<PAGE>
As filed with the Securities and Exchange Commission on December 31, 1998
Registration No. [________]
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
Registration Statement Under the Securities Act of 1933
AVONDALE FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6035 36-3895923
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
20 NORTH CLARK STREET ROBERT S. ENGELMAN, JR.
CHICAGO, ILLINOIS 60602 AVONDALE FINANCIAL CORP.
(312) 782-6200 20 NORTH CLARK STREET
CHICAGO, ILLINOIS 60602
(312) 782-6200
(Address, including ZIP code, and telephone (Name, address, including ZIP code,
number, including area code, of registrant's and telephone number, including area
principal executive offices) code, of agent for service)
COPIES TO:
CHRISTOPHER R. KELLY, P.C. MITCHELL FEIGER ROBERT A. SMOLLER, ESQ.
SILVER, FREEDMAN & TAFF, L.L.P. PRESIDENT RICHARD J. FIRFER, ESQ.
1100 NEW YORK AVENUE, N.W. COAL CITY CORPORATION SCHWARTZ, COOPER, GREENBERGER &
SUITE 700 1200 NORTH ASHLAND AVENUE KRAUSS, CHARTERED
WASHINGTON, D.C. 20005 CHICAGO, ILLINOIS 60622-2298 180 NORTH LASALLE STREET
SUITE 2700
CHICAGO, ILLINOIS 60601
</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 formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If the Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
____________________
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 this registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
Calculation of Registration Fee
<TABLE>
<CAPTION>
=======================================================================================================================
Proposed maximum Proposed maximum Amount
Title of each class of Amount to offering price aggregate offering of
securities to be registered be registered per share price registration fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 4,100,000 shares/(1)/ $11.50/(2)/ $47,155,000/(2)/ $13,911/(2)(3)/
=======================================================================================================================
(1) Represents the maximum number of shares of Avondale Financial Corp. ("Avondale") common stock, par value $.01 per
share, issuable upon consummation of the merger of Coal City Corporation ("Coal City") with and into Avondale,
described herein.
(2) Estimated solely for the purpose of calculating the registration fee. The registration fee has been computed
pursuant to Rule 457(f)(1) under the Securities Act of 1933, as amended, based on the book value of Coal City
common stock, stated value $10.00 per share, on September 30, 1998 of $47,155,000. The proposed maximum offering
price per share has been determined by dividing the proposed maximum aggregate offering price by the number of
shares being registered.
(3) Pursuant to Rule 457(b), the amount of the registration fee has been reduced by the $9,431 paid on December 3,
1998 in connection with the filing of a preliminary proxy statement/prospectus pursuant to Rule 14a-6 under the
Securities Exchange Act of 1934, as amended. Accordingly, the registration fee payable upon the filing of the
Registration Statement is $4,480.
=======================================================================================================================
</TABLE>
<PAGE>
[AVONDALE LOGO]
January 8, 1999
Dear Stockholder:
The Board of Directors of Avondale is proposing a "merger of equals" with
Coal City Corporation. We carefully reviewed the proposed merger and unanimously
concluded that it is in the best interests of the Avondale stockholders. Our
financial advisor, Hovde Financial, Inc., has issued an opinion that the merger
agreement is fair to the Avondale stockholders.
As part of the merger proposal we are also asking you to approve changing
the name of the combined company to MB Financial, Inc. As MB Financial, Inc.,
we will be a well capitalized institution serving our customers through 13 full
service offices in the Chicago metropolitan area. We believe that the merger
presents an opportunity to enter the commercial banking business, with an
emphasis on small and middle market companies, and to expand retail operations
and pursue other attractive opportunities.
We will hold the Special Meeting of Stockholders to consider the merger
proposal and certain other matters at the Avondale branch office, 2965 North
Milwaukee Avenue, Chicago, Illinois, on February 10, 1999 at 9:00 a.m., local
time. We encourage you to attend.
The terms of the proposed merger and other important information relating
to Avondale, Coal City and the combined company are explained in the
accompanying Proxy Statement/Prospectus. Please give this document your prompt
attention.
The merger will be completed only if we receive the necessary regulatory
approvals and the stockholders of both Avondale and Coal City vote for it.
You will also be asked at the Special Meeting to approve amendments to
Avondale's Certificate of Incorporation to:
. increase the number of authorized shares of common stock from
10,000,000 to 20,000,000; and
<PAGE>
. establish procedures for filling newly created directorships and
vacancies for three years after the merger consistent with provisions
set forth in the Avondale Bylaws.
Lastly, you will be asked to approve amendments to Avondale's 1997 Omnibus
Incentive Plan to increase from 350,000 to 1,000,000 the number of shares of
Avondale common stock that can be issued under the Plan, to increase from 75,000
to 200,000 the number of shares of restricted stock that can be issued under the
Plan and to increase from 35,000 to 75,000 the number of shares of Avondale
common stock subject to awards that may be granted to any one participant in any
calendar year.
The amendments to the Avondale Certificate and Omnibus Plan will be
implemented only if the merger is consummated.
We encourage you to vote FOR the merger proposal and the Avondale
Certificate and Omnibus Plan proposals. You can vote by marking the enclosed
proxy card and mailing it in the enclosed prepaid envelope. Please act soon.
We encourage you to attend the Special Meeting in person. Whether or not
you do, we hope you will read the Proxy Statement/Prospectus and then complete,
sign and date the proxy card and return it in the enclosed postage-paid
envelope. This will save Avondale additional expense in soliciting proxies and
will ensure that your shares are represented. You may vote in person at the
Special Meeting even if you have already returned the proxy.
If you have any questions, please call me.
Thank you for your attention to this important matter.
Sincerely,
Robert S. Engelman, Jr.
President and Chief Executive Officer
<PAGE>
[MB LOGO]
COAL CITY CORPORATION
January 8, 1999
Dear Stockholder:
You are invited to attend a Special Meeting of Stockholders of Coal City
Corporation to be held at the Manufacturers Bank Building at 1200 North Ashland
Avenue, Chicago, Illinois, on February, 10, 1999 at 1:30 p.m., local time.
At the Special Meeting, you will consider the proposed merger of Coal City
with Avondale Financial Corp. in a "merger of equals" transaction. Based on the
number of shares of Avondale common stock and Coal City common stock outstanding
on December 31, 1998, Coal City's stockholders will own approximately 58.8% of
the combined company. Members of Coal City's Board of Directors will represent
between 50% and 56% of the combined company's Board of Directors. The Board of
Directors believes that Coal City's branch network is a good fit with Avondale's
branch network. The combined company, to be named MB Financial, Inc., will be
well capitalized, providing the ability to expand retail operations and to
pursue other attractive strategic and financial initiatives that may arise over
time.
Each share of Coal City common stock outstanding at the time of the merger
(other than shares subject to dissenters' rights) will be converted into 83.5
shares of Avondale common stock. Holders of fractional shares of Coal City
common stock will be paid the cash value of their fractional shares. Upon the
merger, the name of the combined company will be MB Financial, Inc. The merger
is conditioned upon, among other things, receipt of the necessary regulatory
approvals and the approval of the stockholders of Coal City and Avondale.
The Board of Directors has approved the merger and believes that the merger
is in the best interests of Coal City and its stockholders. Accordingly, the
Board of Directors recommends that you vote FOR approval of the merger.
Please read the accompanying Proxy Statement/Prospectus, which provides
information regarding the merger and related matters. If you have any
questions, please call me.
<PAGE>
Your vote is important, regardless of the number of shares you own. ON
BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY AS SOON AS POSSIBLE EVEN IF YOU CURRENTLY PLAN TO ATTEND THE
SPECIAL MEETING. This will not prevent you from voting in person but will
assure that your vote is counted if you do not attend the Special Meeting.
Sincerely,
Mitchell Feiger
President
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
YOU WILL RECEIVE INSTRUCTIONS FOLLOWING THE MERGER
FOR EXCHANGE OF STOCK CERTIFICATES.
<PAGE>
AVONDALE FINANCIAL CORP.
[AVONDALE LOGO] 20 N. CLARK STREET
CHICAGO, ILLINOIS 60602
(312) 782-6200
________________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A Special Meeting of Stockholders of Avondale Financial Corp. will be held
as follows:
Date: February 10, 1999
Time: 9:00 a.m., local time
Place: Avondale branch office,
2965 North Milwaukee Avenue
Chicago, Illinois
The Special Meeting will be held for the following purposes:
1. To adopt the Agreement and Plan of Merger, dated as of October 12,
1998, as amended, by and between Coal City Corporation and Avondale, and
the transactions contemplated thereby, including the conversion of certain
Coal City stock options into Avondale stock options and the amendment to
Avondale's Certificate of Incorporation to change Avondale's name to MB
Financial, Inc.
2. To adopt an amendment to the Avondale Certificate of Incorporation
to increase the number of authorized shares of common stock from 10,000,000
to 20,000,000.
3. To adopt an amendment to the Avondale Certificate of Incorporation
to establish procedures for filling newly created directorships and
vacancies.
4. To adopt amendments to Avondale's 1997 Omnibus Incentive Plan to
increase from 350,000 to 1,000,000 the number of shares of common stock
that can be issued under the Plan, to increase from 75,000 to 200,000 the
number of shares of restricted stock that can be issued under the Plan and
to increase from 35,000 to 75,000 the number of shares of Avondale common
stock subject to awards that may be granted to any one participant in any
calendar year.
5. To transact such other business as may properly come before the
Special Meeting or any adjournments and postponements.
The Board of Directors of Avondale is not aware of any other business to
come before the Special Meeting.
We have enclosed a proxy card and a Proxy Statement/Prospectus for the
Special Meeting.
These proposals may be voted on at the Special Meeting or on any
adjournment or postponement of the Special Meeting. You can vote at the Special
Meeting if you owned Avondale common stock at the close of business on December
31, 1998. If the proposals haven't received enough votes, the Special Meeting
may be
<PAGE>
adjourned for further solicitation of proxies, however, no proxy voted against
any proposal will be voted in favor of adjournment to solicit further proxies
for that proposal. A list of Avondale stockholders entitled to vote at the
Special Meeting will be available at Avondale's main office during business
hours for at least ten days prior to the Special Meeting, and at the Special
Meeting.
Please complete, sign and date the enclosed proxy, and mail it promptly in
the enclosed postage-paid envelope. The proxy will not be used if you attend and
vote at the Special Meeting in person.
If you have any questions or require assistance, please call D.F. King Co.,
Inc., which is assisting us, at (800) 755-3105.
By Order of the Board of Directors,
Robert S. Engelman, Jr.
President and Chief Executive Officer
Chicago, Illinois
January 8, 1999
- --------------------------------------------------------------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO BE PRESENT AT THE SPECIAL MEETING, PLEASE SIGN, DATE AND COMPLETE
THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
- --------------------------------------------------------------------------------
<PAGE>
[MB LOGO]
COAL CITY CORPORATION
1200 North Ashland Avenue
Chicago, Illinois 60622
(773) 278-4040
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on February 10, 1999
A Special Meeting of Stockholders of Coal City Corporation will be held at
the Manufacturers Bank Building at 1200 North Ashland Avenue, Chicago, Illinois,
on February 10, 1999 at 1:30 p.m., local time.
The Special Meeting is for the following purposes:
1. To adopt the Agreement and Plan of Merger, dated as of October 12,
1998, as amended, by and between Coal City and Avondale Financial Corp. and
the transactions contemplated thereby.
2. To transact other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
The Board of Directors is not aware of any other business to come before
the Special Meeting.
WE HAVE ENCLOSED A PROXY CARD AND A PROXY STATEMENT/PROSPECTUS FOR THE
SPECIAL MEETING.
Any action may be taken on any of these proposals at the Special Meeting,
or on any adjournment or postponement of the Special Meeting. Stockholders of
record at the close of business on December 31, 1998, are entitled to vote at
the Special Meeting.
PLEASE COMPLETE AND SIGN THE ENCLOSED FORM OF PROXY WHICH IS SOLICITED BY
THE BOARD OF DIRECTORS AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE. THE PROXY
WILL NOT BE USED IF YOU ATTEND AND VOTE AT THE SPECIAL MEETING IN PERSON.
By Order of the Board of Directors,
Mitchell Feiger
President
Chicago, Illinois
January 8, 1999
- --------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE COAL CITY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. AN ADDRESSED ENVELOPE
IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
- --------------------------------------------------------------------------------
<PAGE>
PROXY STATEMENTS OF AVONDALE FINANCIAL CORP.
AND COAL CITY CORPORATION
___________________________
PROSPECTUS OF AVONDALE FINANCIAL CORP. FOR UP TO
4,087,910 SHARES OF COMMON STOCK, $.01 PAR VALUE
___________________________
This Proxy Statement/Prospectus relates to the proposed "merger of equals"
between Coal City and Avondale (Merger). If Coal City and Avondale merge,
Avondale will issue to stockholders of Coal City 83.5 shares of Avondale common
stock for each share of Coal City common stock that they hold at the close of
the Merger. Fractional shares will be paid in cash. Coal City stockholders who
properly dissent from the Merger will receive cash instead of shares. If the
Merger occurs, based on the number of shares of Avondale common stock and Coal
City common stock outstanding at December 31, 1998, Coal City's stockholders
would own approximately 58.5% of the combined company and Avondale's
stockholders will own the remainder.
Avondale common stock trades on the Nasdaq National Market under the symbol
"AVND." On January ___, 1999 Avondale common stock traded at _______ per share,
so the value of 83.5 shares was approximately ________ on that date. The
trading price of Avondale common stock will fluctuate, however, so the value of
the Avondale common stock to be received by Coal City stockholders will change.
We cannot complete the Merger unless the stockholders of both of our
companies and the regulatory authorities approve it. Each of us will hold a
meeting of our stockholders to vote on this merger proposal. YOUR VOTE IS VERY
IMPORTANT. Whether or not you plan to attend your stockholder meeting, please
take the time to vote by completing and mailing the enclosed proxy card. If you
sign, date and mail your proxy card without indicating how you want to vote,
your proxy will be counted as a vote in favor of the Merger. NOT RETURNING YOUR
CARD OR NOT INSTRUCTING YOUR BROKER HOW TO VOTE ANY SHARES HELD FOR YOU IN
"STREET NAME" WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER.
-------
The date of this Proxy Statement/Prospectus is January __, 1999. This
Proxy Statement/Prospectus and the accompanying notices and proxy cards are
first being mailed to stockholders of Avondale and Coal City on or about January
8, 1999.
<PAGE>
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER GOVERNMENTAL
AGENCY HAS APPROVED OR DISAPPROVED OF THE AVONDALE COMMON STOCK TO BE ISSUED
UNDER THIS PROXY STATEMENT/PROSPECTUS IN THE MERGER OR DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE AVONDALE COMMON STOCK OFFERED HEREBY IS NOT A SAVINGS ACCOUNT, DEPOSIT
OR OTHER OBLIGATION OF ANY BANK OR SAVINGS ASSOCIATION AND IS NOT INSURED BY ANY
GOVERNMENTAL AGENCY.
- --------------------------------------------------------------------------------
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SUMMARY......................................................................................... 1
The Companies.............................................................................. 1
Avondale Financial Corp. and Avondale Federal Savings Bank............................ 1
Coal City Corporation and Manufacturers Bank.......................................... 1
The Stockholder Meetings................................................................... 1
Avondale Stockholders................................................................. 1
Coal City Stockholders................................................................ 2
The Merger................................................................................. 2
General............................................................................... 2
Our Reasons for the Merger............................................................ 3
Recommendations to Stockholders....................................................... 3
Merger Consideration.................................................................. 3
Coal City Stock Options............................................................... 3
Opinions of Financial Advisors........................................................ 3
Dissenters' Rights.................................................................... 4
Interests of Directors and Officers in the Merger That are Different From Your
Interests............................................................................. 4
What We Need to do to Complete the Merger............................................. 5
Regulatory Approvals.................................................................. 5
Waiver and Amendment.................................................................. 5
Termination........................................................................... 5
Covenants Pending Closing............................................................. 6
Federal Income Tax Consequences of the Merger......................................... 6
Certain Related Transactions.......................................................... 6
Stock Option Agreements............................................................... 6
Divestiture of Mortgage Banking Business.............................................. 7
COMPARATIVE STOCK PRICES AND DIVIDEND INFORMATION............................................... 8
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF AVONDALE FINANCIAL CORP....................... 10
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF COAL CITY CORPORATION......................... 12
AVONDALE FINANCIAL CORP. AND AVONDALE FEDERAL SAVINGS BANK...................................... 14
Avondale Financial Corp............................................................... 14
Avondale Federal Savings Bank......................................................... 14
Security Ownership.................................................................... 15
COAL CITY CORPORATION AND MANUFACTURERS BANK.................................................... 17
Coal City Corporation................................................................. 17
Security Ownership.................................................................... 18
THE SPECIAL MEETINGS............................................................................ 19
Avondale Special Meeting.............................................................. 19
Coal City Special Meeting............................................................. 21
THE MERGER...................................................................................... 23
General............................................................................... 23
Background of and Reasons for the Merger.............................................. 23
Recommendations of the Boards of Directors............................................ 27
Merger Consideration.................................................................. 27
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Treatment of Coal City Stock Options................................................ 28
Opinion of Avondale Financial Advisor............................................... 28
No Opinion of Coal City Financial Advisor........................................... 31
Dissenters' Rights.................................................................. 31
Fractional Shares................................................................... 33
Exchange of Certificates............................................................ 33
Interests of Directors and Officers in the Merger That Are Different From Your
Interests........................................................................... 34
Representations and Warranties...................................................... 36
Conditions to the Merger............................................................ 37
The Contribution.................................................................... 39
The Bank Merger..................................................................... 39
Regulatory Approvals................................................................ 39
Waiver and Amendment; Termination................................................... 40
Covenants Pending Closing........................................................... 42
Expenses............................................................................ 44
Accounting Treatment................................................................ 44
Resales of Avondale Common Stock by Affilites....................................... 44
Federal Income Tax Consequences of the Merger....................................... 44
Nasdaq Listing...................................................................... 46
MANAGEMENT AFTER THE MERGER................................................................... 46
CERTAIN RELATED TRANSACTIONS.................................................................. 48
Stock Option Agreements............................................................. 48
Divestiture of Mortgage Banking Business............................................ 51
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION............................... 52
DESCRIPTION OF AVONDALE FINANCIAL CORP. CAPITAL STOCK......................................... 63
General............................................................................. 63
Common Stock........................................................................ 63
Preferred Stock..................................................................... 64
BUSINESS OF AVONDALE FINANCIAL CORP........................................................... 65
BUSINESS OF COAL CITY CORPORATION............................................................. 75
General............................................................................. 75
History and Development............................................................. 75
Business Areas...................................................................... 77
Lending Activities.................................................................. 80
Investment Securities............................................................... 83
Sources of Funds.................................................................... 84
Properties.......................................................................... 87
Directors and Executive Management.................................................. 88
Management Compensation............................................................. 89
Competition......................................................................... 91
Legal Proceedings................................................................... 91
Personnel........................................................................... 91
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OF
COAL CITY CORPORATION......................................................................... 92
General............................................................................. 92
Analysis of Net Interest Income..................................................... 93
Comparison of Results of Operations for the Nine Months Ended
September 30, 1998 and September 30, 1997......................................... 96
Comparison of Results of Operations for the Years Ended December 31, 1997 and
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
December 31, 1996.................................................................... 97
Comparison of Results of Operations for the Years Ended December 31, 1996 and
December 31, 1995.................................................................... 98
Comparison of Financial Condition at September 30, 1998 to December 31, 1997........... 99
Comparison of Financial Condition at December 31, 1997 to December 31, 1996............ 99
Core Deposit Intangibles and Goodwill.................................................. 100
Cash Earnings.......................................................................... 100
Asset Quality.......................................................................... 101
Asset Liability Management............................................................. 106
Liquidity.............................................................................. 108
Capital Resources...................................................................... 109
Statements of Cash Flows............................................................... 110
Year 2000.............................................................................. 110
Effects of Inflation................................................................... 111
SUPERVISION AND REGULATION OF AVONDALE FINANCIAL CORP. AS THE SURVIVING CORPORATION.............. 112
COMPARISON OF RIGHTS OF STOCKHOLDERS OF AVONDALE FINANCIAL CORP. AND COAL CITY
CORPORATION...................................................................................... 116
Introduction........................................................................... 116
Issuance of Capital Stock.............................................................. 116
Payment of Dividends................................................................... 116
Special Meetings of Stockholders....................................................... 117
Advance Notice Requirements for Nominations of Directors and Presentation
of New Business at Annual Meetings of Stockholders..................................... 117
Cumulative Voting for Election of Directors............................................ 117
Restrictions on Voting Rights; Quorum.................................................. 117
Number and Term of Directors........................................................... 117
Removal of Directors................................................................... 118
Filling Vacancies on the Board of Directors............................................ 118
Amendment of Articles or Certificate of Incorporation and Bylaws....................... 118
Business Combinations with Certain Persons............................................. 118
Prevention of Greenmail................................................................ 119
Limitations on Directors' Liability.................................................... 119
Indemnification........................................................................ 120
Dissenters' Rights..................................................................... 120
AMENDMENTS TO CERTIFICATE OF INCORPORATION OF AVONDALE FINANCIAL CORP............................ 120
General................................................................................ 120
Change of Name......................................................................... 121
Increase in Authorized Shares of Capital Stock......................................... 121
New Directorships and Vacancies........................................................ 122
AMENDMENTS TO 1997 OMNIBUS INCENTIVE PLAN OF AVONDALE FINANCIAL CORP............................. 123
LEGAL MATTERS.................................................................................... 128
INDEPENDENT ACCOUNTANTS.......................................................................... 128
STOCKHOLDER MATTERS.............................................................................. 128
OTHER MATTERS.................................................................................... 129
WHERE YOU CAN FIND ADDITIONAL INFORMATION........................................................ 129
FORWARD LOOKING STATEMENTS....................................................................... 131
INDEX TO FINANCIAL STATEMENTS OF COAL CITY CORPORATION........................................... F-1
</TABLE>
v
<PAGE>
APPENDICES
I. Agreement and Plan of Merger, as amended (including the Stock Option
Agreements, but omitting other schedules and exhibits)
II. Text of proposed amendments to Certificate of Incorporation of
Avondale
III. Fairness Opinion of Hovde Financial, Inc.
IV. Text of Sections 11.65 and 11.70 of the Illinois Business Corporation
Act
vi
<PAGE>
SUMMARY
This section briefly summarizes some of the information in this Proxy
Statement/Prospectus. Certain capitalized terms used in this summary are defined
elsewhere in this Proxy Statement/Prospectus. Because this is a summary, it does
not contain all the information that may be important to you. You should read
the entire Proxy Statement/Prospectus and its appendices carefully before you
decide how to vote.
THE COMPANIES
AVONDALE FINANCIAL CORP. AND
AVONDALE FEDERAL SAVINGS BANK
20 N. Clark Street
Chicago, Illinois 60602
(312) 782-6200
Avondale is the holding company for Avondale Federal Savings Bank. It
operates five banking offices in the Chicago metropolitan area. The business of
Avondale Bank currently consists primarily of making residential mortgage, home
equity and other loans. Its home equity loans and other mortgage loan products
are originated in over 30 states. However, it is a condition of the Merger that
Avondale divest itself of its mortgage banking business, either through the sale
of the business or its dissolution. Accordingly, with minimal exceptions, upon
the Merger Avondale will cease offering its loan products. The combined
company, operating as MB Financial, Inc., intends to continue offering the loan
products of Coal City, funded with the deposits of Avondale and Coal City and
other traditional sources. At September 30, 1998, Avondale had assets of $508.7
million, deposits of $360.1 million and stockholders' equity of $38.1 million.
COAL CITY CORPORATION AND MANUFACTURERS BANK
1200 North Ashland Avenue
Chicago, Illinois 60622
(773) 278-4040
Coal City is a bank holding company which conducts a commercial banking
business throughManufacturers Bank. Manufacturers Bank operates eight offices
in the Chicago metropolitan area. At September 30, 1998, Coal City had total
assets of $824.3 million, deposits of $634.6 million and stockholders' equity of
$57.4 million.
THE STOCKHOLDER MEETINGS
AVONDALE STOCKHOLDERS (page 19)
Meeting Date. The Avondale Special Meeting will be held on February
10, 1999, at the Avondale branch office, 2965 North Milwaukee Avenue, Chicago,
Illinois, at 9:00 a.m., local time.
Record Date. You can vote at the Avondale Special Meeting if you owned
Avondale common stock at the close of business on December 31, 1998.
Matters to be Considered. At the Avondale Special Meeting the Avondale
stockholders will be asked:
1. To adopt the Merger Agreement, including the conversion of certain
Coal City stock options into Avondale stock options and the amendment
to Avondale's Certificate of Incorporation to change Avondale's name
to MB Financial, Inc.
2. To adopt an amendment to the Avondale Certificate to increase the
number of authorized shares of common stock from 10,000,000 to
20,000,000.
1
<PAGE>
3. To adopt an amendment to the Avondale Certificate to establish
procedures for filling newly created directorships and vacancies.
4. To adopt amendments to Avondale's 1997 Omnibus Incentive Plan to
increase from 350,000 to 1,000,000 the number of shares of common
stock that can be issued under the Plan, to increase from 75,000 to
200,000 the number of shares of restricted stock that can be issued
under the Plan and to increase from 35,000 to 75,000 the number of
shares of Avondale common stock subject to awards that may be granted
to any one participant in any calendar year.
5. To transact such other business as may properly come before the
Special Meeting or any adjournments and postponements.
Votes Required. The proposals to adopt the Merger Agreement, including
to approve the name change, and the increase in authorized shares will be
approved if a majority of the outstanding shares of Avondale common stock are
voted in favor of the proposals. The amendment to establish procedures for
filling newly created directorships and vacancies will be approved if 80% of the
outstanding shares of Avondale common stock are voted in favor of it. The
amendments to the Omnibus Plan will be approved if a majority of the shares of
Avondale common stock voted on the proposal are voted in favor of it. The
completion of the Merger is not conditioned upon stockholder approval of these
other proposals, but these other proposals will not be implemented unless the
Merger is completed even if the stockholders approve them.
Proxies. You can revoke your proxy before it is voted either by
sending to Avondale a revocation notice or a new proxy or by attending the
Avondale Special Meeting and voting in person. You will not revoke your proxy
simply by attending the Avondale Special Meeting.
COAL CITY STOCKHOLDERS (page 21)
Meeting Date. The Coal City Special Meeting is scheduled to be held at
the Manufacturers Bank Building, 1200 North Ashland Avenue, Chicago, Illinois,
on February 10, 1999 at 1:30 p.m., local time, unless adjourned or postponed.
Record Date. You can vote at the Coal City stockholder meeting if you
owned Coal City common stock at the close of business on December 31, 1998.
Matters to be Considered. At the Coal City Special Meeting, the Coal
City stockholders will be asked to adopt the Merger Agreement.
Vote Required. The proposal to adopt the Merger Agreement will be
approved if two-thirds of the outstanding shares of Coal City Common Stock are
voted in favor of it.
Proxies. You can revoke your proxy before it is voted either by
sending to Coal City a revocation notice or a new proxy or by attending the Coal
City Special Meeting and voting in person. You will not revoke your proxy simply
by attending the Coal City Special Meeting.
THE MERGER
We have attached the Merger Agreement to this document as Appendix I.
Please read the Agreement. It is the legal document that governs the
transaction.
GENERAL (page 23)
We propose a "merger of equals" transaction, under which, based on the
number of shares of Avondale common stock and Coal City common stock outstanding
on December 31, 1998, Coal City's stockholders would own approximately 58.5% of
the combined company and Avondale's
2
<PAGE>
stockholders the remainder (the exact allocation of ownership will depend upon
the number of shares of Avondale common stock that are outstanding at the close
of the Merger). We hope to complete this transaction in the first quarter of
1999.
OUR REASONS FOR THE MERGER (page 23)
The Boards of Directors of Avondale and Coal City believe that the
terms of the Merger are fair to and in the best interests of their respective
companies and stockholders and that the Merger should produce a well capitalized
institution with a strong commercial middle market lending and retail banking
franchise and other competitive advantages. See "The Merger--Background of and
Reasons for the Merger."
RECOMMENDATIONS TO STOCKHOLDERS (page 27)
Avondale. The Avondale Board of Directors has unanimously adopted the
Merger Agreement and believes that the Merger and the issuance of the shares of
Avondale Common Stock are fair to, and in the best interests of, Avondale and
its stockholders. THE AVONDALE BOARD THEREFORE RECOMMENDS A VOTE FOR ADOPTION
OF THE MERGER AGREEMENT AND THE OTHER AVONDALE PROPOSALS.
Coal City. The Coal City Board of Directors has unanimously adopted
the Merger Agreement and believes that the Merger is fair to, and in the best
interests of, Coal City and its stockholders. THE COAL CITY BOARD THEREFORE
RECOMMENDS A VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
MERGER CONSIDERATION (page 27)
If you are an Avondale stockholder, you will not need to exchange your
shares of Avondale common stock. If you are a Coal City stockholder, each of
your shares of Coal City common stock will automatically become exchangeable for
83.5 sharesof Avondale common stock. Avondale will not issue fractional shares.
Instead, you will receive the value of any fractional share in cash, based on
the market value of Avondale's common stock on the day prior to the Merger.
Stockholders who properly dissent from the Merger will not receive shares, but
will receive cash in an amount that may be more or less than the share value.
Following the Merger, you will need to exchange your certificates of Coal City
common stock for certificates of Avondale common stock. We will send you the
forms to do this.
The number of shares of Avondale common stock to be received for each
share of Coal City common stock has been fixed at 83.5. Based on the trading
price for Avondale common stock on December 23, 1998 ($14.500 per share), the
value of 83.5 shares of Avondale common stock would have been $59,275,000. The
value of Avondale common stock, however, will fluctuate. Fluctuations will
result in an increase or decrease in the value of the Avondale common stock to
be received by Coal City stockholders.
COAL CITY STOCK OPTIONS (page 28)
The options to purchase Coal City common stock under Coal City's stock
option plan will be converted into options to purchase Avondale common stock
with appropriate adjustments to the number of shares subject to the options and
to the exercise price.
OPINIONS OF FINANCIAL ADVISORS (pages 28/31)
Avondale. Hovde Financial, Inc. has delivered its opinion to the
Avondale Board that the Merger Agreement is fair to Avondale and its
stockholders from a financial point of view. A copy of Hovde's opinion is
attached to this Proxy Statement/Prospectus as Appendix III. You should read it
completely to understand the assumptions made, matters considered and
limitations of the review made by Hovde in providing this opinion.
3
<PAGE>
Coal City. Coal City did not request an opinion from its financial
advisor in connection with the Merger Agreement.
DISSENTERS' RIGHTS (page 31)
If you are a Coal City stockholder, Illinois law permits you to
dissent from the Merger. If you dissent, the fair value of your stock may be
determined by a court and paid to you in cash. To do this, you must follow
certain procedures, including giving Coal City certain notices and not voting
your shares in favor of the Merger. You will not receive any stock in Avondale
if you dissent and follow all of the required procedures. Instead, you will only
receive the value of your stock in cash. The relevant sections of Illinois law
governing this process are attached to this document as Appendix IV.
Avondale stockholders do not have dissenters' rights with respect to
the Merger.
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER THAT ARE DIFFERENT FROM YOUR
INTERESTS. (page 34)
Some of the Avondale and Coal City directors and officers have
interests in the Merger that are different from, or in addition to, their
interests as stockholders in our companies. These interests exist because of
agreements that Avondale and Coal City directors and officers have with their
companies, including the following:
Robert S. Engelman, Jr. will terminate his current employment contract
for a new contract when we complete the Merger. The new contract provides that
Mr. Engelman will be Chairman of the Board of Avondale and be responsible for
certain other activities, and be paid a base salary of $310,000 and an annual
bonus of $150,000 through the date of Avondale's annual meeting of stockholders
in the year 2000. After the year 2000 annual meeting, Mr. Engelman will be paid
$310,000 per year through January 31, 2004 for his agreement not tocompete
against Avondale in Illinois during that period. After the year 2000 annual
meeting, Mr. Engelman will also be entitled to participate in Avondale's health
benefits for his lifetime at his cost.
Mitchell Feiger will have an employment contract providing for a
continual three year term ( a so-called "evergreen contract") with an annual
salary of $325,000 and a discretionary bonus to be determined by the Avondale
Board of Directors. Mr. Feiger will serve as President and Chief Executive
Officer of Avondale and will be eligible for certain benefits. If there is a
change in control of Avondale, Mr. Feiger will receive a payment of 2.99 times
his base compensation if either he or Avondale subsequently terminates his
employment with Avondale, and certain other benefits.
Howard A. Jaffe will terminate his current change in control contract for a
new contract when we complete the Merger. The new contract provides that if his
employment is terminated by Manufacturers Bank within 12 months after the Merger
or after a later change in control , he will be entitled to 200% of his base
amount and continued health benefits for 24 months.
When we complete the Merger, the directors of Avondale and Coal City
will continue as directors of the combined company.
Stock options awarded to Avondale officers under the 1997 Omnibus
Incentive Plan and restricted stock awarded under the Recognition and Retention
Plan and the 1997 Omnibus Incentive Plan will become fully vested when we
complete the Merger.
All accrued benefits under the Avondale Supplemental Executive
Retirement Plan will also vest when we complete the Merger.
Also, following the Merger, Avondale will purchase directors' and
officers' insurance for the
4
<PAGE>
directors and officers of Coal City who continue to serve in such capacities
following the Merger and will indemnify all directors and officers of Coal City
for six years following the Merger for events occurring prior to the closing of
the Merger, including actions that are related to the Merger Agreement.
The members of the Boards of Directors of Coal City and Avondale knew
about these additional interests, and considered them, when they approved the
Merger Agreement.
WHAT WE NEED TO DO TO COMPLETE THE MERGER (page 37)
The completion of the Merger depends on a number of conditions being
met. In addition to our compliance with the Merger Agreement, these conditions
include:
1. Approval of the Merger Agreement by both the Avondale stockholders and
Coal City stockholders.
2. Approval of the Merger by federal and state banking regulators.
3. Receipt by each of us of a legal opinion from our counsel that, for
United States federal income tax purposes, Coal City stockholders who
exchange their shares for shares of Avondale common stock will not
recognize any gain or loss as a result of the merger, except in
connection with the payment of cash instead of issuing fractional
shares. These opinions will be subject to various limitations, and we
recommend that you read the fuller description of tax consequences
provided in this document beginning at page 43.
4. The absence of any injunction or legal restraint blocking the Merger
or government proceedings trying to block the Merger.
5. The divestiture by Avondale of its mortgage banking business, either
through a sale or discontinuing the business.
The Merger Agreement contains other conditions.
Where law permits, Avondale or Coal City could decide to complete the
Merger even though one or more of these conditions hasn't been met. We cannot be
certain when (or if) the conditions to the merger will be satisfied or waived,
or that the Merger will be completed.
REGULATORY APPROVALS (page 39)
The Merger and related transactions must be approved by the Board of
Governors of the Federal Reserve System and other Federal and State banking
regulators. We have filed the applications and notices required to obtain these
regulatory approvals.
WAIVER AND AMENDMENT (page 40)
We can agree to amend the Merger Agreement and each of us can waive
our right to require the other party to adhere to the terms and conditions of
the Merger Agreement, where the law allows. However, we may not change the
amount or form of consideration to be paid to Coal City stockholders after our
respective stockholders approve the Merger.
TERMINATION (page 40)
We can agree at any time to terminate the Merger Agreement without
completing the Merger, even if the stockholders of both our companies have
approved it. Also, either of us can decide, without the
5
<PAGE>
consent of the other, to terminate the Merger Agreement if:
1. Our stockholders do not approve the Merger Agreement.
2. The other party breaches the Merger Agreement (and doesn't correct the
breach within 30 days) in a way that would likely have a material
adverse effect on the breaching party.
3. A regulatory authority does not grant an approval we need to complete
the Merger, or if any court or governmental entity issues or seeks an
order blocking the Merger.
4. The Merger has not been completed by June 30, 1999, despite both
Avondale's and Coal City's best efforts.
5. Certain other conditions to closing of the Merger have not been
satisfied.
COVENANTS PENDING CLOSING (page 42)
Avondale and Coal City have agreed to conduct their businesses in
certain ways until the Merger is completed. See "The Merger--Covenants Pending
Closing."
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (page 44)
We expect that for United States federal income tax purposes, the
exchange of shares of Coal City Common Stock for shares of Avondale Common Stock
generally will not cause you to recognize any gain or loss. You will, however,
have to recognize gain in connection with any cash received instead of
fractional shares.
Our obligation to complete the Merger depends on our receipt of legal opinions
from counsel about thefederal income tax treatment of Coal City stockholders.
These opinions won't bind the Internal Revenue Service, which could take a
different view.
This tax treatment may not apply to certain Coal City stockholders,
including the Coal City stockholders who dissent from the Merger. Determining
the actual tax consequences of the Merger to you can be complicated. They will
depend on your specific situation and variables not within our control. You
should consult your own tax advisor for a full understanding of the Merger's tax
consequences.
CERTAIN RELATED TRANSACTIONS
STOCK OPTION AGREEMENTS (page 48)
Under the Stock Option Agreements, each party has the right to
purchase up to a certain number of shares of the other party's common stock at a
fixed exercise price. Under certain circumstances a party may require the other
party to repurchase the option, and/or shares purchased under the option at a
predetermined price.
The parties cannot exercise their options unless certain events occur.
These events are business combination or acquisition transactions and certain
related activities (other than the Merger we are proposing in this Proxy
Statement/Prospectus) such as a merger or the sale of a substantial amount of
assets or stock. We don't know of any event that has occurred as of the date of
this Proxy Statement/Prospectus that would permit either party to exercise its
option. The Stock Option Agreements are exhibits to the Merger Agreement
attached to this Proxy Statement/Prospectus as Appendix I.
DIVESTITURE OF MORTGAGE BANKING BUSINESS
(page 51)
In connection with the Merger, Avondale will divest itself of its mortgage
banking business, either
6
<PAGE>
through a sale of the business, or in the alternative, by discontinuing the
business. See "Unaudited Pro Forma Combined Consolidated Financial Information."
The divestiture of the mortgage banking business is a condition to Coal City
completing the Merger. See "The Merger-Conditions to the Merger."
7
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDEND INFORMATION
Avondale Common Stock is quoted on The Nasdaq Stock Market (symbol:
AVND). The following table sets forth the reported high and low sales prices of
shares of Avondale Common Stock as reported on The Nasdaq Stock Market. The
stock prices do not include retail mark-ups, mark-downs or commissions. Coal
City Common Stock is not quoted on any exchange or reporting system. Avondale
and Coal City did not pay any dividends on their common stock during these
periods. The dividend policy of Avondale as the surviving corporation in the
Merger has not yet been determined. Dividends, if any, may also be limited by
certain regulatory restrictions.
AVONDALE
COMMON STOCK
--------------------
HIGH LOW
--------------------
1997 CALENDAR YEAR
First Quarter....................... $ 18.50 $16.00
Second Quarter...................... 17.50 12.75
Third Quarter....................... 17.56 13.63
Fourth Quarter...................... 18.88 15.63
1998 CALENDAR YEAR
First Quarter........................ 16.75 14.88
Second Quarter....................... 18.19 15.75
Third Quarter........................ 17.88 11.13
Fourth Quarter....................... 16.00 8.375
1998 CALENDAR YEAR
First Quarter (through January ___)..
The following table sets forth the last reported sale prices per share of
Avondale Common Stock and the equivalent per share price for Coal City Common
Stock giving effect to the Merger on (i) October 12, 1998, the last trading day
preceding public announcement of the signing of the Merger Agreement; and (ii)
January __, 1999, the last practicable date prior to the mailing of this Proxy
Statement/Prospectus.
AVONDALE EQUIVALENT PRICE PER
COMMON STOCK COAL CITY SHARE/(1)/
------------------ ------------------------
October 12, 1998.......... $9.00 $751.50
January ____, 1999........
___________________________
/(1)/ The equivalent price per share of Coal City Common Stock at each specified
date was determined by multiplying (i) the last reported sale price of
Avondale Common Stock on such date and (ii) the exchange ratio of 83.5.
Upon the Merger, and subject to stockholder approval of the proposal to
change Avondale's name, Avondale will change its name to MB Financial, Inc. and
the Avondale Common Stock will be quoted under the symbol "MBFI."
8
<PAGE>
As of December 23, 1998, the 2,865,442 outstanding shares of Avondale
Common Stock were held by approximately 1,300 record owners and the 48,957
outstanding shares of Coal City Common Stock by approximately 190 record owners.
The number of shares of Avondale Common Stock to be received for each share
of Coal City Common Stock has been fixed at 83.5. Coal City stockholders are
advised to obtain current market quotations for Avondale Common Stock. The
market price of Avondale Common Stock may fluctuate between the date of this
Proxy Statement/Prospectus and the effective time of the Merger. Fluctuations
in the market price of Avondale Common Stock would result in an increase or
decrease in the value of the Merger consideration to be received by holders of
Coal City Common Stock in the Merger. An increase in the market value of
Avondale Common Stock would increase the market value of the Merger
consideration to be received in the Merger. A decrease in the market value of
Avondale Common Stock would have the opposite effect. The market value of the
Merger consideration at the time of the Merger will depend upon the market value
of a share of Avondale Common Stock at such time. See "The Merger--Merger
Consideration."
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF AVONDALE FINANCIAL CORP.
(In Thousands)
We are providing the following financial information to aid you in your
analysis of the financial aspects of the Merger. We derived this information
from Avondale's audited financial statements for the years ended March 31, 1994
and 1995, for the nine months ended December 31, 1995 and for the years ended
December 31, 1996 and 1997 and unaudited financial statements for the nine
months ended September 30, 1998 and 1997. The information is only a summary and
you should read it in conjunction with Avondale's historical financial
statements (and related notes) contained in the annual reports and other
information that Avondale has filed with the Securities and Exchange Commission
(Commission). See "Where You Can Find More Information."
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED FOR THE FOR THE FOR THE NINE FOR THE FOR THE
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED YEAR ENDED MONTHS ENDED YEAR ENDED YEAR ENDED
1998 1997 DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
(UNAUDITED) (UNAUDITED) 1997 1996 1995 1995 1994
------------- ------------- ------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income................ $31,301 $ 42,088 $ 54,008 $45,881 $32,238 $32,745 $32,802
Interest expense............... 18,193 21,381 28,327 25,917 18,941 17,832 16,967
------- -------- -------- ------- ------- ------- -------
Net interest income............ 13,108 20,707 25,681 19,964 13,297 14,913 15,835
Provision for loan losses...... 2,652 24,582 26,527 4,293 1,150 610 1,200
------- -------- -------- ------- ------- ------- -------
Net interest income after
provision for loan losses... 10,456 (3,875) (846) 15,671 12,147 14,303 14,635
Noninterest income............. 3,228 (914) 3,908 10,403 1,637 (5,176) 1,052
Noninterest expense............ 15,736 18,193 22,739 19,506 9,223 11,443 11,060
------- -------- -------- -------- ------- ------- -------
Income (loss) before income
taxes, extraordinary item
and cumulative effect of
accounting change........... (2,052) (22,982) (19,677) 6,568 4,561 (2,316) 4,627
Provision (benefit) for income
taxes....................... (795) (8,371) (7,195) 2,352 1,784 (896) 1,840
Extraordinary item, net of tax. -- -- -- -- -- -- (242)
Cumulative effect of accounting
change, net of tax.......... -- -- -- -- -- -- 162
------- -------- -------- -------- ------- ------- -------
Net income (loss).............. $(1,257) $(14,611) $(12,482) $ 4,216 $ 2,777 $(1,420) $ 2,707
======= ======== ======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT AT
SEPTEMBER SEPTEMBER AT AT AT AT AT
30, 1998 30, 1997 DECEMBER DECEMBER DECEMBER MARCH 31, MARCH 31,
(UNAUDITED) (UNAUDITED) 31, 1997 31, 1996 31, 1995 1995 1994
----------- ----------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...... $ 85,900 $ 13,382 $ 67,521 $ 9,074 $ 6,342 $ 35,642 $ 4,691
Trading securities............. 2,208 -- -- -- -- -- --
Securities available-for-sale.. 78,843 43,115 46,373 35,901 77,879 54,068 --
Securities held-to-maturity.... -- 1,000 -- 6,498 6,880 10,364 14,003
Mortgage-backed securities
available-for sale............. 62,041 92,984 80,621 136,418 219,121 73,600 136,172
Mortgage-backed securities held-
to-maturity.................. 45,110 55,793 53,719 61,438 64,734 165,719 119,681
Loans, net..................... 182,294 342,486 239,942 317,300 218,467 181,349 183,399
Federal Home Loan Bank stock... 8,040 4,540 4,540 4,790 4,415 3,915 3,915
All other assets............... 44,306 43,618 48,742 24,152 12,699 15,046 13,106
-------- -------- -------- -------- -------- -------- --------
Total assets................... $508,742 $596,918 $541,458 $595,571 $610,537 $539,703 $474,967
======== ======== ======== ======== ======== ======== ========
Deposits....................... $360,144 $396,445 $397,110 $330,655 $335,861 $347,096 $362,174
FHLB advances.................. 105,803 90,803 90,803 90,803 78,303 63,303 63,303
Securities sold under
repurchase agreements........ -- 32,453 -- 69,146 76,792 21,398 9,298
Other borrowings............... -- 18,000 -- 32,000 41,500 -- 3,000
All other liabilities.......... 4,666 13,147 7,582 12,078 11,166 84,336 13,258
Stockholders' equity........... 38,129 46,070 45,963 60,889 66,915 23,570 23,934
-------- -------- -------- -------- -------- -------- --------
Total liabilities and stockholders
equity...................... $508,742 $596,918 $541,458 $595,571 $610,537 $539,703 $474,967
======== ======== ======== ======== ======== ======== ========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
NINE MONTHS NINE MONTHS AT OR FOR THE At or For the At or For the At or For the
ENDED ENDED YEAR YEAR NINE MONTHS YEAR
SEPTEMBER SEPTEMBER ENDED ENDED ENDED ENDED
30, 1998 30, 1997 DECEMBER DECEMBER DECEMBER MARCH 31,
(UNAUDITED) (UNAUDITED) 31, 1997 31, 1996 31, 1995 1995
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios: /(1)/
Performance Ratios:
Return on average assets ............ (0.23)% (3.13)% (2.03)% 0.71% 0.65% (0.29)%
Return on average equity............. (2.83) (33.58) (22.60) 6.87 5.86 (6.22)
Net interest rate spread............. 3.46 4.27 4.22 3.00 2.62 2.99
Net interest margin.................. 3.53 4.67 4.50 3.48 3.19 3.20
Other expense to average assets...... 3.84 3.90 3.71 3.27 2.15 2.36
Average interest-earning assets to
average interest-bearing
liabilities....................... 101.53 108.42 105.80 110.77 112.66 105.47
Net interest income to other expense 83.30 113.82 112.10 102.35 144.17 130.32
Asset Quality Ratios:
Non-performing loans to total loans.. 3.01% 1.76% 2.50% 1.63% 1.98% 2.23%
Non-performing assets to total 1.11 1.11 1.35 0.93 0.86 0.82
assets...............................
Allowance for loan losses to total
loans............................. 2.96 1.65 2.56 2.22 1.56 1.52
Allowance for loan losses to non-
performing loans.................. 98.32 93.35 101.74 136.15 78.85 67.93
Capital Ratios:
Average equity to average assets 8.12% 9.32% 9.01% 10.28% 11.02% 4.71%
Equity to total assets............... 7.50 7.72 8.49 10.22 10.96 4.37
Tangible and Core capital /(2)/...... 6.82 7.55 8.33 9.90 9.82 4.45
Risk-based capital /(2)/ ............ 13.80 13.18 16.89 18.99 23.29 13.21
<CAPTION>
AT OR FOR THE
YEAR
ENDED
MARCH 31,
1994
-------------
<S> <C>
Selected Financial Ratios: /(1)/
Performance Ratios:
Return on average assets ............ 0.53%
Return on average equity............. 1.18
Net interest rate spread............. 3.02
Net interest margin.................. 3.23
Other expense to average assets...... 2.18
Average interest-earning assets to
average interest-bearing
liabilities....................... 106.07
Net interest income to other expense. 143.17
Asset Quality Ratios:
Non-performing loans to total loans.. 2.59%
Non-performing assets to total assets 1.07
Allowance for loan losses to total
loans............................. 1.51
Allowance for loan losses to non-
performing loans.................. 57.95
Capital Ratios:
Average equity to average assets..... 4.78%
Equity to total assets............... 5.07
Tangible and Core capital /(2)/...... 5.05
Risk-based capital /(2)/............. 13.78
</TABLE>
_____________________
(1) Performance ratios have been annualized for the nine month period ended
December 31, 1995.
(2) Includes the effect of Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities at March
31, 1994. Effective November 28, 1994, the OTS no longer requires savings
associations to include unrealized gains and losses on available-for-sale
securities in regulatory capital.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF COAL CITY CORPORATION
We are providing the following financial information to aid you in your
analysis of the financial aspects of the Merger. We derived this information
from Coal City's audited financial statements for 1993 through 1997 and
unaudited financial statements for the nine months ended September 30, 1997 and
1998. The information is only a summary and you should read it in conjunction
with the Coal City historical consolidated financial statements and accompanying
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Coal City Corporation" contained elsewhere in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- ------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ---------- ----------
(In thousands, except common share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Interest income.................... $42,865 $37,154 $51,686 $39,530 $36,572 $21,860 $21,606
Interest expense................... 21,973 18,151 25,172 18,180 16,836 8,392 7,826
-------- -------- -------- -------- -------- -------- -------
Net interest income................ 20,892 19,003 26,514 21,350 19,736 13,468 13,780
Provision for loan losses.......... 563 582 971 572 240 90 400
-------- -------- -------- -------- -------- -------- -------
Net interest income after
provision for loan losses...... 20,329 18,421 25,543 20,778 19,496 13,378 13,380
Other income /(1)/................. 8,559 3,808 4,935 2,939 1,899 688 2,545
Other expense...................... 19,595 17,371 24,195 16,868 17,010 11,014 11,230
-------- -------- -------- -------- -------- -------- -------
Income before income taxes and
minority interest................ 9,293 4,858 6,283 6,849 4,385 3,052 4,695
Applicable income taxes............ 3,395 1,873 2,402 2,576 1,504 457 1,500
-------- -------- -------- -------- -------- -------- -------
Income before minority 5,898 2,985 3,881 4,273 2,881 2,595 3,195
interest.........................
Minority interest.................. (82) (386) (432) (636) (444) (517) (1,123)
-------- -------- -------- -------- -------- -------- -------
Net income......................... 5,816 2,599 3,449 3,637 2,437 2,078 2,072
Preferred stock dividend........... 867 276 276 -- 267 -- --
-------- -------- -------- -------- -------- -------- -------
Net income available to common
stockholders..................... $ 4,949 $ 2,323 $ 3,173 $ 3,637 $ 2,170 $ 2,078 $ 2,072
======== ======== ======== ======== ======== ======== =======
Common Share Data:
Basic earnings per common
share........................... $100.91 $ 46.70 $ 63.83 $ 73.28 $ 43.27 $ 41.94 $ 41.82
Book value per common share........ 963 834 852 786 726 637 624
Weighted average common
shares outstanding.............. 49,042 49,746 49,713 49,628 50,150 49,549 49,549
Cash dividends per common
share........................... -- -- -- -- -- -- --
</TABLE>
(footnotes on following page)
12
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS
ENDED SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- ---------- ---------- --------- ---------- ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and due from banks............ $ 19,445 $ 32,926 $ 36,302 $ 31,465 $ 27,013 $ 23,962 $ 29,856
Investment securities.............. 194,022 154,816 141,927 109,981 171,118 101,189 115,670
Federal funds sold................. 16,700 13,900 37,400 20,800 11,199 20,800 13,000
Loans, gross....................... 539,355 526,302 527,321 388,302 339,326 222,211 227,902
Allowance for loan losses.......... 7,245 7,810 7,922 4,692 4,134 2,646 2,707
Total assets....................... 824,283 787,130 802,696 587,798 579,946 382,603 395,323
Deposits........................... 634,588 668,325 684,060 509,717 513,470 335,866 347,273
Long-term and short-term
borrowings...................... 94,004 37,876 40,428 25,399 17,000 7,545 7,652
Corporation obligated mandatorily
redeemable preferred and capital
securities...................... 25,000 10,000 10,000 -- -- -- --
Stockholders' equity............... 57,355 51,648 52,526 39,126 36,626 31,572 30,904
Performance Ratios:
Return on average assets........... 0.95% 0.57% 0.54% 0.75% 0.55% 0.70% 0.86%
Return on average equity........... 14.27 7.97 7.08 9.74 6.49 6.72 6.94
Net interest margin................ 3.76 4.10 4.12 4.23 4.22 3.97 3.96
Loans to deposits.................. 84.99 78.75 77.09 76.18 66.08 66.16 65.63
Assets Quality Ratios:
Non-performing loans to total loans 1.27 1.81 1.87 0.35 0.34 0.26 0.17
Non-performing assets to total
assets.......................... 0.88 1.63 1.70 0.23 0.24 0.21 0.10
Allowance for loan losses to total
loans........................... 1.34 1.48 1.50 1.21 1.22 1.19 1.19
Non-performing loans to allowance
for loan losses................. 94.20 122.18 124.73 28.92 27.75 22.07 14.22
Net loan charge-offs to average
loans........................... 0.16 0.01 0.07 0.00 0.02 0.07 0.00
Capital Ratios: /(2)/
Tier 1 capital (to risk-weighted
assets)......................... 7.41 7.38 7.09 8.00 7.84 11.67 12.87
Total capital (to risk-weighted
assets)......................... 12.00 10.14 10.00 10.14 10.02 12.74 13.99
Tier 1 capital (to average assets). 5.22 5.47 5.15 6.16 5.19 7.78 8.12
Other:
Banking facilities................. 8 11 11 6 5 3 3
Full-time equivalent employees .... 250 288 287 199 191 132 139
</TABLE>
________________
(1) For the nine months ended September 30, 1998, other income includes a
$4.1 million gain on the sale of Coal City National Bank. See "Business
of Coal City Corporation."
(2) Ratios presented are for Coal City on a consolidated basis. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations of Coal City Corporation -- Capital Resources."
13
<PAGE>
AVONDALE FINANCIAL CORP. AND AVONDALE FEDERAL SAVINGS BANK
AVONDALE FINANCIAL CORP.
Avondale is a Delaware corporation organized for the purpose of becoming a
holding company for Avondale Bank in connection with Avondale Bank's conversion
on April 3, 1995 from mutual to stock form. Avondale is a unitary savings
institution holding company which, under existing laws, generally is not
restricted in the types of business activities in which it may engage.
Avondale's business has consisted primarily of the business of Avondale Bank and
its subsidiaries. As of September 30, 1998, Avondale had total consolidated
assets of $508.7 million, deposits of $360.1 million and stockholders' equity of
$38.1 million. The executive offices of Avondale are located at 20 North Clark
Street, Chicago, Illinois 60602, and the telephone number is (312) 782-6200.
AVONDALE FEDERAL SAVINGS BANK
Avondale Bank was originally chartered in 1911. The business of Avondale Bank
consists primarily of attracting deposits from the general public and using such
deposits, together with borrowings and other funds, to make residential
mortgage, home equity, multi-family, construction, development and consumer
loans. Avondale Bank maintains four offices in Chicago and one in Niles,
Illinois. Avondale Bank currently emphasizes providing its retail deposit
products and services to the neighborhoods surrounding its offices. These
services include checking, savings, NOW and money market deposit accounts.
Avondale also offers its customers a debit card, which can be used anywhere
MasterCard is accepted. Avondale Bank established Avondale Community Development
Corporation to engage in community lending and equity investments to facilitate
the construction and rehabilitation of housing in low and moderate neighborhoods
in Avondale Bank's market area. Avondale Bank has expanded its wholesale
distribution channels through third party brokers and other financial
institutions to offer equity lines of credit and other mortgage loan products in
over 30 different states. However, it is a condition of the Merger that Avondale
divest itself of its mortgage banking business, either through the sale of the
business or its dissolution. Accordingly, with minimal exceptions, upon the
Merger, Avondale will cease offering its loan products. The combined company,
operating as MB Financial, Inc., intends to continue offering the loan products
of Coal City, funded with the deposits of Avondale and Coal City and other
traditional sources.
Avondale Bank also offers investment products and insurance through its
wholly-owned subsidiary, Avondale Financial Services, Inc.
Avondale Bank is a member of the Federal Home Loan Bank (FHLB) System and the
FHLB of Chicago, and its deposits are insured up to prescribed limits by the
Federal Deposit Insurance Corporation (FDIC). Avondale Bank is subject to
comprehensive examination, supervision and regulation by the Office of Thrift
Supervision (OTS) and the FDIC.
For additional information, see "Selected Consolidated Financial and Other
Data of Avondale Financial Corp.," "Unaudited Pro Forma Combined Consolidated
Financial Information" and "Business of Avondale Financial Corp." Additional
information concerning Avondale and Avondale Bank also is included in the
Avondale documents incorporated by reference herein. See "Where You Can Find
Additional Information."
14
<PAGE>
SECURITY OWNERSHIP
The following table sets forth, as of December 23, 1998, certain information
as to the beneficial ownership of Avondale Common Stock by: (i) those persons or
entities known by management to beneficially own more than 5% of the outstanding
shares of Avondale Common Stock; (ii) Avondale's executive officers, and (iii)
all directors and executive officers of Avondale as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
BENEFICIAL OWNER OWNED PERCENT OF CLASS
- ------------------------------------------------ ----------------------- -------------------------
PRINCIPAL OWNERS
- ----------------
<S> <C> <C>
Avondale Financial Corp./(1)/ 278,264 9.71%
Employee Stock Ownership Plan
20 North Clark Street
Chicago, Illinois 60602
Financial Institutional Partners, L.P./(2)/ 329,970 11.52
Hovde Capital, Inc.
Steven D. Hovde
Eric D. Hovde
1629 Colonial Parkway
Inverness, Illinois 60067
Tontine Financial Partners, L.P./(3)/ 199,000 6.94
Jeffrey Gendell
200 Park Avenue
Suite 3900
New York, New York 02109
EXECUTIVE OFFICERS
- ------------------
Robert S. Engelman, Jr. 213,689/(4)/ 7.46
President, Chief Executive Officer and Director
of Avondale and Avondale Bank
Howard A. Jaffe 48,368/(4)/ 1.69
Vice President and Chief Financial Officer of
Avondale; Executive Vice President, Chief
Financial Officer and Director of Avondale
Bank
Charles W. Sewright, Jr. 2,090/(4)/ .07
Vice President of Avondale; Executive Vice
President, Chief Operating Officer and Director
of Avondale Bank
Directors and executive officers as a group (ten 353,983/(4)/ 12.35
persons)
</TABLE>
- ------------------
15
<PAGE>
/(1)/ The amount reported represents shares held by the Avondale Financial
Corp. Employee Stock Ownership Plan (ESOP), 64,626 shares of which have
been allocated to accounts of participants. First Bankers Trust Co.,
N.A., Quincy, Illinois, the trustee of the ESOP, may be deemed to
beneficially own the shares held by the ESOP which have not been
allocated to the accounts of participants.
/(2)/ A Schedule 13D dated November 30, 1998 states that Financial
Institutional Partners, L.P. (FIP), Hovde Capital, Inc., Steven D. Hovde
and Eric D. Hovde beneficially own 329,970 shares of Avondale Common
Stock. FIP reports shared voting and dispositive power over 329,970
shares; Hovde reports shared voting and dispositive power over 304,070
and 330,000 shares, respectively; Eric D. Hovde reports sole voting and
dispositive power over 7,500 shares and shared voting and dispositive
power over 311,570 shares; and Steven D. Hovde reports sole voting power
over 18,400 shares and shared voting and dispositive power over 322,470
shares.
/(3)/ A Schedule 13D dated July 29, 1998 states that Tontine Financial
Partners, L.P. and Jeffrey Gendell beneficially own 199,000 shares of
Avondale Common Stock. Tontine and Gendell report sole voting and
dispositive power over such shares.
/(4)/ Includes shares held directly, in retirement accounts, in a fiduciary
capacity or by certain affiliated entities or members of the named
individuals' families, with respect to which shares the named individuals
and group may be deemed to have sole or shared voting and/or dispositive
powers. Also includes 8,567 and 3,901 shares allocated to Messrs.
Engelman and Jaffe, respectively, under the ESOP. Excludes (i) 16,928,
8,000, 20,000, and 44,928 restricted shares of Avondale Common Stock
awarded to Messrs. Engelman, Jaffe and Sewright and all directors and
executive officers as a group, respectively, which may not be voted by
such persons, and excludes (ii) 42,320, 53,187, 55,000, and 181,999
shares subject to options granted under Avondale's stock option plans to
Messrs. Engelman, Jaffe and Sewright and all directors and executive
officers as a group, respectively, which options are not exercisable
within 60 days of December 23, 1998.
16
<PAGE>
COAL CITY CORPORATION AND
MANUFACTURERS BANK
COAL CITY CORPORATION
Coal City was incorporated in Illinois in 1986 and is a bank holding
company under the Federal Bank Holding Company Act of 1956, as amended (BHCA),
and the Illinois Bank Holding Company Act of 1957, as amended (Illinois BHCA).
Coal City conducts a commercial banking business through Manufacturers Bank, an
Illinois banking corporation, which is wholly-owned by Manufacturers National
Corporation, an Illinois corporation and a wholly-owned subsidiary of Coal City
(Manufacturers National).
On May 7, 1997, Coal City acquired U.S. Bancorp, Inc. (U.S. Bancorp), an
Illinois corporation and the holding company for U.S. Bank, an Illinois banking
corporation, through the merger of a subsidiary of Manufacturers National with
and into U.S. Bancorp. On January 28, 1998, Coal City sold Coal City National
Bank, a wholly-owned subsidiary of Coal City (Coal City Bank), to Kankakee
Bancorp, Inc.
Manufacturers Bank has four distinct banking groups: Business Banking,
Convenient Retail Banking, Lease Banking and Korean Banking. The Business
Banking Group focuses on serving privately-owned companies, including
manufacturers, wholesalers, distributors, home developers, long-term health care
operators, real estate operators and investors, and selected types of service
companies. Manufacturers Bank provides these companies with credit, deposit,
cash management and investment products and services. The Convenient Retail
Banking Group targets consumers who live or work near Manufacturers Bank's
offices. Manufacturers Bank offers consumer products to these individuals,
including checking accounts, savings accounts, money market accounts, time
deposit accounts, secured and unsecured consumer loans, residential mortgage
loans, and a variety of fee for service products, such as money orders and
travelers checks. The Lease Banking Group serves small and medium size equipment
leasing companies located throughout the United States. Manufacturers Bank
provides full banking services for these leasing companies, including financing
the debt portion of leveraged leases, providing short-term and long-term equity
financing, making working capital and bridge loans, and investing directly in
leased equipment. The Korean Banking Group focuses on the expanding Korean
community, providing complete banking services using the Korean language to
Korean consumers and Korean-owned businesses in the Chicago area.
At September 30, 1998, Coal City had total assets, deposits and
stockholders' equity of approximately $824.3 million, $634.6 million and $57.4
million, respectively. See "Business of Coal City Corporation".
The executive offices of Coal City are located at the main banking premises
of Manufacturers Bank, 1200 North Ashland Avenue, Chicago, Illinois 60622 (Main
Banking Premises). The telephone number of the Main Banking Premises is (773)
278-4040. Manufacturers Bank also has seven other offices, located on the north
side and the south side of Chicago and in the Chicago suburbs of Lansing, South
Holland and Tinley Park, Illinois.
For additional information, see "Selected Consolidated Financial and Other
Data of Coal City Corporation," "Unaudited Pro Forma Combined Consolidated
Financial Information," "Business of Coal City Corporation," "Management's
Discussion and Analysis of Financial Condition and Results of Operations of Coal
City" and the consolidated financial statements of Coal City included elsewhere
herein.
17
<PAGE>
SECURITY OWNERSHIP
The following table sets forth, as of December 31, 1998, certain
information as to the beneficial ownership of Coal City Common Stock by: (i) the
only person known by management to beneficially own more than 5% of the
outstanding shares of Coal City Common Stock; (ii) executive officers of Coal
City; and (iii) all directors and executive officers of Coal City as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT
BENEFICIAL OWNER OWNED/(1)/ OF CLASS
- --------------------------------------------------- -------------------- -------------
PRINCIPAL OWNER
- ---------------
<S> <C> <C>
Clarence Mann 2,500 5.11%
Director of Coal City
c/o Manufacturers Bank
1200 North Ashland Avenue
Chicago, Illinois 60622
EXECUTIVE OFFICERS
- ------------------
Alfred Feiger 1,424 2.91
Chairman of the Board, Chief Executive Officer and
Director of Coal City
Mitchell Feiger 1,681 3.43
President and Director of Coal City
Burton Field 835 1.71
President and Chief Executive Officer of Manufacturers
Bank and Director
Directors and executive officers as a group (eight persons) 12,476 25.49
</TABLE>
- ------------------------------
/(1)/ Includes shares held directly, in retirement accounts, in a fiduciary
capacity or by certain affiliated entities or members of the named
individuals' families, with respect to which shares the named individuals
and group may be deemed to have sole or shared voting and/or dispositive
powers. Excludes 508 shares subject to options granted under Coal City's
1995 Stock Option Plan to Mr. Mitchell Feiger, which options are not
exercisable within 60 days of December 31, 1998.
18
<PAGE>
THE SPECIAL MEETINGS
AVONDALE SPECIAL MEETING
Place, Time and Date. The Avondale Special Meeting is scheduled to be held
at the Avondale branch office, 2965 North Milwaukee Avenue, Chicago, Illinois at
9:00 a.m., local time, on February 10, 1999. This Proxy Statement/Prospectus is
being sent to holders of record, and certain beneficial owners, of Avondale
Common Stock as of the Avondale Record Date and is accompanied by a form of
proxy which the Avondale Board requests that stockholders execute and return to
Avondale for use at the Avondale Special Meeting and at any and all adjournments
or postponements thereof.
Matters to be Considered. At the Avondale Special Meeting, holders of
shares of Avondale Common Stock will vote on the following proposals:
1. The adoption of the Merger Agreement, as amended, and the transactions
contemplated thereby, including the merger of Coal City with and into
Avondale, the issuance by Avondale of up to 4,087,910 shares of Avondale
Common Stock in connection with the Merger, the conversion of certain
Coal City stock options into Avondale stock options and the adoption of
an amendment to Avondale's Certificate of Incorporation to change
Avondale's name to MB Financial, Inc. (the "Name Amendment").
