 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" and
"ANNEX A--CB BANCORP, INC. ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDED MARCH 31, 1997."
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED MARCH 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF INCOME:
Interest income............................................. $ 16,401 $ 14,352 $ 9,199 $ 11,016 $ 10,296
Interest expense............................................ 8,134 7,063 4,144 5,106 5,499
Net interest income......................................... 8,267 7,289 5,055 5,910 4,797
Provision for loan losses................................... 1,191 1,020 78 103 278
Noninterest income.......................................... 1,763 1,178 995 1,275 950
Noninterest expense(1)...................................... 5,346 3,609 3,342 3,321 2,937
Income before income tax.................................... 3,493 3,838 2,630 3,761 2,532
Provision for income tax.................................... 1,181 1,380 970 1,406 1,060
Extraordinary items/accounting changes...................... -- -- -- -- --
--------- --------- --------- --------- ---------
Net income.................................................. $ 2,312 $ 2,458 $ 1,660 $ 2,355 $ 1,472
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
PER SHARE DATA:(2)
Net income per share........................................ $ 1.86 $ 1.95 $ 1.29 $ 1.82 $ .28
Cash dividends declared per share........................... -- -- -- -- --
Book value per share........................................ 17.94 15.85 13.75 12.33 10.23
Tangible book value per share............................... 17.94 15.85 13.75 12.33 10.23
BALANCE SHEET DATA:
Total assets................................................ $ 227,135 $ 205,385 $ 143,344 $ 143,528 $ 137,533
Loans....................................................... 186,505 173,160 111,969 112,692 110,177
Allowance for loan losses................................... 1,808 1,346 672 594 495
Securities.................................................. 17,723 19,190 20,160 20,371 16,167
Deposits.................................................... 149,809 138,261 112,071 115,006 116,853
Stockholders' equity........................................ 20,843 18,832 16,678 15,099 13,138
PERFORMANCE RATIOS:
Return on average assets(1)................................. 1.13% 1.37% 1.25% 1.50% 1.11%
Return on average stockholders' equity(1)................... 11.82 13.98 10.36 16.58 17.21
Net interest margin......................................... 4.31 4.33 4.12 3.96 3.80
Non-interest income to average assets(1).................... 0.86 0.66 0.75 0.81 0.71
Non-interest expense to average assets...................... 2.62 2.01 2.53 2.11 2.21
CAPITAL:(3)
Stockholders' equity to assets.............................. 9.18% 9.17% 11.63% 10.52% 9.55%
Tier 1 capital to total assets.............................. 9.18 9.17 11.63 10.52 9.55
Tier 1 capital to risk based assets......................... 16.46 13.22 19.70 19.39 17.57
</TABLE>
- ------------------------------
(1) The amount shown for the year ended March 31, 1997 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.
(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 INDIANA FEDERAL CORPORATION
(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 IFC
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 Indiana Federal Corporation Unaudited Pro Forma Combined
Financial Statements. For a description of "pooling-of-interests" accounting
with respect to the IFC 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 IFC, 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 $4.2 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 Indiana
Federal Corporation Unaudited Pro Forma Combined Financial Statements." The pro
forma financial data do not give effect to the anticipated cost savings in
connection with the IFC Merger and are not necessarily indicative of either the
results that actually would have occurred had the IFC Merger been consummated on
the dates indicated or the results that may be obtained in the future.
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
---------------------- --------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF INCOME:
Interest income.................................. $ 35,552 $ 30,515 $ 130,828 $ 92,665 $ 72,541
Interest expense................................. 19,761 16,600 71,552 48,006 34,227
Net interest income.............................. 15,791 13,915 59,276 44,659 38,314
Provision for loan losses........................ 475 130 1,490 402 304
Noninterest income............................... 3,717 2,634 11,658 9,265 8,227
Noninterest expense(1)........................... 11,212 10,614 49,407 34,831 28,286
Income before income tax expense................. 7,821 5,805 20,037 18,691 17,951
Income tax expense............................... 2,571 1,724 6,262 4,928 5,399
Extraordinary items/accounting changes -- -- -- -- --
Net income....................................... 5,250 4,081 13,775 13,763 12,552
PER SHARE DATA:
Net income per share (primary)................... $ 0.48 $ 0.38 $ 1.29 $ 1.57 $ 1.45
Net income per share (fully diluted)............. $ 0.48 $ 0.38 1.29 1.57 1.45
Cash dividends declared per share................ $ 0.24 $ 0.19 0.82 0.76 0.62
Book value per share............................. 13.28
Average common shares outstanding (primary)...... 10,827,510 10,633,487 10,694,302 8,773,136 8,666,503
Average common shares outstanding (fully
diluted)....................................... 10,838,288 10,654,872 10,713,711 8,804,284 8,670,390
BALANCE SHEET DATA:
Total assets..................................... $1,910,870
Loans............................................ 1,235,990
Allowance for loan losses........................ 12,559
Securities....................................... 539,097
Deposits......................................... 1,308,311
Long-term debt................................... --
Stockholders' equity............................. 142,969
</TABLE>
- ------------------------
(1) The amount shown for December 31, 1996 includes $5.2 million as a result of
the assessment of a one-time charge against financial institutions with
deposits insured by the SAIF of the FDIC.
21
<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>
AT OR FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,(1)
-------------------------- ----------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF INCOME:
Interest income......................................... $ 24,424 $ 21,108 $ 89,961 $ 50,322 $ 38,102
Interest expense........................................ 13,194 11,218 47,576 24,380 15,973
Net interest income..................................... 11,230 9,890 42,385 25,942 22,129
Provision for loan losses............................... 565 862 2,018 482 203
Noninterest income...................................... 2,393 1,924 8,909 5,727 4,697
Noninterest expense(2).................................. 7,405 6,713 32,048 18,123 16,454
Income before income tax expense........................ 5,653 4,239 17,228 13,064 10,169
Income tax expense...................................... 1,937 1,312 6,027 4,150 3,254
Extraordinary items/accounting changes.................. -- -- -- -- --
Net income.............................................. 3,716 2,927 11,201 8,914 6,915
PER SHARE DATA:(3)
Net income per share (primary).......................... $ 0.49 $ 0.39 $ 1.49 $ 1.58 $ 1.26
Net income per share (fully diluted).................... 0.49 0.39 1.49 1.58 1.26
Cash dividends declared per share....................... 0.24 0.19 0.82 0.76 0.62
Book value per share.................................... 12.53
Average common shares outstanding (primary)............. 7,566,956 7,495,156 7,504,112 5,636,604 5,498,235
Average common shares outstanding (fully diluted)....... 7,566,956 7,495,156 7,504,112 5,636,604 5,498,235
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997
<S> <C>
BALANCE SHEET DATA:
Total assets................................................................................. $ 1,323,426
Loans........................................................................................ 801,529
Allowance for loan losses.................................................................... 7,459
Securities................................................................................... 430,648
Deposits..................................................................................... 907,731
Long-term debt............................................................................... --
Stockholders' equity......................................................................... 94,813
</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 December 31, 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.
(3) The per share data shown above are based on an average price per share of
Pinnacle Common Stock of $27.375 and 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 following table shows such per share data based on an average price per
share of Pinnacle Common Stock of $29.00 or higher and a CB Exchange Ratio
of 1.2069 shares of Pinnacle Common Stock for each share of CB Common Stock
and each CB stock option converted in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income per share (primary)......................... $0.50 $0.40 $1.51 $1.61 $1.28
Net income per share (fully diluted)................... 0.50 0.40 1.51 1.61 1.28
Cash dividends declared per share...................... 0.24 0.19 0.82 0.76 0.62
Book value per share................................... 12.68
Average common shares outstanding (primary)............ 7,478,001 7,404,327 7,414,242 5,544,729 5,404,352
Average common shares outstanding (fully diluted)...... 7,478,001 7,404,327 7,414,242 5,544,729 5,404,352
</TABLE>
The following table shows such per share data based on an average price per
share of Pinnacle Common Stock of $23.00 or lower and a CB Exchange Ratio of
1.5217 shares of Pinnacle Common Stock for each share of CB Common Stock and
each CB stock option converted in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income per share (primary)......................... $0.47 $0.38 $1.43 $1.50 $1.19
Net income per share (fully diluted)................... 0.47 0.38 1.43 1.50 1.19
Cash dividends declared per share...................... 0.24 0.19 0.82 0.76 0.62
Book value per share................................... 12.05
Average common shares outstanding (primary)............ 7,869,088 7,803,658 7,809,353 5,948,657 5,817,111
Average common shares outstanding (fully diluted)...... 7,869,088 7,803,658 7,809,353 5,948,657 5,817,111
</TABLE>
23
<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 THREE MONTHS FOR THE YEAR ENDED DECEMBER
ENDED MARCH 31, 31,(1)
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF INCOME:
Interest income..................................... $ 39,911 $ 34,465 $ 146,820 $ 105,492 $ 81,675
Interest expense.................................... 21,940 18,529 79,435 54,235 38,338
Net interest income................................. 17,971 15,936 67,385 51,257 43,337
Provision for loan losses........................... 605 912 3,133 659 382
Noninterest income.................................. 4,219 2,974 13,259 10,406 9,168
Noninterest expense(2).............................. 12,428 11,576 54,499 38,318 31,626
Income before income tax expense.................... 8,957 6,422 23,012 22,686 20,497
Income tax expense.................................. 2,961 1,858 7,188 6,468 6,320
Extraordinary items/accounting changes.............. -- -- -- -- --
Net income(2)....................................... 5,996 4,564 15,824 16,218 14,177
PER SHARE DATA:(3)
Net income per share (primary)...................... $ 0.48 $ 0.37 $ 1.29 $ 1.56 $ 1.37
Net income per share (fully diluted)................ 0.48 0.37 1.28 1.55 1.37
Cash dividends declared per share................... 0.24 0.19 0.82 0.76 0.62
Book value per share................................ 13.15 13.28
Average common shares outstanding (primary)......... 12,415,826 12,255,285 12,298,961 10,413,603 10,342,834
Average common shares outstanding (fully diluted)... 12,426,604 12,276,670 12,318,370 10,444,751 10,346,721
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997
<S> <C>
BALANCE SHEET DATA:
Total assets................................................................................. $ 2,136,505
Loans........................................................................................ 1,422,495
Allowance for loan losses.................................................................... 14,367
Securities................................................................................... 556,820
Deposits..................................................................................... 1,458,120
Long-term debt............................................................................... --
Stockholders' equity......................................................................... 162,492
</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 December 31, 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.
(3) The per share data shown above are based on the IFC Exchange Ratio, an
average price per share of Pinnacle Common Stock of $27.375 and 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 following table shows such per share data based on the IFC Exchange
Ratio, an average price per share of Pinnacle Common Stock of $29.00 or
higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common Stock for
each share of CB Common Stock and each CB stock option converted in the CB
Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income per share (primary).................... $0.49 $0.38 $1.30 $1.57 $1.38
Net income per share (fully diluted).............. 0.49 0.37 1.29 1.57 1.38
Cash dividends declared per share................. 0.24 0.19 0.82 0.76 0.62
Book value per share.............................. 13.25
Average common shares outstanding (primary)....... 12,326,871 12,164,456 12,209,091 10,321,728 10,248,951
Average common shares outstanding (fully
diluted)......................................... 12,337,649 12,185,841 12,228,500 10,352,876 10,252,838
</TABLE>
The following table shows such per share data based on the IFC Exchange
Ratio, an average price per share of Pinnacle Common Stock of $23.00 or
lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common Stock for
each share of CB Common Stock and each CB stock option converted in the CB
Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income per share (primary).................... $0.47 $0.36 $1.26 $1.51 $1.33
Net income per share (fully diluted).............. 0.47 0.36 1.25 1.51 1.33
Cash dividends declared per share................. 0.24 0.19 0.82 0.76 0.62
Book value per share.............................. 12.84
Average common shares outstanding (primary)....... 12,717,958 12,563,787 12,604,202 10,725,656 10,661,710
Average common shares outstanding (fully
diluted)......................................... 12,728,736 12,585,172 12,623,611 10,756,804 10,665,597
</TABLE>
25
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
INDIANA FEDERAL CORPORATION
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth for Pinnacle Common Stock and IFC Common
Stock certain historical, pro forma and pro forma equivalent per share financial
information. The pro forma data do not give effect to the anticipated cost
savings in connection with the IFC Merger and are not necessarily indicative of
either the results that would have occurred had the IFC Merger been consummated
on the dates indicated or the results that may be obtained in the future. The
information presented herein should be read in conjunction with the unaudited
pro forma combined financial information, including the notes thereto, appearing
elsewhere in this Joint Proxy Statement/Prospectus. See "PRO FORMA COMBINED
FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PINNACLE COMMON STOCK
Earnings per share(1)
Historical............................................ $ 0.50 $ 0.42 $ 1.55 $ 1.62 $ 1.38
Pro forma(2).......................................... 0.48 0.38 1.29 1.57 1.45
Cash dividends declared per share
Historical............................................ 0.24 0.19 0.82 0.76 0.62
Book value per share--end of period
Historical............................................ 12.59 12.51 13.06 12.75 9.20
Pro forma(3).......................................... 13.28 13.17 13.51 13.35 11.23
IFC COMMON STOCK
Earnings per share(1)
Historical............................................ $ 0.47 $ 0.34 $ 0.96 $ 1.51 $ 1.50
Equivalent pro forma(2)(4)............................ 0.48 0.38 1.29 1.57 1.45
Cash dividends declared per share
Historical............................................ 0.18 0.28 0.82 0.86 0.72
Equivalent pro forma(3)(4)............................ 0.24 0.19 0.82 0.76 0.62
Book value per share--end of period
Historical............................................ 15.03 14.88 14.97 14.98 13.81
Equivalent pro forma(3)(4)............................ 13.28 13.17 13.51 13.35 11.23
</TABLE>
- ------------------------
(1) Earnings per share have been calculated using income from continuing
operations. In calculating pro forma earnings per share, no adjustments have
been made to reflect the effect of repurchases of Pinnacle Common Stock or
IFC Common Stock subsequent to the stated period.
(2) Gives effect to the IFC Merger as if it had occurred at the beginning of
each period presented.
(3) Gives effect to the IFC Merger as if it had occurred at the end of the
period. The March 31, 1997 pro forma book value per share includes the
after-tax impact of the expected one time merger and restructuring charges
of approximately $4.2 million (after-tax). See "PRO FORMA COMBINED FINANCIAL
INFORMATION--Notes to Pinnacle Financial Services, Inc. and Indiana Federal
Corporation Unaudited Pro Forma Combined Financial Statements."
(4) Equivalent pro forma amounts have been calculated using the IFC Exchange
Ratio.
26
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
CB BANCORP, INC.
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth for Pinnacle Common Stock and CB Common Stock
certain historical, pro forma and pro forma equivalent per share financial
information. The pro forma 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 would have occurred had the CB Merger been consummated
on the dates indicated or the results that may be obtained in the future. The
information presented herein should be read in conjunction with the unaudited
pro forma combined financial information, including the notes thereto, appearing
elsewhere in this Joint Proxy Statement/Prospectus. See "PRO FORMA COMBINED
FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED MARCH
31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PINNACLE COMMON STOCK
Earnings per share(1)
Historical..................................................... $ 0.50 $ 0.42 $ 1.55 $ 1.62 $ 1.38
Pro forma(2)................................................... 0.49 0.39 1.49 1.58 1.26
Cash dividends declared per share................................
Historical..................................................... 0.24 0.19 0.82 0.76 0.62
Book value per share--end of period
Historical..................................................... 12.59 12.51 13.06 12.75 9.20
Pro forma(3)................................................... 12.53 12.15 12.79 11.99 8.91
CB COMMON STOCK
Earnings per share(1)
Historical..................................................... $ 0.60 $ 0.38 $ 1.64 $ 1.94 $ 1.26
Equivalent pro forma(2)(4)..................................... 0.63 0.50 1.91 2.02 1.61
Cash dividends declared per share
Historical..................................................... -- -- -- -- --
Equivalent pro forma(3)(4)..................................... 0.30 0.24 1.05 0.97 0.79
Book value per share--end of period
Historical..................................................... 17.94 15.85 17.21 15.37 13.31
Equivalent pro forma(3)(4)..................................... 16.02 15.53 16.35 15.33 11.39
</TABLE>
- ------------------------
(1) Earnings per share have been calculated using income from continuing
operations. In calculating pro forma earnings per share, no adjustments have
been made to reflect the effect of repurchases of Pinnacle Common Stock or
CB Common Stock subsequent to the stated period.
(2) Gives effect to the CB Merger as if it had occurred at the beginning of each
period presented.
(3) Gives effect to the CB Merger as if it had occurred at the end of the
period. The March 31, 1997 pro forma book value per share includes the
after-tax impact of the expected one time merger and restructuring charges
of approximately $1.3 million (after-tax). See "PRO FORMA COMBINED FINANCIAL
INFORMATION--Notes to Pinnacle Financial Services, Inc. and CB Bancorp, Inc.
Unaudited Pro Forma Combined Financial Statements."
(4) Equivalent pro forma amounts have been calculated 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.
27
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
INDIANA FEDERAL CORPORATION
CB BANCORP, INC.
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth for Pinnacle Common Stock, IFC Common Stock
and CB Common Stock certain historical, pro forma and pro forma equivalent per
share financial information. The pro forma 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 would have occurred had the Mergers been
consummated on the dates indicated or the results that may be obtained in the
future. The information presented herein should be read in conjunction with the
unaudited pro forma combined financial information, including the notes thereto,
appearing elsewhere in this Joint Proxy Statement/Prospectus. See "PRO FORMA
COMBINED FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED MARCH YEAR ENDED DECEMBER 31,
31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PINNACLE COMMON STOCK
Earnings per share(1)
Historical....................................................... $ 0.50 $ 0.42 $ 1.55 $ 1.62 $ 1.38
Pro forma(2)..................................................... 0.48 0.37 1.29 1.56 1.37
Cash dividends declared per share
Historical....................................................... 0.24 0.19 0.82 0.76 0.62
Book value per share--end of period
Historical....................................................... 12.59 12.51 13.06 12.75 9.20
Pro forma(3)..................................................... 13.15 12.86 13.28 12.80 10.74
IFC COMMON STOCK
Earnings per share(1)
Historical....................................................... $ 0.47 $ 0.34 $ 0.96 $ 1.51 $ 1.50
Equivalent pro forma(2)(4)....................................... 0.48 0.37 1.29 1.56 1.37
Cash dividends declared per share
Historical....................................................... 0.18 0.28 0.82 0.86 0.72
Equivalent pro forma(3)(4)....................................... 0.24 0.19 0.82 0.76 0.62
Book value per share--end of period
Historical....................................................... 15.03 14.88 14.97 14.98 13.81
Equivalent pro forma(3)(4)....................................... 13.15 12.86 13.28 12.80 10.74
CB COMMON STOCK
Earnings per share(1)
Historical....................................................... $ 0.60 $ 0.38 $ 1.64 $ 1.94 $ 1.26
Equivalent pro forma(2)(4)....................................... 0.62 0.48 1.64 1.99 1.75
Cash dividends declared per share
Historical....................................................... -- -- -- -- --
Equivalent pro forma(3)(4)....................................... 0.30 0.24 1.05 0.97 0.79
Book value per share--end of period
Historical....................................................... 17.94 15.85 17.21 15.37 13.31
Equivalent pro forma(3)(4)....................................... 16.81 16.44 16.98 16.36 13.73
</TABLE>
- ------------------------
(1) Earnings per share have been calculated using income from continuing
operations. In calculating pro forma earnings per share, no adjustments
have been made to reflect the effect of repurchases of Pinnacle Common
Stock or IFC Common Stock or CB Common Stock subsequent to the stated
period.
(2) Gives effect to each of the Mergers as if they had occurred at the beginning
of each period presented.
(3) Gives effect to each of the Mergers as if they had occurred at the end of
the period. The March 31, 1997 pro forma book value per share includes the
after-tax impact of the expected one time merger and restructuring charges
of approximately $5.5 million (after-tax). 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."
(4) Equivalent pro forma amounts for IFC have been calculated using the IFC
Exchange Ratio. Equivalent pro forma amounts for CB have been calculated
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.
28
<PAGE>
COMPARATIVE STOCK PRICES
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. Pinnacle
Common Stock is listed under the symbol "PNFI," IFC Common Stock is listed under
the symbol "IFSL" and CB Common Stock is listed under the symbol "CBCO." If the
IFC Merger is consummated, IFC Common Stock will cease to be listed on the
Nasdaq National Market and public trading of such shares will cease. If the CB
Merger is consummated, CB Common Stock will cease to be listed on the Nasdaq
Small-Cap Market and public trading of such shares will cease. Although
transactions in Pinnacle Common Stock have been, and are expected to continue to
be, facilitated by market-makers (including ABN AMRO Chicago Corporation), there
can be no assurance that an established or liquid trading market in Pinnacle
Common Stock will continue. The following table sets forth, for the periods
indicated, the high and low sale prices per share of Pinnacle Common Stock and
IFC Common Stock, as reported by the Nasdaq National Market, and the high and
low sale prices per share of CB Common Stock, as reported by the Nasdaq
Small-Cap Market. The information with respect to such quotations was obtained
from the National Association of Securities Dealers, Inc. Such information
reflects interdealer prices, without retail markup, markdown, or commission, and
may not represent actual transactions.
<TABLE>
<CAPTION>
PINNACLE IFC CB
COMMON STOCK COMMON STOCK COMMON STOCK
-------------------- -------------------- --------------------
HIGH LOW HIGH LOW HIGH LOW
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1995 First Quarter....................... . $ 17.50 $ 15.00 $ 18.00 $ 15.50 $ 12.25 $ 10.75
Second Quarter........................ 17.75 15.75 17.75 16.00 13.50 12.75
Third Quarter......................... 17.50 15.50 18.75 16.50 15.75 12.75
Fourth Quarter........................ 18.50 16.50 21.25 17.75 18.50 15.50
1996 First Quarter......................... 20.50 18.25 21.50 18.50 19.75 17.25
Second Quarter........................ 21.75 20.00 21.50 16.25 18.25 16.25
Third Quarter......................... 24.75 19.50 21.00 18.25 20.75 17.00
Fourth Quarter........................ 25.00 23.25 23.00 19.50 25.50 19.75
1997 First Quarter......................... 28.00 23.25 27.25 22.375 34.25 23.75
Second Quarter (through June ,
1997)............................. .
</TABLE>
On November 13, 1996, the last trading day before the announcement of the
execution of the IFC Merger Agreement, the last sales prices of Pinnacle Common
Stock and IFC Common Stock as reported on the Nasdaq National Market were $24.75
and $19.50 (or approximately $24.75 per share of IFC Common Stock on an
equivalent pro forma per share basis), respectively. On February 28, 1997, the
last trading day before the announcement of the execution of the CB Merger
Agreement, the last sales prices of Pinnacle Common Stock and IFC Common Stock
as reported on the Nasdaq National Market were $27.75 and $26.25 (or
approximately $27.75 per share of IFC Common Stock on an equivalent pro forma
per share basis), respectively, and the last sales price for CB Common Stock as
reported on the Nasdaq Small-Cap Market was $28.625 per share (or approximately
$33.49 per share of CB Common Stock on an equivalent pro forma per share basis,
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; or approximately $42.23 per
share of CB Common Stock on an equivalent pro forma per share basis, 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).
On June , 1997 (the last practicable date prior to the mailing of this
Joint Proxy Statement/ Prospectus), the last sales prices of Pinnacle Common
Stock and IFC Common Stock as reported on the Nasdaq National Market were
$ and $ (or approximately $ per share of IFC Common
29
<PAGE>
Stock on an equivalent pro forma per share basis), respectively, and the last
sales price for CB Common Stock as reported by Nasdaq Small-Cap Market was
$ per share (or approximately $ per share of CB Common Stock on an
equivalent pro forma per share basis, 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; or approximately $ per share of CB Common Stock on an
equivalent pro forma per share basis, 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).
IFC STOCKHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE
PINNACLE COMMON STOCK AND THE IFC COMMON STOCK. CB STOCKHOLDERS ARE ADVISED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR THE PINNACLE COMMON STOCK AND THE CB COMMON
STOCK. NO ASSURANCE CAN BE GIVEN CONCERNING THE MARKET PRICE OF THE PINNACLE
COMMON STOCK BEFORE OR AFTER THE DATE OR DATES ON WHICH ANY OF THE MERGERS ARE
CONSUMMATED. THE MARKET PRICE OF THE PINNACLE COMMON STOCK WILL FLUCTUATE
BETWEEN THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE DATE OR DATES
ON WHICH THE MERGERS ARE CONSUMMATED AND THEREAFTER. BECAUSE THE IFC EXCHANGE
RATIO IS FIXED AND BECAUSE THE MARKET PRICE OF THE PINNACLE COMMON STOCK IS
SUBJECT TO FLUCTUATION, THE VALUE OF THE SHARES OF PINNACLE COMMON STOCK THAT
HOLDERS OF IFC COMMON STOCK WILL RECEIVE IN THE IFC MERGER MAY INCREASE OR
DECREASE PRIOR TO AND FOLLOWING THE IFC MERGER. BECAUSE THE CB EXCHANGE RATIO
WILL FLUCTUATE WITH THE MARKET PRICE OF PINNACLE COMMON STOCK AS LONG AS THE
AVERAGE PRICE OF THE PINNACLE COMMON STOCK REMAINS BETWEEN $23.01 AND $28.99,
THE VALUE OF THE SHARES OF PINNACLE COMMON STOCK THAT HOLDERS OF CB COMMON STOCK
WILL RECEIVE IN THE CB MERGER WILL BE $35.00 PER SHARE AT THE TIME THE AVERAGE
PRICE IS CALCULATED, BUT COULD FLUCTUATE THEREAFTER, INCLUDING FOLLOWING THE
CONSUMMATION OF THE CB MERGER. IF, HOWEVER, THE AVERAGE PRICE WERE TO BE $29.00
OR HIGHER OR $23.00 OR LOWER, THE CB EXCHANGE RATIO WOULD BE FIXED AND THE VALUE
OF THE SHARES OF PINNACLE COMMON STOCK THAT HOLDERS OF CB COMMON STOCK WILL
RECEIVE IN THE CB MERGER MAY INCREASE OR DECREASE PRIOR TO AND FOLLOWING THE CB
MERGER AS THE MARKET PRICE FLUCTUATES. SEE "THE MERGERS--MERGER CONSIDERATION."
On June 16, 1997, there were approximately holders of record of the
Pinnacle Common Stock, approximately holders of record of the IFC Common
Stock, and approximately holders of record of CB Common Stock.
30
<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 March 31, 1997 and December
31, 1996. Pinnacle returned 1.14% on average assets for the three months ended
March 31, 1997 and .94% on average assets for the year ended December 31, 1996.
This compares to 1.05% for the three months ended March 31, 1996 and to 1.36%,
1.30% and 1.27% for each of the years in the three year period ended December
31, 1995. For the three months ended March 31, 1997, Pinnacle's return on
average equity was 15.62%. 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 March 31, 1997), and (ii)
increased net loans by more than 134% (with total loans growing to approximately
$615.0 million at March 31, 1997). Pinnacle's loan to deposit ratio was
approximately 81.1% at March 31, 1997 and 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."
31
<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 $819 million at March 31, 1997, 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 ON
FORM 10-KSB THE FISCAL YEAR ENDED MARCH 31, 1997."
32
<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
33
<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 June 16, 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 June 16, 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 June 16, 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 June 16, 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 June 16, 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 June 16, 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
June 16, 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
34
<PAGE>
Merger. The record date for the IFC Annual Meeting is June 16, 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 June 16, 1997, directors and executive officers of IFC and their
affiliates were beneficial owners of 581,225, or 12.1%, of the outstanding
shares of IFC Common Stock (including 126,451 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 June 16, 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 June 16, 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 June 16, 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 June
16, 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 June 16, 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 June 16, 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 June 16, 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 June 16, 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 June 16, 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
35
<PAGE>
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 June 16, 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 June 16,
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 June 16, 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 June 16, 1997 will be entitled to receive notice of and to vote at
the Pinnacle Annual Meeting. At June 16, 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
June 16, 1997 will be entitled to receive notice of and to vote at the IFC
Annual Meeting. At June 16, 1997, IFC had issued and outstanding approximately
4,787,585 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
June 16, 1997 will be entitled to receive notice of and to vote at the CB
Special Meeting. At June 16, 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
B 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 C
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 D 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 June 16, 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 June 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
June 16, 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 June 16, 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.
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
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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.
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
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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 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 (including Pinnacle) were permitted to conduct due
diligence reviews of CB and its businesses during a two week period beginning
January 6, 1997.
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 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.
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On January 22, 1997, members of PL Capital, LLC advised the Pinnacle Board
of the status of the preliminary discussions between CB and Pinnacle. 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.
On February 4, 1997, the CB Board met to consider, among other things, the
three written indications of interest. At this meeting, the CB Board evaluated
each of the potential acquirors, the specific terms of each proposal, a pro
forma analysis of each proposed transaction and historical stock pricing for CB
and the potential acquirors. 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
evaluation, 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
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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 presentation included
the terms of the proposed transaction. Webb gave an opinion that the
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 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
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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:
(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.
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(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 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
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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 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,
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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 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 E 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 30,400 shares of
Pinnacle Common Stock and 120,015 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 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 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
regulatory and accounting 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 and (ii) the
median ratio of deal price to book value per share was 1.46x, 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 2.03x.
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, ignoring 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 value 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 G. 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) the CB Merger Agreement; (iv) a
draft of this Joint Proxy Statement/Prospectus; (v) 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, 1996; (vi) 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, 1996; (vii) Pinnacle's
unaudited consolidated financial statements and management's discussion and
analysis of the financial condition and results of operations contained in its
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996;
(viii) IFC's unaudited consolidated financial statements and management's
discussion and analysis of the financial condition and results of operations
contained in its Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997; (ix) 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; (x) certain financial analyses and forecasts of
Pinnacle prepared by and reviewed with management of Pinnacle and the views of
senior management of Pinnacle regarding each of Pinnacle's and CB's past and
current business operations, results thereof, financial conditions and future
prospects; (xi) CB'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 fiscal year ended March
31, 1996; (xii) CB'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 June 30, September 30 and December 31, 1996, respectively; (xiii) the pro
forma impact of the IFC Merger and the CB Merger on Pinnacle; (xiv) 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
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which are publicly traded; (xv) the financial terms of recent business
combinations in the savings institution and banking industries; (xvi) the
current market environment generally and the banking environment in particular;
and (xvii) such other information, financial studies, analyses and
investigations and financial, 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,
IFC, CB, 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, IFC's or CB's
assets, financial condition, results of operations, business or prospects since
March 31, 1997 (in the case of Pinnacle and IFC) and December 31, 1996 (in the
case of CB), the date of the last financial statements noted above. Sandler
O'Neill assumed that each of the IFC Merger and the CB Merger will qualify for
"pooling-of-interests" accounting treatment and has further assumed that each of
Pinnacle, the Company and CB will remain as a going concern for all periods
relevant to its analyses and that the conditions precedent in the IFC Merger
Agreement and the CB 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
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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 H 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
H. CB STOCKHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY FOR A
DESCRIPTION OF THE 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 confirmed the appropriateness of its
reliance on the analysis used to render its March 1, 1997 opinion by performing
procedures to update certain of such analysis and by reviewing the assumptions
upon which they were based and the factors considered in connection therewith.
In addition, 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 H 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 H to this Joint
Proxy Statement/Prospectus, Webb reviewed with the CB Board 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 August 31, 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.
Pinnacle and IFC have been advised by the Commission that it is the position
of the Commission that if the condition described in clause (vi) above
(regarding the delivery of certain opinions by legal counsel to Pinnacle and to
IFC as to certain federal income tax consequences of the IFC Merger) is waived
after the delivery of this Joint Proxy Statement/Prospectus to the stockholders
of Pinnacle and of IFC, then it will be necessary for Pinnacle and IFC to
resolicit proxies from their respective stockholders to obtain the necessary
stockholder approvals of the IFC Merger Proposal. Accordingly, neither Pinnacle
nor IFC anticipates that such condition will be waived.
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.
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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 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;
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(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
(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 August 31, 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
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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 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
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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 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
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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 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
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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.
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;
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(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
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.
Pinnacle and CB have been advised by the Commission that it is the position
of the Commission that if the condition described in clause (vi) above
(regarding the delivery of certain opinions by legal counsel to Pinnacle and to
CB as to certain federal income tax consequences of the CB Merger) is waived
after the delivery of this Joint Proxy Statement/Prospectus to the stockholders
of Pinnacle and of CB, then it will be necessary for Pinnacle and CB to
resolicit proxies from their respective stockholders to obtain the necessary
stockholder approvals of the CB Merger Proposal. Accordingly, neither Pinnacle
nor CB anticipates that such condition will be waived.
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
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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.
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
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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
(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.
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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.
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
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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
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
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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 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.
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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.
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),
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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 & 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.
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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
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
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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.
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.
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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 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
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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
(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
95
<PAGE>
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
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.
96
<PAGE>
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.
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.
97
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc. and Indiana Federal
Corporation Unaudited Pro Forma Combined Statement of Income Summary combines
the historical Consolidated Statements of Income of Pinnacle and IFC giving
effect to the IFC 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 Indiana Federal
Corporation Unaudited Pro Forma Combined Financial Statements. For a description
of "pooling-of-interests" accounting with respect to the IFC 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
IFC, 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 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." The effect of the expected one-time merger and restructuring charges
of approximately $4.2 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 Indiana Federal Corporation 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 IFC Merger and are not
necessarily indicative of either the results that actually would have occurred
had the IFC Merger been consummated on the dates indicated or the results that
may be obtained in the future.
98
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
-------------------------- ------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable................................... $ 26,025 $ 23,208 $ 98,466 $ 76,224 $ 58,042
Tax-exempt................................ 170 104 456 427 414
Interest and dividends on securities:
Taxable................................... 8,939 6,373 29,677 14,421 12,609
Tax-exempt................................ 277 286 1,136 973 1,093
Interest on federal funds sold.............. 110 106 474 343 267
Interest on due from banks interest
bearing................................... 31 438 619 277 116
------------ ------------ ------------ ---------- ----------
Total interest income................... 35,552 30,515 130,828 92,665 72,541
------------ ------------ ------------ ---------- ----------
INTEREST EXPENSE:
Interest on deposits........................ 13,857 13,250 54,974 38,516 27,795
Interest on securities sold under repurchase
agreements and other borrowings........... 5,904 3,350 16,578 9,490 6,432
------------ ------------ ------------ ---------- ----------
Total interest expense.................. 19,761 16,600 71,552 48,006 34,227
------------ ------------ ------------ ---------- ----------
Net interest income........................... 15,791 13,915 59,276 44,659 38,314
Provision for loan losses..................... 475 130 1,490 402 304
------------ ------------ ------------ ---------- ----------
Net interest income after provision for
loan losses........................... 15,316 13,785 57,786 44,257 38,010
------------ ------------ ------------ ---------- ----------
NON-INTEREST INCOME:
Other income................................ 3,658 2,420 10,950 8,475 8,093
Securities gains (losses), net.............. 59 214 708 790 134
------------ ------------ ------------ ---------- ----------
Total non-interest income............... 3,717 2,634 11,658 9,265 8,227
NON-INTEREST EXPENSE:
Salaries and benefits....................... 5,298 4,730 19,667 16,055 13,480
Occupancy and equipment..................... 1,842 1,709 7,106 5,494 4,423
Other non-interest expense.................. 4,072 4,175 22,634 13,282 10,383
------------ ------------ ------------ ---------- ----------
Total non-interest expense.............. 11,212 10,614 49,407 34,831 28,286
------------ ------------ ------------ ---------- ----------
Income before income tax expense.............. 7,821 5,805 20,037 18,691 17,951
Income tax expense............................ 2,571 1,724 6,262 4,928 5,399
Extraordinary items/accounting changes........ -- -- -- -- --
------------ ------------ ------------ ---------- ----------
Net income.................................. $ 5,250 $ 4,081 $ 13,775 $ 13,763 $ 12,552
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
NET INCOME PER SHARE:
Primary..................................... $ 0.48 $ 0.38 $ 1.29 $ 1.57 $ 1.45
Fully diluted............................... $ 0.48 $ 0.38 $ 1.29 $ 1.56 $ 1.45
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary..................................... 10,827,510 10,633,487 10,694,302 8,773,136 8,666,503
Fully diluted............................... 10,838,288 10,654,872 10,713,711 8,804,284 8,670,390
</TABLE>
99
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc. and Indiana Federal
Corporation Unaudited Pro Forma Combined Statement of Income combine the
historical Consolidated Statements of Income of Pinnacle and IFC giving effect
to the IFC 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 Indiana Federal Corporation Unaudited Pro
Forma Combined Financial Statements. For a description of "pooling-of-interests"
accounting with respect to the IFC 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 IFC,
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 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." The
effect of the expected one time merger and restructuring charges of
approximately $4.2 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 Indiana Federal Corporation 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 IFC Merger and are not
necessarily indicative of either the results that actually would have occurred
had the IFC Merger been consummated on the dates indicated or the results that
may be obtained in the future.
100
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
------------------------------------------------------
PINNACLE IFC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................. $13,025 $13,001 $26,026
Tax-exempt.......................................... 122 48 170
Interest and dividends on securities:
Taxable............................................. 6,571 2,367 8,938
Tax-exempt.......................................... 273 4 277
Interest on federal funds sold........................ 43 67 110
Interest on due from banks interest bearing........... 31 -- 31
----------- ----------- -------------- ------------
Total interest income............................... 20,065 15,487 35,552
----------- ----------- -------------- ------------
INTEREST EXPENSE:
Interest on deposits.................................. 7,747 6,110 13,857
Interest on securities sold under repurchase
agreements and other borrowings..................... 3,268 2,636 5,904
----------- ----------- -------------- ------------
Total interest expense.............................. 11,015 8,746 19,761
----------- ----------- -------------- ------------
Net interest income................................... 9,050 6,741 15,791
Provision for loan losses............................. 235 240 475
----------- ----------- -------------- ------------
Net interest income, after provision for loan
losses.............................................. 8,815 6,501 15,316
----------- ----------- -------------- ------------
NON-INTEREST INCOME:
Other income.......................................... 1,832 1,826 3,658
Securities gains (losses), net........................ 59 -- 59
----------- ----------- -------------- ------------
Total non-interest income........................... 1,891 1,826 3,717
NON-INTEREST EXPENSE:
Salaries and benefits................................. 2,765 2,533 5,298
Occupancy and equipment............................... 1,032 810 1,842
Other non-interest expense............................ 2,392 1,680 4,072
----------- ----------- -------------- ------------
Total non-interest expense.......................... 6,189 5,023 11,212
----------- ----------- -------------- ------------
Income before income tax expense...................... 4,517 3,304 7,821
Income tax expense.................................... 1,547 1,024 2,571
Extraordinary items/accounting changes................ -- -- --
----------- ----------- -------------- ------------
Net income............................................ $ 2,970 $ 2,280 $ 5,250
----------- ----------- -------------- ------------
----------- ----------- -------------- ------------
NET INCOME PER SHARE:
Primary............................................... $0.50 $0.47 $0.48
Fully diluted......................................... $0.50 $0.47 $0.48
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary............................................... 5,978,640 4,848,870 10,827,510
Fully diluted......................................... 5,978,640 4,859,648 10,838,288
</TABLE>
101
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------
PINNACLE IFC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................. $11,577 $11,631 $23,208
Tax-exempt.......................................... 44 60 104
Interest and dividends on securities:
Taxable............................................. 4,767 1,606 6,373
Tax-exempt.......................................... 264 22 286
Interest on federal funds sold........................ 90 16 106
Interest on due from banks interest bearing........... 416 22 438
----------- ----------- -------------- ------------
Total interest income............................... 17,158 13,357 30,515
----------- ----------- -------------- ------------
INTEREST EXPENSE:
Interest on deposits.................................. 7,399 5,851 13,250
Interest on securities sold under repurchase
agreements and other borrowings..................... 1,890 1,460 3,350
----------- ----------- -------------- ------------
Total interest expense.............................. 9,289 7,311 16,600
----------- ----------- -------------- ------------
Net interest income................................... 7,869 6,046 13,915
Provision for loan losses............................. 80 50 130
----------- ----------- -------------- ------------
Net interest income, after provision for loan
losses.............................................. 7,789 5,996 13,785
----------- ----------- -------------- ------------
NON-INTEREST INCOME:
Other income.......................................... 1,350 1,070 2,420
Securities gains (losses), net........................ 234 (20) 214
----------- ----------- -------------- ------------
Total non-interest income........................... 1,584 1,050 2,634
NON-INTEREST EXPENSE:
Salaries and benefits................................. 2,522 2,208 4,730
Occupancy and equipment............................... 902 807 1,709
Other non-interest expense............................ 2,327 1,848 4,175
----------- ----------- -------------- ------------
Total non-interest expense.......................... 5,751 4,863 10,614
----------- ----------- -------------- ------------
Income before income tax expense...................... 3,622 2,183 5,805
Income tax expense.................................... 1,178 546 1,724
Extraordinary items/accounting changes................ -- -- --
----------- ----------- -------------- ------------
Net income............................................ $ 2,444 $ 1,637 $ 4,081
----------- ----------- -------------- ------------
----------- ----------- -------------- ------------
NET INCOME PER SHARE:
Primary............................................... $0.42 $0.34 $0.38
Fully diluted......................................... $0.42 $0.34 $0.38
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary............................................... 5,873,358 4,760,179 10,633,487
Fully diluted......................................... 5,873,358 4,781,514 10,654,872
</TABLE>
102
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------
PINNACLE IFC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable........................................... . $49,791 $48,675 $ 98,466
Tax-exempt.......................................... 218 238 456
Interest and dividends on securities:
Taxable............................................. 21,957 7,720 29,677
Tax-exempt.......................................... 1,064 72 1,136
Interest on federal funds sold........................ 410 64 474
Interest on due from banks interest bearing........... 529 90 619
----------- ----------- -------------- ------------
Total interest income............................... 73,969 56,859 130,828
----------- ----------- -------------- ------------
INTEREST EXPENSE:
Interest on deposits.................................. 30,536 24,438 54,974
Interest on securities sold under repurchase
agreements and other borrowings..................... 9,157 7,421 16,578
----------- ----------- -------------- ------------
Total interest expense.............................. 39,693 31,859 71,552
----------- ----------- -------------- ------------
Net interest income................................... 34,276 25,000 59,276
Provision for loan losses............................. 375 1,115 1,490
----------- ----------- -------------- ------------
Net interest income after provision for loan
losses.............................................. 33,901 23,885 57,786
----------- ----------- -------------- ------------
NON-INTEREST INCOME:
Other income.......................................... 6,655 4,295 10,950
Securities gains (losses), net........................ 653 55 708
----------- ----------- -------------- ------------
Total non-interest income........................... 7,308 4,350 11,658
NON-INTEREST EXPENSES:
Salaries and benefits................................. 10,843 8,824 19,667
Occupancy and equipment............................... 3,670 3,436 7,106
Other non-interest expense............................ 12,443 10,191 22,634
----------- ----------- -------------- ------------
Total non-interest expense.......................... 26,956 22,451 49,407
----------- ----------- -------------- ------------
Income before income tax expense...................... 14,253 5,784 20,037
Income tax expense.................................... 5,101 1,161 6,262
----------- ----------- -------------- ------------
Net income............................................ $ 9,152 $ 4,623 $ 13,775
----------- ----------- -------------- ------------
----------- ----------- -------------- ------------
NET INCOME PER SHARE:
Primary............................................... $1.55 $0.96 $1.29
Fully diluted......................................... 1.55 0.96 1.29
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary............................................... 5,899,453 4,794,849 10,694,302
Fully diluted......................................... 5,899,453 4,814,258 10,713,711
</TABLE>
103
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
PINNACLE IFC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................... $29,542 $46,682 $76,224
Tax-exempt............................................ 214 213 427
Interest and dividends on securities:
Taxable............................................... 6,321 8,100 14,421
Tax-exempt............................................ 905 68 973
Interest on federal funds sold.......................... 257 86 343
Interest on due from banks.............................. 256 21 277
------------ ------------ ------------ ------------
Total interest income............................... 37,495 55,170 92,665
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits.................................... 16,093 22,423 38,516
Interest on securities sold under repurchase agreements
and other borrowings.................................. 2,058 7,432 9,490
------------ ------------ ------------ ------------
Total interest expense.............................. 18,151 29,855 48,006
------------ ------------ ------------ ------------
Net interest income..................................... 19,344 25,315 44,659
Provision for loan losses............................... 225 177 402
------------ ------------ ------------ ------------
Net interest income after provision for loan losses..... 19,119 25,138 44,257
------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Other income............................................ 4,236 4,239 8,475
Securities gains (losses), net.......................... 350 440 790
------------ ------------ ------------ ------------
Total non-interest income........................... 4,586 4,679 9,265
NON-INTEREST EXPENSES:
Salaries and benefits................................... 7,100 8,955 16,055
Occupancy and equipment................................. 2,044 3,450 5,494
Other................................................... 5,492 7,790 13,282
------------ ------------ ------------ ------------
Total non-interest expense.......................... 14,636 20,195 34,831
------------ ------------ ------------ ------------
Income before income tax expense........................ 9,069 9,622 18,691
------------ ------------ ------------ ------------
Income tax expense...................................... 2,610 2,318 4,928
------------ ------------ ------------ ------------
Net income.............................................. $ 6,459 $ 7,304 $13,763
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME PER SHARE:
Primary................................................. $1.62 $1.51 $1.57
Fully diluted........................................... 1.62 1.52 1.56
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................................. 3,996,137 4,776,999 8,773,136
Fully diluted........................................... 3,996,137 4,808,147 8,804,284
</TABLE>
104
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------
PINNACLE IFC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................ $22,949 $35,093 $58,042
Tax-exempt......................................... 209 205 414
Interest and dividends on securities:
Taxable............................................ 4,626 7,983 12,609
Tax-exempt......................................... 998 95 1,093
Interest on federal funds sold......................... 110 157 267
Interest on due from banks............................. 76 40 116
------------ ------------ ------------ ------------
Total interest income................................ 28,968 43,573 72,541
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits................................... 11,316 16,479 27,795
Interest on securities sold under repurchase agreements
and other borrowings................................. 546 5,886 6,432
------------ ------------ ------------ ------------
Total interest expense............................... 11,862 22,365 34,227
------------ ------------ ------------ ------------
Net interest income.................................... 17,106 21,208 38,314
Provision for loan losses.............................. 125 179 304
------------ ------------ ------------ ------------
Net interest income after provision for loan losses.... 16,981 21,029 38,010
------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Other income........................................... 3,692 4,401 8,093
Securities gains (losses), net......................... 64 70 134
------------ ------------ ------------ ------------
Total non-interest income............................ 3,756 4,471 8,227
NON-INTEREST EXPENSES:
Salaries and benefits.................................. 6,073 7,407 13,480
Occupancy and equipment................................ 1,918 2,505 4,423
Other.................................................. 5,123 5,260 10,383
------------ ------------ ------------ ------------
Total non-interest expense........................... 13,114 15,172 28,286
------------ ------------ ------------ ------------
Income before income tax expense....................... 7,623 10,328 17,951
------------ ------------ ------------ ------------
Income tax expense..................................... 2,333 3,066 5,399
------------ ------------ ------------ ------------
Net income............................................. $ 5,290 $ 7,262 $12,552
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME PER SHARE:
Primary................................................ $1.38 $1.50 $1.45
Fully diluted.......................................... 1.38 1.50 1.45
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................................ 3,821,904 4,844,599 8,666,503
Fully diluted.......................................... 3,821,904 4,848,486 8,670,390
</TABLE>
105
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Pinnacle Financial Services, Inc. and Indiana Federal
Corporation Unaudited Pro Forma Combined Balance Sheet combines the historical
Consolidated Balance Sheets of Pinnacle and IFC giving effect to the IFC Merger,
which will be accounted for as a "pooling-of-interests," as if it had been
effective on March 31, 1997. For a description of "pooling-of-interests"
accounting with respect to the IFC 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 IFC,
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 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." The
effect of the expected one-time merger and restructuring charges of
approximately $4.2 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 Indiana Federal Corporation 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 IFC Merger and are not
necessarily indicative of either the results that actually would have occurred
had the IFC Merger been consummated on March 31, 1997 or the results that may be
obtained in the future.
106
<PAGE>
PINNACLE FINANCIAL SERVICES, INC.
AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT MARCH 31, 1997
------------------------------------------------------
PINNACLE IFC PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash due from banks..................................... $ 25,904 $ 21,673 $ (4,796 ) $ 42,781
Federal funds sold...................................... -- -- --
Due from banks-interest bearing......................... 2,016 85 2,101
Investment securities................................... 412,925 126,172 539,097
Loans................................................... 615,024 620,966 1,235,990
Allowance for loan losses............................... (5,651) (6,908) (12,559)
Other assets............................................ 47,573 56,936 (1,049 ) 103,460
------------ ------------ ------------ ------------
Total assets........................................ $ 1,097,791 $ 818,924 $ (5,845 ) $ 1,910,870
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES:
Deposits:
Non-interest-bearing demand deposits.................. $ 62,080 $ 28,972 $ 91,052
Interest-bearing demand deposits...................... 76,250 49,171 125,421
Savings deposits...................................... 272,663 139,936 412,599
Time deposits......................................... 346,929 332,310 679,239
------------ ------------ ------------ ------------
Total deposits...................................... 757,922 550,389 1,308,311
Securities sold under agreements to repurchase and
other borrowings.................................... 259,274 191,298 450,572
Other liabilities..................................... 5,305 5,317 $ (1,604 ) 9,018
------------ ------------ ------------ ------------
Total liabilities................................... 1,022,501 747,004 (1,604 (1) 1,767,901
STOCKHOLDERS' EQUITY:
Common stock............................................ 19,110 59 (59 (2) 19,110
Additional paid-in-capital.............................. 44,574 27,932 (8,661 (2) 63,845
(4,241 (1)
Retained earnings....................................... 16,354 53,595 (237 (2) 65,471
Net unrealized gain (loss) on securities-for-sale....... (4,748) (709) (5,457)
Less: Treasury stock & ESOP obligation.................... -- 8,957 (8,957 (2) --
------------ ------------ ------------ ------------
Total stockholders' equity.......................... 75,290 71,920 (4,241 ) 142,969
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity................ $ 1,097,791 $ 818,924 $ (5,845 ) $ 1,910,870
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
PER SHARE DATA:
Shares outstanding...................................... 5,980,320 4,785,237 10,765,557
Book value per share.................................... $12.59 $15.03 $13.28
</TABLE>
107
<PAGE>
NOTES TO PINNACLE FINANCIAL SERVICES, INC., AND INDIANA FEDERAL CORPORATION
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Reflects expected one-time merger and restructuring charges of approximately
$5.845 million (pre-tax) to be incurred in 1997 in connection with the
attainment of annualized pre-tax cost savings of approximately $3.5 million.
(While there can be no assurances that such cost savings will be realized,
they are expected to be realized primarily through reductions in staff,
elimination or 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 $1.604
million from the one-time charges and a $4.241 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.............................. $4,241,000
Debt--other liabilities--taxes payable............... 1,604,000
Credit--Cash....................................... $4,796,000
Credit--Other assets--prepaid acquisition
charges.......................................... 1,049,000
</TABLE>
The following provides detail of the estimated pre-tax charges:
<TABLE>
<S> <C> <C>
Personnel............................................ $1,250,000
Benefit plans........................................ 1,760,000
Facilities and data processing....................... 900,000
Other Merger expenses................................ 1,935,000
---------
Total charges...................................... $5,845,000
---------
---------
</TABLE>
(2) Reflects accounting of the IFC Merger as a "pooling-of-interests," through
the exchange of 4,785,237 shares of Pinnacle Common Stock for an equivalent
number of shares of IFC Common Stock and the elimination of treasury stock.
108
<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.
109
<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)
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31*
------------------------ -------------------------------
1997 1996 1996 1995 1994
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable.............................................. $17,057 $15,198 $64,486 $41,004 $30,722
Tax-exempt........................................... 126 50 239 241 242
Interest and dividends on securities:
Taxable.............................................. 6,867 5,078 23,199 7,601 5,754
Tax-exempt........................................... 273 264 1,064 905 998
Interest on federal funds sold......................... 69 96 434 270 290
Interest on due from banks............................. 32 422 539 301 96
----------- ----------- --------- --------- ---------
Total interest income................................ 24,424 21,108 89,961 50,322 38,102
----------- ----------- --------- --------- ---------
INTEREST EXPENSE:
Interest on deposits................................... $ 9,274 $ 8,674 $35,965 $20,877 $15,243
Interest on securities sold under repurchase agreements
and other borrowings................................. 3,920 2,544 11,611 3,503 730
----------- ----------- --------- --------- ---------
Total interest expense............................... 13,194 11,218 47,576 24,380 15,973
----------- ----------- --------- --------- ---------
Net interest income.................................... 11,230 9,890 42,385 25,942 22,129
Provision for loan losses.............................. 565 862 2,018 482 203
----------- ----------- --------- --------- ---------
Net interest income after provision for loan losses.... 10,665 9,028 40,367 25,460 21,926
----------- ----------- --------- --------- ---------
NON-INTEREST INCOME:
Other.................................................. 2,334 1,690 8,256 5,378 4,630
Securities gains (losses), net......................... 59 234 653 349 67
----------- ----------- --------- --------- ---------
Total non-interest income............................ 2,393 1,924 8,909 5,727 4,697
NON-INTEREST EXPENSE:
Salaries and benefits.................................. 3,269 2,937 12,695 8,613 7,573
Occupancy and equipment................................ 1,178 1,038 4,254 2,551 2,429
Other.................................................. 2,958 2,738 15,099 6,959 6,452
----------- ----------- --------- --------- ---------
Total non-interest expense........................... 7,405 6,713 32,048 18,123 16,454
Income before income tax expense....................... 5,653 4,239 17,228 13,064 10,169
Income tax expense..................................... 1,937 1,312 6,027 4,150 3,254
Extraordinary items/accounting changes................. -- -- -- -- --
----------- ----------- --------- --------- ---------
Net income............................................. $ 3,716 $ 2,927 $11,201 $ 8,914 $ 6,915
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
NET INCOME PER SHARE:**
Primary................................................ $0.49 $0.39 $1.49 $1.58 $1.26
Fully diluted.......................................... $0.49 $0.39 1.49 1.58 1.26
WEIGHTED AVERAGE SHARES OUTSTANDING:**
Primary................................................ 7,566,956 7,495,156 7,504,112 5,636,604 5,498,235
Fully diluted.......................................... 7,566,956 7,495,156 7,504,112 5,636,604 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.
110
<PAGE>
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on an average price per share of Pinnacle Common Stock of $27.375 and 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 following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
------------------------ -------------------------------
1997 1996 1996 1995 1994
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary........................................... $0.50 $0.40 $1.51 $1.61 $1.28
Fully diluted..................................... $0.50 $0.40 $1.51 $1.61 $1.28
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary........................................... 7,478,001 7,404,327 7,414,242 5,544,729 5,404,352
Fully diluted..................................... 7,478,001 7,404,327 7,414,242 5,544,729 5,404,352
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
------------------------ -------------------------------
1997 1996 1996 1995 1994
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary........................................... $0.47 $0.38 $1.43 $1.50 $1.19
Fully diluted..................................... $0.47 $0.38 $1.43 $1.50 $1.19
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary........................................... 7,869,088 7,803,658 7,809,353 5,948,657 5,817,111
Fully diluted..................................... 7,869,088 7,803,658 7,809,353 5,948,657 5,817,111
</TABLE>
111
<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.
112
<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 THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------------------
PINNACLE CB PROFORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................... $ 13,025 $ 4,032 $ 17,057
Tax-exempt............................................ 122 4 126
Interest and dividends on securities:
Taxable............................................... 6,571 296 6,867
Tax-exempt............................................ 273 -- 273
Interest on federal funds sold 43 26 69
Interest on due from banks interest bearing............. 31 1 32
------------ ------------ ----------- ------------
Total interest income................................. 20,065 4,359 24,424
------------ ------------ ----------- ------------
INTEREST EXPENSE:
Interest on deposits.................................... 7,747 1,527 9,274
Interest on securities sold under repurchase agreements
and other borrowings.................................. 3,268 652 3,920
------------ ------------ ----------- ------------
Total interest expense................................ 11,015 2,179 13,194
------------ ------------ ----------- ------------
Net interest income..................................... 9,050 2,180 11,230
Provision for loan losses............................... 235 330 565
------------ ------------ ----------- ------------
Net interest income, after provision for loan losses.... 8,815 1,850 10,665
------------ ------------ ----------- ------------
NON-INTEREST INCOME:
Other income............................................ 1,832 502 2,334
Securities gains (losses), net.......................... 59 -- 59
------------ ------------ ----------- ------------
Total non-interest income............................. 1,891 502 2,393
NON-INTEREST EXPENSE:
Salaries and benefits................................... 2,765 504 3,269
Occupancy and equipment................................. 1,032 146 1,178
Other non-interest expense.............................. 2,392 566 2,958
------------ ------------ ----------- ------------
Total non-interest expense............................ 6,189 1,216 7,405
Income before income tax expense........................ 4,517 1,136 5,653
Income tax expense...................................... 1,547 390 1,937
Extraordinary items/accounting changes.................. -- -- --
------------ ------------ ----------- ------------
Net income.............................................. $ 2,970 $ 746 $ 3,716
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
NET INCOME PER SHARE:*
Primary................................................. $ 0.50 $ 0.60 $ 0.49
Fully diluted........................................... $ 0.50 $ 0.60 $ 0.49
WEIGHTED AVERAGE SHARES OUTSTANDING*
Primary................................................. 5,978,640 1,241,938 346,378 7,566,956
Fully diluted........................................... 5,978,640 1,244,517 343,799 7,566,956
</TABLE>
113
<PAGE>
- ------------------------
* The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on an average price per share of Pinnacle Common Stock of $27.375 and 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 following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------
<S> <C> <C> <C> <C>
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ------------
NET INCOME PER SHARE:
Primary.............................................. $0.50 $0.60 $0.50
Fully diluted........................................ $0.50 $0.60 $0.50
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.............................................. 5,978,640 1,241,938 257,423 7,478,001
Fully diluted........................................ 5,978,640 1,244,517 254,844 7,478,001
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------
<S> <C> <C> <C> <C>
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ------------
NET INCOME PER SHARE:
Primary.............................................. $0.50 $0.60 $0.47
Fully diluted........................................ $0.50 $0.60 $0.47
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.............................................. 5,978,640 1,241,938 648,510 7,869,088
Fully diluted........................................ 5,978,640 1,244,517 645,931 7,869,088
</TABLE>
114
<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 THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------------------
PINNACLE CB PROFORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable............................................... $ 11,577 $ 3,621 $ 15,198
Tax-exempt............................................ 44 6 50
Interest and dividends on securities:
Taxable............................................... 4,767 311 5,078
Tax-exempt............................................ 264 -- 264
Interest on federal funds sold 90 6 96
Interest on due from banks interest bearing............. 416 6 422
------------ ------------ ----------- ------------
Total interest income................................. 17,158 3,950 21,108
------------ ------------ ----------- ------------
INTEREST EXPENSE:
Interest on deposits.................................... 7,399 1,275 8,674
Interest on securities sold under repurchase agreements
and other borrowings.................................. 1,890 654 2,544
------------ ------------ ----------- ------------
Total interest expense................................ 9,289 1,929 11,218
------------ ------------ ----------- ------------
Net interest income..................................... 7,869 2,021 9,890
Provision for loan losses............................... 80 782 862
------------ ------------ ----------- ------------
Net interest income, after provision for loan losses.... 7,789 1,239 9,028
------------ ------------ ----------- ------------
NON-INTEREST INCOME:
Other income............................................ 1,350 340 1,690
Securities gains (losses), net.......................... 234 -- 234
------------ ------------ ----------- ------------
Total non-interest income............................. 1,584 340 1,924
NON-INTEREST EXPENSE:
Salaries and benefits................................... 2,522 415 2,937
Occupancy and equipment................................. 902 136 1,038
Other non-interest expense.............................. 2,327 411 2,738
------------ ------------ ----------- ------------
Total non-interest expense............................ 5,751 962 6,713
Income before income tax expense........................ 3,622 617 4,239
Income tax expense...................................... 1,178 134 1,312
Extraordinary items/accounting changes.................. -- -- --
------------ ------------ ----------- ------------
Net income.............................................. $ 2,444 $ 483 $ 2,927
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
NET INCOME PER SHARE:*
Primary................................................. $ 0.42 $ 0.38 $ 0.39
Fully diluted........................................... $ 0.42 $ 0.38 $ 0.39
WEIGHTED AVERAGE SHARES OUTSTANDING:*
Primary................................................. 5,873,358 1,258,867 362,931 7,495,156
Fully diluted........................................... 5,873,358 1,258,187 363,611 7,495,156
</TABLE>
115
<PAGE>
- ------------------------
* The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on an average price per share of Pinnacle Common Stock of $27.375 and 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 following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------
<S> <C> <C> <C> <C>
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ------------
NET INCOME PER SHARE:
Primary.............................................. $0.42 $0.38 $0.40
Fully diluted........................................ $0.42 $0.38 $0.40
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.............................................. 5,873,358 1,258,867 272,102 7,404,327
Fully diluted........................................ 5,873,358 1,258,187 272,782 7,404,327
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------
<S> <C> <C> <C> <C>
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ------------
NET INCOME PER SHARE:
Primary.............................................. $0.42 $0.38 $0.38
Fully diluted........................................ $0.42 $0.38 $0.38
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.............................................. 5,873,358 1,258,867 671,433 7,803,658
Fully diluted........................................ 5,873,358 1,258,187 672,113 7,803,658
</TABLE>
116
<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, 1996*
-----------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
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 1,245,810 358,849(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.
117
<PAGE>
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on an average price per share of Pinnacle Common Stock of $27.375 and 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 following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
<S> <C> <C> <C> <C>
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ------------
NET INCOME PER SHARE:
Primary.............................................. $1.55 $1.64 $1.51
Fully diluted........................................ $1.55 $1.64 $1.51
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.............................................. 5,899,453 1,245,810 268,979 7,414,242
Fully diluted........................................ 5,899,453 1,250,704 264,085 7,414,242
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
<S> <C> <C> <C> <C>
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ------------
NET INCOME PER SHARE:
Primary.............................................. $1.55 $1.64 $1.43
Fully diluted........................................ $1.55 $1.64 $1.43
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.............................................. 5,899,453 1,245,810 664,090 7,809,353
Fully diluted........................................ 5,899,453 1,250,704 659,196 7,809,353
</TABLE>
118
<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>
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) 5,636,604
Fully diluted........................................... 3,996,137 1,273,276 367,191(1) 5,636,604
</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
119
<PAGE>
and 1994 includes the fourth quarter of the fiscal year preceding each such
fiscal year and the first three quarters of such fiscal year.
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on an average price per share of Pinnacle Common Stock of $27.375 and 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 following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary................................................ $ 1.62 $ 1.94 $ 1.61
Fully diluted.......................................... $ 1.62 $ 1.93 $ 1.61
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................................ 3,996,137 1,265,353 283,239 5,544,729
Fully diluted.......................................... 3,996,137 1,273,276 275,316 5,544,729
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary................................................ $ 1.62 $ 1.94 $ 1.50
Fully diluted.......................................... $ 1.62 $ 1.93 $ 1.50
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................................ 3,996,137 1,265,353 687,167 5,948,657
Fully diluted.......................................... 3,996,137 1,273,276 679,244 5,948,657
</TABLE>
120
<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
---------- ---------- ------------ ----------
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.
121
<PAGE>
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on an average price per share of Pinnacle Common Stock of $27.375 and 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 following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------------------
<S> <C> <C> <C> <C>
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ----------
NET INCOME PER SHARE:
Primary............................................... $1.38 $1.26 $1.28
Fully diluted......................................... $1.38 $1.26 $1.28
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary............................................... 3,821,904 1,292,293 290,155 5,404,352
Fully diluted......................................... 3,821,904 1,289,970 292,478 5,404,352
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------------------
<S> <C> <C> <C> <C>
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ----------
NET INCOME PER SHARE:
Primary............................................... $1.38 $1.26 $1.19
Fully diluted......................................... $1.38 $1.26 $1.19
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary............................................... 3,821,904 1,292,293 702,914 5,817,111
Fully diluted......................................... 3,821,904 1,289,970 705,237 5,817,111
</TABLE>
122
<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 March
31, 1997. 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 March 31, 1997 or the
results that may be obtained in the future.
123
<PAGE>
PINNACLE FINANCIAL SERVICES, INC
AND CB BANCORP, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PINNACLE CB
(AS (AS PRO FORMA PRO FORMA
REPORTED) REPORTED) ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash due from banks.................................... $ 25,904 $ 4,847 $ (1,500) $ 29,251
Federal funds sold..................................... -- -- --
Due from banks-interest bearing........................ 2,016 9,882 11,898
Investment securities.................................. 412,925 17,723 430,648
Loans.................................................. 615,024 186,505 801,529
Allowance for loan losses.............................. (5,651) (1,808) (7,459)
Other assets........................................... 47,573 9,986 57,559
------------ ------------ ----------- ------------
Total assets....................................... $1,097,791 $ 227,135 $ (1,500) $ 1,323,426
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
LIABILITIES:
Deposits:
Non-interest-bearing demand deposits................. $ 62,080 $ 10,003 $ 72,083
Interest-bearing demand deposits..................... 76,250 13,697 89,947
Savings deposits..................................... 272,663 36,739 309,402
Time deposits........................................ 346,929 89,370 436,299
------------ ------------ ----------- ------------
Total deposits..................................... 757,922 149,809 -- 907,731
Securities sold under agreements to repurchase and
other borrowings..................................... 259,274 53,284 312,558
Other liabilities...................................... 5,305 3,199 (180) 8,324
------------ ------------ ----------- ------------
Total liabilities.................................. 1,022,501 206,292 (180) 1,228,613
STOCKHOLDERS' EQUITY:
Common stock........................................... 19,110 13 (13) 19,110
Additional paid-in-capital............................. 44,574 5,866 (1,731) 48,709
Retained earnings...................................... 16,354 16,453 (1,320) 31,487
Net unrealized gain (loss) on securities-for-sale...... (4,748) 61 (4,687)
Less: Treasury stock................................... -- 1,550 (1,744) (194)
------------ ------------ ----------- ------------
Total stockholders' equity......................... 75,290 20,843 (1,320) 94,813
------------ ------------ ----------- ------------
Total liabilities and stockholders' equity......... $1,097,791 $ 227,135 $ (1,500) $ 1,323,426
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
PER SHARE DATA:*
Shares outstanding..................................... 5,980,320 1,161,997 426,202 7,568,519
Book value per share................................... $ 12.59 $ 17.94 $ 12.53
</TABLE>
- ------------------------
* The shares outstanding and the book value per share shown above are based on
an average price per share of Pinnacle Common Stock of $27.375 and 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.
124
<PAGE>
The following table illustrates the effect on shares outstanding and book
value per share of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
------------------------------------------------
<S> <C> <C> <C> <C>
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ----------
Shares outstanding...................................... 5,980,320 1,161,997 337,254 7,479,571
Book value per share.................................... $12.59 $17.94 $12.68
</TABLE>
The following table illustrates the effect on shares outstanding and book
value per share of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
------------------------------------------------
<S> <C> <C> <C> <C>
PINNACLE CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ----------
Shares outstanding...................................... 5,980,320 1,161,997 728,313 7,870,630
Book value per share.................................... $12.59 $17.94 $12.05
</TABLE>
125
<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 1,588,199 shares of Pinnacle Common Stock for 1,161,997
shares of CB Common Stock and outstanding CB stock options and the
elimination of treasury stock.
126
<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.
127
<PAGE>
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)
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,*
---------------------------- -------------------------------------------
1997 1996 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable................................ $30,057 $26,829 $113,161 $ 87,686 $65,815
Tax-exempt............................. 174 110 477 454 447
Interest and dividends on securities:
Taxable.............................. 9,235 6,684 30,919 15,701 13,737
Tax-exempt........................... 277 286 1,136 973 1,093
Interest on federal funds sold........... 136 112 498 356 447
Interest on due from banks interest
bearing................................ 32 444 629 322 136
------------- ------------- ------------- ------------- -------------
Total interest income.................. 39,911 34,465 146,820 105,492 81,675
------------- ------------- ------------- ------------- -------------
INTEREST EXPENSE:
Interest on deposits..................... 15,384 14,525 60,403 43,300 31,722
Interest on securities sold under
repurchase agreements and other
borrowings............................. 6,556 4,004 19,032 10,935 6,616
------------- ------------- ------------- ------------- -------------
Total interest expense................. 21,940 18,529 79,435 54,235 38,338
------------- ------------- ------------- ------------- -------------
Net interest income........................ 17,971 15,936 67,385 51,257 43,337
Provision for loan losses.................. 805 912 3,133 659 382
------------- ------------- ------------- ------------- -------------
Net interest income after provision for
loan losses.............................. 17,166 15,024 64,252 50,598 42,955
------------- ------------- ------------- ------------- -------------
NON-INTEREST INCOME:
Other.................................... 4,160 2,760 12,551 9,617 9,031
Securities gains (losses), net........... 59 214 708 789 137
------------- ------------- ------------- ------------- -------------
Total non-interest income.............. 4,219 2,974 13,259 10,406 9,168
NON-INTEREST EXPENSE:
Salaries and benefits.................... 5,802 5,145 21,519 17,568 14,980
Occupancy and equipment.................. 1,988 1,845 7,690 6,001 4,934
Other.................................... 4,638 4,586 25,290 14,749 11,712
------------- ------------- ------------- ------------- -------------
Total non-interest expense............. 12,428 11,576 54,499 38,318 31,626
------------- ------------- ------------- ------------- -------------
Income before income tax expense........... 8,957 6,422 23,012 22,686 20,497
Income tax expense....................... 2,961 1,858 7,188 6,468 6,320
Extraordinary items/accounting changes... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Net income............................... $ 5,996 $ 4,564 $ 15,824 $ 16,218 $14,177
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
NET INCOME PER SHARE:**
Primary.................................. $0.48 $0.37 $1.29 $1.56 $1.37
Fully diluted............................ $0.48 $0.37 1.28 1.55 1.37
WEIGHTED AVERAGE SHARES OUTSTANDING:**
Primary.................................. 12,415,826 12,255,285 12,298,961 10,413,603 10,342,834
Fully diluted............................ 12,426,604 12,276,670 12,318,370 10,444,751 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.
128
<PAGE>
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on the IFC Exchange Ratio, an average price per share of Pinnacle Common
Stock of $27.375 and 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 following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary............................. $0.49 $0.38 $1.30 $1.57 $1.38
Fully diluted....................... $0.49 $0.37 $1.29 $1.57 $1.38
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary............................. 12,326,871 12,164,456 12,209,091 10,321,728 10,248,951
Fully diluted....................... 12,337,649 12,185,841 12,228,500 10,352,876 10,252,838
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE:
Primary............................. $0.47 $0.36 $1.26 $1.51 $1.33
Fully diluted....................... $0.47 $0.36 $1.25 $1.51 $1.33
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary............................. 12,717,958 12,563,787 12,604,202 10,725,656 10,661,710
Fully diluted....................... 12,728,736 12,585,172 12,623,611 10,756,804 10,665,597
</TABLE>
129
<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.
130
<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 THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------------------------
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............................................... $13,025 $13,001 $4,032 $30,058
Tax-exempt............................................ 122 48 4 174
Interest and dividends on securities:
Taxable............................................... 6,571 2,367 296 9,234
Tax-exempt............................................ 273 4 -- 277
Interest on federal funds sold.......................... 43 67 26 136
Interest on due from banks interest bearing............. 31 -- 1 32
------------ ------------ ------------ ------------ ------------
Total interest income............................... 20,065 15,487 4,359 39,911
------------ ------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits.................................... 7,747 6,110 1,527 15,384
Interest on securities sold under repurchase agreements
and other borrowings.................................. 3,268 2,636 652 6,556
------------ ------------ ------------ ------------ ------------
Total interest expense.............................. 11,015 8,746 2,179 21,940
------------ ------------ ------------ ------------ ------------
Net interest income....................................... 9,050 6,741 2,180 17,971
Provision for loan losses................................. 235 240 330 805
------------ ------------ ------------ ------------ ------------
Net interest income after provision for loan losses....... 8,815 6,501 1,850 17,166
------------ ------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Other income............................................ 1,832 1,826 502 4,160
Securities gains, net................................... 59 -- -- 59
------------ ------------ ------------ ------------ ------------
Total non-interest income........................... 1,891 1,826 502 4,219
NON-INTEREST EXPENSES:
Salaries and benefits................................... 2,765 2,533 504 5,802
Occupancy and equipment................................. 1,032 810 146 1,988
Other................................................... 2,392 1,680 566 4,638
------------ ------------ ------------ ------------ ------------
Total non-interest expense.......................... 6,189 5,023 1,216 12,428
------------ ------------ ------------ ------------ ------------
Income before income tax expense........................ 4,517 3,304 1,136 8,957
Income tax expense...................................... 1,547 1,024 390 2,961
------------ ------------ ------------ ------------ ------------
Net income.............................................. $ 2,970 $ 2,280 $ 746 $ 5,996
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
NET INCOME PER SHARE:*
Primary................................................. $0.50 $0.47 $0.60 $0.48
Fully diluted........................................... 0.50 0.47 0.60 0.48
WEIGHTED AVERAGE SHARES OUTSTANDING:*
Primary................................................. 5,978,640 4,848,870 1,241,938 346,378 12,415,826
Fully diluted........................................... 5,978,640 4,859,648 1,244,517 343,799 12,426,604
</TABLE>
131
<PAGE>
- ------------------------
* The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on the IFC Exchange Ratio, an average price per share of Pinnacle Common
Stock of $27.375 and 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 following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
NET INCOME PER SHARE:
Primary................................. $0.50 $0.47 $0.60 $0.49
Fully diluted........................... $0.50 $0.47 $0.60 $0.49
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................. 5,978,640 4,848,870 1,241,938 257,423 12,326,871
Fully diluted........................... 5,978,640 4,859,648 1,244,517 254,844 12,337,649
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
NET INCOME PER SHARE:
Primary................................. $0.50 $0.47 $0.60 $0.47
Fully diluted........................... $0.50 $0.47 $0.60 $0.47
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................. 5,978,640 4,848,870 1,241,938 648,510 12,717,958
Fully diluted........................... 5,978,640 4,859,648 1,244,517 645,931 12,728,736
</TABLE>
132
<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 THREE MONTHS ENDED MARCH 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............................................... $11,577 $11,631 $3,621 $26,829
Tax-exempt............................................ 44 60 6 110
Interest and dividends on securities:
Taxable............................................... 4,767 1,606 311 6,684
Tax-exempt............................................ 264 22 -- 286
Interest on federal funds sold.......................... 90 16 6 112
Interest on due from banks interest bearing............. 416 22 6 444
------------ ------------ ------------ ------------ ------------
Total interest income............................... 17,158 13,357 3,950 34,465
------------ ------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits.................................... 7,399 5,851 1,275 14,525
Interest on securities sold under repurchase agreements
and other borrowings.................................. 1,890 1,460 654 4,004
------------ ------------ ------------ ------------ ------------
Total interest expense.............................. 9,289 7,311 1,929 18,529
------------ ------------ ------------ ------------ ------------
Net interest income....................................... 7,869 6,046 2,021 15,936
Provision for loan losses................................. 80 50 782 912
------------ ------------ ------------ ------------ ------------
Net interest income after provision for loan losses....... 7,789 5,996 1,239 15,024
------------ ------------ ------------ ------------ ------------
NON-INTEREST INCOME:
Other income............................................ 1,350 1,070 340 2,760
Securities gains, net................................... 234 (20) -- 214
------------ ------------ ------------ ------------ ------------
Total non-interest income........................... 1,584 1,050 340 2,974
NON-INTEREST EXPENSES:
Salaries and benefits................................... 2,522 2,208 415 5,145
Occupancy and equipment................................. 902 807 136 1,845
Other................................................... 2,327 1,848 411 4,586
------------ ------------ ------------ ------------ ------------
Total non-interest expense.......................... 5,751 4,863 962 11,576
------------ ------------ ------------ ------------ ------------
Income before income tax expense........................ 3,622 2,183 617 6,422
Income tax expense...................................... 1,178 546 134 1,858
------------ ------------ ------------ ------------ ------------
Net income.............................................. $ 2,444 $ 1,637 $ 483 $ 4,564
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
NET INCOME PER SHARE:*
Primary................................................. $0.42 $0.34 $0.38 $0.37
Fully diluted........................................... 0.42 0.34 0.38 0.37
WEIGHTED AVERAGE SHARES OUTSTANDING:*
Primary................................................. 5,873,358 4,760,129 1,258,867 362,931 12,255,285
Fully diluted........................................... 5,873,358 4,781,514 1,258,187 363,611 12,276,670
</TABLE>
133
<PAGE>
- ------------------------
* The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on the IFC Exchange Ratio, an average price per share of Pinnacle Common
Stock of $27.375 and 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 following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
NET INCOME PER SHARE:
Primary................................. $0.42 $0.34 $0.38 $0.38
Fully diluted........................... $0.42 $0.34 $0.38 $0.37
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................. 5,873,358 4,760,129 1,258,867 272,102 12,164,456
Fully diluted........................... 5,873,358 4,781,514 1,258,187 272,782 12,185,841
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
NET INCOME PER SHARE:
Primary................................. $0.42 $0.34 $0.38 $0.36
Fully diluted........................... $0.42 $0.34 $0.38 $0.36
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................. 5,873,358 4,760,129 1,258,867 671,433 12,563,787
Fully diluted........................... 5,873,358 4,781,514 1,258,187 672,113 12,585,172
</TABLE>
134
<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, 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.
135
<PAGE>
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on the IFC Exchange Ratio, an average price per share of Pinnacle Common
Stock of $27.375 and 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 following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
NET INCOME PER SHARE:
Primary................................. $1.55 $0.96 $1.64 $1.30
Fully diluted........................... $1.55 $0.96 $1.64 $1.29
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................. 5,899,453 4,794,849 1,245,810 268,979 12,209,091
Fully diluted........................... 5,899,453 4,814,258 1,250,704 264,085 12,228,500
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
NET INCOME PER SHARE:
Primary................................. $1.55 $0.96 $1.64 $1.26
Fully diluted........................... $1.55 $0.96 $1.64 $1.25
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary................................. 5,899,453 4,794,849 1,245,810 664,090 12,604,202
Fully diluted........................... 5,899,453 4,814,258 1,250,704 659,196 12,623,611
</TABLE>
136
<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>
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 1,265,353 375,114(1) 10,413,603
Fully diluted.................................... 3,996,137 4,808,147 1,273,276 367,191(1) 10,444,751
</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.
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on the IFC Exchange Ratio, an average price per share of Pinnacle Common
Stock of $27.375 and 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.
137
<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) (CONTINUED)
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and fully
diluted) of an average price per share of Pinnacle Common Stock of $29.00 or
higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common Stock for
each share of CB Common Stock and each CB stock option converted in the CB
Merger.
<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>
NET INCOME PER SHARE:
Primary...................................... $ 1.62 $ 1.53 $ 1.94 $ 1.57
Fully diluted................................ $ 1.62 $ 1.52 $ 1.93 $ 1.57
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary...................................... 3,996,137 4,776,999 1,265,353 283,239 10,321,728
Fully diluted................................ 3,996,137 4,808,147 1,273,276 275,316 10,352,876
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and fully
diluted) of an average price per share of Pinnacle Common Stock of $23.00 or
lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common Stock for each
share of CB Common Stock and each CB stock option converted in the CB Merger.
<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>
NET INCOME PER SHARE:
Primary...................................... $ 1.62 $ 1.53 $ 1.94 $ 1.51
Fully diluted................................ $ 1.62 $ 1.52 $ 1.93 $ 1.51
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary...................................... 3,996,137 4,776,999 1,265,353 687,167 10,725,656
Fully diluted................................ 3,996,137 4,808,147 1,273,276 679,244 10,756,804
</TABLE>
138
<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>
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.
** The net income per share (primary and fully diluted) and the weighted
average shares outstanding (primary and fully diluted) shown above are based
on the IFC Exchange Ratio, an average price per share of Pinnacle Common
Stock of $27.375 and 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.