2. The adoption of an amendment to Avondale's Certificate of Incorporation
to increase the number of authorized shares of Avondale Common Stock
from 10,000,000 to 20,000,000 (the "Share Amendment").
3. The adoption of an amendment to Avondale's Certificate of Incorporation
to establish procedures for filling newly created directorships and
vacancies (the "Director Amendment").
4. The adoption of an amendment to Avondale's 1997 Omnibus Incentive Plan
to increase the number of shares of Avondale Common Stock reserved for
issuance thereunder from 350,000 to 1,000,000, to increase from 75,000
to 200,000 the number of shares of restricted stock that may be issued
under the Plan and to increase from 35,000 to 75,000 the number of
shares of Avondale common stock subject to awards that may be granted to
any one participant in any calendar year (the "Omnibus Plan Amendment").
See "The Merger," "Amendments to Certificate of Incorporation of Avondale
Financial Corp." and "Amendments to 1997 Omnibus Incentive Plan of Avondale
Financial Corp."
Avondale stockholders also may consider and vote upon such other matters as
may properly be brought before the Avondale Special Meeting. As of the date
hereof, the Avondale Board knows of no business that will be presented for
consideration at the Avondale Special Meeting other than the matters described
in this Proxy Statement/Prospectus.
Avondale Record Date; Votes Required. The Avondale Board has fixed the
close of business on December 31, 1998 as the Avondale Record Date for
determining holders of Avondale Common Stock who are entitled to notice of and
to vote at the Avondale Special Meeting. Only holders of record of Avondale
Common Stock at the close of business on the Avondale Record Date will be
entitled to notice of and to vote at the Avondale Special Meeting. As of the
Avondale Record Date, there were 2,864,566 shares of Avondale Common Stock
outstanding and entitled to vote at the Avondale Special Meeting.
19
<PAGE>
Each holder of record of shares of Avondale Common Stock on the Avondale
Record Date will be entitled to cast one vote per share on the proposals
considered at the Avondale Special Meeting. Such vote may be exercised in person
or by properly executed proxy. The presence, in person or by properly executed
proxy, of the holders of a majority of the outstanding shares of Avondale Common
Stock entitled to vote is necessary to constitute a quorum. Abstentions and
broker non-votes (i.e., proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owners or other
persons as to certain proposals on which such beneficial owners or persons are
entitled to vote their shares but with respect to which the brokers or nominees
have no discretionary power to vote without such instructions) will be treated
as shares present at the Avondale Special Meeting for purposes of determining
the presence of a quorum.
Whether or not a quorum is present, or in the absence of such, the
affirmative vote of a majority of the shares represented at the Avondale Special
Meeting may authorize the adjournment of the meeting. No proxy which is voted
against any proposal will be voted in favor of adjournment to solicit further
proxies for such proposal.
The affirmative vote of the holders of a majority of the outstanding shares
of Avondale Common Stock entitled to vote is required to adopt the Merger
Agreement, including the Name Amendment, and the Share Amendment. The
affirmative vote of the holders of 80% of the outstanding shares of Avondale
Common Stock entitled to vote is required to adopt the Director Amendment. The
affirmative vote of the holders of a majority of the shares of Avondale Common
Stock cast is required to adopt the Omnibus Plan Amendment. Therefore,
abstentions and broker non-votes will have the same effect as votes against each
proposal except the Omnibus Plan Amendment.
Approval of the Merger Agreement proposal, including the Name Amendment, by
the stockholders of Avondale is a condition to, and required for, consummation
of the Merger. See "The Merger--Conditions to the Merger." The completion of the
Merger is not conditioned upon stockholder approval of the Share Amendment,
Director Amendment or Omnibus Plan Amendment. The Name Amendment, Share
Amendment, Director Amendment and Omnibus Plan Amendment are conditioned upon
the consummation of the Merger.
As of the Avondale Record Date, the directors and executive officers of
Avondale and their affiliates beneficially owned in the aggregate 162,401 shares
(excluding shares underlying stock options), or approximately 5.67% of the then
outstanding shares of Avondale Common Stock entitled to vote at the Avondale
Special Meeting. The directors of Avondale have entered into voting agreements
whereby such directors have agreed to vote all shares of Avondale Common Stock
owned by them (115,479 shares in the aggregate) for approval of the Merger
Agreement. As of the Avondale Record Date, the directors and executive officers
of Coal City and their affiliates as a group beneficially owned 8,500 shares of
Avondale Common Stock.
Proxies. Shares of Avondale Common Stock represented by properly executed
proxies received prior to or at the Avondale Special Meeting will, unless such
proxies have been revoked, be voted at the Avondale Special Meeting and any
adjournments or postponements thereof, in accordance with the instructions
indicated in the proxies. If no instructions are indicated on a properly
executed proxy, the shares will be voted FOR the Avondale Proposals.
You may revoke your proxy before it is voted either by delivering to the
Secretary of Avondale at 20 N. Clark Street, Chicago, Illinois 60602 on or
before the taking of the vote at the Avondale Special Meeting, a written notice
of revocation bearing a later date than the date of the proxy or a later dated
proxy relating to the same shares or by attending the Avondale Special Meeting
and voting in person. You will not revoke your proxy simply by attending the
Avondale Special Meeting.
20
<PAGE>
If any other matters are properly presented at the Avondale Special Meeting
for consideration, the persons named in the proxy or acting thereunder will have
discretion to vote on such matters in accordance with their best judgment. As of
the date hereof, the Avondale Board knows of no such other matters.
In addition to solicitation by mail, directors, officers and employees of
Avondale, who will not be specifically compensated for such services, may
solicit proxies from the stockholders of Avondale, personally or by telephone,
telegram or other forms of communication. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy material to beneficial owners. In addition,
Avondale has engaged D.F. King & Co., Inc. (D.F. King) to assist Avondale in
distributing proxy materials and contacting record and beneficial owners of
Avondale Common Stock. Avondale has agreed to pay D.F. King approximately $5,000
plus out-of-pocket expenses for its services to be rendered on behalf of
Avondale. Avondale will bear its own expenses in connection with the
solicitation of proxies for the Avondale Special Meeting, except that Avondale
and Coal City shall bear equally all printing and mailing expenses associated
with the Proxy Statement/Prospectus.
HOLDERS OF AVONDALE COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO AVONDALE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
COAL CITY SPECIAL MEETING
Place, Time and Date. The Coal City Special Meeting is scheduled to be held
at the Manufacturers Bank Building, 1200 North Ashland Avenue, Chicago,
Illinois, on February 10, 1999 at 1:30 p.m., local time. This Proxy
Statement/Prospectus is being sent to holders of record, and certain beneficial
owners, of Coal City Common Stock as of the Coal City Record Date, and is
accompanied by a form of proxy which the Coal City Board requests that
stockholders execute and return to Coal City for use at the Coal City Special
Meeting and at any and all adjournments or postponements thereof.
Matters to Be Considered. At the Coal City Special Meeting, holders of Coal
City Common Stock will vote upon a proposal to adopt the Merger Agreement, as
amended, and the transactions contemplated thereby. Holders of Coal City Common
Stock also may consider and vote upon such other matters as are properly brought
before the Coal City Special Meeting. As of the date hereof, the Coal City Board
knows of no business that will be presented for consideration at the Coal City
Special Meeting other than approval of the Merger Agreement.
Coal City Record Date; Vote Required. The Coal City Board has fixed the
close of business on December 31, 1998 as the Coal City Record Date for
determining holders of Coal City Common Stock who are entitled to notice of and
to vote at the Coal City Special Meeting. Only holders of record of Coal City
Common Stock on the Coal City Record Date will be entitled to notice of and to
vote at the Coal City Special Meeting. As of the Coal City Record Date, 48,957
shares of Coal City Common Stock were outstanding and entitled to vote.
Each holder of record of Coal City Common Stock on the Coal City Record
Date will be entitled to cast one vote per share at the Coal City Special
Meeting. Such vote may be exercised in person or by properly executed proxy. The
presence, in person or by properly executed proxy, of the holders of a majority
of the outstanding shares of Coal City Common Stock entitled to vote at the Coal
City Special Meeting is necessary to constitute a quorum. Abstentions and broker
non-votes (i.e., proxies from brokers or nominees indicating that such persons
have not received instructions from the beneficial owners or other persons as to
certain proposals on which such beneficial owners or persons are entitled to
vote their shares but with respect to which the brokers or nominees
21
<PAGE>
have no discretionary power to vote without such instructions) will be treated
as shares present at the Coal City Special Meeting for purposes of determining
the presence of a quorum.
Whether or not a quorum is present, the affirmative vote of a majority of
the shares represented at the Coal City Special Meeting may authorize the
adjournment of the meeting. No proxy which is voted against the approval of the
Merger Agreement will be voted in favor of adjournment to solicit further
proxies for such proposal.
The adoption of the Merger Agreement at the Coal City Special Meeting will
require the affirmative vote of the holders of two-thirds of the outstanding
shares of Coal City Common Stock entitled to vote at the Coal City Special
Meeting. As a result, abstentions and broker non-votes will have the same effect
as votes against the approval of the Merger Agreement.
As of the Coal City Record Date, the directors and executive officers of
Coal City and their affiliates beneficially owned in the aggregate 12,476 shares
(excluding shares underlying stock options), or 25.49% of the then outstanding
shares, of Coal City Common Stock entitled to vote at the Coal City Special
Meeting. The directors of Coal City have entered into voting agreements whereby
such directors have agreed to vote all shares of Coal City Common Stock owned by
them (12,476 shares in the aggregate as of December 31, 1998) for approval of
the Merger Agreement. As of the Coal City Record Date, the directors and
executive officers of Avondale and their affiliates did not beneficially own any
shares of Coal City Common Stock.
Proxies. Shares of Coal City Common Stock represented by properly executed
proxies received prior to or at the Coal City Special Meeting will, unless such
proxies have been revoked, be voted at the Coal City Special Meeting and any
adjournments or postponements thereof in accordance with the instructions
indicated in the proxies. If no instructions are indicated on a properly
executed proxy, the shares will be voted FOR approval of the Merger Agreement.
Any proxy given pursuant to this solicitation or otherwise may be revoked
by the person giving it at any time before it is voted by delivering to the
Secretary of Coal City at 1200 North Ashland Avenue, Chicago, Illinois 60622 on
or before the taking of the vote at the Coal City Special Meeting, a written
notice of revocation bearing a later date than the proxy or a later dated proxy
relating to the same shares of Coal City Common Stock or by attending the Coal
City Special Meeting and voting in person. You will not revoke your proxy simply
by attending the Coal City Special Meeting.
If any other matters are properly presented at the Coal City Special
Meeting for consideration, the persons named in the proxy or acting thereunder
will have discretion to vote on such matters in accordance with their best
judgment. As of the date hereof, the Coal City Board knows of no such other
matters.
In addition to solicitation by mail, directors, officers, and employees of
Coal City, who will not be specifically compensated for such services, may
solicit proxies from the stockholders of Coal City, personally or by telephone,
telegram or other forms of communication. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy material to beneficial owners. Coal City will
bear its own expenses in connection with the solicitation of proxies for the
Coal City Special Meeting, except that Avondale and Coal City shall bear equally
all printing and mailing expenses associated with the Proxy
Statement/Prospectus. See "The Merger--Expenses."
22
<PAGE>
HOLDERS OF COAL CITY COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING FORM OF PROXY AND TO RETURN IT PROMPTLY TO COAL CITY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
HOLDERS OF COAL CITY COMMON STOCK SHOULD NOT FORWARD STOCK CERTIFICATES
WITH THEIR PROXY CARDS.
THE MERGER
The information in this Proxy Statement/Prospectus concerning the terms of
the Merger is qualified in its entirety by reference to the full text of the
Merger Agreement, which is attached hereto in Appendix I and incorporated by
reference herein. All stockholders are urged to read the Merger Agreement in its
entirety.
GENERAL
Pursuant to the Merger Agreement, Coal City will be merged with and into
Avondale, with Avondale as the surviving corporation. After this "merger of
equals," based on the number of shares of Avondale Common Stock and Coal City
Common Stock outstanding on December 31, 1998, Coal City's stockholders will own
approximately 58.8% of the combined company and Avondale stockholders the
remainder. The members of Coal City's Board of Directors will represent between
50% and 56% of the combined company's initial Board of Directors. The
percentages of the combined company to be initially owned by the Coal City and
Avondale stockholders will depend on the number of shares of Avondale Common
Stock and Coal City Common Stock that are outstanding at the close of the
Merger.
As soon as possible after the conditions to consummation of the Merger
described below have been satisfied or waived (unless the Merger Agreement has
been terminated), Avondale and Coal City will file a certificate of merger with
the Secretary of State of Delaware and articles of merger with the Secretary of
State of Illinois. The Merger will become effective upon the later of the filing
with the Secretary of State of Delaware and the Secretary of State of Illinois.
The time at which the Merger becomes effective is referred to herein as the
"Effective Time." See also "- Effective Time and Closing Date."
Upon consummation of the Merger, each outstanding share of Coal City Common
Stock (other than shares subject to dissenters' rights) will be converted into
the right to receive 83.5 shares of Avondale Common Stock and each stockholder
of Coal City will cease to be a stockholder of Coal City. The separate existence
of Coal City will also cease.
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger. From time to time, both Avondale and Coal City have
reviewed their strategic alternatives for enhancing profitability and maximizing
stockholder value, particularly in light of the changes in the financial
institutions industry in recent years.
From the early 1980's to the present, banking in Illinois has experienced
substantial consolidation due in part to the significant changes in Illinois
banking laws. Certain changes allowed bank holding companies to own more than
one bank, allowed out-of-state bank holding companies to acquire banks and bank
holding companies in Illinois and relaxed branching laws as to number and
location of branches. These changes have permitted numerous new entrants into
Illinois banking, enhanced competition in certain market segments and reduced
the number of competitors in other segments.
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From 1992, when Coal City acquired Manufacturers Bank, Coal City's strategy
has been to take advantage of the changing competitive conditions, particularly
with regard to industry consolidation. Specifically, over the last ten to 15
years, commercial banks that had expertise in serving small and middle market
businesses have been among the most sought after acquisition targets. Most
often, these banks were acquired by large and very large commercial banks,
sometimes headquartered in states other than Illinois. As a result, the number
of mid-size banks serving small and middle market businesses has dramatically
decreased. Coal City positioned itself to take advantage of this opportunity by
developing a significant business banking expertise to serve these businesses.
In recent years, Coal City's business has significantly grown, pressuring
funding sources and capital. Coal City management has actively worked to manage
growth while maintaining adequate capital and liquidity. Nevertheless, limited
financial resources have caused Coal City to forgo certain profitable business
opportunities. For example, as Coal City has grown, the size of its customer
base has increased, sometimes beyond Coal City's ability to service them. To
accommodate more customers and their expanding banking needs, and provide
additional funding sources (i.e., quality core deposits), Coal City acquired
Peterson Bank in 1995 and U.S. Bancorp in 1997. Although other good business
opportunities were present in each of these acquisitions, Coal City's primary
motivation for each acquisition was to increase its liquidity and its legal
lending limits. To further its goals, during 1997 and 1998 Coal City continued
its search for suitable merger or acquisition partners.
At Avondale's 1998-2000 Strategic Planning retreat held on November 8, 1997,
the Avondale Board adopted a plan that entailed a bifurcated operating strategy
with the ultimate objective of developing two separate business lines capable of
becoming "stand-alone" entities. Avondale was to transform the mortgage banking
operations from a one product, specialty lender (home equity loans), to a more
traditional mortgage bank focusing on a broader array of niche products
delivered through expanded distribution channels. At the same time, because of
various changes related to market potential and industry consolidation, the
Avondale Board decided to more aggressively pursue a strategy that would
transform Avondale from a retail deposit gathering entity (for the mortgage
banking operation) to one that was more like a community/commercial bank, having
a specific focus on commercial lending.
In assessing its approach to building its business banking capabilities, the
Avondale Board considered three alternatives. One was de novo entry - hiring a
team of business bankers and building the business from scratch. The second was
the acquisition of a small bank that had some business lending expertise, but
insufficient size or capital to grow rapidly. The third alternative was a
"merger of equals" with a reasonably sized institution that could immediately
leverage Avondale's deposit base, customer relationships, and administrative and
technological infrastructure. The Avondale Board determined that the latter
course provided the best prospect for improving shareholder value.
During December 1997 and January 1998, Hovde Financial, Inc. (Hovde),
Avondale's financial advisor, and management prepared a list and profile of
approximately 20 institutions that appeared to fit the criteria Avondale sought
in a banking partner. During the first quarter of 1998, Robert S. Engelman, Jr.,
Avondale's Chief Executive Officer and President, and representatives of Hovde
talked with virtually all of these institutions. While some of these discussions
continued for a number of months, from almost the first meeting it appeared to
Avondale management that the Coal City organization would provide a strong fit
because Coal City's management team, business philosophy, and processes appeared
to provide the best prospects for post-merger success.
On April 8, 1998, Mr. Engelman approached Mitchell Feiger, Coal City's
President, to discuss a possible business combination. Mr. Engelman was
interested in better understanding Coal City's commercial lending
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business and discussing the possibility of combining Avondale's core thrift
business with Coal City's business. Mr. Feiger and Mr. Engelman continued
meeting over the next two months to discuss various business strategies and
opportunities. In early June, members of each company's senior management team
met to discuss and review the opportunities for revenue enhancement and cost
savings as a result of combining Avondale and Coal City. The results of this
meeting were positive. In early July, three outside directors from each company,
along with Mr. Engelman and Mr. Feiger, met to learn more about each company's
business and culture. Particularly important was a discussion of board members'
backgrounds, strengths, and weaknesses. The meeting attendees believed that the
Boards complemented each other and that discussions should continue.
During the summer of 1998, Coal City, with assistance from Sandler O'Neill &
Partners, L.P. (Sandler O'Neill) (Coal City's financial advisor), analyzed
Avondale's businesses and the benefits of combining the two companies. Special
emphasis was placed on analyzing and understanding Avondale's mortgage banking
business. By the end of August 1998, both sides agreed that a merger should be
pursued if the parties could agree on a fair ratio of ownership in the merged
company. At its regularly scheduled meeting on September 15, 1998, the Avondale
Board expressed its support for continued discussions with Coal City. Mr.
Engelman and Mr. Feiger met again on September 16 and 18 to discuss the results
of the Avondale Board meeting and to determine an appropriate exchange ratio for
the merger. The 83.5/1 exchange ratio was agreed to on September 18, although a
number of significant issues regarding minority shareholders, unallocated ESOP
shares and other matters remained open. At a meeting among the principals, their
financial advisors and their attorneys on September 24, the prior open issues,
as well as various merger related operating, governance, regulatory, accounting
and legal issues were discussed and resolved.
Full due diligence was begun by both parties immediately after the September
24 meeting. At the same time, counsel was instructed to draft a merger
agreement. On October 7, 1998, Coal City's Board of Directors met to review the
transaction. At that meeting, as well as at prior meetings, the Coal City Board
reviewed and discussed the results of due diligence with a particular focus on
the risks associated with Avondale's mortgage banking business. Also, at that
meeting representatives of Sandler O'Neill presented a financial analysis of
Avondale's business as well as the proposed transaction. Also, attorneys with
the firm of Schwartz, Cooper, Greenberger & Krauss, Chartered, Coal City's
counsel, discussed legal aspects of the transaction including Board composition,
stock option agreements, and fiduciary obligations of the Coal City Board. After
lengthy discussion and a review of the proposed merger agreement, the Board
approved the transaction as proposed.
The Avondale Board met on October 7, 1998 to review the proposed transaction.
At that meeting the strategic issues were discussed and the results of due
diligence were reviewed. Hovde made a presentation to the Avondale Board
discussing the likely market reaction to the Merger as proposed and issued its
fairness opinion as to the Merger Agreement. Avondale's special counsel, Silver,
Freedman & Taff, L.L.P., reviewed the proposed Merger Agreement. Counsel also
discussed the Board's fiduciary obligations as they related to a merger of
equals such as the transaction proposed. After a thorough discussion of all the
materials, the Avondale Board agreed to review the data over the following few
days. On October 12, 1998, the Avondale Board reconvened and approved the Merger
Agreement.
Reasons for the Merger. The Avondale Board and the Coal City Board have each
determined that the Merger and the Merger Agreement are fair to, and in the best
interests of, their respective companies and stockholders. In arriving at their
determinations, the Avondale Board and the Coal City Board considered a number
of factors which indicated that the Merger should produce an institution that is
well capitalized, and one which will enjoy an enhanced commercial lending and
retail banking franchise as well as a number of balance sheet and financial
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benefits that should foster the potential for earnings growth. The factors
considered by the Avondale Board and the Coal City Board included, but were not
limited to, the following:
1. Information concerning the businesses, earnings, operations, financial
condition, prospects, capital levels and asset quality of Avondale and
Coal City, both individually and as combined. An integral component of
this consideration was the determination that the operating
philosophies of the two companies were compatible and the conclusion
that benefits could be realized by combining the companies' retail
networks and commercial lending capabilities with the companies' retail
products and expertise.
2. The terms of the Merger Agreement, the Stock Option Agreements and the
other documents executed in connection with the Merger, all of which
were reciprocal.
3. The anticipated cost savings and efficiencies available to the combined
company as a result of the Merger.
4. The current and prospective economic, competitive and regulatory
environment facing each institution and other financial institutions.
5. The fact that for at least three years after the Effective Time members
of Coal City's Board of Directors would represent between 50% and 56%
of the combined company's Board of Directors, and the current
management of each company would have a significant influence in the
management of the combined company. See "Management and Operations
After the Merger."
6. The results of the due diligence investigations conducted by the
managements of Avondale and Coal City, including assessment of credit
policies, asset quality, interest rate risk, litigation and adequacy of
loan loss reserves.
7. The expectation that the Merger would be tax free to Avondale, Coal
City and their respective stockholders for federal income tax purposes,
and would be accounted for under the purchase method of accounting. See
"--Federal Income Tax Consequences of the Merger" and "--Accounting
Treatment."
8. The nature and compatibility of the respective management and business
philosophies of Avondale and Coal City, including the compatible nature
of the companies' retail operations.
9. The prospects for growth and expanded products and services, and other
anticipated impacts on depositors, employees, customers and communities
served by Avondale and Coal City, respectively.
10. The equitable ownership of the combined company by stockholders of
Avondale and Coal City.
In addition, the Avondale Board considered the complementary nature of Coal
City's branch network with Avondale's existing presence in the Chicago area,
that the corporate headquarters of the combined company would be located in the
Chicago area and the other alternatives available to Avondale, such as remaining
independent and growing internally or through future acquisitions. The Coal City
Board also considered the proposed transaction in light of its business plan
strategy. Coal City had recently embarked on a series of efforts designed to
strengthen its retail franchise, and the Coal City Board concluded that the
Merger would significantly accelerate that process while preserving Coal City's
existing momentum and capital growth opportunities.
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In reaching their determinations to approve and recommend the Merger, the
Avondale Board and the Coal City Board did not assign any specific or relative
weights to the foregoing factors, and individual directors may have given
differing weights to different factors.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Avondale. The Avondale Board has unanimously adopted and approved the Merger
Agreement and the transactions contemplated thereby and has determined that the
Merger and the issuance of the shares of Avondale Common Stock pursuant thereto
are in the best interests of Avondale and its stockholders. THE AVONDALE BOARD
THEREFORE RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
For a discussion of factors considered by the Avondale Board in reaching its
decision to approve the Merger Agreement, see "--Background of and Reasons for
the Merger."
Coal City. The Coal City Board has adopted and approved the Merger Agreement
and the transactions contemplated thereby and has determined that the Merger is
fair to, and in the best interests of, Coal City and its stockholders. THE COAL
CITY BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
For a discussion of factors considered by the Coal City Board in reaching its
decision to approve the Merger Agreement, see "--Background of and Reasons for
the Merger."
MERGER CONSIDERATION
Subject to the terms, conditions and procedures set forth in the Merger
Agreement, each share of Coal City Common Stock issued and outstanding
immediately prior to the Merger (other than shares subject to dissenters'
rights) will be converted into 83.5 (Exchange Ratio) shares of Avondale Common
Stock (Merger Consideration). The Exchange Ratio was determined through arm's-
length negotiations between Avondale and Coal City. See "-- Background of and
Reasons for the Merger." Based upon the outstanding shares of Avondale Common
Stock and Coal City Common Stock as of December 31, 1998, the stockholders of
Coal City would own approximately 58.8% of the Avondale Common Stock outstanding
immediately following the Effective Time.
Each share of Avondale Common Stock issued and outstanding at the Effective
Time will remain outstanding and unchanged as a result of the Merger. No
fractional shares of Avondale Common Stock will be issued in the Merger, and
Coal City stockholders who otherwise would be entitled to receive a fractional
share of Avondale Common Stock will receive a cash payment in lieu thereof. See
"--Fractional Shares."
The number of shares of Avondale Common Stock to be received for each share
of Coal City Common Stock has been fixed at 83.5. Based on the last reported
sale price for Avondale Common Stock on January __, 1999 ($______ per share),
the value of 83.5 shares of Avondale Common Stock as of that date would have
been approximately $__________. Based on the $____ per share closing price the
aggregate market value of the Merger Consideration would be approximately $____
. The market value of Avondale Common Stock to be received in the Merger,
however, is subject to fluctuation. Fluctuations in the market price of Avondale
Common Stock would result in an increase or decrease in the value of the Merger
Consideration to be received by Coal City stockholders in the Merger. An
increase in the market value of Avondale Common Stock would increase the market
value of the Merger Consideration to be paid in the Merger. A decrease in the
market value of Avondale Common Stock would have the opposite effect. The market
value of the Merger Consideration at the time of the
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Merger will depend upon various factors, including the market value of a share
of Avondale Common Stock at such time and any effect of the Merger itself.
TREATMENT OF COAL CITY STOCK OPTIONS
At the Coal City Record Date, there were options for 1,476 shares outstanding
under Coal City's 1995 Stock Option Plan (Coal City Stock Options). At the
Effective Time, each Coal City Stock Option shall become an option to purchase
the number of shares of Avondale Common Stock that would have been received by
the holder of such option in the Merger had the option been exercised in full
for shares of Coal City Common Stock immediately prior to the Effective Time
(upon the same terms and conditions under the relevant option as were applicable
immediately prior to the Effective Time), except the exercise price per share
will be proratably adjusted by the Exchange Ratio and any fractional shares.
Avondale, as the surviving corporation, will register the shares to be issued
pursuant to these options under the Securities Act of 1933, as amended
(Securities Act).
OPINION OF AVONDALE FINANCIAL ADVISOR
Hovde has delivered to the Avondale Board its opinion that, based upon and
subject to the various considerations set forth in its written opinion dated
October 7, 1998, the Merger Agreement is fair from a financial point of view to
the holders of Avondale Common Stock as of such date. In requesting Hovde's
advice and opinion, no limitations were imposed by Avondale upon Hovde with
respect to the investigations made or procedures followed by it in rendering its
opinion. The full text of the opinion of Hovde, dated October 7, 1998, which
describes the procedures followed, assumptions made, matters considered and
limitations on the review undertaken, is attached hereto as Appendix III.
Holders of Avondale Common Stock should read this opinion in its entirety.
Hovde is a nationally recognized investment banking firm and, as part of its
investment banking business, is continually engaged in the valuation of
financial institutions in connection with mergers and acquisitions, private
placements and valuations for other purposes. As a specialist in securities of
financial institutions, Hovde has experience in, and knowledge of, banks,
thrifts and bank and thrift holding companies. Avondale's Board of Directors
selected Hovde to act as its financial advisor in connection with the Merger on
the basis of the firm's reputation and expertise in transactions such as the
Merger.
Hovde will receive a fee contingent upon the completion of the Merger for
services rendered in connection with advising Avondale regarding the Merger
Agreement, including the fairness opinion and financial advisory services
provided to Avondale, plus reimbursement of out-of-pocket expenses. As of the
date of the fairness opinion, such fee would be between $400,000 and $450,000,
and Hovde has received no portion of such fee.
HOVDE'S OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE MERGER AGREEMENT, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF AVONDALE COMMON STOCK AS TO HOW SUCH HOLDER SHOULD VOTE AT THE
AVONDALE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF HOVDE SET FORTH IN THIS
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
The following is a brief summary of the analyses performed by Hovde in
connection with its fairness opinion:
During the course of its engagement, and as a basis for arriving at its
opinion, Hovde reviewed and analyzed material bearing upon the financial and
operating condition of Avondale and Coal City and material prepared in
connection with the Merger, including, among other things, the following: (i)
the Merger Agreement; (ii) certain
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historical publicly available information concerning Avondale and Coal City;
(iii) the nature and terms of recent merger of equals transactions; and (iv)
financial and other information provided to Hovde by the management of Avondale
and Coal City. Hovde conducted meetings with members of senior management of
Avondale for purposes of reviewing the future prospects of Avondale. Hovde also
took into account its experience in other transactions, as well as its knowledge
of the commercial banking and thrift industries and its general experience in
securities valuations.
In rendering its opinion, Hovde assumed, without independent verification,
the accuracy and completeness of the financial and other information and has
relied upon the accuracy of the representations of the parties contained in the
Merger Agreement. Hovde has not made any independent evaluation or appraisal of
any properties, assets or liabilities of Avondale. Hovde assumed and relied upon
the accuracy and completeness of the publicly available and other financial and
other information provided to it, relied upon the representations and warranties
of Avondale and Coal City made pursuant to the Merger Agreement, and did not
independently attempt to verify any of such information.
In connection with its opinion, Hovde performed various analyses with respect
to Avondale. The following is a brief summary of such analyses, certain of which
were presented to the Avondale Board by Hovde on October 7, 1998.
Pro Forma Merger Analysis. Hovde prepared a pro forma analysis of the
financial impact of the Merger. Using earnings estimates for Avondale (prepared
by Avondale management) and Coal City (prepared by Coal City management), Hovde
compared the earnings per share of each company, on a stand alone basis, to the
earnings per share of Avondale Common Stock on a pro forma basis assuming an
Exchange Ratio of 83.5 to one. Estimated merger synergies and other adjustments
were made based on discussions with management of Avondale and Coal City. Hovde
noted earnings per share accretion to Avondale and Coal City as a consequence of
the Merger based on common equity and tangible common equity at August 31, 1998.
Hovde also noted book value and tangible book value dilution to Avondale and
book value and tangible book value accretion to Coal City as a consequence of
this transaction.
Contribution Analysis. Hovde prepared a contribution analysis showing
percentages of assets, loans, deposits, common equity and tangible common equity
at August 31, 1998, and estimated 1999 net income that would be contributed to
the combined company on a pro forma basis by Avondale and Coal City. This
analysis showed, assuming an Exchange Ratio of 83.5 to one, that Avondale, as of
August 31, 1998, would contribute 36.66% of pro forma consolidated total assets,
27.64% of net loans, 35.54% of core deposits, 43.00% of common equity, 56.47% of
tangible common equity and 40.60% of estimated 1999 net income (after taking
into account certain cost savings at Avondale). This analysis showed that
holders of Avondale Common Stock would own approximately 41.54% of the pro forma
common shares outstanding of Avondale.
Analysis of Selected Mergers. As part of its analysis, Hovde reviewed all
comparable merger of equals transactions announced since January 1, 1995 (22
transactions) (Merger Group). For each transaction, Hovde calculated the
acquired company's estimated pro forma ownership; the acquired company's asset
contribution in percent to the pro forma company; the acquired company's
tangible common equity contribution in percent to the pro forma company; and the
deal price premium to the acquired company's trading price one day before
announcement of the deal.
The calculations for the Merger Group yielded a range of percentages of pro
forma ownership by an acquired company of 36.9% to 55.4%, with an average of
46.8% and a median of 47.1%; a range of percentages of pro
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forma asset contribution by an acquired company of 31.3% to 65.8%, with an
average of 48.2% and a median of 49.1%; a range of percentages of pro forma
tangible common equity contribution by an acquired company of 24.7% to 64.9%,
with an average of 47.4% and a median of 49.9%; and a range of ratios of deal
price to the acquired company's trading price one day before announcement of the
deal of 100.0% to 127.4%, with an average of 111.2% and a median of 108.5%.
Pro Forma Comparable Company Analysis. Hovde reviewed and compared certain
financial information relating to the pro forma company to corresponding
financial information, public market multiples and ratios for ten publicly
traded companies that it deemed comparable to the pro forma company (Comparable
Companies). Hovde calculated a range of market multiples of Comparable
Companies' prices divided by their consensus 1999 earnings estimates (P/E).
Hovde then utilized this range to project the trading price and the resulting
price to market premium for Avondale Common Stock on a pro forma basis. The
companies that Hovde used for the purposes of this analysis were Corus
Bankshares Inc., First Midwest Bancorp Inc., First Oak Brook Bancshares, Grand
Premier Financial, MAF Bancorp Inc., Merchants Bancorp Inc., Old Second Bancorp
Inc., Pinnacle Banc Group Inc., St. Paul Bancorp Inc. and Wintrust Financial
Corp.
The calculations for Comparable Companies yielded a P/E range of 11.3 to
17.5, with an average of 13.7 and a median of 13.2. Hovde then applied a P/E
range of 9.0 to 22.0 times Avondale's pro forma 1999 estimated earnings. This
resulted in a price range of $13.51 to $33.03 for Avondale Common Stock and a
range of market premium for Avondale Common Stock of 17.51% to 187.24%, assuming
trading value for Avondale Common Stock of $11.50.
In performing its analysis, Hovde made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Avondale and Coal City. The
analysis performed by Hovde is not necessarily indicative of actual value or
actual future results, which may be significantly more or less favorable than
suggested by such analysis. Such analysis was prepared solely as part of Hovde's
analysis of the fairness of the Exchange Ratio, from a financial point of view,
to the holders of Avondale Common Stock. The analysis does not purport to be an
appraisal or to reflect the prices at which a company might actually be sold or
the prices at which any securities may trade at the present time or at any time
in the future. Hovde used in its analysis various projections of future
performance prepared by the management of Avondale. The projections are based on
numerous variables and assumptions which are inherently unpredictable and must
be considered not certain of occurrence as projected. Accordingly, actual
results could vary significantly from those assumed in the projections and any
related analysis. Hovde's opinion does not address the relative merits of the
Merger as compared to any other business combination in which Avondale might
engage. In addition, as described above, Hovde's opinion to the Avondale Board
was one of many factors taken into consideration by the Avondale Board in making
its determination to approve the Merger Agreement.
Based upon the foregoing analyses and other investigations and assumptions
set forth in its opinion, without giving specific weightings to any one factor
or comparison, Hovde determined that the Exchange Ratio was fair from a
financial point of view to the holders of Avondale Common Stock. Hovde's
fairness opinion does not take into account any adjustment to the Merger
Consideration that may be provided for in the Merger Agreement.
THE SUMMARY OF THE PRESENTATION BY HOVDE TO THE AVONDALE BOARD AS SET FORTH
ABOVE DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH PRESENTATION. THE
PREPARATION OF A FAIRNESS OPINION INVOLVES VARIOUS DETERMINATIONS AS TO THE MOST
APPROPRIATE AND RELEVANT METHODS OF FINANCIAL ANALYSES AND THE APPLICATION OF
THOSE METHODS TO THE PARTICULAR CIRCUMSTANCES, AND, THEREFORE, SUCH AN OPINION
IS NOT READILY SUSCEPTIBLE TO SUMMARY DESCRIPTION. FURTHERMORE, IN ARRIVING AT
ITS OPINION, HOVDE DID NOT ATTRIBUTE ANY PARTICULAR
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WEIGHT TO ANY ANALYSIS OR FACTOR CONSIDERED BY IT, BUT RATHER MADE QUALITATIVE
JUDGMENTS AS TO THE SIGNIFICANCE AND RELEVANCE OF EACH ANALYSIS AND FACTOR.
ACCORDINGLY, HOVDE BELIEVES THAT ITS ANALYSES AND THE SUMMARY SET FORTH ABOVE
MUST BE CONSIDERED AS A WHOLE AND THAT SELECTING PORTIONS OF ITS ANALYSES,
WITHOUT CONSIDERING ALL FACTORS AND ANALYSES, COULD CREATE AN INCOMPLETE VIEW OF
THE PROCESS UNDERLYING THE ANALYSES SET FORTH IN ITS REPORT TO THE AVONDALE
BOARD AND ITS FAIRNESS OPINION. IN PERFORMING ITS ANALYSES, HOVDE MADE NUMEROUS
ASSUMPTIONS WITH RESPECT TO INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC
CONDITIONS AND OTHER MATTERS, MANY OF WHICH ARE BEYOND THE CONTROL OF AVONDALE
OR COAL CITY. THE ANALYSES PERFORMED BY HOVDE ARE NOT NECESSARILY INDICATIVE OF
ACTUAL VALUES OR ACTUAL FUTURE PERFORMANCE.
Although not material to the preparation of Hovde's fairness opinion,
Financial Institution Partners, L.P. (FIP), a limited partnership formed by the
principals of Hovde to make investments primarily in equity securities of
financial institutions, Eric D. Hovde, President of Hovde, and Steven D. Hovde,
Executive Vice President of Hovde, beneficially own, in the aggregate, 11.36% of
the total outstanding shares of Avondale Common Stock.
NO OPINION OF COAL CITY FINANCIAL ADVISOR
Coal City has not requested an opinion from its financial advisor in
connection with the Merger. All of the investors in Coal City were accredited
investors (as that term is defined in Regulation D promulgated under the
Securities Act of 1933, as amended) at the time of their investment. The
directors of Coal City believe all of the present stockholders of Coal City are
either accredited investors or advised by accredited investors. Furthermore,
over 45% of the outstanding shares of Coal City Common Stock are beneficially
owned by the directors of Coal City, by persons with whom such directors have
family relationships (i.e., any relationship by blood, marriage or adoption, not
more remote than first cousin) or by trusts or in another fiduciary arrangement
for the benefit of such individuals. Lastly, the Coal City Board believes its
members have the expertise to evaluate this transaction as a result of their
involvement in numerous other bank and bank holding company acquisitions,
including the acquisitions by Coal City of Coal City Bank, Manufacturers
National, U.S. Bancorp and Peterson and the acquisitions undertaken by companies
with which they were formerly principals. (See "Business of Coal City
Corporation - History and Development.") Accordingly, the Coal City Board
believes a fairness opinion would not significantly assist them or the
stockholders of Coal City in deciding whether to proceed with the Merger.
DISSENTERS' RIGHTS
Any holder of Coal City Common Stock as of the Coal City Record Date has the
right to dissent to the approval of the Merger pursuant to Section 11.65 of the
BCA and the right to be paid the "fair value" of his or her shares of Coal City
Common Stock in cash by complying with the procedures set forth in Section 11.70
of the BCA. A holder of the Coal City Common Stock must dissent with respect to
all of the shares beneficially owned by him or her. A record owner of shares may
assert dissenter's rights as to fewer than all the shares recorded in such
person's name only if such person dissents with respect to all shares
beneficially owned by any one person and notifies Coal City in writing of the
name and address of each person on whose behalf the record owner asserts
dissenter's rights. The rights of a partial dissenter are determined as if the
shares as to which dissent is made and the remaining shares were recorded in the
names of different holders. A beneficial owner of shares who is not the record
owner may assert dissenter's right as to shares held on such person's behalf
only if the beneficial owner submits to Coal City the record owners's written
consent to the dissent before or at the same time the beneficial owner asserts
dissenters' rights. A copy of Sections 11.65 and 11.70 of the BCA is attached to
this Proxy Statement/Prospectus as Appendix IV and those sections are
incorporated herein by reference. Set forth below is a summary of the procedures
relating to the exercise of dissenters' rights. This summary does not purport to
be a
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complete statement of the provisions of Sections 11.65 and 11.70 of the BCA and
is qualified in its entirety by reference to Appendix IV.
To be entitled to a cash payment upon exercise of dissenters' rights, a
holder of Coal City Common Stock must (i) before the vote at the Coal City
Special Meeting, deliver to Coal City a written demand for payment for his or
her shares if the Merger is consummated, and (ii) not vote his or her shares in
favor of the adoption of the Merger Agreement at the Coal City Special Meeting.
The written demand must be made in addition to, and separate from, any proxy or
vote against the approval of the Merger Agreement; neither a proxy nor a vote
against approval of the Merger Agreement shall constitute such a written demand.
It is recommended that the written demand be sent in advance of the Coal City
Special Meeting by registered or certified mail, return receipt requested, to
Coal City Corporation, 1200 North Ashland Avenue, Chicago, Illinois 60622,
Attention: John Siragusa, Assistant Secretary. The written demand may also be
delivered to Coal City before or at the Coal City Special Meeting, so long as it
is delivered before the vote is taken on the proposal to approve the Merger
Agreement. With respect to condition (ii) above, a dissenting holder of Coal
City Common Stock must either vote by proxy or in person against the Merger
Agreement or abstain from voting. Holders of Coal City Common Stock who return a
proxy but do not indicate their vote will be deemed to have voted for approval
of the Merger Agreement and will not have satisfied condition (ii) above.
If a holder of Coal City Common Stock has satisfied conditions (i) and (ii)
above, then such holder will be entitled only to payment in cash of the fair
value of his or her shares as provided in Section 11.70 of the BCA. If such
holder withdraws the written demand to be paid the fair value of his or her
shares, or if the Merger is abandoned or terminated, or if a court determines
that the holder of Coal City Common Stock is not entitled to receive payment for
his or her shares, or if the holder otherwise loses his or her dissenters'
rights, then such holder shall be reinstated to all his or her rights as a
holder of Coal City Common Stock as of the filing of his or her written demand.
If the Merger is consummated, these rights would include the right to receive
Avondale Common Stock and any cash payment, if applicable, into which his or her
shares of Coal City Common Stock were converted pursuant to the Merger
Agreement.
Within ten days after the Effective Time or 30 days after the dissenting
holder of Coal City Common Stock who complies with conditions (i) and (ii) noted
above delivers to Coal City his or her written demand for payment, whichever is
later, Avondale, as successor to Coal City, shall send to each such holder: (a)
a statement setting forth the opinion of Coal City as to the estimated value of
the shares of Coal City Common Stock, (b) Coal City's latest balance sheet as of
the end of the fiscal year ending not earlier than 16 months before delivery of
the statement, together with the statement of income for such year and the
latest interim financial statements, and (c) a commitment to pay for the shares
of the dissenting holder of Coal City Common Stock at the estimated value
thereof upon transmittal to Avondale, as the surviving corporation, of the
certificate or certificates, or other evidence of ownership, with respect to
such shares.
If the dissenting holder of Coal City Common Stock does not agree with the
opinion of Avondale, as the surviving corporation, as to the estimated value of
his or her shares of Coal City Common Stock, the holder, within 30 days of the
delivery of Avondale's statement of estimated value, shall notify Avondale as
the surviving corporation, in writing of the holder's estimate of value and
demand payment of the difference between the holder's estimate of value and the
amount of the proposed payment by Avondale.
If, within 60 days from delivery of the holder's notification of the estimate
of value of the shares of Coal City Common Stock, Avondale, as the surviving
corporation, and the dissenting holder have not agreed in writing upon the value
of the shares, Avondale has the right to either (i) pay the difference in value
demanded by the holder or
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(ii) file a petition in the Circuit Court of Cook County, Illinois, requesting
the court to determine the "fair value" of the shares of the Coal City Common
Stock. If Avondale, as the surviving corporation, commences such a proceeding,
it must make all dissenters, whether or not residents of the State of Illinois,
whose demands remain unsettled, parties to the proceeding as an action against
their shares and all parties must be served with a copy of the petition. Non-
resident holders may be served by registered or certified mail or by publication
as provided by law. The failure of Avondale to commence an action pursuant to
Section 11.70 of the BCA shall not limit or affect the right of dissenting
holders to otherwise commence an action as permitted by law.
Each dissenting holder of Coal City Common Stock who is made a party to the
proceeding is entitled to judgment for the amount, if any, by which the court
finds that the fair value of his or her shares of Coal City Common Stock exceeds
the amount committed to be paid by Avondale, as the surviving corporation. The
judgment may include an allowance for interest as the court may find fair and
equitable in the circumstances from the Effective Time to the date of payment.
If the fair market value of the shares as determined by the court materially
exceeds the amount which Avondale, as the surviving corporation, offered to pay
for the shares, or if no offer was made, then all or any part of the expenses of
the proceeding, including the reasonable compensation and expenses of appraisers
and experts employed by the dissenting holder of the Coal City Common Stock, but
excluding expenses of counsel, may be assessed against Avondale, as the
surviving corporation. On the other hand, if the fair value of the shares as
determined by the court does not materially exceed the amount which Avondale, as
the surviving corporation, offered to pay for the shares, then the dissenting
holder may be responsible for paying his or her own expenses of the proceeding.
ANY HOLDER OF COAL CITY COMMON STOCK CONTEMPLATING THE EXERCISE OF
DISSENTERS' RIGHTS WITH RESPECT TO HIS OR HER SHARES OF COAL CITY COMMON STOCK
IS URGED TO REVIEW CAREFULLY THE PROVISIONS OF APPENDIX IV. DISSENTERS' RIGHTS
MAY BE LOST IF THE REQUIREMENTS OF SECTIONS 11.65 AND 11.70 OF THE BCA ARE NOT
FULLY AND PRECISELY SATISFIED.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Avondale Common
Stock will be issued upon the surrender for exchange of certificates
representing Coal City Common Stock, no dividend or distribution of Avondale
will relate to any fractional shares, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a stockholder of
Avondale. Each stockholder of Coal City who would be entitled to a fractional
share in the Merger will receive a cash payment (without interest) determined by
multiplying:
1. the closing price of one share of Avondale Common Stock as reported on
the Nasdaq National Market on the trading day immediately preceding the
Effective Time by;
2. the fractional share interest to which the holder would otherwise be
entitled pursuant to the terms of the Merger Agreement.
EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Time, an exchange agent designated
by Avondale and Coal City (Exchange Agent) will deliver to each Coal City holder
of record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Coal City Common Stock
(Certificates), a transmittal letter and instructions to be used in surrendering
Certificates in exchange for:
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1. certificates representing the number of shares of Avondale Common Stock
into which their shares of Coal City Common Stock were converted
pursuant to the Merger Agreement; and
2. a check representing the amount of cash in lieu of fractional shares,
if any, which such stockholder has the right to receive.
COAL CITY STOCKHOLDERS SHOULD NOT FORWARD THEIR COAL CITY CERTIFICATES UNTIL
THEY RECEIVE THE TRANSMITTAL LETTER AND INSTRUCTIONS.
Until such surrender and subject to the effect, if any, of applicable law,
the Certificates will as of the Effective Time represent ownership of the number
of shares of Avondale Common Stock into which such shares were converted in the
Merger, and the holders will be entitled to all rights and privileges of holders
of Avondale Common Stock, except that holders of Certificates will not be
entitled to receive dividends or any other distributions declared by Avondale
until the Certificates are so surrendered. Following surrender of the
Certificates in accordance with the terms of the Merger Agreement, the holders
of newly issued Avondale certificates will be paid, without interest, any
dividends or other distributions with respect to the shares of Avondale Common
Stock the record date for which is after the Effective Time (less any taxes that
may have been imposed thereon).
Any Certificate representing shares of Avondale Common Stock to be issued in
a name other than that in which the Certificate is registered must be properly
endorsed and otherwise in proper form for transfer, and the holder requesting
such exchange must pay to the Exchange Agent in advance any transfer or other
taxes in connection therewith.
In the event any Certificate has been lost, stolen or destroyed, upon the
mailing of an affidavit of that fact by the holder of such Certificate and the
posting of any bond required by Avondale or the Exchange Agent, Avondale or the
Exchange Agent will issue for such lost, stolen or destroyed Certificate, the
shares of Avondale Common Stock and deliver cash due to the holder of such
Certificate.
After the Effective Time, there will be no further transfers on the records
of Coal City of the Certificates, and, if such Certificates are presented to
Avondale for transfer, they will be cancelled against delivery of certificates
for Avondale Common Stock.
After the Effective Time, holders of unsurrendered Certificates shall be
entitled to vote at any meeting of Avondale stockholders at which holders of
Avondale Common Stock are eligible to vote.
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER THAT ARE DIFFERENT FROM YOUR
INTERESTS
Set forth below are descriptions of interests of directors and executive
officers of Coal City and Avondale in the Merger in addition to their interests
as stockholders of Coal City and Avondale generally. The Coal City and Avondale
Boards were aware of these interests and considered them in approving the Merger
Agreement and the transactions contemplated thereby.
Directors and Officers after the Merger. The Merger Agreement provides that
certain officers of Avondale and Coal City will become officers of Avondale
after the Merger. The Merger Agreement also includes provisions governing the
composition of the Avondale Board for a period of three years after the Merger.
See "Management and Operations after the Merger."
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Employment Agreements. When the Merger becomes effective, Robert S. Engelman,
Jr. and Mitchell Feiger will each have a new employment agreement with Avondale.
Mr. Engelman's new employment agreement will replace his current employment
agreement, which will be terminated. Mr. Feiger has no current employment
agreement. Burton Field's employment agreement as President and Chief Executive
Officer of Manufacturers Bank will remain in full force and will not be affected
by the merger. See "Business of Coal City Corporation - Management
Compensation - Employment Agreement."
The current Engelman employment agreement provides for severance payments
upon involuntary termination following a change of control in the maximum amount
allowed as a tax-deductible expense to Avondale. The current agreement also
provides, among other things, for liquidated damages upon termination under
certain circumstances and for lifetime health benefits at the expense of
Avondale from the date of any termination (other than death). The new Engelman
employment agreement provides that Mr. Engelman will be Chairman of the Board of
Avondale, as the surviving corporation, and be responsible for certain other
activities, and be paid a base salary of $310,000 and an annual bonus of
$150,000 through the date of Avondale's annual meeting of stockholders in the
year 2000. After the year 2000 annual meeting, Mr. Engelman will be paid
$310,000 per year through January 31, 2004 for his agreement not to compete
against Avondale in Illinois during that period. After the year 2000 annual
meeting, Mr. Engelman will also be entitled to participate in Avondale's health
benefits for his lifetime at his cost. Mr. Engelman will also continue to accrue
benefits under Avondale's Supplemental Executive Retirement Plan through January
31, 2004. If Mr. Engelman is terminated by Avondale other than for cause under
the new agreement, he will continue to receive his salary and bonus until the
year 2000 annual meeting and continue to be entitled to his covenant not to
compete payments. The new agreement does not provide for any change of control
severance payments or liquidated damages under any circumstances.
Mitchell Feiger does not currently have a written employment agreement with
Coal City, but he will have such an agreement with Avondale, as the surviving
corporation. Under his employment agreement, which will become effective at the
Effective Time, Mitchell Feiger will be the President and Chief Executive
Officer of Avondale. This agreement is a so-called "evergreen" contract with a
continual three-year term. Although either party may terminate this agreement at
any time, it provides for Mr. Feiger to be paid his compensation for the full
remaining term of the agreement unless he is terminated "for cause" (as defined
in the agreement). Mr. Feiger's annual salary compensation under the agreement
will be $325,000, and he may, in addition, receive an annual bonus at the
discretion of the Avondale Board. Mr. Feiger will also be eligible to
participate in Avondale's standard package of employee benefits, including
retirement plans and insurance programs, as well as certain executive benefits,
such as an automobile allowance and club dues. In the event of a change of
control of Avondale (as defined in the agreement), if Mr. Feiger or Avondale (or
its successor) terminates his employment with Avondale (or its successors) he
will receive 2.99 times his base compensation and he will be entitled to
continued health benefits during the remaining term of the agreement (and
thereafter, at his cost) and to vesting of any unvested stock options and
unvested benefits under benefits plan and arrangements of Avondale at the time
of the change in control (except for qualified pension plans).
Howard A. Jaffe, Executive Vice President of Avondale Bank and Vice President
of Avondale, has a change in control severance agreement under which he is
entitled to severance pay equal to 200% of his base amount and 200% of his
average annual bonus amount for the past two years and health benefits for 24
months following termination of employment following a change in control of
Avondale (as defined in the Agreement). Effective on the Effective Time, Mr.
Jaffe will enter into a new change in control severance agreement with
Manufacturers Bank under which he will forfeit any rights under his present
agreement and become entitled to 200% of his base amount and continued health
benefits for 24 months following termination of his employment if his employment
is terminated by Manufacturers Bank (including a material diminution of his
duties) within 12 months after the Merger or after a later change in control (as
defined in the Agreement) of Avondale or Manufacturers Bank. Effective upon the
Effective Time, Thomas Panos, James Mann, Jane Okarski and Peggy Voigt, officers
of
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Manufacturers Bank, will enter into change in control severance agreements with
Manufacturers Bank under which each of them would receive 100% of his or her
base amount and continued health benefits for 12 months following termination of
employment if his or her employment were involuntarily terminated within 12
months following a change in control of Avondale or Manufacturers Bank. Each of
these change in control severance agreements will have a term of three years,
subject to annual one-year extensions upon approval by Manufacturers Bank's
board of directors.
Avondale Benefit Plans. The consummation of the Merger will cause early
vesting of benefits accrued under Avondale's Supplemental Executive Retirement
Plan, of stock options issued under its 1997 Omnibus Incentive Plan and of
restricted stock granted under its Recognition and Retention Plan and the 1997
Omnibus Incentive Plan. The Merger Agreement requires termination of Avondale's
ESOP, which will result in early vesting and distribution of participants'
interests under that plan. Unvested benefits as of December 31, 1998 under the
Supplemental Executive Retirement Plan, the 1997 Omnibus Incentive Plan and the
Recognition and Retention Plan appear in the chart below.
<TABLE>
<CAPTION>
SHARES SUBJECT TO UNVESTED SHARES OF
UNVESTED OPTIONS RESTRICTED STOCK UNVESTED SHARES OF UNVESTED INTEREST
UNDER 1997 UNDER 1997 RESTRICTED STOCK IN SUPPLEMENTAL
OMNIBUS OMNIBUS UNDER RECOGNITION EXECUTIVE
INCENTIVE PLAN INCENTIVE PLAN AND RETENTION PLAN RETIREMENT PLAN(1)
----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Robert S. Engelman, Jr. -0- -0- 16,928 $601,386
Howard A. Jaffe 45,187 -0- 8,000 -0-
Charles W. Sewright 55,000 20,000 -0- -0-
All directors and
officers as a group 112,187 20,000 24,928 $601,386
</TABLE>
____________
/(1)/ All benefits accrued under the Supplemental Executive Retirement Plan are
currently scheduled to vest as of December 31, 1999.
Coal City Benefit Plans. The consummation of the Merger will cause early
vesting of options granted under Coal City's 1995 Stock Option Plan. As of
December 31, 1998, unvested options granted to Mitchell Feiger, the only
director or executive officer of Coal City to whom options were granted under
the 1995 Stock Option Plan, amounted to a total of 508 shares.
Directors. It is anticipated that upon the Merger, Avondale directors will be
granted the right to accept, annually, up to $10,000 in director's fees in the
form of options to purchase Avondale Common Stock.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement each of Coal City and Avondale has made
representations and warranties relating to, among other things, the parties'
respective organization, capitalization, ownership of subsidiaries, accuracy of
financial statements, the absence of material adverse changes in its business,
financial condition, operations or properties, the truth and accuracy of
information prepared and provided by them in connection with this Proxy
Statement/Prospectus, the absence of certain legal proceedings, compliance with
laws, regulations and other requirements, corporate actions in connection with
the approval and execution of the Merger Agreement and related documents,
authority relative to the Merger Agreement, employment arrangements, employee
benefit
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plans, the accuracy of information furnished to the other party, their
respective properties and assets, material agreements and contracts, tax
matters, environmental matters, loan portfolio, real estate loans and
investments and financial derivative contracts. For detailed information on such
representations and warranties, see the Merger Agreement attached hereto in
Appendix I.
CONDITIONS TO THE MERGER
The respective obligations of Coal City and Avondale to consummate the Merger
are subject to the satisfaction or mutual waiver at or prior to the Effective
Time of the following conditions:
1. the Merger Agreement shall have been approved by the requisite vote of
the respective stockholders of Avondale and Coal City;
2. the shares of Avondale Common Stock to be issued to Coal City
stockholders upon consummation of the Merger shall have been authorized
for inclusion on the Nasdaq National Market subject to official notice
of issuance;
3. all requisite governmental approvals of the Merger shall have been
obtained and shall remain in full force and effect without the
imposition of any condition or restriction which would have a Material
Adverse Effect (as defined in the Merger Agreement and described below)
on Avondale as the surviving corporation, and all applicable waiting
periods shall have expired;
4. a Registration Statement relating to the shares of Avondale Common
Stock to be issued in the Merger shall have been declared effective and
shall not be subject to a stop order or any threatened stop order;
5. neither Avondale nor Coal City shall be subject to any order of a court
or agency of competent jurisdiction which restrains or prohibits the
consummation of the Merger;
6. each party shall have received from its respective counsel an opinion
to the effect that, among other things, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (Code) and, accordingly, for federal
income tax purposes no gain or loss will be recognized by Avondale or
Coal City as a result of the Merger; and
7. each party shall have obtained all consents and approvals required to
be obtained in connection with the Merger other than those which,
individually or in the aggregate, would not have a Material Adverse
Effect (as defined below) on Avondale, as the surviving corporation.
The obligation of Avondale to consummate the Merger is subject to the
satisfaction by Coal City or waiver by Avondale of the following conditions:
1. the receipt from the independent auditors of Coal City of a letter
regarding certain financial information included in this Proxy
Statement/Prospectus;
2. between the date of the Merger Agreement and the Merger closing date,
Coal City shall not have experienced a Material Adverse Effect;
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3. the representations and warranties of Coal City contained in the Merger
Agreement shall be true as of the Effective Time (or on the date when
made in the case of any representation or warranty which specifically
relates to an earlier date), and Coal City shall have performed all
obligations and complied with each covenant, in all material respects,
and satisfied all conditions under the Merger Agreement to be performed
or complied with by it prior to the Effective Time;
4. neither Coal City nor any of its subsidiaries shall be subject to any
pending litigation which, if determined adversely, would have a
Material Adverse Effect on Coal City and its subsidiaries, taken as a
whole;
5. Avondale shall have received from certain affiliates of Coal City
letters with respect to the resale of Avondale Common Stock received by
them in the Merger;
6. all of the issued and outstanding capital stock of Manufacturers
National shall be owned by Coal City;
7. no shares of Coal City preferred stock shall be issued or outstanding;
8. Coal City shall have delivered to Avondale audited consolidated
financial statements at and for the year ended December 31, 1998; and
9. Mitchell Feiger, President of Coal City, shall have entered into an
employment agreement reasonably acceptable to the Avondale Board.
The obligation of Coal City to consummate the Merger is subject to the
satisfaction by Avondale or waiver by Coal City of the following conditions:
1. the receipt from the independent auditors of Avondale of a letter
regarding certain financial information included in this Proxy
Statement/Prospectus;
2. between the date of the Merger Agreement and the Closing Date, Avondale
shall not have experienced a Material Adverse Effect;
3. the representations and warranties of Avondale contained in the Merger
Agreement shall be true as of the Effective Time (or on the date when
made in the case of any representation or warranty which specifically
relates to an earlier date), and Avondale shall have performed all
obligations and complied with each covenant, in all material respects,
and satisfied all conditions under the Merger Agreement to be performed
or complied with by it prior to the Effective Time;
4. neither Avondale nor any of its subsidiaries shall be subject to any
pending litigation which, if determined adversely, would have a
Material Adverse Effect on Avondale and its subsidiaries, taken as a
whole; and
5. Avondale shall have delivered to Coal City audited consolidated
financial statements at and for the year ended December 31, 1998;
6. the present value, based on certain assumptions, of the interests in
Avondale's home equity loan trusts owned by Avondale shall not be less
than $14,935,729 (plus the amount of certain gains on sale); and
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7. Avondale shall have divested itself of its mortgage banking business,
either through a sale or the discontinuance of the business.
For purposes of the Merger Agreement, a "Material Adverse Effect" means an
effect which:
1. is materially adverse to the financial condition of Avondale or Coal
City and its respective subsidiaries taken as a whole;
2. significantly and adversely affects the ability of Avondale or Coal
City to consummate the transactions contemplated by the Merger
Agreement; or
3. enables any person to prevent the transactions contemplated by the
Merger Agreement;
provided, however, that a Material Adverse Effect shall not include any effect
resulting from (i) actions or omissions of Avondale or Coal City taken with the
prior consent of the other in contemplation of the transactions provided for in
the Merger Agreement, (ii) circumstances affecting the financial institutions
industry generally (including changes in laws or regulations, accounting
principles or general levels of interest rates) which do not adversely affect a
party and its subsidiaries in a manner significantly different than the other
party, or (iii) any adjustments to the value of (x) interest-only strips (i.e.,
certain interests in mortgage-backed securities) owned by Avondale or any
subsidiary or (y) any mortgage-banking operations of Avondale or any subsidiary.
There can be no assurance that the conditions to consummation of the Merger
will be satisfied or waived. In the event the conditions to either party's
obligations become impossible of satisfaction in any material respect, the other
party may elect to terminate the Merger Agreement. See "Waiver and Amendment;
Termination."
THE CONTRIBUTION
After the Effective Time, Avondale may contribute all of the outstanding
shares of common stock of Avondale Bank to Manufacturers National
(Contribution).
THE BANK MERGER
After the Effective Time and the Contribution (if any), Avondale Bank will be
merged with Manufacturers Bank, with Manufacturers Bank surviving (Bank Merger).
REGULATORY APPROVALS
The Merger is subject to prior approval by the Board of Governors of the
Federal Reserve System (FRB) under Section 3 of the Bank Holding Company Act
(BHCA) and prior notice to the FRB under Section 4 of the BHCA. The BHCA
requires the FRB, when approving such a transaction, to take into consideration
the financial and managerial resources (including the competence, experience and
integrity of the officers, directors and principal stockholders), the future
prospects of the existing and proposed institutions and the convenience and
needs of the communities to be served, any anticompetitive effects and the
record of the depository institutions involved in the Merger under the Community
Reinvestment Act of 1977 (CRA). In considering financial resources and future
prospects, the FRB will, among other things, evaluate the adequacy of the
capital levels of the parties to a proposed transaction and of the resulting
institutions and the readiness of the computer systems of the resulting
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<PAGE>
institutions for the transition to the year 2000. Avondale has filed the
necessary application with the FRB concerning the Merger.
Under Section 4 of the BHCA and related regulations, the FRB must consider
whether the performance of nonbanking activities by Avondale and its nonbanking
subsidiaries can reasonably be expected to produce benefits to the public (such
as greater convenience, increased competition and gains in efficiency) that
outweigh possible adverse effects (such as undue concentration of resources,
decreased or unfair competition, conflicts of interest and unsound banking
practices). This consideration includes an evaluation of the financial and
managerial resources of the companies and the effect of the proposed transaction
on those resources.
The Bank Merger must be approved by the FDIC and the Illinois Commissioner of
Banks and Real Estate (Illinois Commissioner). Prior notice of the Bank Merger
must be filed with the OTS. Manufacturers Bank and Avondale Bank have filed the
required applications and notices concerning the Bank Merger.
Neither the Merger nor the Bank Merger may proceed in the absence of the
requisite regulatory approvals. There can be no assurance that all such
regulatory approvals will be obtained or as to the dates of such approvals.
Neither the Merger nor the Bank Merger or Purchase and Assumption may be
consummated for a period of 30 days after receipt of the final approval under
federal law, unless no adverse comment has been received from the Department of
Justice, in which case the transaction may be consummated on or after the 15th
day after such final approval.
It is a condition to the consummation of the Merger that all requisite
regulatory approvals be obtained without any condition or restriction that would
have or result in a Material Adverse Effect on Avondale as the surviving
corporation, as Avondale and Coal City may reasonably and in good faith agree.
There can be no assurance that the approvals of the FRB, the FDIC or the
Illinois Commissioner will not contain any such condition or restriction. See
"--Conditions to the Merger."
WAIVER AND AMENDMENT; TERMINATION
Prior to the Effective Time, the Boards of Directors of Avondale and Coal
City may by written action:
1. extend the time for performance of any obligations or other acts
required by the Merger Agreement;
2. waive any inaccuracies in the representations and warranties contained
in the Merger Agreement or in any document delivered pursuant to the
Merger Agreement; and
3. waive compliance with any agreements or conditions contained in the
Merger Agreement.
Subject to applicable law, the Merger Agreement may be amended or modified by
action of the Boards of Directors of Avondale and Coal City at any time before
or after approval of the Merger Agreement by Avondale and Coal City
stockholders; provided, however, that after approval of the Merger Agreement by
Avondale and Coal City stockholders, no amendment may change the amount or form
of the Merger Consideration without the further approval of Avondale and Coal
City stockholders.
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The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the stockholders of Avondale or Coal
City:
1. by mutual consent of the parties;
2. by either party if (i) the Merger has not been consummated on or before
June 30, 1999 or such later date as may be agreed to by the parties
(provided that the failure to consummate the Merger was not a result of
the terminating party's nonobservance of the terms of the Merger
Agreement), (ii) any regulatory authority has denied, or indicated an
intent to deny, approval or authorization of the Merger, requested the
withdrawal of an application for approval of the Merger, or indicated
an intent to impose a condition on its approval or authorization of the
Merger which would have a Material Adverse Effect on Avondale as the
surviving corporation in the Merger, or (iii) approval of the
stockholders of Coal City or Avondale, as the case may be, required for
consummation of the Merger has not been obtained (provided that the
electing party is not then in breach of its obligations under the
Merger Agreement with respect thereto);
3. by Avondale upon delivery of written notice of termination to Coal City
if any event occurs which renders impossible of satisfaction in any
material respect one or more of the conditions to the obligations of
Avondale to effect the Merger as set forth in the Merger Agreement and
noncompliance is not waived by Avondale;
4. by Coal City upon delivery of written notice of termination to Avondale
if any event occurs which renders impossible of satisfaction in any
material respect one or more of the conditions to the obligations of
Coal City to effect the Merger as set forth in the Merger Agreement and
noncompliance is not waived by Coal City;
5. by either party if there has been a material breach of the other
party's representations, warranties, covenants or agreements set forth
in the Merger Agreement which has not been fully cured or cannot be
fully cured within the earlier of (i) 30 days after written notice of
such breach has been received by the breaching party or (ii) five days
prior to the Closing Date, and which breach would have, or be
reasonably likely to have, a Material Adverse Effect on the breaching
party and its subsidiaries, taken as a whole, or upon consummation of
the transactions contemplated by the Merger Agreement;
6. by Avondale if (i) the Coal City Board has withdrawn, modified or
changed its approval or recommendation of the Merger Agreement in a
manner adverse to Avondale, (ii) the Coal City Board has authorized
Coal City to enter into any agreement, letter of intent or agreement in
principle with the intent to pursue or effect a Takeover Proposal (as
defined below) or (iii) as a result of an unsolicited Takeover
Proposal, the Avondale Board has withdrawn, modified or changed its
recommendation of the Merger Agreement upon its determination in good
faith after consultation with legal counsel and an investment banking
firm that such recommendation would constitute a breach of its
fiduciary duties; and
7. by Coal City if (i) the Avondale Board has withdrawn, modified or
changed its approval or recommendation of the Merger Agreement in a
manner adverse to Coal City, (ii) the Avondale Board has authorized
Avondale to enter into any agreement, letter of intent or agreement in
principle with the intent to pursue or effect a Takeover Proposal (as
defined below) or (iii) as a result of an unsolicited Takeover
Proposal, the Coal City Board has withdrawn, modified or changed its
recommendation of the Merger Agreement upon its determination in good
faith after consultation with legal counsel and an investment banking
firm that such recommendation would constitute a breach of its
fiduciary duties.