139
<PAGE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
NET INCOME PER SHARE:
Primary................................. $1.38 $1.50 $1.26 $1.38
Fully diluted........................... $1.38 $1.50 $1.26 $1.38
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary................................. 3,821,904 4,844,599 1,292,293 290,155 10,248,951
Fully diluted........................... 3,821,904 4,848,486 1,289,970 292,478 10,252,838
</TABLE>
The following table illustrates the effect on net income per share (primary
and fully diluted) and weighted average shares outstanding (primary and
fully diluted) of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ------------
NET INCOME PER SHARE:
Primary................................. $1.38 $1.50 $1.26 $1.33
Fully diluted........................... $1.38 $1.50 $1.26 $1.33
WEIGHTED AVERAGES SHARES OUTSTANDING:
Primary................................. 3,821,904 4,844,599 1,292,293 702,914 10,661,710
Fully diluted........................... 3,821,904 4,848,486 1,289,970 705,237 10,665,597
</TABLE>
140
<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 March 31, 1997. 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 March 31, 1997
or the results that may be obtained in the future.
141
<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 MARCH 31, 1997
--------------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash due from banks.................... $25,904 $21,673 $4,847 $(6,296) $46,128
Federal funds sold..................... -- -- -- --
Due from banks-interest bearing........ 2,016 85 9,882 11,983
Investment securities.................. 412,925 126,172 17,723 556,820
Loans.................................. 615,024 620,966 186,505 1,422,495
Allowance for loan losses.............. (5,651) (6,908) (1,808) (14,367)
Other assets........................... 47,573 56,936 9,986 (1,049) 113,446
------------ ------------ ------------ ----------- -------------
Total assets......................... $1,097,791 $818,924 $227,135 $(7,345) $2,136,505
------------ ------------ ------------ ----------- -------------
------------ ------------ ------------ ----------- -------------
LIABILITIES:
Deposits:
Non-interest-bearing demand deposits... $62,080 $28,972 $10,003 $101,055
Interest-bearing demand deposits....... 76,250 49,171 13,697 139,118
Savings deposits....................... 272,663 139,936 36,739 449,338
Time deposits.......................... 346,929 332,310 89,370 768,609
------------ ------------ ------------ ----------- -------------
Total deposits....................... 757,922 550,389 149,809 -- 1,458,120
Securities sold under agreements to
repurchase and other borrowings........ 259,274 191,298 53,284 503,856
Other liabilities...................... 5,305 5,317 3,199 (1,784) 12,037
------------ ------------ ------------ ----------- -------------
Total liabilities.................... 1,022,501 747,004 206,292 (1,784) 1,974,013
Stockholders' Equity:
Common stock........................... 19,110 59 13 (72) 19,110
Additional paid-in-capital............. 44,574 27,932 5,866 (10,392) 67,980
Retained earnings...................... 16,354 53,595 16,453 (5,561) 80,604
(237 (3)
Net unrealized gain (loss) on
securities-for-sale.................. (4,748) (709) 61 (5,396)
Less: Treasury stock & ESOP obli-
gation................................. -- 8,957 1,550 (10,701) (194)
------------ ------------ ------------ ----------- -------------
Total stockholders' equity............. 75,290 71,920 20,843 (5,561) 162,492
------------ ------------ ------------ ----------- -------------
Total liabilities and stockholders'
equity................................. $1,097,791 $818,924 $227,135 $(7,345) $2,136,505
------------ ------------ ------------ ----------- -------------
------------ ------------ ------------ ----------- -------------
PER SHARE DATA:*
Shares outstanding..................... 5,980,320 4,785,237 1,161,997 426,202 12,353,756
Book value per share................... $12.59 $15.03 $17.94 $13.15
</TABLE>
- ------------------------
* The shares outstanding and the book value per share shown above are based on
the IFC Exchange Ratio, an average price per share of Pinnacle Common Stock
of $27.375 and a CB Exchange Ratio of
142
<PAGE>
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 following table illustrates the effect on shares outstanding and book
value per share of an average price per share of Pinnacle Common Stock of
$29.00 or higher and a CB Exchange Ratio of 1.2069 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Shares outstanding........................ 5,980,320 4,785,237 1,161,997 337,254 12,264,808
Book value per share...................... $ 12.59 $ 15.03 $ 17.94 $ 13.25
</TABLE>
The following table illustrates the effect on shares outstanding and book
value per share of an average price per share of Pinnacle Common Stock of
$23.00 or lower and a CB Exchange Ratio of 1.5217 shares of Pinnacle Common
Stock for each share of CB Common Stock and each CB stock option converted
in the CB Merger.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-------------------------------------------------------------
PINNACLE IFC CB PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Shares outstanding........................ 5,980,320 4,785,237 1,161,997 728,313 12,655,867
Book value per share...................... $ 12.59 $ 15.03 $ 17.94 $ 12.84
</TABLE>
143
<PAGE>
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................................................... $6,296,000
Credit--Other assets--prepaid acquisition charges.............. 1,049,000
</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 4,785,237 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 1,588,199 shares of Pinnacle Common Stock for 1,161,997 shares
of CB Common Stock and outstanding CB stock options.
144
<PAGE>
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,
145
<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."
146
<PAGE>
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 the 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, Lesch and Heffernan 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 re incorporated
by reference in this Joint Proxy Statement/Prospectus, or in CB's Annual Report
on Form 10-KSB for the fiscal year ended March 31, 1997, which is attached to
this Joint Proxy Statement/ Prospectus as Annex A. See "AVAILABLE INFORMATION,"
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "INFORMATION REGARDING THE
PINNACLE ANNUAL MEETING," "INFORMATION REGARDING THE IFC ANNUAL MEETING" and
"ANNEX A--CB BANCORP, INC. ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDED MARCH 31, 1997."
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
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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.
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, or in CB's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997, which is
attached to this Joint Proxy Statement/Prospectus as Annex A. See "AVAILABLE
INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "INFORMATION
REGARDING THE PINNACLE ANNUAL MEETING," "INFORMATION REGARDING THE IFC ANNUAL
MEETING" and "ANNEX A--CB BANCORP, INC. ANNUAL REPORT ON FORM 10-KSB FOR THE
FISCAL YEAR ENDED MARCH 31, 1997."
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."
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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 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 CB 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 (except with respect to cash received in lieu of a fractional
share interest);
(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 (reduced by any amount
allocable to a fractional share interest for which cash is received); 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).
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
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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.
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,
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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 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-
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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
Upon consummation of the Maco Acquisition, Pinnacle received an opinion of
KPMG Peat Marwick LLP to the effect that Maco Acquisition constituted, and
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, it was assumed by Pinnacle and KPMG Peat
Marwick LLP (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.
KPMG Peat Marwick LLP was retained by Pinnacle in connection with the Maco
Acquisition for the purpose of providing advice with respect to the material
federal income tax consequences of the Maco Acquisition and on the basis of the
firm's reputation, experience and familiarity with federal income tax matters.
As part of its business, KPMG Peat Marwick LLP is regularly engaged to provide
accounting and auditing services and to provide advice with respect to federal
income tax matters. The Pinnacle Board appointed KPMG Peat Marwick LLP,
independent certified public accountants, as independent accountants for
Pinnacle in 1996 and 1995. The Pinnacle Board has appointed KPMG Peat Marwick
LLP, independent certified public accountants, as independent accountants for
Pinnacle for 1997.
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 March 31, 1997, Pinnacle's ratio of Tier 1 Capital to risk-based
assets was 12.45%. At March 31, 1997, 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 11.90%. At March 31, 1997, 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 12.82%.
At March 31, 1997, 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
12.16%.
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 March 31, 1997 was
6.24%. At March 31, 1997, on a pro forma combined basis after giving effect to
the IFC Merger, Pinnacle's Tier 1 Capital leverage ratio would be 6.96%. At
March 31, 1997, on a pro forma combined basis after giving effect to the CB
Merger, Pinnacle's Tier 1 Capital leverage ratio would be 6.65%. At March 31,
1997, on a pro forma combined basis after giving effect to both of the Mergers,
Pinnacle's Tier 1 Capital leverage ratio would be 7.13%. 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 March 31, 1997, IFC had Tangible Capital and Core Capital equal to 6.40%
of adjusted total assets, and risk-based capital equal to 10.43% of total
risk-adjusted assets. At March 31, 1997, CB had Tangible Capital and Core
Capital equal to 8.08% of adjusted total assets, and risk-based capital equal to
14.85% of total risk-adjusted assets. At March 31, 1997 on a pro forma basis
after giving effect to the IFC Merger, 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 11.90% of risk-adjusted total
assets. At March 31, 1997 on a pro forma basis after giving effect to the CB
Merger, Pinnacle would have had Tangible Capital equal to 6.65% of adjusted
total assets, Core Capital equal to 6.65% of adjusted total assets and
risk-based capital equal to 12.82% of risk-adjusted total assets. At March 31,
1997 on a pro forma basis after giving effect to both of the Mergers, Pinnacle
would have had Tangible Capital equal to 7.13% of adjusted total assets, Core
Capital equal to 7.13% of adjusted total assets and risk-based capital equal to
12.16% 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 March 31, 1997, 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 March 31, 1997, IndFed Bank had approximately 70% of its
portfolio assets in qualified thrift investments and therefore was a QTL under
applicable law. As of December 31, 1996, Community Bank had approximately 92% 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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<PAGE>
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
182
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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.
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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 $3,397.
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OPTION/SAR GRANTS IN LAST FISCAL YEAR. The following table sets forth
certain information concerning stock options/SARs granted during 1996 to the
Named Pinnacle Executives.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
NUMBER OF % OF TOTAL PRICE
SECURITIES OPTIONS/SARS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OF BASE OPTION TERM
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -----------------
NAME GRANT DATE GRANTED FISCAL YEAR ($/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 90,428
Exec. Vice President
David W. Kolhagen ............ 07/96 6,500 9.12 21.16 07/17/01 37,999 83,969
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.
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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.
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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
187
<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.
188
<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 the record date for the
Pinnacle Annual Meeting , 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
the record date for the Pinnacle Annual Meeting 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.
189
<PAGE>
Upon consummation of the CB Merger, and assuming the IFC Merger is NOT
consummated, 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.
190
<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 103,864 *
Operating Officer
John R. Poncher, M.D...... 66 Director 1987 2000 36,591 *
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 76,876 *
Executive Officer
Philip A. Maxwell......... 62 Director 1987 1999 63,589 *
Barbara A. Young.......... 47 Director 1990 1999 46,526 *
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 115,251 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--6,725 shares; Director Smith--7,125
shares; Director Hutton--7,125 shares; and Director Wittlinger--25,125
shares.
191
<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.
192
<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.
193
<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
$1,500 to Messrs. Lesch and Candela, respectively.
194
<PAGE>
The following table sets forth certain information with respect to the
number and value of stock options held by the named executive officers at
December 31, 1996. To date, no stock appreciation rights have been granted by
IFC.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#) FY-END($)
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 a $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
195
<PAGE>
retirement age payable to each such individual under their IFC ESRIA is
estimated, based on assumed salary increases, to be approximately $155,000 and
$73,000, 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
196
<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)
197
<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>
198
<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.
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.
199
<PAGE>
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."
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 included in CB's Annual Report
on Form 10-KSB for the year ended March 31, 1997 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 a
reasonable time before the solicitation of proxies for such meeting is made.
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 a reasonable time before the solicitation of proxies for such
meeting is made.
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.
200
<PAGE>
ANNEX A
CB BANCORP, INC.
ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
<PAGE>
- ---------------------------------------------------------
- ---------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(AMENDMENT NO. 1)
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
for the fiscal year ended March 31, 1997
Commission file number 0-20742
CB BANCORP, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
DELAWARE 35-1866127
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
<TABLE>
<S> <C>
126 E. FOURTH STREET, MICHIGAN CITY, 46360
INDIANA
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (219) 873-2800
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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. Yes /X/ No / /
Check if there is no disclosure of delinquent filers in response to item 405
of Regulation S-B contained herein, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. /X/
The issuer's revenues for its most recent fiscal year were $18,164,000.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, i.e., persons other than directors and executive officers of the
registrant is $31,538,093 and is based upon the last sales price as quoted on
the NASDAQ Small-Capital Market for June 4, 1997.
The number of shares of the Common Stock of the registrant outstanding as of
March 31, 1997 was 1,161,997.
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE>
INDEX
<TABLE>
<S> <C> <C>
PART I
Item 1. Description of Business............................................. A-1
Item 2. Description of Properties........................................... A-26
Item 3. Legal Proceedings................................................... A-26
Item 4. Submission of Matters to a Vote of Security Holders................. A-26
PART II
Item 5. Market for Common Equity and Related Stockholder Matters............ A-28
Item 6. Management's Discussion and Analysis or Plan of Operation........... A-28
Item 7. Financial Statements................................................ A-38
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... A-70
PART III
Item 9. Directors and Executive Officers; Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.................. A-70
Item 10. Executive Compensation.............................................. A-72
Item 11. Security Ownership of Certain Beneficial Owners and Management...... A-75
Item 12. Certain Relationships and Related Transactions...................... A-76
Item 13. Exhibits and Reports on Form 8 K.................................... A-76
SIGNATURES......................................................................... A-78
</TABLE>
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
CB Bancorp, Inc. (the "Company" or "CB Bancorp"or "CB") is a Delaware
corporation which was organized in 1992 by Community Bank, A Federal Savings
Bank (the "Bank" or "Community Bank") for the purpose of becoming a savings and
loan holding company. The Company owns all of the outstanding stock of the Bank
issued on December 23, 1992, in connection with the completion of its conversion
from the mutual to the stock form of organization (the "Conversion"). The
Company issued 1,284,238 shares of Common Stock at a price of $5.00 per share in
the Conversion as restated for the February 1994 100% stock dividend. All
references to the Company at or before December 23, 1992 refer to the Bank.
Currently, the Company does not transact any material business other than
through its sole subsidiary, the Bank. The Company retained approximately 50% of
the net conversion proceeds amounting to approximately $2.5 million which was
invested in short-term investment grade securities and, from time to time,
purchased mortgage loans.
The Bank was organized in 1926 as an Indiana state chartered building and
loan association and later converted to a federal charter. More recently, in
May, 1991, the Bank converted to a federal mutual savings bank and changed its
name to Community Bank, A Federal Savings Bank. Pursuant to the conversion, the
Bank became a federally chartered capital stock savings bank on December 23,
1992. The Bank is a member of the Federal Home Loan Bank ("FHLB") System, and
its deposit accounts are insured to the maximum allowable amount by the Federal
Deposit Insurance Corporation ("FDIC"). The Bank is chartered and regulated by
the Office of Thrift Supervision ("OTS"), and the OTS is the Bank's primary
federal supervisory agency. As a non-diversified savings and loan holding
company, the Company has registered with the OTS and is subject to OTS
regulations, supervision and reporting requirements. At March 31, 1997, the
Company had assets of $227.1 million, deposits of $149.8 million, and
shareholders' equity of $20.8 million or 9.18% of total assets.
The Bank is a community-oriented financial institution offering a variety of
financial services to meet the needs of the local community. Its principal
business has been and continues to be attracting retail deposits from the
general public and investing those deposits, together with funds generated from
operations and borrowings, primarily in one- to four-family residential mortgage
loans and, to a lesser extent, in commercial real estate and consumer loans,
mortgage-backed securities, U.S. Government and federal agency securities and
other marketable securities. At March 31, 1997 one- to four-family residential
mortgage loans held for investment totaled $69.6 million or 76.6% of total loans
held for investment. In addition, at March 31, 1997 the Company held
approximately $95.3 million in one- to four-family residential mortgage loans
purchased under agreements to resell under its Mortgage Loan Reverse Repurchase
Program.
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 Company also established a loan
production/mortgage banking office in Merrillville, Indiana located at 701 E.
83rd Avenue, Suite E, 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.
LENDING ACTIVITIES
LOAN AND MORTGAGE-BACKED SECURITIES PORTFOLIO COMPOSITIONS. The Company's
loan portfolio composition consists primarily of conventional fixed-rate and
adjustable-rate first mortgage loans secured by one-to four-family residences.
At March 31, 1997, the Company's gross mortgage loans outstanding were $81.0
million, of which $69.6 million were one- to four-family residential mortgage
loans. Of the mortgage
A-1
<PAGE>
loans outstanding at that date, 34.8% were variable-rate loans and 65.2% were
fixed-rate loans. At that same date, commercial real estate and multi-family
mortgage loans totaled $8.1 million and $2.7 million, respectively. The
remainder of the Company's mortgage loans, which totaled $0.5 million or 0.60%
of total gross loans outstanding at March 31, 1997, consisted of construction
loans. The Company's construction loans automatically convert to permanent loans
upon completion of construction. Other loans held by the Company, which
primarily consist of consumer and commercial loans, totaled $9.9 million or
10.9% of total gross loans at March 31, 1997.
At March 31, 1997, mortgage loans purchased under agreements to resell
totaled $95.3 million or 41.9% of the Company's total assets. The mortgage loans
were purchased pursuant to the Mortgage Loan Reverse Repurchase Program (the
"Program") and consisted entirely of one- to four-family residential loans.
These loans are primarily fixed-rate mortgage loans with terms of 30 years. The
loans are repurchased by the participants in the Program (for transfer to end
investors), usually within 30 days of origination. The Program is designed to
provide financing for the mortgage banking activities of the participants and to
provide the Company with a relatively high yield short-term investment vehicle
that allows the Company to increase profitability while managing its interest
rate risk. There currently are 117 approved mortgage companies in the Program
located throughout the United States. The participants sell to the Company loans
originated in their home states as well as in other states in the United States.
The Program is carried out pursuant to agreements with each participant, which
provide that the Company, at its option, will purchase whole mortgage loans,
which are then resold to the participant (for transfer to an end investor)
generally within 90 days. The Company also purchases interim construction loans
under this program with subsequent repurchase often extending six months or
longer which may expose the Company to greater risk due to possible changes in
the financial condition of the borrowers or builder. At March 31, 1997,
construction loan balances accounted for 26.7% of the Company's total
outstanding investment in the program. It is the Company's policy to purchase
loans only upon receipt of specified documents evidencing that each loan meets
secondary market underwriting standards. In addition, the Company will purchase
only those loans for which a commitment has been received by an end investor to
purchase the loan upon the Company's resale of the loan to the participant or
when the Company has been provided with evidence that the participant has a
commitment from a recognized secondary market end investor to purchase the loans
that the participant sells to the Company.
The Company also invests in mortgage-backed securities. At March 31, 1997,
net mortgage-backed securities aggregated $8.5 million or 3.7% of total assets,
of which 45.9% were collateralized by ARMs and 54.1% were collateralized by
fixed-rate mortgage loans. At March 31, 1997, all of the mortgage-backed
securities in the Company's portfolio were insured or guaranteed by either the
Government National Mortgage Association ("GNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC") or the Federal National Mortgage Association's
("FNMA") or consisted of collateralized mortgage obligations ("CMOs")
collateralized by GNMA or FHLMC insured or guaranteed mortgage-backed
securities. Mortgage-backed securities and collateralized mortgage obligations
are subject to prepayment and extension risk depending on the speed at which the
underlying collateral prepays. Under a range of prepayment scenarios, management
is of the opinion that the Company's portfolio of mortgage related securities
will provide reasonable returns without subjecting the Company to excessive
prepayment or extension risk.
SOURCE OF FUNDS
GENERAL. The Company's primary sources of funds are deposits, repayments on
loans and securities, and, to a lesser extent, FHLB-Indianapolis advances and
federal funds.
DEPOSITS. The Company offers a variety of deposit accounts having a range
of interest rates and terms. Deposit products principally consist of passbook,
NOW, demand, money market and certificate accounts, Keogh accounts, and
individual retirement accounts ("IRA's"). The flow of deposits is influenced
significantly by general economic conditions, the restructuring of the thrift
industry, changes in prevailing interest rates and competition. The Company's
deposits, while primarily obtained from LaPorte County,
A-2
<PAGE>
Indiana, are also gathered on a wholesale basis as needed. The Company relies
primarily on customer service and long-standing relationships with customers to
attract and retain these deposits. The Company seeks to maintain a high level of
stable core deposits by providing extended hours of service--both early and
late--through its branch offices and drive-up facilities. When pricing deposits,
consideration is given to local competition, Treasury offerings and the need for
funds. Management's strategy is to price deposit rates moderately, offering
neither the highest nor the lowest rates, and to stratify the pricing system to
manage the Company's interest rate risk.
SUBSIDIARY
Community Financial Services, Incorporated ("Community Financial") is a
wholly-owned subsidiary of the Bank, incorporated in November 1986. Community
Financial originally engaged solely in the sale of tax deferred annuities. In
May, 1991, Community Financial expanded its activities to include the
preparation of federal and state income tax returns for individuals and small
businesses and the sale of credit life, disability and other insurance products.
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. At March 31, 1997, the Bank's net investment in
Community Financial totaled $578,000. For the year ended March 31, 1997,
Community Financial had net income of $57,000. In May, 1994, Community Financial
directed the start-up of a securities broker-dealer. From this, Community
Brokerage Services, Incorporated was formed as a subsidiary under the Community
Financial corporate umbrella. Full broker-dealer securities services were
successfully introduced to the Company's customers as well as the general public
in November, 1994.
COMPETITION
The LaPorte County, Indiana area has a high density of financial
institutions, many of which are significantly larger and have greater financial
resources than the Company, and all of which are competitors of the Company to
varying degrees. The Company's competition for loans comes principally from
commercial banks, credit unions, savings and loan associations, savings banks,
mortgage banking companies and insurance companies. Its most direct competition
has historically come from savings and loan associations, savings banks,
commercial banks, and credit unions. The Company faces additional competition
for deposits from short-term money market funds and other corporate and
government securities funds. The Company also faces increased competition from
other financial institutions such as brokerage firms and insurance companies for
deposits. Competition has and may continue to increase as a result of the
lifting of restrictions on the interstate operations of financial institutions.
The Company is a community-oriented financial institution serving its market
area with a wide selection of residential loans and retail financial services.
Management considers the Company's reputation for financial strength and
customer service as its major competitive advantage in attracting and retaining
customers in its market area. Management also believes it benefits from its
community orientation.
RECENT DEVELOPMENTS
On March 1, 1997 the Company announced that it had entered into a Definitive
Agreement ("Agreement") to be acquired by and merged into Pinnacle Financial
Services, Inc. (Pinnacle) subject to regulatory and shareholder approval. The
terms of the Agreement provide for a purchase price of $35.00 per CB Bancorp,
Inc. ("CB") share payable in Pinnacle common stock. Under the Agreement, each
share of CB common stock will be exchanged for a number of shares of Pinnacle
stock determined by dividing $35.00 by Pinnacle's average stock price during the
15 day period prior to the five day period before the merger is effected.
However, if Pinnacle's average stock price exceeds $29.00, CB shareholders will
receive
A-3
<PAGE>
1.2069 Pinnacle shares per CB share. If Pinnacle's average stock price is less
than $23.00, CB shareholders will receive 1.5217 Pinnacle shares per CB share.
Pinnacle is the parent company of Pinnacle Bank, which is headquartered in
St. Joseph, Michigan. Pinnacle Bank presently has 28 banking centers located in
southwest Michigan and northwest Indiana. In addition, Pinnacle Financial
Services, Inc. announced in November, 1996 a pending merger between itself and
Indiana Federal Corporation, parent company of Indiana Federal Bank for Savings
of Valparaiso, Indiana. Indiana Federal Bank also has a major presence in
northwest Indiana. The merging of Indiana Federal Corporation and CB Bancorp,
Inc. into Pinnacle will result in a $2.1 billion banking company with 50 banking
centers located along the southern tip of Lake Michigan.
PERSONNEL
As of March 31, 1997, the Company had 60 full-time employees and 13
part-time employees. The employees are not represented by a collective
bargaining unit, and the Company considers its relationship with its employees
to be good.
STATISTICAL DISCLOSURE
The following tables set forth selected financial information regarding the
business of the Company for the periods shown.
A-4
<PAGE>
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL
A. 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>
1997 1996 1995
------------------------------------ ------------------------------------ ---------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST BALANCE
--------- ----------- ------------ --------- ----------- ------------ ---------
(DOLLARS
(DOLLARS IN THOUSANDS) IN
(DOLLARS IN THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net (1)(2).................... $ 172,236 $ 15,125 8.78% $ 148,078 $ 13,030 8.80% $ 96,785
Mortgage-backed securities........... 9,458 632 6.68 10,356 689 6.65 10,833
Interest-bearing deposits and federal
funds sold......................... 997 49 4.91 1,025 67 6.54 3,995
Securities........................... 9,331 595 6.38 9,036 566 6.26 10,966
--------- ----------- --------- ----------- ---------
Total interest-earning assets.......... 192,022 16,401 8.54 168,495 14,352 8.52 122,579
Noninterest-earning assets............. 12,289 10,650 9,702
--------- --------- ---------
Total assets........................... $ 204,311 $ 179,145 $ 132,281
--------- --------- ---------
--------- --------- ---------
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts......................... $ 14,160 $ 315 2.22% $ 13,519 $ 301 2.23% $ 11,556
Money market accounts................ 9,530 328 3.44 8,819 303 3.44 9,325
Passbook accounts.................... 27,113 814 3.00 27,633 836 3.03 31,202
Certificate accounts................. 77,460 4,223 5.45 64,885 3,601 5.55 52,967
Borrowed funds....................... 43,464 2,454 5.65 34,414 2,022 5.88 3,251
--------- ----------- --------- ----------- ---------
Total interest-bearing liabilities..... 171,727 8,134 4.74 149,270 7,063 4.73 108,301
Other liabilities (3).................. 13,017 12,297 7,952
--------- --------- ---------
Total liabilities...................... $ 184,744 $ 161,567 $ 116,253
Shareholders' equity................... 19,567 17,578 16,028
--------- --------- ---------
Total liabilities & shareholders'
equity................................ $ 204,311 $ 179,145 $ 132,281
--------- --------- ---------
--------- --------- ---------
Net interest income/interest rate
spread (4)............................ $ 8,267 3.80% $ 7,289 3.79%
----------- ------ ----------- ------
----------- ------ ----------- ------
Net interest-earning assets/net
interest margin (5)................... $ 20,295 4.31% $ 19,225 4.33% $ 14,278
--------- ------ --------- ------ ---------
--------- ------ --------- ------ ---------
Ratio of interest earning assets to
average interest-bearing
liabilities........................... 111.82% 112.88%
------ ------
------ ------
<CAPTION>
AVERAGE
INTEREST YIELD/COST
----------- ------------
<S> <C> <C>
ASSETS
Interest-earning assets:
Loans, net (1)(2).................... $ 7,801 8.06%
Mortgage-backed securities........... 653 6.03
Interest-bearing deposits and federal
funds sold......................... 177 4.43
Securities........................... 568 5.18
-----------
Total interest-earning assets.......... 9,199 7.50
Noninterest-earning assets.............
Total assets...........................
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts......................... $ 283 2.45%
Money market accounts................ 285 3.06
Passbook accounts.................... 944 3.03
Certificate accounts................. 2,450 4.63
Borrowed funds....................... 182 5.60
-----------
Total interest-bearing liabilities..... 4,144 3.83
Other liabilities (3)..................
Total liabilities......................
Shareholders' equity...................
Total liabilities & shareholders'
equity................................
Net interest income/interest rate
spread (4)............................ $ 5,055 3.67%
----------- ------
----------- ------
Net interest-earning assets/net
interest margin (5)................... 4.12%
------
------
Ratio of interest earning assets to
average interest-bearing
liabilities........................... 113.18%
------
------
</TABLE>
(1) Nonaccruing loans have been included in the average loan balance.
(2) Calculated net of deferred loan fees, loan disocunt, loans in process and
the allowance for loan loasses.
(3) Includes noninterest-bearing demand deposit accounts.
(4) Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
A-5
<PAGE>
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL (CONTINUED)
B. 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, 1997 YEAR ENDED MARCH 31, 1996
COMPARED TO YEAR ENDED MARCH COMPARED TO YEAR ENDED MARCH
31, 1996 31, 1995
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............................................... $ 2,122 $ (27) $ 2,095 $ 4,458 $ 771 $ 5,229
Mortgage-backed securities............................... (60) 3 (57) (30) 66 36
Interest-bearing deposits and federal funds sold......... (2) (16) (18) (170) 60 (110)
Securities............................................... 19 10 29 (110) 108 (2)
--------- --------- --------- --------- --------- ---------
2,079 (30) 2,049 4,148 1,005 5,153
INTEREST-BEARING LIABILITIES
NOW accounts............................................. 14 -- 14 45 (27) 18
Money market accounts.................................... 24 1 25 (16) 34 18
Passbook accounts........................................ (16) (6) (22) (108) -- (108)
Certificate accounts..................................... 687 (65) 622 610 541 1,151
Borrowed funds........................................... 514 (82) 432 1,831 9 1,840
--------- --------- --------- --------- --------- ---------
Total.................................................. 1,223 (152) 1,071 2,362 557 2,919
--------- --------- --------- --------- --------- ---------
Change in net interest income............................ $ 856 $ 122 $ 978 $ 1,786 $ 448 $ 2,234
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
A-6
<PAGE>
II. INVESTMENT PORTFOLIO
SECURITIES
A. The amortized cost and fair market value of securities as of March 31 are set
forth in the table below (in thousands).
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
----------- --------- ----------- --------- ----------- ---------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
Marketable equity securities.......................... $ 572 $ 672 $ 578 $ 621 $ 578 $ 581
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
SECURITIES HELD-TO-MATURITY:
U.S. Government agency securities..................... $ 3,000 $ 2,952 $ 3,000 $ 2,970 $ 2,680 $ 2,612
U.S. Treasury obligations............................. 1,076 1,076
Corporate notes......................................... 2,789 2,793 2,675 2,674 2,733 2,735
Mortgage-backed......................................... 8,510 8,603 10,192 10,282 10,740 10,647
----------- --------- ----------- --------- ----------- ---------
Total Securities Held-to-Maturity....................... $ 14,299 $ 14,348 $ 15,867 $ 15,926 $ 17,229 $ 17,065
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
Other Securities:
Federal Home Loan Bank Stock, net..................... $ 2,752 $ 2,752 $ 2,702 $ 2,702 $ 2,350 $ 2,350
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
</TABLE>
B. The maturity distribution and weighted average interest rates of securities
available for sale at March 31, 1997 are as follows:
All securities available-for-sale are equity securities.
The maturity distribution and weighted average interest rates of securities held
to maturity at, excluding mortgage-backed securities, March 31, 1997 are set
forth in the table below.
<TABLE>
<CAPTION>
AFTER ONE YEAR BUT
WITHIN
WITHIN ONE YEAR FIVE YEARS
---------------------- ----------------------
AMOUNT RATE AMOUNT RATE
--------- ----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government agency securities.......................................... $ 0 0.00% 3,000 6.01%
Corporate notes............................................................ 1,778 5.81% 1,011 6.45%
--------- --- --------- ---
Total...................................................................... $ 1,778 5.81% 4,011 6.12%
--------- --- --------- ---
</TABLE>
C. There were no securities available-for-sale of any one issuer which exceeded
10% of the shareholders' equity of the Company at March 31, 1997.
Excluding those holdings of the securities portfolio in U.S. Treasury
securities and U.S. Government agency securities and Federal Home Loan Bank
Stock, there were no securities held to maturity of any one issuer which
exceeded 10% of the shareholders' equity of the Company at March 31, 1997.
A-7
<PAGE>
III. LOAN PORTFOLIO
A. The following table sets forth the composition of the Company's mortgage and
other loan portfolios and mortgage-backed securities portfolios in dollar
amounts and in percentages at March 31. All dollars are in thousands.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT
--------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Loans Receivable:
Mortgage loans:
One-to-four family................................................ $ 69,602 76.56% $ 73,413 78.87% $ 74,385
Other mortgage loans
Commercial real estate.............................................. 8,141 8.95% 8,171 8.78% 6,160
Multi-family...................................................... 2,710 2.98% 3,242 3.48% 1,595
Land.............................................................. 0 0.00% 0 0.00% 0
Construction........................................................ 545 0.60% 591 0.63% 2,428
--------- ---------- --------- ---------- ---------
Total mortgage loans............................................ $ 80,998 89.09% $ 85,417 91.76% $ 84,568
--------- ---------- --------- ---------- ---------
Consumer & other loans:
Visa/Mastercard..................................................... 0 0.00% 389 0.42% 37
Automobile.......................................................... 431 0.47% 400 0.43% 362
Share............................................................... 188 0.21% 242 0.26% 233
Home Equity and Second Mtg.......................................... 2,853 3.14% 1,789 1.92% 1,273
Commercial and other.................................................. 6,446 7.09% 4,846 5.21% 2,182
--------- ---------- --------- ---------- ---------
Total Consumer & other Loans.......................................... 9,918 10.91% 7,666 8.24% 4,087
--------- ---------- --------- ---------- ---------
Gross loans receivable.......................................... $ 90,916 100.00% $ 93,083 100.00% $ 88,655
--------- ---------- --------- ---------- ---------
<CAPTION>
1994 1993
--------------------- ---------------------
% OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL
---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Loans Receivable:
Mortgage loans:
One-to-four family................................................ 83.90% $ 73,354 92.08% $ 75,515 92.86%
Other mortgage loans
Commercial real estate.............................................. 6.95% 3,457 4.34% 3,513 4.32%
Multi-family...................................................... 1.80% 623 0.78% 692 0.85%
Land.............................................................. 0.00% 10 0.01% 12 0.02%
Construction........................................................ 2.74% 748 0.94% 40 0.05%
---------- --------- ---------- --------- ----------
Total mortgage loans............................................ 95.39% $ 78,192 98.15% $ 79,772 98.10%
---------- --------- ---------- --------- ----------
Consumer & other loans:
Visa/Mastercard..................................................... 0.04%
Automobile.......................................................... 0.41% 224 0.28% 373 0.46%
Share............................................................... 0.26% 213 0.27% 303 0.37%
Home Equity and Second Mtg.......................................... 1.44% 784 0.98% 703 0.86%
Commercial and other.................................................. 2.46% 253 0.32% 169 0.21%
---------- --------- ---------- --------- ----------
Total Consumer & other Loans.......................................... 4.61% 1,474 1.85% 1,548 1.90%
---------- --------- ---------- --------- ----------
Gross loans receivable.......................................... 100.00% $ 79,666 100.00% $ 81,320 100.00%
---------- --------- ---------- --------- ----------
</TABLE>
A-8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
III. LOAN PORTFOLIO (CONTINUED)
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT
--------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Less:
Loans in process 236 48 1,422 735
Unearned discounts, premiums
& deferred loan fees,
net....................... 365 419 443 433
--------- ---------- --------- ---------- --------- ---------- --------- ----------
Loans receivable............ $ 90,315 $ 92,616 $ 86,790 $ 78,498
--------- ---------- --------- ---------- --------- ---------- --------- ----------
--------- ---------- --------- ---------- --------- ---------- --------- ----------
Mortgage loans purchased under
agreements to resell One- to
four-family.................. $ 95,276 $ 80,031 $ 25,179 $ 34,193
--------- ---------- --------- ---------- --------- ---------- --------- ----------
--------- ---------- --------- ---------- --------- ---------- --------- ----------
Mortgage Loans held for
sale......................... $ 914 $ 513
--------- ---------- --------- ---------- --------- ---------- --------- ----------
--------- ---------- --------- ---------- --------- ---------- --------- ----------
Total Loans................... $ 186,505 $ 173,160 $ 111,969 $ 112,691
Mortgage-backed securities:
FHLMC certficates........... $ 4,221 $ 4,892 $ 5,956 $ 4,969
GNMA certificates........... 3,199 3,600 2,924 3,249
FNMA certificates........... 862 880 970 -- --
CMOs........................ 239 834 904 2,041
--------- ---------- --------- ---------- --------- ---------- --------- ----------
Total mtg-backed
securities............ 8,521 10,206 10,754 10,259
--------- ---------- --------- ---------- --------- ---------- --------- ----------
Net premiums and discounts.... (11) (14) (14) 16
--------- ---------- --------- ---------- --------- ---------- --------- ----------
Net mtg-backed
securities............ $ 8,510 $ 10,192 $ 10,740 $ 10,275
--------- ---------- --------- ---------- --------- ---------- --------- ----------
--------- ---------- --------- ---------- --------- ---------- --------- ----------
Mortgage loans:
Adjustable rate............. $ 28,175 34.78% $ 34,362 40.23% $ 35,394 41.85% $ 27,762 35.50%
Fixed rate.................. 52,823 65.22% 51,055 59.77% 49,174 58.15% 50,430 64.50%
--------- ---------- --------- ---------- --------- ---------- --------- ----------
Total mortgage loans.... $ 80,998 100.00% $ 85,417 100.00% $ 84,568 100.00% $ 78,192 100.00%
--------- ---------- --------- ---------- --------- ---------- --------- ----------
--------- ---------- --------- ---------- --------- ---------- --------- ----------
<CAPTION>
III. LOAN PORTFOLIO (CONTINUED)
1994 1993
--------------------- ---------------------
% OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL
---------- --------- ---------- --------- ----------
<S> <C> <C>
Less:
Loans in process 7
Unearned discounts, premiums
& deferred loan fees,
net....................... 377
--------- ----------
Loans receivable............ $ 80,936
--------- ----------
--------- ----------
Mortgage loans purchased under
agreements to resell One- to
four-family.................. $ 29,240
--------- ----------
--------- ----------
Mortgage Loans held for
sale.........................
--------- ----------
--------- ----------
Total Loans................... $ 110,176
Mortgage-backed securities:
FHLMC certficates........... $ 5,174
GNMA certificates........... 3,297
FNMA certificates........... --
CMOs........................ 1,514
--------- ----------
Total mtg-backed
securities............ 9,985
--------- ----------
Net premiums and discounts.... 23
--------- ----------
Net mtg-backed
securities............ $ 10,008
--------- ----------
--------- ----------
Mortgage loans:
Adjustable rate............. $ 33,505 42.00%
Fixed rate.................. 46,267 58.00%
--------- ----------
Total mortgage loans.... $ 79,772 100.00%
--------- ----------
--------- ----------
</TABLE>
A-9
<PAGE>
III. LOAN PORTFOLIO (CONTINUED)
B. LOAN MATURITY
The following table shows the maturity of the Company's loan and
mortgage-backed portfolio at March 31, 1997. Except for mortgage loans purchased
under agreements to resell and mortgage-backed securities, loans are shown as
being due in accordance with the contractual scheduled principal repayments.
Mortgage loans purchased under agreements to resell are shown based upon
contractual resale terms. Mortgage-backed securities are shown as being due in
accordance with contractual term to maturity and do not include scheduled
principal amortization.
<TABLE>
<CAPTION>
AT MARCH 31, 1997
----------------------------------------------------------------------------------------
MORTGAGE
LOANS
PURCHASED
CONSUMER TOTAL LOANS UNDER MORTGAGE MORTGAGE-
MORTGAGE AND OTHER RECEIVABLE AGREEMENTS LOANS HELD BACKED
LOANS LOANS GROSS TO RESELL FOR SALE SECURITIES TOTAL
---------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts due
Within 1 year............................ $ 3,954 $ 5,462 $ 9,416 $ 95,276 $ 914 $ 2,635 $ 108,241
---------- ----------- ----------- ----------- ----- ----------- -----------
After 1 year
1-3 years.............................. 9,832 2,171 12,003 -- -- 654 12,657
3-5 years.............................. 9,773 1,129 10,902 -- -- 852 11,754
5-10 years............................. 20,077 987 21,064 -- -- 63 21,127
10-15 years............................ 13,172 169 13,341 -- -- 441 13,782
Over 15 years.......................... 24,190 -- 24,190 -- -- 3,865 28,055
---------- ----------- ----------- ----------- ----- ----------- -----------
Total due after 1 year................... 77,044 4,456 81,500 -- -- 5,875 87,375
---------- ----------- ----------- ----------- ----- ----------- -----------
Total Amounts Due........................ $ 80,998 $ 9,918 $ 90,916 $ 95,276 $ 914 $ 8,510 $ 195,616
---------- ----------- ----------- ----------- ----- ----------- -----------
---------- ----------- ----------- ----------- ----- ----------- -----------
</TABLE>
The following table sets forth, at March 31, 1997, the dollar amount of all
loans and mortgage-backed securities due after March 31, 1998, and whether such
loans and mortgage-backed securities have fixed interest rates or adjustable
interest rates.