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For additional information, see Section 4.4 of the Merger Agreement.
For purposes of the Merger Agreement, a "Takeover Proposal" means any
proposal, other than as contemplated by the Merger Agreement, for a merger or
other business combination involving Avondale, Avondale Bank, Coal City or
Manufacturers Bank or for the acquisition of a 10% or greater equity interest in
Avondale, Avondale Bank, Coal City or Manufacturers Bank, or for the acquisition
of a substantial portion of the assets of Avondale, Avondale Bank, Coal City or
Manufacturers Bank.
The representations, warranties and agreements in the Merger Agreement will
not survive the Effective Time, and will terminate at that time. After the
Effective Time, neither of the parties shall have any liability to the other
because of any breach or failure of any of the representations, warranties and
agreements in the Merger Agreement, except with respect to agreements of the
parties which by their terms are intended to be performed after the Effective
Time and with respect to liability for fraud, deception or intentional
misrepresentation.
COVENANTS PENDING CLOSING
Avondale and Coal City have agreed to use their best efforts, and to take all
actions necessary or appropriate, to consummate the Merger and the other
transactions contemplated by the Merger Agreement at the earliest practicable
date.
Pursuant to the Merger Agreement, each of Avondale and Coal City has agreed,
with respect to it and its subsidiaries, except as otherwise contemplated by the
Merger Agreement to conduct its business only in the ordinary course consistent
with past practices, to maintain its books and records in accordance with past
practices, to use reasonable efforts to preserve intact its existing businesses
and business relationships and to take no action that would adversely affect its
ability to receive the necessary governmental approvals of the Merger or perform
its obligations under the Merger Agreement and the Stock Option Agreements. Each
of Avondale and Coal City has further agreed that it and its subsidiaries shall
not, without the prior written approval of the other party:
1. declare, set aside or pay any dividend or make any other distribution
with respect to its capital stock, except for distributions by a
subsidiary to a parent;
2. reacquire or buy any of its outstanding shares of common stock;
3. issue or sell any shares of its capital stock (other than pursuant to
the applicable Stock Option Agreement or upon the exercise of stock
options previously disclosed to the other party);
4. effect any stock split, stock dividend or other reclassification of its
common stock; or
5. grant any options or issue any warrants exercisable for, or securities
convertible or exchangeable into, capital stock of it or any of its
subsidiaries, or grant any stock appreciation or other rights with
respect to shares of it or any of its subsidiaries (other than with
respect to the applicable Stock Option Agreement).
In addition, pursuant to the Merger Agreement, each of Avondale and Coal City
has agreed that it and its subsidiaries shall not, without the prior written
approval of the other party:
1. sell, dispose of or pledge any significant assets, other than in the
ordinary course of business consistent with past practice, in
connection with the borrowing of funds (subject to certain limitations
set forth
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below and in the Merger Agreement) or in connection with the sale of
Avondale's mortgage banking business;
2. merge or consolidate with or into another entity or otherwise acquire
any other entity or, except in accordance with its written business
plan, acquire any significant assets;
3. sell or pledge, or agree to sell or pledge, or permit any lien to exist
on any stock of its subsidiaries;
4. change the governing instruments of it or its subsidiaries, except, in
the case of Avondale, with respect to the authorization of additional
shares of Avondale Common Stock and as contemplated in the Merger
Agreement;
5. engage in any lending activities other than in the ordinary course of
business consistent with past practices;
6. form any new subsidiary or cause or permit a material change in the
activities presently conducted by any subsidiary, or make additional
investments in subsidiaries in excess of $100,000, except in connection
with the sale of Avondale's mortgage banking business;
7. engage in any off-balance sheet interest rate swap arrangement (except
to hedge interest rate risk on certificates of deposit);
8. engage in any activity not contemplated by its written business plan;
9. purchase any equity securities other than Federal Home Loan Bank stock
or incur or assume any indebtedness except in the ordinary and usual
course of business;
10. authorize capital expenditures other than in the ordinary course of
business;
11. implement or adopt any change in its accounting principles, practices
or methods (other than as required by generally accepted accounting
principles);
12. grant any general increase in compensation or benefits to its employees
or officers or pay any bonuses to its employees or officers except in
accordance with existing policies;
13. enter into, amend or otherwise change any employment or severance
agreements with any of its directors, officers or employees;
14. grant any increase in fees or other increases in compensation or other
benefits to any of its present or former directors in such capacity;
15. except as contemplated by the Merger Agreement, establish any new or
change any existing employee benefit plan or benefit arrangement
(except, in the case of Avondale, with respect to the reservation of
additional shares of Avondale Common Stock under its stock option plans
and unless such change is required by applicable law or necessary to
maintain continued qualification of any tax-qualified plan that
provides for retirement benefits); and
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16. authorize or permit any officer, director, employee, investment banker,
financial consultant, attorney, accountant or other representative of
its or its subsidiaries, directly or indirectly, to initiate contact
with any person or entity in an effort to solicit, initiate or
encourage any "Takeover Proposal" (as such term is defined in the
Merger Agreement and described above) except as the fiduciary duties of
the Board of Directors may require.
For additional information, see Article III of the Merger Agreement.
EXPENSES
All expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby are to be paid by the party incurring such
expenses, except that Avondale and Coal City shall bear equally all printing and
mailing expenses associated with this Proxy Statement/Prospectus.
ACCOUNTING TREATMENT
The Merger will be treated as a purchase in accordance with generally
accepted accounting principles. Because the Coal City stockholders will own more
than 50% of the combined company, the transaction will be accounted for as a
reverse acquisition with Coal City being the accounting acquiror. Accordingly,
the purchase price (which is the fair value of Avondale Common Stock as of the
Merger announcement date) will be allocated based upon the relative fair values
of Avondale's assets and liabilities acquired. In addition, the post-Merger
historical financial statements of the combined company will be Coal City's as
the accounting acquiror.
The unaudited pro forma combined consolidated financial information contained
in this Proxy Statement/Prospectus has been prepared using the purchase method
of accounting. See "Unaudited Pro Forma Combined Consolidated Financial
Information."
RESALES OF AVONDALE COMMON STOCK BY AFFILIATES
The shares of Avondale Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to any stockholder who may be deemed to
be an "affiliate" of Coal City for purposes of Rule 145 under the Securities Act
as of the date of the Coal City Special Meeting. Affiliates of Coal City may not
sell their shares of Avondale Common Stock acquired in connection with the
Merger except pursuant to an effective registration statement under the
Securities Act covering such shares or in compliance with Rule 145 or another
applicable exemption from the registration requirements of the Securities Act.
Persons who may be deemed to be affiliates of Coal City generally include
individuals or entities that control, are controlled by or are under common
control with Coal City, and may include certain officers and directors of Coal
City as well as certain principal stockholders of Coal City.
Coal City has agreed in the Merger Agreement to use its best efforts to cause
each director, executive officer and other person who may be deemed an affiliate
(for purposes of Rule 145) thereof to execute and deliver a written agreement
intended to ensure compliance with the Securities Act.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Set forth below is a discussion of federal income tax consequences of the
Merger to Avondale, Avondale stockholders, Coal City and Coal City stockholders
who are citizens or residents of the United States. THE
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FOLLOWING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF
ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER TO VOTE IN FAVOR OF
APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
FURTHER, THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE
RELEVANT TO A PARTICULAR AVONDALE OR COAL CITY STOCKHOLDER SUBJECT TO SPECIAL
TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES,
BANKS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS
AND STOCKHOLDERS WHO ACQUIRED THEIR SHARES AS COMPENSATION, NOR ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION. THE
DISCUSSION IS BASED UPON THE CODE, TREASURY REGULATIONS THEREUNDER AND
ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE DATE HEREOF. ALL OF THE
FOREGOING ARE SUBJECT TO CHANGE, AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING
VALIDITY OF THIS DISCUSSION.
HOLDERS OF COAL CITY COMMON STOCK ARE URGED TO CONSULT THEIR TAX ADVISERS AS
TO THE PARTICULAR EFFECT OF THEIR OWN PARTICULAR FACTS AND CIRCUMSTANCES ON THE
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THEM, AND ALSO AS TO THE EFFECT
OF ANY STATE, LOCAL, FOREIGN AND OTHER FEDERAL TAX LAWS.
Under current federal income tax law, and based upon assumptions and
representations to be made by Avondale and Coal City, and assuming that the
Merger is consummated in the manner set forth in the Merger Agreement, it is
anticipated that the following federal income tax consequences would result:
1. the Merger will qualify as a reorganization under Section 368(a) of the
Code;
2. no gain or loss will be recognized by Avondale or Coal City as a result
of the Merger;
3. no gain or loss will be recognized by any Coal City stockholder upon
the exchange of Coal City Common Stock solely for Avondale Common Stock
pursuant to the Merger;
4. the aggregate tax basis of the Avondale Common Stock received by each
stockholder of Coal City who exchanges Coal City Common Stock for
Avondale Common Stock in the Merger will be the same as the aggregate
tax basis of the Coal City Common Stock surrendered in exchange
therefor (subject to any adjustments required as the result of receipt
of cash in lieu of a fractional share interest in Avondale Common
Stock);
5. the holding period of the shares of Avondale Common Stock received by a
Coal City stockholder in the Merger will include the holding period of
the Coal City Common Stock surrendered in exchange therefor, provided
that such shares of Coal City Common Stock were held as a capital asset
by such stockholder at the Effective Time; and
6. cash received in the Merger by a Coal City stockholder in lieu of a
fractional share interest of Avondale Common Stock will be treated as
having been received as a distribution in full payment in exchange for
the fractional share interest of Avondale Common Stock which such
stockholder would otherwise be entitled to receive, and will qualify as
capital gain or loss (assuming the Coal City Common Stock surrendered
in exchange therefor was held as a capital asset by such stockholder at
the Effective Time).
Based upon representations to be made by Avondale and Coal City as of the
Effective Time, Silver Freedman & Taff, L.L.P., counsel to Avondale, and
Schwartz, Cooper, Greenberger & Krauss, Chartered, counsel to Coal City, will
each render an opinion, dated as of the Effective Time, that the Merger will
qualify as a reorganization under the Code with the consequences set forth
above. Each opinion also would be subject to the assumptions that the Merger is
consummated in the manner and in accordance with the terms of the Merger
Agreement and that the
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Merger will qualify as a merger under the applicable laws of Illinois and
Delaware. Both opinions would be based entirely upon the Code, regulations then
in effect or proposed thereunder, then-current administrative rulings and
practice and judicial authority, all of which would be subject to change,
possibly with retroactive effect. Subject to waiver by both Avondale and Coal
City, which waiver is not expected to be made, consummation of the Merger is
conditioned upon the receipt by Avondale of the opinion of Silver, Freedman &
Taff, L.L.P. and the receipt by Coal City of the opinion of Schwartz, Cooper,
Greenberger & Krauss, Chartered. See "--Conditions to the Merger."
No ruling has been or will be requested from the Internal Revenue Service
(IRS), including any ruling as to federal income tax consequences of the Merger
to Avondale, Coal City or Coal City stockholders. Unlike a ruling from the IRS,
the opinions of counsel are not binding on the IRS. There can be no assurance
that the IRS will not take a position contrary to the positions reflected in
such opinions or that such opinions would be upheld by the courts if challenged.
NASDAQ LISTING
Avondale Common Stock is currently quoted on The Nasdaq Stock Market under
the symbol "AVND." It is a condition to consummation of the Merger that the
Avondale Common Stock to be issued to the stockholders of Coal City pursuant to
the Merger Agreement will be quoted on The Nasdaq Stock Market. See "--
Conditions to the Merger." If the Name Amendment is approved and the Merger is
consummated, Avondale will change its name to MB Financial, Inc. and its common
stock will be quoted under the symbol "MBFI."
MANAGEMENT AFTER THE MERGER
As provided in the Merger Agreement, the Avondale Board as of the Effective
Time will consist of 16 to 18 members, eight of whom shall be directors of
Avondale as of the Effective Time and from eight to ten of whom shall be
directors of Coal City as of the Effective Time. The individuals currently
expected to become members of the Avondale Board as of the Effective Time are
set forth in the table below.
In addition, during the three-year period following the Effective Time:
1. Robert S. Engelman, Jr. will serve as the Chairman of the Board of
Avondale;
2. Mitchell Feiger will serve as President and Chief Executive Officer of
Avondale;
3. the Avondale Board will consist of eight persons serving on or
representing the Avondale Board prior to the Effective Time (Avondale-
related directors) and up to ten persons serving on or representing
the Coal City Board prior to the Effective Time (Coal City-related
directors);
4. the Executive Committee of the Avondale Board shall consist of Robert
S. Engelman, Jr., Mitchell Feiger, two members selected by the
Avondale-related directors and two members selected by the Coal City-
related directors;
5. each other committee of the Avondale Board will have an even number of
members, one-half of whom shall consist of Avondale-related directors
and one-half of whom shall consist of Coal City-related directors
(unless a majority of both the Avondale-related directors and Coal
City-related directors shall otherwise agree);
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6. any vacancy on the Avondale Board caused by the departure of a
director who was a director of Avondale prior to the Effective Time,
or a successor thereto, or was approved by the Avondale-related
directors, will be filled with a person recommended by the Avondale-
related directors;
7. any vacancy on the Avondale Board caused by the departure of a
director who was a director of Coal City prior to the Effective Time,
or a successor thereto, or was approved by the Coal City-related
directors, will be filled with a person recommended by the Coal City-
related directors; and
8. the amendment of the provisions of the Avondale Bylaws governing
directors, officers and committees for the three years after the
Effective Time will require the affirmative vote of a majority of both
the Avondale-related directors and the Coal City-related directors.
Set forth below is certain information, as of October 31, 1998, with respect
to each individual who currently is expected to become a member of the Avondale
Board as of the Effective Time.
<TABLE>
<CAPTION>
YEAR BECAME A
DIRECTOR OF AVONDALE(A) PRINCIPAL OCCUPATION
NAME OR COAL CITY(CC) AGE DURING PAST FIVE YEARS/(1)/
- ------------------------ --------------------------------- ------------- ------------------------------------
<S> <C> <C> <C>
Jameson A. Baxter (A) 1993 54 President of Baxter Associates, Inc.
Thomas F. Carey (CC) 1997 65 President and General Manager of
Hawthorne Race Track
R. Thomas Eiff (A) 1991 57 President of Adams Brothers
Distribution; Chairman of the Board
of Avondale
Robert S. Engelman, Jr. (A) 1993 56 President and Chief Executive Officer
of Avondale
Alfred Feiger (CC) 1992 73 Chairman of the Board and Chief
Executive Officer of Coal City
Mitchell Feiger (CC) 1992 40 President of Coal City
Burton Field (CC) 1992 63 President and Chief Executive Officer
of Manufacturers Bank
Lawrence Gilford (CC) 1992 75 Private Investor
Richard Gilford (CC) 1992 74 Private Investor
Sandra P. Guthman (A) 1995 54 President and Chief Executive Officer
of Polk Bros. Foundation
David Husman (CC) 1992 64 Private Investor
Arthur L. Knight, Jr. (A) 1992 60 Private Investor
Peter G. Krivkovich (A) 1993 51 President of Cramer - Krasselt
Company
Clarence Mann (CC) 1992 73 Private Investor
Hipolito (Paul) Roldan (A) 1993 54 President of the Hispanic Housing
Development Corp.
Robert A. Wislow (A) 1993 53 Chairman of U.S. Equities Realty, Inc.
</TABLE>
- ------------------
(1) For additional information about the business experience of each of the
Coal City Directors, see "Business of Coal City Corporation -- Directors
and Executive Management."
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As of the Effective Time, the executive officers of Avondale and
Manufacturers Bank will be as follows: Robert S. Engelman, Jr. - Chairman of the
Board of Avondale; Mitchell Feiger - President and Chief Executive Officer of
Avondale and Chairman of the Board of Manufacturers Bank; Burton Field -
President and Chief Executive Officer of Manufacturers Bank; Howard A. Jaffe -
Vice President and Chief Financial Officer of Avondale and Executive Vice
President and Chief Financial Officer of Manufacturers Bank; Thomas Panos -
Executive Vice President and Senior Loan Officer of Manufacturers Bank.
CERTAIN RELATED TRANSACTIONS
STOCK OPTION AGREEMENTS
The information in this Proxy Statement/Prospectus concerning the terms of
the Stock Option Agreements is qualified in its entirety by reference to the
full text of the Stock Option Agreements which are attached to the Merger
Agreement and incorporated by reference herein. Certain terms used below are
defined in the Stock Option Agreements.
As an inducement and a condition to entering into the Merger Agreement, each
of Avondale and Coal City received an option to purchase shares of the other
party's common stock representing approximately 19.9% of the issued and
outstanding shares of such common stock. The options may only be exercised if
certain events occur. No such event has occurred as of the date hereof.
Pursuant to the Stock Option Agreement dated as of October 12, 1998, between
Avondale as issuer and Coal City as grantee, Avondale granted to Coal City an
Option to purchase up to 577,610 shares of Avondale Common Stock at an exercise
price of $7.40 per share, subject to the terms and conditions set forth therein.
Pursuant to the Stock Option Agreement dated as of October 12, 1998, between
Coal City as issuer and Avondale as grantee, Coal City granted to Avondale an
option to purchase up to 9,742 shares of Coal City Common Stock at an exercise
price of $675.00 per share, subject to the terms and conditions set forth
therein.
Effect of Stock Option Agreements. The Stock Option Agreements are intended
to increase the likelihood that the Merger will be consummated in accordance
with the terms of the Merger Agreement. Consequently, certain aspects of the
Stock Option Agreements may have the effect of discouraging persons who might
now or prior to the consummation of the Merger be interested in acquiring all of
or a significant interest in either Coal City or Avondale from considering or
proposing such an acquisition, even if such persons were prepared to pay a
higher price per share for Coal City Common Stock than the value per share
contemplated by the Merger Agreement or a higher price per share for Avondale
Common Stock than the then-current market price of such shares. The acquisition
of the issuer or an interest in the issuer, or an agreement to do either, could
cause an option to become exercisable. The existence of such option could
significantly increase the cost to a potential acquiror of acquiring the issuer
compared to its cost had the Stock Option Agreements not been entered into. Such
increased costs might discourage a potential acquiror from considering or
proposing an acquisition or might result in a potential acquiror proposing to
pay a lower per share price to acquire the issuer than it might otherwise have
proposed to pay. The exercise of either option may prohibit any acquiror of the
issuer from accounting for an acquisition of the issuer using the pooling of
interests accounting method for a period of two years. This could discourage or
preclude an acquisition of Coal City or Avondale.
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Terms of Stock Option Agreements. The terms of the Stock Option Agreements
are identical in all material respects other than with respect to the number and
kind of shares which may be purchased pursuant thereto and the exercise prices.
For purposes of this summary, the term "Issuer" refers to Avondale with respect
to the Avondale Stock Option Agreement and Coal City with respect to the Coal
City Stock Option Agreement, and the term "Grantee" refers to Coal City with
respect to the Avondale Stock Option Agreement and Avondale with respect to the
Coal City Stock Option Agreement.
Two triggering events must occur before an option becomes exercisable, an
"Initial Triggering Event" and a "Subsequent Triggering Event." An Initial
Triggering Event is defined in terms of an "Acquisition Transaction" which means
any of the following:
1. A merger or consolidation of Issuer or any of its significant
subsidiaries (except the merger of Manufacturers National into
Manufacturers Bank).
2. An acquisition of a substantial part of the assets of Issuer or any
significant subsidiary.
3. An acquisition of securities representing 10% or more of the voting
power of Issuer or any significant subsidiary.
Each of the following is an Initial Triggering Event:
1. Issuer or any significant subsidiary enters into an agreement with any
person other than Grantee to engage in an Acquisition Transaction.
2. Issuer's board of directors recommends that the shareholders of Issuer
approve or accept any Acquisition Transaction other than the Merger.
3. Any person other than the Grantee or its subsidiary acquires
beneficial ownership (or the right to acquire beneficial ownership) of
10% or more of Issuer's common stock.
4. Issuer's stockholders fail to meet, or meet and fail to approve the
Merger, if such failure occurs after a third party has proposed an
Acquisition Transaction.
5. Issuer's board of directors withdraws or adversely modifies its
recommendation that its shareholders approve the Merger.
6. Issuer provides information to, or negotiates with, a third party
relating to a possible Acquisition Transaction.
7. A third party publicly announces, or files materials with any
regulatory agency relating to, a proposed Acquisition Transaction with
Issuer.
8. Issuer willfully breaches any provision of the Merger Agreement in
anticipation of engaging in an Acquisition Transaction, if such breach
entitles Grantee to terminate the Merger Agreement.
A Subsequent Triggering Event is also defined in terms of an Acquisition
Transaction, but for purposes of a Subsequent Triggering Event, an acquisition
of less than 25% of the voting power of Issuer or any significant subsidiary is
not an Acquisition Transaction. Each of the following is a Subsequent Triggering
Event:
1. Any person other than Grantee acquires beneficial ownership of 25% or
more of Issuer's outstanding common stock.
2. Issuer or any significant subsidiary enters into an agreement with any
person other than Grantee to engage in an Acquisition Transaction.
3. Issuer's board of directors recommends that the shareholders of Issuer
approve or accept any Acquisition Transaction other than the Merger.
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Each option expires upon the earliest to occur of:
1. The Effective Time.
2. The termination of the Merger Agreement, if no Initial Triggering
Event has occurred and the termination is not for willful breach by
Issuer.
3. 15 months after termination of the Merger Agreement (subject to
possible extension).
4. The date on which Grantee's shareholders vote and fail to approve the
Merger, unless Issuer is in material breach of, or Issuer's
shareholders have failed to approve, the Merger Agreement.
An option may not be exercised at any time when Grantee is in material breach
of its covenants or agreements contained in the Merger Agreement such that
Issuer would be entitled to terminate the Merger Agreement as a result of a
material breach. A Stock Option Agreement shall automatically terminate upon the
termination of the Merger Agreement by Issuer as a result of a breach by Grantee
of its covenants or agreements contained therein or upon termination by Issuer
or Grantee if the approval of any regulatory authority required for consummation
of the Merger or the Bank Merger or Purchase and Assumption shall have been
denied by final nonappealable action.
If an option becomes exercisable, it may be exercised in whole or in part
within six months following the applicable Subsequent Triggering Event (subject
to possible extension). The Option Price and the number of shares issuable under
an option are subject to adjustment in the event of specified changes in the
capital stock of Issuer.
Upon the occurrence of a Subsequent Triggering Event that occurs prior to an
Exercise Termination Event, at Grantee's request, Grantee will be entitled to
certain registration rights with respect to the shares of Issuer's common stock
issued or issuable pursuant to the Option.
The Stock Option Agreements also provide that after the occurrence of a
"Repurchase Event," Grantee may require Issuer to repurchase the option and all
or any part of the Option Shares. Such repurchase of the option shall be at a
price per share equal to the amount by which the "Market/Offer Price" exceeds
the option exercise price. A repurchase of Option Shares shall be at a price per
share equal to the Market/Offer Price. The term "Market/Offer Price" means the
highest of (i) the price per share at which a tender or exchange offer has been
made for Issuer common stock, (ii) the price per share of Issuer common stock
that any third party is to pay pursuant to an agreement with Issuer, (iii) the
highest closing price per share of Issuer common stock within the six-month
period immediately preceding the date that notice to repurchase is given, or
(iv) in the event of a sale of all or substantially all of Issuer's assets or
deposits, the sum of the price paid for such assets or deposits and the current
market value of the remaining assets (as determined by a nationally recognized
investment banking firm), divided by the number of shares of Issuer common stock
outstanding at the time of such sale. The term "Repurchase Event" means (i) the
acquisition by any third party of beneficial ownership of 50% or more of the
then-outstanding shares of Issuer common stock, or (ii) the consummation of an
Acquisition Transaction, but for purposes of a Repurchase Event, the acquisition
of less than 50% of the voting power of Issuer is not an Acquisition
Transaction.
The Stock Option Agreements also provide that Grantee may, at any time
following a Repurchase Event and prior to an Exercise Termination Event,
surrender an option (and any Option Shares obtained upon the exercise thereof
and still held by Grantee) for a cash surrender fee (the "Surrender Fee") equal
to $1,800,000 (i) plus, if applicable, Grantee's purchase price with respect to
any Option Shares and (ii) minus, if applicable, any net cash received pursuant
to the sale of Option Shares to any third party (less the purchase price of such
Option Shares).
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Grantee may not exercise its rights to surrender the option and receive the
Surrender Fee if Issuer has previously repurchased the option (or any portion
thereof) or any Option Shares as described in the preceding paragraph.
Notwithstanding any other provision of the Stock Option Agreements, in no
event shall Grantee's total profit resulting from the Stock Option Agreements
exceed $1,800,000. If it would otherwise exceed this amount, Grantee, at its
election, must either (a) reduce the number of shares of Issuer common stock
subject to the option, (b) deliver to Issuer for cancellation Option Shares
previously purchased, (c) pay cash to Issuer, or (d) any combination of the
above, so that Grantee's actual total profit does not exceed $1,800,000. In
addition, the option may not be exercised for a number of shares which would, as
of the date of exercise, have a net value to Grantee based on the closing price
for Issuer common stock on the preceding trading day of more than $1,800,000.
Pursuant to the terms of the Stock Option Agreements, if Issuer enters into
certain transactions in which Issuer is not the surviving corporation, makes
certain fundamental changes in its capital stock, or sells all or substantially
all of its or certain of its subsidiaries' assets, the option will be converted
into a substitute option, with terms similar to those of the option, to purchase
capital stock of the entity that is the effective successor to Issuer.
The Stock Option Agreements provide that neither Grantee nor Issuer may
assign any of its rights or obligations thereunder without the written consent
of the other party, except that if a Subsequent Triggering Event occurs prior to
an Exercise Termination Event, Grantee may, subject to certain limitations,
assign its rights and obligations thereunder.
DIVESTITURE OF MORTGAGE BANKING BUSINESS
In connection with the Merger, Avondale will divest itself of its mortgage
banking business, either through a sale of the business, or in the alternative,
by discontinuing the business. See "Unaudited Pro Forma Combined Consolidated
Financial Information." The divestiture of the mortgage banking business is a
condition to Coal City completing the Merger. See "- Conditions to the Merger."
51
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED
FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Consolidated Financial Information
is based on the historical financial statements of Avondale and Coal City. The
pro formas have been prepared to illustrate the effect of the Merger.
Consummation of the Merger is subject to a number of conditions, and no
assurance can be given that the Merger will be consummated on the currently
anticipated terms or at all.
The following Unaudited Pro Forma Combined Consolidated Balance Sheet as of
September 30, 1998 is based on the historical consolidated statements of
financial unaudited condition of Avondale and Coal City giving effect to the
accounting for the Merger using the purchase method of accounting with Coal City
being the accounting acquiror.
The Unaudited Pro Forma Combined Consolidated Statements of Income for the
year ended December 31, 1997 and for the nine months ended September 30, 1998
are based on the historical unaudited consolidated statements of income of
Avondale and Coal City for the respective periods, giving effect to the
accounting for the Merger using the purchase method of accounting and assuming
the Merger occurred as of January 1, 1997.
The Unaudited Pro Forma Combined Consolidated Financial Information should be
read in conjunction with the Avondale historical consolidated financial
statements and the accompanying notes contained in the Avondale Form 10-Q for
the quarter ended September 30, 1998 and the 1997 Avondale Form 10-K for the
year ended December 31, 1997 incorporated by reference herein and the Coal City
historical consolidated financial statements and the accompanying notes included
elsewhere herein. See "Index to Financial Statements of Coal City Corporation."
As noted above, the Merger will be accounted for using the purchase method of
accounting. Accordingly, the pro forma adjustments are based on certain
assumptions and estimates regarding the fair value of assets acquired and
liabilities assumed and the amount of goodwill which will arise from the Merger,
and the period over which such goodwill and purchase accounting adjustments will
be amortized. The amount of goodwill to be recorded as of the Merger date is
expected to be approximately a negative $3.3 million which represents the best
estimate of the fair value of Avondale on the date the Merger was announced,
adjusted for the fair value of assets acquired and liabilities assumed based on
information available as of the date hereof, as well as all Merger and related
costs. The actual negative goodwill arising from the acquisition will be based
on the difference between the cost and the fair value of the assets and
liabilities on the date the Merger is consummated and adjusted for all charges
pertaining to the Merger. No assurance can be given that actual negative
goodwill will not be more or less than the estimated amount reflected in the pro
forma financial statements or that the period over which such negative goodwill
is amortized will not differ from the period used in the accompanying pro forma
financial statements.
52
<PAGE>
The Unaudited Pro Forma Combined Consolidated Financial Information is based
on a number of other assumptions and estimates, and is subject to a number of
other uncertainties, relating to the Merger and related matters, including among
other things, estimates, assumptions and uncertainties regarding (i) the amount
of accruals for direct acquisition costs and the amount of expenses associated
with settlement of existing contracts, severance pay, and other costs relating
to the Merger, (ii) as noted above, the actual amount of negative goodwill which
will result from the Merger, and (iii) the fair values of certain assets and
liabilities which are sensitive to assumptions and market conditions. The
Unaudited Pro Forma Combined Consolidated Financial Information also assumes
that Avondale will issue 4,087,910 shares of Avondale Common Stock to the
stockholders of Coal City in connection with the Merger. However, the actual
number of shares issued will depend upon the number of shares of Coal City
Common Stock outstanding prior to the Merger. Accordingly, the Unaudited Pro
Forma Combined Consolidated Financial Information does not purport to be
indicative of the actual results of operations or financial condition that would
have been achieved had the Merger in fact occurred on the dates indicated, nor
does it purport to be indicative of the results of operations or financial
condition that may be achieved in the future. In addition, the consummation of
the Merger is subject to satisfaction of a number of conditions, and no
assurance can be given that the Merger will be consummated on the currently
anticipated terms or at all.
53
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
-------------------------------------------------------------------------
PRO FORMA FOOT- PRO FORMA
COAL CITY AVONDALE ADJUSTMENTS NOTES COMBINED
----------- -------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks................................. $ 19,445 $ 7,615 $ (11,216) (1, 2) $ 15,844
Interest-bearing deposits............................... 16,700 78,285 -- 94,985
--------- --------- ----------- ----------
Total cash and cash equivalents..................... 36,145 85,900 (11,216) 110,829
Investment securities:
Trading securities.................................... -- 2,208 -- 2,208
Securities available for sale......................... 180,697 78,843 -- 259,540
Securities held to maturity........................... 5,059 -- -- 5,059
Mortgage-backing securities available-for-sale........ 3,441 62,041 -- 65,482
Mortgage-backed securities held-to-maturity........... 4,825 45,110 907 (4) 50,842
Stock in Federal Home Loan Bank......................... 2,239 8,040 -- 10,279
Loans held for sale - at cost........................... -- 25,787 774 (4) 26,561
Loans................................................... 539,355 162,058 (565) (4) 700,848
Less: Allowance for loan losses......................... (7,245) (5,551) -- (12,796)
--------- --------- ----------- ----------
Loans, net.............................................. 532,110 182,294 209 714,613
Lease investments, net.................................. 20,971 -- 20,971
Premises and equipment, net............................. 11,509 4,705 (4,705) (3, 7) 11,509
Other real estate owned, net............................ 409 938 -- 1,347
Accrued interest receivable............................. 5,273 5,841 -- 11,114
Interest only strips.................................... -- 14,805 -- 14,805
Income tax receivable................................... -- 4,717 -- 4,717
Deferred income tax..................................... -- 5,647 4,687 (3 thru 7) 10,334
Other assets............................................ 2,166 7,653 -- 9,819
Intangibles, net........................................ 19,439 -- (351) (2, 4, 7) 19,088
--------- --------- ----------- ----------
TOTAL ASSETS........................................ $ 824,283 $ 508,742 $ (10,469) $1,322,556
========= ========= =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing................................. $ 121,815 $ 9,261 -- 131,076
Interest bearing.................................... 512,773 350,883 -- 863,656
--------- ---------- ----------- ----------
TOTAL DEPOSITS...................................... 634,588 360,144 -- 994,732
Short-term borrowings................................... 11,122 -- -- 11,122
Long-term borrowings.................................... 9,510 -- -- 9,510
Advances from the Federal Home Loan Bank................ -- 105,803 -- 105,803
Securities sold under agreements to repurchase.......... 73,372 -- -- 73,372
Advances payments by borrowers for interest and taxes... -- 45 -- 45
Accrued interest payable................................ 3,429 608 -- 4,037
Other liabilities....................................... 8,540 4,013 8,512 (3, 5) 21,065
Intangibles, net........................................ -- -- 3,279 (7) 3,279
--------- ---------- ----------- ----------
TOTAL LIABILITIES................................... 740,561 470,613 11,791 1,222,965
--------- ---------- ----------- ----------
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
--------------------------------------------------------------------------
PRO FORMA FOOT- PRO FORMA
COAL CITY AVONDALE ADJUSTMENTS NOTES COMBINED
---------- --------- ------------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Minority interest in subsidiary..................... 1,367 -- (1,367) (2) --
---------- ---------- -------- ----------
Corporation obligated mandatorily redeemable capital
securities of subsidiary trust holding solely
junior subordinated debentures..................... 25,000 -- -- 25,000
---------- ---------- -------- ----------
Stockholders' Equity:
Preferred stock, Class B.......................... 10,200 -- (10,200) (1) --
Common stock...................................... 490 44 (463) (8) 71
Additional paid-in capital........................ 23,779 43,536 (15,681) (5, 8) 51,634
Retained earnings................................. 22,011 17,292 (17,292) (3 thru 8) 22,011
Treasury stock, at cost........................... -- (20,968) 20,968 (8) --
Common stock acquired by esop..................... -- (1,270) 1,270 (5) --
Unearned portion of restricted stock awards....... -- (706) 706 (6) --
Accumulated other comprehensive income............ 875 201 (201) (8) 875
---------- ---------- -------- ----------
TOTAL STOCKHOLDERS' EQUITY...................... 57,355 38,129 (20,893) 74,591
---------- ---------- -------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...... $824,283 $508,742 ($10,469) $1,322,556
========== ========== ======== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Information
55
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------------------
PRO FORMA FOOT- PRO FORMA
COAL CITY AVONDALE ADJUSTMENTS NOTES COMBINED
---------- -------- ----------- ----- ----------
<S> <C> <C> <C> <C> <C>
Interest Income:
Loans................................................. $33,483 $18,338 $ 278 (9) $ 52,099
Investment securities:
Taxable.............................................. 8,441 3,298 -- 11,739
Nontaxable........................................... 225 -- -- 225
Mortgage-backed securities............................. 174 6,263 (136) (9) 6,301
Other.................................................. 542 3,402 (494) (1,2) 3,450
--------- --------- --------- --------
TOTAL INTEREST INCOME................................ 42,865 31,301 (352) 73,814
--------- --------- --------- --------
Interest expense on:
Deposits.............................................. 16,822 13,644 -- 30,466
Advances from the Federal Home Loan Bank.............. -- 4,547 -- 4,547
Securities sold under agreements to repurchase and
other short-term borrowings......................... 3,435 2 -- 3,437
Long-term borrowings.................................. 1,716 -- -- 1,716
---------- --------- --------- -------
TOTAL INTEREST EXPENSE............................... 21,973 18,193 -- 40,166
--------- --------- --------
NET INTEREST INCOME..................................... 20,892 13,108 (352) 33,648
Provision for loan losses............................... 563 2,652 -- 3,215
--------- --------- --------- --------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES........................................ 20,329 10,456 (352) 30,433
--------- --------- --------- --------
Other income:
Net gains from trading activities..................... -- 208 -- 208
Net gains on sale of securities and mortgage-backed
securities available for sale....................... 36 318 -- 354
Securitization income................................. -- (617) (7,010) (11) (7,627)
Loan fees............................................. 230 2,427 (1,988) (11) 669
Lease financing, net.................................. 1,189 -- -- 1,189
Fees for other customer services...................... 2,407 431 -- 2,838
Gain on sale of Coal City National Bank............... 4,099 -- -- 4,099
Intangible liability accretion........................ -- -- 246 (10) 246
Other operating income................................ 598 461 -- 1,059
--------- --------- --------- --------
TOTAL NONINTEREST INCOME........................... 8,559 3,228 (8,752) 3,035
--------- --------- --------- --------
Other expense:
Salaries and employee benefits........................ 9,833 7,162 (3,989) (11) 13,006
Occupancy and equipment expenses...................... 2,394 2,062 (1,149) (7, 11) 3,307
Federal deposit insurance premiums.................... 56 184 -- 240
Advertising and public relations...................... 556 408 (265) (11) 699
Data processing expense............................... 847 1,515 (1,335) (7, 11) 1,027
Real estate owned expense (income), net............... -- (134) 134 (11) --
Legal and professional fees........................... 463 1,521 (623) (11) 1,361
Intangible amortization expense....................... 2,429 -- -- 2,429
Other operating expenses.............................. 3,017 3,018 (1,627) (11) 4,408
--------- --------- --------- --------
Total noninterest expenses........................... 19,595 15,736 (8,854) 26,477
--------- --------- --------- --------
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
------------------------------------------------------------------
PRO FORMA FOOT- PRO FORMA
COAL CITY AVONDALE ADJUSTMENTS NOTES COMBINED
---------- --------- ------------- ------- ---------
<C> <C> <C> <C> <C>
<S>
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY
INTEREST........................................... 9,293 (2,052) (250) 6,991
Applicable income taxes................................. 3,395 (795) (174) (1,2,7,9,11) 2,426
------- ------- ------ --------
INCOME (LOSS) BEFORE MINORITY INTEREST.............. 5,898 (1,257) (76) 4,565
Minority interest....................................... (82) -- 82 (2) --
------- ------- ------ --------
NET INCOME (LOSS)................................... 5,816 (1,257) 6 4,565
Preferred stock dividend................................ 867 -- (867) (1) --
------- ------- ------ --------
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS....................................... $ 4,949 $(1,257) $ 873 $ 4,565
======= ======= ====== ========
Basic earnings per common share......................... $100.91 $ (0.40) $ 0.65
======= ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Information
57
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------
PROFORMA FOOT-
COAL CITY AVONDALE ADJUSTMENTS NOTES COMBINED
--------- -------- ----------- ------ --------
<S> <C> <C> <C> <C> <C>
Interest Income:
Loans............................................ $ 41,313 $39,234 $ 370 (9) $ 80,917
Investment securities:
Taxable......................................... 8,006 2,649 -- 10,655
Nontaxable...................................... 433 -- -- 433
Mortgage-backed securities........................ 521 11,259 (181) (9) 11,599
Other............................................. 1,413 866 (659) (1,2) 1,620
-------- -------- --------- ---------
TOTAL INTEREST INCOME........................... 51,686 54,008 (470) 105,224
-------- -------- --------- ---------
Interest expense on:
Deposits......................................... 21,617 18,776 -- 40,393
Advances from the Federal Home Loan Bank......... -- 5,269 -- 5,269
Securities sold under agreements to
repurchase and other short-term borrowings...... 1,353 4,282 -- 5,635
Long-term borrowings............................. 2,202 -- -- 2,202
-------- -------- -------- ---------
TOTAL INTEREST EXPENSE.......................... 25,172 28,327 -- 53,499
-------- -------- -------- ---------
NET INTEREST INCOME................................ 26,514 25,681 (470) 51,765
Provision for loan losses.......................... 971 26,527 -- 27,498
-------- -------- -------- ---------
NET INTEREST INCOME (LOSS) AFTER PROVISION
FOR LOAN LOSSES............................... 25,543 (846) (470) 24,227
-------- ------- -------- ---------
Other income:
Net gains from trading activities................ -- 1 -- 1
Net gains on sale of securities and mortgage-
backed securities available for sale............ 138 1,199 -- 1,337
Securitization income............................ -- 8,759 (11,256) (11) (2,497)
Loss on sale of loans............................ -- (11,919) -- (11,919)
Loan fees........................................ -- 4,679 (2,224) (11) 2,455
Lease financing, net............................. 1,172 -- -- 1,172
Fees for other customer services................. 3,085 593 -- 3,678
Intangible liability accretion................... -- -- 328 (10) 328
Other operating income............................ 540 596 -- 1,136
-------- -------- -------- ---------
TOTAL NONINTEREST INCOME...................... 4,935 3,908 (13,152) (4,309)
-------- -------- -------- ----------
Other expense:
Salaries and employee benefits................... 11,556 9,368 (4,848) (11) 16,076
Occupancy and equipment expenses................. 2,934 2,069 (1,105) (7, 11) 3,898
Federal deposit insurance premiums............... 75 238 -- 313
Advertising and public relations................. 720 519 (271) (11) 968
Data processing expense.......................... -- 2,860 (1,219) (7, 11) 1,641
Real estate owned expense (income), net.......... -- (202) 202 (11) --
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1997
---------------------------------------------------------------------
PROFORMA FOOT-
COAL CITY AVONDALE ADJUSTMENTS NOTES COMBINED
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Legal and professional fees...................... 720 1,907 (523) (11) 2,104
Intangible amortization expense.................. 3,321 -- -- 3,321
Other operating expenses......................... 4,869 5,980 (2,126) (11) 8,723
--------- --------- -------- --------
Total noninterest expenses...................... 24,195 22,739 (9,890) 37,044
INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST............................. 6,283 (19,677) (3,732) (17,126)
Applicable income taxes............................ 2,402 (7,195) (1,421) (1,2,7,9,11) (6,214)
--------- --------- -------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST.......... 3,881 (12,482) (2,311) (10,912)
Minority interest.................................. (432) -- 432 (2) --
--------- --------- -------- --------
NET INCOME (LOSS)............................... 3,449 (12,482) (1,879) (10,912)
Preferred stock dividend........................... 276 -- (276) (1) --
--------- --------- -------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS.................................... $ 3,173 $ (12,482) $(1,603) $(10,912)
========= ========= ======== ========
Basic earnings per common share.................... $ 63.83 $ (3.59) $ (1.56)
========= ========= ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Information
59
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONSOLIDATED FINANCIAL INFORMATION
1. These adjustments reflect the redemption of $10,200,000 of the Coal City
Class B Preferred Stock. The redemption payment was assumed to be made from
excess funds bearing an interest rate of 5.875%. The income tax effect is
recorded at the combined company's estimated 35% income tax rate.
2. These adjustments reflect the payment to eliminate the minority interest in
Manufacturers National. The shares of Manufacturers National common stock
were repurchased for a total price of $1,016,000 which was below the stated
book value of $1,367,000, resulting in a $351,000 reduction of Coal City's
goodwill. This purchase was assumed to have been made from excess funds
bearing an interest rate of 5.875%. The income tax effect is recorded at
the combined company's estimated 35% income tax rate.
3. These adjustments reflect the pretax impact of $5,000,000 in estimated
Merger and related costs (which includes severance and compensation costs
of $3,500,000, lease abandonment costs of $500,000, contract termination
costs of $700,000 and other costs of $300,000) and an estimated $5,100,000
charge representing the cost of divesting Avondale's mortgage banking
operation (which includes severance and compensation costs of $950,000,
lease abandonment costs of $1,300,000, write-offs of fixed assets of
$2,122,000 and contract termination costs of $728,000) and $1,175,000 in
direct acquisition costs. As a condition of the Merger, Avondale agreed to
divest itself of its mortgage banking operation. Deferred taxes for the
$10,100,000 Merger and related costs are recorded at the combined company's
estimated 35% income tax rate.
4. These adjustments reflect the estimated mark-to-market adjustments of
Avondale's held-to-maturity security portfolio of $907,000, loan portfolio
of $209,000, and the establishment of a core deposit intangible of
$350,000. Deferred taxes are recorded at the combined company's estimated
35% income tax rate.
5. These adjustments represent the regular December 31, 1998 distribution and
the termination of the ESOP, as required by the Merger. The regular
distribution of 42,320 shares was computed using the average price of
Avondale Common Stock for the period from January 1, 1998 through November
18, 1998 of $15.13 and the related compensation expense was previously
accrued. The termination distribution of 20,152 was computed using the
price of Avondale Common Stock on November 18 of $13.125. Additional paid-
in capital is computed by the taking the difference between the market cost
of the shares of Avondale Common Stock ($13.125) less the ESOP's
acquisition share price of $10.00 per share. Deferred taxes are recorded at
the combined company's estimated 35% income tax rate.
6. This adjustment represents the vesting as of the Merger date of the shares
of restricted stock under Avondale's RRP and 1997 Omnibus Incentive Plan.
Deferred taxes are recorded at the combined company's estimated 35% income
tax rate.
7. This adjustment reflects the purchase accounting adjustments identified in
Note 4, the Merger and directly related costs, including the cost of
divesting Avondale's mortgage banking operation identified in Note 3; and
give effect to the estimated fair value of $9.25 per share for 2,966,000
shares outstanding of Avondale Common Stock; thereby creating negative
goodwill of $6,212,000. In accordance with APB No. 16, the negative
goodwill is first allocated to Avondale's remaining long-term fixed assets
of $2,583,000 and the core deposit intangible of $350,000, leaving
$3,279,000 of negative goodwill classified as a liability on the
60
<PAGE>
financial statements. Deferred taxes are recorded at the combined company's
estimated 35% income tax rate for the adjustments to fixed assets and core
deposit intangibles. Depreciation expense for Avondale's fixed assets is
included as adjustments to the pro forma combined consolidated statements
of income. Negative goodwill is assumed to be accreted on a straight-line
basis over a period of ten years. The negative goodwill amount reflected is
not necessarily indicative of the amount which will be recorded when the
Merger is consummated. The actual negative goodwill arising from the Merger
will be based on the fair values of the assets and liabilities on the date
the Merger is consummated and may be more or less than the estimated amount
reflected herein.
The following is a summary of the negative goodwill calculation:
<TABLE>
<CAPTION>
<S> <C>
Avondale unaudited 9/30/98 Stockholder's Equity.................................... $38,129,000
Purchase Accounting Adjustments:
Securities held to maturity..................................................... 907,000
Loans........................................................................... 209,000
Core Deposit Intangible......................................................... 350,000
Deferred Taxes on Purchase Accounting Adjustment................................... (513,000)
Merger and Related Charges......................................................... (10,100,000)
1998 ESOP Distribution............................................................. 640,000
Deferred Taxes on Merger and Other Related Charges................................. 5,200,000
-----------
Adjusted Pro Forma Fair Value of Assets Acquired and Liabilities
Assumed.......................................................................... 34,822,000
LESS: Total Consideration:
2,966,000 Avondale Shares Outstanding at $9.25.................................. 27,435,000
Direct Acquisition Costs........................................................ 1,175,000
-----------
Total Consideration........................................................... 28,610,000
Negative Goodwill............................................................. 6,212,000
APB No. 16:
Allocation to Fixed Assets................................................. (2,583,000)
Allocation to Core Deposit Intangible...................................... (350,000)
-----------
Total Negative Goodwill......................................................... $ 3,279,000
===========
</TABLE>
8. These adjustments reclassify stockholders' equity to reflect 7,054,000
shares of Avondale Common Stock outstanding after the Merger at a par value
of $.01, and to reflect the elimination of Avondale's retained earnings,
treasury stock and other comprehensive income with the residual amount
adjusting additional paid-in capital.
9. These adjustments reflect the amortization/accretion of Avondale's mark-to-
market adjustments as indicated in Note 4. Income taxes are recorded using
the combined company's estimated 35% income tax rate.
10. This adjustment represents the accretion of the negative goodwill created
in the Merger. The negative goodwill is being accreted on a staightline
basis over ten years.
61
<PAGE>
11. Non-interest income and non-interest expense for the nine month period
ended September 30, 1998 and the 12 month period ended December 31, 1997 is
adjusted to give effect to the divestiture of Avondale's mortgage banking
operation. As a condition of the Merger, Avondale agreed to divest itself
of its mortgage banking operation. The adjustments are obtained from
Avondale's unaudited line-of-business income statements.
Additional Note: No adjustments have been made to general and administrative
expenses for expected annualized cost savings which Avondale and Coal City
believe will be derived primarily from the elimination of duplicative
administrative functions and consolidation of deposit operating functions. There
can be no assurance that any such cost savings will in fact be realized.
62
<PAGE>
DESCRIPTION OF AVONDALE FINANCIAL CORP. CAPITAL STOCK
The following description contains a summary of the material features of the
capital stock of Avondale but does not purport to be complete and is subject to
and qualified in its entirety by reference to the Avondale Certificate which is
filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
GENERAL
The Avondale Certificate authorizes the issuance by Avondale of up to
11,000,000 shares of its capital stock consisting of 10,000,000 shares of
Avondale Common Stock (par value $.01 per share) and 1,000,000 shares of
Avondale Preferred Stock (par value $.01 per share). As of December 23, 1998,
2,867,566 shares of Avondale Common Stock and no shares of Avondale Preferred
Stock were issued and outstanding. The Avondale Common Stock is quoted on The
Nasdaq Stock Market under the symbol "AVND." If the Avondale stockholders
approve the Name Amendment and the Merger is consummated, Avondale's name will
be changed to MB Financial, Inc. at the Effective Time and Avondale Common Stock
will be quoted under the symbol "MBFI." See "Comparative Stock Prices and
Dividend Information." The stock transfer agent and registrar for the Avondale
Common Stock is LaSalle National Bank.
The Avondale Board has approved a proposed amendment to the Avondale
Certificate which would increase the number of authorized shares of Avondale
capital stock from 11,000,000 to 21,000,000, to consist of 20,000,000 shares of
Avondale Common Stock and 1,000,000 shares of Avondale Preferred Stock. Upon
consummation of the Merger, Avondale anticipates that approximately 7,053,910
shares of Avondale Common Stock and no shares of Avondale Preferred Stock will
be outstanding. The Avondale Board believes that the authorization of additional
shares of Avondale Common Stock is advisable to provide Avondale with the
flexibility to take advantage of opportunities to issue such stock in order to
obtain capital, as consideration for possible acquisitions, and for other
purposes (including, without limitation, stock splits and stock dividends in
appropriate circumstances). See "Amendments to Certificate of Incorporation of
Avondale Financial Corp."
COMMON STOCK
Each share of the Avondale Common Stock has the same relative rights and is
identical in all respects with each other share of the Avondale Common Stock.
The Avondale Common Stock represents non-withdrawable capital, is not of an
insurable type and is not insured by the FDIC or any other government agency.
Subject to any prior rights of the holders of any Avondale Preferred Stock
then outstanding, holders of the Avondale Common Stock are entitled to receive
such dividends as are declared by the Avondale Board out of funds legally
available therefor. Full voting rights are vested in the holders of Avondale
Common Stock, each share being entitled to one vote, subject to the rights of
the holders of any Avondale Preferred Stock then outstanding, and also subject
to the limitations discussed under "Comparison of Rights of Stockholders of
Avondale Financial Corp. and Coal City Corporation-Restrictions on Voting
Rights; Quorum." The Avondale Board may issue authorized shares of Avondale
Common Stock without stockholder approval. However, Avondale Common Stock is
included for quotation on The Nasdaq Stock Market, which requires stockholder
approval of the issuance of additional shares of Avondale Common Stock under
certain circumstances. Subject to any prior rights of the holders of any
Avondale Preferred Stock then outstanding, in the event of liquidation,
dissolution or winding up of Avondale, holders of shares of Avondale Common
Stock are entitled to receive pro rata, any assets distributable to stockholders
in respect of shares held by them. Holders of shares of Avondale Common Stock do
not have any preemptive rights to subscribe for any additional securities which
may be issued
63
<PAGE>
by Avondale or cumulative voting rights. The outstanding shares of Avondale
Common Stock are, and the shares of Avondale Common Stock to be issued in the
Merger when issued will be, fully paid and non-assessable.
Certain provisions of the Avondale Certificate may have the effect of
delaying, deferring or preventing a change in control of Avondale pursuant to an
extraordinary corporate transaction involving Avondale, including a merger,
reorganization, tender offer, transfer of substantially all of its assets or a
liquidation. See "Comparison of Rights of Stockholders of Avondale Financial
Corp. and Coal City Corporation."
The foregoing discussion of the Avondale Common Stock is qualified in its
entirety by reference to the description of the Avondale Common Stock contained
in Avondale's Registration Statement on Form 8-A (as amended) with respect
thereto, which is incorporated by reference in this Proxy Statement/Prospectus.
See "Where You Can Find Additional Information."
PREFERRED STOCK
The Avondale Certificate authorizes the issuance by Avondale of up to
1,000,000 shares of Avondale Preferred Stock (par value $.01 per share), none of
which was issued and outstanding as of December 31, 1998. The Avondale Preferred
Stock may be issued in one or more series at such time or times and for such
consideration or considerations as the Avondale Board may determine. The
Avondale Board is expressly authorized at any time, and from time to time, to
provide for the issuance of Avondale Preferred Stock with such voting and other
powers, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the Avondale Board resolution providing for the issuance
thereof. The Avondale Board is authorized to designate the series and the number
of shares comprising such series, the dividend rate, the redemption rights, if
any, any purchase, retirement or sinking fund provisions, any conversion rights
and any special voting rights with respect to the shares of such series. The
ability of the Avondale Board to issue Avondale Preferred Stock without
stockholder approval could make an acquisition by an unwanted suitor of a
controlling interest in Avondale more difficult, time-consuming or costly, or
otherwise discourage an attempt to acquire control of Avondale. Shares of
Avondale Preferred Stock redeemed or acquired by Avondale may return to the
status of authorized but unissued shares, without designation as to series, and
may be reissued by the Avondale Board.
64
<PAGE>
BUSINESS OF AVONDALE FINANCIAL CORP.
Avondale is a Delaware corporation whose business has consisted primarily of
the business of Avondale Bank and its subsidiaries.
The business of Avondale Bank consists primarily of attracting deposits from
the general public and using such deposits, together with borrowings and other
funds, to make residential mortgage, home equity, multi-family, construction,
development and consumer loans. Avondale Bank maintains four offices in Chicago
and one in Niles, Illinois. Avondale Bank currently emphasizes providing its
retail deposit products and services to the neighborhoods surrounding its
offices. These services include checking, savings, NOW and money market deposit
accounts. Avondale also offers it customers a debit card, which can be used
anywhere MasterCard is accepted. Avondale Bank established Avondale Community
Development Corporation to engage in community lending and equity investments to
facilitate the construction and rehabilitation of housing in low- and moderate-
income neighborhoods in Avondale Bank's market area. Avondale Bank has expanded
its wholesale distribution channels through third party brokers and other
financial institutions to offer equity lines of credit and other mortgage-
related products in over 30 different states. However, it is a condition of the
Merger that Avondale divest itself of its mortgage banking business, either
through the sale of the business or its dissolution. Accordingly, with minimal
exceptions, upon the Merger, Avondale will cease offering its loan products. The
combined company, operating as MB Financial, Inc., intends to continue offering
the loan products of Coal City, funded with the deposits of Avondale and Coal
City and other traditional sources.
Avondale Bank also offers investment products and insurance through its
wholly-owned subsidiary, Avondale Financial Services, Inc.
For additional information, see "Selected Consolidated Financial and Other
Data of Avondale Financial Corp." and "Unaudited Pro Forma Combined Consolidated
Financial Information." Additional information concerning Avondale and Avondale
Bank also is included in the Avondale documents incorporated by reference
herein. See "Where You Can Find Additional Information."
The following tables set forth certain information regarding the operations
of Avondale.
65
<PAGE>
AVERAGE BALANCES, INTEREST RATES AND YIELDS
(In thousands)
The following table sets forth for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
and the resultant costs, expressed both in dollars and rates, for Avondale Bank.
No tax equivalent adjustments were made. To the extent received, interest on
non-accruing loans has been included in the table.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
-------------------------------- ---------------------------------
NINE
AVERAGE MONTH YIELD/ AVERAGE ANNUAL YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
--------- ---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Loans.......................... $230,366 $18,338 10.61% $344,706 $39,234 11.38%
Securities available-for-sale.. 142,487 6,701 6.27 39,758 2,582 6.49
Securities held-to-maturity.... -- -- -- 10,959 933 8.51
Mortgage-backed securities
available-for-sale........... 71,526 3,878 7.23 117,127 7,354 6.28
Mortgage-backed securities
held-to-maturity............. 50,063 2,384 6.35 57,837 3,905 6.75
-------- ------- -------- -------
Total interest-earning assets.. 494,442 31,301 8.44 570,387 54,008 9.47
------- -------
Non interest-earning assets.... 51,814 43,012
-------- --------
Total assets................... $546,256 $613,399
======== ========
Liabilities and stockholders'
equity:
Interest-bearing liabilities:
Deposits:
NOW accounts................... $ 8,025 125 2.08 $ 9,376 184 1.96
Money market deposit
accounts..................... 40,428 1,158 3.82 47,516 1,948 4.10
Passbook and statement
savings...................... 86,568 2,370 3.65 77,097 2,813 3.65
Certificate accounts........... 231,017 9,991 5.77 237,507 13,831 5.82
------- ------- -------- -------
Total deposits................. 366,038 13,644 4.97 371,496 18,776 5.05
Advances from Federal
Home Loan Bank.............. 120,923 4,547 5.01 90,557 5,269 5.82
Securities sold under
repurchase agreements....... -- -- -- 51,553 2,880 5.59
Other borrowings............... 20 2 13.33 25,512 1,402 5.50
-------- ------- -------- -------
Total interest-bearing
liabilities................. 486,981 18,193 4.98 539,118 28,327 5.25
------- -------
Non-interest bearing deposits.. 8,731 6,144
Other liabilities.............. 6,184 12,896
-------- --------
Total liabilities.............. 501,896 558,158
Stockholders' equity........... 44,360 55,241
-------- --------
Total liabilities and
stockholders' equity......... $546,256 $613,399
======== ========
Net interest income/interest
rate spread.................. $13,108 3.46% $25,681 4.22%
======= ==== ======= ====
Net interest-earning
assets/net interest margin... $ 7,461 3.53% $ 31,269 4.50%
======== ==== ======== ====
Ratio of interest-earning
assets to interest-bearing
liabilities.................. 101.53% 105.80%
====== ======
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
-----------------------------------
AVERAGE ANNUAL YIELD/
BALANCE INTEREST COST
--------- ---------- --------
<S> <C> <C> <C>
Assets:
Interest earning assets:
Loans.......................... $265,803 $24,842 9.35%
Securities available-for-sale.. 48,376 3,522 7.28
Securities held-to-maturity.... 12,885 995 7.72
Mortgage-backed securities
available-for-sale........... 182,713 11,982 6.56
Mortgage-backed securities
held-to-maturity............. 63,208 4,540 7.18
-------- -------
Total interest-earning assets.. 572,985 45,881 8.01
-------
Non interest-earning assets.... 23,761
--------
Total assets................... $596,746
========
Liabilities and stockholders'
equity:
Interest-bearing liabilities:
Deposits:
NOW accounts................... $ 8,618 189 2.19
Money market deposit
accounts..................... 65,769 2,554 3.88
Passbook and statement
savings...................... 69,146 2,135 3.09
Certificate accounts........... 173,398 9,717 5.60
-------- -------
Total deposits................. 316,931 14,595 4.61
Advances from Federal
Home Loan Bank.............. 90,653 5,236 5.78
Securities sold under
repurchase agreements....... 80,558 4,541 5.64
Other borrowings............... 29,131 1,545 5.30
-------- -------
Total interest-bearing
liabilities................. 517,273 25,917 5.01
-------
Non-interest bearing deposits.. 6,545
Other liabilities.............. 11,601
--------
Total liabilities.............. 535,419
Stockholders' equity........... 61,327
--------
Total liabilities and
stockholders' equity......... $596,746
========
Net interest income/interest
rate spread.................. $19,964 3.00%
======= ====
Net interest-earning
assets/net interest margin... $ 55,712 3.48%
======== ====
Ratio of interest-earning
assets to interest-bearing
liabilities.................. 110.77%
======
</TABLE>
66
<PAGE>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
(In thousands)
The following table sets forth the extent to which changes in interest rates
and changes in the volume of interest earning assets and interest bearing
liabilities have affected Avondale Bank'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, (ii) changes
attributable to changes in rate and (iii) the total net changes. The changes
attributable to the combined impact of volume and rate have been allocated to
the changes due to volume.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998 VS. YEAR ENDED DECEMBER 31, 1997
NINE MONTHS ENDED VS.
SEPTEMBER 30, 1997 YEAR ENDED DECEMBER 31, 1996
-------------------------------- ----------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
--------------------------------- ----------------------------------
VOLUME RATE NET VOLUME RATE NET
---------- --------- ---------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans receivable................ $(10,680) $(1,695) $(12,375) $8,982 $5,410 $14,392
Securities ..................... 4,833 (442) 4,391 (724) (278) (1,002)
Mortgage-backed securities ..... (3,350) 547 (2,803) (4,481) (782) (5,263)
------ ------ ------ ------ ------ -------
Total interest income........... (9,197) (1,590) (10,787) 3,777 4,350 8,127
Interest Expense:
Deposits........................ 20 (89) (69) 2,757 1,424 4,181
Advances from the Federal
Home Loan Bank................ 1,145 (547) 598 (5) 38 33
Securities sold under
agreements to repurchase........ (2,620) -- (2,620) (1,620) (41) (1,661)
Other borrowed money............ (1,097) -- (1,097) (199) 56 (143)
-------- ------- -------- ------ ------ -------
Total interest expense............ (2,552) (636) (3,188) 933 1,477 2,410
-------- ------- -------- ------ ------ -------
Net interest income............... $ (6,645) $ (954) $ (7,599) $2,844 $2,873 $ 5,717
======== ======= ======== ====== ====== =======
</TABLE>
67
<PAGE>
INVESTMENT SECURITIES
(Dollars in thousands)
The following table sets forth information regarding amortized cost and
estimated fair value of Avondale Bank's securities.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998 AT DECEMBER 31, 1997
-------------------------------------- ----------------------------------
AMORTIZED % OF FAIR AMORTIZED % OF FAIR
COST TOTAL VALUE COST TOTAL VALUE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Government agency securities......... $53,387 67.97% $53,688 $46,251 100.00% $ 46,373
Trust preferred securities................ 25,155 32.03 25,155 -- -- --
-------- ------- -------- ---------- -------- --------
Total..................................... $78,542 100.00% $78,843 $46,251 100.00% $ 46,373
======= ====== ======== ========== ======== ========
Mortgage-backed securities available-for sale:
Collateralized Mortgage Obligations:
Government and Agency..................... $10,404 16.78% $10,416 $ 5,546 6.89% $ 5,459
Private Issuer............................ 22,734 36.66 22,657 17,951 22.31 17,836
GNMA Certificates......................... 25,246 40.70 25,298 51,874 64.45 52,334
FHLMC Certificates........................ 1,719 2.77 1,727 2,960 3.68 2,859
FNMA Certificates......................... 1,917 3.09 1,943 2,150 2.67 2,133
------- ------ -------- -------- ------ -------
Total..................................... $62,020 100.00% $62,041 $ 80,481 100.00% $80,621
======= ====== ======== ======== ====== =======
Mortgage-backed securities held-to-
maturity:
Private Issuer Collateralized
Mortgage Obligations...................... $30,528 67.68% $31,236 $36,313 67.60% $35,937
GNMA Certificates......................... 992 2.20 1,023 2,393 4.45 2,506
FHLMC Certificates........................ 412 0.91 425 835 1.56 855
FNMA Certificates......................... 13,178 29.21 13,333 14,178 26.39 14,153
-------- ------ ------- ------- ------ --------
Total..................................... $45,110 100.00% $46,017 $53,719 100.00% $53,451
======= ====== ======== ======= ====== =======
</TABLE>
U.S. Treasury securities and securities of U.S. Government agencies and
corporations generally consist of fixed rate securities with maturities of three
months to three years. State and political subdivision investment securities
consist of investment grade and local non-rated issues with maturities of less
than six years. The average term of mortgage-backed securities generally ranges
between two and six years.
There are no securities of any single issuer, other than the U.S. Treasury or
U.S. Government agencies and corporations, which had a book value in excess of
10% of Avondale's stockholders' equity at September 30, 1998.
68
<PAGE>
INVESTMENT SECURITIES MATURITY SCHEDULE AND YIELDS
(Dollars in thousands)
The following table presents the maturity distribution and average yields of
the securities portfolio of Avondale Bank at September 30, 1998.
<TABLE>
<CAPTION>
ONE TO OVER FIVE TO
FIVE YEARS TEN YEARS OVER TEN YEARS TOTAL
----------------------- ------------------- --------------------- --------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE
COST YIELD COST YIELD COST YIELD COST YIELD
---------- ---------- ---------- ---------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Government Agencies........ $38,204 6.08% $15,183 6.79% $ -- --% $53,387 6.28%
Trust preferred securities -- -- -- -- 25,155 7.80 25,155 7.80
------- ------- ------- --------
Total........................... $38,204 6.08% $15,183 6.79% 25,155 7.80 $ 78,542 6.77%
======= ===== ======= ===== ======= ====== ======== ======
Mortgage-backed securities
held-to-maturity:
Privately Issued Collateral-
ized Mortgage Obligations..... $ -- --% $ -- --% $30,293 7.75% $30,293 7.75%
Agency certificates............. 1,615 5.42 3,810 7.57 9,392 6.26 14,817 6.51
-------- -------- -------- --------
Total........................... $ 1,615 5.42% $ 3,810 7.57% $39,685 6.50% $45,110 7.35%
======== ==== ======== ===== ======= ===== ======= =====
Mortgage-backed securities
available-for-sale:
Privately Issued Collateral-
ized Mortgage Obligations. $10,378 -- % $2,918 4.10% $19,760 8.72% $33,056 5.58%
Agency certificates............. 1,719 5.86 -- -- 27,245 5.84 28,964 5.84
--------- -------- -------- -------
Total........................... $12,097 5.86% $ 2,918 4.10% $47,005 6.87% $62,020 5.70%
======= ===== ======== ==== ======= ====== ======= =====
</TABLE>
69
<PAGE>
LOAN PORTFOLIO
(Dollars in thousands)
The following table sets forth the composition of Avondale Bank's loan
portfolio in dollar amounts and percentages of the respective portfolios at the
dates indicated.
<TABLE>
<CAPTION>
AT AT AT AT AT
SEPTEMBER 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 MARCH 31, 1995
--------------------- ------------------- -------------------- -------------------- ------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- ------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Home equity lines
of credit........... $ 57,738 30.61% $116,587 47.10% $120,371 36.94% $ 79,842 36.29% $ 66,058 35.77%
One-to-four family.... 86,557 45.89 82,610 33.37 101,066 31.03 107,294 48.76 86,247 46.70
Multi-family.......... 20,559 10.91 22,709 9.17 23,765 7.29 28,556 12.98 28,994 15.70
Commercial real
estate.............. -- -- -- -- -- -- 307 0.14 337 0.18
Construction or
development......... 3,031 1.61 1,076 0.43 2,191 0.67 2,737 1.24 2,979 1.61
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage 167,885 89.02 222,982 90.07 247,393 75.93 218,736 99.41 184,615 99.96
loans...............
Consumer loans........ 20,715 10.98 25,546 9.93 78,434 24.07 1,296 0.59 75 0.04
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Gross loans........... 188,600 100.00% 247,528 100.00% 325,827 100.00% 220,032 100.00% 184,690 100.00%
====== ====== ====== ====== ======
Unearned discounts
on loans purchased -- (9) (19) (36) (54)
Deferred loan (fees)
costs............... (755) (1,274) (1,300) 1,931 (491)
Allowance for (5,551) (6,303) (7,208) (3,460) (2,796)
-------- -------- -------- -------- --------
possible loan losses
Loans, net............ $182,294 $239,942 $317,300 $218,467 $181,349
======== ======== ======== ======== ========
</TABLE>
NON-PERFORMING ASSETS
(Dollars in thousands)
The following table sets forth the amounts and categories of Avondale Bank's
non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
AT AT AT AT AT
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1998 1997 1996 1995 1995
------------ ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
Equity lines of credit............ $4,341 $5,159 $2,150 $2,505 $3,942
One to four family loans.......... 552 207 1,523 1,495 173
Multi-family...................... 159 47 365 388 --
Consumer loans.................... 594 782 1,256 -- --
------ ------ ------ ------ ------
Total non-performing loans.......... $5,646 $6,195 $5,294 $4,388 $4,115
====== ====== ====== ====== ======
Total non-performing loans to total
loans............................. 3.01% 2.50% 1.63% 1.98% 2.23%
====== ====== ====== ====== ======
Real estate owned:
One to four family loans.......... $ 541 $ 545 $ 270 $ 837 $ 316
Consumer loans.................... 397 560 -- -- --
------ ------ ------ ------
Total............................... $ 938 $1,105 $ 270 $ 837 $ 316
====== ====== ====== ====== ======
Total non-performing loans and real
estate owned to total assets...... 1.11% 1.35% 0.93% 0.86% 0.82%
==== ==== ==== ==== ====
</TABLE>
70
<PAGE>
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
The following table sets forth an analysis of Avondale Bank's allowance for
loan losses at the dates indicated.
<TABLE>
<CAPTION>
AT AT AT AT
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, AT
1998 1997 1996 1995 MARCH 31, 1995
------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 6,303 $ 7,208 $3,460 $2,796 $2,809
Charge-offs:
Equity lines of credit................. (2,972) (2,768) (691) (290) (400)
One-to-four family loans............... -- (397) -- -- (170)
Multi-family........................... -- -- (63) (212) (56)
Consumer loans......................... (752) (24,781) -- -- --
------- -------- ------ ------ ------
(3,724) (27,946) (754) (502) (626)
Recoveries:
Equity lines of credit................. 292 312 209 -- --
Consumer loans......................... 28 1,387 -- 16 3
------- -------- ------ ------ ------
Net charge-offs........................ (3,404) (26,247) (545) (486) (623)
Provision for loan losses.............. 2,652 26,527 4,293 1,150 610
Reserves on loans sold................. -- (774) -- -- --
Other, net............................. -- (411) -- -- --
------- -------- ------ ------ ------
Balance at end of period............... $ 5,551 $ 6,303 $7,208 $3,460 $2,796
======= ======== ====== ====== ======
Ratio of net charge-offs during the period
to average loans outstanding during the
period /(1)/........................... 1.48% 0.98% 0.20% 0.25% 0.35%
====== ====== ====== ===== =====
Ratio of net charge-offs during the period
to average non-performing assets during
the period /(1)/....................... 59.26% 55.65% 12.14% 12.35% 12.15%
===== ====== ====== ===== =====
Ratio of allowance for loan losses to non-
performing loans....................... 98.32% 101.74% 136.05% 78.85% 67.93%
===== ====== ====== ===== =====
</TABLE>
- ---------------------------
(1) Excludes charge-offs related to the private label credit card portfolio in
1997. Including these charge-offs, the 1997 ratios would be 7.61% and
230.83% for net charge-offs to average loans outstanding and for net
charge-offs to average non-performing assets during the period,
respectively.
71
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
The following table sets forth the allocation of Avondale Bank's allowance
for loan losses at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998 AT DECEMBER 31, 1997 AT DECEMBER 31, 1996 AT DECEMBER 31, 1995
------------------------ ---------------------- ---------------------- ----------------------
PERCENT PERCENT PERCENT OF PERCENT OF
OF LOANS OF LOANS LOANS IN LOANS IN
IN EACH IN EACH EACH EACH
CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------- -------- -------- -------- ------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to-four family..... $ 300 45.89% $ 212 33.37% $ 513 31.03% $ 301 48.76%
Multi-family........... 94 10.91 82 9.17 179 7.29 150 12.98
Construction and
development......... -- 1.61 -- 0.43 -- -- -- 1.24
Commercial............. -- -- -- -- -- 0.67 1 0.14
Home equity line of
credit.............. 4,110 30.61 4,830 47.10 2,539 36.94 1,125 36.29
Consumer................. 182 10.98 486 9.93 1,035 24.07 9 0.59
Unallocated.............. 865 N/A 693 N/A 2,942 N/A 1,874 N/A
-------- -------- -------- ------- -------- ------- ------- -------
Total................ $5,551 100.00% $6,303 100.00% $7,208 100.00% $3,460 100.00%
======== ======== ======== ======= ======== ======= ======= =======
<CAPTION>
AT MARCH 31, 1995
---------------------
PERCENT OF
LOANS IN
EACH
CATEGORY
TO TOTAL
AMOUNT LOANS
--------------------
<S> <C> <C>
Mortgage loans:
One-to-four family..... $ 190 46.70%
Multi-family........... 21 15.70
Construction and
development......... -- 1.61
Commercial............. 5 0.18
Home equity line of
credit.............. 1,063 35.77
Consumer................. 7 0.04
Unallocated.............. 1,510 N/A
------- -------
Total................ $2,796 100.00%
======= =======
</TABLE>
72
<PAGE>
TIME DEPOSIT $100,000 AND OVER MATURITY SCHEDULE
(In thousands)
The following table sets forth the maturity of Avondale Bank's time
deposits of $100,000 and greater at September 30, 1998
<TABLE>
<CAPTION>
MATURITY PERIOD AMOUNT
---------------------------------------------------- ---------------
<S> <C>
Three months or less $ 8,530
More than three months through six months 2,642
More than six months through 12 months 1,657
More than 12 months 13,164
--------
Total certificate accounts in excess of $100,000 $ 25,993
========
</TABLE>
BORROWED FUNDS
(Dollars in thousands)
The following table sets forth for Avondale Bank the maximum month-end
balance and average securities sold under agreements to repurchase and other
borrowings for the periods indicated.
<TABLE>
<CAPTION>
FOR THE NINE FOR THE FOR THE
MONTHS ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
Advances from the Federal Home Loan Bank:
Average balance outstanding.................................. $ 120,923 $ 90,557 $ 90,653
Maximum outstanding at any month-end during the period....... 160,803 90,803 95,803
Balance outstanding at end of period......................... 105,803 90,803 90,803
Weighted average interest rate during the period............. 5.01% 5.82% 5.78%
Weighted average interest rate at end of period.............. 4.95 5.81 5.93
Securities sold under agreements to repurchase:
Average balance outstanding.................................. $ -- $ 51,553 $ 80,558
Maximum outstanding at any month-end during the period....... -- 96,311 116,447
Balance outstanding at end of period......................... -- -- 69,147
Weighted average interest rate during the period............. -- 5.59% 5.64%
Weighted average interest rate at end of period.............. -- -- 5.59
Other borrowings:
Average balance outstanding.................................. $ 20 $ 25,512 $ 29,131
Maximum outstanding at any month-end during the period....... -- 36,500 40,000
Balance outstanding at end of period......................... -- -- 32,000
Weighted average interest rate during the period............. 13.33% 5.50% 5.31%
Weighted average interest rate at end of period.............. -- -- 7.00
Total borrowings:
Average balance outstanding.................................. $ 120,943 $ 167,622 $ 200,342
Maximum outstanding at any month-end during the period....... 160,803 217,114 196,595
Balance outstanding at end of period......................... 105,803 90,803 191,950
Weighted average interest rate during the period............. 5.01% 5.70% 5.66%
Weighted average interest rate at end of period.............. 4.95 5.81 5.99
</TABLE>
73
<PAGE>
CAPITAL STANDARDS
(Dollars in thousands)
The following tables set forth certain information regarding Avondale Bank's
compliance with its regulatory capital requirements.
<TABLE>
<CAPTION>
OTS CAPITAL REGULATIONS
------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 1998
-------------------------------
AMOUNT PERCENTAGE
------------ --------------
<S> <C> <C>
Tangible capital:
Capital level............................ $ 34,612 6.82%
Required % of total assets............... 7,609 1.50
---------- -----
Excess................................... $ 27,003 5.32%
========= =====
Core Capital:
Capital level............................ $ 34,612 6.82%
Required % of total assets............... 20,291 4.00
---------- -----
Excess................................... $ 14,321 2.82%
========== =====
Risk-based capital:
Capital level............................ $ 38,088 13.80%
Required % of risk weighted assets....... 22,078 8.00
--------- -----
Excess................................... $ 16,010 5.80%
======== =====
</TABLE>
<TABLE>
<CAPTION>
PROMPT CORRECTIVE ACTION REGULATIONS
- -------------------------------------------------------------------------------------------------------------------
WELL ADEQUATELY UNDER-
AVONDALE CAPITALIZED CAPITALIZED CAPITALIZED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Tier 1 capital to total assets...... 6.82% ** 5.0% ** 4.0% * 4.0%
Tier 1 capital to risk weighted
assets........................... 12.54 ** 6.0 ** 4.0 * 4.0
Total risk-based capital to
total assets..................... 13.80 ** 10.0 ** 8.0 * 8.0
</TABLE>
* less than
** greater than/equal to
74
<PAGE>
BUSINESS OF COAL CITY CORPORATION
GENERAL
Coal City was incorporated in Illinois in 1986 and is a bank holding
company under the BHCA and the Illinois Bank Holding Company Act (Illinois
BHCA). Coal City has its principal business offices at the Main Banking
Premises.
Coal City owns all of the issued and outstanding shares of common stock and
all of the issued and outstanding shares of Class A Preferred Stock of
Manufacturers National, which is also a bank holding company under the BHCA and
the Illinois BHCA. Manufacturers National owns all of the issued and outstanding
shares of common stock of Manufacturers Bank.
Manufacturers Bank owns all of the issued and outstanding shares of common
stock of three special purpose Illinois corporations, Ashland Management Agency,
Inc. (Ashland), MB1200 Corporation (MB1200), and Manufacturers Deferred Exchange
Corporation (MDEC), all of which have their principal business offices at the
Main Banking Premises. The principal purpose of Ashland is to act as manager of
certain real estate owned by Manufacturers Bank; the principal purpose of MB1200
is to hold title to any property that Manufacturers Bank may receive pursuant to
a foreclosure or other resolution of a non-performing loan; and the principal
purpose of MDEC is to hold escrowed funds relating to certain tax advantaged
property exchanges entered into by the customers of Manufacturers Bank. Coal
City also owns all of the issued and outstanding Common Securities of Coal City
Capital Trust I, a Delaware business trust, making such trust a subsidiary of
Coal City for financial reporting purposes. In July 1998, Coal City Capital
Trust I issued $25 million in corporation obligated mandatorily redeemable
capital securities and Coal City's former subsidiary, Coal City Capital Trust
1997-A (which has been dissolved), retired $10 million of corporation obligated
mandatorily redeemable preferred securities that were issued in 1997.
HISTORY AND DEVELOPMENT
Coal City was originally established as a one-bank holding company for Coal
City Bank by Messrs. Thomas Carey, Alfred Feiger, Lawrence Gilford, Richard
Gilford, David Husman, Clarence Mann and the late Marvin Neland, who, as a
group, constituted Coal City's initial Board of Directors (collectively,
Director Group). For many years prior to the establishment of Coal City, these
individuals (all of whom, except the late Mr. Neland, are still on Coal City's
Board of Directors), had been active in the Chicago banking community
establishing and acquiring a series of independent banks that were eventually
brought together under a single bank holding company known as Affiliated Banc
Group, Inc. (Affiliated). In 1987, by which time Affiliated had seven banking
subsidiaries with total assets of approximately $750 million, Affiliated was
sold to Manufacturers National Corporation, a multi-bank holding company
headquartered in Detroit, Michigan (which is unrelated to Manufacturers
National).
The Director Group had made Affiliated an attractive acquisition target by
positioning its subsidiary banks as important players in the small and middle
market business segment in the Chicago area, serving mainly privately owned
entrepreneur-operated companies with annual sales in the range of $1 million to
$10 million. Targeted customers for Affiliated were manufacturers, wholesalers,
distributers, commercial real estate companies and selected service providers.
When the Director Group left Affiliated three years after the time of its sale,
they left behind a financial institution that had strong earnings, a high
quality loan portfolio and a premier base of small and middle market customers.
The success of the Director Group at Affiliated had also been based upon several
75
<PAGE>
other key factors, such as the ability to make rapid decisions, flexible loan
underwriting, knowledge of the Chicago area business community and providing
customer access to senior management of the subsidiary banks.
In 1992, the Director Group decided to re-enter the marketplace of mid-
sized banks serving small and middle market businesses in Chicago because it
believed that most of the mid-sized banks serving the Chicago market were, at
the time, being absorbed by larger financial institutions, leaving a noticeable
gap in the banking community. Accordingly, Coal City acquired an 80.1% interest
in Manufacturers National, which owned Manufacturers Bank. In addition to
servicing the special needs of the manufacturing, wholesaling and distributing
industries, Manufacturers Bank also had specific expertise, and niche business,
in the field of servicing equipment leasing companies throughout the country.
Burton Field, who was at that time the President and a long-time employee of
Manufacturers Bank, continued in that position after the acquisition and joined
Coal City's Board of Directors, where he remains to this date. At the same time,
Mitchell Feiger, an Executive Vice President of Affiliated, joined Coal City as
its President and a member of the Board of Directors, where he, too, remains to
this date. Coal City continued to acquire shares of common stock of
Manufacturers National so that at September 30, 1998 it owned 96.5% of such
stock. Coal City now owns all of the outstanding shares of common stock of
Manufacturers National as a result of a reverse stock split effected by
Manufacturers Bank in the fourth quarter of 1998 (at an aggregate cost of
$1,015,551).
In February 1995, Coal City and Manufacturers National acquired a
controlling interest in Peterson Bank, located on Chicago's far north side, and
by December 31, 1995 owned 100% of Peterson Bank. In 1997, Manufacturers
National acquired Coal City's interest in Peterson Bank, making Peterson Bank a
wholly-owned subsidiary of Manufacturers National. At the date of acquisition,
Peterson Bank had assets of $172.1 million and operated out of a main office and
a single branch facility. Peterson Bank specialized in serving the banking needs
of real estate investors and operators, long-term health care companies and
Chicago's Korean community.
In May 1997, Manufacturers National acquired 100% of U.S. Bancorp, the
single-bank holding company for U.S. Bank. In connection with the merger, the
former shareholders of U.S. Bancorp received (i) $30.0 million in cash; and (ii)
shares of Class B Preferred Stock of Coal City having an aggregate par value of
$10.2 million. At the time of this acquisition, U.S. Bancorp had assets of
$205.0 million and operated out of a main office and four branch facilities, all
located either on Chicago's south side or in the southern Chicago suburbs of
Tinley Park, Lansing and South Holland, Illinois. U.S. Bank specialized in
serving home developers whose projects were located throughout the Chicago
metropolitan area and northwest Indiana. In the fourth quarter of 1998, Coal
City redeemed (at a cost of $10.2 million) all of its then outstanding Class B
Preferred Stock issued in connection with the U.S. Bancorp acquisition.
In 1997, Coal City caused Peterson Bank to be merged into Manufacturers
Bank, and Manufacturers Bank to be merged into U.S. Bank, with the latter entity
changing its name to "Manufacturers Bank." Coal City also caused U.S. Bancorp,
which was then a mid-tier bank holding company wholly owned by Manufacturers
National, to be merged into Manufacturers Bank in order to eliminate the costs
associated with an unnecessary third holding company layer.
In January 1998, Coal City sold 100% of the outstanding common stock of Coal
City Bank to Kankakee Bancorp, Inc., the parent holding company of Kankakee
Federal Savings Bank, which is headquartered in Kankakee, Illinois. Coal City
Bank is located in Coal City, Illinois, more than 50 miles from downtown
Chicago, in a community where Coal City management believed business lending
opportunities were limited. Management decided that Coal City could no longer
benefit from a presence in the Coal City, Illinois marketplace, and that
continued ownership of Coal City Bank, although profitable, would divert Coal
City, its management and staff
76
<PAGE>
from their principal focus of growing the business of Manufacturers Bank. It was
also decided that the capital required to operate Coal City Bank would be better
utilized in the operation of Manufacturers Bank.
Coal City, through Manufacturers National, currently owns a single bank,
Manufacturers Bank, which, in turn, owns three single purpose corporate
subsidiaries: Ashland, MB 1200 and MDEC. Manufacturers Bank at September 30,
1998 had $824.3 million in assets and operated from a total of eight offices,
including the Main Banking Premises.
BUSINESS AREAS
Manufacturers Bank concentrates its business efforts on serving small and
middle market businesses, such as manufacturers, wholesalers, distributors,
long-term health care operators, real estate operators and investors, and home
developers located throughout the entire Chicago metropolitan area. Coal City,
through its acquisition program and through careful selection of officers and
employees, has moved to position Manufacturers Bank to take a leading role in
filling this attractive niche in the market. In order to further the ability of
Manufacturers Bank to play such a leading role, management has also caused
Manufacturers Bank to divide its business into four distinctly recognizable
areas, referred to as Business Banking, Convenient Retail Banking, Lease Banking
and Korean Banking.
Business Banking. The Business Banking Group focuses on serving privately-
owned companies run by entrepreneurs. The kinds of companies served are
manufacturers, wholesalers, distributors, home developers, long-term health care
operators, real estate operators and investors, and selected types of service
companies. Manufacturers Bank provides a full set of credit, deposit, cash
management and investment products to these companies. These products are
specifically designed for companies with sales of between $1 million and $25
million, with marketing principally aimed at companies with sales between $3
million and $25 million. The products developed for this target market include:
Credit products:
. Working capital loans and lines of credit, including accounts
receivable and inventory financing
. Equipment loans and leasing
. Business acquisition loans
. Owner occupied real estate loans
. Financial, performance and commercial letters of credit
Deposit and cash management products:
. Corporate InterConnect - a PC banking product for businesses
. Zero balance accounts
. Automated tax payments
. ATM access
. Merchant credit card program
. Telephone banking
. Lockbox services
. Direct deposit (ACH)
. Account reconciliation
. Controlled disbursement
. Detail and general information reporting
. Wire transfers
77
<PAGE>
. A variety of international banking services
For real estate operators and investors, Manufacturers Bank also offers a
full set of products, including, in addition to those listed above, the
following:
. Commercial mortgages
. Residential, commercial, retail and industrial construction loans
. Land acquisition and development loans
Manufacturers Bank's strategy is to provide rapid service, customer access to
decision makers, flexible loan underwriting, modern, technologically advanced
banking products, and talented, experienced lending officers. The goal of
Manufacturers Bank in this area is to build a high quality, controlled risk loan
portfolio that consistently grows in excess of average market growth.
Manufacturers Bank currently has more than 1,000 Business Banking customers with
more than $300 million of commercial loans, and over $300 million of commercial
deposits.
Convenient Retail Banking. The target market for the Convenient Retail
Banking group consists of consumers who live or work near Manufacturers Bank's
offices. Manufacturers Bank offers a full set of consumer products to these
individuals, including checking accounts, savings accounts, money market
accounts, time deposit accounts, secured and unsecured consumer loans,
residential mortgage loans, and a variety of fee for service products, such as
money orders and travelers checks. Manufacturers Bank refers to this area of its
business as "Convenient Retail Banking," because it targets only those consumers
for whom Manufacturers Bank's offices are a convenient place to perform the
customers' financial transactions.
The Chicago retail banking market is very large with correspondingly high
advertising and marketing costs. Several banks have in excess of 100 branches in
the Chicago metropolitan area. Furthermore, these banks have the resources to
advertise and market on a large scale and can afford to target consumers located
throughout the entire area. Manufacturers Bank is far smaller, has only eight
offices and, consequently, cannot compete directly with the large banks for
consumers on a mass basis. Moreover, seven of the eight offices of Manufacturers
Bank are located in low growth markets - five in Chicago, one in Lansing,
Illinois and one in South Holland, Illinois. The eighth office is located in
rapidly growing Tinley Park, Illinois. Manufacturers Bank faces considerable
retail banking competition from other local banks and thrifts, large regional
banks that have local offices, and brokerage and mutual fund companies that
market their products through mass media and direct mail. Therefore,
Manufacturers Bank has chosen a strategy that leverages one of the most
important reasons that consumers choose a bank--convenience. By targeting
consumers who live or work in the trade area immediately surrounding each
banking office, Manufacturers Bank hopes to attract consumers who want this
convenience for their banking transactions. Manufacturers Bank wins business by
keeping deposit rates above most competitors' rates, and loan rates at the
market rate, offering a complete selection of consumer products, and providing
superior, personal service on a price competitive basis. Manufacturers Bank
currently has over $300 million of deposits and $18 million of loans
attributable to its Convenient Retail Banking group.
Lease Banking. The target market for the Lease Banking group consists of
small and medium size equipment leasing companies located throughout the United
States. Manufacturers Bank has provided Lease Banking services to these
companies for more than 20 years. Competition in servicing this equipment
leasing market generally comes from large banks, financing companies, large
industrial companies and some community banks in certain segments of the
business. Manufacturers Bank provides rapid service and decision making, and
flexible financial solutions, to meet its customers' needs in this market.
Manufacturers Bank provides full banking services for these leasing companies by
financing the debt portion of leveraged leases ("Lease Loans"), providing short-
term and long-term equity financing, making working capital and bridge loans,
and investing directly in
78
<PAGE>
leased equipment. The volume of Lease Loans is closely managed, in order to
control Manufacturers Bank's level of total risk adjusted assets.
Assets generated by the Lease Banking group fall into three categories: Lease
Loans, working capital loans to leasing companies and investments in leased
equipment. A Lease Loan arises when a leasing company discounts the equipment
rental revenue stream owed to the leasing company by a lessee. Generally,
Manufacturers Bank receives repayment of its loan directly from the lessee in
the form of lease rental payments. Loan yields and returns on equity for this
type of lending tend to be low. Thus, Manufacturers Bank views this kind of
lending as an adjunct to its investment portfolio. Generally, such a loan is
made only when the lessee has a public debt rating in one of the top four rating
categories of Moody's or Standard & Poors. If the lessee does not have a public
debt rating, then Manufacturers Bank will lend when its own analysis indicates
that if the lessee did have a debt rating it would be in one of those top four
categories. Since these loans are very high quality, short-term, and made to
companies with well known names, they are easily sold to other banks. During
1997, Manufacturers Bank sold approximately $30 million of Lease Loans to large
and small banks in the Chicago area (retaining the servicing rights, however).
As of the end of the past several years, Manufacturers Bank has carried between
$72.5 million and $114.0 million of Lease Loans, varying the amount as needed to
manage its risk adjusted asset totals.
Working capital loans made to leasing companies are made in a manner similar
to the loans made by the Business Banking group. In addition to loans made to
support the day-to-day operating needs of the leasing company, loans are made to
facilitate the purchase and sale of equipment. Manufacturers Bank tends to have
between $5 million and $20 million of these kinds of loans to leasing companies
outstanding at any one time.
Manufacturers Bank also invests in equipment leased to other companies. In
this case, Manufacturers Bank owns the equipment that is leased to the user. The
credit quality of the lessee generally must be in one of the top four rating
categories of Moody's or Standard & Poors. Over the last four years,
Manufacturers Bank has increased its investment in leased equipment from
virtually nothing to $21.0 million at September 30, 1998. In most cases, during
the early years of a lease, Manufacturers Bank recognizes a loss on its
investment, and in later years a gain. Consequently, as Manufacturers Bank has
built its leased equipment portfolio, current earnings have been reduced. Gains,
if any, on leased equipment result when a lessee renews a lease or purchases the
equipment at the end of a lease. Individual lease transactions can, however,
result in a loss. This generally happens when, at the end of a lease, the lessee
does not renew the lease or purchase the equipment. To mitigate this risk of
loss, Manufacturers Bank limits individual leased equipment investments to
approximately $500,000 per transaction, and seeks to diversify both the type of
equipment leased and the industries in which the lessees to whom such equipment
is leased participate.
Korean Banking. The Korean Banking group focuses on the expanding Korean
community located principally on the north side of Chicago and in Chicago's
northwestern suburbs. Manufacturers Bank serves ethnic Korean consumers and
Korean-owned businesses by providing complete banking services using the Korean
language. Korean commercial customers tend to be small owner-operated, cash
businesses, such as dry cleaners, gift shops and restaurants. While continuing
to serve these customers, Manufacturers Bank is also targeting those Korean-
owned businesses with annual sales between $2 million and $20 million. Personnel
in the Korean Banking group, as well as a number of other individuals in key
service positions at Manufacturers Bank speak Korean. Manufacturers Bank's
automated telephone account access services are provided in the Korean language
as well. Competition in this growing market segment is quite limited because of
the need to provide all banking services in Korean. Currently, Manufacturers
Bank has approximately $44 million of loans and $25 million of deposits
attributable to the Korean Banking group.
79
<PAGE>
LENDING ACTIVITIES
As of September 30, 1998, Manufacturers Bank's outstanding loans, net of loan
loss allowance, totaled $532.1 million, representing 64.6% of total assets of
Coal City. Manufacturers Bank is primarily a business lender and the loan
portfolio consists almost entirely of loans to businesses or for business
purposes. Of the total loans outstanding on September 30, 1998, only $33.1
million represented installment loans. Lease Loans comprised 18.3% of total
loans outstanding as of September 30, 1998. Also, of the $286.9 million of real
estate loans outstanding on that date, 71.1% were secured by commercial
properties, many of which were owner occupied. Virtually all commercial, real
estate, real estate construction and installment loans were made to companies
located in the Chicago metropolitan area. Lease Loans, on the other hand, are
distributed around the country.
Manufacturers Bank's underwriting philosophy is to lend money on a secured
basis to companies or individuals who have a record of success in their business
or job, as demonstrated by sufficient cash flow on an historical basis to fully
service their loans. Additionally, borrowers generally have a secondary source
of repayment without having to liquidate loan collateral. Also, loans to
businesses are almost always guaranteed by the owners of the businesses.
The primary source of income for Manufacturers Bank (and thus, Coal City) is
interest on loans. Net loans as a percentage of total assets increased to 64.7%
at December 31, 1997 from 57.0% at December 31, 1993. Total loans increased
$299.4 million during this period. The majority of the increase from 1994 to
1995 was due to the acquisition of Peterson Bank, which had total loans of $90.3
million at the acquisition date. The majority of the increase from 1996 to 1997
was due to the acquisition of U.S. Bancorp, which had total loans of $126.8
million at the acquisition date.
The following table sets forth the composition of Manufacturers Bank's loan
portfolio in dollars and as a percentage of the portfolio at the dates
indicated.
<TABLE>
<CAPTION>
AT
SEPTEMBER 30, AT DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995
-------------------- ------------------- -------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ------- --------- ------- --------- ------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial......................... $120,703 22.38% $112,010 21.24% $ 94,066 24.22% $ 70,255 20.71%
Commercial loans
collateralized by
assignment of lease
payments........................ 98,709 18.30 85,658 16.25 113,960 29.35 108,223 31.89
Real estate........................ 260,050 48.21 257,074 48.75 158,792 40.89 148,010 43.62
Real estate construction........... 26,838 4.98 37,079 7.03 7,057 1.82 6,890 2.03
Installment........................ 33,055 6.13 32,500 6.73 14,427 3.72 5,948 1.75
-------- ------ -------- ------ -------- ------ -------- ------
Gross loans........................ 539,355 100.00% 527,321 100.00% 388,302 100.00% 339,326 100.00%
====== ====== ====== ======
Allowance for loan
losses.......................... (7,245) (7,922) (4,692) (4,134)
-------- -------- -------- --------
Net loans......................... $532,110 $519,399 $383,610 $335,192
======== ======== ======== ========
<CAPTION>
-----------------------------------------------
1994 1993
------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Commercial........................ $ 73,998 33.30% $ 76,178 33.43%
Commercial loans
collateralized by
assignment of lease
payments....................... 72,529 32.64 84,280 36.98
Real estate....................... 68,055 30.63 62,157 27.27
Real estate construction.......... 3,709 1.67 783 0.34
Installment....................... 3,920 1.76 4,504 1.98
-------- ------ -------- ------
Gross loans....................... 222,211 100.00% 277,902 100.00%
====== ======
Allowance for loan
losses......................... (2,646) (2,707)
-------- --------
Net loans........................ $219,565 $225,195
======== ========
</TABLE>
Commercial Lending. Manufacturers Bank makes commercial loans to small and
middle market businesses. The borrowers tend to be privately-owned and are
generally manufacturers, wholesalers, distributors, long-term health care
operators, and selected types of service providers. The loan products offered
are primarily working capital loans and lines of credit. These general product
classifications include accounts receivable and inventory financing, equipment
loans and business acquisition loans. Manufacturers Bank also offers financial,
performance
80
<PAGE>
and commercial letters of credit. Most commercial loans are short-term in
nature, being one year or less, although the maximum allowable term is five
years.
Manufacturers Bank's lines of credit are typically secured, established for
one year, and are subject to renewal upon satisfactory review of the borrower's
financial statements and credit history. Secured short-term commercial business
loans are usually collateralized by accounts receivable, equipment or real
estate. Such loans are typically guaranteed by the owners of the business.
Interest rates tend to be at or above the prime rate, although there has been
considerable recent market pressure to make loans at a spread above LIBOR.
Commercial loans have grown from $70.3 million at December 31, 1995 to $120.7
million at September 30, 1998, an annual growth rate of 19.8%. This increase is
partially related to the purchase of U.S. Bancorp as well as to internal loan
growth. Commercial loans represented 22.4% of the total loan portfolio at
September 30, 1998, as compared to 24.2% of the total loan portfolio at December
31, 1996.
Commercial Real Estate Lending. Manufacturers Bank originates commercial real
estate mortgage loans that are generally secured by one or more of the following
kinds of properties: multi-unit residential property, owner and non-owner
occupied commercial and industrial property, and residential property for
development. Loans are also made to acquire and develop land. Manufacturers
Bank's loan policy and underwriting procedures provide that commercial real
estate loans may be made in amounts up to the lesser of (i) 80% of the appraised
value of multi-family properties; (ii) 75% of the appraised value of commercial
and non-residential construction property; (iii) 70% of the appraised value of
commercial land development property (generally held for subdivision or
industrial park land development); and (iv) 60% of the appraised value of
undeveloped land. In addition to restrictions on the amount of loan to value,
Manufacturers Bank's underwriting procedures provide that commercial real estate
loans may be made in amounts up to Manufacturers Bank's current legal lending
limit. Regarding the properties described in (iii) and (iv) above, Manufacturers
Bank usually engages in this type of lending only with experienced local
developers operating in Manufacturer Bank's primary market. Such loans are
typically offered for the construction of residential properties that are pre-
sold or for commercial or retail properties where end financing is readily
available. As of September 30, 1998, Manufacturers Bank had approximately $28.8
million in a variety of acquisition, development and construction ("ADC") loans
in its commercial real estate lending area. Manufacturers Bank's policy is not
to make construction loans for purposes of speculation. While the number and
volume of this type of specialized lending is presently limited, it should be
noted that Manufacturers Bank intends to continue to emphasize its commercial
real estate, including ADC loan activity.
Manufacturers Bank's commercial mortgage loans are generally made at fixed
rates, although some float with prime. Terms of up to ten years are permissible,
but most loans mature in 5 years and have a 15 to 25 year amortization schedule.
In reaching a decision as to whether or not to make a commercial real estate
loan, Manufacturers Bank considers the qualifications of the borrower as well as
the underlying property. Some of the factors considered are: the net operating
income of the mortgaged premises before debt service and depreciation, the debt
service ratio (i.e., the ratio of the property's net cash flow to debt service
requirements), which must be a minimum of 1.20, the ratio of loan amount to
appraised value and the creditworthiness of the borrower.
Real estate and real estate construction loans have increased from $154.9
million at December 31, 1995, to $286.9 million at September 30, 1998, an
increase of $132.0 million. This increase is primarily attributable to the
acquisition of U.S. Bancorp, which had total real estate and real estate
construction loans of $116.4 million at the acquisition date.
81
<PAGE>
Lease Loans. Manufacturers Bank lends money to small and mid-sized leasing
company customers to finance the debt portion of leveraged leases (i.e., Lease
Loans). A Lease Loan arises when a leasing company discounts with Manufacturers
Bank the equipment rental revenue stream owed to the leasing company by a
lessee. Lease Loans are generally non-recourse to the leasing company, and,
consequently, Manufacturers Bank underwrites Lease Loans by examining the
creditworthiness of the lessee rather than the lessor. Lease Loans are secured
by the equipment being leased. The lessee acknowledges Manufacturers Bank's
security interest in the leased equipment and agrees to make lease payments to
Manufacturers Bank. Lessees tend to be Fortune 500 or Fortune 1000 companies and
must have a public debt rating in one of the top four rating categories by
Moody's or Standard & Poors. If the lessee does not have a public debt rating,
then Manufacturers Bank lends when its own credit analysis indicates that if the
lessee did have a debt rating it would be in one of the top four categories.
Lease Loans are fully amortizing, with maturities ranging from two to five
years. Loan rates are fixed at a spread of 1% to 2% over the U.S. Treasury
curve.
Manufacturers Bank uses Lease Loans to manage its risk adjusted asset totals.
Since these loans are very high quality and made to well-known public companies,
the loans are marketable. Manufacturers Bank regularly sells loans to
correspondents that range from a large regional bank to several small community
banks. During 1997, Manufacturers Bank sold approximately $30 million of Lease
Loans. As commercial loans and commercial real estate loans outstanding
increase, Manufacturers Bank expects to sell more and more Lease Loans, creating
a significant stream of revenue from servicing Lease Loans sold. As a result,
Lease Loans outstanding (identified as "Commercial loans collateralized by
assignment of lease payments" in the table above) have fluctuated, having
outstanding balances as high as $114.0 million, and as low as $85.7 million,
over the last two and three-quarter years. From December 31, 1996 to December
31, 1997, Lease Loans decreased $28.3 million, or 24.8%.
Loan Approval Policy. Generally, each lending officer may approve a loan
within a specified limit, the maximum of which is $1.0 million, with the
exception of investment grade Lease Loans up to $4.0 million, which may be
approved by the President or Executive Vice-President of Manufacturers Bank.
Loans (which are not investment grade Lease Loans) in excess of $1.0 million but
less than $6.0 million, and Lease Loans in excess of $4.0 million but less than
$6.0 million, must be approved by the Executive Loan Committee of Manufacturers
Bank (comprised primarily of members of the Board of Directors), and loans in
excess of $6.0 million must be approved by Manufacturers Bank's Board of
Directors.
Loan Maturities. The following table sets forth the maturities of commercial
and real estate construction loans outstanding at September 30, 1998. Also set
forth are amounts of such loans classified according to sensitivity to changes
in interest rates.
<TABLE>
<CAPTION>
DUE IN ONE YEAR DUE AFTER ONE YEAR DUE AFTER
OR LESS THROUGH FIVE YEARS FIVE YEARS
----------------------- -------------------- ----------------------
FLOATING FLOATING FLOATING
FIXED RATE FIXED RATE FIXED RATE TOTAL
--------- --------- ------- -------- -------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial loans, commercial
loans collateralized by assignment
of lease payments and real estate
construction loans.................. $58,377 $116,615 $67,597 $ -- $3,661 $ -- $246,250
</TABLE>
82
<PAGE>
INVESTMENT SECURITIES
Manufacturers Bank maintains an investment portfolio consisting primarily of
securities of the U.S. Treasury and agencies of, and corporations sponsored by,
the U.S. Government. Because Manufacturers Bank maintains a relatively high
loan-to-deposit ratio, in order to maintain a prudent amount of liquidity,
Manufacturers Bank has found it necessary to keep the duration and average
maturity of its investment portfolio short. The primary purpose of the
investment portfolio is to provide a source of earnings for liquidity management
purposes, and to control interest rate risk. In managing the portfolio,
Manufacturers Bank seeks to obtain the objectives of safety of principal,
liquidity, diversification and maximized return on funds. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations of
Coal City Corporation -- Asset Liability Management" and "--Liquidity."
The following table sets forth the amortized cost and fair value of Coal
City's securities by accounting classification category and by type of security
as indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
-----------------------------------------------
1998 1997 1996
------------------------ ---------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
---------- -------- --------- -------- --------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury securities................. $111,697 $112,213 $119,160 $119,380 $76,919 $ 76,936
U.S. government agencies and
corporations.......................... 67,712 68,484 9,971 10,116 10,844 11,118
Mortgage-backed securities............... 3,353 3,441 7,022 7,189 12,132 12,416
-------- -------- -------- -------- ------- --------
Total securities available for sale $182,762 $184,138 $136,153 $136,685 $99,895 $100,470
======== ======== ======== ======== ======= ========
Securities Held to Maturity:
States and political subdivisions $ 4,093 $ 4,501 $ 4,423 $ 4,860 $ 8,192 $ 8,678
Mortgage-backed securities................ 4,824 4,839 -- -- -- --
Other securities.......................... 967 969 819 819 1,319 1,317
-------- --------- -------- --------- ------- --------
Total securities held to maturity......... $ 9,884 $ 10,309 $ 5,242 $ 5,679 $ 9,511 $ 9,995
======== ========= ======== ========= ======= ========
<CAPTION>
---------------------
1995
---------------------
AMORTIZED FAIR
COST VALUE
--------- --------
<S> <C> <C>
Securities Available for Sale:
U.S. Treasury securities................. $ 35,769 $ 35,975
U.S. government agencies and
corporations.......................... 101,493 102,457
Mortgage-backed securities............... 17,753 18,231
-------- --------
Total securities available for sale $155,015 $156,663
======== ========
Securities Held to Maturity:
States and political subdivisions $ 13,320 $ 13,935
Mortgage-backed securities................ -- --
Other securities.......................... 1,135 1,134
-------- --------
Total securities held to maturity......... $ 14,455 $ 15,069
======== ========
</TABLE>
U.S. Treasury securities and securities of U.S. Government agencies and
corporations generally consist of fixed rate securities with maturities of three
months to three years. State and political subdivision investment securities
consist of investment grade and local non-rated issues with maturities of less
than six years. The average term of mortgage-backed securities generally ranges
between two and six years.
There are no securities of any single issuer, other than the U.S. Treasury or
U.S. Government agencies and corporations, which had a book value in excess of
10% of Coal City's stockholders' equity at September 30, 1998.
83
<PAGE>
The following table sets forth certain information regarding contractual
maturities and the weighted average yields of Manufacturers Bank's securities
portfolio at September 30, 1998.
<TABLE>
<CAPTION>
DUE AFTER ONE DUE AFTER FIVE
DUE IN ONE YEAR THROUGH YEARS THROUGH DUE AFTER
YEAR OR LESS FIVE YEARS TEN YEARS TEN YEARS
--------------------- -------------------- ------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE YIELD BALANCE YIELD BALANCE YIELD BALANCE YIELD
--------- --------- --------- --------- --------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury /(1)/...................... $ 105,130 6.00% $ 7,083 5.88% $ -- -- % $ -- --
U.S. Government agencies and
corporations /(1)/.................... 20,756 6.65 47,728 6.00 -- -- -- --
Mortgage-backed securities /(2)/......... 1,064 7.95 1,457 8.32 681 8.23 239 10.20
--------- ------- ------- ----
Total....................................... $ 126,950 $56,268 $ 681 $239
========= ======= ======= ====
SECURITIES HELD TO MATURITY:
States and political subdivisions /(3)/.. $ 724 9.38 $ 3,201 11.48 $ 168 7.70 $ -- --
Mortgage-backed securities /(2)/......... -- -- 2,616 6.39 2,208 6.39 -- --
Other securities......................... 5 5.50 402 7.47 560 5.95 -- --
--------- -------- ------- -----
Total....................................... $ 729 $ 6,219 $ 2,936 $ --
========= ======== ======= =====
</TABLE>
______________________
(1) Yields on U.S. Treasury and certain U.S. Government agency and
corporation securities are reflected to include the state tax benefit.
(2) These securities are presented based upon contractual maturities.
(3) Yield is reflected on a fully tax equivalent basis utilizing a 34% tax
rate.
SOURCES OF FUNDS
General. Deposits, long-term and short-term borrowings, loan and
investment security repayments and prepayments, proceeds from sales of
securities, and cash flows generated from operations are the primary sources of
Manufacturers Bank's funds for lending, investing, leasing and other general
purposes. Loan repayments are a relatively predictable source of funds except
during periods of significant interest rate declines, while deposit flows tend
to fluctuate with prevailing interest rates, money market conditions, general
economic conditions and competition.
Deposits. Manufacturers Bank offers a variety of deposit accounts with a
range of interest rates and terms. Manufacturers Bank's core deposits consist of
regular (passbook) savings accounts, statement savings accounts, checking
accounts, NOW accounts, money market accounts, and non-public certificates of
deposit. These deposits, along with public fund deposits and long-term and
short-term borrowings are used to support Manufacturers Bank's asset base.
Manufacturers Bank's deposits are obtained predominantly from the geographic
trade areas surrounding each of Manufacturers Bank's office locations.
Manufacturers Bank relies primarily on customer service and long-standing
relationships with customers to attract and retain deposits; however, market
interest rates and rates offered by competing financial institutions
significantly affect Manufacturers Bank's ability to attract and retain
deposits.
Manufacturers Bank also has deposits of $38.1 million from a single
public entity located in Illinois. These deposits have been with Manufacturers
Bank for more than 13 years and while Manufacturers Bank does not consider these
deposits to be core deposits, it does believe that they are stable. Management
of Manufacturers Bank is careful to consider the impact of the possible
withdrawal of these deposits on Manufacturers Bank's liquidity and overall
funding needs.
Borrowings. Coal City has access to a variety of borrowing sources and
uses short-term and long-term borrowings to support its asset base. Short-term
borrowings include federal funds purchased, securities sold under
84
<PAGE>
agreements to repurchase, and U.S. Treasury demand notes. From time to time,
Manufacturers Bank enters into short-term low-risk arbitrage transactions
pursuant to which it purchases U.S. Treasury securities and a few days later
permanently funds the purchase by entering into a reverse repurchase agreement
with a securities dealer. These transactions have the effect of inflating short-
term borrowings. Manufacturers Bank also offers a deposit account that sweeps
balances in excess of an agreed upon target amount into overnight repurchase
agreements. As business customers have grown more sophisticated in managing
their daily cash position, demand for the sweep product has increased, thus
increasing short-term borrowings on Manufacturers Bank's balance sheet. As a
result, short-term borrowings increased from $9.4 million at December 31, 1996,
to $18.0 million at December 31, 1997, to $35.0 million at September 30, 1998,
excluding Manufacturers Bank's short-term low risk arbitrage transactions.
Management expects short-term borrowings to continue to increase.
85
<PAGE>
The following table sets forth certain information regarding the short-term
borrowings of Manufacturers Bank for the periods indicated.
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996 1995
-------------------- -------------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Federal funds purchased:
Average balance outstanding........................ $ 2,583 $ 5,650 $ 4,280 $ 39
Maximum outstanding at any month-end during
the period...................................... 13,400 1,600 20,200 4,000
Balance outstanding at end of period............... -- -- -- --
Weighted average interest rate during
the period...................................... 5.77% 8.81% 8.32% 5.13%
Weighted average interest rate at end of period.... -- -- -- --
Securities sold under agreements to repurchase:
Average balance outstanding........................ $ 78,636 $ 11,929 $ 3,680 $ 4,914
Maximum outstanding at any month-end during
the period....................................... 125,225 53,681 14,477 21,504
Balance outstanding at end of period............... 73,372 12,385 2,194 1,503
Weighted average interest rate during the period... 5.21% 6.15% 5.68% 6.74%
Weighted average interest rate at end of period.... 5.26 4.90 4.32 5.75
U.S. Treasury demand notes:
Average balance outstanding........................ $ 2,989 $ 2,487 $ 2,052 $ 2,303
Maximum outstanding at any month-end during
the period..................................... 6,150 6,863 7,167 5,137
Balance outstanding at end of period............... 6,073 5,628 7,167 3,316
Weighted average interest rate during the period... 5.05% 4.87% 5.07% 5.64%
Weighted average interest rate at end of period.... 5.50 5.33 4.78 4.98
Other short-term borrowings:
Average balance outstanding........................ $ 3,846 $ -- $ -- $ --
Maximum outstanding at any month-end during
the period...................................... 5,937 -- -- --
Balance outstanding at end of period............... 5,049 -- -- --
Weighted average interest rate during the period... 4.97% -- -- --
Weighted average interest rate at end of period.... 4.97 -- -- --
Total short-term borrowings:
Average balance outstanding........................ $ 88,064 $ 20,066 $ 10,012 $ 7,256
Maximum outstanding at any month-end during
the period...................................... 150,712 62,144 41,844 30,641
Balance outstanding at end of period............... 84,494 18,013 9,361 4,819
Weighted average interest rate during the period... 5.22% 6.74% 6.68% 6.38%
Weighted average interest rate at end of period.... 5.25 4.95 4.54 5.56
</TABLE>
Long-term borrowings include notes payable to other banks to support a
portfolio of equipment that Manufacturers Bank owns and leases to other
companies as well as general debt incurred to fund recent corporate
acquisitions. Long-term borrowings increased to $22.4 million at December 31,
1997 from $16.0 million at December 31, 1996 due to funding the acquisition of
U.S. Bancorp. From December 31, 1997 through September 30, 1998 long-term
borrowings declined by $12.9 million, to $9.5 million, as a result of increased
debt used to support Manufacturers Bank's leased equipment portfolio, which was
more than offset by the repayment of part of Coal City's acquisition debt. The
repayment of the acquisition debt was funded with a portion of the proceeds from
the sale of Coal City Bank and the issuance of $25.0 million floating rate
capital securities of Coal City Capital Trust I in July 1998.
86
<PAGE>
The following table sets forth the distribution of Manufacturers Bank's
average deposit accounts and average borrowings for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
SEPTEMBER 30, 1998 1997 1996 1995
--------------------- --------------------- --------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NOW and money market
deposit accounts........... $141,763 18.71% $151,544 22.94% $130,972 25.30% $123,987 25.91%
Savings deposits............. 85,110 11.24 86,445 13.09 65,306 12.62 65,620 13.71
Time deposits................ 285,650 37.71 265,477 40.19 206,357 39.86 176,403 36.86
Demand deposits - non-
interest bearing........... 127,732 16.86 113,355 17.16 91,380 17.65 92,822 19.40
------- ------- -------- ------- -------- ------- -------- -------
Total deposits........... 640,255 84.52 616,821 93.38 494,015 95.43 458,832 95.88
Long-term borrowings /(1)/... 29,250 3.86 23,632 3.58 13,653 2.64 12,453 2.60
Short-term borrowings........ 88,064 11.62 20,066 3.04 10,012 1.93 7,256 1.52
-------- ------- -------- ------- -------- ------- -------- -------
Total deposits and
borrowings................. $757,569 100.00% $660,519 100.00% $517,680 100.00% $478,541 100.00%
======== ====== ======== ======= ======== ======= ======== =======
</TABLE>
- ----------------------
/(1)/ Long-term borrowings include corporation obligated mandatorily redeemable
preferred and capital securities.
The following table sets forth the maturities of certificates of deposits
and other time deposits at September 30, 1998 and December 31, 1997.
<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, 1998 DECEMBER 31, 1997
---------------------- ----------------------
(In thousands)
<S> <C> <C>
Maturing within three months............... $163,217 $151,010
After three but within six months.......... 45,748 62,637
After six but within twelve months......... 57,580 54,072
After twelve months........................ 28,645 22,621
-------- --------
Total................................ $295,190 $290,340
======== ========
</TABLE>
PROPERTIES
At September 30, 1998, the net book value of Coal City's total investments
in premises and equipment was $11.5 million. Manufacturers Bank owns the Main
Banking Premises at 1200 North Ashland Avenue, in Chicago, and five of its
branch facilities. The Lansing facility is leased for a remaining term of three
years and the motor bank on the far north side of Chicago for a remaining term
of five years. Manufacturers Bank also owns a residence within walking distance
of its facility on the far north side of Chicago which it leases to a third
party. Coal City believes that all of its properties and equipment are well
maintained, in good operating condition and adequate for all present and
anticipated needs of Coal City and its subsidiaries.
87
<PAGE>
DIRECTORS AND EXECUTIVE MANAGEMENT
The following table sets forth certain information as of December 31, 1998
regarding Coal City's Board of Directors and Executive Officers. There are no
arrangements or understandings between any director and any other person
pursuant to which such director was elected.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK PERCENT
DIRECTOR BENEFICIALLY OF
NAME AGE PRINCIPAL OCCUPATIONS SINCE OWNED/(1)/ CLASS
- ----------------- ----- -------------------------------------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Thomas Carey 65 President and General Manager of 1997 2,170 4.43%
Hawthorne Race Track (Maywood, IL)
Alfred Feiger 73 Chairman of the Board and Chief 1992 1,424 2.91
Executive Officer of Coal City
Mitchell Feiger 40 President of Coal City 1992 1,681 3.43
Burton Field 63 President and Chief Executive Officer 1992 835 1.71
of Manufacturers Bank
Lawrence Gilford 75 Private Investor 1992 1,100 2.25
Richard Gilford 74 Private Investor 1992 1,600 3.27
David Husman 64 Private Investor 1992 1,166 2.38
Clarence Mann 73 Private Investor 1992 2,500 5.11
</TABLE>
______________________________
/(1)/ Includes shares held directly, in retirement accounts, in a fiduciary
capacity or by certain affiliated entities or members of the named
individuals' families, with respect to which shares the named individuals
may be deemed to have sole or shared voting and/or dispositive powers.
Excludes 508 shares subject to options granted under the 1995 Stock Option
Plan to Mr. Mitchell Feiger, which options are not exercisable within 60
days of October 31, 1998.
The business experience for at least the past five years of each Director
and Executive Officer is set forth below.
Thomas Carey has served as a Director of Manufacturers Bank since January
1997. Mr. Carey previously served as a Director of each of the seven banks that
were owned by Affiliated. (see "-- History and Development.") Mr. Carey is also
an attorney and is currently the President of Hawthorne Race Track in Maywood,
Illinois.
Alfred Feiger, Lawrence Gilford, Richard Gilford, David Husman and
Clarence Mann each has over 45 years of banking experience, having served in
various executive capacities during such period. Each also served as a director
of the seven banks that were owned by Affiliated. In addition, each has served
as a Director of Manufacturers Bank since its acquisition by Coal City in 1992,
with Mr. Feiger also serving as the Chairman of the Board of Manufacturers Bank.
Mitchell Feiger began his career as an Associate Consultant with Touche
Ross & Company in 1982, and then joined Affiliated in 1984 where he worked in
various capacities until eventually becoming Executive Vice President. Mr.
Feiger became President and a director of Coal City, and a director of
Manufacturers Bank, in 1992.
Burton Field has served as President and Chief Executive Officer of
Manufacturers Bank since 1983, and as a director of Manufacturers Bank since
1977. Mr. Field has over 40 years of banking and finance experience, mainly in
the areas of commercial lending and leasing. Mr. Field began his career in 1958
at Investors
88
<PAGE>
Commercial Corporation, where he worked until 1966 in various capacities,
including Commercial and Consumer Loan Officer and Corporation Treasurer. From
1966 through 1969, Mr. Field was employed by Mercantile Leasing as a Commercial
Leasing Officer. Mr. Field was also employed by LaSalle National Bank for a
short period as a Commercial Lending Officer until he joined Manufacturers Bank
in 1970 as Executive Vice President in charge of commercial lending.
Thomas Panos is Executive Vice President, Senior Lending Officer and a
director of Manufacturers Bank. Mr. Panos was Senior Vice President and Manager
of Corporate Banking (in Illinois) of First Bank System from 1994 to 1996, when
he joined Manufacturers Bank, and he served Boulevard Bank, located in Chicago,
in various lending and management capacities (including Senior Vice President
and Manager of Commercial Banking from 1982 to the acquisition of that bank by
First Bank System in 1994. Mr. Panos has 20 years of experience in banking.
Alfred Feiger is Mitchell Feiger's father. Lawrence Gilford and Richard
Gilford are cousins.
MANAGEMENT COMPENSATION
Director Compensation. Coal City does not compensate its directors who are
also employees of Coal City, Manufacturers National or Manufacturers Bank for
serving in the capacity of director (except for a one time fee of $2,500 per
director paid in 1996 - see table below). Non-employee directors are paid an
annual retainer of $50,000 for their services, which include attending the
monthly board meetings of Manufacturers Bank and Coal City and the monthly
executive loan committee meetings of Manufacturers Bank, and may include other
committee meetings.
Executive Compensation. The following table sets forth information
concerning the compensation of the Executive Officers for services in all
capacities to Coal City, Manufacturers National and Manufacturers Bank for the
years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
ANNUAL ALL OTHER
COMPENSATION COMPENSATION
--------------------------- ------------------------------
ALL OTHER
NAME AND CALENDAR OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (#) ($)
- ---------------------------- ---------- ------------ ----------- --------- --------------
<S> <C> <C> <C> <C> <C>
Alfred Feiger 1997 -- -- -- --
Chairman of the Board and 1996 -- -- -- --
Chief Executive Officer
of Coal City 1995 -- -- -- --
Mitchell Feiger 1997 $238,665 $37,050 150 $34,770 /(1)/
President of Coal City 1996 227,300 32,500 162 33,477 /(2)/
1995 216,500 27,450 -- 36,017 /(3)/
Burton Field 1997 330,000 -- -- 75,970 /(4)/
President and Chief 1996 320,000 -- -- 76,851 /(5)/
Executive Officer of
Manufacturers Bank 1995 316,667 -- -- 72,135 /(6)/
</TABLE>
______________________________
/(1)/ Includes automobile allowance of $5,566, excess group life insurance
premium of $297, non-qualified retirement benefits of $11,505,
supplemental health plan of $3,970 and 401(k) matching contribution of
$13,432.
89
<PAGE>
/(2)/ Includes automobile allowance of $4,108, excess group life insurance
premium of $297, non-qualified retirement benefits of $10,200,
supplemental health plan of $3,802 and 401(k) matching contribution of
$12,570 and one-time director fee of $2,500.
/(3)/ Includes automobile allowance of $10,907, excess group life insurance
premium of $297, non-qualified retirement benefits of $5,986,
supplemental health plan of $3,646 and 401(k) matching contribution of
$15,181.
/(4)/ Includes automobile allowance of $3,360, excess group life insurance
premium of $3,159, non-qualified retirement benefits of $45,834,
supplemental health plan of $10,185 and 401(k) matching contribution of
$13,432.
/(5)/ Includes automobile allowance of $4,200, excess group life insurance
premium of $3,159, non-qualified retirement benefits of $44,237,
supplemental health plan of $10,185 and 401(k) matching contribution of
$12,570 and one-time director fee of $2,500.
/(6)/ Includes automobile allowance of $4,200, excess group life insurance
premium of $3,159, non-qualified retirement benefits of $40,022,
supplemental health plan of $10,185 and 401(k) matching contribution of
$14,569.
Stock Options. The following table sets forth certain information with
respect to stock options granted to the Executive Officers during 1997 under
Coal City's 1995 Stock Option Plan. The table also discloses the range of
potential realizable values at various assumed appreciation rates and the gain
or "spread" that would be realized at the end of the option term, if the price
of the Common Stock appreciated annually by the percentage levels indicated from
the price on the date of grant.
<TABLE>
<CAPTION>
PERCENT
OF
TOTAL POTENTIAL REALIZABLE VALUE
GRANTED TO AT ASSUMED ANNUAL RATES
EMPLOYEES EXERCISE OF STOCK PRICE APPRECIATION
OPTIONS IN FISCAL PRICE EXPIRATION FOR OPTION TERM/(1)/
-------------------------------
NAME GRANTED 1997 PER SHARE DATE 5.00% 10.00%
- -------------- ------------- ------------- ---------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Alfred Feiger -- -- -- -- -- --
Mitchell Feiger 150 31.32% $930 12/31/06 $98,412 $222,115
Burton Field -- -- -- -- -- --
</TABLE>
______________________________
/(1)/ Coal City is a privately-held company. Therefore, the book value per
share of $852 at December 31, 1997 times 1.2 was used in determining the
stock value, as provided in the 1995 Stock Option Plan.
No shares have been acquired through the exercise of options granted
under the 1995 Stock Option Plan. At December 31, 1997, options held by Mitchell
Feiger related to an aggregate of 312 shares and had a value of $39,359
(representing the difference between the book value per share of $852 times 1.2
per the stock option agreement and the exercise price of the options.)
In January 1998, Coal City granted an option to purchase 196 shares of
Coal City Common Stock to Mitchell Feiger. Such option has an exercise price of
$1,020 per share, has an expiration date of December 31, 2007 and is first
exercisable in January 2002.
Employment Agreement. Coal City has entered into an employment agreement
with Burton Field. That agreement provides for Mr. Field to be the President and
Chief Executive Officer of Manufacturers Bank for successive one year periods
unless the agreement is terminated by either Manufacturers Bank or Mr. Field
upon not less than 90 days prior written notice. Mr. Field's original annual
base compensation under the employment agreement was $320,000, which amount may
be adjusted by the directors of Manufacturers Bank on an annual basis and is
presently $345,000. Mr. Field is also entitled to participate in Manufacturers
Bank's employee benefit plans, including the retirement plans and group life and
disability insurance plans. Manufacturers Bank
90
<PAGE>
also pays the premium on two separate life insurance policies and two separate
disability policies for Mr. Field and pays Mr. Field an automobile allowance.
Certain Transactions. Directors and officers of Coal City and their
affiliates were customers of and have had transactions with Manufacturers Bank.
Additional transactions may be expected to take place in the future. All
outstanding loans, commitments to loan, transactions in repurchase agreements
and certificates of deposit and depository relationships were 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.
COMPETITION
Vigorous competition exists in the major market areas in which
Manufacturers Bank is presently engaged in business. Competition includes not
only commercial banks but also other financial institutions, including savings
and loan associations, money market and other mutual funds, mortgage companies,
leasing and finance companies and a variety of financial services and advisory
companies. Manufacturers Bank competes by providing quality services to its
customers, ease of access to facilities and competitive pricing of services
(including interest rates paid on deposits, interest rates charged on loans and
fees charged for other non-loan or non-deposit services).
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Coal City or any
of its subsidiaries is a party.
PERSONNEL
As of September 30, 1998, Coal City had 222 full time employees and 68
part-time employees. The employees are not represented by a collective
bargaining unit, and Coal City considers its relationship with its employees to
be good.
91
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF COAL CITY CORPORATION
The following discussion and analysis is intended to review the significant
factors affecting the financial condition and results of operations of Coal City
for the nine months ended September 30, 1998 and for the two-year period ended
December 31, 1997. On May 7, 1997, Coal City acquired U.S. Bancorp, the holding
company for U.S. Bank, through a merger. On January 28, 1998, Coal City sold
Coal City Bank, its wholly owned subsidiary, to Kankakee Bancorp, Inc. for $7.8
million in cash. These transactions significantly affect the comparative
information discussed below. This discussion should be read in conjunction with
the "Selected Consolidated Financial and Other Data of Coal City Corporation",
"Business of Coal City Corporation" and the consolidated financial statements of
Coal City and notes thereto included elsewhere herein.
GENERAL
The profitability of Coal City's operations depends primarily on its net
interest income, which is the difference between total interest earned on
interest earning assets and total interest paid on interest bearing liabilities.
Coal City's net income is affected by its provision for loan losses as well as
other income and other expenses. The provision for loan losses reflects the
amount thought to be adequate to cover estimated losses in the loan portfolio.
Non-interest income or other income consists of service fees, lease financing
income, net gains (losses) on the sale of securities available for sale, and
other operating income. Other expenses include salaries and employee benefits
along with occupancy and equipment expenses, amortization expense and other
operating expenses.
The amount of net interest income is affected by changes in the volume and
mix of earning assets, the level of interest rates earned on those assets, the
volume and mix of interest bearing liabilities, and the level of interest rates
paid on those interest bearing liabilities. The provision for loan losses is
dependent on changes in the loan portfolio and management's assessment of the
collectibility of the loan portfolio, as well as economic and market conditions.
Other income and other expenses are impacted by growth of operations and growth
in the number of accounts through both acquisitions and core banking business
growth. Growth in operations affects other expenses as a result of additional
employees, branch facilities and promotional marketing expenses. Growth in the
number of accounts affects other income including service fees as well as other
expenses such as computer services, supplies, postage, telephone and other
miscellaneous expenses.
92
<PAGE>
ANALYSIS OF NET INTEREST INCOME
Interest Earning Assets and Interest Bearing Liabilities. The following
tables set forth the average daily balances, income from interest earning
assets, expenses of interest bearing liabilities, their associated yield or
interest rate and net interest income, interest rate spread and net yield on
interest earning assets for the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------------
1998 1997
--------------------------------------------- -----------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------------ ----------- -------- ---------- ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans /(1)/ /(2)/.................. $527,726 $33,483 8.48% $462,462 $29,674 8.58%
Taxable investment securities...... 201,132 8,615 5.73 130,888 6,144 6.28
Investment securities exempt from
federal income taxes/(3)/........ 4,198 341 10.86 8,358 565 9.04
Federal funds sold................. 13,234 542 5.48 23,598 963 5.46
-------- -------- --------- -------
Total interest earning assets.... 746,290 42,981 7.70 625,306 37,346 7.99
-------- -------
Non-interest earning assets...... 80,557 74,750
-------- ---------
Total assets..................... $826,847 $700,056
======== =========
INTEREST BEARING LIABILITIES:
Deposits:
NOW and money market deposit
accounts....................... $141,763 3,432 3.24 $147,727 3,549 3.21
Savings deposits................. 85,110 1,574 2.47 80,344 1,594 2.65
Time deposits.................... 285,650 11,816 5.53 257,080 10,504 5.46
Long-term borrowings/(4)/.......... 29,250 1,716 7.84 24,377 1,546 8.48
Short-term borrowings.............. 88,064 3,435 5.22 20,441 958 6.27
-------- -------- --------- -------
Total interest bearing liabilities 629,837 21,973 4.66 529,969 18,151 4.58
-------- -------
Demand deposits - non-interest
bearing......................... 127,732 107,205
Other non-interest bearing
liabilities..................... 12,878 12,797
Minority interest in subsidiary.... 1,912 6,480
Stockholders' equity............... 54,488 43,605
-------- ---------
Total liabilities and stockholders'
equity........................ $826,847 $700,056
======== =========
Net interest income/interest rate
spread/(5)/................... $21,008 3.04% $19,195 3.41%
======== ====== ======= ======
Net interest margin/(6)/......... 3.76% 4.10%
====== ======
</TABLE>
- ----------------------
(1) Non-accrual loans are included in average loans.
(2) Interest income includes loan origination fees of $583,000 and $447,000 for
the nine months ended September 30, 1998 and 1997, respectively.
(3) Non-taxable investment income is presented on a fully tax equivalent basis
assuming a 34% tax rate.
(4) Long-term include corporation obligated mandatorily redeemable preferred
and capital securities.
(5) Interest rate spread represents the difference between the average yield on
interest earning assets and the average cost of interest bearing
liabilities.
(6) Net interest margin represents net interest income as a percentage of
average interest earning assets.