<TABLE>
<CAPTION>
LOANS MATURING AFTER MARCH 31, 1998
---------------------------------------
ADJUSTABLE
FIXED RATE RATE TOTAL
----------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage loans........................................................... $ 50,278 $ 26,766 $ 77,044
Non-mortgage loans....................................................... 3,006 1,450 4,456
----------- -------------- ----------
Total loans receivable................................................. 53,284 28,216 81,500
Mortgage-backed securities............................................... 2,165 3,710 5,875
----------- -------------- ----------
Total loans receivable and mortgage-backed securities.................. $ 55,449 $ 31,926 $ 87,375
----------- -------------- ----------
----------- -------------- ----------
</TABLE>
C. RISK ELEMENTS
1. NON-PERFORMING ASSETS
The following table sets forth information regarding non-performing assets
(nonperforming loans and real estate owned) at the dates indicated. Interest
income on consumer and other loans is accrued over the term of the loan except
when serious doubt exists as to the collectibility of a loan, in which case the
accrual of interest is discontinued. Income is subsequently recognized only to
the extent that cash payments are
A-10
<PAGE>
III. LOAN PORTFOLIO (CONTINUED)
C. RISK ELEMENTS (CONTINUED)
received until, in management's judgment, the borrower has the ability to make
contractual interest and principal payments, in which case the loan is returned
to accrual status. Effective for fiscal 1992, the Company adopted a policy of
placing all mortgage loans delinquent 90 days or more on non-accrual status. At
that time, all accrued but uncollected interest on mortgage loans 90 days or
more delinquent was reversed. Effective for fiscal 1996, the Company adopted
SFAS 114 and 118 which establish accounting guidelines for impaired loans. A
loan is considered impaired when it is probable that all principal and interest
amounts will not be collected according to the loan contract. SFAS 118 requires
that loss allowances established on impaired loans shall be determined by using
the present value of estimated future cash flows of the loan discounted at the
loan's effective interest rate or at the fair value of the collateral if the
loan is collateral dependent.
<TABLE>
<CAPTION>
AT MARCH 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Accruing mortgage loans delinquent more than 90 days.............. $ -- $ -- $ -- $ -- $ --
Accruing consumer and other loans delinquent more than 90 days.... -- 4 -- 6 8
Non-accruing mortgage loans delinquent more than
90 days......................................................... 229 523 463 394 196
Non-accruing consumer and other loans delinquent more than 90
days............................................................ -- -- -- -- 4
--------- --------- --------- --------- ---------
Total loans delinquent more than 90 days.......................... 229 527 463 400 208
Restructured loans................................................ 287 306 341 251 351
Impaired Loans.................................................... 5,920 2,164 -- -- --
--------- --------- --------- --------- ---------
Total non-performing loans........................................ 6,436 2,997 804 651 559
Total real estate owned, net of related reserves.................. 146 -- -- -- 44
--------- --------- --------- --------- ---------
Total non-performing assets....................................... $ 6,582 $ 2,997 $ 804 $ 651 $ 603
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Accruing mortgage loans delinquent more than 90 days to total loans....... 0.00% 0.00% 0.00% 0.00% 0.00%
Accruing consumer and other loans delinquent more than 90 days to total
loans................................................................... 0.00 0.00 0.00 0.01 0.01
Non-accruing mortgage loans delinquent more than 90 days to total loans... 0.12 0.30 0.41 0.35 0.18
Non-accruing consumer and other loans delinquent more than 90 days to
total loans............................................................. 0 0.00 0.00 0.00 0.00
Non-accrual loans to total loans.......................................... 0.12 0.30 0.41 0.35 0.19
Restructured loans to total loans......................................... 0.15 0.18 0.30 0.22 0.32
Total non-performing loans to total loans................................. 3.45 1.73 0.71 0.57 0.51
Total non-performing assets to total assets............................... 2.90 1.46 0.56 0.45 0.44
Gross interest income that would have been recorded if loans had been
current in accordance with original terms............................... $ 509 $ 206 $ 54 $ 50 $ 36
Interest income from non-performing loans and restructured loans included
in income............................................................... $ 304 $ 150 $ 22 $ 28 $ 18
</TABLE>
A-11
<PAGE>
III. LOAN PORTFOLIO (CONTINUED)
C. RISK ELEMENTS (CONTINUED)
Of the total balance of impaired loans as of March 31, 1997, approximately
$1.2 million 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 Company has
negotiated a settlement, and the anticipated recovery is approximately 70% of
the original balance. The portion of the allowance for loan losses allocated to
the above loans is approximately $61,000 which is based on the present value of
the anticipated cash flows of these loans. The amount deemed to be uncollectable
was $433,000 and was charged-off during the year ended March 31, 1997.
Also included in the impaired loan balance at March 31, 1997 are 65 single
family construction loans, all located in the state of Indiana with a total
outstanding balance of $4.7 million and total unfunded commitments of $2.1
million. Eighteen of these loans, totaling $1.3 million, are outstanding to one
builder. The Company has allocated $308,000 of the allowance for loan losses to
these loans. Forty one of these loans totaling $2.4 million are outstanding to
two affiliated companies, one of which is in bankruptcy. The Company has
allocated $125,000 of the allowance for loan losses to these loans. The
remaining 6 loans totaling $1.2 million are with three separate builders and the
Company has allocated $116,000 of the allowance for loan losses to these loans.
The Company has performed inspections on all of these properties, either
internal or through third parties, and has utilized this information in
determining the adequacy of its loan loss reserves.
2. POTENTIAL PROBLEM LOANS
As of March 31, 1997, there were no loans where there are serious doubts as
to the ability of the borrower to comply with present loan repayment terms which
are not included in Section C.1 above. Consideration was given to loans
classified for regulatory purposes as loss, doubtful, substandard, or special
mention that have not been disclosed in Section C.1 above.
3. FOREIGN OUTSTANDINGS
None
4. LOAN CONCENTRATIONS
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 secured by real estate mortgages make up approximately 89.1% of the loan
portfolio at March 31, 1997 and are primarily secured by residential mortgages.
Loans purchased under agreements to resell are residential mortgages secured by
one-to four-family residences located throughout the United States.
D. OTHER INTEREST-EARNING ASSETS
There are no other interest-earning assets as of March 31, 1997 which would
be required to be disclosed under Item III, Section C.1 or 2 of Guide 3 if such
assets were loans and nonperforming.
A-12
<PAGE>
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risk inherent in its loan
portfolio and the general economy. Such evaluation, which includes a review of
all loans for which full collectibility may not be reasonably assured,
considers, among other matters, the estimated net realizable value of the
underlying collateral, economic conditions, historical loan loss experience and
other factors that warrant recognition in providing for an adequate loan loss
allowance.
The following table sets forth the Company's allowance for loan losses at or
for the dates indicated.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED MARCH 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period....................................... $ 1,347 $ 673 $ 595 $ 495 $ 228
Charge-offs:
Mortgage loans..................................................... (26) -- -- -- (11)
Consumer and other loans........................................... (454) (125) -- (4) (6)
Mortgage Loans purchased under agreements to resell................ (501) (221) -- -- --
--------- --------- --------- --------- ---------
Total charge offs................................................ (981) (346) 0 (4) (17)
Recoveries:
Mortgage loans..................................................... 251 -- -- -- 5
Consumer and other loans........................................... -- -- -- 1 1
--------- --------- --------- --------- ---------
Total recoveries................................................. 251 -- -- 1 6
Net charge-offs...................................................... (730) (346) 0 (3) (11)
Provision for loan losses............................................ 1,191 1,020 78 103 278
--------- --------- --------- --------- ---------
Balance at end of period............................................. $ 1,808 $ 1,347 $ 673 $ 595 $ 495
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of allowance for loan losses to net loans at end
of period.......................................................... 0.98% 0.79% 0.60% 0.53% 0.45%
Ratio of allowance for loan losses to total non-performing loans at
end of period...................................................... 28.09 44.94 83.71 91.40 88.55
Ratio of net charge-offs to average loans outstanding during the
period............................................................. 0.42 0.23 0.00 0.00 0.01
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------
1997 1996 1995
-------------------------- -------------------------- -----------
AMOUNT PERCENTAGE (1) AMOUNT PERCENTAGE (1) AMOUNT
--------- --------------- --------- --------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance at end of period applicable to:
Mortgage Loans............................... $ 374 44% $ 500 49% $ 300
Consumer Loans and other..................... 230 5 447 5 171
Mortgage Loans purchased under agreements to
resell..................................... 981 51 200 46 77
Unallocated.................................. 223 0 200 0.00 125
--------- ------ --------- ------ -----
TOTAL $ 1,808 100.00 $ 1,347 100.00% $ 673
--------- ------ --------- ------ -----
--------- ------ --------- ------ -----
<CAPTION>
PERCENTAGE (1)
---------------
<S> <C>
Allowance at end of period applicable to:
Mortgage Loans............................... 75%
Consumer Loans and other..................... 3
Mortgage Loans purchased under agreements to
resell..................................... 22
Unallocated.................................. 0.00
------
TOTAL 100.00%
------
------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------------------
1994 1993
---------------------------- ----------------------------
AMOUNT PERCENTAGE (1) AMOUNT PERCENTAGE (1)
----------- --------------- ----------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance at end of period applicable to:
Mortgage Loans............................................... $ 300 69% $ 240 72%
Consumer Loans and other..................................... 147 1 106 1
Mortgage Loans purchased under agreements to resell.......... 0 30 0 27
Unallocated.................................................. 148 0 149 0.00
----- ------ ----- ------
TOTAL.......................................................... 595 100.00% $ 495 100.00%
----- ------ ----- ------
----- ------ ----- ------
</TABLE>
- --------------------------
(1) Percent of type of loans in each category to total loans at the dates
indicated.
A-13
<PAGE>
V. DEPOSITS
The following table sets forth the distribution of the Company's deposit
accounts at the dates indicated and the weighted average nominal interest rates
on each category of deposits presented at year end. See Table I Distribution of
Assets, Liabilities and Shareholders' Equity; Interest rates and Interest
Differential for presentation of average balances and average rate paid on
deposits for the period ended March 31, 1997, 1996 and 1995. All Dollars are in
thousands.
<TABLE>
<CAPTION>
AT MARCH 31,
----------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------- ------------------------------------- ----------------------
PERCENT OF WEIGHTED PERCENT OF WEIGHTED PERCENT OF
TOTAL AVERAGE TOTAL AVERAGE TOTAL
AMOUNT DEPOSITS NOMINAL RATE AMOUNT DEPOSITS NOMINAL RATE AMOUNT DEPOSITS
--------- ----------- ------------- --------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand accounts (1):
Money market....... $ 9,509 6.34% 3.53% $ 9,425 6.82% 3.53% $ 8,944 7.98%
NOW and demand..... 23,700 15.82 1.32 32,194 23.28 1.03 20,871 18.62
--------- ----------- --------- ----------- --------- -----------
Total demand
accounts........... 33,209 22.16 1.99 41,619 30.10 1.61 29,815 26.60
Passbook accounts.... 27,230 18.18 3.01 27,985 20.24 3.01 29,090 25.96
Certificate accounts:
Ninety-one days and
under............ 9,941 6.64 5.53 1,047 0.76 4.54 191 0.17
Six month.......... 14,861 9.92 5.32 15,082 10.91 5.21 12,055 10.76
One year........... 10,993 7.33 5.29 11,154 8.07 5.06 8,873 7.92
Eighteen months.... 5,182 3.46 5.41 5,536 4.00 5.70 5,618 5.01
Two year........... 2,605 1.74 5.69 2,456 1.78 5.40 2,938 2.62
Three year......... 4,999 3.34 5.72 6,180 4.47 5.25 7,184 6.41
Four year.......... 1,499 1.00 5.47 2,022 1.46 5.45 2,551 2.28
Five to ten year... 4,471 2.98 5.90 4,764 3.45 5.95 3,999 3.56
IRA and Keogh
accounts......... 7,395 4.94 5.62 7,320 5.29 5.64 6,971 6.22
Jumbo (2).......... 27,424 18.31 5.63 13,096 9.47 5.42 2,786 2.49
--------- ----------- --------- ----------- --------- -----------
Total certificate
accounts........... 89,370 59.66 5.53 68,657 49.66 5.37 53,166 47.44
--------- ----------- --------- ----------- --------- -----------
TOTAL DEPOSITS....... $ 149,809 100.00% 4.30% $ 138,261 100.00% 3.78% $ 112,071 100.00%
--------- ----------- --- --------- ----------- --- --------- -----------
--------- ----------- --- --------- ----------- --- --------- -----------
<CAPTION>
WEIGHTED
AVERAGE
NOMINAL RATE
-------------
<S> <C>
Demand accounts (1):
Money market....... 3.34%
NOW and demand..... 1.42
Total demand
accounts........... 2.02
Passbook accounts.... 3.01
Certificate accounts:
Ninety-one days and
under............ 3.90
Six month.......... 5.03
One year........... 5.20
Eighteen months.... 4.63
Two year........... 4.80
Three year......... 5.12
Four year.......... 5.61
Five to ten year... 5.90
IRA and Keogh
accounts......... 5.64
Jumbo (2).......... 5.65
Total certificate
accounts........... 5.22
TOTAL DEPOSITS....... 3.81%
---
---
</TABLE>
- ------------------------------
(1) At March 31, 1997, 1996 and 1995, total demand and NOW accounts included
noninterest-bearing deposits of $10.0 million, $17.9 million and $8.3
million, respectively.
(2) Deposit balances greater than $100,000.
At March 31, 1997, the Company had outstanding $36.8 million in deposit
accounts in amounts greater than $100,000 maturing as follows:
<TABLE>
<CAPTION>
MATURITY PERIOD
- -------------------------------------------------------------------- AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Three months or less................................................ $ 33,134
Over three months through six months................................ 1,800
Over six months through 12 months................................... 1,100
Over 12 months...................................................... 740
-------
TOTAL $ 36,774
-------
-------
</TABLE>
A-14
<PAGE>
VI. RETURN ON EQUITY AND ASSETS
The ratio of net income to average equity and average total assets and
certain other ratios are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average total assets....................................................... $ 204,311 $ 179,145 $ 132,281
Average equity............................................................. $ 19,567 $ 17,578 $ 16,028
Net income................................................................. $ 2,312 $ 2,458 $ 1,660
Cash dividends declared.................................................... $ -- $ -- $ --
Return on average total assets............................................. 1.13% 1.37% 1.25%
Return on average equity................................................... 11.82% 13.98% 10.36%
Dividend payout percentage
(Dividends declared divided by net income)............................... 0.00% 0.00% 0.00%
Average equity to average total assets..................................... 9.58% 9.81% 12.12%
</TABLE>
VII. SHORT-TERM BORROWINGS
During the fiscal year ended March 31, 1997, the Company utilized short-term
borrowings, primarily from the Federal Home Loan Bank of Indianapolis and
overnight Federal Funds, to meet the funding requirements of the Mortgage Loan
Reverse Repurchase Program. Information regarding short term borrowing activity
is provided as follows:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR AT OR FOR THE YEAR AT OR FOR THE YEAR
ENDED ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1995
---------------------- ---------------------- -----------------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLB advances and line of credit:
Average balance outstanding........... $ 38,964 $ 28,233 $ 2,495
Maximum amount outstanding at any
month-end during the period......... 46,284 47,230 5,363
Balance outstanding at end of
period.............................. 46,284 38,124 5,363
Weighted average interest rate during
the period.......................... 5.55% 5.95% 5.05%
Weighted average interest rate at end
of period........................... 5.88% 5.60% 6.55%
Federal funds purchased
Average balance outstanding........... $ 4,500 $ 5,475 $ 752
Maximum amount outstanding at any
month-end during the period......... 7,000 7,000 7,000
Balance outstanding at end of
period.............................. 7,000 7,000 7,000
Weighted average interest rate during
the period.......................... 5.84% 5.81% 5.94%
Weighted average interest rate at end
of period........................... 6.50% 5.63% 6.63%
</TABLE>
A-15
<PAGE>
VII. SHORT-TERM BORROWINGS (CONTINUED)
At March 31, 1997, specific mortgage loans with a carrying value of
approximately $56,180,000 and specific securities with a carrying value of
approximately $9,513,000 were pledged to the Federal Home Loan Bank of
Indianapolis to secure current and future advances from the Federal Home loan
Bank. 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 the specific
collateral listed above. The Bank had borrowings of $3,784,000 against this line
of credit at March 31, 1997.
At March 31, 1997, the Bank had $4,049,000 in outstanding letters of credit
issued through the Federal Home Loan Bank of Indianapolis. These letters of
credit are secured by the same collateral as the line of credit mentioned above.
The balance of these letters of credit at March 31, 1997 is $0.
A-16
<PAGE>
REGULATION AND SUPERVISION
GENERAL
The Company, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of the
OTS under the Home Owners' Loan Act, as amended (the "HOLA"). In addition, the
activities of savings institutions, such as the Bank, are governed by the HOLA
and the Federal Deposit Insurance Act ("FDI Act").
The Bank is subject to extensive regulation, examination and supervision by
the OTS, as its primary federal regulator, and the FDIC, as the deposit insurer.
The Bank is a member of the Federal Home Loan Bank ("FHLB") System and its
deposit accounts are insured up to applicable limits by the Savings Association
Insurance Fund ("SAIF") managed by the FDIC. The Bank must file reports with the
OTS and the FDIC concerning its activities and financial condition in addition
to obtaining regulatory approvals prior to entering into certain transactions
such as mergers with, or acquisitions of, other savings institutions. The OTS
and/or the FDIC conduct periodic examinations to test the Bank's compliance with
various regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the OTS, the
FDIC or the Congress could have a material adverse impact on the Company, the
Bank, and their operations. Certain of the regulatory requirements applicable to
the Bank and to the Company are referred to below or elsewhere herein. The
description of statutory provisions and regulations applicable to savings
institutions and their holding companies set forth in this Form 10-KSB does not
purport to be a complete description of such statutes and regulations and their
effects on the Bank and the Company.
HOLDING COMPANY REGULATION
The Company is a non diversified unitary savings and loan holding company
within the meaning of the HOLA. As a unitary savings and loan holding company,
the Company generally will not be restricted under existing laws as to the types
of business activities in which it may engage, provided that the Bank continues
to be a qualified thrift lender ("QTL"). Upon any non-supervisory acquisition by
the Company of another savings institution or Bank that meets the QTL test and
is deemed to be a savings institution by the OTS, the Company would become a
multiple savings and loan holding company (if the acquired institution is held
as a separate subsidiary) and would be subject to extensive limitations on the
types of business activities in which it could engage. The HOLA limits the
activities of a multiple savings and loan holding company and its non-insured
institution subsidiaries primarily to activities permissible for bank holding
companies under Section 4(c)(8) of the Bank Holding Company Act ("BHC Act"),
subject to the prior approval of the OTS, and activities authorized by OTS
regulation.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution or holding company thereof,
without prior written approval of the OTS: acquiring or retaining, with certain
exceptions, more than 5% of a nonsubsidiary company engaged in activities other
than those permitted by the HOLA; or acquiring or retaining control of a
depository institution that is not insured by the FDIC. In evaluating
applications by holding companies to acquire savings institutions, the OTS must
consider the financial and managerial resources and future prospects of the
company and institution involved, the effect of the acquisition on the risk to
the insurance funds, the convenience and needs of the community and competitive
factors.
A-17
<PAGE>
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, HOLA does prescribe such restrictions on subsidiary
savings institutions, as described below. The Bank must notify the OTS 30 days
before declaring any dividend to the Company. In addition, the financial impact
of the holding company on its subsidiary institution is a matter that is
evaluated by the OTS and the agency has authority to order cessation of
activities or divestiture of subsidiaries deemed to pose a threat to the safety
and soundness of the institution.
FEDERAL SAVINGS INSTITUTION REGULATION
CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 3% leverage (core) capital ratio and an 8% risk-based capital ratio. In
addition, the prompt corrective action standards discussed below also establish,
in effect, a minimum 2% tangible capital standard, a 4% leverage (core) capital
ratio (3% for institutions receiving the highest rating on the CAMEL financial
institution rating system), and, together with the risk-based capital standard
itself, a 4% Tier I risk-based capital standard. Core capital is defined as
common stockholder's equity (including retained earnings), certain
non-cumulative perpetual preferred stock and related surplus, and minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain purchased mortgage servicing rights and credit card relationships.
The OTS regulations also require that, in meeting the tangible, leverage (core)
and risk- based capital standards, institutions must generally deduct
investments in and loans to subsidiaries engaged in activities as principal that
are not permissible for a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of 4% and 8%, respectively.
In determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet assets, are multiplied by a risk-weight of 0% to 100%, as
assigned by the OTS capital regulation based on the risks OTS believes are
inherent in the type of asset. The components of Tier I (core) capital are
equivalent to those discussed earlier. The components of supplementary capital
currently include cumulative preferred stock, long-term perpetual preferred
stock, mandatory convertible securities, subordinated debt and intermediate
preferred stock and the allowance for loan and lease losses limited to a maximum
of 1.25% of risk-weighted assets. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.
The OTS regulatory capital requirements also incorporate an interest rate
risk component. Savings institutions with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings institution's
interest rate risk is measured by the decline in the net portfolio value of its
assets (I.E., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance sheet contracts) that would result from
a hypothetical 200 basis point increase or decrease in market interest rates
divided by the estimated economic value of the institution's assets. In
calculating its total capital under the risk-based capital rule, a savings
institution whose measured interest rate risk exposure exceeds 2% must deduct an
amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
institution's assets. The Director of the OTS may waive or defer a savings
institution's interest rate risk component on a case-by-case basis. A savings
institution with assets of less
A-18
<PAGE>
than $300 million and risk-based capital ratios in excess of 12% is not subject
to the interest rate risk component, unless the OTS determines otherwise. For
the present time the OTS has deferred implementation of the interest rate risk
component. At March 31, 1997, the Bank met each of its capital requirements and
it is anticipated that the Bank will not be subject to the interest rate risk
component.
The following table presents the Bank's capital position at March 31, 1997
relative to fully phased-in regulatory requirements.
<TABLE>
<CAPTION>
EXCESS
ACTUAL REQUIRED (DEFICIENCY) ACTUAL REQUIRED
CAPITAL CAPITAL AMOUNT PERCENT PERCENT
----------- ----------- ------------- --------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Tangible 1$8.4...... $ 3.4 $ 15.0 8.18% 1.50%
Core (Leverage)............................................. $ 18.4 $ 6.8 $ 11.6 8.18% 3.00%
Risk-based.................................................. $ 20.0 $ 10.8 $ 9.2 14.8% 8.00%
</TABLE>
- ------------------------
(1) Although the OTS capital regulations require savings institutions to meet a
1.5% tangible capital ratio and a 3% leverage (core) capital ratio, the
prompt corrective action standards discussed below also establish, in
effect, a minimum 2% tangible capital standard, a 4% leverage (core) capital
ratio (3% for institutions receiving the highest rating on the CAMEL
financial institution rating system), and, together with the risk-based
capital standard itself, a 4% Tier I risk-based capital standard.
PROMPT CORRECTIVE REGULATORY ACTION. Under the OTS prompt corrective action
regulations, the OTS is required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the
institution's degree of undercapitalization. Generally, a savings institution is
considered "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10%, its ratio of Tier I (core) capital to risk-weighted
assets is at least 6%, its ratio of core capital to total assets is at least 5%,
and it is not subject to any order or directive by the OTS to meet a specific
capital level. A savings institution generally is considered "adequately
capitalized" if its ratio of total capital to risk-weighted assets is at least
8%, its ratio of Tier I (core) capital to risk-weighted assets is at least 4%,
and its ratio of core capital to total assets is at least 4% (3% if the
institution receives the highest CAMEL rating). A savings institution that has a
ratio of total capital to weighted assets of less than 8%, a ratio of Tier I
(core) capital to risk-weighted assets of less than 4% or a ratio of core
capital to total assets of less than 4% (3% or less for institutions with the
highest examination rating) is considered to be "undercapitalized." A savings
institution that has a total risk-based capital ratio less than 6%, a Tier 1
capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible capital to assets ratio equal to or less than 2% is deemed to be
"critically undercapitalized." Subject to a narrow exception, the banking
regulator is required to appoint a receiver or conservator for an institution
that is "critically undercapitalized." The regulation also provides that a
capital restoration plan must be filed with the OTS within 45 days of the date a
savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by any parent holding company. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
INSURANCE OF DEPOSIT ACCOUNTS. Deposits of the Bank are presently insured
by the SAIF. Both the SAIF and the Bank Insurance Fund ("BIF"), the deposit
insurance fund that covers most commercial bank deposits, are statutorily
required to be recapitalized to a 1.25% of insured reserve deposits ratio. Until
recently, members of the SAIF and BIF were paying average deposit insurance
premiums of between 24 and 25 basis points. The BIF presently meets the required
reserve in 1995, whereas the SAIF was not expected to meet or exceed the
required level until 2002 at the earliest. This was situation was primarily
A-19
<PAGE>
due to the statutory requirement that SAIF members make payments on bonds issued
in the late 1980s by the Financing Corporation ("FICO") to recapitalize the
predecessor to the SAIF.
In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately adopted
a new assessment rate schedule of 0 to 27 basis points under which 92% of BIF
members paid an annual premium of only $2,000. With respect to SAIF member
institutions, the FDIC adopted a final rule retaining the previously existing
assessment rate schedule applicable to SAIF member institutions of 23 to 31
basis points. As long as the premium differential continued, it may have had
adverse consequences for SAIF members, including reduced earnings and an
impaired ability to raise funds in the capital markets. In addition, SAIF
members, such as the Bank were placed at the substantial competitive
disadvantage to BIF members with respect to pricing of loans and deposits and
the ability to achieve lower operating costs.
On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 (the "Funds Act") which, among other things, imposed 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 of March 31,
1995, payable November 27, 1996 (the "SAIF Special Assessment"). The SAIF
Special Assessment was recognized by the Bank as an expense in the quarter ended
September 30, 1996 and is generally tax deductible. The SAIF Special Assessment
recorded by the Bank amounted to $723,000 on a pre-tax basis and $437,000 on an
after-tax basis.
The Funds Act also spreads the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits will
be assessed for a FICO payment of 1.3 basis points, while SAIF deposits will pay
6.48 basis points. 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 voted to effectively lower
SAIF assessments to 0 to 27 basis points as of January 1, 1997, a range
comparable to that of BIF members. SAIF members will also continue to make the
FICO payments described above. The FDIC also lowered the SAIF assessment
schedule for the third quarter of 1997 to 18 to 27 basis pints. 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.
The Bank's assessment rate for the fiscal 1997 ranged from 23 to 6.48 basis
points and the premium paid for this period was $225,000. At fiscal year end
March 31, 1997, the assessment rate was 6.48 basis points. A significant
increase in SAIF insurance premiums would likely have an adverse effect on the
operating expenses and results of operations of the Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
THRIFT RECHARTERING LEGISLATION. The Funds Act provides that the BIF and
SAIF will merge on January 1, 1999 if there are no more savings associations as
of that date. That legislation also requires that the Department of Treasury
submit a report to Congress by March 31, 1997 that makes recommendations
regarding a common financial institutions charter, including whether the
separate charters for thrifts and banks should be abolished. Various proposals
to eliminate the federal thrift charter, create a uniform financial institutions
charter and abolish the OTS have been introduced in Congress. The bills would
require federal savings associations convert to national banks or some type of
state charter by a specified date (January 1, 1998 in one bill, June 30, 1998 in
the other) or they would automatically become national
A-20
<PAGE>
banks. Converted federal thrifts would generally be required to conform their
activities to those permitted for the charter selected and divestiture of
nonconforming assets would be required over a two year period, subject to two
possible one year extensions. State chartered thrifts would become subject to
the same federal regulation as applies to state commercial banks. Holding
companies for savings institutions would become subject to the same regulation
as holding companies that control commercial banks, with a limited grandfather
provision for unitary savings and loan holding company activities. The Bank is
unable to predict whether such legislation would be enacted or the extent to
which the legislation would restrict or disrupt its operations.
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the limits on loans to one borrower applicable to national banks.
Generally, savings institutions may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if such loan is secured by readily-marketable collateral, which is
defined to include certain financial instruments and bullion. At March 31, 1997,
the Bank's limit on loans to one borrower was $3.1 million. At March 31, 1997,
the Bank's largest aggregate outstanding balance of loans to one borrower
totaled $2.4 million.
QTL TEST. The HOLA requires savings institutions to meet a QTL test. Under
the QTL test, a savings and loan association is required to maintain at least
65% of its "portfolio assets" (total assets less (i) specified liquid assets up
to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the
value of property used to conduct business) in certain "qualified thrift
investments" (primarily residential mortgages and related investments, including
certain mortgage-backed securities) in at least 9 months out of each 12 month
period.
A savings institution that fails the QTL test is subject to certain
operating restrictions and may be required to convert to a bank charter. As of
March 31, 1997, the Bank maintained 91.6% of its portfolio assets in qualified
thrift investments and, therefore, met the QTL test. Recent legislation has
expanded the extent to which education loans, credit card loans and small
business loans may be considered "qualified thrift investments."
LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in capital requirements before and after a proposed capital
distribution ("Tier 1 Bank") and has not been advised by the OTS that it is in
need of more than normal supervision, could, after prior notice but without
obtaining approval of the OTS, make capital distributions during a calendar year
equal to the greater of (i) 100% of its net earnings to date during the calendar
year plus the amount that would reduce by one-half its "surplus capital ratio"
(the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year or (ii) 75% of its net income for the previous
four quarters. Any additional capital distributions would require prior
regulatory approval. In the event the Bank's capital fell below its regulatory
requirements or the OTS notified it that it was in need of more than normal
supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice. In December 1994, the OTS proposed amendments to its capital
distribution regulation that would generally authorize the payment of capital
distributions without OTS approval provided the payment does not make the
institution undercapitalized within the meaning of the prompt corrective action
regulation. However, institutions in a holding company structure would still
have a prior notice requirement. At March 31, 1997, the Bank was a Tier 1 Bank.
LIQUIDITY. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage of its net withdrawable deposit accounts plus
A-21
<PAGE>
short-term borrowings. This liquidity requirement is currently 5% but may be
changed from time to time by the OTS to any amount within the range of 4% to 10%
depending upon economic conditions and the savings flows of member institutions.
OTS regulations also require each member savings institution to maintain an
average daily balance of short-term liquid assets at a specified percentage
(currently 1%) of the total of its net withdrawable deposit accounts and
borrowings payable in one year or less. Monetary penalties may be imposed for
failure to meet these liquidity requirements. The Bank's liquidity and short-
term liquidity ratios for March 31, 1997 were 5.6% and 2.7% respectively, which
exceeded the then applicable requirements. The Bank has never been subject to
monetary penalties for failure to meet its liquidity requirements.
ASSESSMENTS. Savings institutions are required to pay assessments to the
OTS to fund the agency's operations. The general assessment, paid on a
semi-annual basis, is computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Bank's latest quarterly
thrift financial report. The assessments paid by the Bank for the fiscal year
ended March 31, 1997 totaled $59,000.
BRANCHING. OTS regulations permit nationwide branching by federally
chartered savings institutions to the extent allowed by federal statute. This
permits federal savings institutions to establish interstate networks and to
geographically diversify their loan portfolios and lines of business. The OTS
authority preempts any state law purporting to regulate branching by federal
savings institutions.
TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with related parties or "affiliates" (E.G., any company that
controls or is under common control with an institution, including the Company
and its non-savings institution subsidiaries) is limited by Sections 23A and 23B
of the Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of
covered transactions with any individual affiliate to 10% of the capital and
surplus of the savings institution. The aggregate amount of covered transactions
with all affiliates is limited to 20% of the savings institution's capital and
surplus. Certain transactions with affiliates are required to be secured by
collateral in an amount and of a type described in Section 23A and the purchase
of low quality assets from affiliates is generally prohibited. Section 23B
generally provides that certain transactions with affiliates, including loans
and assets purchases, must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the
institution as those prevailing at the time for comparable transactions with
non-affiliated companies. In addition, savings institutions are prohibited from
lending to any affiliate that is engaged in activities that are not permissible
for bank holding companies and no savings institution may purchase the
securities of any affiliate other than a subsidiary.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders ("insiders"), as well as entities such persons control, is
governed by Sections 22(g) and 22(h) of the FRA and Regulation O thereunder.
Among other things, such loans are required to be made on terms substantially
the same as those offered to unaffiliated individuals and to not involve more
than the normal risk of repayment. Recent legislation created an exception for
loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees. Regulation O also places individual and aggregate
limits on the amount of loans the Bank may make to such persons based, in part,
on the Bank's capital position and requires board approval procedures to be
followed.
ENFORCEMENT. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and amount
to $25,000 per day, or even $1 million per day
A-22
<PAGE>
in especially egregious cases. Under the FDI Act, the FDIC has the authority to
recommend to the Director of the OTS enforcement action to be taken with respect
to a particular savings institution. If action is not taken by the Director, the
FDIC has authority to take such action under certain circumstances. Federal law
establishes criminal penalties for certain violations.
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies have
adopted Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") and a final rule to implement safety and soundness standards
required under the FDI Act. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The
standards set forth in the Guidelines address internal controls and information
systems; internal audit system; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; asset quality; earnings; and
compensation, fees and benefits. If the appropriate federal banking agency
determines that an institution fails to meet any standard prescribed by the
Guidelines, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance with the standard, as required by the FDI
Act. The final rule establishes deadlines for the submission and review of such
safety and soundness compliance plans when such plans are required.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB-Indianapolis, is required to
acquire and hold shares of capital stock in that FHLB in an amount at least
equal to 1% of the aggregate principal amount of its unpaid residential mortgage
loans and similar obligations at the beginning of each year, or 1/20 of its
advances (borrowings) from the FHLB-Indianapolis, whichever is greater. The Bank
was in compliance with this requirement, with an investment in FHLB-Indianapolis
stock at March 31, 1997 of $2,752,000. FHLB advances must be secured by
specified types of collateral and may be obtained primarily for the purpose of
providing funds for residential housing finance.
The FHLBs are required to provide funds to cover certain obligations on
bonds issued to fund the resolution of insolvent thrifts and to contribute funds
for affordable housing programs. These requirements could reduce the amount of
dividends that the FHLBs pay to their members and could also result in the FHLBs
imposing a higher rate of interest on advances to their members. For the years
ended March 31, 1997, 1996, and 1995 dividends from the FHLB-Indianapolis to the
Bank amounted to $211,000, $194,000, and $151,000. If dividends were reduced, or
interest on future FHLB advances increased, the Bank's net interest income might
also be reduced.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $49.3 million or less
(subject to adjustment by the Federal Reserve Board) the reserve requirement is
3%; and for accounts aggregating greater that $49.3 million, the reserve
requirement is $1.48 million plus 10% (subject to adjustment by the Federal
Reserve Board between 8% and 14%) against that portion of total transaction
accounts in excess or $49.3 million. The first $4.4 million of otherwise
reservable balances (subject to adjustments by the Federal Reserve Board) are
exempted from the reserve requirements. The Bank is in compliance with the
foregoing requirements. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve Board may be used to satisfy liquidity
requirements imposed by the OTS.
A-23
<PAGE>
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL The Company and the Bank report their income on a consolidated
basis using the accrual method of accounting, and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. For its 1997 taxable year, the Bank is subject to a maximum
federal income tax rate of 34%.
BAD DEBT RESERVES
For fiscal years beginning prior to December 31, 1995, thrift institutions
which qualified under certain definitional tests and other conditions of the
Internal Revenue code of 1986 (the "Code") were permitted to use certain
favorable provisions to calculate their deductions from taxable income for
annual additions to their bad debt reserve. A reserve could be established for
bad debts on qualifying real property loans (generally secured by interests in
real property improved or to be improved) under (i) the Percentage of Taxable
Income Method (the "PTI Method") or (ii) the Experience Method. The reserve for
nonqualifying loans was computed using the Experience Method.
The Small Business Job Protection Act of 1996 (the "1996 Act"), which was
enacted on August 20, 1996, requires savings institutions to recapture (I.E.,
take into income) certain portions of their accumulated bad debt reserves. The
1996 Act repeals the reserve method of accounting for bad debts effective for
tax years beginning after 1995. Thrift institutions that would be treated as
small banks are allowed to utilize the Experience Method applicable to such
institutions, while thrift institutions that are treated as large banks (those
generally exceeding $500 million in assets) are required to use only the
specific charge-off method. Thus, the PTI Method of accounting for bad debts is
no longer available for any financial institution.
A thrift institution required to change its method of computing reserves for
bad debts will treat such change in method of accounting, initiated by the
taxpayer, as having been made with the consent of the IRS. Any Section 481(a)
adjustment required to be taken into income with respect to such change
generally will be taken into income ratably over a six-taxable year period,
beginning with the first taxable year beginning after 1995, subject to the
residential loan requirement.
Under the residential loan requirement provision, the recapture required by
the 1996 Act will be suspended for each of two successive taxable years,
beginning with the Bank's current taxable year, in which the Bank originates a
minimum of certain residential loans based upon the average of the principal
amounts of such loans made by the Bank during its six taxable years preceding
its current taxable year.
Under the 1996 Act, for its current and future taxable years, the Bank is
not permitted to make additions to its tax bad debt reserves. In addition, the
Bank is required to recapture (I.E., take into income) over a six year period
the excess of the balance of its tax bad debt reserves as of March 31, 1996
[other than its supplemental reserve for losses on loans, if any] over the
balance of such reserves as of March 31, 1988. As a result of such recapture,
the Bank will be required to pay approximately $270,000 which is generally
expected to be taken into income beginning in 1998 over a 6 year period.
A-24
<PAGE>
DISTRIBUTIONS
Under the 1996 Act, if the Bank makes "non-dividend distributions" to the
Company, such distributions will be considered to have been made from the Bank's
unrecaptured tax bad debt reserves (including the balance of its reserves as of
March 31, 1988) to the extent thereof, and then from the Bank's supplemental
reserve for losses on loans, to the extent thereof, and an amount based on the
amount distributed (but not in excess of the amount of such reserves) will be
included in the Bank's taxable income. Non-dividend distributions include
distributions in excess of the Bank's current and accumulated earnings and
profits, as calculated for federal income tax purposes, distributions in
redemption of stock, and distributions in partial or complete liquidation.
Dividends paid out of the Bank's current or accumulated earnings and profits
will not be so included in the Bank's taxable income.
The amount of additional taxable income triggered by a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if the Bank makes a
non-dividend distribution to the Company, approximately one and one-half times
the amount of such distribution (but not in excess of the amount of such
reserves) would be includable in income for federal income tax purposes,
assuming a 35% federal corporate income tax rate. The Bank does not intend to
pay dividends that would result in a recapture of any portion of its bad debt
reserves.
SAIF RECAPITALIZATION ASSESSMENT
The Funds Act Levied a 65.7-cent fee on every $100 of thrift deposits held
on March 31, 1995. For financial statement purposes, this assessment was
reported as an expense for the quarter ended September 30, 1996. The Funds Act
includes a provision which states that the amount of any special assessment paid
to capitalize SAIF under this legislation is deductible under Section 162 of the
Code in the year of payment.
CORPORATE ALTERNATIVE MINIMUM TAX
For taxable years beginning after December 31, 1986, the code imposes a tax
on alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of
the bad debt reserve deduction using the percentage of taxable income method
over the deduction that would have been allowable under an experience method is
treated as a preference item for purposes of computing the AMTI. Only 90% of
AMTI can be offset by net operating losses. For taxable years beginning after
December 31, 1989, the adjustment to AMTI based on book income will be an amount
equal to 75% of the amount by which a corporation's adjusted current earnings
exceeds its AMTI (determined without regard to this preference and prior to
reduction for net operating losses). In addition, for taxable years beginning
after December 31, 1986, and before January 1, 1996, an environmental tax of
.12% of the excess AMTI (with certain modifications) over $2.0 million is
imposed on corporations whether or not an Alternative Minimum Tax ("AMT") is
paid. The Company was not subject to the AMT liability for the year ended March
31, 1997 or 1996.
DIVIDENDS RECEIVED DEDUCTION
The Company may exclude from its income 100% of dividends received from the
Bank as a member of the same affiliated group of corporations. The corporate
dividends received deduction is generally 70% in the case of dividends received
from unaffiliated corporations with which the Company and the Bank will not file
a consolidated tax return, except that if the Company and the Bank own more than
20% of the stock of a corporation distributing a dividend, 80% of any dividend
received may be deducted.
A-25
<PAGE>
STATE AND LOCAL TAXATION
INDIANA TAXATION
The State of Indiana imposes an 8.5% franchise tax on the net income of
financial institutions (including thrifts), exempting them from gross income,
supplemental net income and intangible taxes. For franchise tax purposes,
"taxable income" generally means federal taxable income, subject to certain
adjustments including the addition of property taxes, income taxes and
charitable contributions, and the exclusion of actual bad debts incurred, net of
federal bad debt deduction. Other applicable Indiana taxes include sales, use
and property taxes.
DELAWARE TAXATION
As a Delaware holding company not earning income in Delaware, the Company is
exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Company is also
subject to an annual franchise tax imposed by the State of Delaware.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company conducts its business through its main office and branch
facility located in Michigan City, Indiana, and a branch office in LaPorte,
Indiana, all of which are owned by the Company.
<TABLE>
<CAPTION>
NET BOOK VALUE
DATE AT MARCH 31,
LOCATION ACQUIRED 1997
- ----------------------------------------------------------------- ----------- ----------------
<S> <C> <C>
EXECUTIVE & MAIN OFFICE
126 E. Fourth Street, Michigan City, IN 46360.................... 1979(1) $ 1,565,055.76
BRANCH OFFICES
3710 S. Franklin Street, Michigan City, IN 46360................. 1974 164,171.60
801 Monroe Street, LaPorte, IN 46350............................. 1966(2) 822,929.55
----------------
TOTAL $ 2,552,156.91
----------------
----------------
</TABLE>
- ------------------------
(1) Construction completed during 1981.
(2) Renovated during 1996.
In addition, the Bank leases office space at 701 E. 83rd Avenue, Suite E in
Merrillville, Indiana for the operation of a mortgage banking/origination
office.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the normal
course of its business. In the opinion of management, the resolutions of these
legal actions are, in the aggregate, not expected to have a material adverse
effect on the Company's consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY
A-26
<PAGE>
The following table sets forth certain information regarding the executive
officers of the Company who are not also Directors.
<TABLE>
<CAPTION>
NAME AGE(1) POSITIONS HELD WITH THE COMPANY AND/OR THE BANK
- ------------------------------------------- ----------- -----------------------------------------------------------
<S> <C> <C>
Daniel R. Buresh........................... 38 Vice President and Controller
George L. Koehm............................ 34 Vice President, Treasurer and Chief Financial Officer
Allen E. Jones............................. 51 Assistant Vice President and Secretary
</TABLE>
- ------------------------
(1) At March 31, 1997
A-27
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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, 1997, CB
Bancorp, Inc. had approximately 264 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 sale prices and number of
shares traded during the 8 quarters ended March 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF
QUARTER ENDED HIGH LOW SHARES TRADED
- ------------------------------------------------------- ------- ------- -------------
<S> <C> <C> <C>
June 30, 1995.......................................... 13 1/2 12 3/4 90,493
September 30, 1995..................................... 15 3/4 12 3/4 302,837
December 31, 1995...................................... 18 1/2 15 1/2 188,720
March 31, 1996......................................... 19 3/4 17 1/4 153,347
June 30, 1996.......................................... 18 1/4 16 1/4 199,525
September 30, 1996..................................... 20 3/4 17 238,300
December 31, 1996...................................... 25 1/2 19 3/4 203,878
March 31, 1997......................................... 34 1/4 23 3/4 575,888
</TABLE>
No dividends were paid during the above stated periods.
NASDAQ MARKET MAKERS
As of March 31, 1997 the following firms were market makers in the Company's
shares:
Howe, Barnes & Johnson, Inc. Sandler O'Neill & Partners
Stifel Nicolaus & Co. Natcity Investments, Inc.
Herzog, Heine, Geduld, Inc. Sherwood Securities Corp.
The Ohio Company
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion provides information regarding CB Bancorp's
financial condition and results of operations for each of the years ended March
31, 1997, 1996, and 1995. This discussion should be read in conjunction with the
consolidated financial statements of CB Bancorp, Inc. and the notes thereto,
which appear elsewhere herein.
OVERVIEW
CB Bancorp, Inc., ("The Company") is a unitary thrift holding company
headquartered in Michigan City, Indiana. Its wholly owned subsidiary, Community
Bank, A Federal Savings Bank, ("The Bank") has been and continues to be in the
business of attracting 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.
A-28
<PAGE>
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 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. 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.
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 and other 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
Company. 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, Suite E, Merrillville, Indiana. The Bank's retail deposit-gathering
base is concentrated in the communities surrounding its offices while its
lending base extends throughout LaPorte and contiguous countries. Also, through
its Program, the Bank funds and temporarily invests in one- to four-family
mortgages originated in various states throughout the 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. The Company held loans that were purchased under agreements
to resell from 66 of the 117 approved mortgage companies as of March 31, 1997.
The 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 March
31, 1997, construction loan balances totaled $25.4 million and accounted for
26.7% 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
A-29
<PAGE>
when resold. It is the Company's policy to purchase under the Program only those
loans that comply with accepted secondary market underwriting standards or
Community Bank's portfolio underwriting criteria. The Company had recently
modified the agreements with mortgage companies participating in the Program
such that the guaranty of loans purchased from the mortgage company will be a
lower amount; the Company continues to primarily look to the individual
borrowers as the primary source of repayment. Management believes that the
change in these guaranty arrangements will have no impact on the Program.
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,
1997--$227.1 MILLION 1996--$205.4 MILLION
(REPRESENTS AN INCREASE OF $21.7 MILLION OR 10.6%)
THE YEAR TO YEAR INCREASE IN TOTAL ASSETS, WAS PRIMARILY ATTRIBUTABLE TO
GROWTH IN THE COMPANY'S MORTGAGE LOAN REPURCHASE PROGRAM.
MORTGAGE LOAN REVERSE REPURCHASE PROGRAM LOANS OUTSTANDING AT MARCH 31,
1997--$95.3 MILLION 1996--$80.0 MILLION
(REPRESENTS AN INCREASE OF $15.3 MILLION OR 19.1%)
INCREASE IS ATTRIBUTED 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 TO FLUCTUATE BETWEEN
PERIODS.
LOANS RECEIVABLE AT MARCH 31,
1997--$90.3 MILLION 1996--$92.6 MILLION
(REPRESENTS A DECREASE OF $2.3 MILLION OR 2.5%)
DECREASE PRIMARILY ATTRIBUTABLE TO AN INCREASE IN THE SALES OF THE
COMPANY'S SINGLE-FAMILY FIXED RATE LOANS.
SECURITIES PORTFOLIO AT MARCH 31,
1997--$17.7 MILLION 1996--$19.2 MILLION
(REPRESENTS A DECREASE OF $1.5 MILLION OR 7.8%)
DECREASE PRIMARILY ATTRIBUTABLE TO THE ALLOCATION OF A PORTION OF THE
CASH FLOWS RECEIVED FROM THE MATURITIES AND REPAYMENTS OF THE SECURITIES
PORTFOLIO INTO THE PROGRAM.
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 HOME LOAN BANK STOCK. THE
COMPANY ALSO HAS INVESTMENTS IN BOTH VARIABLE AND FIXED RATE U.S.
GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES.
A-30
<PAGE>
CASH AND CASH EQUIVALENTS AT MARCH 31,
1997--$14.7 MILLION 1996--$6.1 MILLION
(REPRESENTS AN INCREASE OF $8.6 MILLION OR 141.0%)
INCREASE PRIMARILY DUE TO A SUBSTANTIAL INFLOW OF FUNDS RESULTING FROM
ACTIVITY IN THE PROGRAM. DUE TO THE VOLATILE DAY TO DAY FUNDING
REQUIREMENTS OF THE PROGRAM, THE COMPANY'S CASH POSITION IS SUBJECT TO
SIGNIFICANT FLUCTUATIONS.
PREMISES AND EQUIPMENT AT MARCH 31,
1997--$2.9 MILLION 1996--$2.4 MILLION
(REPRESENTS AN INCREASE OF $0.5 MILLION OR 20.8%)
INCREASE PRIMARILY ATTRIBUTABLE TO THE MAJOR RENOVATION OF THE COMPANY'S
LA PORTE BRANCH OFFICE FACILITY.
OTHER ASSETS AT MARCH 31,
1997--$4.3 MILLION 1996--$3.1 MILLION
(REPRESENTS AN INCREASE OF $1.2 MILLION OR 38.7%)
INCREASE PRIMARILY ATTRIBUTABLE TO AN INCREASE IN DEFERRED TAXES
RECEIVABLE, FORECLOSED REAL ESTATE, AND INCREASES IN THE CASH SURRENDER
VALUE OF LIFE INSURANCE POLICIES.
NON-PERFORMING ASSETS AT MARCH 31,
1997--$6.6 MILLION 1996--$3.0 MILLION
(REPRESENTS AN INCREASE OF $3.6 MILLION OR 120.0%)
INCREASE PRIMARILY ATTRIBUTABLE TO A $3.7 MILLION INCREASE IN IMPAIRED
LOANS FROM $2.2 MILLION AT MARCH 31, 1996 TO $5.9 MILLION AT MARCH 31,
1997. LOAN LOSS RESERVES AT MARCH 31, 1997 TOTALED $1.8 MILLION, AN
INCREASE OF $461,000 OR 34.2% OVER THE PRIOR FISCAL YEAR.
At March 31, 1997, impaired assets include 65 single family construction
loans, all located in the state of Indiana with a total outstanding balance of
$4.7 million and total unfunded commitments of $2.1 million. Eighteen of these
loans, totaling $1.3 million, are outstanding to one builder with the current
outstanding balance reflecting a chargeoff of $141,000 during the year ended
March 31, 1997. The Company has allocated $308,000 of the allowance for loan
losses to these loans. Forty-one of these loans totaling $2.4 million are
outstanding to two affiliated companies, one of which is in bankruptcy. The
Company has allocated $125,000 of the allowance for loan losses to these loans.
The remaining 6 loans totaling $1.2 million are with three separate builders and
the Company has allocated $116,000 of the allowance for loan losses to these
loans.
Also included in impaired assets is $1.2 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). Per the terms of the contractual arrangements, Bennett Funding
Group, Inc. and Aloha Capital Corporation, act as the servicing agents for the
respective pools of leases sold to the Company. 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. The
outstanding balance reflects a charge-off of $433,000 during the year ended
March 31, 1997 on the original balance of $1.7 million. The Company has
allocated $61,000 of the allowance for loan losses to these leases. The Company
has negotiated a settlement and the anticipated recovery is approximately 70% of
the original balance.
A-31
<PAGE>
TOTAL LIABILITIES AT MARCH 31,
1997--$206.3 MILLION 1996--$186.6 MILLION
(REPRESENTS AN INCREASE OF $19.7 MILLION OR 10.6%)
THIS INCREASE IS PRIMARILY ATTRIBUTABLE TO AN $11.5 MILLION OR 8.4%
INCREASE IN TOTAL DEPOSITS FROM $138.3 MILLION AT MARCH 31, 1996 TO
$149.8 MILLION AT MARCH 31, 1997 AND $8.2 MILLION OR 18.2% INCREASE IN
BORROWED FUNDS FROM $45.1 MILLION AT MARCH 31, 1996 TO $53.3 MILLION AT
MARCH 31, 1997. THE GROWTH IN LIABILITIES WAS PRIMARILY DUE TO THE
INCREASED FUNDING NEEDS OF THE PROGRAM.
The increase in total deposits was concentrated in certificates of deposits.
Certificate balances increased $20.7 million or 30.2%, 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 reliable and attractively priced funding sources and will continue to take
advantage of these funding sources as market conditions warrant. Partially
offsetting the increase in certificates of deposits was an $8.4 million or 20.2%
decrease in demand deposit accounts. More than 90% of the Company's demand
deposit balances are held by mortgage companies that are participating in the
Company's Program. The level of balances maintained in demand deposits, by these
companies, fluctuates significantly between periods.
Total borrowed funds at March 31, 1996, consist of $7.0 million in federal
funds purchased and $46.3 million in Federal Home Loan Bank advances, of which
$45.3 million will mature in less than one year.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
GENERAL: NET INCOME FOR THE YEAR ENDED MARCH 31, 1997 WAS $2,312,000 COMPARED TO
$2,458,000 IN THE PRIOR YEAR. THIS $146,000 DECREASE IN NET INCOME IS PRIMARILY
ATTRIBUTABLE TO A $723,000 NONRECURRING PRETAX CHARGE RESULTING FROM LEGISLATION
SIGNED INTO LAW ON SEPTEMBER 30, 1996, TO RECAPITALIZE THE FEDERAL DEPOSIT
INSURANCE CORPORATION'S SAVINGS ASSOCIATION INSURANCE FUND. EARNINGS WERE ALSO
NEGATIVELY IMPACTED BY AN INCREASE IN NON-INTEREST EXPENSES RELATED TO THE START
UP OF A NEWLY ESTABLISHED MORTGAGE BANKING DIVISION AND TO THE PENDING MERGER
WITH PINNACLE.
INTEREST INCOME FOR YEAR ENDED MARCH 31,
1997--$16.4 MILLION 1996--$14.4 MILLION
(REPRESENTS AN INCREASE OF $2.0 MILLION OR 13.9%)
THIS INCREASE IS ATTRIBUTABLE TO INCREASED ACTIVITY IN THE COMPANY'S
MORTGAGE LOAN REVERSE REPURCHASE PROGRAM WHICH WAS THE PRIMARY FACTOR IN
A $23.5 MILLION OR 13.9% INCREASE IN AVERAGE INTEREST-EARNING ASSETS
OUTSTANDING FROM $168.5 MILLION FOR THE YEAR ENDED MARCH 31, 1996 TO
$192.0 MILLION FOR THE YEAR ENDING MARCH 31, 1997.
Interest income earned under the Program increased $2.2 million or 39.6%
over the prior fiscal year. The average outstanding investment in the Program
increased from $58.3 million for the twelve months ended March 31, 1996 to $82.1
million for the twelve months ended March 31, 1997. The increase in outstandings
in the Program is attributable to an increase in the 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 31, 1997 will be maintained. Interest income on the loans
receivable portfolio, securities and mortgage backed securities portfolio and
other interest earning assets decreased $67,000, $28,000 and $18,000,
respectively. Fewer assets were allocated to these categories by management over
the course of the year because of asset allocations to the Program.
A-32
<PAGE>
INTEREST EXPENSE FOR YEAR ENDED MARCH 31,
1997--$8.1 MILLION 1996--$7.1 MILLION
(REPRESENTS AN INCREASE OF $1.0 MILLION OR 14.1%)
THIS INCREASE IS PRIMARILY ATTRIBUTABLE TO A $22.5 MILLION OR 15.0%
INCREASE IN AVERAGE INTEREST-BEARING LIABILITIES OVER THE PRIOR FISCAL
YEAR. THIS INCREASE RESULTED FROM THE INCREASED FUNDING NEEDS OF THE
PROGRAM. IN THE COURSE OF FUNDING THIS PROGRAM MANAGEMENT CONSIDERS THE
RELEVANT COSTS OF DEPOSITS AND BORROWINGS AND ACQUIRES THE NEEDED FUNDS
ACCORDINGLY.
NET INTEREST INCOME FOR YEAR ENDED MARCH 31,
1997--$8.3 MILLION 1996--$7.3 MILLION
(REPRESENTS AN INCREASE OF $1.0 MILLION OR 13.7%)
INCREASE RESULTED FROM SUBSTANTIALLY HIGHER OUTSTANDINGS IN THE COMPANY'S
MORTGAGE LOAN REVERSE REPURCHASE PROGRAM. THE COMPANY'S NET INTEREST
MARGIN RATIO FOR THE TWELVE MONTHS ENDED MARCH 31, 1997 WAS 4.31% AS
COMPARED TO THE PRIOR FISCAL YEAR'S RATIO OF 4.33%.
PROVISION FOR LOAN LOSSES FOR YEAR ENDED MARCH 31,
1997--$1.2 MILLION 1996--$1.0 MILLION
(REPRESENTS AN INCREASE OF $200,000 OR 20.0%)
THE 1997 PROVISION FOR LOAN LOSSES RESULTED FROM MANAGEMENT'S CONTINUED
EVALUATION OF THE LOAN PORTFOLIO, NATIONAL AND REGIONAL ECONOMIC
INDICATORS, AND THE DETERMINATION OF SPECIFIC ALLOWANCES FOR LOAN LOSS
ALLOCATIONS NEEDED FOR IMPAIRED LOANS AND INCREASES NEEDED TO REPLENISH
NET CHARGE-OFFS.
The Company's allowance for loan losses increased to $1.8 million at March
31, 1997 from $1.3 million at March 31, 1996. Management's decision to add to
loan loss reserves was primarily attributable to several factors: (1) To
replenish $730,000 of net chargeoffs against the loan reserves recorded in
fiscal 1997, (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 impaired loans. 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,
1997--$1.8 MILLION 1996--$1.2 MILLION
(REPRESENTS AN INCREASE OF $600,000 OR 50.0%)
INCREASE IS PRIMARILY ATTRIBUTABLE TO A $320,000 INCREASE IN FEES RELATED
TO THE MORTGAGE LOAN REVERSE REPURCHASE PROGRAM, A $268,000 INCREASE IN
GAINS ON THE SALE OF MORTGAGE LOANS SOLD THROUGH THE COMPANY'S MORTGAGE
BANKING DIVISION AND A $52,000 INCREASE IN SERVICE CHARGES, FEES AND LATE
CHARGES. THESE INCREASES WERE PARTIALLY OFFSET BY A $11,000 DECREASE IN
COMMISSION INCOME RECEIVED BY COMMUNITY FINANCIAL SERVICES, INC. FROM THE
SALE OF TAX-DEFERRED ANNUITIES AND A $43,000 DECREASE IN OTHER INCOME.
NONINTEREST EXPENSE FOR YEAR ENDED MARCH 31,
1997--$5.3 MILLION 1996--$3.6 MILLION
(REPRESENTS AN INCREASE OF $1.7 MILLION OR 47.2%)
INCREASE IS PRIMARILY ATTRIBUTABLE TO AN INCREASE OF $684,000 IN DEPOSIT
INSURANCE PREMIUMS RESULTING FROM THE ONE-TIME ASSESSMENT CITED ABOVE,
INCREASED PERSONNEL, OCCUPANCY AND PROMOTION EXPENSE RELATED TO THE
COMPANY'S NEWLY ESTABLISHED MORTGAGE BANKING DIVISION, AND HIGHER
PROFESSIONAL FEES RELATED TO AN INCREASE IN LEGAL AND ACCOUNTING FEES
RELATED TO THE PENDING MERGER WITH PINNACLE.
A-33
<PAGE>
INCOME TAX EXPENSE FOR YEAR ENDED MARCH 31,
1997--$1.2 MILLION 1996--$1.4 MILLION
(REPRESENTS A DECREASE OF $200,000 OR 14.3%)
INCOME TAXES DECREASED PRIMARILY AS A RESULT OF AN INCREASE OF $90,000 IN
TAX CREDITS THAT THE COMPANY RECORDED FROM ITS INVESTMENT IN THE LIMITED
PARTNERSHIP, PEDCOR INVESTMENTS-1994-XX, L.P., IN THE CURRENT FISCAL YEAR
AS COMPARED TO THE PRIOR FISCAL YEAR AND DECREASED EARNINGS BEFORE INCOME
TAXES.
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 WAS 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 56.5%)
THIS INCREASE WAS ATTRIBUTABLE TO INCREASED ACTIVITY IN THE COMPANY'S
MORTGAGE LOAN REVERSE REPURCHASE PROGRAM AND OTHER LENDING ACTIVITIES
WHICH WAS THE PRIMARY FACTOR 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 ENDED 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 was 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.
The increase in interest income was 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 was attributable to the origination and purchase
of multi-family, construction, commercial mortgage and non-mortgage loans.
Interest income on interest bearing 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 loans including loans in the Program.
INTEREST EXPENSE FOR YEAR ENDED MARCH 31,
1996--$7.1 MILLION 1995--$4.1 MILLION
(REPRESENTS AN INCREASE OF $3.0 MILLION OR 73.2%)
INCREASE IS 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 CONSIDERED THE RELEVANT COSTS OF DEPOSITS AND BORROWINGS AND
ACQUIRED THE NEEDED FUNDS ACCORDINGLY.
A-34
<PAGE>
NET INTEREST INCOME FOR YEAR ENDED MARCH 31,
1996--$7.3 MILLION 1995--$5.1 MILLION
(REPRESENTS AN INCREASE OF $2.2 MILLION OR 43.1%)
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 THE DETERMINATION OF SPECIFIC ALLOWANCES FOR LOAN LOSS
ALLOCATIONS NEEDED FOR IMPAIRED LOANS AND INCREASES NEEDED TO REPLENISH
NET CHARGE-OFFS.
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.
NONINTEREST INCOME FOR YEAR ENDED MARCH 31,
1996--$1.2 MILLION 1995--$1.0 MILLION
(REPRESENTS AN INCREASE OF $200,000 OR 20.0%)
INCREASE WAS PRIMARILY ATTRIBUTABLE TO A $205,000 INCREASE IN FEES
RELATED TO THE MORTGAGE LOAN REVERSE REPURCHASE PROGRAM AND A $23,000
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 $300,000 OR 9.09%)
INCREASE WAS ATTRIBUTABLE TO: (1) THE START UP COSTS OF A MORTGAGE
BANKING DIVISION IN MERRILLVILLE, INDIANA, WHICH BEGAN OPERATIONS IN
FEBRUARY OF 1996, (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 $400,000 OR 40.0%)
INCOME TAXES INCREASED PRIMARILY AS A RESULT OF INCREASED EARNINGS BEFORE
INCOME TAXES WHICH WAS ONLY PARTIALLY OFFSET BY A $70,000 TAX CREDIT IN
THE YEAR ENDED MARCH 31, 1996 RELATED TO THE COMPANY'S INVESTMENT IN THE
LIMITED PARTNERSHIP, PEDCOR INVESTMENTS-1994-XX-LP.
A-35
<PAGE>
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,
advances, and lines of credit from the Federal Home Loan Bank ("FHLB") of
Indianapolis and federal funds purchased. 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 5.6% and
7.7% at March 31, 1997 and 1996, 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, lines of
credit 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, 1997
and 1996, cash and cash equivalents totaled $14.7 million and $6.1 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 $3.8 million at March 31, 1997.
Cash flows resulting from operating activities consisted primarily of net
income, activity under the Program and the origination and sale of mortgage
loans held for sale. Cash flows from operating activities were ($13.0) million,
($51.5) million and $11.1 million for the years ended March 31, 1997, 1996 and
1995, 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 from investing
activities were $2.3 million, ($4.5) million and ($9.3) million for the years
ended March 31, 1997, 1996 and 1995, respectively. Net cash from financing
activities, primarily the borrowing and repayment of funds and net deposits,
were $19.3 million, $58.5 million and ($3.4) million for the years ended March
31, 1997, 1996 and 1995, respectively.
For the years ended March 31, 1997, 1996 and 1995 the Company's single
family mortgage loan purchases through the Program totaled $1,112.0 million,
$795.9 million and $453.3 million, respectively. Sales of these loans over the
same respective time periods totaled $1,096.7 million, $741.0 million and $462.4
million. During the fiscal year ended March 31, 1997, the activity in the
Program increased significantly due 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, 1997, the Company had outstanding commitments to originate
loans and fund unused lines of credit of $2.8 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, 1997, totaled $73.8 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, 1997 was $20.8 million, an increase of
$2.0 million or 10.7% over March 31, 1996, which represents net income for the
twelve months ended March 31, 1997 and the effects
A-36
<PAGE>
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, net of tax.
Under OTS capital requirements, at March 31, 1997, the Bank had:
- Tangible capital (shareholders' equity) of $18.4 million or 8.1% of
adjusted total assets thereby exceeding the 1.5% requirement of $3.4
million by $15.0 million.
- Core capital (tangible capital plus certain intangible assets) of $18.4
million or 8.1% of adjusted total assets thereby exceeding the 3.0%
requirement of $6.8 million by $11.6 million.
- Risk-weighted capital (core capital plus general valuation allowances) of
$20.0 million or 14.8% of risk-weighted assets thereby exceeding the 8.0%
requirement of $10.8 million by $9.2 million.
At March 31, 1997, 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 interest earning assets less the market value
of interest bearing liabilities. According to the "Interest Rate Risk Report,"
prepared by the Office of Thrift Supervision as of March 31, 1997, after an
adverse rate shock of +200 points, the Bank's NPV of $24.1 million was projected
to decline $1.1 million or 4.5%, to $23.0 million. According to the OTS report,
only 15% of thrifts nationwide would have experienced a decline of 5.2% or less.
Presented below, as of March 31, 1997, 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)
NET PORTFOLIO VALUE
<TABLE>
<CAPTION>
CHANGE IN
RATES $ AMOUNT $ CHANGE % CHANGE
- ---------- ----------- ----------- -----------
<S> <C> <C> <C>
+400 bp 21,502 -2,556 -11%
+300 bp 22,259 -1,799 -7%
+200 bp 22,980 -1,078 -4%
+100 bp 23,599 -459 -2%
0 bp 24,058
-100 bp 24,205 +147 +1%
-200 bp 23,697 -361 -2%
-300 bp 23,449 -609 -3%
-400 bp 23,544 -514 -2%
</TABLE>
A-37
<PAGE>
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 Mortgage 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 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 34.8% of mortgage loans receivable, excluding loans in the
Program. 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
Statement of Financial Accounting Standards No. 125, "ACCOUNTING FOR
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES,"
was issued by the Financial Accounting Standards Board in 1996. It revises the
accounting for transfers of financial assets, such as loans and securities, and
for distinguishing between sales and secured borrowings. It is effective for
some transactions in 1997 and others in 1998. The anticipated effect on the
consolidated financial statements has not yet been determined.
Also, in March, 1997, the accounting requirements for calculating earnings
per share were revised. Basic earnings per share for the quarter ended December
31, 1997 and later will be calculated solely on average common shares
outstanding. Diluted earnings per share will reflect the potential dilution of
stock options and other common stock equivalents. All prior calculations will be
restated to be compatible to the new methods. As the Company has significant
dilution from stock options, the new calculation methods will increase future
basic earnings per share over what otherwise would have been reported, while
there will be little effect on diluted earnings per share.
ITEM 7. FINANCIAL STATEMENTS
A-38
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
MICHIGAN CITY, INDIANA
1997 CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT AUDITORS....................................................... A-40
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS........................................................ A-41
CONSOLIDATED STATEMENTS OF INCOME.................................................. A-42
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY......................... A-43
CONSOLIDATED STATEMENTS OF CASH FLOWS.............................................. A-44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......................................... A-46
</TABLE>
A-39
<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, 1997 and 1996 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
years ended March 31, 1997, 1996 and 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CB Bancorp, Inc. and
Subsidiary as of March 31, 1997 and 1996 and the results of their operations and
their cash flows for the years ended March 31, 1997, 1996 and 1995, 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 23, 1997
A-40
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Cash and due from financial institutions......................................... $ 4,847,106 $ 4,754,811
Interest-bearing deposits in other financial institutions -- short term.......... 9,882,031 1,308,112
-------------- --------------
Cash and cash equivalents...................................................... 14,729,137 6,062,923
-------------- --------------
Securities available for sale.................................................... 672,059 620,948
Securities held to maturity (Fair value: $14,348,000 -- 1997;
$15,926,000 -- 1996)........................................................... 14,298,913 15,866,904
Federal Home Loan Bank stock at cost............................................. 2,751,700 2,702,000
Loans
Loans purchased under agreements to resell..................................... 95,275,680 80,031,250
Loans receivable............................................................... 90,315,402 92,616,450
Less: Allowance for loan losses................................................ (1,807,660) (1,346,328)
-------------- --------------
183,783,422 171,301,372
Mortgage loans held for sale..................................................... 914,050 512,750
Accrued interest receivable...................................................... 1,219,432 1,183,259
Premises and equipment, net...................................................... 2,920,274 2,387,382
Investment in limited partnership................................................ 1,566,215 1,678,573
Other assets..................................................................... 4,280,206 3,068,825
-------------- --------------
$ 227,135,408 $ 205,384,936
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Interest-bearing............................................................. $ 139,806,192 $ 120,408,041
Non-interest bearing......................................................... 10,003,301 17,852,856
-------------- --------------
Total deposits............................................................. 149,809,493 138,260,897
Borrowed funds................................................................. 53,283,553 45,124,355
Obligation due to limited partnership.......................................... 1,467,877 1,450,000
Accrued expenses and other liabilities......................................... 1,731,552 1,717,500
-------------- --------------
206,292,475 186,552,752
Shareholders' equity
Serial preferred stock, no par value, 500,000 shares authorized; none
outstanding.................................................................. -- --
Common stock, par value $.01 per share; shares authorized: 1,500,000; shares
issued: 1,284,238; shares outstanding: 1997 -- 1,161,997 and 1996 --
1,188,226.................................................................... 12,842 12,842
Additional paid-in capital..................................................... 5,865,528 5,813,358
Retained earnings -- substantially restricted.................................. 16,635,085 14,323,484
Less:
Treasury stock, 122,241 and 96,012 shares at cost at March 31, 1997 and 1996,
respectively............................................................... (1,550,290) (1,081,744)
Unearned common stock acquired by:
Employee stock ownership plan.............................................. (176,583) (240,794)
Recognition and retention plans............................................ (4,233) (20,708)
Net unrealized appreciation on securities available for sale, net of tax of
$39,738 in 1997 and $16,887 in 1996 60,584 25,746
-------------- --------------
20,842,933 18,832,184
-------------- --------------
$ 227,135,408 $ 205,384,936
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
A-41
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Interest income
Loans receivable
First mortgage loans................................................ $ 6,884,405 $ 6,949,705 $ 6,189,013
Consumer and other loans............................................ 627,028 628,236 260,463
Loans purchased under agreements to resell............................ 7,613,007 5,452,138 1,351,924
Securities -- taxable................................................. 594,933 565,940 567,883
Mortgage-backed and related securities -- taxable..................... 632,276 689,120 653,029
Other interest-bearing assets -- taxable.............................. 48,946 66,742 177,064
------------ ------------ ------------
16,400,595 14,351,881 9,199,376
Interest expense
Deposits.............................................................. 5,680,771 5,040,273 3,961,171
Borrowed funds........................................................ 2,453,616 2,022,405 182,559
------------ ------------ ------------
8,134,387 7,062,678 4,143,730
------------ ------------ ------------
NET INTEREST INCOME..................................................... 8,266,208 7,289,203 5,055,646
Provision for loan losses............................................... 1,191,000 1,020,000 78,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES..................... 7,075,208 6,269,203 4,977,646
Noninterest income
Gain (loss) on sales of mortgage loans held for sale.................. 269,739 1,478 --
Other................................................................. 1,493,603 1,176,542 995,084
------------ ------------ ------------
1,763,342 1,178,020 995,084
Noninterest expense
Salaries and employee benefits........................................ 1,941,387 1,561,595 1,493,024
Occupancy and equipment............................................... 593,536 512,476 512,394
SAIF deposit insurance premium........................................ 947,628 263,397 261,206
Other................................................................. 1,863,085 1,271,616 1,075,585
------------ ------------ ------------
5,345,636 3,609,084 3,342,209
------------ ------------ ------------
INCOME BEFORE INCOME TAXES.............................................. 3,492,914 3,838,139 2,630,521
Income tax expense...................................................... 1,181,313 1,379,929 970,274
------------ ------------ ------------
NET INCOME.............................................................. $ 2,311,601 $ 2,458,210 $ 1,660,247
------------ ------------ ------------
------------ ------------ ------------
Primary earnings per share.............................................. $ 1.86 $ 1.95 $ 1.29
Fully dilutive earnings per share....................................... 1.85 1.94 1.29
</TABLE>
See accompanying notes to consolidated financial statements.
A-42
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
UNEARNED UNEARNED
COMMON COMMON
ADDITIONAL STOCK STOCK
COMMON PAID-IN RETAINED TREASURY ACQUIRED BY ACQUIRED BY
STOCK CAPITAL EARNINGS STOCK ESOP RRP
----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE--APRIL 1, 1994............................. $ 12,842 $5,862,898 $10,205,027 $ (522,899) $(369,216) $ (89,675)
Adoption of SFAS No. 115 net of tax of $63......... -- -- -- -- -- --
Purchase of 22,000 shares of treasury stock........ -- -- -- (243,875) -- --
Issuance of 10,916 shares of treasury stock........ -- (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 of $1,131.......... -- -- -- -- -- --
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 38,495 shares of treasury stock........ -- -- -- (557,427) -- --
Issuance of 13,583 shares of treasury stock........ -- (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 of $15,693......... -- -- -- -- -- --
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)
Purchase of 27,873 shares of treasury stock........ -- -- -- (487,572) -- --
Issuance of 1,644 shares of treasury stock......... -- (10,805) -- 19,026 -- --
Contribution to fund ESOP.......................... -- -- -- -- 64,211 --
Amortization of RRP contribution................... -- -- -- -- -- 16,475
Tax benefit related to stock plans................. -- 62,975 -- -- -- --
Net change in unrealized appreciation on securities
available for sale, net of tax of $22,851......... -- -- -- -- -- --
Net income for the year ended March 31, 1997....... -- -- 2,311,601 -- -- --
----------- ----------- ---------- ---------- ----------- -----------
BALANCE--MARCH 31, 1997............................ $ 12,842 $5,865,528 $16,635,085 $(1,550,290) $(176,583) $ (4,233)
----------- ----------- ---------- ---------- ----------- -----------
----------- ----------- ---------- ---------- ----------- -----------
<CAPTION>
NET UNREALIZED
APPRECIATION ON
SECURITIES
AVAILABLE TOTAL
FOR SALE, SHAREHOLDERS'
NET OF TAX EQUITY
--------------- -------------
<S> <C> <C>
BALANCE--APRIL 1, 1994............................. $ -- $15,098,977
Adoption of SFAS No. 115 net of tax of $63......... 96 96
Purchase of 22,000 shares of treasury stock........ -- (243,875)
Issuance of 10,916 shares of treasury stock........ -- 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 of $1,131.......... 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 38,495 shares of treasury stock........ -- (557,427)
Issuance of 13,583 shares of treasury stock........ -- 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 of $15,693......... 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
Purchase of 27,873 shares of treasury stock........ -- (487,572)
Issuance of 1,644 shares of treasury stock......... -- 8,221
Contribution to fund ESOP.......................... -- 64,211
Amortization of RRP contribution................... -- 16,475
Tax benefit related to stock plans................. -- 62,975
Net change in unrealized appreciation on securities
available for sale, net of tax of $22,851......... 34,838 34,838
Net income for the year ended March 31, 1997....... -- 2,311,601
------- -------------
BALANCE--MARCH 31, 1997............................ $ 60,584 $20,842,933
------- -------------
------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
A-43
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 2,311,601 $ 2,458,210 $ 1,660,247
Adjustments to reconcile net income to net cash from operating
activities
Depreciation and amortization................................ 219,997 187,104 342,215
Provision for loan losses.................................... 1,191,000 1,020,000 78,000
(Gain) loss on sales of:
Mortgage loans held for sale............................... (269,739) (1,478) --
Securities available for sale.............................. -- -- 650
Foreclosed real estate..................................... 755 (16,731) (16,240)
Loans purchased under agreements to resell................... (1,111,965,098) (795,862,263) (453,339,372)
Sale of loans purchased under agreements to resell........... 1,096,720,668 741,010,220 462,353,515
Mortgage loans originated for sale........................... (15,669,346) (585,786) --
Proceeds from sales of mortgage loans held for sale.......... 15,537,785 74,514 --
Amortization of RRP contribution............................. 16,475 26,968 41,999
Change in:
Accrued interest receivable................................ (36,173) (396,855) (138,011)
Other assets............................................... (1,024,828) (370,009) (30,532)
Accrued expenses and other liabilities..................... 14,052 911,471 114,610
--------------- ------------- ---------------
Net cash from operating activities....................... (12,952,851) (51,544,635) 11,067,081
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in long term interest-bearing deposits in other
financial institutions....................................... -- 983,475 (885,276)
Net change in loans receivable................................. 1,095,951 (6,223,912) (5,717,413)
Proceeds from:
Sale of securities available for sale........................ -- -- 49,200
Maturities of securities held to maturity.................... 3,420,782 9,161,482 6,300,000
Principal collected on mortgage-backed securities............ 2,381,737 2,311,441 3,215,365
Sale of foreclosed real estate............................... 328,245 92,210 58,937
Purchase of:
Securities and mortgage-backed securities available for
sale....................................................... -- -- (53,324)
Securities and mortgage-backed securities held to maturity... (4,236,862) (10,104,120) (9,424,682)
Federal Home Loan Bank stock................................. (49,700) (351,600) --
Loans receivable............................................. -- -- (2,627,077)
Premises and equipment, net.................................. (743,977) (176,519) (134,506)
Investment in limited partnership.............................. 112,358 (153,573) (75,000)
--------------- ------------- ---------------
Net cash from investing activities........................... 2,308,534 (4,461,116) (9,293,776)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits......................................... $ 11,548,596 $ 26,189,663 $ (2,934,877)
Proceeds from borrowed funds................................... 326,879,583 1,709,466,300 238,718,275
Repayment of borrowed funds.................................... (318,720,385) (1,676,704,749) (239,100,610)
Net change in obligation due to limited partnership............ 17,877 -- --
Purchase of treasury stock..................................... (487,572) (557,427) (243,875)
Issuance of shares of treasury stock........................... 8,221 67,916 54,580
Contribution to fund ESOP...................................... 64,211 64,211 64,211
--------------- ------------- ---------------
Net cash from financing activities........................... 19,310,531 58,525,914 (3,442,296)
--------------- ------------- ---------------
Net change in cash and cash equivalents.......................... 8,666,214 2,520,163 (1,668,991)
Cash and cash equivalents at beginning of year................... 6,062,923 3,542,760 5,211,751
--------------- ------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,729,137 $ 6,062,923 $ 3,542,760
--------------- ------------- ---------------
--------------- ------------- ---------------
</TABLE>
A-44
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ------------- ---------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest..................................................... $ 8,029,751 $ 6,870,582 $ 4,147,503
Income taxes................................................. 1,810,000 1,618,449 885,250
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 due to limited partnership (Note
16)........................................................ -- -- 1,450,000
Real estate acquired in settlement of loans.................. 475,429 75,479 42,697
</TABLE>
See accompanying notes to consolidated financial statements.
A-45
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts of CB Bancorp, Inc. and its wholly-owned
subsidiary. 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") which owns all the outstanding stock of Community Financial
Services Inc. ("Community Financial"), (together referred to as "the Company").
Community Financial has a 99% limited partner interest in Pedcor
Investments-1994-XX, L.P. Community Financial also owns 100% of Community
Brokerage Services, Inc. ("Community Brokerage"). All significant inter-company
balances and transactions are eliminated in consolidation.
NATURE OF OPERATIONS AND INDUSTRY SEGMENT INFORMATION: 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. Pedcor Investments-1994-XX, L.P. was
formed for the construction, ownership, and management of an 80 unit affordable
housing project in LaPorte County, Indiana. 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.
USE OF ESTIMATES: To prepare consolidated financial statements in
conformity with generally accepted accounting principles, management makes
estimates and assumptions based on available information. These estimates and
assumptions affect the amounts reported in the consolidated financial statements
and the disclosures provided, and future results could differ. The
collectibility of loans, allowance for loan losses, the determination and
carrying value of impaired loans, fair values of financial instruments,
securities valuations, the carrying value of loans purchased under agreements to
resell, the carrying value of loans held for sale, the realization of deferred
tax assets and status of contingencies are particularly subject to change in the
near term.
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 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 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 shareholders' 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. Securities are written
down to fair value when a decline in fair value is not temporary. 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
A-46
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
market. The Company held loans that were purchased under agreements to resell
from 66 of the 117 approved mortgage companies as of March 31, 1997. 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.
When serious doubt exists as to the collectibility of a loan, the accrual of
interest is discontinued. 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.
LOANS: Loans are reported at the principal balance outstanding, net of
deferred loan fees and costs, the allowance for loan losses, and charge-offs.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions, and other factors. 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. Allocations of the allowance may be made for specific loans, but
the entire allowance is available for any loan that, in management's judgment,
should be charged-off.