93
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1997 1996
---------------------------------- ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- --------- ---------- --------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans/(1)/(2)/.................................. $482,049 $41,313 8.57% $355,486 $30,107 8.47%
Taxable investment securities.................. 138,037 8,527 6.18 128,517 7,941 6.18
Investment securities exempt
from federal income taxes/(3)/............... 7,720 656 8.50 11,937 1,020 8.54
Federal funds sold.............................. 21,299 1,413 6.63 17,228 809 4.70
Other........................................... -- -- -- -- -- --
-------- ------- -------- -------
Total interest earning assets................ 649,105 51,909 8.00 513,168 39,877 7.77
------- -------
Non-interest earning assets.................. 75,979 55,396
-------- --------
Total assets................................... $725,084 $568,564
======== ========
INTEREST BEARING LIABILITIES:
Deposits:
NOW and money market deposit
accounts................................... $151,544 4,873 3.22 $130,972 4,115 3.14
Savings deposits............................. 86,445 2,187 2.53 65,306 1,578 2.42
Time deposits................................ 265,477 14,557 5.48 206,357 10,836 5.25
Long-term borrowings/(4)/....................... 23,632 2,202 9.32 13,653 982 7.19
Short-term borrowings........................... 20,066 1,353 6.74 10,012 669 6.68
-------- ------- -------- -------
Total interest bearing liabilities............. 547,164 25,172 4.60 426,300 18,180 4.26
------- -------
Demand deposits - non-interest
bearing...................................... 113,355 91,380
Other non-interest bearing
liabilities.................................. 10,965 7,312
Minority interest in subsidiary................. 4,890 6,216
Stockholders' equity............................ 48,710 37,354
-------- --------
Total liabilities and stockholders'
equity....................................... $725,084 $568,564
======== ========
Net interest income/interest rate
spread/(5)/.................................. $26,737 3.40% $21,697 3.51%
======= ==== ======= ====
Net interest margin/(6)/....................... 4.12% 4.23%
==== ====
<CAPTION>
--------------------------------------
1995
-------------------------------------
Average Yield/
Balance Interest Rate
--------- ---------- --------
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans/(1)/(2)/.................................. $298,416 $26,271 8.80%
Taxable investment securities.................. 137,091 7,719 5.63
Investment securities exempt
from federal income taxes/(3)/............... 12,091 1,238 10.24
Federal funds sold.............................. 30,027 1,760 5.86
Other........................................... 51 5 9.80
-------- --------
Total interest earning assets................ 477,676 36,993 7.74
--------
Non-interest earning assets.................. 49,640
--------
Total assets................................... $527,316
========
INTEREST BEARING LIABILITIES:
Deposits:
NOW and money market deposit
accounts................................... $123,987 3,822 3.08
Savings deposits............................. 65,620 1,665 2.54
Time deposits................................ 176,403 9,733 5.52
Long-term borrowings/(4)/....................... 12,453 1,153 9.26
Short-term borrowings........................... 7,256 463 6.38
-------- --------
Total interest bearing liabilities............. 385,719 16,836 4.36
--------
Demand deposits - non-interest
bearing...................................... 92,822
Other non-interest bearing liabilities.......... 5,569
Minority interest in subsidiary................. 5,663
Stockholders' equity............................ 37,543
--------
Total liabilities and stockholders' equity...... $527,316
========
Net interest income/interest rate spread/(5)/... $20,157 3.38%
========= ====
Net interest margin/(6)/....................... 4.22%
====
</TABLE>
- ----------------------
(1) Non-accrual loans are included in average loans.
(2) Interest income includes loan origination fees of $1.0 million, $505,000
and $469,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
(3) Non-taxable investment income is presented a fully tax equivalent basis
assuming a 34% tax rate.
(4) Long-term borrowings include corporation obligated mandatorily redeemable
preferred securities.
(5) Interest rate spread represents the difference between the average yield on
interest earning assets and the average cost of interest bearing
liabilities.
(6) Net interest margin represents net interest income as a percentage of
average interest earning assets.
94
<PAGE>
Rate Volume Analysis. The following tables set forth the extent to which
changes in interest rates and changes in volumes of interest earning assets and
interest bearing liabilities have historically affected Coal City's interest
income and interest expense for the periods presented. Information is provided
on changes in each category attributable to (i) changes due to volume (changes
in volume multiplied by prior period rate); (ii) changes due to rate (changes in
rate multiplied by current period volume); and (iii) total changes.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30,
1997
-------------------------------------------
CHANGE CHANGE
DUE TO DUE TO TOTAL
VOLUME RATE CHANGE
------------ -------- --------
(In thousands)
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans............................................................... $4,188 $ (379) $3,809
Taxable investment securities....................................... 3,297 (826) 2,471
Investment securities exempt from federal income taxes/(1)/......... (281) 57 (224)
Federal funds sold.................................................. (423) 2 (421)
------- ------- -------
Total increase (decrease) in interest income..................... 6,781 (1,146) 5,635
------- ------- -------
INTEREST BEARING LIABILITIES:
NOW and money market deposit accounts............................... (143) 26 (117)
Savings deposits.................................................... 95 (115) (20)
Time deposits....................................................... 1,167 145 1,312
Long-term borrowings/(2)/........................................... 309 (139) 170
Short-term borrowings............................................... 3,169 (692) 2,477
------- ------- -------
Total increase (decrease) in interest expense..................... 4,597 (775) 3,822
------- ------- -------
Increase (decrease) in net interest income........................ $2,184 $ (371) $1,813
======= ======= =======
</TABLE>
- --------------------------
(1) Non-taxable investment income is presented on a fully tax equivalent basis
assuming a 34% rate.
(2) Long-term borrowings include corporation obligated mandatorily redeemable
preferred and capital securities.
95
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1997 COMPARED TO 1996 1996 COMPARED TO 1995
------------------------------------ --------------------------------
CHANGE CHANGE CHANGE
DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
VOLUME RATE CHANGE VOLUME RATE CHANGE
---------- -------- -------- -------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans....................................... $10,718 $ 488 $11,206 $5,023 $(1,187) $3,836
Taxable investment securities............... 586 -- 586 (483) 705 222
Investment securities exempt from federal
income taxes/(1)/........................ (361) (3) (364) (16) (202) (218)
Federal funds sold.......................... 192 412 604 (750) (201) (951)
Other....................................... -- -- -- (5) -- (5)
-------- ------- -------- ------- -------- -------
Total increase (decrease) in interest income 11,135 897 12,032 3,769 (885) 2,884
-------- ------- -------- ------- -------- -------
INTEREST BEARING LIABILITIES:
NOW and money market deposit accounts....... 646 112 758 215 78 293
Savings deposits............................ 511 98 609 (8) (79) (87)
Time deposits............................... 3,104 617 3,721 1,653 (550) 1,103
Long-term borrowings/(2)/................... 718 502 1,220 111 (282) (171)
Short-term borrowings....................... 672 12 684 176 30 (206)
-------- ------- -------- ------- -------- -------
Total increase (decrease) in interest expense 5,651 1,341 6,992 2,147 (803) 1,344
-------- ------- -------- ------- -------- -------
Increase (decrease) in net interest income $5,484 $ (444) $ 5,040 $1,622 (82) $1,540
======== ======= ======== ======= ======== =======
</TABLE>
- ----------------------
(1) Non-taxable investment income is presented on a fully tax equivalent basis
assuming a 34% rate.
(2) Long-term borrowings include corporation obligated mandatorily redeemable
preferred securities.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
AND SEPTEMBER 30, 1997
General. Coal City's net income was $5.8 million for the nine months ended
September 30, 1998, compared to net income of $2.6 million for the nine months
ended September 30, 1997, an increase of $3.2 million. The increase in net
income for the nine months ended September 30, 1998, as compared with the prior
year period, resulted primarily from the sale of Coal City's subsidiary, Coal
City Bank, and the gain associated with the sale.
Net interest income. Net interest income increased $1.9 million, or 9.9%, to
$20.9 million for the nine months ended September 30, 1998 from $19.0 million
for the comparable period of 1997. This increase in net interest income resulted
from a $5.7 million, or 15.4%, increase in interest income, partially offset by
a $3.8 million, or 21.1%, increase in interest expense. Interest income
increased due to a $121.0 million, or 19.3%, increase in average interest
earning assets while interest expense rose as a result of an increase of $99.9
million, or 18.8%, in average interest bearing liabilities. Overall, total loans
increased $13.1 million, or 2.5%, to $539.4 million at September 30, 1998 from
$526.3 million at September 30, 1997. Total deposits decreased $33.7 million, or
5.0%, to $634.6 million at September 30, 1998 from $668.3 million at September
30, 1997. The increase in total loans was due to growth in Coal City's core
banking business and the decrease in total deposits occurred as a result of the
sale of Coal City Bank in January 1998. Coal City's net interest margin of 3.76%
for the nine months ended September 30, 1998 decreased from 4.10% for the
comparable period in 1997 due to increased leverage in the Company's balance
sheet as the result of the purchase of certain additional U.S. Treasury and
agency investments and the addition of certain repurchase agreements used to
fund those investments.
96
<PAGE>
Provision for loan losses. The provision for loan losses decreased to
$563,000 for the nine months ended September 30, 1998 from $582,000 for the nine
months ended September 30, 1997. The provision is slightly lower due to the
decrease related to the sale of Coal City Bank in January 1998. Management
maintains the allowance at a sufficient level given continued growth in the loan
portfolio. The allowance for loan losses represented 1.34% of total loans at
September 30, 1998 compared to 1.48% of total loans at September 30, 1997.
Management believed the allowance for loan losses was adequate to cover
potential losses in the loan portfolio.
Other income. Other income increased $4.8 million to $8.6 million for the
nine months ended September 30, 1998, compared to $3.8 million for the nine
months ended September 30, 1997. The increase was primarily due to a $4.1
million gain on the sale of Coal City Bank, a $200,000 gain on the sale of a
trust business acquired with the U.S. Bancorp acquisition, and a $320,000
increase related to Coal City's leasing business.
Other expenses. Other expenses increased $2.2 million, or 12.8%, to $19.6
million for the nine months ended September 30, 1998 from $17.4 million for the
nine months ended September 30, 1997. This increase occurred due to the purchase
of U.S. Bancorp in May 1997, as expenses for U.S. Bancorp for the first four
months of 1997 were not included in the consolidated financial statements.
Income taxes. Coal City recorded an income tax expense of $3.4 million for
the nine months ended September 30, 1998 compared to $1.9 million for the
comparable period in 1997, reflecting the increase in Coal City's income before
taxes in 1998. The effective tax rate was 36.5% for the nine months ended
September 30, 1998, compared to 38.6% for the nine months ended September 30,
1997. The decrease in 1998 is due to Coal City's higher investment in U.S.
Treasury and agency securities which are non-taxable for state income tax
purposes.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996
General. Coal City's net income was $3.4 million for the year ended December
31, 1997, compared to net income of $3.6 million for the year ended December 31,
1996, a decrease of $188,000 or 5.2%. The decrease in net income in 1997
resulted from the increase in amortization expense as a result of the U.S.
Bancorp acquisition in May 1997.
Net interest income. Net interest income increased $5.2 million, or 24.2%, to
$26.5 million in 1997 from $21.4 million in 1996. This increase in net interest
income resulted from a $12.2 million, or 30.8%, increase in interest income,
partially offset by a $7.0 million, or 38.5%, increase in interest expense.
Interest income increased due to a $135.9 million, or 26.5%, increase in average
interest earning assets while interest expense rose as a result of an increase
of $120.9 million, or 28.4%, in average interest bearing liabilities. Overall,
total loans increased $139.0 million, or 35.8%, to $527.3 million at December
31, 1997 from $388.3 million at December 31, 1996 primarily due to the
acquisition of U.S. Bancorp, which had total loans of $126.8 million as of the
acquisition date. Total deposits increased $174.3 million, or 34.2%, to $684.1
million at December 31, 1997 from $509.7 million at December 31, 1996 primarily
due to the acquisition of U.S. Bancorp, which had deposits of $169.4 million as
of the acquisition date. Increases in interest income and interest expense were
caused to a lesser extent by an overall growth in Coal City's core banking
business along with increases in other borrowings. Coal City's net interest
margin of 4.12% in 1997 decreased from 4.23% in 1996 due to increased market
rates on higher yielding deposit accounts, an increase of $9.9 million in non-
accrual loans directly attributable to the purchase of U.S. Bancorp, an issuance
of $10.0 million in corporation obligated mandatorily redeemable preferred
securities and a $5.8 million increase in long-term borrowings primarily
attributable to the purchase of U.S. Bancorp.
97
<PAGE>
Provision for loan losses. The provision for loan losses increased to
$971,000 for the year ended December 31, 1997 from $572,000 for the year ended
December 31, 1996. The increase in the provision for loan losses was the result
of an increase in total loans and management's intention to maintain the
allowance at a sufficient level based upon continued growth in the portfolio.
The allowance for loan losses represented 1.50% of total loans at December 31,
1997 compared to 1.21% of total loans at December 31, 1996. Management believed
the allowance for loan losses was adequate to cover potential losses in the loan
portfolio.
Other income. Other income increased $2.0 million, or 67.9 %, to $4.9 million
in 1997, compared to $2.9 million in 1996. Service fees increased $1.0 million,
or 48.6%, to $3.1 million in 1997 as compared to $2.1 million in 1996. The
increase in service fees is directly attributable to the increase in deposits
due to the acquisition of U.S. Bancorp, which had total deposits of $169.4
million as of the acquisition date. Net lease financing income increased
$777,000 to $1.2 million in 1997 from $395,000 in 1996. Net lease financing
income represents income on equipment owned by Coal City and leased to others.
At December 31, 1997, Coal City had $22.9 million in leased equipment, up $4.3
million from $18.6 million at December 31, 1996.
Other expenses. Other expenses increased $7.3 million, or 43.4%, to $24.2
million in 1997 from $16.9 million in 1996, primarily due to the acquisition of
U.S. Bancorp. Salaries and employee benefits expense increased $2.9 million, or
33.3%, amortization expense increased $1.3 million, or 64.3%, while occupancy
and equipment expense increased $767,000, or 35.4% from 1996. Additional
increases in other operating expenses included a $370,000 increase in computer
services due to improvements made to Coal City's computer systems and a $302,000
increase in marketing expense resulting from costs associated with the mergers
of the U.S. Bancorp, U.S. Bank, Peterson Bank and Manufacturers Bank
subsidiaries.
Income taxes. Coal City recorded an income tax expense of $2.4 million for
1997 compared to $2.6 million for 1996, reflecting the decrease in Coal City's
income before taxes in 1997. The effective tax rate was 38.2% in 1997 compared
to 37.6% in 1996.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
DECEMBER 31, 1995
General. Coal City's net income increased $1.2 million, or 49.2%, to $3.6
million for the year ended December 31, 1996, from $2.4 million for the year
ended December 31,1995. The increase in net income in 1996 was primarily
attributable to an increase in net interest income and other income in addition
to a decrease in other expenses.
Net interest income. Net interest income increased $1.6 million, or 8.2%, to
$21.3 million for the year ended December 31, 1996 from $19.7 million for the
year ended December 31, 1995. This increase in net interest income resulted from
a $2.9 million, or 8.1%, increase in interest income, partially offset by a $1.3
million, or 8.0%, increase in interest expense in 1996. Average interest earning
assets increased $35.5 million, or 7.4%, to $513.2 million in 1996 from $477.7
million in 1995 as Coal City experienced strong loan demand and shifted lower-
yielding investment securities and federal funds sold to higher yielding loans.
In addition, average interest earning assets increased from year to year as
Peterson Bank was purchased on February 28, 1995, and 1995 included only ten
months of Peterson Bank averages. Average interest bearing liabilities increased
$40.6 million, or 10.5%, due to growth in time deposits. Overall the net
interest margin increased to 4.23% in 1996 from 4.22% in 1995 as loan growth
more than offset the increase in higher yielding deposits.
Provision for loan losses. The provision for loan losses increased to
$572,000 for the year ended December 31, 1996 from $240,000 for the year ended
December 31, 1995, primarily due to Coal City's desire to maintain its
98
<PAGE>
allowance for loan losses at a sufficient level relative to the strong loan
demand. Total loans increased $49.0 million, or 14.4%, to $388.3 million at
December 31, 1996 from $339.3 million at December 31, 1995. The allowance for
loan losses represented 1.21% of total loans at December 31, 1996, compared to
1.22% of total loans at December 31, 1995. Management believed the allowance for
loan losses was adequate to cover potential losses in the loan portfolio.
Other income. Other income increased $1.0 million, or 54.8%, to $2.9 million
in 1996 from $1.9 million in 1995. Service fees increased $448,000, or 27.5%, to
$2.1 million in 1996 from $1.6 million in 1995. Service fees increased due to
higher product fees and better fee collection practices. In addition, net gains
(losses) on the sale of securities increased $633,000 to $75,000 in 1996 from
($558,000) in 1995 due to the sale of lower yielding securities to fund higher
yielding loan demand.
Other expenses. Other expenses decreased $142,000, or 0.8%, to $16.9 million
in 1996 from $17.0 million in 1995. FDIC fees, which are included in other
operating expenses, decreased $520,000 due to nationwide rate reductions. Other
expenses also decreased due to a $146,000 or 6.7% decrease in amortization
expense to $2.0 million in 1996 from $2.2 million in 1995 as the amortization
costs related to the purchase of Manufacturers National in 1992 were lower in
1996 than in 1995. Coal City utilizes an accelerated amortization method which
amortizes more of the purchase premium in early years than in later years. See
"--Core Deposit Intangibles and Goodwill." Decreases in other expenses were
offset by a $250,000 increase in occupancy and equipment expense, a $149,000
increase in operating losses, due to a loss on the sale of OREO property, which
are included in other operating expenses, and a $66,000 increase in salaries and
employee benefits.
Income taxes. Coal City recorded income tax expense of $2.6 million for 1996
compared to $1.5 million for 1995 reflecting the increase in Coal City's income
before income taxes in 1996. The effective tax rate was 37.6% in 1996 compared
to 34.3% in 1995.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 TO DECEMBER 31, 1997
Total assets increased $21.6 million, or 2.7% from $802.7 million at December
31, 1997 to $824.3 million at September 30, 1998. The increase in total assets
at September 30, 1998 was due to an increase of U.S. Treasury and agency
securities of $50.3 million offsetting a decline caused by the sale of Coal City
Bank. Short term borrowings increased to fund the increase in U.S. Treasuries
and agency securities. Total loans were $527.3 million at December 31, 1997 and
$539.4 million at September 30, 1998. Total securities were $141.9 million at
December 31, 1997 and $194.0 million at September 30, 1998. At December 31, 1997
approximately $18.0 million in loans and $15.5 million in securities were
attributable to Coal City Bank. The decrease in deposits of $49.5 million was
due primarily to the sale of Coal City Bank, which had total deposits of $52.1
million at the date of sale. Additionally, in July 1998 Coal City's subsidiary,
Coal City Capital Trust I, issued $25.0 million in corporation obligated
mandatorily redeemable capital securities and Coal City's former subsidiary,
Coal City Capital Trust 1997-A, retired $10.0 million of corporation obligated
mandatorily redeemable preferred securities that were issued in 1997.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 TO DECEMBER 31, 1996
Total assets increased by $214.9 million from $587.8 million at December 31,
1996 to $802.7 million at December 31, 1997 primarily due to the acquisition of
U.S. Bancorp, which had total assets of $205.0 million at the date of
acquisition. The acquisition cost was $40.2 million which was funded by the
issuance of the Class B Preferred Stock of Coal City of $10.2 million, cash held
by Coal City of $15.8 million and cash held by U.S.
99
<PAGE>
Bancorp of $14.2 million. The excess cost over the fair value of net assets
acquired (goodwill) was $8.6 million. Approximately $5.7 million of the purchase
price was allocated to the fair value of the core deposit intangible asset.
CORE DEPOSIT INTANGIBLES AND GOODWILL
In acquiring its subsidiary banks, Coal City recorded a portion of the
purchase price as core deposit intangibles, which represented value assigned to
the existing deposit base for which the annual interest and servicing costs are
below market rates. In addition, the excess cost over fair value of net assets
acquired is recorded as goodwill.
The following table sets forth for each acquisition the core deposit
intangible and goodwill amortization expense for the last five years and the
expected expense for 1998 to 2002.
<TABLE>
<CAPTION>
PLANNED AMORTIZATION FOR THE YEAR ENDING DECEMBER 31,
-----------------------------------------------------------------------------
2002 2001 2000 1999 1998
-------------- ------ ------ ------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Coal City National Bank (1984).................. $ -- $ -- $ -- $ -- $ --
Manufacturers National Corporation (1992)....... 248 248 248 302 367
Peterson Bank (1995)............................ 531 730 770 970 1,025
U.S. Bancorp, Inc. (1997)...................... 724 827 1,042 1,378 1,902
------- ------- -------- ------- --------
Total intangible amortization expense........ $1,503 $1,805 $2,060 $2,650 $3,294
======= ======= ======== ======= ========
<CAPTION>
ACTUAL AMORTIZATION FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- ------ ------ ------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Coal City National Bank (1984).................. $ 9 $ 9 $ 9 $ 9 $ 9
Manufacturers National Corporation (1992)....... 382 497 562 627 691
Peterson Bank (1995)............................ 1,196 1,515 1,596 -- --
U.S. Bancorp, Inc. (1997)...................... 1,734 -- -- -- --
------- ------- -------- ------- --------
Total intangible amortization expense........ $3,321 $2,021 $2,167 $636 $700
======= ======= ======== ======= ========
</TABLE>
The table demonstrates that in each of the years immediately following an
acquisition, Coal City amortizes more of the purchase premium than in later
years. This has the effect of increasing other expense (decreasing net income)
in early years and decreasing other expense (increasing net income) in later
years. Amortization of purchase intangibles is a non-cash expense.
CASH EARNINGS
The purchase method of accounting has been used to record each of Coal City's
acquisitions. As a result, the recorded basis of the net assets of the acquired
entities has been adjusted to fair value. Adjustments included recording core
deposit intangibles to reflect the difference between the fair value and
underlying basis of deposits purchased and recording goodwill for the excess of
the acquisition cost over the fair value of net assets acquired. Core deposit
intangibles and goodwill are being amortized as a non-cash expense over periods
of up to eight and 20 years, respectively. Other fair value adjustments made to
assets such as investment securities, loans, and buildings are also being
amortized or depreciated over varying periods, ranging from eight to 35 years.
Amortization/depreciation expense reduces net income during the amortization
periods.
100
<PAGE>
If Coal City's acquisitions had met certain accounting rules, the pooling of
interest method of accounting may have been used to account for Coal City's
acquisitions. Under this method of accounting, no goodwill or core deposit
intangibles would have been recorded or other fair value adjustments made.
Consequently, net income is not reduced for the amortization of core deposit
intangibles, goodwill or other fair value adjustments. Since application of the
two methods can result in dramatically different net income, management, certain
analysts and certain peer financial institutions have been computing cash
earnings in order to compare results. At present, cash earnings is not a defined
term or concept under generally accepted accounting principles.
The following table sets forth Coal City's cash earnings, which is defined by
management as net income, excluding amortization of purchase accounting non-cash
items and the related deferred income tax effect.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996 1995
-------------- ----------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income........................................... $ 5,816 $ 3,449 $ 3,637 $ 2,437
Goodwill amortization................................ 702 801 570 515
Core deposit intangibles amortization (net of tax)... 1,140 1,663 958 1,090
Other fair value adjustment amortization
(net of tax)...................................... 7 (29) (62) (68)
------- ------- ------- -------
Cash earnings........................................ 7,665 5,884 5,103 3,974
Preferred dividends.................................. (867) (276) -- (267)
------- ------- ------- -------
Cash earnings to common stockholders................. $ 6,798 $ 5,608 $ 5,103 $ 3,707
======= ======= ======= =======
Cash earnings per share:/(1)/
Basic............................................. $138.62 $112.81 $102.83 $ 73.92
Diluted........................................... 138.62 112.81 102.83 73.92
Performance ratios:/(2)/
Cash return on average tangible assets............ 1.13% 0.90% 1.03% 0.86%
Cash return on average tangible equity............ 39.27 24.95 20.78 16.82
</TABLE>
_____________________
(1) Basic earnings per share is calculated by dividing the cash earnings by the
average number of common shares outstanding for the period. Diluted
earnings per share does not differ from basic earnings per share because
the inclusion of granted options and warrants would have an antidilutive
effect on basic earnings per share.
(2) Cash return on average tangible assets and equity have been annualized for
the nine months ended September 30, 1998 and include the $4.1 million gain
on sale of Coal City Bank. Cash return on average tangible assets and
equity, excluding the gain on sale of Coal City Bank, would have been 0.68%
and 23.64%, respectively.
ASSET QUALITY
General. Coal City manages asset quality through various control,
monitoring and review procedures. Asset quality is important in two areas: the
credit quality of securities in Manufacturers Bank's investment portfolio and
the credit quality of loans in Manufacturers Bank's loan portfolio. With regard
to Manufacturers Bank's investment portfolio, it is Manufacturers Bank's policy
to only invest in securities of the U.S. Treasury and agencies of, and
corporations sponsored by, the U.S. Government, corporate and municipal
securities rated in one
101
<PAGE>
of the top four grading categories by Standard & Poors or Moody's, or local
municipal non-rated securities for which Manufacturers Bank has sufficient
credit information to render an informed credit decision. Consequently,
Manufacturers Bank maintains a very high quality investment portfolio that has
no nonaccruing or past due securities. The quality of loans in Manufacturers
Bank's loan portfolio is evidenced by the level of non-performing loans and
assets as well as potential problem loans, which are discussed below.
Non-performing Loans and Non-performing Assets. Non-performing loans include
(i) loans accounted for on a non-accrual basis, (ii) accruing loans
contractually past due 90 days or more as to interest and principal; and (iii)
loans whose terms have been renegotiated to provide reduction or deferral of
interest or principal because of a deterioration in the financial position of
the borrower. Management reviews the loan portfolio for problem loans on an
ongoing basis. During the ordinary course of business, Management becomes aware
of borrowers that may not be able to meet the contractual requirements of loan
agreements. Such loans are placed under close supervision with consideration
given to placing the loan on a non-accrual status, increasing the allowance for
loan losses, and (if appropriate) partial or full charge-off. Those loans with
respect to which Management does not expect to collect interest in the normal
course of business are placed on a non-accrual status. After a loan is placed on
non-accrual status, any current year interest previously accrued but not yet
collected is reversed against current income. If interest payments are received
on non-accrual loans, such payments will be applied to principal and not taken
into income. Loans will not be placed back on accrual status unless all back
interest and principal payments are made. If interest on non-accrual loans had
been accrued, such income would have amounted to $198,610, $383,700 and $34,600
for the nine months ended September 30, 1998, and the years ended December 31,
1997 and 1996, respectively.
Non-performing assets consist of OREO, which represents properties acquired
through foreclosure or other proceedings and is recorded at the lower of cost or
fair value less the estimated cost of disposal. OREO is evaluated regularly to
ensure that the recorded amount is supported by its current fair value.
Valuation allowances to reduce the carrying amount to fair value less estimated
costs of disposal are recorded as necessary. Revenues and expenses from the
operations of OREO and changes in the valuation are included in other income and
other expenses on the income statement.
The following table sets forth the amounts of non-performing loans and non-
performing assets at the dates indicated.
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
SEPTEMBER 30, --------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------ ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-performing loans:
Non-accrual loans....................... $6,798 $ 9,879 $ 454 $ 173 $ 31 $ 138
Loans 90 days or more past due, still
accruing interest................... 27 2 903 974 553 247
Restructured loans..................... -- -- -- -- -- --
------- -------- ------- ------ ------ ------
Total................................ 6,825 9,881 1,357 1,147 584 385
Other real estate owned................... 409 3,726 -- 216 217 --
------- -------- ------- ------- ------ ------
Total non-performing assets.......... $7,234 $13,607 $1,357 $1,363 $801 $385
======= ======== ======= ======= ====== ======
Non-performing loans to total loans....... 1.27% 1.87% 0.35% 0.34% 0.26 0.17%
Non-performing loans to allowance for
loan losses............................ 94.20 124.73 28.92 27.75 2.07 14.22
Non-performing assets to total assets..... 0.88 1.70 0.23 0.24 0.21 0.10
</TABLE>
102
<PAGE>
The increase in non-accrual loans of $9.4 million from December 31, 1996 to
December 31, 1997 is directly attributable to the acquisition of U.S. Bancorp.
As of September 30, 1998, $3.9 million, or 57.4%, of non-accruing loans
represented loans that were acquired with U.S. Bancorp. Non-accrual loans
consisted of 28 loans totaling $6.8 million. Of these loans, $4.8 million are
secured by a first lien on real estate, $1.2 million are secured by a mix of
collateral, and $841,000 are secured by leases. Management is aggressively
pursuing collection efforts with respect to these non-performing loans.
As of September 30, 1998, two occupied commercial properties remain in OREO
totaling $409,000. These two properties pay monthly rent to Manufacturers Bank.
There were no loans identified as impaired as of September 30, 1998 or
during the years ended December 31, 1997 and 1996. A loan is classified as
impaired when it is probable that the Bank will be unable to collect all amounts
due according to the contractual terms of the loan agreement. In contrast, a
loan is classified as non-accrual when Management does not expect to collect
interest in the normal course of business.
Potential Problem Loans. Manufacturers Bank utilizes an internal asset
classification system as a means of reporting problem and potential problem
assets. At each scheduled Board of Directors meeting, a watch list is presented,
showing all loans listed as "Special Mention," "Substandard," "Doubtful" and
"Loss." An asset is classified Substandard if it is inadequately protected by
the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. Substandard assets include those characterized by the distinct
possibility that Manufacturers Bank will sustain some loss if the deficiencies
are not corrected. Assets classified as Doubtful have all the weaknesses
inherent in those classified Substandard with the added characteristic that the
weaknesses present make collection or liquidation in full, on the basis of
currently existing facts, conditions and values, highly questionable and
improbable. Assets classified as Loss are those considered uncollectible and
viewed as non- bankable assets, worthy of charge-off. Assets which do not
currently expose Manufacturers Bank to sufficient risk to warrant classification
in one of the aforementioned categories, but possess weaknesses which may or may
not be out of the control of the customer, are deemed to be Special Mention.
When Manufacturers Bank classifies one or more assets, or portions thereof,
as Substandard or Doubtful, it establishes a general valuation allowance for
loan losses ("General Valuation Allowance") in an amount deemed prudent by
Management. General Valuation Allowance is a term which represents loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to specific problem assets. When Manufacturers Bank classifies one or
more assets, or portions thereof, as Loss, it either establishes a specific
allowance for losses equal to 100% of the amount of the asset so classified or
charges-off such amount.
Manufacturers Bank's determination as to the classification of its assets
and the amount of its valuation allowances is subject to review by Manufacturers
Bank's primary regulators, which can order the establishment of additional
general or specific loss allowances. The FDIC, in conjunction with the other
federal banking agencies, has adopted an interagency policy statement on the
allowance for loan and lease losses. The policy statement provides guidance for
financial institutions on both the responsibilities of management for the
assessment and establishment of adequate allowances and guidance for banking
agency examiners to use in determining the adequacy of general valuation
guidelines. Generally, the policy statement recommends that (i) institutions
have effective systems and controls to identify, monitor and address asset
quality problems; (ii) management analyze all significant factors that affect
the collectibility of the portfolio in a reasonable manner; and (iii) management
establish acceptable allowance evaluation processes that meet the objectives set
forth in the policy statement. Management believes it has established an
adequate allowance for possible loan losses. Manufacturers Bank
103
<PAGE>
analyzes its process regularly, with modifications made if needed, and reports
those results four times per year at Board of Directors meetings. However, there
can be no assurance that the regulators, in reviewing Manufacturers Bank's loan
portfolio, will not request Manufacturers Bank to materially increase its
allowance for loan losses at the time. Although management believes that
adequate specific and general loan loss allowances have been established, actual
losses are dependent upon future events and, as such, further additions to the
level of specific and general loan loss allowances may become necessary.
The aggregate principal amounts of potential problem loans rated
Substandard, Doubtful, or Loss, excluding non-performing loans, as of September
30, 1998 and December 31, 1997 were approximately $2.2 million and $7.7 million,
respectively. All loans classified as loss have been charged-off. Loans in this
category generally include loans that were classified for regulatory purposes.
Allowance for Loan Losses. The allowance for loan losses is an amount that
management believes will be adequate to absorb estimated losses on existing
loans, based on an evaluation of the collectibility of loans and prior loss
experience. This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. While management uses the best
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review Manufacturers Bank's allowance for loan
losses, and may require Manufacturers Bank to make additions to the allowance
based on their judgment about information available to them at the time of their
examinations.
The following table presents an analysis of the allowance for loan losses
for the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Allowance at beginning of period... $7,922 $4,692 $4,134 $2,646 $2,707 $2,305
Additions resulting from
acquisitions.................... -- 2,574 -- 1,317 -- --
Decreases resulting from sale of
subsidiary...................... (399) -- -- -- -- --
Charge-offs:
Commercial...................... -- 178 -- 70 145 --
Commercial loans collateralized
by assignment of lease
payments...................... -- -- -- -- -- --
Real estate - construction...... -- -- -- -- -- --
Real estate - mortgage.......... 979 97 -- -- -- --
Installment..................... 16 68 29 4 6 2
-------- -------- ------- ------ ------- -------
Total charge-offs.................. 995 343 29 74 151 2
-------- -------- ------- ------ ------- -------
Recoveries:
Commercial...................... 35 -- 15 5 -- --
</TABLE>
104
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial loans collateralized
by assignment of lease
payments............................ -- -- -- -- -- --
Real estate - construction............ -- 10 -- -- -- --
Real estate - mortgage................ 89 -- -- -- -- --
Installment........................... 30 18 -- -- -- 4
------ ------ ------ ------ ------ ------
Total recoveries...................... 154 28 15 5 -- 4
------ ------ ------ ------ ------ ------
Net charge-offs (recoveries)........... 841 315 14 69 151 (2)
Provision for loan losses.............. 563 971 572 240 90 400
------ ------ ------ ------ ------ ------
Allowance at end of period............. $7,245 $7,922 $4,692 $4,134 $2,646 $2,707
====== ====== ====== ====== ====== ======
Allowance to total loans............... 1.34% 1.50% 1.21% 1.22% 1.19% 1.19%
Net charge-offs to average loans....... 0.16 0.07 0.00 0.02 0.07 0.00
</TABLE>
The following table sets forth the allocation of the allowance for loan
losses for the periods presented and the percentage of loans in each category
to total loans. An allocation for a loan classification is only for internal
analysis of the adequacy of the allowance and is not an indication of expected
or anticipated losses. The allowance is available for all loan losses.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------- --------------- --------------- --------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $1,369 22.38% $1,430 21.24% $1,030 24.22% $537 20.71% $1,230 33.30%
Commercial loans
collateralized by
assignment of lease
payments............. 244 18.30 215 16.25 285 29.35 271 31.89 323 32.64
Real estate............. 2,107 48.21 2,695 48.75 554 40.89 193 43.62 64 30.63
Real estate construction -- 4.98 -- 7.03 -- 1.82 -- 2.03 -- 1.67
Installment............. 91 6.13 73 6.73 55 3.72 38 1.75 27 1.76
Unallocated............. 3,434 -- 3,509 -- 2,768 -- 3,095 -- 1,002 --
------- ------- ------ ------- ------ ------- ------ ------- ------ -------
Total................. $7,245 100.00% $7,922 100.00% $4,692 100.00% $4,134 100.00% $2,646 100.00%
======= ======= ====== ======= ====== ======= ====== ======= ====== =======
<CAPTION>
AT DECEMBER 31,
----------------
1993
----------------
AMOUNT PERCENT
------- -------
<S> <C> <C>
Commercial.............. $913 33.43%
Commercial loans
collateralized by
assignment of lease
payments............. 420 36.98
Real estate............. 502 27.27
Real estate construction -- 0.34
Installment............. 33 1.98
Unallocated............. 839 --
------ -------
Total................. $2,707 100.00%
====== =======
</TABLE>
Manufacturers Bank's loan quality is continually monitored by management
and is reviewed by the Board of Directors and the loan committee of
Manufacturers Bank on a monthly basis. In addition, independent external
review of the loan portfolio is conducted by regulatory authorities and by
independent public accountants in conjunction with their annual audit. The
amount of additions to the allowance for loan losses which are charged to
earnings through the provision for loan losses is determined based on a
variety of factors, including actual charge-offs and anticipated charge-offs,
delinquent loans, historical loss experience and economic conditions in
Manufacturers Bank's market area. Although management believes the allowance
for loan losses is sufficient to cover potential losses, there can be no
assurance that the allowance will prove sufficient to cover actual loan losses
in the future.
105
<PAGE>
At December 31, 1997, the allowance for loan losses was $7.9 million,
representing an increase of $3.2 million from December 31, 1996. The increase
was primarily due to the acquisition of U.S. Bancorp, which had an allowance for
loan losses of $2.6 million at the date of acquisition.
ASSET LIABILITY MANAGEMENT
Coal City's net interest income is subject to "interest rate risk" to the
extent that it can vary based on changes in the general level of interest rates.
It is Coal City's policy to maintain an acceptable level of interest rate risk
over a range of possible changes in interest rates while remaining responsive to
market demand for loan and deposit products. The strategy employed by
Manufacturers Bank to manage its interest rate risk is to measure its risk using
an asset/liability simulation model and adjust the maturity of securities in its
investment portfolio to manage that risk. Also, to limit risk, Manufacturers
Bank generally does not make fixed rate loans or accept fixed rate deposits with
terms of more than five years.
Based on simulation modeling as of December 31, 1997 and September 30,
1998, respectively, Coal City's net interest income would change over a one-year
time period due to changes in interest rates as follows:
<TABLE>
<CAPTION>
CHANGE IN CHANGE IN
NET INTEREST INCOME NET INTEREST INCOME
OVER ONE-YEAR HORIZON OVER ONE-YEAR HORIZON
AS OF DECEMBER 31, 1997 AS OF SEPTEMBER 30, 1998
------------------------------------ ----------------------------
CHANGES IN
LEVEL OF DOLLAR PERCENTAGE DOLLAR PERCENTAGE
INTEREST RATES CHANGE CHANGE CHANGE CHANGE
-------------- ----------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
+2.00% $237,000 0.90% $562,000 2.02%
+1.00 102,000 0.39 282,000 1.01
(1.00) (133,000) (0.50) (282,000) (1.01)
(2.00) (232,000) (0.88) (555,000) (1.99)
</TABLE>
Simulations used by Coal City assume the following:
1. Changes in interest rates are immediate.
2. With the exception of NOW, money market and savings accounts, all
interest rates change by the same amount at the same time.
3. NOW, money market and savings accounts rates change by 0.25% for
every 1.00% change in interest rates and by 0.50% for every 2.00%
change in interest rates. Management believes, and experience has
shown, that these deposit accounts take longer to change rates when
economic conditions change and do not change rates as much as other
general interest rates, such as prime or federal funds. It is
Manufacturers Bank's policy that interest rate exposure due to a
2.00% interest rate rise or fall be limited to 7.50% of
Manufacturers Bank's annual net interest income as forecasted by the
simulation model. As demonstrated by the table above, Manufacturers
Bank's interest rate risk exposure was within this policy at
December 31, 1997 and September 30, 1998.
Interest rate risk can also be measured by analyzing the extent to which
the repricing of assets and liabilities are mismatched to create an interest
sensitivity "gap." An asset or liability is said to be interest rate sensitive
within a specific time period if it will mature or reprice within that time
period. The interest rate sensitivity gap is defined as the difference between
the amount of interest earning assets maturing or repricing within a specific
time
106
<PAGE>
period and the amount of interest bearing liabilities maturing or repricing
within that same time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, therefore, a negative gap would tend
to adversely affect net interest income. Conversely, during a period of falling
interest rates, a negative gap position would tend to result in an increase in
net interest income.
The following table sets forth the amounts of interest earning assets and
interest bearing liabilities outstanding at September 30, 1998, which are
anticipated by Manufacturers Bank, based upon certain assumptions, to reprice or
mature in each of the future time periods shown. Except as stated below, the
amount of assets and liabilities shown which reprice or mature during a
particular period were determined based on the earlier of the term to repricing
or the term to repayment of the asset or liability. The table is intended to
provide an approximation of the projected repricing of assets and liabilities at
September 30, 1998 on the basis of contractual maturities and scheduled rate
adjustments within a three-month period and subsequent selected time intervals.
The loan amounts in the table reflect principal balances expected to be
reinvested and/or repriced as a result of contractual amortization and rate
adjustments on adjustable-rate loans. Loan and investment security prepayments
are not considered significant and therefore contractual maturities or repricing
is not adjusted for possible prepayments. While NOW, money market and savings
deposit accounts have adjustable rates, it is assumed that the interest rates on
these accounts will not adjust immediately to changes in other interest rates.
Therefore, the table is calculated assuming that these accounts will reprice as
follows: 25% in the first three months, 25% in the next nine months, and 50%
after one year.
<TABLE>
<CAPTION>
TIME TO MATURITY OR REPRICING
--------------------------------------------------------------------------------------
0-90 91-365 1-5 OVER 5
DAYS DAYS YEARS YEARS TOTAL
---------------- ------------- ------------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Net loans/1/........................... $249,658 $69,737 $192,332 $13,585 $525,312
Investment securities.................. 80,324 47,355 62,487 3,856 194,022
Federal funds sold..................... 16,700 -- -- -- 16,700
---------- ----------- ----------- ---------- ----------
Total interest earning assets....... $346,682 $117,092 $254,819 $17,441 $736,034
========== =========== =========== ========== ==========
INTEREST BEARING LIABILITIES:
NOW and money market deposit
accounts............................. $33,947 $33,947 $67,895 $ -- $135,789
Savings deposits....................... 20,449 20,448 40,897 -- 81,794
Time deposits.......................... 163,217 103,328 28,645 -- 295,190
Long-term borrowings/2/................ 739 2,216 6,555 25,000 34,510
Short-term borrowings.................. 84,494 -- -- -- 84,494
---------- ----------- ----------- ---------- ----------
Total interest bearing liabilities.. $302,846 $159,939 $143,992 $25,000 $631,777
========== =========== =========== ========== ==========
Rate sensitive assets (RSA)............ $346,682 $463,774 $718,593 $736,034 $736,034
Rate sensitive liabilities (RSL)....... 302,846 462,785 606,777 631,777 631,777
Cumulative GAP......................... 43,836 989 111,816 104,257 104,257
(GAP = RSA - RSL)
</TABLE>
107
<PAGE>
<TABLE>
<CAPTION>
TIME TO MATURITY OR REPRICING
---------------------------------------------------------------------------------------
0-90 91-365 1-5 OVER 5
DAYS DAYS YEARS YEARS TOTAL
---------------- --------------- ------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
RSA/Total assets....................... 42.06% 56.26% 87.18% 89.29% 89.29%
RSL/Total assets....................... 36.74 56.14 73.61 76.65 76.65
GAP/Total assets....................... 5.32 0.12 13.57 12.65 12.65
GAP/RSA................................ 12.64 0.21 15.56 14.16 14.16
</TABLE>
- ----------------------
(1) Less non-accrual loans totaling $6.8 million.
(2) Includes corporation obligated mandatorily redeemable capital securities.
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types of assets may lag behind
changes in market rates. Additionally, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate significantly
from those assumed in calculating the table. Therefore, Coal City does not rely
solely on a gap analysis to manage its interest rate risk, but rather it uses
what it believes to be the more reliable simulation model relating to changes in
net interest income presented earlier.
LIQUIDITY
Bank Liquidity. Manufacturers Bank's primary sources of funds are retail
and commercial deposits, short-term and long-term borrowings, and funds
generated from operations. Funds from operations include principal and interest
payments received on loans and securities and proceeds from the sale of
securities and loans. While maturities and scheduled amortization of loans and
securities provide an indication of the timing of the receipt of funds, changes
in interest rates, economic conditions and competition strongly influence
mortgage prepayment rates and deposit flows, reducing the predictability of the
timing on sources of funds.
Manufacturers Bank has no required regulatory liquidity ratios to maintain;
however, it adheres to a Liquidity Policy, approved by its Board of Directors,
which sets certain guidelines for liquidity purposes. This policy requires that
Manufacturers Bank maintain the following liquidity ratios:
1. Liquidity ratio (defined as cash, short-term investments,
marketable securities and investment grade scheduled lease
loan payments due in one year or less divided by deposits plus
short-term liabilities) greater than 20%.
2. Loans to deposit ratio less than 85%.
3. Loans to deposits minus public funds ratio less than 80%.
At September 30, 1998, Manufacturers Bank was in substantial compliance
with the foregoing policy. Generally, when Manufacturers Bank's loan to deposit
ratios become higher than policy guidelines, Manufacturers Bank sells Lease
Loans to reduce the volume of total loans and to provide a source of funds. In
1997, Manufacturers Bank sold approximately $30 million of Lease Loans to remain
in compliance with the Liquidity Policy. At present, Manufacturers Bank, with
the consent of its Board of Directors, has exceeded ratios 2 and 3 above but
management anticipates that the Bank will be in compliance with all policy
limitations immediately
108
<PAGE>
after the Bank Merger. Liquidity management is monitored by the Asset/Liability
Committee of Manufacturers Bank, which takes into account the marketability of
assets, the sources and stability of funding and the level of unfunded
commitments.
At September 30, 1998, Manufacturers Bank had outstanding origination loan
commitments and unused commercial and retail lines of credit of $116.2 million.
The amount of loan commitments and unused lines of credit has remained
approximately the same for the last several years. Manufacturers Bank
anticipates that it will have sufficient funds available to meet its current
origination and other lending commitments. Certificates of deposit that are
scheduled to mature within one year totaled $266.5 million at September 30,
1998. Manufacturers Bank expects a substantial majority of these certificates of
deposit to remain with Manufacturers Bank.
In the event that additional short-term liquidity is needed, Manufacturers
Bank has established relationships with several large regional banks to provide
short-term borrowings in the form of federal funds purchases. While there are no
firm lending commitments in place, Manufacturers Bank has borrowed, and
Management believes that Manufacturers Bank could again borrow, more than $30
million for a short time from these banks on a collective basis. Additionally,
Manufacturers Bank is a member of the FHLB and has the ability to borrow from
the FHLB.
Corporation Liquidity. Coal City's main sources of liquidity at the holding
company level are dividends from Manufacturers Bank passed on to Coal City
through Manufacturers National and lines of credit maintained with a large
regional correspondent bank in the amount of $15.0 million. As of September 30,
1998, Coal City had $14.5 million undrawn and available under its lines of
credit.
Manufacturers Bank is subject to various regulatory capital requirements
administered by federal and state banking agencies, which affect Manufacturers
Bank's ability to pay dividends to Coal City. Failure to meet minimum capital
requirements can initiate certain mandatory and discretionary actions by
regulators that, if undertaken, could have a direct material effect on Coal
City's financial statements. Additionally, Bank policy requires that dividends
cannot be declared in an amount that would cause Manufacturers Bank's capital to
fall below the minimum amount required for Manufacturers Bank to be considered
"well capitalized" for regulatory purposes. At September 30, 1998, Manufacturers
Bank could pay $15.8 million of dividends and comply with such minimum
regulatory capital requirements.
CAPITAL RESOURCES
Manufacturers Bank is subject to the risk based capital regulations
administered by the banking regulatory agencies. The risk based capital
guidelines are designed to make regulatory capital requirements more sensitive
to differences in risk profiles among banks to account for off-balance sheet
exposure and to minimize disincentives for holding liquid assets. Under the
regulations, assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate weights. The resulting capital ratios
represent capital as a percentage of total risk weighted assets and off-balance
sheet items. Under the prompt corrective action regulations, to be adequately
capitalized a bank must maintain minimum ratios of total capital to risk-
weighted assets of 8%, Tier 1 capital to risk-weighted assets of 4%, and Tier 1
capital to total assets of 4%. Failure to meet these capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators, that, if undertaken, could have a direct material effect on
Manufacturers Bank's financial statements. As of September 30, 1998, the most
recent notification from the federal banking regulators categorized
Manufacturers Bank as well capitalized. A well capitalized institution must
maintain a minimum ratio of total capital to risk-weighted assets of at least
10%, a minimum ratio of Tier 1 capital to risk weighted assets of at least 6%, a
minimum ratio of Tier 1 capital to total
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assets of at least 5% and must not be subject to any written order, agreement or
directive requiring it to meet or maintain a specific capital level. There are
no conditions or events since that notification that Management believes have
changed Manufacturers Bank's capital classification. Coal City, on a
consolidated basis, must maintain a minimum ratio of Tier 1 capital to total
assets of 4%, and a minimum ratio of total capital to risk- weighted assets of
8%.
Coal City and Manufacturers Bank were in full compliance with all capital
adequacy requirements to which they are subject as of December 31, 1997 and
September 30, 1998, respectively. The required and actual amounts and ratios for
Coal City and Manufacturers Bank as of September 30, 1998 (unaudited) are
presented below.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION REGULATIONS
------------------------ -------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- ----- ------ ----- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets):
Consolidated........................... $71,296 12.00% $47,546 8.00% N/A N/A
Manufacturers Bank..................... 63,295 10.67 47,452 8.00 $59,315 10.00%
Tier 1 capital (to risk-weighted assets):
Consolidated........................... 44,028 7.41 23,773 4.00 N/A N/A
Manufacturers Bank..................... 56,050 9.45 23,726 4.00 35,589 6.00
Tier 1 capital (to total average assets):
Consolidated........................... 44,028 5.22 33,762 4.00 N/A N/A
Manufacturers Bank..................... 56,050 6.64 33,773 4.00 42,217 5.00
</TABLE>
STATEMENTS OF CASH FLOWS
Manufacturers Bank's cash flows are composed of three classifications: cash
flows from operating activities, cash flows from investing activities, and cash
flows from financing activities. Net cash provided by operating activities,
consisting primarily of earnings, was $13.2 million for the year ended December
31, 1997, $13.5 million for the year ended December 31, 1996 and $9.7 million
for the year ended December 31, 1995. Net cash provided by operating activities
increased $3.8 million from 1995 to 1996 primarily due to an increase in the
non-cash adjustment for depreciation for lease investments. Net cash used in
investing activities, consisting primarily of loan and investment funding, was
$37.9 million, $13.1 million and $39.0 million for the years ended December 31,
1997, 1996 and 1995, respectively. Net cash provided by financing activities,
consisting principally of deposit growth and other borrowings, was $29.6
million, $4.1 million and $32.4 million for the years ended December 31, 1997,
1996 and 1995, respectively.
YEAR 2000
A significant issue has emerged in the banking industry and for the economy
overall regarding how existing computer systems recognize the year 2000. Many
existing computer programs and systems were originally programmed with six digit
dates that provided only two digits to identify the calendar year in the date
field, without considering the upcoming change in the century. If computer
systems are not adequately changed to identify the year 2000, many computer
applications could fail or create erroneous results. As a result, many
calculations that rely on the date field information, such as interest payment
due dates and other operating
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functions, may generate results that could be significantly misstated, and Coal
City and Manufacturers Bank could experience a temporary inability to process
transactions, send invoices or engage in similar normal business activities. In
addition, under certain circumstances, failure to adequately address the year
2000 issue could adversely affect the creditworthiness of Manufacturers Bank's
borrowers. Thus, if not adequately addressed, the year 2000 issue could result
in a significant adverse impact on the products, services and competitive
condition of Coal City and Manufacturers Bank.
On March 20, 1998, the Examination Parity and Year 2000 Readiness for
Financial Institutions Act, P.L. 105- 164, became law. In that statute, Congress
emphasized the seriousness with which the financial services industry and its
regulators must view the year 2000 issue by requiring the regulators to conduct
seminars for, and otherwise provide information and model approaches concerning
common problems to, the nation's financial institutions concerning this problem.
The regulators, acting through the Federal Financial Institutions Examination
Council, have been compiling and disseminating such information through
industry-wide pronouncements which emphasize that safety and soundness
examinations would focus, among other things, on the institution's awareness and
preparations with respect to the year 2000 issue. Failure to appropriately
address the year 2000 issue may result in supervisory actions, denials of
regulatory applications and civil money penalties.
In response to the foregoing regulatory guidance and pronouncements, Coal
City established a year 2000 compliance team (the Team) composed of
representatives from key areas throughout the organization. The Team reports
periodically to the Manufacturers Bank Board of Directors. It is the mission of
the Team to identify areas subject to complications related to the year 2000,
and to initiate remedial measures designed to eliminate any adverse effects on
Coal City's operations. The Team has identified all mission-critical software
and hardware that may be adversely affected by the year 2000 and has required
vendors to represent that the systems and products provided are or will be year
2000 compliant. Manufacturers Bank expects that all mission-critical software
will be upgraded to achieve year 2000 compliance and tested by March 31, 1999.
In addition, the Team is developing contingency plans to address systems that do
not become year 2000 compliant by December 31, 1999.
Coal City and Manufacturers Bank believe that they have an effective year
2000 compliance program in place and that additional expenditures required to
bring its systems into compliance will not have a materially adverse effect on
Coal City's operations, cash flow, or financial condition. Coal City and
Manufacturers Bank expect total additional out-of-pocket expenditures to be
approximately $50,000. However, the year 2000 issue is pervasive and complex and
can potentially affect any computer process. Accordingly, no assurance can be
given that year 2000 compliance can be achieved without additional unanticipated
expenditures and uncertainties that might affect the financial results of Coal
City and Manufacturers Bank.
EFFECTS OF INFLATION
The Consolidated Financial Statements of Coal City Corporation and the
Notes thereto and the related financial data concerning Coal City have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. Inflation can have a significant effect on
the operating results of all businesses, however, the effects of inflation in
the local economy and on Coal City's operating results have been minimal for the
past several years, although there can be no assurance that this will continue
in the future. Since the majority of Coal City's assets and liabilities are
monetary in nature, such as cash, securities, loans and deposits, their values
are less sensitive to the effects of inflation than to changing interest rates,
which do not necessarily change in accordance with inflation rates.
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The most significant impact of inflation on Coal City would be reflected in
increased operating costs. Increases in interest rates affect the ability of
Coal City's borrowers to repay their debt. Furthermore, inflation can directly
affect the value of loan collateral in general, and real estate collateral in
particular. These factors are taken into account as loans are approved. Coal
City believes that it has systems in place to continue to manage the rates,
liquidity and interest rate sensitivity of Coal City's assets and liabilities.
See "--Asset Liability Management."
SUPERVISION AND REGULATION OF AVONDALE FINANCIAL CORP.
AS THE SURVIVING CORPORATION
Bank Holding Company Regulation. Upon consummation of the Merger, Avondale
will become a bank holding company and will register as such with the FRB. Bank
holding companies are subject to comprehensive regulation by the FRB under the
BHCA. As a bank holding company, Avondale will be required to file reports with
the FRB and such additional information as the FRB may require, and Avondale and
its nonbanking affiliates will be subject to examination by the FRB. The FRB
also has extensive enforcement authority over bank holding companies. Under FRB
policy, a bank holding company must serve as a source of strength for its
subsidiary banks. Under this policy the FRB may require, and has required in the
past, a holding company to contribute additional capital to an undercapitalized
subsidiary bank. Under the BHCA, a bank holding company must obtain FRB approval
before: (i) acquiring, directly or indirectly, ownership or control of any
voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(iii) merging or consolidating with another bank holding company.
As a savings and loan holding company, Avondale is generally not subject to
any activity restrictions, but as a bank holding company, it will be subject to
the activity limitations imposed on bank holding companies. The BHCA prohibits a
bank holding company, with certain exceptions, from acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any company which
is not a bank or bank holding company, or from engaging directly or indirectly
in activities other than those of banking, managing or controlling banks, or
providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain non-bank activities which, by statute or by FRB
regulation or order, have been identified as activities closely related to the
business of banking or managing or controlling banks. The list of activities
permitted by the FRB includes, among other things, operating a savings
institution (such as Avondale Bank), mortgage company, finance company, credit
card company or factoring company; performing certain data processing
operations; providing certain investment and financial advice; underwriting and
acting as an insurance agent for certain types of credit- related insurance;
leasing property on a full-payout, non-operating basis; selling money orders,
travelers' checks and United States Savings Bonds; real estate and personal
property appraising; providing tax planning and preparation services; and,
subject to certain limitations, providing securities brokerage services for
customers. The scope of permissible activities may be expanded from time to time
by the FRB. Such activities may also be affected by federal legislation.
Avondale will also be a bank holding company under the Illinois BHCA, and
subject to regulation and examination by the Illinois Commissioner thereunder.
Depository Institution Regulation. Manufacturers Bank is subject to
regulation by the Illinois Commissioner and the FDIC. Avondale Bank is subject
to regulation by the OTS (and, for certain purposes, by the FDIC). The federal
regulatory scheme includes: (i) real estate lending standards, which provide
guidelines concerning loan-to-value ratios for various types of real estate
loans; (ii) risk-based capital rules including accounting for interest rate
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risk, concentration of credit risk and the risks posed by "non-traditional"
activities; (iii) rules requiring depository institutions to develop and
implement internal procedures to evaluate and control credit and settlement
exposure to their correspondent banks; (iv) rules prohibiting, with certain
exceptions, equity investments of types and in amounts not permissible for
national banks; and (v) rules addressing various "safety and soundness" issues,
including operations and managerial standards, standards for asset quality,
earnings and stock valuations, and compensation standards.
Avondale and its subsidiaries are affiliates within the meaning of the
Federal Reserve Act (FRA) so that its insured depository institution
subsidiaries are subject to certain restrictions on transactions with their
affiliates or involving securities issued by an affiliate, such as any
extensions of credit to Avondale and its other subsidiaries, investments in the
stock or other securities of Avondale and its other subsidiaries and the
acceptance of the stock or other securities of Avondale or its other
subsidiaries as collateral for loans. Certain limitations and reporting
requirements will be placed on extensions of credit by Manufacturers Bank or
Avondale Bank to principal stockholders of Avondale, as the surviving
corporation, and its other subsidiaries, to directors and certain executive
officers of Avondale and its other subsidiaries, and to "related interests" of
such principal stockholders, directors and officers.
Under the Federal Deposit Insurance Act (FDIA), an insured depository
institution which is commonly controlled with another insured depository
institution shall generally be liable for any loss incurred, or reasonably
anticipated to be incurred, by the FDIC in connection with the default (i.e.,
the appointment of a conservator or receiver) of such commonly controlled
institution, or for any assistance provided by the FDIC to such commonly
controlled institution, which is in danger of default. Thus, one of Avondale's
depository institution subsidiaries could incur liability to the FDIC in the
event of a loss suffered by the FDIC in connection with another Avondale
depository institution subsidiary.
Under the FDIC's risk-based insurance assessment system, each insured bank
or thrift is placed in one of nine risk categories based on its level of capital
and other relevant information. Each insured bank's insurance assessment rate is
then determined by the risk category in which it has been classified by the
FDIC. There is currently a 27 basis point spread between the highest and lowest
assessment rates, so that institutions classified as strongest by the FDIC are
subject in1998 to 0% assessment, and those classified as weakest by the FDIC are
subject to an assessment rate of .27%. In addition to insurance assessments,
each insured bank is subject to an additional assessment of approximately one
basis point, and each insured thrift to an additional assessment of
approximately six basis points, to fund debt service or obligations issued in
connection with the resolution of the thrift crisis in the 1980's.
Interstate Banking and Branching. The FRB may approve an application of an
adequately capitalized and adequately managed bank holding company to acquire
control of, or acquire all or substantially all of the assets of, a bank located
in a state other than such holding company's home state, without regard to
whether the transaction is prohibited by the laws of any state. The FRB may not
approve the acquisition of a bank that has not been in existence for the minimum
time period (not exceeding five years) specified by the statutory law of the
host state and may not approve an application if the applicant (and its
depository institution affiliates) controls or would control more than 10% of
the insured deposits in the United States or 30% or more of the deposits in the
target bank's home state or in any state in which the target bank maintains a
branch. Individual states may also waive the 30% state-wide concentration limit.
Each state may limit the percentage of total insured deposits in the state which
may be held or controlled by a bank or bank holding company to the extent such
limitation does not discriminate against out-of-state banks or bank holding
companies.
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The federal banking agencies are authorized to approve interstate merger
transactions without regard to whether such transactions are prohibited by the
law of any state, unless the home state of one of the banks opted out of
interstate mergers prior to June 1, 1997. Interstate acquisitions of branches
are permitted only if the law of the state in which the branch is located
permits such acquisitions. Interstate mergers and branch acquisitions are
subject to the nationwide and statewide insured deposit concentration amounts
described above.
The FDIC may approve interstate branching de novo by state banks only in
states which specifically allow for such branching. Illinois banks are permitted
to branch into other states. Interstate branching authority may not be used
primarily for the purpose of deposit production. As a federal thrift
institution, Avondale Bank, subject to certain conditions, has nationwide
branching authority.
Dividends. The FRB's policy is that a bank holding company should pay cash
dividends only to the extent that its net income for the past year is sufficient
to cover both the cash dividends and a rate of earning retention that is
consistent with the holding company's capital needs, asset quality and overall
financial condition and that it is inappropriate for a company experiencing
serious financial problems to borrow funds to pay dividends. Furthermore, under
the prompt corrective action regulations adopted by the FRB, the FRB may
prohibit a bank holding company from paying any dividends if the holding
company's bank subsidiary is classified as "undercapitalized."
Bank holding companies are required to give the FRB prior written notice of
any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of their consolidated net worth. The FRB may
disapprove such a purchase or redemption if it determines that the proposal
would constitute an unsafe or unsound practice or would violate any law,
regulation, FRB order, or any condition imposed by, or written agreement with,
the FRB. This notification requirement does not apply to any company that meets
the well-capitalized standard for commercial banks, is well managed and is not
subject to any unresolved supervisory issues.
Manufacturers Bank is permitted, under the Illinois Banking Act, to declare
and pay dividends in amounts up to the amount of its accumulated net profits,
provided that it shall retain in its surplus at least one-tenth of its net
profits since the date of the declaration of its most recent previous dividend
until said additions to surplus, in the aggregate, equal at least the paid-in-
capital of such bank. In no event may such bank, while it continues its banking
business, pay dividends in excess of its net profits then on hand (after
deductions for losses and bad debts). Avondale Bank is also subject to certain
restrictions on its payment of dividends under OTS regulations.
Capital Requirements. The FRB has established capital requirements for bank
holding companies that generally parallel the capital requirements for banks and
thrift institutions. As a thrift holding company, Avondale is not subject to any
minimum capital requirements. However, as a bank holding company, it will be
subject to capital requirements on a consolidated basis and its depository
institution subsidiaries individually will be subject to applicable capital
requirements.
The FRB expects bank holding companies to maintain Tier 1 capital
commensurate with the level and nature of risks to which they are exposed. The
minimum ratio of Tier 1 capital to total assets is 4% or 3% in the case of a
company (i) with a safety and soundness examination rating of "1" or (ii) that
has implemented the risk-based capital measure for market risk (applicable only
when the sum of trading assets and liabilities is 10% or more of total assets or
$1 billion or more). In addition, a bank holding company is expected to maintain
at least an 8% minimum ratio of total capital (at least half of which must be
Tier 1 capital) to risk-weighted assets.
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The federal banking regulators must take prompt corrective action with
respect to FDIC-insured depository institutions that do not meet minimum capital
requirements. There are five capital tiers: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." Under FDIC and OTS regulations, an insured
institution is well capitalized if it maintains a leverage ratio (i.e., ratio of
Tier 1 capital to total assets) of at least 5%, a total risk-based capital ratio
(i.e., a ratio of total qualifying capital to risk-weighted assets) of at least
10% and a Tier 1 risk-based capital ratio (i.e., a ratio of Tier 1 capital to
risk-weighted assets) of at least 6% and is not subject to an agreement, order
or directive to maintain a specified capital level. An institution is generally
considered to be adequately capitalized if it is not well capitalized but has a
Leverage Ratio of 4% or greater (or a leverage ratio of 3% if it has a safety
and soundness examination rating of "1"), a total risk-based capital ratio of 8%
or greater and a Tier 1 risk-based capital ratio of 4% or greater. An
institution will be considered undercapitalized if it fails to meet any minimum
requirement to be adequately capitalized, significantly undercapitalized if it
is significantly below such requirement and critically undercapitalized if it
maintains a level of tangible equity capital equal to or less than 2% of total
assets. An institution may be reclassified in a lower capitalization category if
it receives a less than satisfactory examination rating by its examiners with
respect to its assets, management, earnings or liquidity that has not been
corrected, or it is determined that the institution is in an unsafe or unsound
condition or engaged in an unsafe or unsound practice. Tier 1 capital generally
includes common stockholders equity capital, certain noncumulative perpetual
preferred stock and minority interests in consolidated subsidiaries, minus
certain intangible assets. Total qualifying capital includes certain elements in
addition to Tier 1 capital.
Undercapitalized depository institutions are subject to various
restrictions and are required to submit or implement a capital restoration plan.
If a depository institution fails to submit an acceptable plan, it is treated as
if it is significantly undercapitalized. Undercapitalization (under certain
circumstances) and critical undercapitalization are grounds for the appointment
of the FDIC as receiver or conservator of a depository institution.
Community Investment and Consumer Protection Laws. In connection with
lending activities, Manufacturers Bank and Avondale Bank are subject to a
variety of federal laws designed to protect borrowers and promote lending to
various sectors of the economy and population. Included among these are the
Federal Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act,
the Truth-in-Lending Act, the Equal Credit Opportunity Act (ECOA), the Fair
Credit Reporting Act and the CRA. Manufacturers Bank is also subject to similar
Illinois laws applicable to, among other things, usury, credit discrimination
and general business practices.
As an Illinois banking corporation controlled by a bank holding company,
Manufacturers Bank is not only subject to the rules regarding change of control
contained in the FRA and the FDIA and the regulations promulgated thereunder by
the FRB and the FDIC, but it is also subject to the rules regarding change in
control of Illinois banks contained in the Illinois Banking Act (IBA). Coal City
is, and Avondale will be, subject to these rules by virtue of control of
Manufacturers Bank. Generally, the IBA provides that no person or entity or
group of affiliated persons or entities may, without the Illinois Commissioner's
consent, directly or indirectly, acquire control of an Illinois bank. Such
control is presumed if any person owns or controls 20% or more of the
outstanding stock of an Illinois bank or such lesser amount as would enable the
holder or holders, by applying cumulative voting, to elect one director of the
bank.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF
AVONDALE FINANCIAL CORP. AND COAL CITY CORPORATION
INTRODUCTION
Upon the consummation of the Merger, Coal City stockholders, whose rights
are presently governed by Illinois law and Coal City's Articles of Incorporation
and Bylaws will become stockholders of Avondale, a Delaware corporation.
Accordingly, their rights will be governed by the Delaware General Corporation
Law (DGCL) and the Avondale Certificate of Incorporation and Bylaws. Certain
differences arise from the change in governing law, as well as from differences
between the Coal City Articles and Bylaws and the Avondale Certificate and
Bylaws. The following discussion summarizes material differences affecting the
rights of stockholders but is not intended to be a complete statement of all
differences and is qualified in its entirety by reference to the BCA, the DGCL,
the Avondale Certificate and Bylaws, and the Coal City Articles and Bylaws.
ISSUANCE OF CAPITAL STOCK
The Coal City Articles authorize the issuance of 200,000 shares of common
stock, no par value, 100 shares of Class A preferred stock, par value $100,000
per share, and 100 shares of Class B preferred stock, par value $150,000 per
share. At December 31, 1998, 48,957 shares of common stock and no shares of
Class A preferred stock or Class B preferred stock, were issued and outstanding.
The Avondale Certificate currently authorizes the issuance of 10,000,000 shares
of common stock, par value $.01 per share, and 1,000,000 shares of serial
preferred stock, par value $.01 per share. At December 31, 1998, 2,862,442
shares of Avondale Common Stock and no shares of preferred stock were
outstanding. For information regarding a proposal to increase the number of
authorized shares of Avondale Common Stock, see "Amendments to Certificate of
Incorporation of Avondale Financial Corp.--Increase in Authorized Shares of
Capital Stock." For information regarding the number of shares of Avondale
Common Stock that would have been issued on a pro forma basis upon the
consummation of the Merger as of January 1, 1997, see "Unaudited Pro Forma
Combined Consolidated Financial Information." Both Coal City and Avondale are
authorized to issue additional shares of capital stock up to the amount
authorized without stockholder approval.