SFAS No. 114 and 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
A-47
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
future cash flows discounted at the loan's 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 90 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.
PREMISES AND EQUIPMENT: Premises and equipment of the Company are stated at
cost less 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. These assets are
reviewed for impairment under SFAS No. 121 when events indicate the carrying
amount may not be recoverable. Maintenance and repairs are expensed and
improvements are capitalized.
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 establishing a new cost basis. 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. Foreclosed real estate
amounted to approximately $146,000 and $0 at March 31, 1997 and 1996, and is
included in other assets in the consolidated balance sheets.
SERVICING RIGHTS: Prior to adopting SFAS No. 122 on April 1, 1996,
servicing right assets were recorded only for purchased rights to service
mortgage loans. Subsequent to adopting this standard, servicing rights represent
both purchased rights and the allocated value of servicing rights retained on
loans originated in-house and sold. Servicing rights are expensed in proportion
to, and over the period of, estimated net servicing revenues. Impairment is
evaluated based on the fair value of the rights, using groupings of the
underlying loans as to interest rates and then, secondarily, as to geographic
and prepayment characteristics. Any impairment of a grouping is reported as a
valuation allowance. The impact of the adoption of SFAS No. 122 was not
material.
Excess servicing fees receivable is reported when a loan sale results in
servicing in excess of normal amounts, and is expensed over the life of the
servicing on the interest method.
A-48
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES: Income tax expense is the sum of the current year income tax
due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
STOCK COMPENSATION: Expense for employee compensation under stock option
plans is based on Opinion 25, with expense reported only if options are granted
below market price at grant date. If applicable, proforma disclosures of net
income and earnings per share are provided as if the fair value method of
Financial Accounting Standard No. 123 was used for stock-based compensation.
FAIR VALUES OF FINANCIAL INSTRUMENTS: Fair values of financial instruments
are estimated using relevant market information and other assumptions, as more
fully disclosed separately. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company, in the
normal course of business, makes commitments to extend credit which are not
reflected in the consolidated financial statements. A summary of these
commitments is disclosed separately.
STATEMENT OF CASH FLOWS: For purposes of reporting cash flows, cash and
cash equivalents is defined as cash and due from financial institutions and
federal funds sold, as well as investments with original maturities under 90
days. Net cash flows are reported for long-term interest bearing deposits in
other financial institutions, customer loan and deposit transactions and
obligation due to limited partnership.
EARNINGS PER SHARE AND TREASURY STOCK: Earnings per common share is
computed by dividing net income by the weighted average number of common shares
outstanding and common share equivalents which would arise from considering
dilutive stock options. The weighted average number of shares for calculating
earnings per common share for the years ended March 31 is:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Primary.......................................................... 1,242,382 1,261,062 1,289,998
Fully diluted.................................................... 1,250,781 1,264,728 1,291,301
</TABLE>
RECLASSIFICATIONS: Some items in the prior consolidated financial
statements have been reclassified to conform with the current presentation.
A-49
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 2--SECURITIES
The amortized cost and fair value of securities available for sale are as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Marketable equity securities.................................. $ 571,737 $ 101,188 $ (866) $ 672,059
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Marketable equity securities.................................. $ 578,315 $ 43,956 $ (1,323) $ 620,948
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
The amortized cost and fair value of securities held to maturity are as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DEBT SECURITIES COST GAINS LOSSES VALUE
- -------------------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
U.S. Government and federal agencies.................... $ 3,000,000 $ -- $ (48,000) $ 2,952,000
Corporate notes......................................... 2,789,297 5,988 (2,285) 2,793,000
Mortgage-backed......................................... 8,509,616 102,517 (9,133) 8,603,000
------------- ----------- ----------- -------------
$ 14,298,913 $ 108,505 $ (59,418) $ 14,348,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DEBT SECURITIES COST GAINS LOSSES VALUE
- -------------------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
U.S. Government and federal agencies.................... $ 3,000,000 $ -- $ (30,000) $ 2,970,000
Corporate notes......................................... 2,674,726 5,296 (6,022) 2,674,000
Mortgage-backed......................................... 10,192,178 143,374 (53,552) 10,282,000
------------- ----------- ----------- -------------
$ 15,866,904 $ 148,670 $ (89,574) $ 15,926,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
A-50
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 2--SECURITIES (CONTINUED)
The amortized cost and fair value of debt securities 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>
MARCH 31, 1997
----------------------------
AMORTIZED FAIR
COST VALUE
------------- -------------
<S> <C> <C>
Due in one year or less.................................................. $ 1,778,276 $ 1,777,000
Due after one year through five years.................................... 4,011,021 3,968,000
Mortgage-backed securities............................................... 8,509,616 8,603,000
------------- -------------
$ 14,298,913 $ 14,348,000
------------- -------------
------------- -------------
</TABLE>
There were no sales of securities during the years ended March 31, 1997 and
1996. Sales of securities available for sale during the year ended March 31,
1995 resulted in gross proceeds of $49,200 and gross losses of $650.
NOTE 3--LOANS
The Company has entered into agreements with mortgage companies in which the
Company purchases, at its discretion, mortgage loans 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. 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. The interest income recorded is 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. Such loans are reviewed, prior to purchase, for
evidence that the loans are of secondary market quality or 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 additional credit risk due to possible change in the
borrower's financial condition during the interim construction period. The
Company had approximately $25,407,000 and $29,416,000 of interim construction
loans purchased under agreements to resell at March 31, 1997 and 1996.
A-51
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 3--LOANS (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 1997 1996
- ------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Company A................................................................ $ 5,172,843 $ 12,792,251
Company B................................................................ 8,611,206 8,614,313
Company C................................................................ 13,677,480 6,791,723
Company D................................................................ 8,336,445 5,023,314
Company E................................................................ 5,646,301 --
Company F................................................................ 5,619,318 3,058,493
Companies with balances between $1,000,000 and $5,000,000 (1997--16
companies; 1996--11 companies).......................................... 35,126,513 30,195,670
Other companies with balances less than $1,000,000....................... 13,085,574 13,555,486
------------- -------------
$ 95,275,680 $ 80,031,250
------------- -------------
------------- -------------
Loans receivable at March 31 are summarized as follows:
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
First mortgage loans (principally conventional)
Principal balances
Secured by one-to-four family residences............................. $ 69,601,991 $ 73,413,053
Secured by other properties.......................................... 10,850,459 11,412,555
Construction loans................................................... 544,995 591,450
------------- -------------
80,997,445 85,417,058
Loans in process....................................................... (236,431) (47,836)
Unearned discounts..................................................... (1,966) (993)
Net deferred loan origination fees..................................... (361,912) (417,599)
------------- -------------
80,397,136 84,950,630
Consumer and other loans
Principal balances
VISA/Master cards.................................................... -- 388,685
Automobile........................................................... 431,142 400,132
Home equity and second mortgage...................................... 2,852,797 1,789,185
Commercial........................................................... 6,092,907 4,532,775
Other................................................................ 541,420 555,043
------------- -------------
9,918,266 7,665,820
------------- -------------
$ 90,315,402 $ 92,616,450
------------- -------------
------------- -------------
</TABLE>
A-52
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995
NOTE 3--LOANS
Activity in the allowance for loan losses for the years ended March 31 is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- ------------
<S> <C> <C> <C>
Balance at beginning of year.............................. $ 1,346,328 $ 672,276 $ 594,453
Provision charged to income............................... 1,191,000 1,020,000 78,000
Recoveries................................................ 251,906 -- --
Charge-offs............................................... (981,574) (345,948) (177)
-------------- -------------- ------------
Balance at end of year.................................. $ 1,807,660 $ 1,346,328 $ 672,276
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>
Impaired loans were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Year end loans with no allowance for loan losses allocated.................... $ -- $ 500,942
Year end loans with allowance for loan losses allocated....................... 5,920,000 1,663,477
Amount of the allowance allocated............................................. 610,000 166,348
Average of impaired loans during the year..................................... 3,459,000 333,020
Interest income recognized during impairment.................................. 289,132 144,320
Cash-basis interest income recognized......................................... 224,887 128,339
</TABLE>
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, 1995 is summarized as follows:
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Interest income that would have been recorded................................................ $ 54,000
Interest income recognized................................................................... (22,000)
---------
Interest income forgone...................................................................... $ 32,000
---------
---------
</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, 1997 and 1996,
approximately $1.2 million and $1.7 million relates to amounts associated with
Bennett Funding Group Inc. ("Bennett") and Aloha Capital Corporation ("Aloha"),
an affiliate of Bennett. The outstanding balance reflects a charge-off of
$433,000 during the year ended March 31, 1997 on the original balance of $1.7
million. 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 Company has
negotiated a settlement, and the anticipated recovery is approximately 70% of
the original balance. The amount deemed to be uncollectible was $433,000 and was
charged off as discussed above. The portion of the allowance for loan losses
allocated to the above loans
A-53
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 3--LOANS (CONTINUED)
was approximately $61,000 at March 31, 1997 and $166,000 at March 31, 1996,
which is based on the present value of the anticipated cash flows of these
loans.
Also included in the impaired loan balance at March 31, 1997 are 65 single
family construction loans, all located in the state of Indiana, with a total
outstanding balance of $4.7 million and total unfunded commitments of $2.1
million. Eighteen of these loans, totaling $1.3 million, are outstanding to one
builder. The Company has allocated $308,000 of the allowance for loan losses to
these loans. Forty-one of these loans totaling $2.4 million are outstanding to
two affiliated companies, one of which is in bankruptcy. The Company has
allocated $125,000 of the allowance for loan losses to these loans. The
remaining 6 loans totaling $1.2 million are with three separate builders and the
Company has allocated $116,000 of the allowance for loan losses to these loans.
The Company continues to monitor the remaining construction loan portfolio for
credit risk as a part of its loan classification procedures.
NOTE 4--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>
1997 1996
------------ ------------
<S> <C> <C>
Mortgage loan portfolios serviced for the Federal Home Loan Mortgage
Corporation............................................................... $ 1,265,900 $ 1,483,584
------------ ------------
------------ ------------
</TABLE>
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $30,000 and $35,000 at March 31, 1997 and 1996.
NOTE 5--PREMISES AND EQUIPMENT, NET
Premises and equipment are stated at cost, less accumulated depreciation,
and consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Land and land improvements.............................................. $ 388,485 $ 378,897
Buildings............................................................... 3,654,467 3,065,759
Furniture, fixtures, and equipment...................................... 1,501,995 1,376,963
Construction in progress................................................ 25,000 20,022
-------------- --------------
5,569,947 4,841,641
Accumulated depreciation and amortization............................... (2,649,673) (2,454,259)
-------------- --------------
$ 2,920,274 $ 2,387,382
-------------- --------------
-------------- --------------
</TABLE>
NOTE 6--DEPOSITS
The aggregate amount of deposits greater than $100,000 was approximately
$36,774,000 and $32,078,000 at March 31, 1997 and 1996.
A-54
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 6--DEPOSITS (CONTINUED)
At March 31, 1997, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<S> <C>
1998 $73,768,000
1999 8,334,000
2000 4,122,000
2001 1,917,000
2002 and thereafter 1,229,000
----------
$89,370,000
----------
----------
</TABLE>
NOTE 7--BORROWED FUNDS
Borrowed funds at March 31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Federal funds purchased.................................................. $ 7,000,000 $ 7,000,000
Advances from the Federal Home Loan Bank................................. 42,500,000 38,000,000
Line of credit with Federal Home Loan Bank............................... 3,783,553 124,355
------------- -------------
$ 53,283,553 $ 45,124,355
------------- -------------
------------- -------------
</TABLE>
Fixed rate and variable rate advances from the Federal Home Loan Bank at
March 31, 1997 amount to $2 million and $40.5 million.
Advances from the Federal Home Loan Bank consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1997
- ---------------------------------------------------------------------
WEIGHTED AVERAGE
MATURITY INTEREST RATE AMOUNT
- ----------------------------------- ----------------- -------------
<S> <C> <C>
1998 5.85% $ 41,500,000
1999 5.67% 1,000,000
-------------
$ 42,500,000
-------------
-------------
</TABLE>
Federal funds purchased represent overnight purchase of federal funds from
American National Bank, Chicago, Illinois.
At March 31, 1997 specific mortgage loans with a carrying value of
approximately $56,180,000 and specific mortgage-backed securities with a
carrying value of approximately $9,513,000 were pledged to the Federal Home Loan
Bank of Indianapolis to secure current and future advances from the Federal Home
Loan Bank. 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 the
specific collateral listed above. The Bank had borrowings of $3,783,553 against
this line of credit at March 31, 1997. The line expires on October 31, 1997 and
has a variable rate of interest of 7.10% as of March 31, 1997.
A-55
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 7--BORROWED FUNDS (CONTINUED)
The Federal Home Loan Bank of Indianapolis has issued four irrevocable
direct pay letters of credit on behalf of the Bank 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, 1997 is $0.
Interest expense on borrowed funds for the years ended March 31 is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Advances from the FHLB.......................................... $ 2,005,621 $ 1,501,121 $ 64,876
Other........................................................... 447,995 521,284 117,683
------------ ------------ ----------
$ 2,453,616 $ 2,022,405 $ 182,559
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
NOTE 8--EMPLOYEE BENEFITS
EMPLOYEE PENSION PLAN: The Bank is part of a multi-employer defined benefit
pension plan covering substantially all employees. The plan is administered by
the directors of the Financial Institutions Retirement Fund. There is no
separate actuarial valuation of plan benefits nor segregation of plan assets
specifically for the Bank. As of June 30, 1996, the latest actuarial valuation,
the total plan assets exceeded the actuarially determined value of total vested
benefits. There was no pension plan expense or contribution for the years ended
March 31, 1997, 1996 and 1995. The administrative cost of the plan is charged to
expense and amounted to $1,052, $4,815 and $3,294 for the years ended March 31,
1997, 1996 and 1995.
DEFERRED COMPENSATION PLAN: 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 Bank 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 proceeds 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 $1,474,000 and $1,426,000 at March 31, 1997 and 1996, and is
included in other assets. The income derived from the investment in life
insurance included in other income was approximately $48,000, $75,000 and
$68,000 for the years ended March 31, 1997, 1996 and 1995. At March 31, 1997 and
1996, the accrued liability for deferred fees was approximately $241,000 and
$152,000.
SUPPLEMENTAL RETIREMENT PLAN: The Bank maintains a supplemental retirement
plan for executive officers of the Bank for which the payment of benefits is
accelerated upon change of control of the Company. The Bank has purchased
insurance contracts on the lives of the participants in the supplemental
retirement plan and has named the Bank 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 proceeds from the
insurance contracts will be used as a funding source for the supplemental
retirement plan. For the years ended March 31, 1996 and 1995 the Bank recorded 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. During the year ending March 31, 1997 the Bank funded the
liability to a
A-56
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 8--EMPLOYEE BENEFITS (CONTINUED)
secular trust. This trust is not under the Bank's control. The cash surrender
value of the life insurance was approximately $995,000 and $938,000 at March 31,
1997 and 1996, and is included in other assets. The income derived from the
investment in life insurance included in other income was approximately $57,000,
$59,000 and $52,000 for the years ended March 31, 1997, 1996 and 1995. The cost
of the plan charged to expense was approximately $39,000, $44,000 and $40,000
for the years ended March 31, 1997, 1996 and 1995, respectively. The accrued
liability to the Bank was approximately $0 and $203,000 at March 31, 1997 and
1996.
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
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.
Activity in the Directors' Plan for years ended March 31 is summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
OPTION EXERCISE --------------------
PRICE 1997 1996
--------------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year....................................... $ 5.00 19,264 26,896
Options exercised.................................................. 5.00 -- (7,632)
----- --------- ---------
Balance at end of year............................................. $ 5.00 19,264 19,264
----- --------- ---------
----- --------- ---------
</TABLE>
RECOGNITION AND RETENTION PLANS (RRP): 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. The Bank contributed funds
to the RRP to enable the Plans to acquire in the aggregate 38,528 shares of
common stock. An expense of $16,475, $26,968 and $41,999 was recorded for these
Plans for the years ended March 31, 1997, 1996 and 1995.
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. 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 9.00%. 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
A-57
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 8--EMPLOYEE BENEFITS (CONTINUED)
other than death, retirement (or early retirement), or disability will not
receive any benefit under the 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, 1997, 1996 and 1995. The ESOP shares as of March 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Allocated shares..................................................................... 51,476 37,604
Shares released for allocation....................................................... -- 684
Unreleased shares.................................................................... 38,420 51,608
--------- ---------
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 affect 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 adopted the CB
Bancorp, Inc. 1992 Incentive Stock Option Plan (the "Option Plan"). Options for
the purchase of shares of common stock are authorized under the Option Plan.
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.
Activity in the Option Plan for years ended March 31 is summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
RANGE OF OPTION --------------------
EXERCISE PRICE 1997 1996
--------------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year..................................... $5.00 - $8.50 80,473 86,424
Options exercised................................................ $ 5.00 (1,644) (5,951)
Options forfeited................................................ $ 5.00 (3,210) --
--------------- --------- ---------
Balance at end of year........................................... $ 5.00 - $8.50 75,619 80,473
--------------- --------- ---------
--------------- --------- ---------
</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
A-58
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 8--EMPLOYEE BENEFITS (CONTINUED)
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 annually contracted
for by the Board of Directors in the conduct of the Company's business in the
future. 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, have 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. 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 attained 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
attaining age 55 will become eligible to receive benefits under the Directors'
Emeritus Plan when he reaches age 55. In addition, if an outside director 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. An expense of approximately $33,000,
$37,000 and $80,000 was recorded for these plans for the years ended March 31,
1997, 1996 and 1995. The resulting liability to the Company was approximately
$244,000 and $211,000 at March 31, 1997 and 1996.
During the year ending March 31, 1997, the Company purchased insurance
contracts on the lives of the participants in the Directors' Emeritus Plan and
has named the Bank as beneficiary. While no direct contract exists between the
Directors' Emeritus Plan and the life insurance contracts, it is management's
current intent that the proceeds from the insurance contracts will be used as a
funding source for the Directors' Emeritus Plan. The cash surrender value of the
life insurance was approximately $250,000 at March 31, 1997, and is included in
other assets. There was no income derived from the investment in life insurance
for the year ending March 31, 1997.
NOTE 9--INCOME TAXES
The Company files consolidated income tax returns. Prior to April 1, 1996,
if certain conditions were met in determining taxable income, the Bank was
allowed a special bad debt deduction based on a percentage of taxable income
(previously 8%) or on specified experience formulas. The Bank used the
percentage-of-taxable-income method for the tax years ended March 31, 1996 and
1995. Tax legislation passed in August 1996 now requires the Company to deduct
bad debts for tax purposes based on actual loss experience and recapture the
excess bad debt reserve accumulated. The related amount of deferred tax
liability which must be recaptured is approximately $270,000 and is payable over
a six year period beginning no later than 1998.
A-59
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 9--INCOME TAXES (CONTINUED)
Income tax expense for the years ended March 31 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Federal
Current....................................................... $ 977,293 $ 1,218,694 $ 754,847
Deferred...................................................... (92,946) (146,818) 41
------------ ------------ ----------
884,347 1,071,876 754,888
------------ ------------ ----------
State
Current....................................................... 302,253 363,345 236,603
Deferred...................................................... (5,287) (55,292) (21,217)
------------ ------------ ----------
296,966 308,053 215,386
------------ ------------ ----------
$ 1,181,313 $ 1,379,929 $ 970,274
------------ ------------ ----------
------------ ------------ ----------
</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>
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Income taxes at statutory rate............................................ $ 1,187,591 $ 1,304,967 $ 894,377
Tax effect of:
Non-taxable income...................................................... (6,570) (8,722) (10,828)
Increase in cash surrender value of life insurance...................... (35,846) (45,656) (40,798)
State tax, net of federal income tax effect............................. 195,998 203,315 142,155
Tax credits............................................................. (160,047) (70,000) --
Other items, net........................................................ 187 (3,975) (14,632)
------------ ------------ ----------
$ 1,181,313 $ 1,379,929 $ 970,274
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
The components of the net deferred tax asset recorded in the consolidated
balance sheets as of March 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets
Accumulated depreciation...................................................... $ 48,574 $ 41,359
Bad debts..................................................................... 446,952 265,804
Deferred compensation......................................................... -- 80,384
Deferred loan fees............................................................ 124,397 147,439
Other......................................................................... 40,321 4,130
---------- ----------
660,244 539,116
Deferred tax liabilities
FHLB stock dividend........................................................... (25,865) (25,865)
Affordable housing partnership................................................ (88,413) (48,745)
Other......................................................................... (39,737) (33,659)
---------- ----------
(154,015) (108,269)
Valuation allowance............................................................. -- --
---------- ----------
$ 506,229 $ 430,847
---------- ----------
---------- ----------
</TABLE>
A-60
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 9--INCOME TAXES (CONTINUED)
Shareholders' equity at March 31, 1997 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, 1997.
NOTE 10--REGULATORY MATTERS
The Bank is subject to regulatory capital requirements administered by
federal regulatory agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgments by regulators about components, risk weightings, and other factors,
and the regulators can lower classifications in certain cases. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If only adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
<CAPTION>
TIER 1
CAPITAL TO RISK- CAPITAL TO
WEIGHTED ASSETS ADJUSTED
TOTAL TIER 1 TOTAL ASSETS
--------- ----------- -------------
<S> <C> <C> <C>
Well capitalized....................................... 10% 6% 5%
Adequately capitalized................................. 8% 4% 3%
Under capitalized...................................... 6% 3% 3%
</TABLE>
At March 31, the Bank's actual capital levels (in millions) and minimum
required levels were:
<TABLE>
<CAPTION>
MINIMUM REQUIRED TO BE
MINIMUM REQUIRED FOR
WELL CAPITALIZED UNDER
CAPITAL ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION REGULATIONS
---------------------- ---------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1997
Total capital (to risk weighted assets)............... $ 20.0 14.8% $ 10.8 8.0% $ 13.5 10.0%
Tier 1 (core) capital (to risk weighted assets)....... $ 18.4 13.6% $ 5.4 4.0% $ 8.1 6.0%
Tier 1 (core) capital (to adjusted total assets)...... $ 18.4 8.1% $ 6.8 3.0% $ 11.4 5.0%
Tangible capital (to adjusted total assets)........... $ 18.4 8.1% $ 3.4 1.5% N/A N/A
1996
Total capital (to risk weighted assets)............... $ 17.2 15.2% $ 9.0 8.0% $ 11.3 10.0%
Tier 1 (core) capital (to risk weighted assets)....... $ 16.0 14.2% $ 4.5 4.0% $ 6.8 6.0%
Tier 1 (core) capital (to adjusted total assets)...... $ 16.0 7.8% $ 6.1 3.0% $ 10.2 5.0%
Tangible capital (to adjusted total assets)........... $ 16.0 7.8% $ 3.1 1.5% N/A N/A
</TABLE>
A-61
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 10--REGULATORY MATTERS (CONTINUED)
At March 31, 1997 and 1996 the Bank was categorized as well capitalized.
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, 1997 approximately $4.8 million of the Bank's retained earnings is
potentially available for distribution.
NOTE 11--OTHER NONINTEREST INCOME AND EXPENSE
Other noninterest income and expense amounts for the years ended March 31
are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Other noninterest income
Commission income..................................................... $ 104,161 $ 115,426 $ 127,968
Service charges and fees.............................................. 550,535 506,034 539,137
Fees related to loans purchased under agreements to resell............ 689,030 369,410 163,984
Late charges.......................................................... 28,530 21,510 23,126
Other................................................................. 121,347 164,162 140,869
------------ ------------ ------------
$ 1,493,603 $ 1,176,542 $ 995,084
------------ ------------ ------------
------------ ------------ ------------
Other noninterest expense
Advertising and promotion............................................. $ 125,139 $ 97,203 $ 93,048
Data processing....................................................... 244,790 247,017 243,144
Insurance............................................................. 20,132 20,348 23,500
Professional fees..................................................... 368,008 174,265 159,707
Telephone, postage, and supplies...................................... 262,736 204,903 183,116
Employee expenses..................................................... 293,671 195,216 145,113
Other................................................................. 548,609 332,664 227,957
------------ ------------ ------------
$ 1,863,085 $ 1,271,616 $ 1,075,585
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NOTE 12--COMMITMENTS AND CONTINGENCIES
As of March 1, 1996, the Company leased a branch office in Merrillville,
Indiana. Rent expense for the years ended March 31, 1997 and 1996 was
approximately $35,000 and $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, 1997, the future annual rental commitments under non-cancelable
leases for four years total approximately $148,000, which includes $35,000 in
1998, $36,000 in 1999, $38,000 in 2000 and $39,000 in 2001.
A-62
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 12--COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
At March 31, the Company had outstanding commitments as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Fixed rate loans............................................................ $ 210,000 $ 137,000
Fixed rate unused lines of credit........................................... 626,000 107,000
Variable rate unused lines of credit........................................ 1,950,000 1,188,000
Unused letters of credit.................................................... 4,149,000 4,074,000
Undisbursed construction loans in repurchase program (variable rate)........ 12,419,000 12,412,000
</TABLE>
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 $1,313,000 and $1,407,000 of cash
on hand or on deposit with the Federal Reserve Bank of Chicago to meet
regulatory reserve requirements at March 31, 1997 and 1996.
The Company is involved in various legal actions arising in the ordinary
course of business. In the opinion of management, the outcome of these matters
will not have material effect on the Company's consolidated financial condition
or results of operations.
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 funded with tax exempt bonds.
The remaining portion of the debt financing with tax exempt bonds is guaranteed
by participating lenders through letters of credit in amounts proportional to
their share of the mortgage loan. 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, 1997, Community Financial has invested
$1,566,215, net of recording equity in the operating loss of $182,616 for the
fiscal year ended March 31, 1997, in the limited partnership. Community
Financial contributed $298,831 in cash to the partnership, including $70,258
contributed during the fiscal year ended March 31, 1997, while the remaining
$1,450,000 was funded by short-term tax-exempt notes backed by a letter of
credit issued by the Bank. At March 31, 1997, the obligation due to limited
partnership was $1,467,877 which represents the amount of principal and accrued
interest guaranteed through letters of credit. Terms of the partnership
agreement allocate
A-63
<PAGE>
CB BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 12--COMMITMENTS AND CONTINGENCIES (CONTINUED)
99% of the eligible tax credits to the limited partner. For the years ended
March 31, 1997 and 1996, the limited partner received approximately $160,000 and
$70,000 in tax credits from the limited partnership.
Under employment agreements with certain executive officers, certain events
leading to separation from the Company or the Bank could result in cash payments
totaling approximately $723,000 as of March 31, 1997. The agreements also
include provisions to continue to provide life, health and disability insurance
coverage for a period of two to three years.
NOTE 13--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 89% of
the loan portfolio at March 31, 1997 and are primarily secured by residential
mortgages. Loans purchased under agreements to resell are all residential
mortgage loans secured by one-to-four family residences located throughout the
United States.
NOTE 14--RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Company are loan customers
of the Company. 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>
<S> <C>
Balance--April 1, 1996.................................... $ 361,113
New loans............................................... 20,000
Repayments.............................................. (15,566)
---------
Balance--March 31, 1997................................... $ 365,547
---------
---------
</TABLE>
A-64
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 15--PARENT COMPANY FINANCIAL STATEMENTS
Presented below are the condensed financial statements for the Parent
Company, CB Bancorp, Inc. CONDENSED BALANCE SHEETS
March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................... $ 1,781,930 $ 2,779,683
Securities available for sale........................................... 216,907 165,682
Investment in subsidiary................................................ 18,384,812 16,024,973
Loans purchased under agreements to resell.............................. 500,000 --
Other assets............................................................ 54,605 --
-------------- --------------
$ 20,938,254 $ 18,970,338
-------------- --------------
-------------- --------------
LIABILITIES $ 95,321 $ 138,154
SHAREHOLDERS' EQUITY 20,842,933 18,832,184
-------------- --------------
$ 20,938,254 $ 18,970,338
-------------- --------------
-------------- --------------
</TABLE>
CONDENSED STATEMENTS OF INCOME
Years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Income
Interest income.......................................... $ 86,483 $ 109,375 $ 91,677
Dividends from the Bank.................................. -- 600,000 600,000
Other income............................................. -- -- 1,900
------------- ------------- -------------
86,483 709,375 693,577
Expenses
Compensation............................................. 31,750 29,962 28,156
Other expenses........................................... 109,496 62,478 68,771
------------- ------------- -------------
141,246 92,440 96,927
------------- ------------- -------------
INCOME(LOSS) BEFORE INCOME TAX EXPENSE (54,763) 616,935 596,650
Income tax expense (benefit)............................... (23,276) 7,198 (1,424)
------------- ------------- -------------
INCOME(LOSS) BEFORE EQUITY IN INCOME OF BANK (31,487) 609,737 598,074
Equity in income of Bank................................... 2,343,088 1,848,473 1,062,173
------------- ------------- -------------
NET INCOME................................................. $ 2,311,601 $ 2,458,210 $ 1,660,247
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
A-65
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 15--PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 2,311,601 $ 2,458,210 $ 1,660,247
Adjustments to reconcile net income to net cash from
operating activities
Loans purchased under agreements to resell........... (500,000) -- (4,568,273)
Sale of loans purchased under agreements to resell... -- -- 5,123,647
Equity in income of Bank............................. (2,343,088) (1,848,473) (1,062,173)
Change in other assets............................... (8,293) 56,517 76,217
Change in other liabilities.......................... (42,833) 135,572 35,766
------------- ------------- -------------
Net cash from operating activities................. (582,613) 801,826 1,265,431
CASH FLOWS FROM INVESTING ACTIVITIES
Change in interest-earning deposits in financial
institutions........................................... -- 390,763 (390,763)
Purchase of securities available for sale................ -- (35,386) (125,466)
------------- ------------- -------------
Net cash from investing activities..................... -- 355,377 (516,229)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock............................... (487,572) (557,427) (243,875)
Issuance of shares of treasury stock..................... 8,221 67,916 54,580
Contribution to fund ESOP................................ 64,211 64,211 64,211
------------- ------------- -------------
Net cash from financing activities..................... (415,140) (425,300) (125,084)
------------- ------------- -------------
Net change in cash and cash equivalents.................... (997,753) 731,903 624,118
Cash and cash equivalents at beginning of period........... 2,779,683 2,047,780 1,423,662
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 1,781,930 $ 2,779,683 $ 2,047,780
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
A-66
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 16--FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair values and the related carrying
amounts of the Company's financial instruments at March 31, 1997 and 1996. Items
which are not financial instruments are not included.
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and equivalents................... $ 14,729,000 $ 14,729,000 $ 6,063,000 $ 6,063,000
Securities available for sale.......... 672,000 672,000 621,000 621,000
Securities held to maturity............ 14,299,000 14,348,000 15,867,000 15,926,000
Federal Home Loan Bank stock........... 2,752,000 2,752,000 2,702,000 2,702,000
Loans, net of allowance for loan losses 183,783,000 184,245,000 171,301,000 171,967,000
Mortgage loans held for sale........... 914,000 914,000 513,000 513,000
Accrued interest receivable............ 1,219,000 1,219,000 1,183,000 1,183,000
Cash surrender value of life
insurance............................ 2,719,000 2,719,000 2,364,000 2,364,000
Financial Liabilities
Demand and savings deposits............ (60,439,000) (60,439,000) (69,604,000) (69,604,000)
Time deposits.......................... (89,370,000) (89,188,000) (68,657,000) (68,804,000)
Borrowed funds......................... (53,284,000) (53,270,000) (45,124,000) (45,114,000)
</TABLE>
For purposes of the above disclosures of estimated fair value, the following
assumptions were used as of March 31, 1997 and 1996. The estimated fair value
for cash and cash equivalents, Federal Home Loan Bank stock and accrued interest
receivable is considered to approximate cost. The estimated fair value for
securities is based on quoted market values for the individual securities or for
equivalent securities. The estimated fair value for loans and mortgage loans
held for sale is based on estimates of the rate the Company would charge for
similar such loans at March 31, 1997 and 1996, applied for the same time period
until estimated payment. The estimated fair value of cash surrender value of
life insurance is based on the proceeds that would be received upon redemption
of the policies at March 31, 1997 and 1996. The estimated fair value for demand
and savings deposits is based on their carrying value. The estimated fair value
for time deposits is based on estimates of the rate the Company would pay on
such deposits at March 31, 1997 and 1996, applied for the same time period until
maturity. The estimated fair value of borrowed funds is based on estimates of
the rate the Company would be charged for similar borrowings at March 31, 1997
and 1996, applied for the same payment schedule. The estimated fair value of
accrued interest 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 judgment of
the most appropriate factors, there is no assurance that were the Company to
have disposed of such items at March 31, 1997 and 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, 1997 and 1996 should not necessarily be considered to apply at
subsequent dates.
A-67
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 16--FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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 17--SAIF DEPOSIT INSURANCE PREMIUM
The deposits of the Bank are insured by the Savings Association Insurance
Fund ("SAIF"). A recapitalization plan signed into law on September 30, 1996
provided for a one-time assessment of 65.7 basis points applied to all SAIF
deposits as of March 31, 1995. Based on the Bank's deposits as of this date, a
one-time assessment of approximately $723,000 was paid and recorded as SAIF
deposit insurance premium expense for the fiscal year ended March 31, 1997.
NOTE 18--IMPACT OF NEW ACCOUNTING STANDARDS
SFAS No. 125, "ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS
AND EXTINGUISHMENT OF LIABILITIES," was issued by the Financial Accounting
Standards Board in 1996. It revises the accounting for transfers of financial
assets, such as loans and securities, and for distinguishing between sales and
secured borrowings. It is effective for some transactions in 1997 and others in
1998. The anticipated effect on the consolidated financial statements has not
yet been determined.
Also, in March 1997, the accounting requirements for calculating earnings
per share were revised. Basic earnings per share for the quarter ending December
31, 1997 and later will be calculated solely on average common shares
outstanding. Diluted earnings per share will reflect the potential dilution of
stock options and other common stock equivalents. All prior calculations will be
restated to be compatible to the new methods. As the Company has significant
dilution from stock options, the new calculation methods will increase future
basic earnings per share over what otherwise would have been reported, while
there will be little effect on diluted earnings per share.
NOTE 19--PROPOSED MERGER
Pursuant to the Agreement and Plan of Merger dated March 1, 1997 between the
Company and Pinnacle Financial Services, Inc. ("Pinnacle"), a Michigan
Corporation headquartered in St. Joseph, Michigan, the Company is to merge with
and into Pinnacle. The transaction is subject to the approval of the Company's
and Pinnacle's shareholders and various regulatory agencies.
The terms of the agreement provide for a purchase price of $35.00 per CB
Bancorp, Inc. ("Company") share, payable in Pinnacle common stock. If Pinnacle's
average stock price exceeds $29.00, the Company's shareholders will receive
1.20690 Pinnacle shares per Company share. If Pinnacle's average stock price is
less than $23.00, the Company's shareholders will receive 1.52174 Pinnacle
shares per Company share. The agreement also provides that each option granted
by the Company to purchase shares of the Company's stock (including any options
that have been awarded, but have not yet been vested) which is outstanding and
unexercised immediately prior thereto shall be converted automatically into the
right to receive shares of Pinnacle common stock in an amount determined by
dividing the difference
A-68
<PAGE>
CB BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997, 1996 AND 1995
NOTE 19--PROPOSED MERGER (CONTINUED)
between the exchange value and the exercise price of such option by the average
price. At consummation, stock held by the Company in treasury will be canceled.
The agreement also provides that the shares of Pinnacle common stock to be
received by "affiliates" of the Company in the Merger shall not be sold,
pledged, transferred or, otherwise, disposed of for a period commencing thirty
days prior to the Merger and ending at the time of publication of financial
results covering at least thirty days of combined operations of Pinnacle and the
Company. The Agreement also limits the Company from entering into agreements or
operating in a manner other than in the ordinary course of business.
A-69
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH
SECTION 16 (A) OF THE EXCHANGE ACT
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 CB. 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 AT PRESENT DIRECTOR TERM AS BENEFICIALLY PERCENT OF
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)(5)(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) 1.07
Realtor and Real Estate
Appraiser and Owner of Ott Realty and Appraisal
Co., LaPorte, Indiana
James J. Broad....................................... 57 1992 1999 10,300 *
President and Chairman of the Board of Imperial
Steel Tank Company, Chicago, Illinois. Part Owner
of Vessel Services, LLC, Highland, Indiana and Pals
Ford- Mercury, Inc., Knox, Indiana.
Marvin L. Kominiarek, Jr............................. 59 1971 1998 27,921(4)(5)(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, Indiana.
</TABLE>
A-70
<PAGE>
<TABLE>
<CAPTION>
SHARES OF CB
EXPIRATION OF COMMON STOCK OWNERSHIP AS
NAME AND PRINCIPAL OCCUPATION AT PRESENT DIRECTOR TERM AS BENEFICIALLY PERCENT OF
AND FOR THE PAST FIVE YEARS AGE SINCE(1) DIRECTOR OWNED(2)(3) CLASS
- ----------------------------------------------------- --- ----------- ------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Ken O. Fryar......................................... 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 in Michigan City, Indiana.
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.
(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, 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 CB 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 6,919 and 1,368 shares allocated under the CB ESOP to the accounts
of Messrs. Heffernan and Kominiarek, respectively.
(7) Includes 481 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 Plan 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.
COMPLIANCE WITH SECTION 16 (A)
Section 16 (a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the SEC reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than 10% stockholders are required
by SEC regulation to furnish the Company with copies of all Section 16 (a) forms
they file.
A-71
<PAGE>
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended March 31, 1997 all Section 16
(a) filing requirements applicable to its officers, directors and greater than
10 percent beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION.
DIRECTOR COMPENSATION
Each Director of the Company receives $250 per quarter in Fees. Each
Director of the Bank receives $1,000 a month in fees and each Director who is
also a member of the Bank's executive committee receives an additional $375 per
month.
The Company has 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 is retained by the Company with interest being credited to the
participant's deferred balance. Interest is credited at a rate equal to a three
year moving average of the Company's return on equity ratio. Upon retirement,
the participant will be entitled to receive the accumulated deferred balance
over a specified number of years.
The Company also has a Director Emeritus Plan for its outside Directors.
Under this plan, each outside Director, upon retirement will be eligible to
receive Directors fees for a period of four years commencing at the date of
retirement.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table shows, for the fiscal years
ended March 31, 1997, 1996 and 1995, 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 $100,000 in fiscal 1997. Other than certain directors' fees, CB did not pay
any cash compensation to any individual during fiscal 1997.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------
AWARDS
--------------------------
ANNUAL COMPENSATION SECURITIES PAYOUTS
------------------------------------------------ RESTRICTED UNDERLYING -----------
OTHER ANNUAL STOCK EXERCISED ALL LTIP
SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS
NAME AND PRINCIPAL POSITION FISCAL YEAR ($)(1) ($)(2) ($)(3) ($)(4) (#)(5) ($)
- ------------------------------ ----------- --------- --------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph F. Heffernan........... 1997 138,850 -- -- -- -- --
Chairman of the Board,
President and CEO
1996 131,401 -- -- -- -- --
1995 121,684 -- -- -- -- --
<CAPTION>
OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION ($)(6)
- ------------------------------ -------------
<S> <C>
Joseph F. Heffernan........... 305,358
Chairman of the Board,
President and CEO
33,705
21,669
</TABLE>
- --------------------------
(1) Includes director's fees for CB and Community Bank.
(2) No bonus was paid or accrued in fiscal 1997, 1996 or 1995.
(3) For fiscal years ended March 31, 1997, 1996 and 1995, 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.
A-72
<PAGE>
(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 5.00 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). 7,704 shares granted
under the MRP to Mr. Heffernan have vested.
(5) 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, 16,438 options granted to Mr. Heffernan under the CB
Option Plan had vested. Options granted include limited rights.
(6) Includes $259,672 placed in a secular trust fund established in connection
with Mr. Heffernan's Restated Supplemental Executive Retirement Agreement;
$206,315 of which represents cumulative accruals recorded in prior years
under terms of the Agreement, the remaining $53,357 represents the fiscal
1997 contributions to the trust as required by the Agreement. Also included
in this figure is the $45,586 market value of the Community Bank Employee
Stock Ownership Plan allocated to Mr. Heffernan's account therein on
December 31, 1996.
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 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. 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.
A-73
<PAGE>
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, 1997.
RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT. The Restated
Supplemental Executive Retirement Agreement entered into between Joseph
Heffernan and the Company on April 1,1996, amends and restates the amended
Supplemental Executive Retirement Agreement entered into on March 17, 1992.
Upon the establishment of the Restated Agreement, the Company's accrued
liability under the prior agreement was funded into a trust to be held for the
benefit of the executive. This trust is not under the Company's control. The
Restated Agreement provides for annual contributions to be made to the trust
until the executive reaches retirement age, upon which time the executive will
be paid an annual benefit payments of $33,838 for fifteen years.
The following table provides certain information with respect to the number
of shares of CB Common Stock represented by outstanding stock options held by
the Named Executive Officer as of March 31, 1997. Also reported are the values
for "in-the-money" options which represent the positive spread between the
exercise price of existing stock options and the fiscal year-end price of CB
Common Stock. No options were exercised by the Named Executive Officer during
fiscal 1997.
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN- THE-MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
YEAR-END (#)(1) YEAR-END($)(2)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Joseph F. Heffernan.............................. 16,438/4,110 $ 472,593/$118,163
</TABLE>
- ------------------------
(1) Based upon $33.75, the last quoted sales price of CB Common Stock as
reported on the NASDAQ Small-Cap Market for the fiscal year end March 31,
1997. 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.
A-74
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP OF CB BANCORP 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 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 BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------------------------------------------------------------------------- ------------------- ---------
<S> <C> <C>
Community Bank, A Federal Savings Bank, Employee ............................... 89,896(1) 7.74%
Stock Ownership Plan and Trust
126 E. Fourth Street
Michigan City, Indiana 46360
First Manhattan Co. ............................................................ 93,500(2) 8.05
437 Madison Avenue
New York, New York 10022
John Hancock Advisers, Inc. .................................................... 107,870(3) 9.28%
c/o John Hancock Mutual Life
Insurance Company
P.O. Box 111
Boston, MA 02117
</TABLE>
- ------------------------
(1) The CB ESOP holds 89,896 shares, of which 51,476 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.
A-75
<PAGE>
ITEM 12. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS.
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,
1997, 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.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Financial Statements: The following Consolidated Financial
Statements are filed under Item 7 hereof:
Report of Independent Auditors
Consolidated Balance Sheets as of March 31, 1997 and 1996
Consolidated Statements of Income for the years ended March 31, 1997, 1996
and 1995
Consolidated Statements of Changes in Shareholders' Equity for the years
ended March 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended March 31, 1997,
1996 and 1995.
Notes to Consolidated Financial Statements
(2) Financial Statements: All schedules are omitted because they are not
required or applicable, or the required information is shown in the
consolidated financial statements or the notes thereto.
(3) Exhibits
(a) The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
3.1 Certificate of incorporation *
3.2 Bylaws *
10.1 Form of Amended Employment Agreement between the Bank and Executive ****
10.2 Form of Change in Control Agreement between the Company and the Bank and
Executive*
10.3 Community Bank, A Federal Savings Bank Employee Stock Ownership Plan and
Trust *
10.5 Community Bank, A Federal Savings Bank Recognition and Retention Plan and
Trust for Outside Directors **
</TABLE>
A-76
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.6 Community Bank, A Federal Savings Bank Recognition Plan and Trust for
Officers and Employees **
10.7 Form of Employment 1992 Stock Option Plan **
10.8 Form of CB Bancorp, Inc. 1992 Stock Option Plan for Outside Directors **
10.9 Community Bank, A Federal Savings Bank Employee Retirement Plan *
10.10 Form of Community Bank, A Federal Savings Bank Outside Director's
Consultation and Retirement Plan *
10.11 CB Bancorp, Inc. Director's Deferred Compensation Plan ***
11.0 Statement re: Computation of per share earnings (See Note 1 of Notes to
Consolidated Financial Statements)
21.0 Subsidiary information is incorporated herein by reference to "Part I -
Subsidiary"
27.0 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Form 8-K filed on March 12, 1997 announcing merger agreement with
Pinnacle Financial Services, Inc.
- ------------------------
*Incorporated herein by reference into this document from the Exhibits to
Form S-1, Registration Statement and any amendments thereto filed on
September 17, 1992, Registration No. 33-51882.
**Incorporated herein by reference into this document from the Proxy Statement
for the Annual Meeting of Shareholders held on July 28, 1993, and filed in
definitive form on June 17, 1993.
***Incorporated into Fiscal 1994 10-KSB filed on June 27, 1994.
****Incorporated herein by reference into this document from the Form 10-QSB
filed with the SEC on February 14, 1997.
A-77
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CB BANCORP, INC.
By: /s/ JOSEPH F. HEFFERNAN
-----------------------------------------
Joseph F. Heffernan
CHIEF EXECUTIVE OFFICER
PRESIDENT AND DIRECTOR
DATED: 6/10/97
Pursuant to the requirement of the Securities and Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ JOSEPH F. HEFFERNAN
- ------------------------------ Chief Executive Officer, 6/10/97
Joseph F. Heffernan President and Director
/s/ GEORGE L. KOEHM
- ------------------------------ Chief Financial Officer 6/10/97
George L. Koehm
/s/ JON R. BAUSBACK
- ------------------------------ Director 6/10/97
Jon R. Bausback
/s/ KEN O. FRYAR
- ------------------------------ Director 6/10/97
Ken O. Fryar
/s/ MARVIN KOMINIAREK, JR.
- ------------------------------ Director 6/10/97
Marvin Kominiarek , Jr.
/s/ ROBERT OTT
- ------------------------------ Director 6/10/97
Robert Ott
/s/ J. PATRICK SMITH
- ------------------------------ Director 6/10/97
J. Patrick Smith
/s/ JAMES BROAD
- ------------------------------ Director 6/10/97
James Broad
/s/ ALLEN JONES
- ------------------------------ Secretary 6/10/97
Allen Jones
A-78
<PAGE>
ANNEX B
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
B-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
B-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
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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
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<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
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<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
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<PAGE>
ANNEX C
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
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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
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<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]
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<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
C-4
<PAGE>
ANNEX D
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
D-1
<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.
D-2
<PAGE>
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
D-3
<PAGE>
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
D-4
<PAGE>
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.
D-5
<PAGE>
(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.
D-6
<PAGE>
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).
D-7
<PAGE>
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 E
FORM OF OPINION OF ABN AMRO CHICAGO CORPORATION
ABN AMRO 208 South LaSalle Street
Chicago Corporation Chicago, Illinois 60604
(312) 855-7600
June , 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 30,400 shares of Pinnacle Common Stock and
120,015 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.
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.
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 F
FORM OF OPINION OF PL CAPITAL LLC
June , 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 to Pinnacle's
stockholders, from a financial point of view, of the consideration to be paid.
Furthermore, our opinion may not be relied upon by any other person or used for
any other purpose, reproduced, disseminated, quoted from or referred to without
PL Capital, LLC's prior written consent.
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
F-3
<PAGE>
ANNEX G
FORM OF OPINION OF SANDLER O'NEILL & PARTNERS, L.P.
June , 1997
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)
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)
the Agreement and Plan of Merger dated as of March 1, 1997 between Pinnacle and
CB Bancorp, Inc. ("CB"), pursuant to which CB will be merged with and into
Pinnacle (the "CB Merger"); (iv) the Joint Proxy Statement/Prospectus of the
Company, Pinnacle and CB dated June , 1997; (v) 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, 1996; (vi) 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 report
to shareholders for the fiscal year ended December 31, 1996; (vii) Pinnacle's
unaudited consolidated financial statements and management's discussion and
analysis of the financial condition and results of operations contained in its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 (viii) 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 Report on Form 10-Q for the quarter ended March 31,
1997; (ix) 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; (x) certain financial
analyses and forecasts of Pinnacle prepared by and reviewed with management of
Pinnacle and the views of senior management of Pinnacle regarding each of
Pinnacle's and CB's past and current business operations, results thereof,
financial condition and future prospects; (xi) CB'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 fiscal year ended March 31, 1996; (xii) CB'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 June 30, September 30 and
G-1
<PAGE>
December 31, 1996, respectively; (xiii) the pro forma impact of the IFC Merger
and the CB Merger on Pinnacle; (xiv) 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; (xv) the financial terms of recent business combinations in the
savings institution and banking industries; (xvi) the current market environment
generally and the banking environment in particular; and (xvii) 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, the
Company, CB, or any of 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, the Company's
or CB's assets, financial condition, results of operations, business or
prospects since March 31, 1997 (in the case of Pinnacle and the Company) and
December 31, 1996 (in the case of CB), the date of the last financial statements
noted above. We have assumed that each of the IFC Merger and the CB Merger will
qualify for pooling of interests accounting treatment and have further assumed
that each of Pinnacle, the Company and CB will remain as a going concern for all
periods relevant to our analyses and that the conditions precedent in the IFC
Merger Agreement and the CB 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, CB 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; provided, however, that we
hereby consent to the inclusion of this opinion as an exhibit to the Joint Proxy
Statement/Prospectus of the Company, Pinnacle and CB dated June , 1997 so long
as this opinion is quoted in full herein.
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,
G-2
<PAGE>
ANNEX H
FORM OF OPINION OF CHARLES WEBB & COMPANY
June , 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 CB Merger
Agreement (including the Exhibits thereto) dated March 1, 1997; (ii) the Annual
Reports to Stockholders and Annual Reports on Form 10-K for the fiscal years
ended December 31, 1996, 1995 and 1994 for Pinnacle and March 31, 1997, 1996 and
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;
H-1
<PAGE>
(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 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. In addition, we reviewed the Joint
Proxy Statement/Prospectus of the Company and Pinnacle dated June , 1997. 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 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.
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.
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.
H-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
II-1
<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 B 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 C 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 D 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>
II-2
<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) Form of 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) Form of 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. (included in Exhibit 5(a)).
(23)(b) Consent of Miller, Canfield, Paddock and Stone, P.L.C. (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. (included in Exhibit 8(b)).
(23)(d) Consent of Silver, Freedman & Taff, L.L.P. (included in Exhibit 8(c)).
(23)(e) Consent of Muldoon, Murphy & Faucette (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 E 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 F 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 G 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 H 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.**
(99)(l) Certificate pursuant to Section 7.2(h) of the Agreement and Plan of Merger dated as of March 1,
1997 by and between Pinnacle Financial Services, Inc. and CB Bancorp, Inc.**
(99)(m) Consents of certain persons named as directors and/or executive officers.**
</TABLE>
- ------------------------
*Previously filed.
**Filed herewith.
(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
II-5
<PAGE>
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this amendment no. 3 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 12th day of June, 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. 3 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 June 12, 1997
Richard L. Schanze
Principal Financial Officer
and
Principal Accounting
Officer:
/s/ DAVID W. KOLHAGEN
- ------------------------------ Treasurer and Chief June 12, 1997
David W. Kolhagen Financial Officer
II-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment no. 3 to registration statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
*
- ------------------------------ Director June 12, 1997
John P. Cunningham
*
- ------------------------------ Director June 12, 1997
Charles R. Edinger
*
- ------------------------------ Director June 12, 1997
John D. Fetters
*
- ------------------------------ Director June 12, 1997
Terrence A. Friedman
/s/ RICHARD L. SCHANZE
- ------------------------------ Director and Chief June 12, 1997
Richard L. Schanze Executive Officer
*
- ------------------------------ Director June 12, 1997
Kay F. Varga
*
- ------------------------------ Director and President June 12, 1997
Arnold L. Weaver
*
- ------------------------------ Director June 12, 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]
June 12, 1997
EXHIBIT 8(a)
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"), in connection with the contemplated merger
of Indiana Federal Corporation, a Delaware corporation ("IFC"), with and into
Pinnacle (the "IFC Merger") pursuant to the Michigan Business Corporation
Act, as amended (the "MBCA"), the Delaware General Corporation Act, as
amended (the "DGCL"), and the Agreement and Plan of Merger dated as of
November 14, 1996, as amended, by and between Pinnacle and IFC (the "IFC
Merger Agreement"), and certain related instruments and agreements executed,
or to be executed, in connection with the IFC Merger Agreement (the "IFC
Merger Related Instruments").
We have acted as counsel to Pinnacle Bank, a Michigan banking
corporation and wholly-owned subsidiary of Pinnacle ("Pinnacle Bank"), in
connection with the contemplated merger of Indiana Federal Bank for Savings,
a federal savings bank ("IndFed Bank"), with and into Pinnacle Bank (the "IFC
Subsidiary Bank Merger") pursuant to the Agreement and Plan of Merger and
Consolidation to be executed by and between Pinnacle Bank and IndFed Bank
(the "IFC Subsidiary Bank Merger Agreement"), the Michigan Banking Code of
1969, as amended (the "Michigan Banking Code"), the Federal Deposit Insurance
Act, as amended (the "FDIA"), and certain related instruments and agreements
executed, or to be executed, in
<PAGE>
-2-
connection with the IFC Subsidiary Bank Merger Agreement (the "IFC Subsidiary
Bank Merger Related Instruments").
Our opinion is provided solely with respect to certain federal income
tax consequences of the IFC Merger and the IFC Subsidiary Bank Merger. This
opinion is being delivered at your request and pursuant to the IFC Merger
Agreement. (All capitalized terms used herein, unless otherwise specified,
have the meanings assigned to them in the IFC Merger Agreement.)
DESCRIPTION OF TRANSACTIONS
The MBCA, the DGCL, the IFC Merger Agreement and the IFC Merger Related
Instruments essentially provide for (i) the merger of IFC 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,
the conversion of each issued and outstanding share of common stock, $.01 par
value per share, of IFC (the "IFC Common Stock") into one share of common
stock, no par value per share, of Pinnacle (the "Pinnacle Common Stock") as
provided in the IFC Merger Agreement.
The Michigan Banking Code, the FDIA, the IFC Subsidiary Bank Merger
Agreement and the IFC Subsidiary Bank Merger Related Instruments essentially
provide for (i) the merger of IndFed Bank with and into Pinnacle Bank, with
Pinnacle Bank, as the surviving institution (the "Surviving Bank"),
succeeding to all of the assets and liabilities of IndFed Bank; (ii) the
automatic cancellation of each issued and outstanding share of common stock,
of IndFed Bank; and (iii) the conversion of each issued and outstanding share
of common stock of Pinnacle Bank into one share of common stock of the
Surviving Bank.
FACTUAL ASSUMPTIONS, REPRESENTATIONS AND LIMITATIONS
In rendering our opinion, we have examined and relied upon, and our
opinion is conditioned upon the accuracy and completeness of, the facts,
information, covenants and representations contained herein and in originals
or copies, certified or otherwise identified to our satisfaction, of the IFC
Merger Agreement, the IFC Related Instruments, the IFC Subsidiary Bank Merger
Agreement, the IFC Subsidiary Bank Merger Related Instruments, and the
Registration Statement on Form S-4, as amended (registration no. 333-19729)
(the "Registration Statement"), filed by Pinnacle under the Securities Act of
1933, as amended, with respect to the shares of Pinnacle Common Stock to be
issued to holders of shares of IFC Common Stock upon consummation of the IFC
Merger. We have
<PAGE>
-3-
also examined such other documents as we have deemed necessary or appropriate
as a basis for the opinion set forth below. 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 and IFC. We also have assumed that the IFC Merger will be
consummated in accordance with the IFC Merger Agreement and the IFC Merger
Related Instruments and that the IFC Merger will qualify as a merger under
applicable state law. We also have assumed that the IFC Subsidiary Bank
Merger will be consummated in accordance with the IFC Subsidiary Bank Merger
Agreement and the IFC Subsidiary Bank Merger Related Instruments and that the
IFC Subsidiary Bank Merger will qualify as a merger under applicable federal
and state law.
In addition, we have relied upon, and this opinion is expressly
conditioned on the accuracy of, certain representations made to us by
Pinnacle, Pinnacle Bank, IFC and IndFed Bank (including, the representations
contained in the attached representation certificates from Pinnacle, Pinnacle
Bank, IFC and IndFed Bank). We have assumed, without independent
verification, that said representations are true in all material respects as
of the date hereof.
OPINION
In order to qualify as a tax-free reorganization, a transaction must
satisfy certain statutory requirements set forth in the Internal Revenue Code
of 1986, as amended (the "Code"), and several judicially-created requirements
which have been developed through court rulings and Internal Revenue Service
interpretations. For example, it is well established that in order for the
IFC Merger and the IFC Subsidiary Bank Merger to be treated as tax-free
reorganizations under Section 368 of the Code, each transaction must satisfy
a "continuity of stockholder interest" requirement, a "continuity of business
enterprise" requirement, and a "business purpose" requirement. Based upon
our review of certain representations and documentation concerning the IFC
Merger and the IFC Subsidiary Bank Merger, we believe that the applicable
statutory and judicial requirements will be satisfied by each of the IFC
Merger and the IFC Subsidiary Bank Merger.
<PAGE>
-4-
Based upon the foregoing, and subject to the qualifications, if any that
follow, we are of the opinion that under presently applicable law:
(i) Provided that after the IFC Merger Pinnacle will hold
substantially all of its assets and substantially all of the assets of IFC,
and that in the transaction IFC stockholders will exchange solely for
Pinnacle Common Stock an amount of IFC Common Stock constituting "voting
control" of IFC within the meaning of Section 368(c) of the Code, then the
IFC Merger will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code.
(ii) Pinnacle and IFC will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(iii) No gain or loss will be recognized by Pinnacle or IFC as a
result of the IFC Merger.
(iv) No gain or loss will be recognized by the stockholders
of IFC who exchange their shares of IFC Common Stock solely for shares of
Pinnacle Common Stock pursuant to the IFC Merger (except with respect to cash
received in lieu of a fractional share interest in Pinnacle Common Stock).
(v) The tax basis of the Pinnacle Common Stock received by
stockholders of IFC who exchange all of their shares of IFC Common Stock
solely for shares of Pinnacle Common Stock in the IFC Merger will be the same
as the tax basis of the shares of IFC Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional share interest for
which cash is received).
(vi) The holding period of the shares 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, such shares of IFC Common Stock were held as a capital
asset by the holder of such shares of IFC Common Stock at the Effective Time.
(vii) Provided that after the IFC Subsidiary Bank Merger Pinnacle
Bank will hold substantially all of its assets and substantially all of the
assets of IndFed Bank, then the IndFed Bank Merger will constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the Code.
<PAGE>
-5-
(viii) Pinnacle Bank and IndFed Bank will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
(ix) No gain or loss will be recognized by Pinnacle Bank or
IndFed Bank as a result of the IFC Subsidiary Bank Merger.
This opinion may not be applicable to IFC stockholders who
received their IFC Common Stock pursuant to the exercise of employee stock
options or otherwise as compensation or who are not citizens or residents of
the United States.
NEITHER PINNACLE NOR IFC INTENDS TO SUBMIT A RULING REQUEST REGARDING
THE TRANSACTIONS TO THE NATIONAL OFFICE OF THE INTERNAL REVENUE SERVICE. The
foregoing opinion is NOT binding upon the Internal Revenue Service.
In rendering our opinion, we have considered the applicable
provisions of the Code, Treasury Regulations and Proposed Treasury
Regulations promulgated thereunder, pertinent judicial authorities,
interpretive rulings of the IRS and such other authorities as we have
considered relevant. It should be noted that statutes, regulations, judicial
decisions and administrative interpretations are subject to change at any
time and, in some circumstances, with retroactive effect. A material change
in the authorities upon which our opinion is based could affect our
conclusions. However, we assume no obligation to revise or supplement this
opinion if any subsequent change were to occur.
The opinion set forth above is limited to the Federal law of the
United States of America, the laws of the State of Michigan and the DGCL. We
express no opinion as to any matter not addressed herein and no opinion as to
matters addressed herein other than as expressly set forth herein.
Accordingly, and except as expressly set forth above, we express no opinion
as to the tax consequences, whether federal, state, local or foreign, of the
IFC Merger, the IFC Subsidiary Bank Merger or of any transactions related to
the IFC Merger or the IFC Subsidiary Bank Merger.
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
"Certain Federal Income Tax Consequences" in the Joint Proxy
Statement/Prospectus forming a part of the Registration Statement. In giving
such consent we do not hereby admit that we
<PAGE>
-6-
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>
REPRESENTATION CERTIFICATE
OF
INDIANA FEDERAL CORPORATION
Indiana Federal Corporation, a Delaware corporation ("IFC"), makes the
following representations to Miller, Canfield, Paddock and Stone, P.L.C. for
use by Miller, Canfield, Paddock and Stone, P.L.C. in rendering its opinion
relative to certain federal income tax consequences of the merger (the "IFC
Merger") of IFC with and into Pinnacle Financial Services, Inc., a Michigan
corporation ("Pinnacle"), pursuant to the Michigan Business Corporation Act,
as amended, the Delaware General Corporation Act, as amended, the Agreement
and Plan of Merger dated as of November 14, 1996, as amended, by and between
Pinnacle and IFC (the "IFC Merger Agreement"), and certain related
instruments and agreements executed, or to be executed, in connection with
the IFC Merger Agreement (the "IFC Merger Related Instruments"). Upon
consummation of the IFC Merger, and 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, each issued and outstanding share of common stock, $.01
par value per share, of IFC ("IFC Common Stock"), will be converted into one
(1) share of common stock, no par value per share, of Pinnacle ("Pinnacle
Common Stock") as provided in the IFC Merger Agreement. IFC acknowledges and
agrees that each of the following representations constitutes a material
representation to be relied upon by Miller, Canfield, Paddock and Stone,
P.L.C. in rendering its opinion, and any material inaccuracy in any of the
following representations may render the conclusions stated in the opinion of
Miller, Canfield, Paddock and Stone, P.L.C. incorrect.
1. The fair market value of the shares of Pinnacle Common Stock and
other consideration to be received by each stockholder of IFC will be
approximately equal to the fair market value of the shares of IFC Common
Stock to be surrendered in the IFC Merger.
2. To the knowledge of IFC, there is no plan or intention by the
stockholders of IFC to sell, exchange, or otherwise dispose of a number of
shares of Pinnacle Common Stock to be received in the IFC Merger that would
reduce IFC stockholders' ownership of Pinnacle Common Stock to a number of
shares having a value, as of the date of the IFC Merger, of less than 50
percent of the value of all of the formerly outstanding shares of IFC Common
Stock as of the same date. For purposes of this representation, shares of
IFC Common Stock exchanged for cash in lieu of fractional shares of Pinnacle
Common Stock will be treated as outstanding shares of IFC Common Stock on the
date of the IFC Merger. Moreover, shares of IFC Common Stock and shares of
Pinnacle Common Stock held by IFC stockholders and otherwise sold, redeemed,
or disposed of prior or subsequent to the IFC Merger will be considered in
making this representation.
-1-
<PAGE>
3. Immediately following the IFC Merger, Pinnacle (i) will hold net
assets of IFC having a fair market value equal to at least 90 percent of the
fair market value of the net assets held by IFC immediately prior to the IFC
Merger and will hold gross assets of IFC having a fair market value equal to
at least 70 percent of the fair market value of the gross assets held by IFC
immediately prior to the IFC Merger. For purposes of this representation,
amounts used by IFC to pay reorganization expenses, and all redemptions and
distributions made by IFC will be included as assets of IFC immediately prior
to the IFC Merger.
4. IFC has no plan or intention to issue additional shares of IFC
Common Stock that would result in Pinnacle losing "control" (within the
meaning of Section 368(c) of the Internal Revenue Code, as amended (the
"Code")) of IFC immediately following the IFC Merger.
5. IFC and the stockholders of IFC will pay their respective
expenses, if any, incurred in connection with the IFC Merger.
6. There is no intercorporate indebtedness existing between IFC and
Pinnacle that was issued, or was acquired, or will be settled, at a discount.
7. In the IFC Merger, shares of IFC Common Stock representing
"control" (within the meaning of Section 368(c) of the Code) of IFC will be
exchanged solely for voting stock of Pinnacle. For purposes of this
representation, shares of IFC Common Stock exchanged for cash or other
property originating with Pinnacle will be treated as outstanding shares of
IFC Common Stock on the date of the IFC Merger.
8. At the time of the IFC Merger, IFC will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in IFC that, if exercised or
converted, would affect Pinnacle's acquisition or retention of "control"
(within the meaning of Section 368(c) of the Code) of IFC immediately
following the IFC Merger.
9. IFC is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
10. On the date of the IFC Merger, the fair market value of the assets
of IFC will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which its assets are subject.
-2-
<PAGE>
11. IFC is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
INDIANA FEDERAL CORPORATION
By: /s/ Donald A. Lesch Date: June 12, 1997
______________________________
Donald A. Lesch
Its: Chairman and
Chief Executive Officer
-3-
<PAGE>
REPRESENTATION CERTIFICATE
OF
INDIANA FEDERAL BANK FOR SAVINGS
Indiana Federal Bank for Savings, a federal savings bank ("IndFed
Bank"), makes the following representations to Miller, Canfield, Paddock and
Stone, P.L.C. for use by Miller, Canfield, Paddock and Stone, P.L.C. in
rendering its opinion relative to certain federal income tax consequences of
the merger (the "IFC Subsidiary Bank Merger") of IndFed Bank with and into
Pinnacle Bank, a Michigan banking corporation ("Pinnacle Bank"), pursuant to
the Michigan Banking Code of 1969, as amended, the Federal Deposit Insurance
Act, as amended, the Agreement and Plan of Merger and Consolidation to be
executed by and between Pinnacle Bank and IndFed Bank (the "IFC Subsidiary
Bank Merger Agreement"), and certain related instruments and agreements
executed, or to be executed, in connection with the IFC Subsidiary Bank
Merger Agreement (the "IFC Subsidiary Bank Merger Related Instruments"). Upon
consummation of the IFC Subsidiary Bank Merger, and among other things, (i)
IndFed Bank will merge with and into Pinnacle Bank, with Pinnacle Bank, as
the surviving institution (the "Surviving Bank"), succeeding to all of the
assets and liabilities of IndFed Bank; (ii) each issued and outstanding share
of common stock of IndFed Bank will be canceled; and (iii) each issued and
outstanding share of common stock of Pinnacle Bank will be converted into one
(1) share of common stock of the Surviving Bank. IndFed Bank acknowledges
and agrees that each of the following representations constitutes a material
representation to be relied upon by Miller, Canfield, Paddock and Stone,
P.L.C. in rendering its opinion, and any material inaccuracy in any of the
following representations may render the conclusions stated in the opinion of
Miller, Canfield, Paddock and Stone, P.L.C. incorrect.
1. Immediately following the IFC Subsidiary Bank Merger, Pinnacle Bank
(i) will hold net assets of IndFed Bank having a fair market value equal to
at least 90 percent of the fair market value of the net assets held by IndFed
Bank immediately prior to the IFC Subsidiary Bank Merger and will hold gross
assets of IndFed Bank having a fair market value equal to at least 70 percent
of the fair market value of the gross assets held by IndFed Bank immediately
prior to the IFC Subsidiary Bank Merger. For purposes of this
representation, amounts used by IndFed Bank to pay reorganization expenses,
and all redemptions and distributions made by IndFed Bank will be included as
assets of IndFed Bank immediately prior to the IndFed Bank Merger.
2. IndFed Bank has no plan or intention to issue additional shares of
IndFed Bank Common Stock that would result in Pinnacle Bank losing "control"
(within the meaning of Section 368(c) of the Internal Revenue Code, as
amended (the "Code")) of IndFed Bank immediately following the IFC Subsidiary
Bank Merger.
-1-
<PAGE>
3. IndFed Bank and the sole stockholder of IndFed Bank will pay their
respective expenses, if any, incurred in connection with the IFC Subsidiary
Bank Merger.
4. There is no intercorporate indebtedness existing between IndFed
Bank and Pinnacle Bank that was issued, or was acquired, or will be settled,
at a discount.
5. At the time of the IFC Subsidiary Bank Merger, IndFed Bank will not
have outstanding any warrants, options, convertible securities, or any other
type of right pursuant to which any person could acquire stock in IndFed Bank
that, if exercised or converted, would affect Pinnacle Bank's acquisition or
retention of "control" (within the meaning of Section 368(c) of the Code) of
IndFed Bank immediately following the IFC Subsidiary Bank Merger.
6. IndFed Bank is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
7. On the date of the IFC Subsidiary Bank Merger, the fair market
value of the assets of IndFed Bank will exceed the sum of its liabilities,
plus the amount of liabilities, if any, to which its assets are subject.
8. IndFed Bank is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
INDIANA FEDERAL BANK FOR SAVINGS
By: /s/ Donald A. Lesch Date: June 12, 1997
______________________________
Donald A. Lesch
Its: Chairman and
Chief Executive Officer
-2-
<PAGE>
REPRESENTATION CERTIFICATE
OF
PINNACLE FINANCIAL SERVICES, INC.
Pinnacle Financial Services, Inc., a Michigan corporation ("Pinnacle"),
makes the following representations to Miller, Canfield, Paddock and Stone,
P.L.C. for use by Miller, Canfield, Paddock and Stone, P.L.C. in rendering
its opinion relative to certain federal income tax consequences of the merger
(the "Merger") of Indiana Federal Corporation, a Delaware corporation
("IFC"), with and into Pinnacle pursuant to the Michigan Business Corporation
Act, as amended, the Delaware General Corporation Act, as amended, the
Agreement and Plan of Merger dated as of November 14, 1996, as amended, by
and between Pinnacle and IFC (the "IFC Merger Agreement"), and certain
related instruments and agreements executed, or to be executed, in connection
with the Merger Agreement (the "IFC Merger Related Instruments"). Upon
consummation of the IFC Merger, and 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, each issued and outstanding share of common stock, $.01
par value per share, of IFC ("IFC Common Stock"), will be converted into one
(1) share of common stock, no par value per share, of Pinnacle ("Pinnacle
Common Stock") as provided in the IFC Merger Agreement. Pinnacle
acknowledges and agrees that each of the following representations
constitutes a material representation to be relied upon by Miller, Canfield,
Paddock and Stone, P.L.C. in rendering its opinion, and any material
inaccuracy in any of the following representations may render the conclusions
stated in the opinion of Miller, Canfield, Paddock and Stone, P.L.C.
incorrect.
1. The fair market value of the shares of Pinnacle Common Stock and
other consideration to be received by each stockholder of IFC will be
approximately equal to the fair market value of the shares of IFC Common
Stock to be surrendered in the IFC Merger.
2. To the knowledge of Pinnacle, there is no plan or intention by the
stockholders of IFC to sell, exchange, or otherwise dispose of a number of
shares of Pinnacle Common Stock to be received in the IFC Merger that would
reduce the IFC stockholders' ownership of Pinnacle Common Stock to a number
of shares having a value, as of the date of the IFC Merger, of less than 50
percent of the value of all of the formerly outstanding shares of IFC Common
Stock as of the same date. For purposes of this representation, shares of
IFC Common Stock exchanged for cash in lieu of fractional shares of Pinnacle
Common Stock will be treated as outstanding shares of IFC Common Stock on the
date of the IFC Merger. Moreover, shares of IFC Common Stock and shares of
Pinnacle Common Stock held by IFC stockholders and otherwise sold, redeemed,
or disposed of prior or subsequent to the IFC Merger will be considered in
making this representation.
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<PAGE>
3. Immediately following the IFC Merger, (i) Pinnacle will hold net
assets of Pinnacle having a fair market value equal to at least 90 percent of
the fair market value of the net assets held by Pinnacle immediately prior to
the IFC Merger and will hold gross assets of Pinnacle having a fair market
value equal to at least 70 percent of the fair market value of the gross
assets held by Pinnacle immediately prior to the IFC Merger; and (ii)
Pinnacle will hold net assets of IFC having a fair market value equal to at
least 90 percent of the fair market value of the net assets held by IFC
immediately prior to the IFC Merger and gross assets of IFC having a fair
market value equal to at least 70 percent of the fair market value of the
gross assets held by IFC immediately prior to the IFC Merger. For purposes
of this representation, amounts used by Pinnacle and IFC, as applicable, to
pay reorganization expenses, and all redemptions and distributions (except
for regular normal dividends) made by Pinnacle and IFC, as applicable, will
be included as assets of Pinnacle and IFC, as applicable, immediately prior
to the IFC Merger.
4. Immediately following the IFC Merger, Pinnacle will be in "control"
(within the meaning of Section 368(c) of the Internal Revenue Code of 1986,
as amended (the "Code")) of IFC.
5. Pinnacle does not have any plan or intention to issue additional
shares of its stock that would result in Pinnacle losing "control" (within
the meaning of Section 368(c) of the Code) of IFC immediately following the
IFC Merger.
6. Pinnacle has no plan or intention to reacquire any of the specific
shares of Pinnacle Common Stock to be issued in the IFC Merger.
7. Except as otherwise expressly provided for in the IFC Merger
Agreement, Pinnacle has no plan or intention to (i) liquidate IFC, (ii) merge
IFC with or into any corporation other than Pinnacle, (iii) sell or otherwise
dispose of any stock of IFC except for transfers of stock to corporations
controlled by Pinnacle, or (iv) sell or otherwise dispose of any of its
assets or of any of the assets acquired from IFC, except for dispositions
made in the ordinary course of business or transfers of assets to a
corporation controlled by Pinnacle.
8. To the knowledge of Pinnacle, all liabilities of IFC to be assumed
by Pinnacle upon consummation of the IFC Merger, if any, and all liabilities,
if any, encumbering assets of IFC that are to be transferred to Pinnacle upon
consummation of the IFC Merger, were incurred by IFC in the ordinary course
of business.
9. Following the IFC Merger, Pinnacle will continue the historic
businesses of Pinnacle and IFC or use a significant portion of the assets of
Pinnacle and IFC in such historic businesses.
10. Pinnacle will pay its expenses, if any, incurred in connection with
the IFC Merger. Pinnacle will not pay any of the
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<PAGE>
expenses of IFC (except to the extent it pays such expenses in its capacity
as the surviving corporation of the IFC Merger) or of the stockholders of IFC.
11. There is no intercorporate indebtedness existing between IFC and
Pinnacle that was issued, or was acquired, or will be settled, at a discount.
12. In the IFC Merger, shares of IFC Common Stock representing
"control" (within the meaning of Section 368(c) of the Code) of IFC will be
exchanged solely for voting stock of Pinnacle. For purposes of this
representation, shares of IFC Common Stock exchanged for cash or other
property originating with Pinnacle will be treated as outstanding IFC Common
Stock on the date of the Merger.
13. At the time of the IFC Merger, none of Pinnacle and IFC will have
outstanding any warrants, options, convertible securities, or any other type
of right pursuant to which any person could acquire stock in IFC that, if
exercised or converted, would affect Pinnacle's acquisition or retention of
"control" (within the meaning of Section 368(c) of the Code) of IFC
immediately following the IFC Merger.
14. Pinnacle does not directly own, nor has it directly owned during
the past five years, any shares of the stock of IFC.
15. Pinnacle is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
16. The fair market value of the assets of IFC to be transferred to
Pinnacle upon consummation of the IFC Merger will equal or exceed the sum of
the liabilities to be assumed by Pinnacle, plus the amount of liabilities, if
any, to which the transferred assets are subject. At the Effective Time, the
fair market value of the assets of IFC will exceed the sum of its
liabilities, plus the amount of liabilities, if any, to which those assets
are subject.
17. Pinnacle is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
PINNACLE FINANCIAL SERVICES, INC.
By: /s/ Richard L. Schanze Date June 12, 1997
______________________________
Richard L. Schanze
Its: President and
Chief Executive Officer
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<PAGE>
REPRESENTATION CERTIFICATE
OF
PINNACLE BANK
Pinnacle Bank, a Michigan banking corporation ("Pinnacle Bank"), makes
the following representations to Miller, Canfield, Paddock and Stone, P.L.C.
for use by Miller, Canfield, Paddock and Stone, P.L.C. in rendering its
opinion relative to certain federal income tax consequences of the merger
(the "IFC Subsidiary Bank Merger") of Indiana Federal Bank for Savings, a
federal savings bank ("IndFed Bank"), with and into Pinnacle Bank pursuant to
the Michigan Banking Code of 1969, as amended, the Federal Deposit Insurance
Act, as amended, the Agreement and Plan of Merger and Consolidation to be
executed by and between Pinnacle and IFC (the "IFC Subsidiary Bank Merger
Agreement"), and certain related instruments and agreements executed, or to
be executed, in connection with the IFC Subsidiary Bank Merger Agreement (the
"IFC Subsidiary Bank Merger Related Instruments"). Upon consummation of the
IFC Subsidiary Bank Merger, and among other things, (i) IndFed Bank will
merge with and into Pinnacle Bank, with Pinnacle Bank, as the surviving
institution (the "Surviving Bank"), succeeding to all of the assets and
liabilities of IndFed Bank; (ii) each issued and outstanding share of common
stock of IndFed Bank will be canceled; and (iii) each issued and outstanding
share of common stock per share, of Pinnacle Bank will be converted into one
(1) share of common stock of the Surviving Bank. Pinnacle Bank acknowledges
and agrees that each of the following representations constitutes a material
representation to be relied upon by Miller, Canfield, Paddock and Stone,
P.L.C. in rendering its opinion, and any material inaccuracy in any of the
following representations may render the conclusions stated in the opinion of
Miller, Canfield, Paddock and Stone, P.L.C. incorrect.
1. Immediately following the IFC Subsidiary Bank Merger, (i) Pinnacle
Bank will hold net assets of Pinnacle Bank having a fair market value equal
to at least 90 percent of the fair market value of the net assets held by
Pinnacle Bank immediately prior to the IFC Subsidiary Bank Merger and will
hold gross assets of Pinnacle Bank having a fair market value equal to at
least 70 percent of the fair market value of the gross assets held by
Pinnacle Bank immediately prior to the IFC Subsidiary Bank Merger; and (ii)
Pinnacle Bank will hold net assets of IndFed Bank having a fair market value
equal to at least 90 percent of the fair market value of the net assets held
by IndFed Bank immediately prior to the IFC Subsidiary Bank Merger and gross
assets of IndFed Bank having a fair market value equal to at least 70 percent
of the fair market value of the gross assets held by IndFed Bank immediately
prior to the IFC Subsidiary Bank Merger. For purposes of this
representation, amounts used by Pinnacle Bank and IndFed Bank, as applicable,
to pay reorganization expenses, and all redemptions and distributions (except
for regular normal dividends) made by Pinnacle Bank and IndFed Bank, as
applicable, will be included as
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<PAGE>
assets of Pinnacle Bank and IndFed Bank, as applicable, immediately prior to
the IFC Subsidiary Bank Merger.
2. Immediately following the IFC Subsidiary Bank Merger, Pinnacle Bank
will be in "control" (within the meaning of Section 368(c) of the Internal
Revenue Code of 1986, as amended (the "Code")) of IndFed Bank.
3. Pinnacle Bank does not have any plan or intention to issue
additional shares of its stock that would result in Pinnacle Bank losing
"control" (within the meaning of Section 368(c) of the Code) of IndFed Bank
immediately following the IFC Subsidiary Bank Merger.
4. Except as otherwise expressly provided for in the IFC Subsidiary
Bank Merger Agreement, Pinnacle Bank has no plan or intention to (i)
liquidate IndFed Bank, (ii) merge IndFed Bank with or into any corporation
other than Pinnacle Bank, (iii) sell or otherwise dispose of any stock of
IndFed Bank except for transfers of stock to corporations controlled by
Pinnacle Bank, or (iv) sell or otherwise dispose of any of its assets or of
any of the assets acquired from IndFed Bank, except for dispositions made in
the ordinary course of business or transfers of assets to a corporation
controlled by Pinnacle Bank.
5. To the knowledge of Pinnacle Bank, all liabilities of IndFed Bank
to be assumed by Pinnacle Bank upon consummation of the IFC Subsidiary Bank
Merger, if any, and all liabilities, if any, encumbering assets of IndFed
Bank that are to be transferred to Pinnacle Bank upon consummation of the IFC
Subsidiary Bank Merger, were incurred by IndFed Bank in the ordinary course
of business.
6. Following the IFC Subsidiary Bank Merger, Pinnacle Bank will
continue the historic businesses of Pinnacle Bank and IndFed Bank or use a
significant portion of the assets of Pinnacle Bank and IndFed Bank in such
historic businesses.