PAYMENT OF DIVIDENDS
The ability of Coal City and Avondale to pay dividends on their common
stock is governed by Illinois and Delaware corporate law, respectively. Under
the BCA, a dividend may be made unless, after giving it effect, the corporation
would be insolvent or the net assets of the corporation would be less than the
maximum amount payable to stockholders having preferential rights in
liquidation. Under the DGCL, dividends may be paid in cash, in property or in
shares of Avondale's capital stock either out of Avondale's surplus (defined as
the excess of the net assets over the stated capital of Avondale) or, in case
there is no surplus, out of the net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year.
The ability of Coal City and Avondale to pay dividends on their common
stock also is affected by restrictions upon their receipt of dividends from
their respective subsidiary savings institutions. See "Supervision and
Regulation of Avondale Financial Corp. as the Surviving Corporation" for
additional information.
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SPECIAL MEETINGS OF STOCKHOLDERS
Special meetings of Coal City stockholders may be called by the President,
the Board of Directors, or the holders of not less than one-fifth of the
outstanding capital stock of Coal City entitled to vote at the meeting. The
Avondale Certificate provides that special meetings of stockholders of Avondale
may be called only by a majority of the authorized directors of Avondale.
ADVANCE NOTICE REQUIREMENTS FOR NOMINATIONS OF DIRECTORS AND PRESENTATION OF
NEW BUSINESS AT ANNUAL MEETINGS OF STOCKHOLDERS
The Avondale Bylaws provide that any stockholder desiring to make a
nomination for the election of directors or bring a proposal for new business
before any annual or special meeting of stockholders must submit written notice
to Avondale at least 30 days in advance of the meeting, together with certain
information; however, in the event that fewer than 40 days' notice or prior
public disclosure of the date of the meeting is given or made, written notice
must be submitted within ten days after such notice is given. The Coal City
Bylaws do not include any similar provision.
CUMULATIVE VOTING FOR ELECTION OF DIRECTORS
Neither the Coal City Articles nor the Avondale Certificate provide for
cumulative voting in the election of directors. The absence of cumulative voting
rights effectively means that the holders of a majority of the shares voted at a
meeting of stockholders may, if they so choose, elect all directors to be
selected at that meeting, thereby precluding minority stockholder representation
on the Board.
RESTRICTIONS ON VOTING RIGHTS; QUORUM
The Avondale Certificate currently restricts the voting rights of any
person to a maximum of 10% of the voting power of the outstanding shares
regardless of the number of shares actually held. The Coal City Articles do not
include any similar provision.
The Coal City Bylaws provide that the holders of a majority of shares of
common stock entitled to vote at a meeting of stockholders constitutes a quorum
at any such meeting. The Avondale Certificate also provides that the holders of
a majority of shares entitled to vote at a meeting constitutes a quorum.
However, to the extent the voting rights of any person are reduced, such reduced
power will be considered for purposes of determining a quorum.
The Coal City Articles provide that the holders of Class A preferred stock
may elect a majority of the Board of Directors of Coal City under certain
circumstances relating to failure to make dividend and redemption payments,
ownership of subsidiaries, or insolvency. The Avondale Certificate has no
similar provision.
NUMBER AND TERM OF DIRECTORS
Pursuant to the Coal City Bylaws, the Board of Directors consists of eight
members. The Avondale Certificate provides that the number of directors shall be
fixed by a resolution adopted by a majority of the directors of Avondale. As of
September 1995, Avondale's directors had fixed the Board of Directors at eight
members. See "Management After the Merger."
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The Avondale Certificate also provides that the Board of Directors shall be
divided into three classes with the term of office of one class expiring each
year. The Coal City Articles and Bylaws have no similar provision.
REMOVAL OF DIRECTORS
The Coal City Bylaws provide that a director may be removed with or without
cause by the vote of a majority of the shares entitled to be voted in an
election for directors. The Avondale Certificate provides that directors may be
removed only for cause by a vote of 80% of the votes entitled to be cast in the
election of directors.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
The Coal City Bylaws provide that any vacancy that occurs on the Board of
Directors may be filled by a majority vote of the Board of Directors and that
any director so chosen shall serve only until the next election of directors by
stockholders. The Avondale Certificate provides that any vacancy occurring on
the Board of Directors may be filled by a majority vote of the Board of
Directors and that any director so chosen shall serve until the expiration of
the term of office of the class to which they have been elected. For information
regarding a proposal to amend the Avondale Certificate of Incorporation to
provide that the manner of filling such vacancies may be otherwise provided in
the Avondale Bylaws, see "Amendments to the Certificate of Incorporation of
Avondale Financial Corp.-New Directorships and Vacancies."
Amendment of Articles or Certificate of Incorporation and Bylaws
The Coal City Articles may be amended upon the approval of the holders of
two-thirds of Coal City's outstanding voting stock. In addition, in each case,
if any class or series of shares is entitled to vote thereon as a class, the
required vote of two-thirds of each such series or class is required. The
Avondale Certificate generally may be amended by majority votes of both its
Board of Directors and the outstanding shares of its voting stock; however,
approval of 80% of the outstanding voting stock is required to amend certain
provisions of the Avondale Certificate, including provisions relating to voting
rights of greater than 10% stockholders; stockholder action without a meeting;
call of special stockholder meetings; number, classification, election and
removal of directors; certain business combinations; limitations on payment of
greenmail; indemnification of directors; and amendments to the Avondale
Certificate and Bylaws.
The Coal City Bylaws may be amended by a majority vote of either the
outstanding voting stock or the Board of Directors. The Avondale Bylaws may be
amended either by a majority of the total number of directors or by the holders
of 80% of Avondale's outstanding voting stock.
BUSINESS COMBINATIONS WITH CERTAIN PERSONS
The BCA provides for the merger or consolidation of Coal City with another
corporation, the sale of all or substantially all of Coal City's assets or the
dissolution of Coal City upon the approval of the holders of two-thirds of Coal
City's outstanding voting stock. The DGCL provides for the merger or
consolidation of Avondale with another corporation, the sale of all or
substantially all of Avondale's assets or the dissolution of Avondale upon the
approval of the holders of a majority of Avondale's outstanding voting stock.
Both Illinois and Delaware provide that a merger or consolidation or
disposition of assets or securities involving an interested stockholder (a
stockholder owning, directly or indirectly, 15% or more of the outstanding
voting stock of the corporation) would be prohibited for three years after the
interested stockholder acquired 15%
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of the corporation's voting stock, unless either (i) before such acquisition,
the board approved either the acquisition or the proposed transaction, (ii) upon
such acquisition, the interested stockholder owned at least 85% of the
corporation's voting stock, or, (iii) on or after the acquisition date, the
proposed transaction is approved by the board and the holders of two-thirds of
the outstanding voting stock not owned by the interested stockholder.
Additionally, the Avondale Certificate sets forth an 80% stockholder
approval requirement for mergers and other similarly important corporate
transactions involving substantial stockholders. The Avondale Certificate
generally prohibits a merger or consolidation; a sale, issuance or transfer of
assets or securities having a value equal to 25% or more of Avondale's assets;
an adoption of a plan or proposal calling for the liquidation or dissolution of
Avondale or a subsidiary, or a reclassification of Avondale's securities (each a
"Business Combination"), involving an "intended stockholder" (generally, a
beneficial owner of 10% or more of Avondale's outstanding voting stock), unless,
the Business Combination is approved by 80% of the holders of Avondale's voting
stock, approved by a majority of Avondale's disinterested directors, or
satisfies certain fair price criteria and procedural requirements designed to
ensure that Avondale's stockholders receive a fair price for their shares. The
Coal City Articles do not include any similar provision.
PREVENTION OF GREENMAIL
The Avondale Certificate generally would prohibit Avondale from acquiring,
directly or indirectly, from an "interested person" (generally, a beneficial
owner of 5% or more of Avondale's voting stock) any of its equity securities
traded on a national securities exchange or the Nasdaq National Market, unless
(i) the acquisition is approved by the holders of at least 80% of Avondale's
voting stock not owned by the interested person, (ii) the acquisition is made as
part of a tender or exchange offer by Avondale or a subsidiary thereof to
purchase securities of the same class on the same terms to all holders of such
securities and in compliance with the Exchange Act and the rules and regulations
thereunder; (iii) the acquisition is pursuant to an open market purchase program
approved by a majority of the Board of Directors, including a majority of the
disinterested directors; or (iv) the acquisition is at or below the market price
(generally, the highest sale price for the stock on the acquisition date on the
Nasdaq National Market) and is approved by a majority of the Board of Directors,
including a majority of the disinterested directors. The Coal City Articles do
not include any similar provision.
LIMITATIONS ON DIRECTORS' LIABILITY
Under the DGCL, a Delaware corporation may include in its certificate of
incorporation a provision that eliminates or limits a director's personal
liability for monetary damages for breach of his or her fiduciary duty, subject
to certain limitations. The Avondale Certificate provides that a director shall
not be personally liable to Avondale or its stockholders for monetary damages
arising out of the director's breach of his or her duty of care, except (i) for
any breach of a director's duty of loyalty to Avondale or its stockholders; (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (iii) for unlawful payment of dividends or
unlawful stock repurchases or (iv) for any transaction from which the director
derived an improper benefit. These provisions do not, however, relieve directors
of their duty to act with due care. In addition, these provisions do not prevent
a stockholder from seeking equitable remedies, including an injunction
prohibiting a proposed action or transaction or rescission of a consummated
action or transaction. The Coal City Articles do not contain any similar
provision.
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INDEMNIFICATION
The Coal City Bylaws permit, but do not require, Coal City to indemnify any
person who is made a party to legal action because he is a director, officer,
employee or agent of Coal City, so long as that person acted in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of Coal City. The Coal City Bylaws require indemnification only if a
person succeeds on the merits in defending against such an action.
The Avondale Certificate requires that officers and directors be
indemnified to the fullest extent permitted by Delaware law. Delaware law
generally permits indemnification of a person who acted in good faith and in a
manner that he reasonably believed to be in or not opposed to the best interests
of the corporation. The Avondale Certificate also requires the payment of
expenses in advance of the final disposition of an action, to the extent
permitted by law. Additionally, Avondale's provision specifies that any
indemnification payment to which an individual is entitled must be made within
60 days of receipt of a written request from the individual. Any advancement of
expenses must be made within 20 days of the receipt of a written request.
DISSENTERS' RIGHTS
Under the BCA, a stockholder of Coal City who does not vote in favor of the
Merger may, under certain circumstances, and by following the procedures
prescribed by the BCA, exercise dissenters' rights and obtain payment in cash of
the fair value (as defined in the BCA) of their shares of Coal City Common
Stock. See "The Merger-Dissenters' Rights." Stockholders of Avondale are not
entitled to dissenters' rights under the DGCL in connection with the Merger.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
OF AVONDALE FINANCIAL CORP.
GENERAL
The Avondale Board has approved certain proposed amendments to the Avondale
Certificate to:
1. change Avondale's name to MB Financial, Inc.;
2. increase the number of authorized shares of Avondale
Common Stock from 10,000,000 to 20,000,000; and
3. fill newly created directorships and vacancies for
three years after the Merger consistent with
provisions in the Avondale Bylaws.
The proposal to change the name will be voted on as part of the proposal to
adopt the Merger Agreement and will require for approval the affirmative vote of
the holders of a majority of the outstanding shares of Avondale Common Stock.
The affirmative vote of the holders of a majority of the outstanding shares of
Avondale Common Stock is also required for approval and adoption of the Share
Amendment. The affirmative vote of the holders of 80% of the outstanding shares
of Avondale Common Stock is required for approval and adoption of the Director
Amendment. The adoption of the Merger Agreement is not conditioned upon approval
of the Share Amendment or the Director Amendment. The Name Amendment, Share
Amendment and Director Amendment are conditioned upon consummation of the
Merger.
The following description of the amendments to the Avondale Certificate is
qualified in its entirety by reference to the full text thereof, which is
attached as Appendix II to this Proxy Statement/Prospectus and
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incorporated by reference herein. Stockholders are urged to read carefully the
full text of the Certificate Amendments.
CHANGE OF NAME
Article FIRST of the Avondale Certificate currently provides that the name
of Avondale is Avondale Financial, Inc. The Merger Agreement provides that the
name of the surviving corporation in the Merger will be MB Financial, Inc. The
Avondale Board has unanimously approved amending Article FIRST to change
Avondale's name to MB Financial, Inc.
The Avondale Board believes that the proposed name change will better
represent the combined company after the Merger and is in the best interests of
Avondale and its stockholders.
THE AVONDALE BOARD RECOMMENDS THAT AVONDALE STOCKHOLDERS VOTE FOR THE
ADOPTION OF THE MERGER AGREEMENT, INCLUDING THE NAME AMENDMENT.
INCREASE IN AUTHORIZED SHARES OF CAPITAL STOCK
General. Avondale is currently authorized to issue 10,000,000 shares of
Avondale Common Stock. As of December 31, 1998, 2,862,442 shares of Avondale
Common Stock were issued and outstanding and 496,286 shares were reserved for
issuance pursuant to the Avondale Stock Option Plans. The Avondale Board has
unanimously approved the proposed Share Amendment, which would increase the
number of authorized shares of Avondale Common Stock from 10,000,000 to
20,000,000.
Purpose and Effects. Although there are sufficient authorized but unissued
shares of Avondale Common Stock to consummate the Merger and satisfy Avondale's
other obligations under the Merger Agreement, the Avondale Board believes that
the authorization of additional shares of Avondale Common Stock is advisable to
provide Avondale with the flexibility to take advantage of opportunities to
issue such stock in order to obtain capital, as consideration for possible
acquisitions or for other purposes (including, without limitation, stock splits
and stock dividends in appropriate circumstances). There are, at present, no
plans, understandings, agreements or arrangements concerning the issuance of
additional shares of Avondale Common Stock, except for the shares of Avondale
Common Stock to be issued:
1. pursuant to the Merger;
2. upon the exercise of Avondale stock options into
which Coal City stock options will be converted; and
3. upon the exercise of Avondale stock options currently
outstanding.
Assuming the issuance of the maximum number of shares of Avondale Common
Stock pursuant to the obligations of Avondale described in clauses (1) and (2)
above, there would be 6,976,404 shares of Avondale Common Stock issued and
outstanding.
Uncommitted authorized but unissued shares of Avondale Common Stock may be
issued from time to time to such persons and for such consideration as the
Avondale Board may determine, and holders of the then-outstanding shares of
Avondale Common Stock may or may not be given the opportunity to vote thereon,
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depending upon the nature of any such transactions, applicable law, the rules
and policies of the Nasdaq National Market and the judgment of the Avondale
Board regarding the submission of such issuance to a vote of the Avondale
stockholders. Avondale stockholders have no preemptive rights to subscribe to
newly issued shares.
Moreover, it is possible that additional shares of Avondale Common Stock
would be issued for the purpose of making an acquisition by an unwanted suitor
of a controlling interest in Avondale more difficult, time-consuming or costly
or to otherwise discourage an attempt to acquire control of Avondale. Under such
circumstances the availability of authorized and unissued shares of Avondale
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
Avondale 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
Avondale Board in opposing such an attempt by a third party to gain control of
Avondale or could also be used to dilute ownership of a person or entity seeking
to obtain control of Avondale. Although Avondale does not currently contemplate
taking such action, shares of Avondale Common Stock could be issued for the
purposes and effects described above and the Avondale Board reserves its rights
(if consistent with its fiduciary responsibilities) to issue such stock for such
purposes.
Although approval of the Share Amendment is not a condition to the Merger,
as described above, the Avondale Board believes that the proposed increase in
the number of authorized shares of Avondale Common Stock will provide
flexibility needed to meet corporate objectives and is in the best interests of
Avondale and its stockholders.
THE AVONDALE BOARD RECOMMENDS THAT AVONDALE STOCKHOLDERS VOTE FOR THE SHARE
AMENDMENT.
NEW DIRECTORSHIPS AND VACANCIES
ARTICLE SIXTH, Section B. of the Avondale Certificate currently provides
that newly created directorships and vacancies may be filled only by a majority
vote of the directors then in office. The Merger Agreement provides that the
Bylaws of Avondale, as the surviving corporation, will provide during the three
years after the Effective Time that:
1. directors of Avondale who cease to serve as a
director will be replaced, if an Avondale-related
director, by the Avondale-related directors, and if a
Coal City-related director, by the Coal City-related
directors; and
2. the Coal City-related directors have the right to
appoint to the Board of Directors of Avondale, as the
surviving corporation, up to that number of persons
equal to ten minus the number of Coal City-related
directors at the Effective Time.
The Avondale Board has unanimously approved the proposed Director
Amendment, which would amend Article SIXTH, Section B. to provide that newly
created directorships and vacancies will be filled as provided in Article SIXTH,
Section B., unless otherwise provided in the Avondale Bylaws. Because the
Avondale Bylaws will contain provisions governing the filling of newly created
directorships and vacancies, as discussed above, the Director Amendment would
ensure that the intentions of the parties as reflected in the Bylaw provision
discussed above will be implemented.
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Although approval of the Director Amendment is not a condition to the
Merger, the Avondale Board believes that the proposed procedures for filling new
directorships and vacancies will ensure that the intentions of the parties in
the merger of equals are implemented and are in the best interests of Avondale
and its stockholders.
THE AVONDALE BOARD RECOMMENDS THAT AVONDALE STOCKHOLDERS VOTE FOR THE
DIRECTOR AMENDMENT.
AMENDMENTS TO 1997 OMNIBUS INCENTIVE PLAN OF AVONDALE FINANCIAL CORP.
General. In 1997, the Board of Directors of Avondale adopted the 1997
Omnibus Incentive Plan and it was approved by stockholders at the 1997 Annual
Meeting of Stockholders. The Omnibus Plan provides for the grant of nonqualified
stock options, incentive stock options, restricted stock, stock appreciation
rights or any combination thereof within the limitations set forth in the
Omnibus Plan. In addition, the Omnibus Plan gives Avondale the flexibility to
award stock options in connection with the acquisition of other companies to the
key executives of such companies to more closely align their interests with the
stockholders of Avondale.
The Avondale Board of Directors believes that the earnings performance and
growth of Avondale, as the surviving corporation, is dependent upon ensuring the
best possible management. The Avondale Board further believes that the Omnibus
Plan will encourage equity ownership in Avondale by key employees and in turn
provide such individuals with further incentive and motivation to perform in the
best interests of Avondale, its customers, and its stockholders and will aid in
attracting and retaining high quality employees. As of December 23, 1998, of the
350,000 shares of Avondale Common Stock reserved for issuance under the Omnibus
Plan, only 35,509 shares remained. Without approval of the proposed amendment to
reserve additional shares for issuance, Avondale will soon be unable to make
awards under the Omnibus Plan. Also, the proposed increases in the number of
shares of restricted stock that may be issued under the Omnibus Plan and in the
number of awards that may be granted to any one participant in any year would
represent less than proportional increases in the number of awards that may be
made of restricted stock and in the number of awards that may be granted to any
one participant in any year. The Board of Directors of Avondale therefore
recommends that the stockholders approve an amendment to the Omnibus Plan to
increase from 350,000 to 1,000,000 the number of shares available for issuance
under the Omnibus Plan, to increase from 75,000 to 200,000 the number of shares
of restricted stock that may be issued under the Plan and to increase from
35,000 to 75,000 the number of shares of Avondale Common Stock subject to awards
that may be granted to any one participant in any calendar year, to meet
anticipated requirements for future grants for both present employees and
employees of companies acquired by Avondale.
The principal features of the Omnibus Plan are summarized below. The
Omnibus Plan provides that awards may be made for 15 years from January 1, 1997,
and the Omnibus Plan will remain in effect thereafter until all matters relating
to the payment of awards and administration of the Omnibus Plan have been
settled.
Administration. The Omnibus Plan is administered by a Stock Award Committee
of the Board of Directors. The Committee consists of not less than two non-
employee, disinterested directors, none of whom have received an award during
their administration. The members of the Committee will include the members of
the Compensation Policy Committee, who presently are Mr. Arthur L. Knight, Jr.,
Chairman, Ms. Jameson A. Baxter and Mr. Robert A. Wislow.
The Committee has sole authority to administer and interpret the Omnibus
Plan including the size and type of awards and the terms and conditions of such
awards.
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Shares Available. The Omnibus Plan provides that the aggregate number of
shares of Avondale Common Stock which may be subject to award may not exceed
350,000, subject to adjustment in certain circumstances to prevent dilution. At
the discretion of the Committee, Avondale Common Stock delivered under the
Omnibus Plan may be either authorized but unissued shares, or shares that have
been reacquired by Avondale. Shares underlying awards that are canceled,
expired, forfeited, or terminated shall, in most circumstances, again be
available for the grant of additional awards within the limits provided by the
Omnibus Plan. No more than 75,000 shares may be distributed as restricted stock
awards. Individual awards are limited to 35,000 shares in any calendar year. If
approved (and subject to the consummation of the Merger), the amendment to the
Omnibus Plan would increase to 1,000,000 the number of shares subject to awards,
increase to 200,000 the number of awards that could be in the form of restricted
stock and increase to 75,000 the number of shares of Avondale Common Stock
subject to awards that may be granted to any one participant in any calendar
year.
Eligibility. The Omnibus Plan provides for awards to directors and
employees of Avondale and Avondale's subsidiaries.
Stock Options. Subject to the terms and provisions of the Omnibus Plan,
options may be granted to directors or employees at any time and from time to
time as shall be determined by the Committee. The Committee shall have
discretion in determining the number of shares subject to options granted to
each recipient. Each option grant shall be evidenced by an option agreement that
shall specify the option price, the duration of the option, the number of shares
to which the option pertains, the percentage of the option that becomes
exercisable on specified dates in the future, and such other provisions as the
Committee shall determine. In addition, the option agreement shall specify
whether the option was intended to be an incentive stock option or a
nonqualified stock option.
The option price for each grant of an option shall be determined by the
Committee, provided that the option price shall not be less than the market
value of a share of Avondale Common Stock on the date of the grant.
All options granted under the Omnibus Plan shall expire no later than 15
years from date of grant. Subject to the limitations set forth in the Omnibus
Plan, any option may be exercised by payment to Avondale of cash or by surrender
of previously acquired shares having an aggregate market value at the time of
exercise equal to the aggregate option price or a combination of both. Options
granted shall be subject to an agreement in a form approved by the Committee,
which may contain additional limitations, terms and conditions, in addition to
the restrictions set forth in the Omnibus Plan, which the Committee otherwise
deems desirable.
The Omnibus Plan places limitations on the exercise of options under
certain circumstances upon or after termination of employment or in the event of
the death, disability or retirement or termination associated with a change in
control of Avondale (as defined in the Omnibus Plan). In the event that a
participant ceases to maintain continuous service with Avondale, or its
subsidiaries, for any reason other than death, disability, retirement or
termination for cause, an exercisable stock option will be forfeited to Avondale
unless the Committee, in its sole discretion, waives such termination, in which
case all such exercisable options will remain exercisable until their respective
expiration dates, or for one year after the date of termination, whichever
period is shorter. In the event of the death, disability or retirement of a
participant after the age of 65, an exercisable option will continue to be
exercisable until their respective expiration dates, or for one year following
the death of the participant, whichever period is shorter. At the discretion of
the Committee the agreement evidencing the award of stock options may provide
certain limited rights to exercise certain options under certain circumstances.
Stock options are nontransferable except by will or in accordance with the
applicable laws of descent and distribution. The granting of an option does not
accord the recipient the rights of a stockholder and such rights accrue only
after the exercise of an option and the registration of shares of Avondale
Common Stock in the recipient's name.
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Restricted Stock. The Omnibus Plan provides for the award of shares of
Avondale Common Stock which are subject to certain restrictions provided in the
Omnibus Plan or otherwise determined by the Committee. Restricted stock awarded
pursuant to the Omnibus Plan will be represented by a stock certificate
registered in the name of the recipient to whom the award is made. Upon the
grant of restricted stock, such recipient is entitled to vote the restricted
stock and to exercise other rights as a stockholder of Avondale, including the
right to receive all dividends and other distributions paid or made with respect
to the restricted stock. However, the recipient may not sell, transfer, pledge,
exchange, hypothecate or otherwise dispose of the restricted stock during the
restriction period designated by the Committee except by will or as may be
determined by the Committee. Non-compliance with any of the restrictions will
result in a forfeiture of the restricted stock. When the conditions of the
restricted stock award established by the Committee are satisfied, Avondale will
deliver at the end of the restriction period stock certificates representing the
shares of Avondale Common Stock which are no longer subject to any restrictions,
except those restrictions required by applicable securities laws.
The Committee may, in its discretion, accelerate the time at which any or
all restrictions will lapse, or may remove any or all of the restrictions. In
the event a participant ceases to be employed by reason of death, disability or
retirement, restricted stock still subject to restrictions will be free of these
restrictions unless otherwise provided by the Committee. In the event of
termination for any other reason, all shares will be forfeited and returned to
Avondale, unless the Committee provides otherwise.
Stock Appreciation Rights. The Committee in its discretion may grant Stock
Appreciation Rights (SARs) under the Omnibus Plan. An SAR entitles the holder to
receive from Avondale an amount equal to the excess, if any, of the aggregate
market value of Avondale Common Stock which is the subject of such option over
the option price therefor.
Avondale may make payment of the amount to which the participant
exercising SARs is entitled by delivering shares of Avondale Common Stock or
cash or a combination of stock and cash, as the Committee in its sole discretion
may determine. SARs are not transferable except by will or the laws of descent
and distribution and are transferable only in conjunction with a permitted
transfer of the option to which the SAR relates and then and only then to the
transferee of such option. Each SAR shall be evidenced by an award agreement in
form approved by the Committee, which may contain additional limitations, terms
and conditions, in addition to the restrictions set forth in the Omnibus Plan,
which the committee otherwise deems desirable.
In the event of a change in control of Avondale (as defined in the Omnibus
Plan), all awards granted pursuant to the Omnibus Plan that are still
outstanding and not yet exercisable or vested will become immediately
exercisable or vested as of the date of the change in control and will remain
exercisable and vested for their term.
In the event the employment or service of a participant is terminated by
reason of death, disability or retirement, any outstanding SARs granted to the
participant that are not exercisable shall become immediately exercisable. All
SARs granted to such participant shall remain exercisable until their respective
expiration dates, or for one year after the date the participant ceases to be
employed, whichever period is shorter. In the event of termination for any other
reason, all shares will be forfeited and returned to Avondale, unless the
Committee provides otherwise.
Federal Income Tax Treatment. Under present federal income tax laws, awards
under the Omnibus Plan will have the following consequences:
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1. The grant of an award will neither, by itself, result in the
recognition of taxable income to the participant nor entitle
Avondale to a deduction at the time of such grant.
2. The exercise of a stock option which is an incentive stock option
(ISO) within the meaning of Section 422 of the Code will generally
not, by itself, result in the recognition of taxable income to the
participant nor entitle Avondale to a deduction at the time of such
exercise. However, the difference between the exercise price and the
fair market value of the shares acquired on the date of exercise is
an item of tax preference which may, in certain situations, trigger
the alternative minimum tax. The alternative minimum tax is incurred
only when it exceeds the regular income tax. The alternative minimum
tax will be payable at the rate of 26% of the first $175,000 of
"minimum taxable income" in excess of $33,750 (single person) or
$45,000 (married person filing jointly). This tax applies at a flat
rate of 28% of so much of the taxable excess as exceeds $175,000. If
a taxpayer has alternative minimum taxable income in excess of
$150,000 (married person filing jointly) or $112,500 (single
person), the $45,000 or $33,750 exemptions are reduced by an amount
equal to 25% of the amount by which the alternative minimum taxable
income of the taxpayer exceeds $150,000 or $112,500, respectively.
Provided the applicable holding periods described below are
satisfied, the participant will recognize long-term capital gain or
loss upon resale of the shares received upon such exercise. Avondale
will generally not be entitled to a tax deduction with respect to
the granting or exercise of such a stock option or the subsequent
sale of the shares. If the shares are not held for at least one year
after transfer of the shares to the optionee or two years after the
grant of the ISO, whichever is later, the participant will also
recognize ordinary income or loss upon disposition in an amount
equal to the difference between the exercise price and the fair
market value on the date of exercise of the shares acquired pursuant
to the ISO. In such an event, Avondale will generally be entitled to
a corresponding deduction, provided Avondale meets its federal
withholding tax obligations.
3. The exercise of a stock option which is not an ISO will result in
the recognition of ordinary income by the participant on the date of
exercise in an amount equal to the difference between the exercise
price and the fair market value on the date of exercise of the
shares acquired pursuant to the stock options.
4. The exercise of an SAR will result in the recognition of ordinary
income by the participant on the date of exercise in an amount of
cash, and/or the fair market value on that date of the shares,
acquired pursuant to the exercise.
5. Holders of restricted stock will recognize ordinary income on the
date that the shares of restricted stock are no longer subject to a
substantial risk of forfeiture, in an amount equal to the fair
market value of the shares on that date. In certain circumstances, a
holder may elect to recognize ordinary income and determine such
fair market value on the date of the grant of the restricted stock.
Holders of restricted stock will also recognize ordinary income
equal to their dividend or dividend equivalent payments when such
payments are received.
6. Avondale will be allowed a deduction at the time and in the amount
of any ordinary income, excluding dividends, recognized by the
participant under the various circumstances described above,
provided that Avondale meets its federal withholding tax
obligations.
Amendment, Modification and Termination. The Avondale Board may, at any
time and from time to time, terminate, amend, or modify the Omnibus Plan.
However, such action will be subject to stockholder approval when such approval
is required for purposes of any federal or state law or regulation or the rules
of any applicable
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federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the shares may then be listed or quoted. The
Committee may waive any conditions of or rights of Avondale or modify or amend
the terms of any outstanding award. The Committee may not, however, amend,
alter, suspend, discontinue or terminate any outstanding award without the
consent of the participant or holder thereof.
No termination, amendment, or modification of the Omnibus Plan shall in any
manner adversely affect any award previously granted under the Omnibus Plan,
without the written consent of the recipient.
Automatic Grants. On the first business day of each year following 12
consecutive months of service, each Avondale non-employee Board member is
entitled to receive a nonqualified stock option to purchase 1,000 shares of
Avondale Common Stock at an exercise price equal to the market value price per
share of Avondale Common Stock on the date of grant.
Awards Under the Omnibus Plan. The following table presents information
with respect to the dollar value and the number of awards outstanding as of
December 23, 1998 under the Omnibus Plan. The exercise price for the outstanding
options is the market value of the Avondale Common Stock on the date of grant.
<TABLE>
<CAPTION>
SHARES OF VALUE OF
NUMBER OF VALUE OF RESTRICTED RESTRICTED
PARTICIPANT OPTIONS OPTIONS/(1)/ STOCK STOCK
- -------------------------------------------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Robert S. Engelman, Jr............................ 70,000 $ -0- -- $ -0-
Howard A. Jaffe................................... 45,187 -0- -- -0-
Charles W. Sewright............................... 55,000 -0- 20,000 290,000
All current executive officers as a group......... 170,187 -0- 20,000 290,000
All current directors who are not executive
officers, as a group............................ 12,000 7,500 -- -0-
All employees, including all current officers
who are not executive officers, as a group...... 107,255 5,172 11,400 165,300
</TABLE>
(1) The difference between the aggregate option exercise price and the fair
market value of the underlying shares at December 23, 1998.
Additional awards under the Omnibus Plan may be granted to eligible
participants in the future at the discretion of the Stock Award Committee.
Although approval of the Omnibus Plan amendment is not a condition to the
Merger, the Avondale Board believes that the proposed increase in shares
reserved for issuance under the Omnibus Plan and less than proportional increase
in the number of awards that may be in the form of restricted stock and in the
number of shares of Avondale Common Stock that may be subject to awards granted
to any one participant in any calendar year will aid Avondale, as the surviving
corporation, in attracting and retaining high quality employees and is in the
best interests of Avondale and its stockholders.
THE AVONDALE BOARD RECOMMENDS THAT AVONDALE STOCKHOLDERS VOTE FOR APPROVAL
OF THE OMNIBUS PLAN AMENDMENT.
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LEGAL MATTERS
The validity of the shares of Avondale Common Stock offered hereby will be
passed upon for Avondale by Silver, Freedman & Taff, L.L.P. (a limited liability
partnership including professional corporations), Washington, D.C. Certain other
legal matters in connection with the Merger will be passed upon for Avondale by
Silver, Freedman & Taff, L.L.P., and for Coal City by Schwartz, Cooper,
Greenberger & Krauss, Chartered, Chicago, Illinois.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements incorporated in this Proxy
Statement/Prospectus by reference from Avondale's Annual Report on Form 10-K for
the year ended December 31, 1997 have been audited by Arthur Andersen LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon the authority of the firm as experts in accounting and auditing.
The consolidated financial statements of Coal City as of December 31, 1997
and 1996 and for each of the years in the three-year period ended December 31,
1997 have been audited by McGladrey & Pullen, LLP, independent certified public
accountants, as stated in their report, and upon the authority of the firm as
experts in accounting and auditing.
Representatives of Arthur Andersen LLP, Avondale's independent accountants,
are expected to be present at the Avondale Special Meeting. They will be
afforded the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.
Representatives of McGladrey & Pullen, LLP, Coal City's independent
accountants, are expected to be present at the Coal City Special Meeting. They
will be afforded the opportunity to make a statement if they desire to do so and
are expected to be available to respond to appropriate questions.
STOCKHOLDER MATTERS
As disclosed in the proxy materials for Avondale's 1998 Annual Meeting of
Stockholders, in order to be eligible for inclusion in Avondale's proxy
materials for the 1999 Annual Meeting of Stockholders, any stockholder proposal
to take action at such meeting must have been received at the main office of
Avondale, 20 N. Clark Street, Chicago, Illinois 60602, no later than November
20, 1998. (No such proposals were received). Any such proposal shall be subject
to the requirements of the proxy rules adopted under the Securities Exchange Act
of 1934, as amended (Exchange Act).
Coal City will hold a 1999 Annual Meeting of Stockholders only if the
Merger is not consummated before the time of such meeting, which it is presently
expected would be held in June 1999.
OTHER MATTERS
The Boards of Directors of Avondale and Coal City are not aware of any
business to come before the Special Meetings other than those matters described
in this Proxy Statement/Prospectus. If any other matter should
128
<PAGE>
properly come before the Special Meetings, it is intended that holders of the
proxies will act in accordance with their best judgment.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Avondale has filed with the Commission a Registration Statement under the
Securities Act that registers the distribution to Coal City stockholders of the
shares of Avondale Common Stock to be issued in connection with the Merger. The
Registration Statement, including the attached exhibits and schedules, contain
additional relevant information about Avondale and Avondale Common Stock. The
rules and regulations of the Commission allow Avondale to omit certain
information included in the Registration Statement from this Proxy
Statement/Prospectus.
In addition, Avondale files reports, proxy statements and other information
with the Commission under the Exchange Act. You may read this information at the
following locations of the Commission:
<TABLE>
<S> <C> <C>
Public Reference Room Midwest Regional Office New York Regional Office
450 Fifth Street, N.W. Citicorp Center 7 World Trade Center
Room 1024 500 West Madison Street Suite 1300
Washington, D.C. 20549 Suite 1400 New York, N.Y. 10048
Chicago, Illinois 60661
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. The public may obtain information
on the operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330.
The Commission also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, like Avondale,
who file electronically with the Commission. The address of that site is
http://www.sec.gov.
The Commission allows Avondale to "incorporate by reference" information
into this Proxy Statement/Prospectus. This means that Avondale can disclose
important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
considered to be a part of this Proxy Statement/Prospectus, except for any
information that other information included directly in this document
supersedes.
This Proxy Statement/Prospectus incorporates by reference the documents
listed below that Avondale has previously filed with the Commission. They
contain important information about Avondale and its financial condition.
1. The Annual Report on Form 10-K of Avondale for the fiscal year ended
December 31, 1997.
2. The Quarterly Report on Form 10-Q of Avondale for the quarterly
periods ended March 31, June 30 and September 30, 1998.
3. The Current Reports on Form 8-K of Avondale dated October 16, 1998
and November 3, 1998.
4. The portions of Avondale's proxy statement from the Annual Meeting
of Stockholders held May 12, 1998 headed "Directors and Executive
Management," "Executive Officers," "Director Compensation,"
129
<PAGE>
"Executive Compensation," "Stock Options," "Employment Agreement,"
and "Severance Pay Agreements."
Avondale incorporates by reference additional documents it may file with
the Commission between the date of this Proxy Statement/Prospectus and the dates
of the Avondale Special Meeting and the Coal City Special Meeting. These
documents include periodic reports, such as Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as well as proxy statements.
Avondale has supplied all information contained or incorporated by
reference in this Proxy Statement/Prospectus relating to Avondale and Coal City
has supplied all such information relating to Coal City.
You can obtain any of the documents incorporated by reference in this
document through Avondale or from the Commission through the Commission's web
site at the address described above. Documents incorporated by reference are
available from Avondale without charge, excluding any exhibits to those
documents unless the exhibit is specifically incorporated by reference as an
exhibit in this Proxy Statement/Prospectus. You can obtain documents
incorporated by reference in this Proxy Statement/Prospectus by requesting them
in writing or by telephone from Avondale at the following address:
Avondale Financial Corp.
20 N. Clark Street
Chicago, IL 60602
(312) 782-6200
Attention: Howard A. Jaffe
If you would like to request documents, please do so by January 31, 1999 to
receive them before the Special Meetings. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within one business day after we receive your request.
We have not authorized anyone to give any information or make any
representation about the Merger or our companies that is different from, or in
addition to, that contained in this Proxy Statement/Prospectus or in any of the
materials that we have incorporated into this document. Therefore, if anyone
does give you information of this sort, you should not rely on it. If you are in
a jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
FORWARD LOOKING STATEMENTS
This Proxy Statement/Prospectus contains certain forward looking statements
with respect to the financial condition, results of operations and business of
Avondale following the consummation of the Merger, including statements relating
to the expected impact of the Merger on Avondale's financial performance for the
combined company. See "The Merger-Background of and Reasons for the Merger" and
"Opinion of Avondale Financial Advisor," and "Unaudited Pro Forma Combined
Consolidated Financial Information." These forward-looking statements involve
certain risks and uncertainties. Factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements include,
among others, the following possibilities:
130
<PAGE>
1. expected cost savings from the Merger cannot be fully realized;
2. deposit attrition, customer loss or revenue loss following the
Merger;
3. competitive pressure in the banking industry increases;
4. costs or difficulties related to the integration of the business of
Avondale and Coal City are greater than expected;
5. changes in the interest rate environment reduce margins more than
planned;
6. general economic conditions, either nationally or regionally, are
less favorable than expected, resulting in, among other things, a
deterioration in credit quality;
7. the impact of regulatory changes is other than expected;
8. changes in business conditions and inflation;
9. changes in the securities markets; and
10. anticipated expenditures related to the year 2000 issue.
Further information on other factors that could affect the financial
results of Avondale after the Merger is included in the Commission filings
incorporated by reference herein.
BY ORDER OF THE BOARD OF DIRECTORS BY ORDER OF THE BOARD OF DIRECTORS
OF AVONDALE FINANCIAL CORP. OF COAL CITY CORPORATION
ROBERT S. ENGELMAN, JR. MITCHELL FEIGER
President and Chief Executive Officer President
131
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
COAL CITY CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report..................................................................................F - 2
Consolidated Balance Sheets at September 30, 1998 (unaudited) and
December 31, 1997 and 1996 (audited)..........................................................................F - 3
Consolidated Statements of Income for each of the years in the three year period
ended December 31, 1997 (audited) and for the nine months ended
September 30, 1998 and 1997 (unaudited).......................................................................F - 4
Consolidated Statements of changes in Stockholders' Equity for each of the years
in the three year period ended December 31, 1997 (audited)
and for the nine months ended September 30, 1998 (unaudited)..................................................F - 5
Consolidated Statements of Cash Flows for each of the years in the three year
period ended December 31, 1997 (audited) and for the nine months
ended September 30, 1998 and 1997 (unaudited).......................................................F - 6 and F - 7
Notes to Consolidated Financial Statements.....................................................F - 8 through F - 36
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Coal City Corporation and Subsidiaries
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of Coal City
Corporation and Subsidiaries, as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three year period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Coal City
Corporation and Subsidiaries, as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
Mokena, Illinois
February 20, 1998
F - 2
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(STATEMENT AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
------------- --------------------------
1998
(unaudited) 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 19,445 $ 36,302 $ 31,465
Investment securities:
Securities available for sale 184,138 136,685 100,470
Securities held to maturity (fair value of $10,309 at September 30, 1998,
$5,679 at December 31, 1997 and $9,995 at December 31, 1996) 9,884 5,242 9,511
Stock in Federal Home Loan Bank 2,239 615 -
Federal funds sold 16,700 37,400 20,800
Loans (net of allowance for loan losses of $7,245 at September 30, 1998,
$7,922 at December 31, 1997 and $4,692 at December 31, 1996) 532,110 519,399 383,610
Lease investments, net 20,971 22,887 18,637
Premises and equipment, net 11,509 11,045 6,416
Other assets 7,848 10,703 4,871
Intangibles, net 19,439 22,418 12,018
----------------------------------------
TOTAL ASSETS $ 824,283 $ 802,696 $ 587,798
========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 121,815 $ 131,064 $ 96,678
Interest bearing 512,773 552,996 413,039
----------------------------------------
TOTAL DEPOSITS 634,588 684,060 509,717
Short-term borrowings 84,494 18,013 9,361
Long-term borrowings 9,510 22,415 16,038
Other liabilities 11,969 12,261 7,197
----------------------------------------
TOTAL LIABILITIES 740,561 736,749 542,313
----------------------------------------
Minority Interest in Subsidiary 1,367 3,421 6,359
----------------------------------------
Corporation Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trust Holding Solely Junior Subordinated Debentures - 10,000 -
----------------------------------------
Corporation Obligated Mandatorily Redeemable Capital Securities of
Subsidiary Trust Holding Solely Junior Subordinated Debentures 25,000 - -
----------------------------------------
Stockholders' Equity
Preferred stock, Class B, $150,000 par value;
authorized 100 shares; issued 68 shares 10,200 10,200 -
Common stock, no par value, $10 stated value; authorized 200,000
shares; issued September 30, 1998 48,957 shares; December 31,
1997 49,707 shares; December 31, 1996 49,799 shares 490 497 498
Additional paid-in capital 23,779 24,446 24,524
Retained earnings 22,011 17,062 13,789
Accumulated other comprehensive income 875 321 315
----------------------------------------
TOTAL STOCKHOLDERS' EQUITY 57,355 52,526 39,126
----------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 824,283 $ 802,696 $ 587,798
========================================
</TABLE>
See Notes to Consolidated Financial Statements.
F - 3
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(STATEMENT AMOUNTS IN THOUSANDS EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1998 1997 Years Ended December 31,
-----------------------------------------
(unaudited) (unaudited) 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $ 33,483 $ 29,674 $ 41,313 $ 30,107 $ 26,271
Investment securities:
Taxable 8,615 6,144 8,527 7,941 7,719
Nontaxable 225 373 433 673 817
Federal funds sold 542 963 1,413 809 1,760
Other - - - - 5
----------------------------------------------------------------------
TOTAL INTEREST INCOME 42,865 37,154 51,686 39,530 36,572
----------------------------------------------------------------------
Interest expense on:
Deposits 16,822 15,647 21,617 16,529 15,220
Short-term borrowings 3,435 958 1,353 669 463
Long-term borrowings 1,716 1,546 2,202 982 1,153
----------------------------------------------------------------------
TOTAL INTEREST EXPENSE 21,973 18,151 25,172 18,180 16,836
----------------------------------------------------------------------
NET INTEREST INCOME 20,892 19,003 26,514 21,350 19,736
Provision for loan losses 563 582 971 572 240
----------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 20,329 18,421 25,543 20,778 19,496
----------------------------------------------------------------------
Other income:
Service fees 2,637 2,572 3,085 2,076 1,628
Lease financing, net 1,189 869 1,172 395 263
Net gains (losses) on sale of securities available
for sale 36 138 138 75 (558)
Gain on sale of Coal City National Bank 4,099 - - - -
Other operating income 598 229 540 393 566
----------------------------------------------------------------------
8,559 3,808 4,935 2,939 1,899
----------------------------------------------------------------------
Other expenses:
Salaries and employee benefits 9,833 8,534 11,556 8,667 8,601
Occupancy and equipment expense 2,852 1,973 2,934 2,167 1,917
Amortization expense 2,429 2,281 3,321 2,021 2,167
Other operating expenses 4,481 4,583 6,384 4,013 4,325
----------------------------------------------------------------------
19,595 17,371 24,195 16,868 17,010
----------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST 9,293 4,858 6,283 6,849 4,385
Applicable income taxes 3,395 1,873 2,402 2,576 1,504
----------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST 5,898 2,985 3,881 4,273 2,881
Minority interest (82) (386) (432) (636) (444)
----------------------------------------------------------------------
NET INCOME 5,816 2,599 3,449 3,637 2,437
----------------------------------------------------------------------
Other comprehensive income:
Unrealized securities gains, net of income taxes 578 69 97 (526) 1,933
Less: reclassification adjustments for gains (losses)
included in net income, net of tax 24 91 91 50 (368)
----------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME 554 (22) 6 (576) 2,301
----------------------------------------------------------------------
COMPREHENSIVE INCOME $ 6,370 $ 2,577 $ 3,455 $ 3,061 $ 4,738
======================================================================
NET INCOME $ 5,816 $ 2,599 $ 3,449 $ 3,637 $ 2,437
Preferred stock dividend 867 276 276 - 267
----------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 4,949 $ 2,323 $ 3,173 $ 3,637 $ 2,170
======================================================================
Basic earnings per common share $ 100.91 $ 46.70 $ 63.83 $ 73.28 $ 43.27
======================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 (UNAUDITED)
(STATEMENT AMOUNTS IN THOUSANDS EXCEPT FOR SHARES INFORMATION)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Preferred Common Paid-In Retained Comprehensive
Stock Stock Capital Earnings Income Total
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ - $ 495 $ 24,167 $ 8,320 $ (1,410) $ 31,572
Issuance of 1,112 shares of
common stock - 12 694 - - 706
Issuance of 35 shares of
preferred stock 3,500 - - - - 3,500
Purchase and retirement of 200
shares of common stock - (2) (121) - - (123)
Redemption of 35 shares of
preferred stock (3,500) - - - - (3,500)
Dividends paid on preferred stock - - - (267) - (267)
Net income - - - 2,437 - 2,437
Change in accumulated other
comprehensive income,
net of tax of $1,401 - - - - 2,301 2,301
----------------------------------------------------------------------------
Balance, December 31, 1995 - 505 24,740 10,490 891 36,626
Issuance of 405 shares of
common stock - 4 307 - - 311
Purchase and retirement of 1,067
shares of common stock - (11) (523) (338) - (872)
Net income - - - 3,637 - 3,637
Change in accumulated other
comprehensive income,
net of tax of $304 - - - - (576) (576)
----------------------------------------------------------------------------
Balance, December 31, 1996 - 498 24,524 13,789 315 39,126
Issuance of 140 shares of common stock - 1 114 - - 115
Issuance of 68 shares of
preferred stock 10,200 - - - - 10,200
Purchase and retirement of 232
shares of common stock - (2) (192) - - (194)
Minority interest effect of premium
received over book value for
interest in Peterson Bank - - - 100 - 100
Dividends paid on preferred stock - - - (276) - (276)
Net income - - - 3,449 - 3,449
Change in accumulated other
comprehensive income,
net of tax of $3 - - - - 6 6
----------------------------------------------------------------------------
Balance, December 31, 1997 10,200 497 24,446 17,062 321 52,526
Purchase and retirement of 750 shares
of common stock (unaudited) - (7) (667) - - (674)
Dividends paid on preferred stock
(unaudited) - - - (867) - (867)
Net income (unaudited) - - - 5,816 - 5,816
Changes in accumulated other
comprehensive income, net of
tax of $285 (unaudited) - - - - 554 554
----------------------------------------------------------------------------
Balance, September 30, 1998 (unaudited) $10,200 $ 490 $ 23,779 $ 22,011 $ 875 $ 57,355
===========================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATEMENT AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1998 1997 Years Ended December 31,
------------------------------------
(unaudited) (unaudited) 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 5,816 $ 2,599 $ 3,449 $ 3,637 $ 2,437
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,558 5,005 7,142 5,286 2,853
(Gain) loss on disposal of premises and equipment
and leased equipment (376) (103) 166 33 (10)
(Gain) on sale of Coal City National Bank (4,099) - - - -
Amortization of intangibles 2,429 2,281 3,320 2,192 2,167
Provision for loan losses 563 582 971 572 240
Provision (credit) for deferred income taxes (1,099) (320) (1,085) 263 (282)
Bond (accretion) amortization, net (2,478) (98) (325) (206) 304
Securities (gains) losses, net (36) (138) (131) (75) 558
Minority interest in net income 82 386 432 636 444
Decrease (increase) in accrued other assets 2,882 1,447 1,329 1,434 471
Increase (decrease) in other liabilities 765 (2,495) (2,116) (321) 474
----------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,007 9,146 13,152 13,451 9,656
----------------------------------------------------------------
Cash Flows From Investing Activities
Proceeds from sales, maturities and calls of securities
available for sale 154,384 76,596 110,772 86,987 107,137
Proceeds from maturities and calls of securities held to 757 2,076 5,834 5,761 9,576
maturity
Purchase of securities available for sale (215,594) (69,555) (94,382) (31,564) (122,184)
Purchase of securities held to maturity (5,499) (225) (395) (841) (2,522)
Federal funds sold, net 1,200 6,900 (16,600) (9,601) 20,601
Increase in loans, net of principal collections (31,069) (11,785) (13,518) (48,997) (26,201)
Purchases of premises and equipment (2,457) (1,010) (1,805) (370) (1,502)
Proceeds from sales of premises and equipment and
leased equipment 3,601 708 737 220 12
Purchase of leased equipment (7,070) (6,090) (9,835) (14,620) (5,425)
Principal collected on lease investments 500 (803) (264) 168 160
Purchase of minority interests (1,713) - (2,649) (227) (33)
Proceeds from sale of Coal City National Bank, net 5,481 - - - -
Purchase of U.S. Bancorp, Inc., net of cash acquired - (15,800) (15,800) - -
Purchase of Peterson Bank, net of cash acquired - - - - (18,601)
----------------------------------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (97,479) (18,988) (37,905) (13,084) (38,982)
----------------------------------------------------------------
Cash Flows From Financing Activities
Net increase (decrease) in noninterest bearing deposits (3,250) (717) 5,981 (4,071) 701
Net increase (decrease) in interest bearing deposits 5,830 (10,102) (1,065) 318 21,905
Net increase (decrease) in short-term borrowings 66,481 7,010 8,652 6,245 (861)
Proceeds from long-term borrowings 4,425 14,456 15,179 6,942 19,785
Principal paid on long-term borrowings (17,330) (8,989) (8,802) (4,788) (9,469)
Issuance of Corporation Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary Trust
Holding Solely Junior Subordinated Debentures - 10,000 10,000 - -
Redemption of Corporation Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary Trust
Holding Solely Junior Subordinated Debentures (10,000) - - - -
Issuance of Corporation Obligated Mandatorily Redeemable
Capital Securities of Subsidiary Trust Holding
Solely Junior Subordinated Debentures 25,000 - - - -
Issuance of common stock - - 115 311 706
Purchase and retirement of common stock (674) (79) (194) (872) (123)
Issuance of preferred stock - - - - 3,500
Redemption of preferred stock - - - - (3,500)
Dividends paid on preferred stock (867) (276) (276) - (267)
----------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 69,615 11,303 29,590 4,085 32,377
----------------------------------------------------------------
</TABLE>
(continued)
F-6
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(STATEMENT AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1998 1997 Years Ended December 31,
---------------------------------------
(unaudited) (unaudited) 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS $ (16,857) $ 1,461 $ 4,837 $ 4,452 $ 3,051
Cash and due from banks:
Beginning 36,302 31,465 31,465 27,013 23,962
----------------------------------------------------------------------
Ending $ 19,445 $ 32,926 $ 36,302 $ 31,465 $ 27,013
======================================================================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors $ 16,716 $ 15,731 $ 21,179 $ 16,320 $ 15,965
Other interest paid 5,000 2,522 3,567 1,644 990
Income taxes paid, net of refunds 3,810 2,037 2,037 2,495 1,080
Supplemental Schedule of Noncash Investing Activities
Acquisitions of U.S. Bancorp, Inc. in 1997
and Peterson Bank in 1995
Assets acquired:
Securities available for sale $ 52,261 $ 53,910
Securities held to maturity 1,099 4,758
Federal funds sold - 11,000
Stock in Federal Home Loan Bank 615 -
Loans, net 124,248 89,666
Premises and equipment 5,020 3,003
Accrued interest and other assets 6,155 2,027
Core deposit intangibles 5,654 5,944
Excess of cost over fair value of net assets acquired 8,637 6,239
-------------- --------------
203,689 176,547
-------------- --------------
Liabilities Assumed:
Noninterest bearing deposits 28,405 23,491
Interest bearing deposits 141,022 131,507
Other liabilities 8,262 2,948
-------------- --------------
177,689 157,946
-------------- --------------
Net assets acquired 26,000 18,601
Issuance of preferred stock (10,200) -
-------------- --------------
NET CASH PAYMENT $ 15,800 $ 18,601
============== ==============
Real estate acquired in settlement of losses $ 1,006
==============
Transfer of securities from held to maturity to available for sale $ 529
==============
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
Note 1. SIGNIFICANT ACCOUNTING POLICIES
Coal City Corporation (Company) is a multi-bank holding company providing
financial and other banking services to customers primarily located in the
Chicago/Northeastern Illinois area. The Company through its banking
subsidiaries, Coal City National Bank (formerly known as Allied Bank/Coal City
National) and Manufacturers Bank (Banks), makes loans to individuals as well as
commercial entities. Specific loan terms vary as to interest rate, repayment and
collateral requirements based on the type of loan requested and the credit
worthiness of the prospective borrower.
Principles of consolidation: The consolidated financial statements include the
- ---------------------------
accounts of Coal City Corporation and the following subsidiaries:
Coal City National Bank - 100% owned subsidiary
Manufacturers National Corporation - 90.61% owned subsidiary
Manufacturers Bank - 100% owned subsidiary of
Manufacturers National
Corporation
Ashland Management Agency, Inc. - 100% owned subsidiary of
Manufacturers Bank
MB 1200 - 100% owned subsidiary of
Manufacturers Bank
Manufacturers Deferred Exchange Corp. - 100% owned subsidiary of
Manufacturers Bank
All material intercompany items and transactions have been eliminated in
consolidation.
During the year ended December 31, 1997, Manufacturers Bank, Peterson Bank, U.S.
Bank and U.S. Bancorp, Inc. were merged.
Basis of financial statement presentation: The accounting and reporting policies
- -----------------------------------------
of the Company conform to generally accepted accounting principles and general
practices within the financial services industry. In preparing the financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the year. Actual results could differ from
those estimates.
Cash and cash equivalents: For purposes of reporting cash flows, cash and due
- -------------------------
from banks includes cash on hand and amounts due from banks (including cash
items in process of clearing). Cash flows from loans originated by the Banks,
deposits, and federal funds purchased and sold and short-term borrowings are
reported net.
Securities held to maturity: Debt securities for which the Banks have both the
- ---------------------------
positive intent and ability to hold to maturity are classified as held to
maturity and reported at amortized cost. Amortization of premiums and accretion
of discounts, computed by the interest method over their contractual lives, is
included in interest income.
Securities available for sale: Securities classified as available for sale are
- -----------------------------
those debt securities that the Banks intend to hold for an indefinite period of
time, but not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various factors, including
significant movements in interest rates, changes in the maturity mix of the
Banks' assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors.
F-8
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities available for sale are reported at fair value with unrealized gains
or losses reported as a separate component of stockholders' equity, net of the
related deferred tax effect. The amortization of premiums and accretion of
discounts, computed by the interest method over their contractual lives, are
recognized in interest income. Realized gains or losses, determined on the basis
of the cost of specific securities sold, are included in earnings.
Loans: Loans are stated at the amount of unpaid principal, reduced by
- -----
unearned discount and fees and an allowance for loan losses.
Loan origination and commitment fees and certain direct loan origination costs
are deferred and the net amount amortized as an adjustment of the related loan's
yield. The Banks are amortizing these amounts over the contractual life of the
loan. Commitment fees based upon a percentage of a customer's unused line of
credit and fees related to standby letters of credit are recognized over the
commitment period.
Interest is accrued daily on the outstanding balances. For impaired loans,
accrual of interest is discontinued on a loan when management believes, after
considering collection efforts and other factors, that the borrower's financial
condition is such that collection of interest is doubtful. Cash collections on
impaired loans are credited to the loan balance, and no interest income is
recognized on those loans until the principal balance has been determined to be
collectible.
A loan is impaired when it is probable the Banks will be unable to collect all
contractual principal and interest payments due in accordance with the terms of
the loan agreement. Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. The amount of
impairment, if any, and any subsequent changes are included in the allowance for
loan losses.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
estimated losses on existing loans, based on an evaluation of the collectibility
of loans and prior loss experience. This evaluation also takes into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrower's ability to pay. While
management uses the best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are significant changes
in economic conditions. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the Banks' allowance for loan
losses, and may require the Banks to make additions to the allowance based on
their judgment about information available to them at the time of their
examinations.
Lease investments: Manufacturers Bank's investment in assets leased to others is
- -----------------
reported as lease investments, net, using the direct finance and operating
methods of accounting. Direct financing leases are stated at the sum of
remaining minimum lease payments from lessees plus estimated residual values
less unearned lease income. Unearned lease income on direct financing leases is
recognized over the lives of the leases using the level-yield method. The
investment in equipment in operating leases is stated at cost less depreciation
using the straight-line method over a five-year life.
F-9
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Premises and equipment: Premises and equipment are stated at cost less
- ----------------------
accumulated depreciation. Depreciation is computed primarily by the
straight-line method for buildings and primarily by the 200% declining balance
method for all other assets over the following estimated useful lives:
Years
--------
Land improvements 20
Buildings 15-39
Leasehold and other improvements 5-20
Furniture and equipment 5-15
Intangibles: In acquiring its subsidiary banks, the portion of the purchase
- -----------
price which represents value assigned to the existing deposit base for which the
annual interest and servicing costs are below market rates (core deposit
intangibles) is being amortized by the declining balance method over three to
nine years. The excess of cost over fair value of net assets acquired (goodwill)
is being amortized on the straight-line method over twenty years. The Company
reviews its intangible assets annually to determine potential impairment by
comparing the carrying value of the intangibles with the anticipated future cash
flows of the related banks.
Income taxes: The Company and its subsidiaries file consolidated income tax
- ------------
returns.
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Basic earnings per common share: Basic earnings per share are calculated on the
- --------------------------------
basis of the weighted average number of shares outstanding after deducting the
dividends on preferred stock.
During 1997, the Company adopted Financial Accounting Standards Board (FASB)
Statement No. 128, EARNINGS PER SHARE, which provides for the presentation of
basic earnings per share and diluted earnings per share. Diluted earnings per
share is not presented since the inclusion of the granted stock options and
warrants would have an antidilutive effect on basic earnings per share.
Accounting for transfers and servicing of financial assets and extinguishment of
- --------------------------------------------------------------------------------
liabilities: Financial Accounting Standards Board Statement No. 125, ACCOUNTING
- -----------
FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF
LIABILITIES (FAS 125), distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. A transfer of financial assets
in which the transferor surrenders control over those assets is accounted for as
a sale to the extent that consideration other than beneficial interest in the
transferred assets is received in exchange. FAS 125 also established standards
on the initial recognition and measurement of servicing assets and other
retained interest and servicing liabilities, and their subsequent measurement.
F-10
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAS 125 requires that debtors reclassify financial assets pledged as collateral
and that secured parties recognize those assets and their obligation to return
them in certain circumstances in which the secured party has taken control of
those assets. In addition, FAS 125 requires that a liability be derecognized
only if the debtor is relieved of its obligation through payment to the creditor
or by being legally released from being the primary obligor under the liability
either judicially or by the creditor.
FAS 125 was effective for transactions occurring after December 31, 1996, except
for transactions relating to secured borrowings and collateral for which the
effective date is December 31, 1997. On January 1, 1997, the Company adopted FAS
125 except as it relates to transactions involving secured borrowings and
collateral. The effect of adoption of this Statement was not material. The
Company also believes the adoption of FAS 125 for transactions related to
secured borrowings and collateral will not have a material impact on its
consolidated financial statements.
Comprehensive income: The Financial Accounting Standards Board has issued
- --------------------
Statement No. 130, REPORTING COMPREHENSIVE INCOME, that the Company will be
required to adopt for its year ended December 31, 1998. This pronouncement is
not expected to have a significant impact on the Company's financial statements.
The Statement establishes standards for the reporting and presentation of
comprehensive income and its components. The Statement requires that items
recognized as components of comprehensive income be reported in a financial
statement. The Statement also requires that a company classify items of other
comprehensive income by their nature in a financial statement, and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. Comprehensive income of the Company currently consists of
unrealized gains and losses on securities available for sale. The Company
adopted Statement No. 130 during the nine months ended September 30, 1998, and
the effect of Statement No. 130 is reflected for all periods presented.
Disclosure about segments and related information: In June, 1997, the FASB
- -------------------------------------------------
issued Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION (FAS 131), which establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
stockholders. This Statement also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
Statement requires the reporting of financial and descriptive information about
an enterprise's reportable operating segments.
This Statement is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. The Company believes that the adoption of
FAS 131 will not have a significant impact on its financial statements and
disclosures.
F-11
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Pensions and other postretirement benefits: The FASB recently issued Statement
- -------------------------------------------
No. 132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
(FAS 132), which changes current financial statement disclosure requirements
from those that were required under FAS 87, EMPLOYERS' ACCOUNTING FOR PENSIONS,
FAS 88, EMPLOYERS' ACCOUNTING FOR SETTLEMENTS AND CURTAILMENTS OF DEFINED
BENEFIT PENSION PLANS AND FOR TERMINATION BENEFITS, and FAS 106, EMPLOYERS'
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS.
Some of the more significant effects of FAS 132 are that it standardizes the
disclosure requirements for pensions and other postretirement benefits and
presents them in one footnote. It also requires that additional information be
disclosed regarding changes in the benefit obligation and fair values of plan
assets and eliminates certain disclosures that are no longer considered useful,
including general descriptions of the plans.
FAS 132 does not change the existing measurement or recognition provisions of
the above standards and is effective for fiscal years beginning after December
15, 1997, through early application is permitted. The Company has not yet
adopted FAS 132 but does not expect that adoption will have a material impact on
its financial statements.
Derivatives: In June, 1998, the FASB issued Statement No. 133, ACCOUNTING FOR
- -----------
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (FAS 133). FAS 133 requires
companies to record derivatives on the balance sheet as assets or liabilities at
fair value. Depending on the use of the derivative and whether it qualifies for
hedge accounting, gains or losses resulting from changes in the values of those
derivatives would either be recorded as a component of net income or as a change
in stockholders' equity. The Company is required to adopt this new standard
January 1, 2000. Management has not yet determined the impact of this standard.
Mortgage banking: In October 1998, the FASB issued Statement No. 134 (FAS 134),
- ----------------
ACCOUNTING FOR MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF
MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE. This statement
amends FAS 65, ACCOUNTING FOR CERTAIN MORTGAGE BANKING ACTIVITIES, and requires
that after the securitization of mortgage loans held for sale, an entity engaged
in mortgage banking activities classify the resulting mortgage-backed securities
or other retained interests based on its ability and intent to sell or hold
those investments. The provisions of FAS 134 are effective for the first fiscal
quarter beginning after December 15, 1998, with earlier application permitted.
The Company has not yet adopted FAS 134 but does not expect that adoption will
have a material impact on its financial statements.
Unaudited interim financial statements: The consolidated financial statements as
- --------------------------------------
of September 30, 1998 and for the nine months ended September 30, 1998 and 1997,
are unaudited, but in the opinion of management reflect all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of financial condition at September 30, 1998, and results of operations for the
nine months ended September 30, 1998 and 1997. The results of the interim period
ended September 30, 1998 are not necessarily indicative of the results expected
for the year ended December 31, 1998.
F-12
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
Note 2. PURCHASE OF U.S. BANCORP, INC. AND PETERSON BANK
On May 7, 1997, the Company, through its subsidiary, Manufacturers National
Corporation, completed the purchase of 100% of U.S. Bancorp, Inc. for
$40,210,000. The purchase price was paid through a series of transactions
involving cash of $15,800,000, preferred stock of $10,200,000 and cash held by
U.S. Bancorp, Inc. of $14,210,000. The acquisition was accounted for as a
purchase with the results of operations of U.S. Bancorp, Inc. and Subsidiary
subsequent to the effective date of the agreement, April 30, 1997, included in
the consolidated financial statements. The excess of cost over the fair value of
net assets acquired (goodwill) was $8,637,000. Goodwill is being amortized over
a twenty year period.
On February 22, 1995, the Company, through its subsidiary, Manufacturers
National Corporation, completed the purchase of 158,859 shares (95.2%) of
Peterson Bank common stock for cash of $25,878,000. Additional purchases of
Peterson Bank common stock during the year increased the level of ownership to
100% and the aggregate purchase price to $26,368,000. The acquisition was
accounted for as a purchase with the results of operations of Peterson Bank and
Subsidiary subsequent to February 21, 1995, included in the consolidated
financial statements. The excess of cost over the fair value of net assets
acquired (goodwill) was $6,239,000. Goodwill is being amortized over a twenty
year period.
The unaudited pro forma results of operations, which follow, assume that the
U.S. Bancorp, Inc. acquisition had occurred at January 1, 1996. In addition to
combining the historical results of operations of the companies, the pro forma
calculations include purchase accounting adjustments related to the acquisition
and interest on borrowed funds. The pro forma calculations do not include any
anticipated cost savings as a result of the acquisitions.
Unaudited pro forma consolidated results of operations for the years ending
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
------------------------------------
Net interest income $ 56,833 $ 55,234
====================================
Net income $ 2,157 $ 2,818
====================================
Net income available to common stockholders $ 1,290 $ 1,951
====================================
Basic earnings per common share $ 25.94 $ 39.32
====================================
</TABLE>
The pro forma results of operations are not necessarily indicative of the actual
results of operations that would have occurred had the acquisition actually been
made at the beginning of the respective periods, or of results which may occur
in the future.
Note 3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Banks are required to maintain reserve balances in cash or on deposit with
the Federal Reserve Bank, based on a percentage of deposits. The total of those
reserve balances was approximately $11,770,000 and $4,480,000 at December 31,
1997 and 1996, respectively.
F-13
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
Note 4. INTANGIBLES
Intangibles consist of the following as of December 31:
<TABLE>
<CAPTION>
1997
--------------------------------------------------------
Core Deposit Goodwill Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost $ 13,418 $ 18,032 $ 31,450
Accumulated amortization 6,515 2,517 9,032
--------------------------------------------------------
$ 6,903 $ 15,515 $ 22,418
========================================================
1996
--------------------------------------------------------
Core Deposit Goodwill Total
------------------------------------------------------------------------------------------------------------------
Cost $ 7,764 $ 10,134 $ 17,898
Accumulated amortization 4,002 1,878 5,880
--------------------------------------------------------
$ 3,762 $ 8,256 $ 12,018
========================================================
</TABLE>
The cost of the core deposit intangible increased by $5,654,000 during the year
ended December 31, 1997 as a result of the U.S. Bancorp, Inc. acquisition. The
cost of goodwill increased by $7,898,000 during the year ended December 31, 1997
due to goodwill of $8,637,000 related to the U.S. Bancorp, Inc. acquisition, net
of a reduction of goodwill of $739,000 related to the purchase of the minority
interests in Manufacturers National Corporation.
The amount included in deferred tax liabilities which pertains to the core
deposit intangible is approximately $2,347,000 and $1,279,000 at December 31,
1997 and 1996.
F-14
<PAGE>
COAL CITY CORPORATION AND SUBSIDIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 5. INVESTMENT SECURITIES
Carrying amounts and fair values of securities available for sale are summarized
as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
AVAILABLE FOR SALE Cost Gains Losses Value
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 1998 (unaudited):
U.S. Treasury securities $ 111,697 $ 516 $ - $ 112,213
U.S. government agencies and corporations 67,712 772 - 68,484
Mortgage-backed securities 3,353 88 - 3,441
------------------------------------------------------------------
TOTALS $ 182,762 $ 1,376 $ - $ 184,138
==================================================================
December 31, 1997:
U.S. Treasury securities $ 119,160 $ 311 $ (91) $ 119,380
U.S. government agencies and corporations 9,971 145 - 10,116
Mortgage-backed securities 7,022 167 - 7,189
------------------------------------------------------------------
TOTALS $ 136,153 $ 623 $ (91) $ 136,685
==================================================================
December 31, 1996:
U.S. Treasury securities $ 76,919 $ 250 $ (233) $ 76,936
U.S. government agencies and corporations 10,844 274 - 11,118
Mortgage-backed securities 12,132 284 - 12,416
------------------------------------------------------------------
TOTALS $ 99,895 $ 808 $ (233) $ 100,470
==================================================================
</TABLE>
F-15
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 5. INVESTMENT SECURITIES (CONTINUED)
Gross realized gains and losses from the sale of securities available for sale
for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Realized gains $ 138 $ 114 $ 100
Realized (losses) - (39) (658)
--------------------------------------
NET GAINS (LOSSES) $ 138 $ 75 $ (558)
======================================
</TABLE>
Carrying amounts and fair values of securities being held to maturity are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
HELD TO MATURITY Cost Gains Losses Value
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 1998 (unaudited):
States and political subdivisions $ 4,093 $ 408 $ - $ 4,501
Mortgage-backed securities 4,824 15 - 4,839
Other securities 967 2 - 969
-----------------------------------------------------
$ 9,884 $ 425 $ - $ 10,309
=====================================================
December 31, 1997:
States and political subdivisions $ 4,423 $ 437 $ - $ 4,860
Other securities 819 - - 819
-----------------------------------------------------
TOTALS $ 5,242 $ 437 $ - $ 5,679
=====================================================
December 31, 1996:
States and political subdivisions $ 8,192 $ 487 $ (1) $ 8,678
Other securities 1,319 - (2) 1,317
-----------------------------------------------------
TOTALS $ 9,511 $ 487 $ (3) $ 9,995
=====================================================
</TABLE>
F-16
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 5. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair value of securities, as of September 30, 1998 and
December 31, 1997, by contractual maturity are shown below. Maturities may
differ from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or repaid without any
penalties. Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
September 30, 1998 (unaudited)
---------------------------------------------------------------------
Available for Sale Held to Maturity
---------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 125,394 $ 125,886 $ 729 $ 729
Due after one year through five years 54,015 54,811 3,603 4,006
Due after five years through ten years - - 728 735
Due after ten years - - - -
Mortgage-backed securities 3,353 3,441 4,824 4,839
---------------------------------------------------------------------
TOTALS $ 182,762 $ 184,138 $ 9,884 $ 10,309
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------------------
Available for Sale Held to Maturity
---------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 61,774 $ 62,000 $ 953 $ 969
Due after one year through five years 67,219 67,346 3,234 3,477
Due after five years through ten years - - 1,035 1,212
Due after ten years 138 150 20 21
Mortgage-backed securities 7,022 7,189 -
---------------------------------------------------------------------
TOTALS $ 136,153 $ 136,685 $ 5,242 $ 5,679
=====================================================================
</TABLE>
F-17
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 5. INVESTMENT SECURITIES (CONTINUED)
Securities with carrying amounts as follows were pledged as collateral on public
deposits and for other purposes as required or permitted by law:
<TABLE>
<CAPTION>
September 30,
1998 December 31,
-------------------------
(unaudited) 1997 1996
-------------------------------------------
<S> <C> <C> <C>
Available for sale $ 64,706 $ 55,705 $ 70,917
Held to maturity - 2,306 6,106
</TABLE>
The Company, as a member of the Federal Home Loan Bank System, is required to
maintain an investment in capital stock of the Federal Home Loan Bank in an
amount equal to 1% of its certain home loans. No ready market exists for the
stock, and it has no quoted market value. The stock is redeemable at par,
therefore, market value equals cost.
NOTE 6. LOANS
Net loans consist of:
<TABLE>
<CAPTION>
September 30,
1998 December 31,
-----------------------------------
(unaudited) 1997 1996
---------------------------------------------------
<S> <C> <C> <C>
Commercial $ 219,412 $ 197,668 $ 208,026
Commercial real estate 203,935 162,487 91,251
Residential real estate 56,115 94,587 67,541
Real estate construction 26,838 37,079 7,057
Installment and other 33,055 35,500 14,427
---------------------------------------------------
539,355 527,321 388,302
Allowance for loan losses (7,245) (7,922) (4,692)
---------------------------------------------------
LOANS, NET $ 532,110 $ 519,399 $ 383,610
===================================================
</TABLE>
The Banks make loans to individuals as well as commercial and tax exempt
entities. Specific loan terms vary as to interest rate, repayment and collateral
requirements based on the type of loan requested and the credit worthiness of
the prospective borrower. Credit risk tends to be geographically concentrated in
that the majority of the loan customers are located in the market serviced by
the Banks. At September 30, 1998, December 31, 1997 and December 31, 1996,
commercial loans included $98,709,000, $85,658,000 and $113,960,000,
respectively, of loans which were collateralized by assignment of leases
primarily for computers and related equipment.
There were no impaired loans during the years ended December 31, 1997 and 1996.
F-18
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 6. LOANS (CONTINUED)
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1998 1997 Years Ended December 31,
--------------------------------------------
(unaudited) (unaudited) 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning $ 7,922 $ 4,692 $ 4,692 $ 4,134 $ 2,646
Increases resulting from purchase
of subsidiary - 2,574 - - -
Decreases resulting from sale
of subsidiary (399) - - - -
Provision charged to operations 563 582 971 572 240
Amounts charged off (995) (63) (343) (29) (74)
Recoveries of amounts charged off 154 25 28 15 5
Addition resulting from purchase
of U.S. Bancorp, Inc. - - 2,574 - -
Addition resulting from purchase
of Peterson Bank - - - - 1,317
-------------------------------------------------------------------------
Balance, ending $ 7,245 $ 7,810 $ 7,922 $ 4,692 $ 4,134
=========================================================================
</TABLE>
Loans outstanding to bank executive officers and directors, including companies
in which they have management control or beneficial ownership, at December 31,
1997 and 1996, were approximately $8,702,000 and $11,736,000, respectively. In
the opinion of management, these loans have similar terms to other customer
loans. An analysis of the activity related to these loans for the year ended
December 31, 1997 is as follows:
<TABLE>
<S> <C>
Balance, beginning $ 11,736
Additions 2,705
Principal payments and other reductions (5,739)
-------------
Balance, ending $ 8,702
=============
</TABLE>
F-19
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 7. LEASE INVESTMENTS, NET
Lease investments by categories follow:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1996
----------------------------------
<S> <C> <C>
Direct financing leases:
Minimum lease payments receivable $ 1,237 $ 400
Estimated residual value 450 111
Less unearned lease income (117) (42)
----------------------------------
1,570 469
----------------------------------
Operating leases:
Equipment, at cost 29,678 24,739
Less accumulated depreciation (8,361) (6,571)
----------------------------------
21,317 18,168
----------------------------------
Lease investments, net $ 22,887 $ 18,637
==================================
</TABLE>
The minimum lease payments receivable for direct financing leases and operating
leases are due as follows for the years ending December 31:
<TABLE>
<CAPTION>
Direct
YEAR Financing Operating
----------------------------
<S> <C> <C>
1998 $ 610 $ 7,614
1999 389 5,669
2000 238 3,527
2001 - 1,761
2002 - 404
----------------------------
$ 1,237 $ 18,571
============================
</TABLE>
F-20
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 7. LEASE INVESTMENTS, NET (CONTINUED)
Income from lease investments for the years ended December 31, is composed of:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Rental income on operating leases $ 6,896 $ 4,730 $ 2,301
Income from lease payments on direct financing leases 46 39 52
Gain on sale of leased equipment - - 10
Residual income from discounted leases 20 - -
--------------------------------------
Income on lease investments, gross 6,962 4,769 2,363
Less:
Depreciation on operating leases (5,790) (4,374) (2,079)
Other - - (21)
--------------------------------------
Income from lease investments, net $ 1,172 $ 395 $ 263
======================================
</TABLE>
Note 8. PREMISES AND EQUIPMENT
Premises and equipment consist of:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996
-------------------------------------
<S> <C> <C>
Land and land improvements $ 2,975 $ 1,840
Buildings and improvements 6,843 4,219
Furniture and equipment 4,582 2,453
-------------------------------------
14,400 8,512
Accumulated depreciation (3,355) (2,096)
-------------------------------------
Premises and equipment, net $ 11,045 $ 6,416
=====================================
</TABLE>
Depreciation on premises and equipment totaled $1,300,000, $912,000 and $774,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
F-21
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
Note 9. DEPOSITS
The composition of deposits is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
--------------------------
<S> <C> <C>
Demand deposits, noninterest bearing $ 131,064 $ 96,678
NOW and money market accounts 166,390 139,257
Savings deposits 96,266 62,981
Time certificates, $100,000 or more 143,705 119,254
Other time certificates 146,635 91,547
--------------------------
TOTAL $ 684,060 $ 509,717
==========================
</TABLE>
At December 31, 1997, the scheduled maturities of time certificates are as
follows:
<TABLE>
<S> <C>
1998 $ 267,719
1999 16,891
2000 5,096
2001 351
2002 283
-------------
$ 290,340
=============
</TABLE>
Note 10. SHORT-TERM BORROWINGS
Short-term borrowings consisted of:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
-----------------------
<S> <C> <C>
Securities sold under agreement to repurchase $ 12,385 $ 2,194
U.S. Treasury demand notes 5,628 7,167
-----------------------
$ 18,013 $ 9,361
=======================
</TABLE>
F-22
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
Note 11. LONG-TERM BORROWINGS
At December 31, 1997, the Company has a secured revolving note payable to
LaSalle National Bank with an outstanding balance of $9,000,000. The note bears
interest at a rate equal to the adjusted LIBOR rate. The note requires quarterly
payments of interest only on the outstanding balance through June 1, 1999 at
which time the revolving feature of the note shall cease and the unpaid
principal amount shall convert to an installment note with quarterly payments
due, including interest at the adjusted LIBOR rate, through June 1, 2007.
At December 31, 1997, the Company has an unsecured revolving note payable to
LaSalle National Bank with an outstanding balance of $4,500,000. The note bears
interest at the bank's prime rate, 8.50% at December 31, 1997, and requires
payments of interest only on the outstanding balance through June 1, 1999 at
which time the revolving feature of the note shall cease and the unpaid
principal amount shall convert to an installment note with quarterly payments
due, including interest at the bank's prime rate, through June 1, 2007.
The Company also has notes payable to banks totaling $8,915,000 which accrue
interest at rates ranging from 6.20% to 8.75% and require aggregate monthly
payments of $307,500, including interest at various dates through November 2002.
Equipment included in lease investments with a December 31, 1997, depreciated
cost of $11,179,000 is pledged as collateral on these notes.
The principal payments are due as follows during the years ending December 31:
<TABLE>
<CAPTION>
Amount
------------
<S> <C>
1998 $ 2,893
1999 3,020
2000 3,521
2001 2,710
2002 1,717
Thereafter 8,554
------------
$ 22,415
============
</TABLE>
F-23
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
Note 12. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution 401(k) plan which covers all full-time
employees of Manufacturers Bank and Coal City National Bank who have completed
three months of service prior to the first day of each month. The Company's
contributions consist of a discretionary profit-sharing contribution and a
discretionary matching contribution of the amounts contributed by the
participants. The Company's contributions are determined by the Board of
Directors on an annual basis. During 1997, the Company contributed on behalf of
each participant a matching contribution equal to 50% of each participant's
contribution up to a maximum of 4% of their compensation along with a profit
sharing contribution of 4% of total compensation. Each participant may also
contribute up to fifteen percent of their compensation on a pretax basis. The
Company's contributions to the plan, for the years ended December 31, 1997, 1996
and 1995, were $441,000, $387,000 and $263,000, respectively.
Manufacturers Bank has a supplemental, nonqualified retirement plan covering
employees who hold the position of vice president or higher. Contributions to
the plan were $64,000, $50,000 and $49,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
Manufacturers Bank also has a noncontributory profit sharing plan that covers
substantially all full-time employees of U.S. Bancorp, Inc., which during the
year was merged with Manufacturers Bank. The employer contribution was
determined by the Board of Directors. The expense related to the plan, for the
year ended December 31, 1997, was $150,000.
Note 13. INCOME TAXES
The deferred taxes at December 31, consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 1,946 $ 927
Other items 229 179
-------------------------------------
2,175 1,106
-------------------------------------
Deferred tax liabilities:
Securities available for sale 198 195
Premises and equipment 3,400 1,736
Core deposit intangible 2,347 1,279
Other items 373 300
-------------------------------------
6,318 3,510
-------------------------------------
NET DEFERRED TAX (LIABILITY) $ (4,143) $ (2,404)
=====================================
</TABLE>
F-24
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 13. INCOME TAXES (CONTINUED)
The components of income tax expense for the years ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C>
Current expense:
Federal $ 3,141 $ 2,100 $ 1,763
State 346 213 23
-----------------------------------------------------
3,487 2,313 1,786
Deferred expense (benefit) (1,085) 263 (282)
-----------------------------------------------------
$ 2,402 $ 2,576 $ 1,504
=====================================================
</TABLE>
The reconciliation between the statutory federal income tax rate and the
effective tax rate on consolidated income for the years ended December 31, is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
Income tax at statutory rate 35.0 % 35.0 % 35.0 %
Increase (decrease) due to:
Graduated tax rates (1.0) (1.0) (1.0)
Tax exempt income (2.4) (3.3) (7.0)
Nondeductible interest expense 0.3 0.4 0.7
State tax on income, net of federal income tax benefit 3.6 1.9 0.3
Nondeductible amortization 4.3 4.1 6.5
Nondeductible acquisition expense 1.1 - -
Other items, net (2.7) 0.5 (0.2)
------------- ------------- --------------
Effective income tax rate 38.2 % 37.6 % 34.3 %
============= ============= ==============
</TABLE>
NOTE 14. COMMITMENTS AND CONTINGENT LIABILITIES
Financial instruments with off-balance-sheet risk: The Banks are a party to
- -------------------------------------------------
financial instruments with off-balance-sheet risk in the normal course of
business to meet the financing needs of their customers. These financial
instruments include commitments to extend credit and standby letters of credit
which, to varying degrees, involve elements of credit risk in excess of the
amount recognized in the balance sheets.
The Banks' exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Banks use the same credit policies in making commitments and conditional
obligations as they do for on-balance-sheet instruments.
F-25
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 14. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
A summary of the Banks' exposure to off-balance-sheet risk is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996
-------------------------------------
<S> <C> <C>
Firm commitments to extend credit $ 91,825 $ 65,076
Standby letters of credit 12,608 10,412
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Banks evaluate each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Banks upon extension
of the credit, is based on management's credit evaluation of the party.
Collateral held varies, but may include securities, accounts receivable,
inventory, property and equipment, residential real estate and income producing
commercial properties.
Standby letters of credit are conditional commitments issued by the Banks to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held varies
as specified above and is required in instances which the Banks deem necessary.
Concentrations of credit risk: The majority of the loans, commitments to extend
- -----------------------------
credit, and standby letters of credit have been granted to customers in the
Banks' market area. Investments in securities issued by state and political
subdivisions (see Note 5) also involve governmental entities within the Banks'
market area. The concentrations of credit by type of loan are set forth in Note
6. The distribution of commitments to extend credit approximates the
distribution of loans outstanding. Standby letters of credit were granted
primarily to commercial borrowers.
Contingencies: In the normal course of business, the Company is involved in
- -------------
various legal proceedings. In the opinion of management, any liability resulting
from such proceedings would not have a material adverse effect on the Company's
consolidated financial statements.
F-26
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 15. REGULATORY RESTRICTIONS
The Company's primary source of cash is dividends from the Banks.
The Banks are subject to certain restrictions on the amount of dividends that
they may declare without prior regulatory approval. The dividends declared
cannot be in excess of the amount which would cause the Banks to fall below the
minimum required for capital adequacy purposes. The Banks also have an internal
policy that dividends declared will not be in excess of the amounts which would
cause the Banks to fall below the minimum required to be categorized as well
capitalized.
The Company and the Banks are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and additional discretionary -
actions by regulators that, if undertaken, could have a direct material effect
on the Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company's and Banks'
assets, liabilities, and certain off-balance-sheet items are calculated under
regulatory accounting practices. The Company's and Banks' capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and Banks to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes the Company and Banks meet all
capital adequacy requirements to which they are subject as of September 30, 1998
and December 31, 1997.
As of September 30, 1998 and December 31, 1997, the most recent notification
from the Federal Deposit Insurance Corporation categorized the Banks as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Banks must maintain the total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in the well
capitalized column in the table below. There are no conditions or events since
that notification that management believes have changed the Banks' categories.
F-27
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 15. REGULATORY RESTRICTIONS (CONTINUED)
The required and actual amounts and ratios for the Company, Manufacturers
National Corporation, Manufacturers Bank and Peterson Bank are presented below.
Information for Coal City National Bank is not presented as it is not considered
a significant subsidiary.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes (a) Action Provisions (a)
-------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1998 (unaudited)
Total capital (to risk-weighted assets):
Consolidated $ 71,296 12.00% $ 47,546 8.00% $ N/A N/A
Manufacturers Bank 63,295 10.67 47,452 8.00 59,315 10.00%
Tier 1 capital (to risk-weighted assets):
Consolidated 44,028 7.41 23,773 4.00 N/A N/A
Manufacturers Bank 56,050 9.45 23,726 4.00 35,589 6.00
Tier 1 capital (to average assets):
Consolidated 44,028 5.22 33,762 4.00 N/A N/A
Manufacturers Bank 56,050 6.64 33,773 4.00 42,217 5.00
As of December 31, 1997
Total capital (to risk-weighted assets):
Consolidated 57,176 10.00 45,727 8.00 N/A N/A
Manufacturers National Corporation 54,257 9.95 43,615 8.00 N/A N/A
Manufacturers Bank 61,179 11.22 43,608 8.00 54,510 10.00
Tier 1 capital (to risk-weighted assets):
Consolidated 40,522 7.09 22,864 4.00 N/A N/A
Manufacturers National Corporation 47,491 8.71 21,807 4.00 N/A N/A
Manufacturers Bank 54,414 9.98 21,804 4.00 32,706 6.00
Tier 1 capital (to average assets):
Consolidated 40,522 5.15 31,477 4.00 N/A N/A
Manufacturers National Corporation 47,491 6.53 29,113 4.00 N/A N/A
Manufacturers Bank 54,414 7.48 29,109 4.00 36,387 5.00
As of December 31, 1996
Total capital (to risk-weighted assets):
Consolidated 43,595 10.14 34,385 8.00 N/A N/A
Manufacturers National Corporation 42,113 10.68 31,556 8.00 N/A N/A
Manufacturers Bank 26,670 10.05 21,239 8.00 26,548 10.00
Peterson Bank 15,142 11.57 10,466 8.00 13,082 10.00
Tier 1 capital (to risk-weighted assets):
Consolidated 34,404 8.00 17,193 4.00 N/A N/A
Manufacturers National Corporation 37,758 9.57 15,778 4.00 N/A N/A
Manufacturers Bank 23,792 8.96 10,619 4.00 15,929 6.00
Peterson Bank 13,665 10.45 5,233 4.00 7,849 6.00
Tier 1 capital (to average assets):
Consolidated 34,404 6.16 22,337 4.00 N/A N/A
Manufacturers National Corporation 37,758 7.48 20,197 4.00 N/A N/A
Manufacturers Bank 23,792 7.31 13,015 4.00 16,268 5.00
Peterson Bank 13,665 7.27 7,518 4.00 9,397 5.00
</TABLE>
(a) The amounts and ratios provided are minimums under the regulations.
N/A - Not applicable.
F-28
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 16. FAIR VALUE INFORMATION AND INTEREST RATE RISK
Fair values of financial instruments are management's estimate of the values at
which the instruments could be exchanged in a transaction between willing
parties. These estimates are subjective and may vary significantly from amounts
that would be realized in actual transactions. In addition, other significant
assets are not considered financial assets including deferred tax assets,
premises and equipment and intangibles. Further, the tax ramifications related
to the realization of the unrealized gains and losses can have a significant
effect on the fair value estimates and have not been considered in any of the
estimates.
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:
Cash and short-term investments: The carrying amounts reported in the
-------------------------------
balance sheet for cash and due from banks and federal funds sold
approximate their fair values.
Securities held to maturity and available for sale: Fair values for
--------------------------------------------------
securities are based on quoted market prices, where available. If quoted
prices are not available, fair values are based on quoted market prices of
comparable instruments.
Stock in Federal Home Loan Bank: No ready market exists for the stock, and
-------------------------------
it has no quoted market value. The stock is redeemable at par, therefore,
fair value equals cost.
Loans: Most commercial loans, and some real estate mortgage loans, are
-----
made on a variable rate basis. For those variable-rate loans that reprice
frequently, and with no significant change in credit risk, fair values are
based on carrying values. The fair values for fixed rate and all other
loans are estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers
with similar credit quality.
Deposit Liabilities: The fair values disclosed for deposits with no
-------------------
defined maturities are equal to their carrying amounts, which represent
the amount payable on demand. The carrying amounts for variable-rate,
fixed-term money market accounts and certificates of deposit approximate
their fair value at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
Short-term borrowings: The carrying amounts of federal funds purchased,
---------------------
borrowings under repurchase agreements and other short-term borrowings
approximate their fair values.
Long-Term Borrowings: The fair values of the Company's long-term
--------------------
borrowings (other than deposits) are estimated using discounted cash flow
analyses, based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
F-29
<PAGE>
NOTE 16. FAIR VALUE INFORMATION AND INTEREST RATE RISK (CONTINUED)
Corporation obligated mandatorily redeemable preferred securities of
--------------------------------------------------------------------
subsidiary trust holding solely junior subordinated debentures: The fair
--------------------------------------------------------------
values of these preferred securities are estimated using discounted cash
flow analyses, based on the Company's current incremental borrowing rates
for similar types of securities.
Accrued interest payable and receivable: The carrying amounts of accrued
---------------------------------------
interest approximate their fair values.
Off-balance-sheet instruments: Fair values for the Company's
-----------------------------
off-balance-sheet lending commitments (guarantees, letters of credit and
commitments to extend credit) are based on fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
The estimated fair value of financial instruments is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1997 1996
----------------------------------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and due from banks $ 36,302 $ 36,302 $ 31,465 $ 31,465
Securities available for sale 136,685 136,685 100,470 100,470
Securities held to maturity 5,242 5,679 9,511 9,995
Stock in Federal Home
Loan Bank 615 615 - -
Federal funds sold 37,400 37,400 20,800 20,800
Loans 519,399 523,624 383,610 385,435
Accrued interest receivable 5,571 5,571 3,905 3,905
Financial Liabilities
Deposits 684,060 683,586 509,717 509,751
Short-term borrowings 18,013 18,013 9,361 9,361
Long-term borrowings 22,415 22,415 16,038 16,038
Corporation obligated mandatorily
redeemable preferred securities
of subsidiary trust holding solely
junior subordinated debentures 10,000 10,000 - -
Accrued interest payable 2,106 2,106 1,669 1,669
Off-balance-sheet instruments, loan
commitments and standby
letters of credit - - - -
</TABLE>
F-30
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 16. FAIR VALUE INFORMATION AND INTEREST RATE RISK (CONTINUED)
The Company assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, the fair
values of the Company's financial instruments will change when interest rate
levels change and that change may be either favorable or unfavorable to the
Company. Management attempts to match maturities of assets and liabilities to
the extent believed necessary to minimize interest rate risk. However, borrowers
with fixed rate obligations are more likely to prepay in a falling rate
environment and less likely to prepay in a rising rate environment. Conversely,
depositors who are receiving fixed rates are more likely to withdraw funds
before maturity in a rising rate environment and less likely to do so in a
falling rate environment. Management monitors rates and maturities of assets and
liabilities and attempts to minimize interest rate risk by adjusting terms of
new loans and deposits and by investing in securities with terms that mitigate
the Company's overall interest rate risk.
Note 17. MINORITY INTEREST PURCHASE OBLIGATION
In the agreement to originally acquire 80.1% of Manufacturers National
Corporation, the Company also granted put options to the tendering stockholders
on all shares tendered but not purchased by the Company on October 31, 1992. The
put options may be exercised by the selling stockholders at any time after
October 31, 1993. Through October 31, 1997, the option price increased annually
and the exercise price for the remaining option term is $11.66 per share. The
number of shares of Manufacturers National Corporation common stock subject to
the put option total 209,221. Put options expire if not exercised by October 31,
1998.
During the period from January 1, 1998 to October 31, 1998, $129,309 put options
were exercised (unaudited). On October 31, 1998, the remaining $79,912
unexercised put options expired (unaudited).
Note 18. STOCK OPTION PLAN
During 1995, the Company reserved 5,000 shares of common stock for issuance to
key employees of the Company or any of its subsidiaries under a stock option
plan approved by the Board of Directors and stockholders. Options granted may be
either options which are intended to be incentive stock options ("incentive
stock option") or options which are not intended to be incentive stock options
("non-statutory options"). Options granted under the Plan will expire not more
than ten years from the date of the grant, and in the case of incentive stock
options, the purchase price per share to be specified in each option will be not
less than the fair market value of a share of the Company's common stock on the
date the option is granted. Other pertinent information related to the plan is
as follows:
F-31
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 18. STOCK OPTION PLAN (CONTINUED)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1997 1996
-----------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 490 $ 866 - $ -
Granted 479 930 490 866
Exercised - - - -
Forfeited - - - -
---------------------------------------------------
Outstanding at end of year 969 $ 892 490 $ 866
===================================================
Exercisable at end of year 75 $ 891 25 $ 871
====================================================
Weighted average fair value per
option of options granted
during the year $ 393.82 $ 348.18
======== ========
</TABLE>
Subsequent to December 31, 1998, an additional 507 shares under option were
granted at an exercise price of $1,020.
OPTIONS SUMMARY: The following table presents certain information with respect
to stock options granted.
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
--------------------------------------------------------------
Weighted Average Weighted Average
Number Remaining Exercise
Range of Exercise Prices Outstanding Contractual Life Price
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$865-$871 490 8.0 $ 866
$930 479 9.0 930
</TABLE>
F-32
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 18. STOCK OPTION PLAN (CONTINUED)
As permitted under generally accepted accounting principles, grants under the
plan are accounted for following the provisions of APB Opinion No. 25 and its
related interpretations. Accordingly, no compensation cost has been recognized
for grants made to date. Had compensation cost been determined based on the fair
value method prescribed in FASB Statement No. 123, reported net income and
earnings per common share would have been reduced to the pro forma amounts shown
below:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Net income
As reported $ 3,449 $ 3,637 $ 2,437
Pro forma 3,373 3,594 2,437
Basic earnings per common share
As reported $ 63.83 $ 73.28 $ 43.27
Pro forma 62.30 72.42 43.27
</TABLE>
In determining the pro forma amounts above, the value of each grant is estimated
at the grant date using the binomial method, which is one of the methods
prescribed in Statement No. 123, with the following weighted-average
assumptions: dividend rate of 0%, risk-free interest rate of 6%, expected life
of 10 years and expected price volatility of 25%.
Note 19. ISSUANCE OF PREFERRED TRUST SECURITIES
In 1997, the Company established Coal City Capital Trust 1997-A, a Delaware
Business Trust (Trust) and purchased a $309,300 interest in common trust
securities of the Trust. The Trust then issued to Coal City Investors (CCI), an
Illinois general partnership comprised of the eight directors of the Company
$10.0 million in Corporation Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures
along with an option to purchase 5,000 shares of the Company common stock at
$1,000 per share. This option expired on July 7, 1997. In addition, a detachable
warrant was issued to CCI allowing the warrant holders to purchase up to $10.0
million of the Company's common stock at an exercise price ranging from $1,600
to $3,218 per share over the next ten years.
The debentures require quarterly payments of interest only at a rate of 9.25%
per annum. The principal portion of the debenture is due February 2027, but may
be repaid on or after February 2004. The Company shall have the right at any
time during the term to extend the interest payment period for up to 20
consecutive quarters, at the end of which period the Company shall pay all
interest then accrued and unpaid together with interest thereon.
In July 1998, the Company redeemed the $10.0 million in Preferred Securities
with proceeds from the issuance of Capital Securities and the detachable
warrants were canceled (unaudited).
F-33
<PAGE>
COAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 20. PREFERRED STOCK
During 1997, as part of the transaction to acquire U.S. Bancorp, Inc., the
Company issued 68 shares of Class B preferred stock. The Class B preferred stock
is not cumulative as to dividends which are payable semiannually at a rate of
8.5%. At the option of the Company, the preferred shares are redeemable at par
value plus any unpaid accrued dividends.
The Class B preferred shares have a majority voting right provision which allows
the holder to vote only upon certain events deemed adverse to the holder of the
preferred stock, such as the failure of the Company to pay the required cash
dividends, or when certain business combinations are being considered.
NOTE 21. SALE OF COAL CITY NATIONAL BANK
On January 28, 1998, the Company sold all of the issued and outstanding shares
of Coal City National Bank common stock for cash of $7,800,000. The net assets
of Coal City National Bank at December 31, 1997 were approximately $3,662,000.
NOTE 22. ISSUANCE OF CAPITAL SECURITIES (UNAUDITED)
In July 1998, the Company issued $25.0 million in floating rate Corporation
Obligated Mandatorily Redeemable Capital Securities of Subsidiary Trust Holding
Solely Junior Subordinated Debentures (Capital Securities) through Coal City
Capital Trust I (Trust), a statutory business trust and wholly owned subsidiary
of the Company. The Capital Securities pay cumulative cash distributions
quarterly at a rate per annum, reset quarterly, equal to the 3-month LIBOR plus
180 basis points. Proceeds from the sale of the Capital Securities were invested
by the Trust in floating rate (3-month LIBOR plus 180 basis points) Junior
Subordinated Deferrable Interest Debentures (Debentures) issued by the Company
which represents all of the assets of the Trust. The Capital Securities are
subject to mandatory redemption, in whole or in part, upon repayment of the
Junior Subordinated Debentures at the stated maturity or their earlier
redemption, in each case at a redemption price equal to the aggregate
liquidation preference of the Capital Securities plus any accumulated and unpaid
distributions thereon to the date of redemption. Prior redemption is permitted
under certain circumstances.
NOTE 23. MERGER AGREEMENT (UNAUDITED)
On October 13, 1998 the Company and Avondale Financial Corporation (Avondale),
the holding company for Avondale Federal Savings Bank, announced they had
entered into a definitive agreement in connection with a merger of equals. At
September 30, 1998, Avondale had consolidated assets of $508.7 million and total
stockholders' equity of $38.1 million.
Under the terms of the agreement, the Company will be merged into Avondale and
Avondale will be renamed MB Financial, Inc. Each share of Coal City Corporation
common stock will be converted into 83.5 shares of MB Financial, Inc. common
stock while each share of Avondale will be converted into 1 share of MB
Financial, Inc. common stock. Stockholders of Coal City Corporation will own
approximately 58.5% of the combined company, while stockholders of Avondale will
own approximately 41.5%. Also in connection with the agreement, Avondale and the
Company granted each other an option to acquire up to 19.9% of the outstanding
common stock of the other upon the occurrence of certain events. The merger will
be accounted for as a reverse acquisition, with Coal City Corporation being the
accounting acquirer. The transaction is subject to regulatory approval, the
approval of the stockholders of both Avondale and the Company and certain other
conditions.
F-34
<PAGE>
TOTAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
Note 24. CONDENSED PARENT COMPANY FINANCIAL INFORMATION
The condensed financial statements of Coal City Corporation (parent company
only) are presented below:
<TABLE>
<CAPTION>
Balance Sheets
December 31,
----------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 331 $ 139
Investments in subsidiaries 68,353 47,136
Note receivable, subsidiary 7,500 -
Other assets 238 45
----------------------------
TOTAL ASSETS $ 76,422 $ 47,320
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Long-term borrowings $ 23,809 $ 7,750
Liabilities, other 87 444
Stockholders' Equity 52,526 39,126
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 76,422 $ 47,320
============================
<CAPTION>
Statements of Income
Years Ended December 31,
-------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiaries $ 2,283 $ 1,491 $ 3,282
Interest and other income 370 6 -
Interest and other expense (1,804) (741) (1,052)
------------------------------------------
INCOME BEFORE INCOME TAX CREDITS AND EQUITY
IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES 849 756 2,230
Income tax credits (596) (214) (324)
------------------------------------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED NET
INCOME OF SUBSIDIARIES 1,445 970 2,554
Equity (deficit) in undistributed net income of subsidiaries 2,004 2,667 (117)
------------------------------------------
NET INCOME $ 3,449 $ 3,637 $ 2,437
==========================================
</TABLE>
F-35
<PAGE>
TOTAL CITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE 22. CONDENSED PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Statements of Cash Flows
Years Ended December 31,
------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 3,449 $ 3,637 $ 2,437
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization (110) - 4
Equity (deficit) in undistributed net income of subsidiaries (2,004) (2,444) 117
Change in other assets and other liabilities (490) (295) 737
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 845 898 3,295
----------- ----------- -----------
Cash Flows From Investing Activities
Purchase of subsidiary preferred stock (19,000) - (18,400)
Purchase of interest in grantor trust (309) - -
Cash received from subsidiary for
preferred stock redemption 2,000 - 7,000
Purchase of minority interests (2,649) (64) (33)
Purchase of interest in Peterson Bank (387)
Sale of interest in Peterson Bank 901 - -
Issuance of note receivable from subsidiary (7,500) - -
Net (increase) decrease in securities purchased under
agreement to resell - 1,504 (1,504)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (26,557) 1,440 (13,324)
----------- ----------- -----------
Cash Flows From Financing Activities
Purchase and retirement of common stock (194) (872) (123)
Issuance of common stock 115 311 706
Issuance of preferred stock 10,200 - 3,500
Redemption of preferred stock - - (3,500)
Dividends paid (276) - (267)
Proceeds from long-term borrowings 23,809 - 17,500
Principal paid on long-term borrowings (7,750) (2,000) (7,750)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 25,904 (2,561) 10,066
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 192 (223) 37
Cash:
Beginning 139 362 325
----------- ----------- -----------
Ending $ 331 $ 139 $ 362
=========== =========== ===========
</TABLE>
F-36
<PAGE>
APPENDIX I
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
By and Between
Avondale Financial Corp.
And
Coal City Corporation
Dated as of October 12, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
THE MERGER AND RELATED MATTERS............................................................................ 3
1.1 Merger.............................................................................................. 3
1.2 Effective Times..................................................................................... 3
1.3 Conversion of Shares................................................................................ 4
1.4 Surviving Corporation in the Company Merger......................................................... 5
1.5 Authorization for Issuance of Avondale Common Stock; Exchange of Certificates....................... 6
1.6 No Fractional Shares................................................................................ 8
1.7 Stockholders' Meetings.............................................................................. 8
1.8 Coal City Stock Options............................................................................. 9
1.9 Registration Statement; Prospectus/Joint Proxy Statement............................................ 9
1.10 Cooperation; Regulatory Approvals................................................................... 11
1.11 Closing............................................................................................. 11
ARTICLE II
REPRESENTATIONS AND WARRANTIES............................................................................ 12
2.1 Organization, Good Standing, Authority, Insurance, Etc.............................................. 12
2.2 Capitalization...................................................................................... 12
2.3 Ownership of Subsidiaries........................................................................... 13
2.4 Financial Statements and Reports.................................................................... 13
2.5 Absence of Changes.................................................................................. 15
2.6 Prospectus/Joint Proxy Statement.................................................................... 15
2.7 No Broker's or Finder's Fees........................................................................ 15
2.8 Litigation and Other Proceedings.................................................................... 16
2.9 Compliance with Law................................................................................. 16
2.10 Corporate Actions................................................................................... 16
2.11 Authority........................................................................................... 17
2.12 Employment Arrangements............................................................................. 18
2.13 Employee Benefits................................................................................... 18
2.14 Information Furnished............................................................................... 19
2.15 Property and Assets................................................................................. 20
2.16 Agreements and Instruments.......................................................................... 20
2.17 Material Contract Defaults.......................................................................... 21
2.18 Tax Matters......................................................................................... 21
2.19 Environmental Matters............................................................................... 21
2.20 Loan Portfolio; Portfolio Management................................................................ 22
2.21 Real Estate Loans and Investments................................................................... 23
2.22 Derivatives Contracts............................................................................... 23
2.23 Exceptions to Representations and Warranties........................................................ 23
ARTICLE III
COVENANTS................................................................................................. 24
3.1 Investigations; Access and Copies................................................................... 24
3.2 Conduct of Business................................................................................. 25
3.3 No Solicitation..................................................................................... 27
3.4 Stockholder Approvals............................................................................... 28
3.5 Resale Letter Agreements; Accounting and Tax Treatment.............................................. 28
3.6 Publicity........................................................................................... 28
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.7 Cooperation Generally............................................................................... 28
3.8 Additional Financial Statements and Reports......................................................... 29
3.9 Stock Exchange Listing.............................................................................. 29
3.10 Employee Benefits and Agreements.................................................................... 29
3.11 Minority Interest in Manufacturers National......................................................... 31
3.12 Preferred Stock..................................................................................... 31
ARTICLE IV
CONDITIONS OF THE COMPANY MERGER;TERMINATION OF AGREEMENT................................................. 31
4.1 General Conditions................................................................................... 31
4.2 Conditions to Obligations of ........................................................................ 33
4.3 Conditions to Obligations of ........................................................................ 34
4.4 Termination of Agreement and Abandonment of Merger................................................... 36
ARTICLE V
TERMINATION OF OBLIGATIONS; PAYMENT OF EXPENSES........................................................... 37
5.1 Termination; Lack of Survival of Representations and Warranties...................................... 37
5.2 Payment of Expenses.................................................................................. 38
ARTICLE VI
CERTAIN POST-MERGER AGREEMENTS............................................................................ 38
6.1 Indemnification...................................................................................... 38
6.2 Directors and Officers of the Surviving Corporation and Coal City Bank.............................. 39
ARTICLE VII
GENERAL................................................................................................... 42
7.1 Amendments........................................................................................... 42
7.2 Confidentiality...................................................................................... 42
7.3 Governing Law........................................................................................ 42
7.4 Notices.............................................................................................. 42
7.5 No Assignment........................................................................................ 43
7.6 Headings............................................................................................. 43
7.7 Counterparts......................................................................................... 43
7.8 Construction and Interpretation...................................................................... 43
7.9 Entire Agreement..................................................................................... 44
7.10 Severability......................................................................................... 44
7.11 No Third Party Beneficiaries......................................................................... 44
7.12 No Employment Solicitation........................................................................... 44
Schedules:
Schedule I Disclosure Schedule for Avondale..............................................................
Schedule II Disclosure Schedule for Coal City.............................................................
Exhibits:
Exhibit A Avondale Stock Option Agreement
Exhibit B Coal City Stock Option Agreement
Exhibit C Form of Avondale Voting Agreement (excluded)
Exhibit D Form of Coal City Voting Agreement(excluded)
Exhibit 1.4(c)(A) Amendment to Avondale Certificate of Incorporation (excluded)
Exhibit 1.4(c)(B) Amendment to Avondale Bylaws (excluded)
Exhibit 3.5 Form of Affiliate Agreement (excluded)
Exhibit 3.10(d) Form of Avondale Employment Agreement(excluded)
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
________________________________________________________________________________
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is dated as of October 12,
1998, by and between Avondale Financial Corp., a Delaware corporation
("Avondale") and Coal City Corporation, an Illinois corporation ("Coal City").
Each of Avondale and Coal City is sometimes individually referred to herein as a
"party," and Avondale and Coal City are sometimes collectively referred to
herein as the "parties."
RECITALS
WHEREAS, Avondale, a unitary savings and loan holding company, with
principal offices in Chicago, Illinois, owns all of the issued and outstanding
capital stock of Avondale Federal Savings Bank, a federally chartered savings
bank ("Avondale Bank"), with principal offices in Chicago, Illinois. As of the
date hereof, Avondale has 10,000,000 authorized shares of common stock, par
value $0.01 per share ("Avondale Common Stock"), of which 2,902,566 shares are
outstanding, and 1,000,000 authorized shares of preferred stock, par value $.01
per share, none of which is outstanding.
WHEREAS, Coal City, a bank holding company, with principal offices in
Chicago, Illinois, owns 96.48% of the issued and outstanding common stock and
all of the issued and outstanding Class A Preferred Stock of Manufacturers
National Corporation, an Illinois corporation ("Manufacturers National"), with
principal offices in Chicago, Illinois, and Manufacturers National owns all of
the issued and outstanding capital stock of Manufacturers Bank, an Illinois
banking corporation ("Coal City Bank"), with principal offices in Chicago,
Illinois. As of the date hereof, Coal City has 200,000 authorized shares of
common stock, par value $10.00 per share ("Coal City Common Stock"), of which
48,957 shares are outstanding, 100 authorized shares of Class A preferred stock,
par value $100,000 per share ("Coal City Class A Preferred Stock"), of which no
shares are outstanding and 100 authorized shares of Class B preferred stock, par
value $150,000 per share ("Coal City Class B Preferred Stock, and together with
the Coal City Class A Preferred Stock, the "Coal City Preferred Stock"), of
which 68 shares are outstanding.
WHEREAS, Avondale and Coal City desire to combine their respective holding
companies through a tax-free, stock-for-stock merger so that the respective
stockholders of Avondale and Coal City will have an equity ownership in the
combined holding company.
WHEREAS, neither the Board of Directors of Avondale nor the Board of
Directors of Coal City seeks to sell its respective holding company at this time
but both Boards desire to merge their respective holding companies in a
transaction structured as a merger of equals.
1
<PAGE>
WHEREAS, it is intended that to accomplish this result, Coal City will be
merged with and into Avondale, with Avondale as the surviving corporation. Such
merger is referred to herein as the "Company Merger." Avondale after the Company
Merger is sometimes referred to herein as the "Surviving Corporation."
WHEREAS, following consummation of the Company Merger, all of the issued
and outstanding capital stock of Avondale Bank may be contributed to
Manufacturers National. Such transaction is referred to herein as the
"Contribution." Following consummation of the Contribution, either (i) Avondale
Bank will be merged with and into Coal City Bank, with Coal City Bank as the
surviving institution (such transaction referred to herein as the "Bank
Merger"), or (ii) Coal City Bank will purchase and assume all of the assets and
liabilities of Avondale Bank, other than a deposit taking office, deposits
located thereat, and certain assets and liabilities relating to the mortgage
banking business of Avondale Bank to be determined by the parties (such
transaction referred to herein as the "Bank Purchase and Assumption"). The Bank
Merger and the Bank Purchase and Assumption are sometimes collectively referred
to herein as the "Avondale Bank Acquisition." The Company Merger, the
Contribution and the Avondale Bank Acquisition are sometimes collectively
referred to herein as the "Merger."
WHEREAS, it is intended that for federal income tax purposes the Company
Merger shall qualify as a reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") and
this Agreement shall constitute a plan of reorganization pursuant to Section 368
of the Internal Revenue Code.
WHEREAS, as an inducement to and condition of Avondale's willingness to
enter into this Agreement and the Avondale Stock Option Agreement, Coal City
will grant to Avondale concurrently with the execution and delivery of this
Agreement an option pursuant to the Coal City Stock Option Agreement, and as an
inducement to and condition of Coal City's willingness to enter into this
Agreement and the Coal City Stock Option Agreement, Avondale will grant to Coal
City concurrently with the execution and delivery of this Agreement an option
pursuant to the Avondale Stock Option Agreement. The Avondale Stock Option
Agreement and the Coal City Stock Option Agreement are attached hereto as
Exhibits A and B, respectively. References herein to the "Stock Option
Agreement" shall refer in the case of Avondale to the Avondale Stock Option
Agreement and in the case of Coal City to the Coal City Stock Option Agreement,
and collectively such agreements shall be referred to as the "Stock Option
Agreements."
WHEREAS, concurrently with the execution and delivery of this Agreement,
and as an inducement to and condition of the parties' willingness to enter into
this Agreement, Coal City and each of the directors of Avondale and Avondale and
each of the directors of Coal City and certain of their affiliates, have entered
into voting
2
<PAGE>
agreements in the forms attached hereto as Exhibits C and D, respectively.
WHEREAS, the Boards of Directors of Avondale and Coal City (at meetings
duly called and held) have determined that this Agreement and the transactions
contemplated hereby are in the best interests of Avondale and Coal City,
respectively, and their respective stockholders and have approved this Agreement
and the Stock Option Agreements.
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements hereinafter set forth, the parties hereby
agree as follows:
ARTICLE I
THE MERGER AND RELATED MATTERS
1.1 Merger. Subject to the terms and conditions of this Agreement and
------
pursuant to applicable law, at the Company Merger Effective Time (as hereinafter
defined), (i) Coal City shall be merged with and into Avondale pursuant to the
terms and conditions set forth herein, (ii) the separate corporate existence of
Coal City shall cease, and (iii) Avondale as the Surviving Corporation shall
continue to be governed by the laws of the State of Delaware. After the Company
Merger, subject to the terms and conditions of this Agreement and pursuant to
applicable law, at the Contribution Time (as hereinafter defined) all of the
issued and outstanding capital stock of Avondale Bank shall be contributed to
Manufacturers National pursuant to the terms and conditions set forth herein and
in a contribution agreement (the "Contribution Agreement"). After the
Contribution, subject to the terms and conditions of this Agreement and pursuant
to applicable law, either (i) at the Bank Merger Effective Time (as hereinafter
defined) (A) Avondale Bank shall be merged with and into Coal City Bank pursuant
to the terms and conditions set forth herein and in a bank merger agreement (the
"Bank Merger Agreement"), (B) the separate existence of Avondale Bank shall
cease, and (C) Coal City Bank shall continue as the surviving institution of the
Bank Merger, or (ii) at the Purchase and Assumption Time (as hereinafter
defined) (A) Coal City Bank shall purchase and assume all of the assets and
liabilities of Avondale Bank, other than a deposit taking office, deposits
located thereat, and certain assets and liabilities relating to the mortgage
banking business of Avondale Bank to be identified by the parties, pursuant to
the terms and conditions set forth herein and in a purchase and assumption
agreement (the "Purchase and Assumption Agreement") and (B) the separate
existence of Avondale Bank shall continue.
1.2 Effective Times. As soon as practicable after each of the conditions
---------------
set forth in Article IV hereof has been satisfied or waived, Avondale and Coal
City will file, or cause to be filed, a certificate of merger and articles of
merger with the appropriate authorities of Delaware and Illinois, respectively,
for the Company
3
<PAGE>
Merger, which certificate of merger and articles of merger shall in each case be
in the form required by and executed in accordance with the applicable
provisions of law. The Company Merger shall become effective at the time and
date which is the later of the time at which (i) the Delaware certificate of
merger is filed with the appropriate authorities of Delaware and (ii) the
Illinois articles of merger is filed with the appropriate authorities of
Illinois ("Company Merger Effective Time"), which shall be immediately following
the Closing (as defined in Section 1.11 hereof) and on the same day as the
Closing if practicable, or at such other date and time as may be agreed to by
the parties and specified in the certificate of merger and articles of merger in
accordance with applicable law. The Contribution shall become effective at such
time as shall be provided in the Contribution Agreement (the "Contribution
Time"). The Bank Merger, as and if applicable, shall become effective at the
time as shall be provided in the Bank Merger Agreement (the "Bank Merger
Effective Time"). The Bank Purchase and Assumption, as and if applicable, shall
become effective at such time as shall be provided in the Purchase and
Assumption Agreement (the "Purchase and Assumption Time"). The parties shall
cause the Company Merger to become effective before the Contribution. The
parties shall cause the Contribution to become effective before the Avondale
Bank Acquisition.
1.3 Conversion of Shares.
--------------------
(a) At the Company Merger Effective Time, by virtue of the Company
Merger and without any action on the part of Avondale or Coal City or the
holders of shares of Avondale or Coal City Common Stock:
(i) Each outstanding share of Coal City Common Stock issued
and outstanding at the Company Merger Effective Time (except for Dissenting
Shares, if applicable, as defined in clause (a)(ii) of this Section), subject to
clause (a)(iii) of this Section and Section 1.6 hereof, shall cease to be
outstanding, shall cease to exist and shall be converted into and represent
solely 83.5 shares of Avondale Common Stock and shall no longer be a share of
Coal City Common Stock.
(ii) Any shares of Coal City Common Stock held by a holder who
dissents from the Company Merger in accordance with Section 5/11.65 of the
Illinois Business Corporation Act (the "IBCA") shall be referred to herein as
"Dissenting Shares." Notwithstanding any other provision of this Agreement, any
Dissenting Shares shall not, after the Company Merger Effective Time, be
entitled to vote for any purpose or receive any dividends or other distributions
and shall be entitled only to such rights as are afforded in respect of
Dissenting Shares pursuant to the IBCA.
(iii) Any shares of Coal City Common Stock which are owned or
held by either party hereto or any of their respective Subsidiaries (as defined
in Section 2.1 hereof) (other than in a
4
<PAGE>
fiduciary capacity) at the Company Merger Effective Time shall cease to exist,
the certificates for such shares shall as promptly as practicable be cancelled,
such shares shall not be converted into or represent any shares of Avondale
Common Stock, and no shares of capital stock of Avondale shall be issued or
exchanged therefor.
(iv) Each share of Avondale Common Stock issued and outstanding
immediately before the Company Merger Effective Time shall remain an outstanding
share of Common Stock of Avondale as the Surviving Corporation.
(v) The holders of certificates representing shares of Coal
City Common Stock shall cease to have any rights as stockholders of Coal City,
except such rights, if any, as they may have pursuant to the IBCA.
1.4 Surviving Corporation in the Company Merger.
-------------------------------------------
(a) The name of the Surviving Corporation in the Company Merger shall
be "MB Financial, Inc." The headquarters of the Surviving Corporation shall be
located in Chicago, Illinois.
(b) At the Company Merger Effective Time, the Certificate of
Incorporation of Avondale as then in effect shall be amended (subject to the
requisite approval of Avondale stockholders) as set forth in Exhibit 1.4(c)(A),
and such Certificate of Incorporation as so amended (or the Certificate of
Incorporation of Avondale immediately prior to the Company Merger Effective Time
if such amendment is not approved by the Avondale stockholders) shall be the
Certificate of Incorporation of Avondale as the Surviving Corporation until
amended as provided therein or as otherwise permitted by the Delaware General
Corporation Law (the "DGCL").
(c) At the Company Merger Effective Time, the Bylaws of Avondale as
then in effect shall be amended as set forth in Exhibit 1.4(c)(B), and such
Bylaws as so amended shall be the Bylaws of Avondale as the Surviving
Corporation until amended as provided therein or as otherwise permitted by the
DGCL.
(d) The directors and certain executive officers of Avondale as the
Surviving Corporation following the Company Merger shall be as provided in
Section 6.2 herein until such directors or officers are replaced or additional
directors or officers are elected or appointed in accordance with the provisions
of this Agreement and the Certificate of Incorporation and Bylaws of the
Surviving Corporation.
(e) From and after the Company Merger Effective Time:
(i) Avondale as the Surviving Corporation shall possess all
assets and property of every description, and every interest in the assets and
property, wherever located, and the rights, privileges, immunities, powers,
franchises, and authority,
5
<PAGE>
of a public as well as of a private nature, of each of Avondale and Coal City,
and all obligations belonging or due to each of Avondale and Coal City, all of
which shall vest in Avondale as the Surviving Corporation without further act or
deed. Title to any real estate or any interest in the real estate vested in
Avondale or Coal City shall not revert or in any way be impaired by reason of
the Company Merger.
(ii) Avondale as the Surviving Corporation will be liable for all
the obligations of each of Avondale and Coal City. Any claim existing, or action
or proceeding pending, by or against Avondale or Coal City, may be prosecuted to
judgement, with right of appeal, as if the Company Merger had not taken place,
or Avondale as the Surviving Corporation may be substituted in its place.
(iii) All the rights of creditors of each of Avondale and Coal City
will be preserved unimpaired, and all liens upon the property of Avondale and
Coal City will be preserved unimpaired only on the property affected by such
liens immediately before the Company Merger Effective Time.
1.5 Authorization for Issuance of Avondale Common Stock; Exchange of
----------------------------------------------------------------
Certificates.
- ------------
(a) Avondale shall reserve for issuance a sufficient number of
shares of its common stock for the purpose of issuing its shares to Coal City's
stockholders in accordance with this Article I.
(b) After the Company Merger Effective Time, holders of
certificates theretofore representing outstanding shares of Coal City Common
Stock (other than as provided in Sections 1.3(a)(ii) and (iii) hereof), upon
surrender of such certificates to an exchange agent appointed jointly by
Avondale and Coal City on behalf of Avondale as the Surviving Corporation (the
"Exchange Agent"), shall be entitled to receive certificates for the number of
whole shares of Avondale Common Stock into which shares of Coal City Common
Stock theretofore evidenced by the certificates so surrendered shall have been
converted, as provided in Section 1.3 hereof, and cash payments in lieu of
fractional shares, if any, as provided in Section 1.6 hereof. As soon as
practicable after the Company Merger Effective Time, the Exchange Agent will
send a notice and transmittal form to each Coal City stockholder of record at
the Company Merger Effective Time whose Coal City Common Stock shall have been
converted into Avondale Common Stock advising such stockholder of the
effectiveness of the Company Merger and the procedure for surrendering to the
Exchange Agent outstanding certificates formerly representing Coal City Common
Stock in exchange for new certificates for Avondale Common Stock. Upon
surrender, each certificate representing Coal City Common Stock shall be
cancelled.
(c) Until surrendered as provided in this Section 1.5 hereof,
all outstanding certificates of a holder which, before
6
<PAGE>
the Company Merger Effective Time, represented Coal City Common Stock (other
than those representing Dissenting Shares and shares cancelled at the Company
Merger Effective Time pursuant to Section 1.3(a)(iii) hereof) will be deemed for
all corporate purposes to represent the number of whole shares of Avondale
Common Stock into which the shares of Coal City Common Stock formerly
represented thereby were converted and the right to receive cash in lieu of a
fractional share interest. However, until such outstanding certificates formerly
representing Coal City Common Stock are so surrendered, no dividend or
distribution payable to holders of record of Avondale Common Stock shall be paid
to any holder of such outstanding certificates, but upon surrender of such
outstanding certificates by such holder there shall be paid to such holder the
amount of any dividends or distribution, without interest, theretofore paid with
respect to such whole shares of Avondale Common Stock, but not paid to such
holder, and which dividends or distribution had a record date occurring on or
after the Company Merger Effective Time and the amount of any cash, without
interest, payable to such holder in lieu of a fractional share interest pursuant
to Section 1.6 hereof. After the Company Merger Effective Time, there shall be
no further registration of transfers on the records of Coal City of outstanding
certificates formerly representing shares of Coal City Common Stock and, if a
certificate formerly representing such shares is presented to Coal City or
Avondale, it shall be forwarded to the Exchange Agent for cancellation and
exchanged for a certificate representing shares of Avondale Common Stock and
cash for any fractional share interest (if any), as herein provided. Following
six months after the Company Merger Effective Time, the Exchange Agent shall
return to Avondale any certificates for Avondale Common Stock and cash remaining
in the possession of the Exchange Agent (together with any dividends in respect
thereof) and thereafter shareholders of Coal City shall look exclusively to
Avondale for shares of Avondale Common Stock and cash to which they are entitled
hereunder.
(d) All shares of Avondale Common Stock and cash in lieu of any
fractional share issued or paid upon the conversion of Coal City Common Stock in
accordance with the above terms and conditions shall be deemed to have been
issued or paid in full satisfaction of all rights pertaining to such Coal City
Common Stock.
(e) If any new certificate for Avondale Common Stock is to be
issued in a name other than that in which the certificate surrendered in
exchange thereof is registered, it shall be a condition of the issuance therefor
that the certificate surrendered in exchange shall be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
transfer pay to the Exchange Agent any transfer or other taxes required by
reason of the issuance of a new certificate representing shares of Avondale
Common Stock in any name other than that of the registered holder of the
certificate surrendered, or establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not payable.
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(f) In the event any certificate representing Coal City Common
Stock shall have been lost, stolen or destroyed, the Exchange Agent shall issue
in exchange for such lost, stolen or destroyed certificate, upon the making of
an affidavit of that fact by the holder thereof, such shares of Avondale Common
Stock and cash for any fractional share interest, as may be required pursuant
hereto; provided, however, that Avondale as the Surviving Corporation or
Exchange Agent may, in its discretion and as a condition precedent to the
issuance or payment thereof, require the owner of such lost, stolen or destroyed
certificate to deliver a bond in such sum as it may direct as indemnity against
any claim that may be made against Avondale as the Surviving Corporation, Coal
City, the Exchange Agent or any other person with respect to the certificate
alleged to have been lost, stolen or destroyed.
1.6 No Fractional Shares. Notwithstanding any term or provision hereof,
--------------------
no fractional shares of Avondale Common Stock, and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued upon the
conversion of or in exchange for any shares of Coal City Common Stock; no
dividend or distribution with respect to Avondale Common Stock shall be payable
on or with respect to any fractional share interest; and no such fractional
share interest shall entitle the owner thereof to vote or to any other rights of
a stockholder of Avondale as the Surviving Corporation. In lieu of such
fractional share interest, any holder of Coal City Common Stock who would
otherwise be entitled to a fractional share of Avondale Common Stock will, upon
surrender of his certificate or certificates representing Coal City Common Stock
outstanding immediately before the Company Merger Effective Time, be paid the
applicable cash value of such fractional share interest, which shall be equal to
the product of the fraction of the share to which such holder would otherwise
have been entitled and the closing price of Avondale Common Stock on the trading
day immediately prior to the date of the Company Merger Effective Time. For the
purposes of determining any such fractional share interest, all shares of Coal
City Common Stock owned by a Coal City stockholder shall be combined so as to
calculate the maximum number of whole shares of Avondale Common Stock issuable
to such Coal City stockholder.
1.7 Stockholders' Meetings.
----------------------
(a) Avondale shall, at the earliest practicable date, hold a
meeting of its stockholders (the "Avondale Stockholders' Meeting") to submit
this Agreement for adoption by its stockholders. The affirmative vote of a
majority of the issued and outstanding shares of Avondale Common Stock entitled
to vote shall be required for such adoption.
(b) Coal City shall, at the earliest practicable date, hold a
meeting of its stockholders (the "Coal City Stockholders' Meeting") to submit
this Agreement for stockholder approval. The affirmative vote of two-thirds of
the issued and
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outstanding shares of Coal City Common Stock entitled to vote shall be required
for such approval.
1.8 Coal City Stock Options.
-----------------------
(a) At the Company Merger Effective Time, by virtue of the
Company Merger and without any action on the part of any holder of an option,
each outstanding option under the stock option plans of Coal City (the "Coal
City Option Plans"), whether vested or unvested, shall continue outstanding as
an option to purchase, in place of the purchase of each share of Coal City
Common Stock, the number of shares (rounded to the nearest whole share) of
Avondale Common Stock that would have been received by the optionee in the
Company Merger had the option been exercised in full (without regard to any
limitations contained therein on exercise) for shares of Coal City Common Stock
immediately before the Company Merger upon the same terms and conditions under
the relevant option as were applicable immediately before the Company Merger
Effective Time, except for appropriate pro rata adjustments as to the relevant
option price for shares of Avondale Common Stock substituted therefor so that
the aggregate option exercise price of shares subject to an option immediately
following the substitution shall be the same as the aggregate option exercise
price for such shares immediately before such substitution. It is intended that
the foregoing substitution shall be undertaken consistent with and in a manner
that will not constitute a "modification" under Section 424 of the Internal
Revenue Code as to any stock option which is an "incentive stock option."
(b) At all times after the Company Merger Effective Time,
Avondale as the Surviving Corporation shall reserve for issuance such number of
shares of Avondale Common Stock as necessary so as to permit the exercise of
options granted under the Coal City Option Plans in the manner contemplated by
this Agreement and the instruments pursuant to which such options were granted.
Avondale shall make all filings required under federal and state securities laws
promptly after the Company Merger Effective Time so as to permit the exercise of
such options and the sale of the shares received by the optionee upon such
exercise at and after the Company Merger Effective Time and Avondale as the
Surviving Corporation shall continue to make such filings thereafter as may be
necessary to permit the continued exercise of options and sale of such shares.
1.9 Registration Statement; Prospectus/Joint Proxy Statement.
--------------------------------------------------------
(a) For the purposes (i) of holding the Avondale Stockholders'
Meeting, (ii) of registering with the Securities and Exchange Commission ("SEC")
and with applicable state securities authorities the Avondale Common Stock to be
issued to holders of Coal City Common Stock in connection with the Company
Merger and (iii) of holding the Coal City Stockholders' Meeting, the parties
shall cooperate in the preparation of an appropriate registration
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statement (such registration statement, together with all and any amendments and
supplements thereto, is referred to herein as the "Registration Statement"),
including the Prospectus/Joint Proxy Statement satisfying all applicable
requirements of applicable state laws, and of the Securities Act of 1933 (the
"Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act")
and the rules and regulations thereunder (such Prospectus/Joint Proxy Statement,
together with any and all amendments or supplements thereto, is referred to
herein as the "Prospectus/Joint Proxy Statement").
(b) Avondale shall furnish such information concerning Avondale
and its Subsidiaries as is necessary in order to cause the Prospectus/Joint
Proxy Statement, insofar as it relates to such entities, to comply with Section
1.9(a) hereof. Avondale agrees promptly to advise Coal City if at any time
before the Coal City or Avondale Stockholders' Meeting any information provided
by Avondale in the Prospectus/Joint Proxy Statement becomes incorrect or
incomplete in any material respect and to provide the information needed to
correct such inaccuracy or omission. Avondale shall furnish Coal City with such
supplemental information as may be necessary in order to cause such
Prospectus/Joint Proxy Statement, insofar as it relates to Avondale and its
Subsidiaries, to comply with Section 1.9(a) hereof.
(c) Coal City shall furnish Avondale with such information
concerning Coal City and its Subsidiaries as is necessary in order to cause the
Prospectus/Joint Proxy Statement, insofar as it relates to such entities, to
comply with Section 1.9(a) hereof. Coal City agrees promptly to advise Avondale
if at any time before the Avondale or Coal City Stockholders' Meeting any
information provided by Coal City in the Prospectus/Joint Proxy Statement
becomes incorrect or incomplete in any material respect and to provide Avondale
with the information needed to correct such inaccuracy or omission. Coal City
shall furnish Avondale with such supplemental information as may be necessary in
order to cause the Prospectus/Joint Proxy Statement, insofar as it relates to
Coal City and its Subsidiaries, to comply with Section 1.9(a).
(d) Avondale shall promptly file the Registration Statement with
the SEC and applicable state securities agencies. Avondale and Coal City shall
use all reasonable efforts to cause the Registration Statement to become
effective under the Securities Act and applicable state securities laws at the
earliest practicable date. Coal City authorizes Avondale to utilize in the
Registration Statement the information concerning Coal City and its Subsidiaries
provided to Avondale for the purpose of inclusion in the Prospectus/Joint Proxy
Statement. Avondale shall advise Coal City promptly when the Registration
Statement has become effective and of any supplements or amendments thereto, and
Avondale shall furnish Coal City with copies of all such documents. Before the
Company Merger Effective Time or the termination of this Agreement, each party
shall consult with the other with respect to any material
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(other than the Prospectus/Joint Proxy Statement) that might constitute a
"prospectus" relating to the Company Merger within the meaning of the Securities
Act.
1.10 Cooperation; Regulatory Approvals. The parties shall cooperate, and
---------------------------------
shall cause each of their respective affiliates and Subsidiaries to cooperate,
in the preparation and submission by them, as promptly as reasonably
practicable, of such applications, petitions, and other filings as any of them
may reasonably deem necessary or desirable to or with thrift and bank regulatory
authorities, Federal Trade Commission, Department of Justice, SEC, Secretary of
State of Delaware and Illinois, other regulatory or governmental authorities,
holders of the voting shares of common stock of Avondale and Coal City, and any
other persons for the purpose of obtaining any approvals or consents necessary
to consummate the transactions contemplated hereby. Each party will have the
right to review and comment on such applications, petitions and filings in
advance and shall furnish to the other copies thereof promptly after submission
thereof. Any such materials must be acceptable to both Avondale and Coal City
prior to submission with any regulatory or governmental authority or
transmission to stockholders or other third parties, except to the extent that
Avondale or Coal City is legally required to proceed prior to obtaining the
acceptance of the other party hereto. Each party agrees to consult with the
other with respect to obtaining all necessary consents and approvals, and each
will keep the other apprised of the status of matters relating to such approvals
and consents and the consummation of the transactions contemplated hereby. At
the date hereof, no party is aware of any reason that any regulatory approval
required to be obtained by it would not be obtained or would be obtained subject
to conditions that would have or result in a material adverse effect on Avondale
as the Surviving Corporation or, as and if applicable, Coal City Bank as the
surviving institution in the Bank Merger or, as and if applicable, Coal City
Bank as the acquiror in the Bank Purchase and Assumption.