7. Pinnacle will pay its expenses, if any, incurred in connection with
the IFC Subsidiary Bank Merger. Pinnacle Bank will not pay any of the
expenses of IFC (except to the extent it pays such expenses in its capacity
as the surviving corporation of the IndFed Bank Subsidiary Bank Merger) or of
the stockholders of IndFed Bank.
8. There is no intercorporate indebtedness existing between IndFed
Bank and Pinnacle Bank that was issued, or was acquired, or will be settled,
at a discount.
9. At the time of the IFC Subsidiary Bank Merger, none of Pinnacle
Bank and IndFed Bank will have outstanding any warrants, options, convertible
securities, or any other type of right pursuant to which any person could
acquire stock in IndFed Bank that, if exercised or converted, would affect
Pinnacle's acquisition or retention of "control" (within the meaning of
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<PAGE>
Section 368(c) of the Code) of IndFed Bank immediately following
the IFC Subsidiary Bank Merger.
10. Pinnacle Bank does not directly own, nor has it directly owned
during the past five years, any shares of the stock of IndFed Bank.
11. Pinnacle Bank is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
12. The fair market value of the assets of IndFed Bank to be
transferred to Pinnacle Bank upon consummation of the IFC Subsidiary Bank
Merger will equal or exceed the sum of the liabilities to be assumed by
Pinnacle Bank, plus the amount of liabilities, if any, to which the
transferred assets are subject. At the effective time of the IFC Subsidiary
Bank Merger, the fair market value of the assets of IndFed Bank will exceed
the sum of its liabilities, plus the amount of liabilities, if any, to which
those assets are subject.
13. Pinnacle Bank is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
PINNACLE BANK
By: /s/ Richard L. Schanze Date June 12, 1997
______________________________
Richard L. Schanze
Its: President and
Chief Executive Officer
<PAGE>
[letterhead]
June 12, 1997
EXHIBIT 8(b)
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"), in connection with the contemplated merger of CB
Bancorp, Inc., a Delaware corporation ("CB"), with and into Pinnacle (the "CB
Merger") pursuant to the Michigan Business Corporation Act, as amended (the
"MBCA"), the Delaware General Corporation Act, as amended (the "DGCL"), and the
Agreement and Plan of Merger dated as of March 1, 1997, by and between Pinnacle
and CB (the "CB Merger Agreement"), and certain related instruments and
agreements executed, or to be executed, in connection with the CB Merger
Agreement (the "CB Merger Related Instruments").
We have acted as counsel to Pinnacle Bank, a Michigan banking corporation
and wholly-owned subsidiary of Pinnacle ("Pinnacle Bank"), in connection with
the contemplated merger of Community Bank, A Federal Savings Bank, a federal
savings bank ("CB"), with and into Pinnacle Bank (the "CB Subsidiary Bank
Merger") pursuant to the Agreement and Plan of Merger and Consolidation to be
executed by and between Pinnacle Bank and CB Bank (the "CB Subsidiary Bank
Merger Agreement"), the Michigan Banking Code of 1969, as amended (the "Michigan
Banking Code"), the Federal Deposit Insurance Act, as amended (the "FDIA"), and
certain related instruments and agreements executed, or to be executed, in
<PAGE>
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connection with the CB Subsidiary Bank Merger Agreement (the "CB Subsidiary Bank
Merger Related Instruments").
Our opinion is provided solely with respect to certain federal income tax
consequences of the CB Merger and the CB Subsidiary Bank Merger. This
opinion is being delivered at your request and pursuant to the CB Merger
Agreement. (All capitalized terms used herein, unless otherwise specified,
have the meanings assigned to them in the CB Merger Agreement.)
DESCRIPTION OF TRANSACTIONS
The MBCA, the DGCL, the CB Merger Agreement and the CB Merger Related
Instruments essentially provide for (i) the merger of CB with and into Pinnacle,
with Pinnacle, as the surviving corporation, succeeding to all of the assets and
liabilities of CB; and (ii) subject to certain exceptions, the conversion of
each issued and outstanding share of common stock, $.01 par value per share, of
CB (the "CB Common Stock") into shares of common stock, no par value per share,
of Pinnacle (the "Pinnacle Common Stock") as provided in the CB Merger
Agreement.
The Michigan Banking Code, the FDIA, the CB Subsidiary Bank Merger
Agreement and the CB Subsidiary Bank Merger Related Instruments essentially
provide for (i) the merger of CB Bank with and into Pinnacle Bank, with
Pinnacle Bank, as the surviving institution (the "Surviving Bank"),
succeeding to all of the assets and liabilities of CB Bank; (ii) the
automatic cancellation of each issued and outstanding share of common stock
of CB Bank; and (iii) the conversion of each issued and outstanding share of
common stock of Pinnacle Bank into one share of common stock of the Surviving
Bank.
FACTUAL ASSUMPTIONS, REPRESENTATIONS AND LIMITATIONS
In rendering our opinion, we have examined and relied upon,
and our opinion is conditioned upon the accuracy and completeness of, the facts,
information, covenants and representations contained herein and in originals or
copies, certified or otherwise identified to our satisfaction, of the CB Merger
Agreement, the CB Related Instruments, the CB Subsidiary Bank Merger Agreement,
the CB Subsidiary Bank Merger Related Instruments, and the Registration
Statement on Form S-4, as amended (registration no. 333-19729) (the
"Registration Statement"), filed by Pinnacle under the Securities Act of 1933,
as amended, with respect to the shares of Pinnacle Common Stock to be issued to
holders of shares of CB Common Stock upon consummation of the CB Merger. We
have also examined such
<PAGE>
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other documents as we have deemed necessary or appropriate as a basis for the
opinion set forth below. 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 and CB. We also have
assumed that the CB Merger will be consummated in accordance with the CB Merger
Agreement and the CB Merger Related Instruments and that the CB Merger will
qualify as a merger under applicable state law. We also have assumed that the
CB Subsidiary Bank Merger will be consummated in accordance with the CB
Subsidiary Bank Merger Agreement and the CB Subsidiary Bank Merger Related
Instruments and that the CB Subsidiary Bank Merger will qualify as a merger
under applicable federal and state law.
In addition, we have relied upon, and this opinion is expressly conditioned
on the accuracy of, certain representations made to us by Pinnacle, Pinnacle
Bank, CB and CB Bank (including, the representations contained in the attached
representation certificates from Pinnacle, Pinnacle Bank, CB and CB Bank). We
have assumed, without independent verification, that said representations are
true in all material respects as of the date hereof.
OPINION
In order to qualify as a tax-free reorganization, a transaction must
satisfy certain statutory requirements set forth in the Internal Revenue Code of
1986, as amended (the "Code"), and several judicially-created requirements which
have been developed through court rulings and Internal Revenue Service
interpretations. For example, it is well established that in order for the CB
Merger and the CB Subsidiary Bank Merger to be treated as tax-free
reorganizations under Section 368 of the Code, each transaction must satisfy a
"continuity of stockholder interest" requirement, a "continuity of business
enterprise" requirement, and a "business purpose" requirement. Based upon our
review of certain representations and documentation concerning the CB Merger and
the CB Subsidiary Bank Merger, we believe that the applicable statutory and
judicial requirements will be satisfied by each of the CB Merger and the CB
Subsidiary Bank Merger.
Based upon the foregoing, and subject to the qualifications, if any that
follow, we are of the opinion that under presently applicable law:
<PAGE>
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(i) Provided that after the CB Merger Pinnacle will hold
substantially all of its assets and substantially all of the assets of CB,
and that in the transaction CB stockholders will exchange solely for Pinnacle
Common Stock an amount of CB Common Stock constituting "voting control" of CB
within the meaning of Section 368(c) of the Code, then the CB Merger will
constitute a reorganization within the meaning of Section 368(a)(1)(A) of the
Code.
(ii) Pinnacle and CB will each be "a party to a reorganization" within
the meaning of Section 368(b) of the Code.
(iii) No gain or loss will be recognized by Pinnacle or CB as a result
of the CB Merger.
(iv) No gain or loss will be recognized by the stockholders of CB who
exchange their shares of CB Common Stock solely for shares of Pinnacle Common
Stock pursuant to the CB Merger (except with respect to cash received in lieu of
a fractional share interest in Pinnacle Common Stock).
(v) The tax basis of the Pinnacle Common Stock received by
stockholders of CB who exchange all of their shares of CB Common Stock solely
for shares of Pinnacle Common Stock in the CB Merger will be the same as the tax
basis of the shares of CB Common Stock surrendered in exchange therefor (reduced
by any amount allocable to a fractional share interest for which cash is
received).
(vi) The holding period of the shares 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, such shares of CB Common Stock were held as a capital asset by the
holder of such shares of CB Common Stock at the Effective Time.
(vii) Provided that after the CB Subsidiary Bank Merger Pinnacle Bank
will hold substantially all of its assets and substantially all of the assets
of CB Bank, then the CB Bank Merger will constitute a reorganization within
the meaning of Section 368(a)(1)(A) of the Code.
(viii) Pinnacle Bank and CB Bank will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
(ix) No gain or loss will be recognized by Pinnacle Bank or CB Bank as
a result of the CB Subsidiary Bank Merger.
<PAGE>
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This opinion may not be applicable to CB stockholders who received their CB
Common Stock pursuant to the exercise of employee stock options or otherwise as
compensation or who are not citizens or residents of the United States.
NEITHER PINNACLE NOR CB INTENDS TO SUBMIT A RULING REQUEST REGARDING THE
TRANSACTIONS TO THE NATIONAL OFFICE OF THE INTERNAL REVENUE SERVICE. The
foregoing opinion is NOT binding upon the Internal Revenue Service.
In rendering our opinion, we have considered the applicable provisions of
the Code, Treasury Regulations and Proposed Treasury Regulations promulgated
thereunder, pertinent judicial authorities, interpretive rulings of the IRS and
such other authorities as we have considered relevant. It should be noted that
statutes, regulations, judicial decisions and administrative interpretations are
subject to change at any time and, in some circumstances, with retroactive
effect. A material change in the authorities upon which our opinion is based
could affect our conclusions. However, we assume no obligation to revise or
supplement this opinion if any subsequent change were to occur.
The opinion set forth above is limited to the Federal law of the United
States of America, the laws of the State of Michigan and the DGCL. We express
no opinion as to any matter not addressed herein and no opinion as to matters
addressed herein other than as expressly set forth herein. Accordingly, and
except as expressly set forth above, we express no opinion as to the tax
consequences, whether federal, state, local or foreign, of the CB Merger, the CB
Subsidiary Bank Merger or of any transactions related to the CB Merger or the CB
Subsidiary Bank Merger.
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 "Certain
Federal Income Tax Consequences" 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>
REPRESENTATION CERTIFICATE
OF
CB BANCORP, INC.
CB Bancorp, Inc., a Delaware corporation ("CB"), makes the following
representations to Miller, Canfield, Paddock and Stone, P.L.C. for use by
Miller, Canfield, Paddock and Stone, P.L.C. in rendering its opinion relative to
certain federal income tax consequences of the merger (the "CB Merger") of CB
with and into Pinnacle Financial Services, Inc., a Michigan corporation
("Pinnacle"), pursuant to the Michigan Business Corporation Act, as amended, the
Delaware General Corporation Act, as amended, the Agreement and Plan of Merger
dated as of March 1, 1997 by and between Pinnacle and CB (the "CB Merger
Agreement"), and certain related instruments and agreements executed, or to be
executed, in connection with the CB Merger Agreement (the "CB Merger Related
Instruments"). Upon consummation of the CB Merger, and 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, and (ii)
subject to certain exceptions, each issued and outstanding share of common
stock, $.01 par value per share, of CB ("CB Common Stock"), will be converted
into shares of common stock, no par value per share, of Pinnacle ("Pinnacle
Common Stock") as provided in the CB Merger Agreement. CB acknowledges and
agrees that each of the following representations constitutes a material
representation to be relied upon by Miller, Canfield, Paddock and Stone, P.L.C.
in rendering its opinion, and any material inaccuracy in any of the following
representations may render the conclusions stated in the opinion of Miller,
Canfield, Paddock and Stone, P.L.C. incorrect.
1. The fair market value of the shares of Pinnacle Common Stock and other
consideration to be received by each stockholder of CB will be approximately
equal to the fair market value of the shares of CB Common Stock to be
surrendered in the CB Merger.
2. To the knowledge of CB, there is no plan or intention by the
stockholders of CB to sell, exchange, or otherwise dispose of a number of shares
of Pinnacle Common Stock to be received in the CB Merger that would reduce CB
stockholders' ownership of Pinnacle Common Stock to a number of shares having a
value, as of the date of the CB Merger, of less than 50 percent of the value of
all of the formerly outstanding shares of CB Common Stock as of the same date.
For purposes of this representation, shares of CB Common Stock exchanged for
cash in lieu of fractional shares of Pinnacle Common Stock will be treated as
outstanding shares of CB Common Stock on the date of the CB Merger. Moreover,
shares of CB Common Stock and shares of Pinnacle Common Stock held by CB
stockholders and otherwise sold, redeemed, or disposed of prior or subsequent to
the CB Merger will be considered in making this representation.
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<PAGE>
3. Immediately following the CB Merger, Pinnacle (i) will hold net assets
of CB having a fair market value equal to at least 90 percent of the fair market
value of the net assets held by CB immediately prior to the CB Merger and will
hold gross assets of CB having a fair market value equal to at least 70 percent
of the fair market value of the gross assets held by CB immediately prior to the
CB Merger. For purposes of this representation, amounts used by CB to pay
reorganization expenses, and all redemptions and distributions made by CB will
be included as assets of CB immediately prior to the CB Merger.
4. CB has no plan or intention to issue additional shares of CB Common
Stock that would result in Pinnacle losing "control" (within the meaning of
Section 368(c) of the Internal Revenue Code, as amended (the "Code")) of CB
immediately following the CB Merger.
5. CB and the stockholders of CB will pay their respective expenses, if
any, incurred in connection with the CB Merger.
6. There is no intercorporate indebtedness existing between CB and
Pinnacle that was issued, or was acquired, or will be settled, at a discount.
7. In the CB Merger, shares of CB Common Stock representing "control"
(within the meaning of Section 368(c) of the Code) of CB will be exchanged
solely for voting stock of Pinnacle. For purposes of this representation,
shares of CB Common Stock exchanged for cash or other property originating with
Pinnacle will be treated as outstanding shares of CB Common Stock on the date of
the CB Merger.
8. At the time of the CB Merger, CB will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in CB that, if exercised or converted,
would affect Pinnacle's acquisition or retention of "control" (within the
meaning of Section 368(c) of the Code) of CB immediately following the CB
Merger.
9. CB is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
10. On the date of the CB Merger, the fair market value of the assets of
CB will exceed the sum of its liabilities, plus the amount of liabilities, if
any, to which its assets are subject.
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<PAGE>
11. CB is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code.
CB BANCORP, INC.
By: /s/ JOSEPH A. HEFFERNAN Date: June 12, 1997
-------------------------------
Joseph A. Heffernan
Its: President and
Chief Executive Officer
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<PAGE>
REPRESENTATION CERTIFICATE
OF
COMMUNITY BANK, A FEDERAL SAVINGS BANK
Community Bank, A Federal Savings Bank, a federal savings bank ("CB
Bank"), makes the following representations to Miller, Canfield, Paddock and
Stone, P.L.C. for use by Miller, Canfield, Paddock and Stone, P.L.C. in
rendering its opinion relative to certain federal income tax consequences of
the merger (the "CB Subsidiary Bank Merger") of CB Bank with and into
Pinnacle Bank, a Michigan banking corporation ("Pinnacle Bank"), pursuant to
the Michigan Banking Code of 1969, as amended, the Federal Deposit Insurance
Act, as amended, the Agreement and Plan of Merger and Consolidation to be
executed by and between Pinnacle Bank and CB Bank (the "CB Subsidiary Bank
Merger Agreement"), and certain related instruments and agreements executed,
or to be executed, in connection with the CB Subsidiary Bank Merger Agreement
(the "CB Subsidiary Bank Merger Related Instruments"). Upon consummation of
the CB Subsidiary Bank Merger, and among other things, (i) CB Bank will merge
with and into Pinnacle Bank, with Pinnacle Bank, as the surviving institution
(the "Surviving Bank"), succeeding to all of the assets and liabilities of CB
Bank, (ii) each issued and outstanding share of common stock of CB Bank will
be cancelled; and (iii) each issued and outstanding share of common stock of
Pinnacle Bank will be converted into one share of common stock of the
Surviving Bank. CB Bank acknowledges and agrees that each of the following
representations constitutes a material representation to be relied upon by
Miller, Canfield, Paddock and Stone, P.L.C. in rendering its opinion, and any
material inaccuracy in any of the following representations may render the
conclusions stated in the opinion of Miller, Canfield, Paddock and Stone,
P.L.C. incorrect.
1. Immediately following the CB Subsidiary Bank Merger, Pinnacle Bank (i)
will hold net assets of CB Bank having a fair market value equal to at least 90
percent of the fair market value of the net assets held by CB Bank immediately
prior to the CB Subsidiary Bank Merger and will hold gross assets of CB Bank
having a fair market value equal to at least 70 percent of the fair market value
of the gross assets held by CB Bank immediately prior to the CB Subsidiary Bank
Merger. For purposes of this representation, amounts used by CB Bank to pay
reorganization expenses, and all redemptions and distributions made by CB Bank
will be included as assets of CB Bank immediately prior to the CB Bank Merger.
2. CB Bank has no plan or intention to issue additional shares of CB Bank
Common Stock that would result in Pinnacle Bank losing "control" (within the
meaning of Section 368(c) of the Internal Revenue Code, as amended (the "Code"))
of CB Bank immediately following the CB Subsidiary Bank Merger.
3. CB Bank and the sole stockholder of CB Bank will pay their respective
expenses, if any, incurred in connection with the CB Subsidiary Bank Merger.
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<PAGE>
4. There is no intercorporate indebtedness existing between CB Bank and
Pinnacle Bank that was issued, or was acquired, or will be settled, at a
discount.
5. At the time of the CB Subsidiary Bank Merger, CB Bank will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in CB Bank that, if
exercised or converted, would affect Pinnacle Bank's acquisition or retention of
"control" (within the meaning of Section 368(c) of the Code) of CB Bank
immediately following the CB Subsidiary Bank Merger.
6. CB Bank is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
7. On the date of the CB Subsidiary Bank Merger, the fair market value of
the assets of CB Bank will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which its assets are subject.
8. CB Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
COMMUNITY BANK, A FEDERAL SAVINGS BANK
By: /s/ JOSEPH A. HEFFERNAN Date: June 12, 1997
--------------------------------
Joseph A. Heffernan
Its: President and
Chief Executive Officer
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<PAGE>
REPRESENTATION CERTIFICATE
OF
PINNACLE FINANCIAL SERVICES, INC.
Pinnacle Financial Services, Inc., a Michigan corporation ("Pinnacle"),
makes the following representations to Miller, Canfield, Paddock and Stone,
P.L.C. for use by Miller, Canfield, Paddock and Stone, P.L.C. in rendering its
opinion relative to certain federal income tax consequences of the merger (the
"Merger") of CB Bancorp, Inc., a Delaware corporation ("CB"), with and into
Pinnacle pursuant to the Michigan Business Corporation Act, as amended, the
Delaware General Corporation Act, as amended, the Agreement and Plan of Merger
dated as of March 1, 1997 by and between Pinnacle and CB (the "CB Merger
Agreement"), and certain related instruments and agreements executed, or to be
executed, in connection with the Merger Agreement (the "CB Merger Related
Instruments"). Upon consummation of the CB Merger, and 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, and (ii)
subject to certain exceptions, each issued and outstanding share of common
stock, $.01 par value per share, of CB ("CB Common Stock"), will be converted
into shares of common stock, no par value per share, of Pinnacle ("Pinnacle
Common Stock") as provided in the CB Merger Agreement. Pinnacle acknowledges
and agrees that each of the following representations constitutes a material
representation to be relied upon by Miller, Canfield, Paddock and Stone, P.L.C.
in rendering its opinion, and any material inaccuracy in any of the following
representations may render the conclusions stated in the opinion of Miller,
Canfield, Paddock and Stone, P.L.C. incorrect.
1. The fair market value of the shares of Pinnacle Common Stock and other
consideration to be received by each stockholder of CB will be approximately
equal to the fair market value of the shares of CB Common Stock to be
surrendered in the CB Merger.
2. To the knowledge of Pinnacle, there is no plan or intention by the
stockholders of CB to sell, exchange, or otherwise dispose of a number of shares
of Pinnacle Common Stock to be received in the CB Merger that would reduce the
CB stockholders' ownership of Pinnacle Common Stock to a number of shares having
a value, as of the date of the CB Merger, of less than 50 percent of the value
of all of the formerly outstanding shares of CB Common Stock as of the same
date. For purposes of this representation, shares of CB Common Stock exchanged
for cash in lieu of fractional shares of Pinnacle Common Stock will be treated
as outstanding shares of CB Common Stock on the date of the CB Merger.
Moreover, shares of CB Common Stock and shares of Pinnacle Common Stock held by
CB stockholders and otherwise sold, redeemed, or disposed of prior or subsequent
to the CB Merger will be considered in making this representation.
3. Immediately following the CB Merger, (i) Pinnacle will hold net assets
of Pinnacle having a fair market value equal to at
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<PAGE>
least 90 percent of the fair market value of the net assets held by Pinnacle
immediately prior to the CB Merger and will hold gross assets of Pinnacle having
a fair market value equal to at least 70 percent of the fair market value of the
gross assets held by Pinnacle immediately prior to the CB Merger; and (ii)
Pinnacle will hold net assets of CB having a fair market value equal to at least
90 percent of the fair market value of the net assets held by CB immediately
prior to the CB Merger and gross assets of CB having a fair market value equal
to at least 70 percent of the fair market value of the gross assets held by CB
immediately prior to the CB Merger. For purposes of this representation,
amounts used by Pinnacle and CB, as applicable, to pay reorganization expenses,
and all redemptions and distributions (except for regular normal dividends) made
by Pinnacle and CB, as applicable, will be included as assets of Pinnacle and
CB, as applicable, immediately prior to the CB Merger.
4. Immediately following the CB Merger, Pinnacle will be in "control"
(within the meaning of Section 368(c) of the Internal Revenue Code of 1986, as
amended (the "Code")) of CB.
5. Pinnacle does not have any plan or intention to issue additional
shares of its stock that would result in Pinnacle losing "control" (within the
meaning of Section 368(c) of the Code) of CB immediately following the CB
Merger.
6. Pinnacle has no plan or intention to reacquire any of the specific
shares of Pinnacle Common Stock to be issued in the CB Merger.
7. Except as otherwise expressly provided for in the CB Merger Agreement,
Pinnacle has no plan or intention to (i) liquidate CB, (ii) merge CB with or
into any corporation other than Pinnacle, (iii) sell or otherwise dispose of any
stock of CB except for transfers of stock to corporations controlled by
Pinnacle, or (iv) sell or otherwise dispose of any of its assets or of any of
the assets acquired from CB, except for dispositions made in the ordinary course
of business or transfers of assets to a corporation controlled by Pinnacle.
8. To the knowledge of Pinnacle, all liabilities of CB to be assumed by
Pinnacle upon consummation of the CB Merger, if any, and all liabilities, if
any, encumbering assets of CB that are to be transferred to Pinnacle upon
consummation of the CB Merger, were incurred by CB in the ordinary course of
business.
9. Following the CB Merger, Pinnacle will continue the historic
businesses of Pinnacle and CB or use a significant portion of the assets of
Pinnacle and CB in such historic businesses.
10. Pinnacle will pay its expenses, if any, incurred in connection with
the CB Merger. Pinnacle will not pay any of the expenses of CB (except to the
extent it pays such expenses in its capacity as the surviving corporation of the
CB Merger) or of the stockholders of CB.
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<PAGE>
11. There is no intercorporate indebtedness existing between CB and
Pinnacle that was issued, or was acquired, or will be settled, at a discount.
12. In the CB Merger, shares of CB Common Stock representing "control"
(within the meaning of Section 368(c) of the Code) of CB will be exchanged
solely for voting stock of Pinnacle. For purposes of this representation,
shares of CB Common Stock exchanged for cash or other property originating with
Pinnacle will be treated as outstanding CB Common Stock on the date of the
Merger.
13. At the time of the CB Merger, none of Pinnacle and CB will have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in CB that, if exercised
or converted, would affect Pinnacle's acquisition or retention of "control"
(within the meaning of Section 368(c) of the Code) of CB immediately following
the CB Merger.
14. Pinnacle does not directly own, nor has it directly owned during the
past five years, any shares of the stock of CB.
15. Pinnacle is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
16. The fair market value of the assets of CB to be transferred to
Pinnacle upon consummation of the CB Merger will equal or exceed the sum of the
liabilities to be assumed by Pinnacle, plus the amount of liabilities, if any,
to which the transferred assets are subject. At the Effective Time, the fair
market value of the assets of CB will exceed the sum of its liabilities, plus
the amount of liabilities, if any, to which those assets are subject.
17. Pinnacle is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
PINNACLE FINANCIAL SERVICES, INC.
By: /s/ RICHARD L. SCHANZE Date June 12, 1997
-------------------------------
Richard L. Schanze
Its: President and
Chief Executive Officer
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<PAGE>
REPRESENTATION CERTIFICATE
OF
PINNACLE BANK
Pinnacle Bank, a Michigan banking corporation ("Pinnacle Bank"), makes
the following representations to Miller, Canfield, Paddock and Stone, P.L.C.
for use by Miller, Canfield, Paddock and Stone, P.L.C. in rendering its
opinion relative to certain federal income tax consequences of the merger
(the "CB Subsidiary Bank Merger") of Community Bank, A Federal Savings Bank,
a federal savings bank ("CB Bank"), with and into Pinnacle Bank pursuant to
the Michigan Banking Code of 1969, as amended, the Federal Deposit Insurance
Act, as amended, the Agreement and Plan of Merger and Consolidation to be
executed by and between Pinnacle and CB (the "CB Subsidiary Bank Merger
Agreement"), and certain related instruments and agreements executed, or to
be executed, in connection with the CB Subsidiary Bank Merger Agreement (the
"CB Subsidiary Bank Merger Related Instruments"). Upon consummation of the
CB Subsidiary Bank Merger, and among other things, (i) CB Bank will merge
with and into Pinnacle Bank, with Pinnacle Bank, as the surviving institution
(the "Surviving Bank"), succeeding to all of the assets and liabilities of CB
Bank; (ii) each issued and outstanding share of common stock of CB Bank will
be cancelled; and (iii) each issued and outstanding share of common stock of
Pinnacle Bank will be converted into one share of common stock of the
Surviving Bank. Pinnacle Bank acknowledges and agrees that each of the
following representations constitutes a material representation to be relied
upon by Miller, Canfield, Paddock and Stone, P.L.C. in rendering its opinion,
and any material inaccuracy in any of the following representations may
render the conclusions stated in the opinion of Miller, Canfield, Paddock and
Stone, P.L.C. incorrect.
1. Immediately following the CB Subsidiary Bank Merger, (i) Pinnacle Bank
will hold net assets of Pinnacle Bank having a fair market value equal to at
least 90 percent of the fair market value of the net assets held by Pinnacle
Bank immediately prior to the CB Subsidiary Bank Merger and will hold gross
assets of Pinnacle Bank having a fair market value equal to at least 70 percent
of the fair market value of the gross assets held by Pinnacle Bank immediately
prior to the CB Subsidiary Bank Merger; and (ii) Pinnacle Bank will hold net
assets of CB Bank having a fair market value equal to at least 90 percent of the
fair market value of the net assets held by CB Bank immediately prior to the CB
Subsidiary Bank Merger and gross assets of CB Bank having a fair market value
equal to at least 70 percent of the fair market value of the gross assets held
by CB Bank immediately prior to the CB Subsidiary Bank Merger. For purposes of
this representation, amounts used by Pinnacle Bank and CB Bank, as applicable,
to pay reorganization expenses, and all redemptions and distributions (except
for regular normal dividends) made by Pinnacle Bank and CB Bank, as applicable,
will be included as assets of Pinnacle Bank
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<PAGE>
and CB Bank, as applicable, immediately prior to the CB Subsidiary Bank Merger.
2. Immediately following the CB Subsidiary Bank Merger, Pinnacle Bank
will be in "control" (within the meaning of Section 368(c) of the Internal
Revenue Code of 1986, as amended (the "Code")) of CB Bank.
3. Pinnacle Bank does not have any plan or intention to issue additional
shares of its stock that would result in Pinnacle Bank losing "control" (within
the meaning of Section 368(c) of the Code) of CB Bank immediately following the
CB Subsidiary Bank Merger.
4. Except as otherwise expressly provided for in the CB Subsidiary Bank
Merger Agreement, Pinnacle Bank has no plan or intention to (i) liquidate CB
Bank, (ii) merge CB Bank with or into any corporation other than Pinnacle Bank,
(iii) sell or otherwise dispose of any stock of CB Bank except for transfers of
stock to corporations controlled by Pinnacle Bank, or (iv) sell or otherwise
dispose of any of its assets or of any of the assets acquired from CB Bank,
except for dispositions made in the ordinary course of business or transfers of
assets to a corporation controlled by Pinnacle Bank.
5. To the knowledge of Pinnacle Bank, all liabilities of CB Bank to be
assumed by Pinnacle Bank upon consummation of the CB Subsidiary Bank Merger, if
any, and all liabilities, if any, encumbering assets of CB Bank that are to be
transferred to Pinnacle Bank upon consummation of the CB Subsidiary Bank Merger,
were incurred by CB Bank in the ordinary course of business.
6. Following the CB Subsidiary Bank Merger, Pinnacle Bank will continue
the historic businesses of Pinnacle Bank and CB Bank or use a significant
portion of the assets of Pinnacle Bank and CB Bank in such historic businesses.
7. Pinnacle will pay its expenses, if any, incurred in connection with
the CB Subsidiary Bank Merger. Pinnacle Bank will not pay any of the expenses
of CB (except to the extent it pays such expenses in its capacity as the
surviving corporation of the CB Bank Subsidiary Bank Merger) or of the
stockholders of CB Bank.
8. There is no intercorporate indebtedness existing between CB Bank and
Pinnacle Bank that was issued, or was acquired, or will be settled, at a
discount.
9. At the time of the CB Subsidiary Bank Merger, none of Pinnacle Bank
and CB Bank will have outstanding any warrants, options, convertible securities,
or any other type of right pursuant to which any person could acquire stock in
CB Bank that, if exercised or converted, would affect Pinnacle's acquisition or
retention of "control" (within the meaning of Section 368(c) of the Code) of CB
Bank immediately following the CB Subsidiary Bank Merger.
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<PAGE>
10. Pinnacle Bank does not directly own, nor has it directly owned during
the past five years, any shares of the stock of CB Bank.
11. Pinnacle Bank is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
12. The fair market value of the assets of CB Bank to be transferred to
Pinnacle Bank upon consummation of the CB Subsidiary Bank Merger will equal or
exceed the sum of the liabilities to be assumed by Pinnacle Bank, plus the
amount of liabilities, if any, to which the transferred assets are subject. At
the effective time of the CB Subsidiary Bank Merger, the fair market value of
the assets of CB Bank will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which those assets are subject.
13. Pinnacle Bank is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
PINNACLE BANK
By: /s/ RICHARD L. SCHANZE Date June 12, 1997
------------------------------
Richard L. Schanze
Its: Chief Executive Officer
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<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 headings "Acquisition
of Maco Bancorp, Inc." and "Experts" in the prospectus, as amended.
KPMG Peat Marwick LLP
Chicago, Illinois
June 11, 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. 3 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
June 10, 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. 3 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 23, 1997, with respect to the consolidated financial statements of
CB Bancorp, Inc., included in its Annual Report (Form 10-KSB) for
the year ended March 31, 1996, filed with the Securities and Exchange
Commission.
Crowe, Chizek and Company LLP
South Bend, Indiana
June 12, 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 E 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
June 12, 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 F 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
June 12, 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 Indiana Federal Corporation included as Annex G 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.
June 16, 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 CB Bancorp, Inc. included as Annex H 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
a Division of Keefe, Broyette & Woods
June 12, 1997
<PAGE>
Exhibit 99(i)
PROXY PINNACLE FINANCIAL SERVICES, INC. PROXY
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON WEDNESDAY, JULY 30, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
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 the
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. The affirmative vote of a majority of the shares represented at
the Pinnacle Annual Meeting may authorize the adjournment of the meeting;
provided, however, that no proxy which is voted against any proposal will be
voted in favor of adjournment to solicit further proxies for such proposal.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD.
RETURN THIS PROXY PROMPTLY USING THE ENCLOSED POSTAGE PAID RETURN ENVELOPE
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
<PAGE>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY /X/
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, 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. to vote for all
nominees listed.
/ / / /
(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).
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).
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
/ / For / / Against / / Abstain
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PINNACLE
FINANCIAL SERVICES, INC. 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 or the Pinnacle
Annual Meeting.
Dated: , 1997
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Signature(s)
Please sign exactly as your 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 an authorized person.
<PAGE>
Exhibit 99(j)
[FRONT SIDE OF PROXY]
INDIANA FEDERAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON WEDNESDAY, JULY 30, 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 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. The affirmative vote of a majority
of the shares represented at the IFC Annual Meeting may authorize the
adjournment of the meeting; provided, however, that no proxy which is voted
against any proposal will be voted in favor of adjournment to solicit further
proxies for such proposal.
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,
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).
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 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 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.
Please sign exactly as your 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 an authorized person.
Date
------------------------
--------------------------------------------------------------------
Stockholder sign above Co-holder (if any) sign above
- -DETACH ABOVE CARD, SIGN, DATE AND MAIL IN THE ENCLOSED POSTAGE PAID ENVELOPE.-
INDIANA FEDERAL CORPORATION
<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 WEDNESDAY, JULY 30, 1997
The Stockholder executing this Proxy appoints James J. Broad, Ken O.
Fryar, Robert V. Ott, and J. Patrick Smith, 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
<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).
/ / 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 CB SPECIAL MEETING, THIS
PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES REPRESENTED AT THE CB SPECIAL
MEETING MAY AUTHORIZE THE ADJOURNMENT OF THE MEETING; PROVIDED, HOWEVER, THAT
NO PROXY WHICH IS VOTED AGAINST ANY PROPOSAL WILL BE VOTED IN FAVOR OF
ADJOURNMENT TO SOLICIT FURTHER PROXIES FOR SUCH PROPOSAL.
The undersigned Stockholder hereby (i) revokes any and all proxies
previously executed with respect to the CB Special Meeting, and (ii)
acknowledges receipt of the Notice and Joint Proxy Statement/Prospectus for
the CB Special Meeting.
Signature(s)
----------------------------------------
----------------------------------------
Please sign exactly as your 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 an authorized
person.
Dated: , 1997
------------------------
<PAGE>
EXHIBIT (99)(l)
FORM OF CERTIFICATE CONTEMPLATED TO BE DELIVERED
PURSUANT TO SECTION 7.2(H) OF THE
AGREEMENT AND PLAN OF MERGER DATED AS OF
MARCH 1, 1997 BY AND BETWEEN
PINNACLE FINANCIAL SERVICES, INC.
AND CB BANCORP, INC.
The undersigned hereby certifies that, as of the close of business on
_______________, 199__:(i) the Net Worth of CB Bancorp, Inc., as that term is
defined in that certain Agreement and Plan of Merger dated as of March 1, 1997,
by and between Pinnacle Financial Services, Inc. and CB Bancorp, Inc.
(the "Agreement"), is not less than $___________; and (ii) said Net Worth has
been determined in accordance with Section 7.2(h) of the Agreement.
[DATE] [SIGNATURE]
<PAGE>
EXHIBIT (99)(m)
Director/Executive Officer
CONSENT
In the Joint Proxy Statement/Prospectus included in the Registration
Statement on Form S-4 to which this Consent is an exhibit (the "Joint Proxy
Statement/Prospectus"), I am named as a person who is, or in connection with
the consummation of the IFC Merger or the CB Merger (as those terms are used
in the Joint Proxy Statement/Prospectus) will be or become, a director of
Pinnacle Financial Services, Inc., as the surviving corporation in the IFC
Merger and/or the CB Merger ("Pinnacle"). I hereby consent to being so named
and confirm my consent to serve in such capacity. In addition, to the extent
I am named in the Joint Proxy Statement/Prospectus as a person who is, or
will be or become, an Executive Officer or other officer of Pinnacle or a
director or officer of any subsidiary thereof, I hereby consent to being so
named and confirm my consent to serve in such capacity.
Date: Signature:
/s/ Richard L. Schanze
June 12, 1997 ---------------------------
Name: Richard L. Schanze
<PAGE>
Director/Executive Officer
CONSENT
In the Joint Proxy Statement/Prospectus included in the Registration
Statement on Form S-4 to which this Consent is an exhibit (the "Joint Proxy
Statement/Prospectus"), I am named as a person who is, or in connection with
the consummation of the IFC Merger or the CB Merger (as those terms are used
in the Joint Proxy Statement/Prospectus) will be or become, a director of
Pinnacle Financial Services, Inc., as the surviving corporation in the IFC
Merger and/or the CB Merger ("Pinnacle"). I hereby consent to being so named
and confirm my consent to serve in such capacity. In addition, to the extent
I am named in the Joint Proxy Statement/Prospectus as a person who is, or
will be or become, an Executive Officer or other officer of Pinnacle or a
director or officer of any subsidiary thereof, I hereby consent to being so
named and confirm my consent to serve in such capacity.
Date: Signature:
/s/ Arnold L. Weaver
June 12, 1997 -------------------------------
Name: Arnold L. Weaver
<PAGE>
Director/Executive Officer
CONSENT
In the Joint Proxy Statement/Prospectus included in the Registration
Statement on Form S-4 to which this Consent is an exhibit (the "Joint Proxy
Statement/Prospectus"), I am named as a person who is, or in connection with
the consummation of the IFC Merger (as that term is used in the Joint Proxy
Statement/ Prospectus) will be or become, a director of Pinnacle Financial
Services, Inc., as the surviving corporation in the IFC Merger ("Pinnacle").
I hereby consent to being so named and confirm my consent to serve in such
capacity. In addition, to the extent I am named in the Joint Proxy
Statement/Prospectus as a person who is, or will be or become, an Executive
Officer or other officer of Pinnacle or a director or officer of any
subsidiary thereof, I hereby consent to being so named and confirm my consent
to serve in such capacity.
Date: Signature:
/s/ Donald A. Lesch
June 12, 1997 --------------------------------
Name: Donald A. Lesch
<PAGE>
Director/Executive Officer
CONSENT
In the Joint Proxy Statement/Prospectus included in the Registration
Statement on Form S-4 to which this Consent is an exhibit (the "Joint Proxy
Statement/Prospectus"), I am named as a person who is, or in connection with
the consummation of the IFC Merger (as that term is used in the Joint Proxy
Statement/ Prospectus) will be or become, a director of Pinnacle Financial
Services, Inc., as the surviving corporation in the IFC Merger ("Pinnacle").
I hereby consent to being so named and confirm my consent to serve in such
capacity. In addition, to the extent I am named in the Joint Proxy
Statement/Prospectus as a person who is, or will be or become, an Executive
Officer or other officer of Pinnacle or a director or officer of any
subsidiary thereof, I hereby consent to being so named and confirm my consent
to serve in such capacity.
Date: Signature:
/s/ Howard Silverman
June 12, 1997 -------------------------------
Name: Howard Silverman
<PAGE>
Director/Executive Officer
CONSENT
In the Joint Proxy Statement/Prospectus included in the Registration
Statement on Form S-4 to which this Consent is an exhibit (the "Joint Proxy
Statement/Prospectus"), I am named as a person who is, or in connection with
the consummation of the CB Merger (as that term is used in the Joint Proxy
Statement/ Prospectus) will be or become, a director of Pinnacle Financial
Services, Inc., as the surviving corporation in the CB Merger ("Pinnacle").
I hereby consent to being so named and confirm my consent to serve in such
capacity. In addition, to the extent I am named in the Joint Proxy
Statement/Prospectus as a person who is, or will be or become, an Executive
Officer or other officer of Pinnacle or a director or officer of any
subsidiary thereof, I hereby consent to being so named and confirm my consent
to serve in such capacity.
Date: Signature:
/s/ Joseph F. Heffernan
June 12, 1997 -------------------------------
Name: Joseph F. Heffernan