1.11 Closing. If (i) this Agreement has been duly approved by the
-------
stockholders of Avondale and Coal City, and (ii) all relevant conditions of this
Agreement have been satisfied or waived, a closing (the "Closing") shall take
place as promptly as practicable thereafter at the principal office of Schwartz,
Cooper, Greenberger & Krauss, Chicago, Illinois, or at such other place as the
parties agree, at which the parties will exchange certificates, opinions,
letters and other documents as required hereby and will make the filings
described in Section 1.2 hereof. Such Closing will take place within 30 days
after the satisfaction or waiver of all conditions and/or obligations precedent
to Closing contained in Article IV of this Agreement, or at such other time as
the parties agree. The parties shall use their respective best efforts to cause
the Closing to occur on or prior to March 31, 1999.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
Avondale represents and warrants to Coal City, and Coal City represents and
warrants to Avondale, except as disclosed in the Disclosure Schedule delivered
by each party to the other pursuant to Section 2.23 herein, as follows:
2.1 Organization, Good Standing, Authority, Insurance, Etc. It is a
------------------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation. Section 2.1 of its Disclosure Schedule
lists each "subsidiary" (the term "subsidiary" when used with respect to any
party means any entity (including without limitation any corporation,
partnership, joint venture or other organization, whether incorporated or
unincorporated) which is consolidated with such party for financial reporting
purposes (individually a "Subsidiary" and collectively the "Subsidiaries"). Each
of its Subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction under which it is organized, as set forth in
Section 2.1 of its Disclosure Schedule. It and each of its Subsidiaries have all
requisite power and authority and to the extent required by applicable law are
licensed to own, lease and operate their respective properties and conduct their
respective businesses as they are now being conducted. It has delivered or made
available to the other party a true, complete and correct copy of the articles
of incorporation, certificate of incorporation or other organizing document and
of the bylaws, as in effect on the date of this Agreement, of it and each of its
Subsidiaries. It and each of its Subsidiaries are qualified to do business as
foreign corporations or entities and are in good standing in each jurisdiction
in which qualification is necessary under applicable law, except to the extent
that any failures to so qualify would not, in the aggregate, have a material
adverse effect on it. All eligible accounts of each of its Subsidiaries that is
a depositary institution are insured by the Federal Deposit Insurance
Corporation (the "FDIC") to the maximum extent permitted under applicable law.
In the case of the representations and warranties of Avondale, Avondale is duly
registered as a savings and loan holding company under the Home Owners' Loan Act
of 1933, as amended, and the Avondale Common Stock is registered under the
Exchange Act. In the case of the representations and warranties of Coal City,
Coal City is duly registered as a bank holding company registered under the Bank
Holding Company Act of 1956, as amended.
Its minute books and those of each of its Subsidiaries contain complete and
accurate records of all meetings and other corporate actions taken by their
respective stockholders and Boards of Directors (including the committees of
such Boards).
2.2 Capitalization. (a) Its authorized capital stock and the number of
--------------
issued and outstanding shares of its capital stock as of the date hereof are
accurately set forth in the recitals in this
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<PAGE>
Agreement. All outstanding shares of its common stock are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. Except
(i) as set forth in Section 2.2 of its Disclosure Schedule or (ii) with respect
to the Stock Option Agreement, as of the date of this Agreement, there are no
options, convertible securities, warrants or other rights (preemptive or
otherwise) to purchase or acquire any of its capital stock from it and no oral
or written agreement, contract, arrangement, understanding, plan or instrument
of any kind to which it or any of its Subsidiaries is subject with respect to
the issuance, voting or sale of issued or unissued shares of its capital stock.
A true and complete copy of each plan and agreement pursuant to which such
options, convertible securities, warrants or other rights have been granted or
issued, as in effect on the date of this Agreement, is included in Section 2.2
of its Disclosure Schedule. Only the holders of its common stock have the right
to vote at meetings of its stockholders on matters to be voted thereat
(including this Agreement).
(b) With respect to the shares of Avondale Common Stock to be issued
in the Company Merger, Avondale represents and warrants that such shares when so
issued in accordance with this Agreement will be duly authorized, validly
issued, fully paid and nonassessable and not subject to any preemptive rights or
other liens.
2.3 Ownership of Subsidiaries. All outstanding shares or ownership
-------------------------
interests of its Subsidiaries are validly issued, fully paid, nonassessable and
owned beneficially and of record by it or one of its Subsidiaries free and clear
of any lien, claim, charge, restriction, rights of third parties, or encumbrance
(collectively, "Encumbrance"), except as set forth in Section 2.3 of its
Disclosure Schedule. There are no options, convertible securities, warrants or
other rights (preemptive or otherwise) to purchase or acquire any capital stock
or ownership interests of any of its Subsidiaries and no contracts to which it
or any of its Subsidiaries is subject with respect to the issuance, voting or
sale of issued or unissued shares of the capital stock or ownership interests of
any of its Subsidiaries. Neither it nor any of its Subsidiaries owns more than
2% of the capital stock or other equity securities (including securities
convertible or exchangeable into such securities) of or more than 2% of the
aggregate profit participations in any entity other than a Subsidiary or as
otherwise set forth in Section 2.3 of its Disclosure Schedule.
2.4 Financial Statements and Reports. (a) No registration statement,
--------------------------------
offering circular, proxy statement, schedule or report filed by it or any of its
Subsidiaries under various securities and financial institution laws and
regulations ("Regulatory Reports"), on the date of its effectiveness in the case
of such registration statements, or on the date of filing in the case of such
reports or schedules, or on the date of mailing in the case of such proxy
statements, contained any untrue statement of a material fact or
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<PAGE>
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. For the past five years, it and its Subsidiaries have
timely filed all Regulatory Reports required to be filed by them under various
securities and financial institution laws and regulations except to the extent
that all failures to so file, in the aggregate, would not have a material
adverse effect on it; and all such documents, as finally amended, complied in
all material respects with applicable requirements of law and, as of their
respective date or the date as amended, did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Except to the extent stated therein, all
financial statements and schedules included in the Regulatory Reports (or to be
included in Regulatory Reports to be filed after the date hereof) (i) are or
will be (with respect to financial statements in respect of periods ending after
June 30, 1998), in accordance with its books and records and those of its
consolidated Subsidiaries, and (ii) present (and in the case of financial
statements in respect of periods ending after June 30, 1998, will present)
fairly the consolidated financial position and the consolidated results of
operations or income, changes in stockholders' equity and cash flows of it and
its Subsidiaries as of the dates and for the period indicated in accordance with
generally accepted accounting principles applied on a basis consistent with
prior periods (except for the omission of notes to unaudited statements and in
the case of unaudited statements to normal recurring year-end adjustments normal
in nature and amounts). Its audited consolidated financial statements at
December 31, 1997 and for the year then ended and the consolidated financial
statements for all periods thereafter up to the Closing reflect or will reflect,
as the case may be, all liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due and regardless of when
asserted) as of such date of it and its Subsidiaries required to be reflected in
such financial statements in accordance with generally accepted accounting
principles and contain or will contain (as the case may be) adequate reserves
for losses on loans and properties acquired in settlement of loans, taxes and
all other material accrued liabilities and for all reasonably anticipated
material losses, if any, as of such date in accordance with generally accepted
accounting principles. There exists no set of circumstances that could
reasonably be expected to result in any liability or obligation material to it
or its Subsidiaries, taken as a whole, except as disclosed in such consolidated
financial statements at December 31, 1997 or for transactions effected or
actions occurring or omitted to be taken after December 31, 1997 (i) in the
ordinary course of business, (ii) as permitted by this Agreement or (iii) as
disclosed in its Regulatory Reports filed after December 31, 1997 and before the
date of this Agreement. A true and complete copy of such December 31, 1997
financial statements has been delivered by it to the other party.
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(b) To the extent permitted under applicable law, it has delivered or made
available to the other party each Regulatory Report filed, used or circulated by
it with respect to periods since January 1, 1992 through the date of this
Agreement and will promptly deliver to the other party each such Regulatory
Report filed, used or circulated after the date hereof, each in the form
(including exhibits and any amendments thereto) filed with the applicable
regulatory or governmental entity (or, if not so filed, in the form used or
circulated).
2.5 Absence of Changes.
------------------
(a) Since June 30, 1998, there has been no material adverse change
affecting it. There is no occurrence, event or development of any nature
existing or, to its best knowledge, threatened which may reasonably be expected
to have a material adverse effect upon it.
(b) Except as set forth in Section 2.5 of its Disclosure Schedule or
in its Regulatory Reports filed after December 31, 1997 and before the date of
this Agreement, since December 31, 1997, each of it and its Subsidiaries has
owned and operated its respective assets, properties and businesses in the
ordinary course and consistent with past practice.
2.6 Prospectus/Joint Proxy Statement. At the time the Prospectus/Joint
--------------------------------
Proxy Statement is mailed to the stockholders of Avondale and Coal City for the
solicitation of proxies for the approvals referred to in Section 1.7 hereof and
at all times after such mailings up to and including the times of such
approvals, such Prospectus/Joint Proxy Statement (including any supplements
thereto), with respect to all information set forth therein relating to it
(including its Subsidiaries) and its stockholders, its common stock, this
Agreement, the Merger and the other transactions contemplated hereby, will:
(a) Comply in all material respects with applicable provisions of the
Securities Act, the Exchange Act and the rules and regulations under such Acts;
and
(b) Not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements contained therein, in light of the circumstances under which
it is made, not misleading.
2.7 No Broker's or Finder's Fees. No agent, broker, investment banker,
----------------------------
person or firm acting on behalf or under authority of it or any of its
Subsidiaries is or will be entitled to any broker's or finder's fee or any other
commission or similar fee directly or indirectly in connection with the Merger
or any other transaction contemplated hereby, except as set forth in Section 2.7
of its Disclosure Schedule.
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2.8 Litigation and Other Proceedings. Except for matters which would not
--------------------------------
have a material adverse effect on it, or except as set forth in Section 2.8 of
its Disclosure Schedule, neither it nor any of its Subsidiaries is a defendant
in, nor is any of its property subject to, any pending or, to its best
knowledge, threatened claim, action, suit, investigation or proceeding or
subject to any judicial order, judgment or decree.
2.9 Compliance with Law. Except as set forth in Section 2.9 of its
-------------------
Disclosure Schedule:
(a) It and each of its Subsidiaries are in compliance in all
material respects with all laws, regulations, ordinances, rules, judgments,
orders or decrees applicable to their respective operations or businesses,
including without limitation the Equal Credit Opportunity Act, the Fair Housing
Act, the Community Reinvestment Act, the Home Owners' Disclosure Act and all
other applicable fair lending laws or other laws relating to discrimination.
Neither it nor any of its Subsidiaries has received notice from any federal,
state or local government or governmental agency of any material violation of,
and does not know of any material violations of, any of the above.
(b) It and each of its Subsidiaries have all permits, licenses,
certificates of authority, orders and approvals of, and have made all filings,
applications and registrations with, all federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit them to
carry on their respective businesses as they are presently being conducted.
(c) It and each of its Subsidiaries have received since January 1,
1995 no notification or communication from any governmental or regulatory entity
or the staff thereof (A) asserting that it or any of its Subsidiaries is not in
compliance with any of the statutes, regulations or ordinances that such
governmental or regulatory entity administers or enforces; (B) threatening to
revoke any license, franchise, permit or authorization; or (C) threatening or
contemplating any enforcement action by or supervisory or other written
agreement with a state or federal banking regulator, or any revocation or
limitation of, or action which would have the effect of revoking or limiting,
the FDIC deposit insurance of any Subsidiary (nor, to the knowledge of its
executive officers, do any grounds for any of the foregoing exist); and
(d) It and each of its Subsidiaries are not required to give prior
notice to any regulatory agency of the proposed addition of an individual to
their respective board of directors or the employment of an individual as a
senior executive officer.
2.10 Corporate Actions.
-----------------
(a) Its Board of Directors has (i) duly approved the Company Merger,
this Agreement and the Stock Option Agreements, and
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authorized its officers to execute and deliver this Agreement, the Stock Option
Agreements and to take all action necessary to consummate the Company Merger and
the other transactions contemplated hereby, and (ii) authorized and directed the
submission for stockholders' approval or adoption of this Agreement.
(b) Its Board of Directors has taken all necessary action to exempt
this Agreement, and the Stock Option Agreement and the transactions contemplated
hereby and thereby from, and this Agreement, the Stock Option Agreement and the
transactions contemplated hereby and thereby are exempt from, (i) any applicable
state takeover laws, (ii) any state laws limiting or restricting the voting
rights of stockholders, (iii) any state laws requiring a stockholder approval
vote in excess of the vote normally required in transactions of similar type not
involving a "related person," "interested stockholder" or person or entity of
similar type and (iv) any provision in its or any of its Subsidiaries' articles
of incorporation, certificate of incorporation, charter or bylaws, (A)
restricting or limiting stock ownership or the voting rights of stockholders or
(B) requiring a stockholder approval vote in excess of the vote normally
required in transactions of similar type not involving a "related person,"
interested stockholder" or person or entity of similar type.
2.11 Authority. Except as set forth in Section 2.11 of its Disclosure
---------
Schedule, neither the execution and delivery of and performance of its
obligations under this Agreement, the Contribution Agreement, the Bank Merger
Agreement (as and if applicable), the Bank Purchase and Assumption Agreement (as
and if applicable) and the Stock Option Agreement by it or its applicable
Subsidiary nor the consummation of the Merger will violate any of the provisions
of, or constitute a breach or default under or give any person the right to
terminate or accelerate payment or performance under, (i) its articles of
incorporation, certificate of incorporation or bylaws, or the articles of
incorporation, certificate of incorporation, charter or bylaws of any of its
Subsidiaries, (ii) any regulatory restraint on the acquisition of it or control
thereof, (iii) any law, rule, ordinance or regulation or judgment, decree,
order, award or governmental or non-governmental permit or license to which it
or any of its Subsidiaries is subject or (iv) any agreement, lease, contract,
note, mortgage, indenture, arrangement or other obligation or instrument
("Contract") to which it or any of its Subsidiaries is a party or is subject or
by which any of its or their properties or assets is bound and which provides
for payments by, on behalf of, or to it and/or any of its Subsidiaries in excess
of either $25,000 per annum or $100,000 over the term of such Contract. The
parties acknowledge that the consummation of the Merger and the other
transactions contemplated hereby is subject to various regulatory approvals. It
or its applicable Subsidiary has all requisite corporate power and authority to
enter into this Agreement, the Stock Option Agreements, the Contribution
Agreement, the Bank Merger Agreement (as and if applicable) and the Bank
Purchase and
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Assumption Agreement (as and if applicable), and to perform its obligations
hereunder and thereunder, subject in the case of the Company Merger to the
approval or adoption of this Agreement by its stockholders under applicable law.
Other than the receipt of Governmental Approvals (as defined in Section 4.1(c)),
the approval or adoption of this Agreement by its stockholders and except as set
forth in Section 2.11 of its Disclosure Schedule with respect to any Contract,
no consents or approvals are required on its behalf or on behalf of any of its
Subsidiaries in connection with the consummation of the transactions
contemplated by this Agreement. This Agreement and the Stock Option Agreements
constitute the valid and binding obligations of it, enforceable in accordance
with their terms, except as enforceability may be limited by applicable laws
relating to bankruptcy, insolvency or creditors rights generally and general
principles of equity.
2.12 Employment Arrangements. Except as set forth in Section 2.12 of its
-----------------------
Disclosure Schedule, there are no agreements, plans or other arrangements with
respect to employment, severance or other benefits with any current or former
directors, officers or employees of it or any of its Subsidiaries which may not
be terminated without penalty or expense (including any augmentation or
acceleration of benefits) on 30 days' or less notice to any such person. Except
as set forth in Section 2.12 of its Disclosure Schedule, no payments and
benefits (including any augmentation or acceleration of benefits) to current or
former directors, officers or employees of it or any of its Subsidiaries
resulting from the transactions contemplated hereby or the termination of such
person's service or employment within two years after completion of the Company
Merger will cause the imposition of excise taxes under Section 4999 of the
Internal Revenue Code or the disallowance of a deduction to it, Avondale as the
Surviving Corporation, or any of their respective Subsidiaries pursuant to
Section 162, 280G, or any other section of the Internal Revenue Code.
2.13 Employee Benefits. (a) Neither it nor any of its Subsidiaries
-----------------
maintains any funded deferred compensation plans (including profit sharing,
pension, retirement savings or stock bonus plans), unfunded deferred
compensation arrangements or employee benefit plans as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
other than any plans ("Employee Plans") set forth in Section 2.13 of its
Disclosure Schedule (true and correct copies of which it has delivered to the
other party). Neither it nor any of its Subsidiaries has incurred or reasonably
expects to incur any liability to the Pension Benefit Guaranty Corporation
except for required premium payments which, to the extent due and payable, have
been paid. The Employee Plans intended to be qualified under Section 401(a) of
the Internal Revenue Code are so qualified, and it is not aware of any fact
which would adversely affect the qualified status of such plans. Except as set
forth in Section 2.13 of its Disclosure Schedule, neither it nor any of its
Subsidiaries (a) provides health, medical, death or survivor benefits to any
18
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former employee or beneficiary thereof or (b) maintains any form of current
(exclusive of base salary and base wages) or deferred compensation, bonus, stock
option, stock appreciation right, benefit, severance pay, retirement, employee
stock ownership, incentive, group or individual health insurance, welfare or
similar plan or arrangement for the benefit of any single or class of directors,
officers or employees, whether active or retired (collectively "Benefit
Arrangements").
(b) Except as disclosed in Section 2.13 of its Disclosure Schedule,
all Employee Plans and Benefit Arrangements which are in effect were in effect
for substantially all of calendar year 1997 and there has been no material
amendment thereof (other than amendments required to comply with applicable law)
or increase in the cost thereof or benefits payable thereunder on or after
January 1, 1997.
(c) To its best knowledge, with respect to all Employee Plans and
Benefit Arrangements, it and each of its Subsidiaries are in substantial
compliance with the requirements prescribed by any and all statutes,
governmental or court orders or rules or regulations currently in effect,
including but not limited to ERISA and the Internal Revenue Code, applicable to
such Employee Plans or Benefit Arrangements. To its best knowledge, no condition
exists that could constitute grounds for the termination of any Employee Plan
under Section 4042 of ERISA; no "prohibited transaction," as defined in Section
406 of ERISA and Section 4975 of the Internal Revenue Code, has occurred with
respect to any Employee Plan, or any other employee benefit plan maintained by
it or any of its Subsidiaries which is covered by Title I of ERISA, which could
subject any person to liability under Title I of ERISA or to the imposition of
any tax under Section 4975 of the Internal Revenue Code; to its best knowledge,
no Employee Plan subject to Part III of Subtitle B of Title I of ERISA or
Section 412 of the Internal Revenue Code, or both, has incurred any "accumulated
funding deficiency," as defined in Section 412 of the Internal Revenue Code,
whether or not waived; neither it nor any of its Subsidiaries has failed to make
any contribution or pay any amount due and owing as required by the terms of any
Employee Plan or Benefit Arrangement. To its best knowledge, neither it nor any
of its Subsidiaries has incurred or expects to incur, directly or indirectly,
any liability under Title IV of ERISA arising in connection with the termination
of, or a complete or partial withdrawal from, any plan covered or previously
covered by Title IV of ERISA which could constitute a liability of Avondale as
the Surviving Corporation or any of its Subsidiaries at or after the Company
Merger Effective Time or consummation of the Avondale Bank Acquisition.
2.14 Information Furnished. No statement contained in any schedule,
---------------------
certificate or other document furnished (whether before, on or after the date of
this Agreement) or to be furnished in writing by or on behalf of it to the other
party pursuant to this Agreement contains or will contain any untrue statement
of a
19
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material fact or any material omission. To its best knowledge, no information
which is material to the Merger and necessary to make the representations and
warranties herein not misleading has been withheld from the other party.
2.15 Property and Assets. It and its Subsidiaries have good and
-------------------
marketable title to all of their real property reflected in the financial
statements at December 31, 1997, referred to in Section 2.4 hereof or acquired
subsequent thereto, free and clear of all Encumbrances, except for (a) such
items shown in such financial statements or in the notes thereto, (b) liens for
current real estate taxes not yet delinquent, (c) customary easements,
restrictions of record and title exceptions that are not material to the value
or use of such property, (d) property sold or transferred in the ordinary course
of business since the date of such financial statements,(e) as otherwise
specifically indicated in its Regulatory Reports filed after December 31, 1997
and before the date of this Agreement or in Section 2.15 of its Disclosure
Schedule. It and its Subsidiaries enjoy peaceful and undisturbed possession
under all material leases for the use of real property under which they are the
lessee; all of such leases are valid and binding and in full force and effect,
and neither it nor any of its Subsidiaries is in default in any material respect
under any such lease. No default will arise under any material real property,
material personal property lease or material intellectual property license by
reason of the consummation of the Merger without the lessor's or licensor's
consent except as set forth in Section 2.15 of its Disclosure Schedule. There
has been no material physical loss, damage or destruction, whether or not
covered by insurance, affecting any of the real properties or material personal
property of it and its Subsidiaries since December 31, 1997. All fixed assets
material to its or any of its Subsidiaries' respective business and currently
used by it or any of its Subsidiaries are, in all material respects, in good
operating condition and repair.
2.16 Agreements and Instruments. Except as set forth in its Regulatory
--------------------------
Reports filed after December 31, 1997 and before the date of this Agreement or
in Section 2.16 of its Disclosure Schedule, neither it nor any of its
Subsidiaries is a party to (a) any material agreement, arrangement or commitment
not made in the ordinary course of business, (b) any agreement, indenture or
other instrument relating to the borrowing of money by it or any of its
Subsidiaries or the guarantee by it or of its Subsidiaries of any such
obligation (other than Federal Home Loan Bank advances with a maturity of one
year or less from the date hereof), (c) any agreements to make loans or for the
provision, purchase or sale of goods, services or property between it or any of
its Subsidiaries and any director or officer of it or any of its Subsidiaries or
any affiliate or member of the immediate family of any of the foregoing, (d) any
agreements with or concerning any labor or employee organization to which it or
any of its Subsidiaries is a party, (e) any agreements between it or any of its
Subsidiaries and any 5% or more stockholder of it and (f) any agreements,
directives, orders
20
<PAGE>
or similar arrangements between or involving it or any of its Subsidiaries and
any state or regulatory authority.
2.17 Material Contract Defaults. Neither it or any of its Subsidiaries
--------------------------
nor the other party thereto is in default in any respect under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it or any Subsidiary of it is a party or by which its respective
assets, business or operations may be bound or affected or under which it or its
respective assets, business or operations receives benefits, which default is
reasonably expected to have either individually or in the aggregate a material
adverse effect on it, and there has not occurred any event that, with the lapse
of time or the giving of notice or both, would constitute such a default.
2.18 Tax Matters. (a) It and each of its Subsidiaries have duly and
-----------
properly filed all federal, state, local and other tax returns and reports
required to be filed by them and have made timely payments of all taxes due and
payable, whether disputed or not; the current status of audits of such returns
or reports by the Internal Revenue Service and other applicable tax authorities
is as set forth in Section 2.18 of its Disclosure Schedule; and, except as set
forth in Section 2.18 of its Disclosure Schedule, there is no agreement by it or
any of its Subsidiaries for the extension of time for the assessment or payment
of any taxes payable. Except as set forth in Section 2.18 of its Disclosure
Schedule, neither the Internal Revenue Service nor any other taxing authority is
now asserting or, to its best knowledge, threatening to assert any deficiency or
claim for additional taxes (or interest thereon or penalties in connection
therewith), nor is it aware of any basis for any such assertion or claim. It and
each of its Subsidiaries have complied in all material respects with applicable
Internal Revenue Service backup withholding requirements. It and each of its
Subsidiaries have complied with all applicable state law tax collection and
reporting requirements.
(b) Adequate provision for any unpaid federal, state, local or
foreign taxes due or to become due from it or any of its Subsidiaries for all
periods through and including June 30, 1998 has been made and is reflected in
its June 30, 1998 financial statements referred to in Section 2.4 and has been
or will be made with respect to periods ending after June 30, 1998.
2.19 Environmental Matters. To its best knowledge, neither it nor any of
---------------------
its Subsidiaries owns, leases, or otherwise controls any property affected by
toxic waste, radon gas or other hazardous conditions or constructed in part with
the use of asbestos which requires removal or encapsulation. Neither it nor any
of its Subsidiaries is aware of, nor has it or any of its Subsidiaries received
written notice from any governmental or regulatory body of, any past, present or
future conditions, activities, practices or incidents which may interfere with
or prevent compliance or continued compliance with hazardous substance or other
environmental
21
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laws or any regulation, order, decree, judgment or injunction, issued, entered,
promulgated or approved thereunder or which may give rise to any common law or
legal liability or otherwise form the basis of any claim, action, suit,
proceeding, hearing or investigation based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge, release or threatened release into the
environment, of any pollutant, contaminant, chemical or industrial, toxic or
hazardous substance or waste. There is no civil, criminal or administrative
claim, action, suit, proceeding, hearing or investigation pending or, to its
knowledge, threatened against it or any of its Subsidiaries relating in any way
to such hazardous substance laws or any regulation, order, decree, judgment or
injunction issued, entered, promulgated or approved thereunder.
2.20 Loan Portfolio; Portfolio Management. (a) All evidences of
------------------------------------
indebtedness reflected as assets in its financial statements at December 31,
1997 referred to in Section 2.4 hereof, or originated or acquired since such
date, are (except with respect to those assets which are no longer assets of it
or any of its Subsidiaries) binding obligations of the respective obligers named
therein except as enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and except
as to the availability of equitable remedies, including specific performance,
which are subject to the discretion of the court before which a proceeding is
brought, and the payment of no material amount thereof (either individually or
in the aggregate with other evidences of indebtedness) is subject to any
defenses or offsets which have been threatened or asserted against it or any
Subsidiary. All such indebtedness which is secured by an interest in real
property is secured by a valid and perfected mortgage lien having the priority
specified in the loan documents. All loans originated or purchased by it or any
of its Subsidiaries were at the time entered into and at all times owned by it
or its Subsidiaries in compliance in all material respects with all applicable
laws and regulations (including, without limitation, all consumer protection
laws and regulations). It and its Subsidiaries (as applicable) administer their
loan and investment portfolios (including, but not limited to, adjustments to
adjustable mortgage loans) in accordance with all applicable laws and
regulations and the terms of applicable instruments. The records of it and any
of its Subsidiaries (as applicable) regarding all loans outstanding on its books
are accurate in all material respects.
(b) Section 2.20 of its Disclosure Schedule sets forth a list,
accurate and complete in all material respects, of the aggregate amounts of
loans, extensions of credit and other assets of it and its Subsidiaries that
have been adversely designated, criticized or classified by it as of August 31,
1998, separated by category of classification or criticism (the "Asset
Classification"); and no amounts of loans, extensions of credit or other assets
that have been adversely designated, classified or criticized as of the date
hereof by any representative of any
22
<PAGE>
governmental or regulatory authority as "Special Mention," "Substandard,"
"Doubtful," "Loss" or words of similar import are excluded from the amounts
disclosed in the Asset Classification, other than amounts of loans, extensions
of credit or other assets that were charged off by it or any of its Subsidiaries
before the date hereof.
2.21 Real Estate Loans and Investments. Except for properties acquired
---------------------------------
in settlement of loans, there are no facts, circumstances or contingencies known
to it which exist and would require a material reduction under generally
accepted accounting principles in the present carrying value of any of the real
estate investments, joint ventures, construction loans, other investments or
other loans of it or any of its Subsidiaries (either individually or in the
aggregate with other loans and investments).
2.22 Derivatives Contracts. Neither it nor any of its Subsidiaries is a
---------------------
party to or has agreed to enter into an exchange-traded or over-the-counter
swap, forward, future, option, cap, floor or collar financial contract or any
other contract not included in its financial statement as of June 30, 1998 which
is a derivatives contract (including various combinations thereof) (each, a
"Derivatives Contract") or owns securities that are identified in Thrift
Bulletin No. 65 or otherwise referred to as structured notes (each, a
"Structured Note"), except for those Derivatives Contracts and Structured Notes
set forth in Section 2.22 of its Disclosure Schedule, including a list, as
applicable, of any of its or any of its Subsidiaries' assets pledged as security
for a Derivatives Contract.
2.23 Exceptions to Representations and Warranties. (a) On or before the
--------------------------------------------
date hereof, Avondale has delivered to Coal City and Coal City has delivered to
Avondale its respective Disclosure Schedule setting forth, among other things,
exceptions to any and all of its representations and warranties in Article II,
provided that each exception set forth in a Disclosure Schedule shall be deemed
disclosed for purposes of all representations and warranties if such exception
is contained in a section of the Disclosure Schedule corresponding to a Section
in Article II and provided further that (i) no such exception is required to be
set forth in a Disclosure Schedule if its absence would not result in the
related representation or warranty being deemed untrue or incorrect under the
standard established by Section 2.23(b) and (ii) the mere inclusion of an
exception in a Disclosure Schedule shall not be deemed an admission by a party
that such exception represents a material fact, event or circumstance or would
result in a material adverse effect or material adverse change.
(b) None of the representations or warranties of Avondale or Coal City
contained in Article II shall be deemed untrue or incorrect, and no party shall
be deemed to have breached its representations or warranties contained herein,
as a consequence of the existence of any fact, circumstance or event if such
fact,
23
<PAGE>
circumstance or event, individually or taken together with all other facts,
circumstances or events, would not, or in the case of Section 2.8 is not
reasonably likely to, have a material adverse effect or material adverse change
on such party.
As used in this Agreement, the term "material adverse effect" or "material
adverse change" means an effect or change which (i) is materially adverse to the
financial condition of a party and its respective Subsidiaries taken as a whole,
(ii) significantly and adversely affects the ability of Avondale or Coal City to
consummate the transactions contemplated hereby or to perform its material
obligations hereunder or (iii) enables any person to prevent the consummation of
the transactions contemplated hereby, provided however that any effect or change
resulting from (A) actions or omissions of Avondale or Coal City contemplated by
this Agreement or taken with the prior consent of the other party in
contemplation of the transactions provided for herein (including, without
limitation, conforming accounting adjustments), or (B) circumstances affecting
the financial institutions industry generally (including changes in laws or
regulations, accounting principles or general levels of interest rates) which do
not adversely affect a party and its Subsidiaries, taken as a whole, in a manner
significantly different than the other party hereto or (C) any adjustments to
the value of (x) interest-only strips owned by Avondale or any of its
Subsidiaries, or (y) any mortgage-banking operations of Avondale or any of its
Subsidiaries, shall be deemed not to be or have a material adverse effect or
result in a material adverse change.
ARTICLE III
COVENANTS
3.1 Investigations; Access and Copies. Between the date of this
---------------------------------
Agreement and the Company Merger Effective Time, each party agrees to give to
the other party and its respective representatives and agents full access (to
the extent lawful) to all of the premises, books, records and employees of it
and its Subsidiaries at all reasonable times and to furnish and cause its
Subsidiaries to furnish to the other party and its respective agents or
representatives access to and true and complete copies of such financial and
operating data, all documents with respect to matters to which reference is made
in Article II of this Agreement or on any list, schedule or certificate
delivered or to be delivered in connection herewith and such other documents,
records, or information with respect to the businesses and properties of it and
its Subsidiaries as the other party or its respective agents or representative
shall from time to time reasonably request; provided however, that any such
-------- -------
inspection (a) shall be conducted in such manner as not to interfere
unreasonably with the operation of the business of the entity inspected and (b)
shall not affect any of the representations and warranties hereunder. One
representative of each party shall be permitted to attend all meetings of the
board of directors of the other party (except for any portion of such meetings
which relates to the transactions contemplated by this
24
<PAGE>
Agreement or such other matters deemed confidential). Each party will also give
prompt written notice to the other party of any event or development which, (x)
had it existed or been known on the date of this Agreement, would have been
required to be disclosed under this Agreement, (y) would cause any of its
representations and warranties contained herein to be inaccurate or otherwise
materially misleading or (z) materially relates to the satisfaction of the
conditions set forth in Article IV of this Agreement. Notwithstanding anything
to the contrary herein, neither party hereto nor any of its Subsidiaries shall
be required to provide access to or to disclose information where such access or
disclosure would jeopardize the attorney-client privilege of the entity 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 or, in the event of any litigation or
threatened litigation between the parties over the terms of this Agreement,
where access to information may be adverse to the interests of such party. To
the extent reasonably practicable, the parties hereto will make appropriate
substitute disclosure arrangements under circumstances in which the restrictions
of the preceding sentence apply.
3.2 Conduct of Business. Between the date of this Agreement and the
-------------------
Company Merger Effective Time or the termination of this Agreement, each party
agrees, on behalf of itself and each of its respective Subsidiaries, except
insofar as the President of Avondale or the President of Coal City shall
otherwise consent in writing (which consent shall not be unreasonably withheld):
(a) That it and its Subsidiaries shall (i) except as contemplated in
this Agreement conduct their business only in the ordinary course consistent
with past practices, (ii) maintain their books and records in accordance with
past practices and (iii) use all reasonable efforts to preserve intact their
business organizations and assets, to maintain their rights, franchises and
existing relations with customers, suppliers, employees and business associates
and to take no action that would (A) adversely affect the ability of any of them
to obtain the Governmental Approvals (as defined in Section 4.1(c) herein) or
which would reasonably be expected to hinder or delay receipt of the
Governmental Approvals or (B) adversely affect its ability to perform its
obligations under this Agreement, the Contribution Agreement, the Bank Merger
Agreement (as and if applicable), the Bank Purchase and Assumption Agreement (as
and if applicable) or the Stock Option Agreement;
(b) That except where the provisions herein are limited to a specific
party and/or its Subsidiaries, it and its Subsidiaries shall not: (i) declare,
set aside or pay any dividend or make any other distribution with respect to its
capital stock, except for dividends or distributions by a wholly owned
Subsidiary of such party to such party; (ii) reacquire or buy any of its
outstanding shares; (iii) issue or sell any shares of capital stock of it or any
of its Subsidiaries, except shares of its common stock issued
25
<PAGE>
pursuant to the Stock Option Agreement and shares issued pursuant to exercise of
stock options previously issued and identified in Section 2.2 of its Disclosure
Schedule or as set forth in Section 3.2 of the Avondale Disclosure Schedule;
(iv) effect any stock split, stock dividend, reverse stock split or other
reclassification or recapitalization of its common stock; or (v) except with
respect to the Stock Option Agreement or as set forth in Section 3.2 of the
Avondale Disclosure Schedule, grant any options or issue any warrants
exercisable for or securities convertible or exchangeable into capital stock of
it or any of its Subsidiaries or grant any stock appreciation or other rights
with respect to shares of capital stock of it or of any of its Subsidiaries.
(c) That except where the provisions herein are limited to a specific
party and/or its Subsidiaries, it and its Subsidiaries shall not: (i) sell,
dispose of or pledge any significant assets of it or of any of its Subsidiaries
other than in the ordinary course of business consistent with past practices or
to borrow funds consistent with the provisions hereinafter contained except as
contemplated in Schedule 3.2 of the Avondale Disclosure Schedule; (ii) merge or
consolidate it or any of its Subsidiaries into another entity or acquire any
other entity or except in accordance with its written business plan in effect on
the date hereof, acquire any significant assets; (iii) sell or pledge or agree
to sell or pledge or permit any lien to exist on any stock of any of its
Subsidiaries owned by it; (iv) change the articles of incorporation or
certificate of incorporation, charter, bylaws or other governing instruments of
it or any of its Subsidiaries, except, in the case of Avondale, with respect to
the authorization of additional shares of Avondale Common Stock, or otherwise as
contemplated by this Agreement; (v) engage in any lending activities other than
in the ordinary course of business consistent with past practices; (vi) form any
new subsidiary or cause or permit a material change in the activities presently
conducted by any Subsidiary or make additional investments in subsidiaries in
excess of $100,000 except as contemplated in Schedule 3.2 of the Avondale
Disclosure Schedule; (vii) except to hedge interest rate risk on certificates of
deposits, engage in any off balance sheet interest rate swap arrangement, (viii)
engage in any activity not contemplated by its written business plan in effect
on the date hereof (ix) purchase any equity securities other than Federal Home
Loan Bank stock or incur or assume any indebtedness except in the ordinary and
usual course of business; (x) authorize capital expenditures other than in the
ordinary and usual course of business; or (xi) implement or adopt any change in
its accounting principles, practices or methods other than as may be required by
generally accepted accounting principles. The limitations contained in this
Section 3.2(c) shall also be deemed to constitute limitations as to the making
of any commitment with respect to any of the matters set forth in this Section
3.2(c).
(d) That except where the provisions herein are limited to a specific
party and/or its Subsidiaries it and its Subsidiaries shall not: (i) grant any
general increase in compensation or
26
<PAGE>
benefits to its employees or officers or pay any bonuses to its employees or
officers except in accordance with policies in effect on the date hereof; (ii)
enter into, extend, renew, modify, amend or otherwise change any employment or
severance agreements with any of its directors, officers or employees; (iii)
grant any increase in fees or other increases in compensation or other benefits
to any of its present or former directors in such capacity; or (iv) establish or
sponsor any new Employee Plan or Benefit Arrangement or effect any change in its
Employee Plans or Benefit Arrangements (except, in the case of Avondale, with
respect to the reservation of additional shares of Avondale Common Stock under
its stock option plans or the adoption of a new stock option plan and unless
such change is contemplated by this Agreement or is required by applicable law
or, in the opinion of its counsel, is necessary to maintain continued
qualification of any tax-qualified plan that provides for retirement benefits).
3.3 No Solicitation. Each party agrees, on behalf of itself and each of
---------------
its Subsidiaries, that it will not authorize or permit any officer, director,
employee, investment banker, financial consultant, attorney, accountant or other
representative of it or any of its Subsidiaries, directly or indirectly, to
initiate contact with any person or entity in an effort to solicit, initiate or
encourage any "Takeover Proposal" (as such term is defined below). Except as
the fiduciary duties of its Board of Directors may otherwise require (as
determined in good faith after consultation with legal counsel), each party
agrees that it will not authorize or permit any officer, director, employee,
investment banker, financial consultant, attorney, accountant or other
representative of it or any of its Subsidiaries, directly or indirectly, (A) to
cooperate with, or furnish or cause to be furnished any non-public information
concerning its business, properties or assets to, any person or entity in
connection with any Takeover Proposal; (B) to negotiate any Takeover Proposal
with any person or entity; or (C) to enter into any agreement, letter of intent
or agreement in principle as to any Takeover Proposal. Each party agrees that
it shall promptly give written notice to the other upon becoming aware of any
Takeover Proposal, such notice to contain, at a minimum, the identity of the
persons submitting the Takeover Proposal, a copy of any written inquiry or other
communication, the terms of any Takeover Proposal, any information requested or
discussions sought to be initiated and the status of any requests, negotiations
or expressions of interest. As used in this Agreement, "Takeover Proposal"
shall mean any proposal, other than as contemplated by this Agreement or Section
3.2 of the Avondale Disclosure Schedule, for a merger or other business
combination involving either party or any of their respective financial
institution Subsidiaries or for the acquisition of a 10% or greater equity
interest in either party or any of their respective Subsidiaries, or for the
acquisition of a substantial portion of the assets of either party or any of
their respective Subsidiaries.
27
<PAGE>
3.4 Stockholder Approvals. The parties shall call the meetings of their
---------------------
respective stockholders to be held for the purpose of voting upon this Agreement
and related matters, as referred to in Section 1.7 hereof, as soon as
practicable. In connection with the Avondale and Coal City Stockholders'
Meetings, the respective Boards of Directors shall recommend approval of this
Agreement, and any other matters requiring stockholder action relating to the
transactions contemplated herein (and such recommendation shall be contained in
the Prospectus/Joint Proxy Statement) unless as a result of an unsolicited
Takeover Proposal received by a party after the date hereof, the Board of
Directors of such party determines in good faith after consultation with its
legal counsel and investment banking firm that to do so would constitute a
breach of the fiduciary duties of such Board of Directors to the stockholders of
such party. Each of the parties shall use its best efforts to solicit from its
stockholders proxies in favor of approval and to take all other action necessary
or helpful to secure a vote of the holders of the outstanding shares of its
common stock in favor of this Agreement, except as the fiduciary duties of its
Board of Directors may otherwise require.
3.5 Resale Letter Agreements; Accounting and Tax Treatment. After
------------------------------------------------------
execution of this Agreement, (i) Coal City shall use its best efforts to cause
to be delivered to Avondale from each person who may be deemed to be an
"affiliate" of Coal City within the meaning of Rule 145 of the Securities Act, a
written letter agreement as of a date prior to the date of the Coal City
Stockholders' Meeting in the form as set forth in Exhibit 3.5, regarding
restrictions on resale of shares of Avondale Common Stock, to ensure compliance
with applicable restrictions imposed under the federal securities laws and prior
to the Company Merger Effective Time Coal City shall use its best efforts to
secure such written letter agreement from persons who become an affiliate of it
subsequent to the date hereof, and (ii) neither party shall take any action
which would prevent the Company Merger and the other transactions contemplated
hereby from qualifying as a reorganization within the meaning of Section 368 of
the Internal Revenue Code, provided that nothing hereunder shall limit the
ability of either party to exercise its rights under the Stock Option Agreement.
3.6 Publicity. Between the date of this Agreement and the Company
---------
Merger Effective Time, neither party nor any of its Subsidiaries shall, without
the prior approval of the other party, issue or make, or permit any of its
directors, employees, officers or agents to issue or make, any press release,
disclosure or statement to the press or any third party with respect to the
Merger or the other transactions contemplated hereby, except as required by law.
The parties shall cooperate when issuing or making any press release, disclosure
or statement with respect to the Merger or the other transactions contemplated
hereby.
3.7 Cooperation Generally. Between the date of this Agreement and the
---------------------
Company Merger Effective Time, the parties and their
28
<PAGE>
respective Subsidiaries shall in conformance with the provisions of this
Agreement use their best efforts, and take all actions necessary or appropriate,
to consummate the Company Merger and the other transactions contemplated hereby
at the earliest practicable date.
3.8 Additional Financial Statements and Reports. As soon as reasonably
-------------------------------------------
practicable after they become publicly available, each party shall furnish to
the other its statements of financial condition, statements of operations or
statements of income, statements of cash flows and statements of changes in
stockholders' equity at all dates and for all periods before the Closing. Such
financial statements will be prepared in conformity with generally accepted
accounting principles applied on a consistent basis and fairly present the
financial condition, results of operations and cash flows of the respective
parties (subject, in the case of unaudited financial statements, to (a) normal
year-end audit adjustments, (b) any other adjustments described therein and (c)
the absence of notes which, if presented, would not differ materially from those
included with its most recent audited consolidated financial statements), and
all of such financial statements will be prepared in conformity with the
requirements of Form 10-Q or Form 10-K, as and if applicable, under the Exchange
Act. As soon as reasonably practicable after they are filed, each party shall,
to the extent permitted under applicable law, furnish to the other its
Regulatory Reports.
3.9 Stock Exchange Listing. Avondale agrees to use all reasonable
----------------------
efforts to cause to be listed on the Nasdaq National Market, subject to official
notice of issuance, the shares of Avondale Common Stock to be issued in the
Company Merger.
3.10 Employee Benefits and Agreements.
---------------------------------
(a) Following the Company Merger Effective Time and the Bank Merger
Effective Time or the Purchase and Assumption Time, whichever is applicable,
Avondale as the Surviving Corporation, and Coal City Bank as the resulting
financial institution, shall honor in accordance with their terms all Benefit
Arrangements and all provisions for vested benefits or other vested amounts
earned or accrued through such time period under the Employee Plans.
(b) The Employee Plans shall not be terminated by reason of the Merger but
shall continue thereafter as plans of Avondale as the Surviving Corporation or
Coal City Bank as the resulting financial institution until such time as the
Employee Plans are integrated, subject to the terms and conditions specified in
such plans and to such changes therein as may be necessary to reflect the
consummation of the Merger. Avondale as the Surviving Corporation shall take
such steps as are necessary as soon as practicable following the Company Merger
Effective Time to integrate the Employee Plans, with (i) full credit for prior
service with Avondale or Coal City or any of the Avondale or Coal City
Subsidiaries for purposes of vesting and
29
<PAGE>
eligibility for participation (but not benefit accruals under any Employee
Plan), and co-payments and deductibles and (ii) waiver of all waiting periods
and pre-existing condition exclusions or penalties.
(c) The Avondale Employee Stock Ownership Plan (the "ESOP") shall be
terminated as of the Company Merger Effective Time or as soon thereafter as is
practicable. In connection with the termination of the ESOP, Avondale shall
promptly apply to the IRS for a favorable determination letter on the ESOP's
tax-qualified status upon termination under Code Section 401(a). The parties
acknowledge that the existing loan between Avondale and the ESOP (the "ESOP
Loan") shall be repaid in full by the ESOP upon such termination or as soon
thereafter as is practicable. The parties further acknowledge that the ESOP has
unallocated assets with a current fair market value exceeding the outstanding
balance (principal and interest) of the ESOP Loan. The parties agree that
participants in the ESOP will benefit from these assets as an allocation of
earnings to the fullest extent permissible under applicable law upon termination
of the ESOP. Avondale may take such actions as it deems necessary or appropriate
to effectuate this intent, including, but not limited to, (1) amending the ESOP
to provide that all participants' accounts shall be fully vested and
nonforfeitable as of the Company Merger Effective Time, (2) amending the ESOP to
provide that each participant's account in the ESOP will not be distributed
after termination of the participants employment (regardless of the amount of
the account balance) and prior to the liquidation of the ESOP following
termination thereof unless the participant requests such distribution or such
distribution is otherwise required by applicable law, (3) amending the ESOP to
provide that any excess assets contained in the unallocated company stock
account after the repayment in full (principal and interest) of the ESOP Loan
shall be allocated to participants' accounts as earnings of the trust fund, and
(4) amending the ESOP to delete any requirement that a participant complete any
number of hours of service or be employed on any particular day during the plan
year to receive an allocation of earnings under the plan. In addition, Avondale
may take such other actions, including the making of other amendments to the
plan, that it deems necessary or appropriate to preserve the tax-qualified
status of the ESOP or the exempt status of the ESOP Loan. Upon the election of
any participant, his or her account balance in the ESOP upon plan termination
that constitutes an eligible rollover distribution" (as defined in Section
402(c)(4) of the Code) may be rolled over to any qualified retirement plan of
Avondale or of Coal City Bank or to any eligible individual retirement account,
as elected by the participant.
(d) Employment Agreements and Related Matters. At the time of the
-----------------------------------------
execution of this Agreement, Robert S. Engelman, Jr. shall enter into a new
Employment Agreement in the form of Exhibit 3.10(d), to become effective at the
Company Merger Effective Time (at which time his existing Employment Agreement
shall be cancelled). As soon as practicable after the time of the execution
30
<PAGE>
of this Agreement, Mitchell Feiger shall enter into an Employment Agreement with
Coal City and Coal City Bank, to become effective at the Company Merger
Effective Time and be assumed by Avondale as the Surviving Corporation at such
time, in such form as shall be reasonably acceptable to the Board of Directors
of Avondale, which contract shall contain such provisions as are normal for a
bank holding company of similar size.
3.11 Minority Interest in Manufacturers National. Coal City agrees to use
-------------------------------------------
its best efforts to cause, prior to the Company Merger Effective Time, all
shares of capital stock of Manufacturers National to be owned by Coal City free
and clear of all Encumbrances.
3.12 Preferred Stock. Coal City shall use its best efforts to redeem (or
---------------
cause the conversion of), prior to the Company Merger Effective Time, all of its
issued and outstanding shares of Coal City Class B Preferred Stock.
3.13 Accountants' Letters. Each party agrees to use its respective best
--------------------
efforts to deliver to the other, and such other party's directors and officers
who sign the Registration Statement, a letter of its independent auditors, dated
(i) the date on which the Registration Statement shall become effective and (ii)
a date on or shortly prior to the date of Closing, and addressed to such other
party, and such directors and officers, in form and substance customary for
"comfort" letters delivered by independent accountants in connection with
registration statements similar to the Registration Statement.
ARTICLE IV
CONDITIONS OF THE COMPANY MERGER;
TERMINATION OF AGREEMENT
4.1 General Conditions. The obligations of each party to effect the
------------------
Company Merger shall be subject to the satisfaction (or written waiver by such
party, to the extent such condition is waivable) of the following conditions
before the Company Merger Effective Time:
(a) Stockholder Approval. The holders of the outstanding shares of
--------------------
Avondale and Coal City Common Stock shall have approved or adopted this
Agreement as specified in Section 1.7 hereof or as otherwise required by
applicable law.
(b) No Proceedings. No order shall have been entered and remain in
--------------
force restraining or prohibiting the Company Merger in any legal,
administrative, arbitration, investigatory or other proceedings by any
governmental or judicial or other authority.
(c) Governmental Approvals. To the extent required by applicable law
----------------------
or regulation, all approvals of or filings with any governmental or regulatory
authority (collectively, "Governmental
31
<PAGE>
Approvals") shall have been obtained or made, and any waiting periods shall have
expired in connection with the consummation of the Company Merger, provided
however that none of the preceding shall be deemed obtained or made if it shall
be conditioned or restricted in a manner that would have or result in a material
adverse effect on Avondale as the Surviving Corporation as the parties hereto
shall reasonably and in good faith agree. All other statutory or regulatory
requirements for the valid consummation of the Company Merger shall have been
satisfied.
(d) Registration Statement. The Registration Statement shall have
----------------------
been declared effective and shall not be subject to a stop order of the SEC (and
no proceedings for that purpose shall have been initiated or threatened by the
SEC) and, if the offer and sale of the Surviving Corporation Common Stock in the
Company Merger pursuant to this Agreement is subject to the securities laws of
any state, shall not be subject to a stop order of any state securities
authority.
(e) Federal Tax Opinion. Each party shall have received an opinion of
-------------------
its tax counsel, dated as of the Company Merger Effective Time, to the effect
that for federal income tax purposes:
(i) The Company Merger will qualify as a "reorganization" under
Section 368(a) of the Internal Revenue Code.
(ii) No gain or loss will be recognized by Avondale or Coal City
by reason of the Company Merger.
(iii) No gain or loss will be recognized by any stockholder of
Coal City upon the exchange of Coal City Common Stock solely for
Avondale Common Stock in the Company Merger.
(iv) The basis of the Avondale Common Stock received by each
stockholder of Coal City who exchanges Coal City Common Stock for
Avondale Common Stock in the Company Merger will be the same as the
basis of the Coal City Common Stock surrendered in exchange therefor
(subject to any adjustments required as the result of receipt of cash
in lieu of a fractional share of Surviving Corporation Common Stock).
(v) The holding period of the Avondale Common Stock received by
a stockholder of Coal City in the Company Merger will include the
holding period of the Coal City Common Stock surrendered in exchange
therefore, provided that such shares of Coal City Common Stock were
held as a capital asset by such stockholders at the Company Merger
Effective Time.
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<PAGE>
(vi) Cash received by a Coal City shareholder in lieu of a
fractional share interest of Avondale Common Stock as part of the
Company Merger will be treated as having been received as a
distribution in full payment in exchange for the fractional share
interest of Avondale Common Stock which such stockholder would
otherwise be entitled to receive and will qualify as capital gain or
loss (assuming the Coal City stock was a capital asset in such
stockholder's hands at the Company Merger Effective Time).
(f) Third Party Consents. All consents or approvals of all persons
--------------------
(other than the Governmental Approvals referenced in Section 4.1(c) herein)
required for the execution, delivery and performance of this Agreement and the
consummation of the Company Merger shall have been obtained and shall be in full
force and effect, unless the failure to obtain any such consent or approval is
not reasonably likely to have, individually or in the aggregate, a material
adverse effect on Avondale as the Surviving Corporation as the parties hereto
shall reasonably and in good faith agree.
(g) Listing. The shares of Avondale Common Stock to be issued in the
-------
Company Merger shall have been approved for listing on the Nasdaq National
Market, subject to official notice of issuance.
4.2 Conditions to Obligations of Avondale. The obligations of
-------------------------------------
Avondale to effect the Company Merger and the other transactions contemplated
hereby shall be subject to the satisfaction or written waiver by Avondale of the
following additional conditions before the Company Merger Effective Time:
(a) No Material Adverse Effect. Between the date of this Agreement
--------------------------
and the Closing, Coal City shall not have been effected by any event or change
which has had or caused a material adverse effect or material adverse change on
it.
(b) Representations and Warranties to be True; Fulfillment of
---------------------------------------------------------
Covenants and Conditions. (i) The representations and warranties of Coal City
- ------------------------
shall be true and correct (subject to Section 2.23 hereof) as of the date hereof
and at the Company Merger Effective Time with the same effect as though made at
the Company Merger Effective Time (or on the date when made in the case of any
representation or warranty which specifically relates to an earlier date) except
where the failure to be true and correct would not have, or would not reasonably
be expected to have, a material adverse effect, on Coal City; (ii) Coal City and
its Subsidiaries shall have performed all obligations and complied with each
covenant, in all material respects, and satisfied all conditions under this
Agreement on its part to be satisfied at or before the Company Merger Effective
Time; and (iii) Coal City shall have delivered to Avondale a certificate, dated
the Company Merger Effective Time and signed by its chief executive officer and
chief
33
<PAGE>
financial officer, certifying as to the satisfaction of clauses (i) and (ii)
hereof.
(c) No Litigation. Neither Coal City nor any Coal City Subsidiary
-------------
shall be subject to any pending litigation which, if determined adversely to
Coal City or any Coal City Subsidiary, would have a material adverse effect on
Coal City.
(d) Affiliate Letters. Avondale shall have received from Coal City
-----------------
the letter agreements from all affiliates of Coal City as contemplated in
Section 3.5 herein.
(e) Manufacturers National. All of the issued and outstanding shares
----------------------
of capital stock of Manufacturers National shall be owned by Coal City free and
clear of all Encumbrances (subject to any lien of LaSalle National Bank).
(f) Coal City Preferred Stock. No shares of Coal City Preferred Stock
-------------------------
shall be issued or outstanding.
(g) Audited Financials. Coal City shall have delivered to Avondale
------------------
audited consolidated financial statements at and for the year ended December 31,
1998, including an unqualified opinion of Coal City=s independent auditors
related thereto.
(h) Feiger Employment Agreement. Mitchell Feiger shall have entered
---------------------------
into an Employment Agreement with Coal City and Coal City Bank in such form as
shall be reasonably acceptable to the Board of Directors of Avondale, which
contract shall contain such provisions as are normal for a bank holding company
of similar size.
(i) Accountants' Letters. Coal City shall have delivered to
--------------------
Avondale, and the Avondale directors and officers who sign the Registration
Statement, a letter of its independent auditors, dated (i) the date on which the
Registration Statement shall become effective and (ii) a date on or shortly
prior to the date of Closing, and addressed to Avondale, and such directors and
officers, in form and substance reasonably satisfactory to Avondale and
customary for "comfort" letters delivered by independent accountants in
connection with registration statements similar to the Registration Statement.
4.3 Conditions to Obligations of Coal City. The obligations of Coal
--------------------------------------
City to effect the Company Merger and the other transactions contemplated hereby
shall be subject to the satisfaction or written waiver by Coal City of the
following additional conditions before the Company Merger Effective Time:
(a) No Material Adverse Effect. Between the date of this Agreement
--------------------------
and Closing, Avondale shall not have been effected by any event or change which
has had or caused a material adverse effect or material adverse change on
Avondale.
34
<PAGE>
(b) Representations and Warranties to be True; Fulfillment of
---------------------------------------------------------
Covenants and Conditions. (i) The representations and warranties of Avondale
- ------------------------
shall be true and correct (subject to Section 2.23 hereof) as of the date hereof
and at the Company Merger Effective Time with the same effect as though made at
the Company Merger Effective Time (or on the date when made in the case of any
representation or warranty which specifically relates to an earlier date) except
where the failure to be true and correct would not have, or would not reasonably
be expected to have, a material adverse effect on Avondale; (ii) Avondale and
its Subsidiaries shall have performed all obligations and complied with each
covenant, in all material respects, and satisfied all conditions under this
Agreement on its part to be satisfied at or before the Company Merger Effective
Time; and (iii) Avondale shall have delivered to Coal City a certificate, dated
the Company Merger Effective Time and signed by its chief executive officer and
chief financial officer, certifying as to the satisfaction of clauses (i) and
(ii) hereof.
(c) No Litigation. Neither Avondale nor any Avondale Subsidiary
-------------
shall be subject to any pending litigation which, if determined adversely to
Avondale or any Avondale Subsidiary, would have a material adverse effect on
Avondale.
(d) Audited Financials. Avondale shall have delivered to Coal City
------------------
audited consolidated financial statements at and for the year ended December 31,
1998, including an unqualified opinion of Avondale's independent auditors
related thereto.
(e) Transferor's Interests. The aggregate present value of the
----------------------
Transferor's (as defined in the related Pooling and Servicing Agreements)
interests owned by Avondale or any of its Subsidiaries in Avondale Home Equity
Loan Trusts 1996-1, 1997-1, 1997-2 and 1998-1 (each, a "Heloc Trust") as set
forth in each respective offering circular (the "Securitization Value"), as
calculated below as of the most recent month-end cut-off date at least 20 days
prior to the Closing (the "Calculation Date"), shall not be less than the sum of
(i) $14,935,729, plus (ii) the accounting gain on sale, in the aggregate,
recognized on the transfer of additional loans into Heloc Trust 1998-1 after
June 30, 1998. The Securitization Value shall be calculated from the Heloc
Trust information set forth in the Investor Reports as of the Calculation Date
utilizing (a) a discount rate of 15%, (b) for each Heloc Trust, the average
prepayment rate, computed as a "CPR," for such Heloc Trust during the three
month period ending on the Calculation Date, and (c) for each Heloc Trust, the
average charge-off rate, computed as a "CPR," for such Heloc Trust during the
three month period ending on the Calculation Date.
(f) Accountants' Letters. Avondale shall have delivered to Coal City
--------------------
a letter of its independent auditors dated (i) the date on which the
Registration Statement shall become effective and (ii) a date on or shortly
prior to the date of Closing, and addressed to Coal City, in form and substance
reasonably satisfactory to Coal
35
<PAGE>
City and customary for "comfort" letters delivered by independent accountants in
connection with registration statements similar to the Registration Statement.
4.4 Termination of Agreement and Abandonment of Merger. This Agreement
--------------------------------------------------
may be terminated at any time before the Company Merger Effective Time, whether
before or after approval thereof by the stockholders of Avondale or Coal City,
as provided below:
(a) Mutual Consent. By mutual consent of the parties, evidenced by
--------------
their written agreement.
(b) Closing Delay. At the election of either party, evidenced by
-------------
written notice, if (i) the Closing shall not have occurred on or before June 30,
1999, or such later date as shall have been agreed to in writing by the parties,
provided however that the right to terminate under this Section 4.4(b) shall not
be available to any party whose failure to perform an obligation hereunder has
been the cause of, or has resulted in, the failure of the Closing to occur on or
before such date; (ii) any approval or authorization of any governmental entity,
the lack of which would result in the failure to satisfy the closing condition
set forth in Section 4.1(c) hereof, shall have been denied by such governmental
entity, or such governmental entity shall have requested the withdrawal of any
application therefor or indicated an intention to deny, or impose a condition of
a type referred to in the proviso to Section 4.1(c) with respect to, such
approval or authorization, or (iii) the approval of the stockholders of Avondale
or Coal City referred to in Section 4.1(a) shall not have been obtained,
provided that the electing party is not then in breach of its obligations under
Section 3.4 hereof.
(c) Conditions to Avondale Performance Not Met. By Avondale upon
------------------------------------------
delivery of written notice of termination to Coal City if any event occurs which
renders impossible of satisfaction in any material respect one or more of the
conditions to the obligations of Avondale to effect the Company Merger set forth
in Sections 4.1 and 4.2 and noncompliance is not waived in writing by Avondale.
(d) Conditions to Coal City Performance Not Met. By Coal City upon
-------------------------------------------
delivery of written notice of termination to Avondale if any event occurs which
renders impossible of satisfaction in any material respect one or more of the
conditions to the obligations of Coal City to effect the Company Merger set
forth in Sections 4.1 and 4.3 and noncompliance is not waived in writing by Coal
City.
(e) Breach. By either Avondale or Coal City if there has been a
------
material breach of the other party's representations and warranties (as
contemplated in this Agreement), covenants or agreements set forth in this
Agreement of which written notice has been given to such breaching party and
which has not been fully cured or cannot be fully cured within the earlier of
(i) 30 days of receipt of such notice or (ii) five days prior to the Closing and
36
<PAGE>
which breach would, in the reasonable opinion of the non-breaching party,
individually or in the aggregate, have, or be reasonably likely to have, a
material adverse effect on the breaching party.
(f) Avondale Election. By Avondale if (i) the Board of Directors of
-----------------
Coal City shall not have publicly recommended in the Prospectus/Joint Proxy
Statement that its stockholders approve and adopt this Agreement or shall have
withdrawn, modified or changed in a manner adverse to Avondale its approval or
recommendation of this Agreement, (ii) the Board of Directors of Coal City shall
have authorized Coal City to enter into any agreement, letter of intent or
agreement in principle with the intent to pursue or effect a Takeover Proposal
or (iii) the Board of Directors of Avondale shall have failed to recommend to
its stockholders the adoption of this Agreement or shall have withdrawn,
modified or changed such recommendation pursuant to the exercise of its
fiduciary obligations under Section 3.4 hereof.
(g) Coal City Election. By Coal City if (i) the Board of Directors
-------------------
of Avondale shall not have publicly recommended in the Prospectus/Joint Proxy
Statement that its stockholders approve and adopt this Agreement or withdrawn,
modified or changed in a manner adverse to Coal City its approval or
recommendation of this Agreement, (ii) the Board of Directors of Avondale shall
have authorized Avondale to enter into any agreement, letter of intent or
agreement in principle with the intent to pursue or effect a Takeover Proposal
or (iii) the Board of Directors of Coal City shall have failed to recommend to
its stockholders the adoption of this Agreement or shall have withdrawn,
modified or changed such recommendation pursuant to the exercise of its
fiduciary obligations under Section 3.4 hereof.
ARTICLE V
TERMINATION OF OBLIGATIONS; PAYMENT OF EXPENSES
5.1 Termination; Lack of Survival of Representations and Warranties. In
---------------------------------------------------------------
the event of the termination and abandonment of this Agreement pursuant to
Section 4.4 hereof, this Agreement shall become void and have no effect, except
(i) the provisions of Sections 2.7 (No Broker's or Finder's Fees), 3.7
(Publicity), 5.2 (Payment of Expenses), 7.2 (Confidentiality) and 7.12 (No
Employment Solicitation) hereof shall survive any such termination and
abandonment, and (ii) a termination pursuant to Section 4.4(e) of this Agreement
shall not relieve the breaching party from liability for any uncured intentional
and willful breach of a representation, warranty, covenant or agreement giving
rise to such termination. Moreover, the aggrieved party without terminating
this Agreement shall be entitled to specifically enforce the terms hereof
against the breaching party in order to cause the Merger to be consummated.
Each party acknowledges that there is not an adequate remedy at law to
compensate the other parties relating to the non-consummation of the Merger. To
this end, each party, to the extent permitted by law, irrevocably waives any
defense it might have based on the
37
<PAGE>
adequacy of a remedy at law which might be asserted as a bar to specific
performance, injunctive relief or other equitable relief.
The representations, warranties and agreements set forth in this Agreement
shall not survive the Company Merger Effective Time and shall be terminated and
extinguished at the Company Merger Effective Time, and from and after the
Company Merger Effective Time no party shall have any liability to the other on
account of any breach or failure of any of those representations, warranties and
agreements, provided however that the foregoing clause (i) shall not apply to
agreements of the parties which by their terms are intended to be performed
after the Company Merger Effective Time by the Surviving Corporation or
otherwise and (ii) shall not relieve any party or person for liability for
fraud, deception or intentional misrepresentation.
5.2 Payment of Expenses. Each party shall bear and pay all costs and
-------------------
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereby, except that the costs of printing and mailing the
Prospectus/Joint Proxy Statement shall be shared equally by the parties.
ARTICLE VI
CERTAIN POST-MERGER AGREEMENTS
6.1 Indemnification. (a) From and after the Company Merger Effective
---------------
Time, Avondale as the Surviving Corporation shall indemnify, defend and hold
harmless each person who is now, or who has been at any time before the date
hereof or who becomes before the Company Merger Effective Time, an officer or
director of either Avondale or Coal City or any of their respective Subsidiaries
(the "Indemnified Parties") against all losses, claims, damages, costs, expenses
(including attorney's fees), liabilities or judgments or amounts that are paid
in settlement (which settlement shall require the prior written consent of
Avondale as the Surviving Corporation, which consent shall not be unreasonably
withheld) of or in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, or administrative (each a "Claim"), in
which an Indemnified Party 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 the fact that such
person is or was a director or officer of either Avondale or Coal City or any of
their respective Subsidiaries if such Claim pertains to any matter or fact
arising, existing at or occurring before the Company Merger Effective Time
(including, without limitation, the Merger and the other transactions
contemplated hereby), regardless of whether such Claim is asserted or claimed
before, or at or after, the Company Merger Effective Time (the "Indemnified
Liabilities"), to the fullest extent permitted under applicable state or federal
law in effect as of the date hereof or as amended applicable to a time before
the Company Merger Effective Time and under Avondale's or Coal City's governing
corporation documents (as the case may be), and Avondale as the Surviving
Corporation shall pay expenses in advance of the
38
<PAGE>
final disposition of any such action or proceeding to each Indemnified Party to
the full extent permitted by applicable state or federal law in effect as of the
date hereof or as amended applicable to a time before the Company Merger
Effective Time upon receipt of any undertaking required by applicable law. Any
Indemnified Party wishing to claim indemnification under this Section 6.1(a),
upon learning of any Claim, shall notify Avondale as the Surviving Corporation
(but the failure so to notify Avondale as the Surviving Corporation shall not
relieve it from any liability which it may have under this Section 6.1(a) except
to the extent such failure materially prejudices Avondale as the Surviving
Corporation) and shall deliver to Avondale as the Surviving Corporation the
undertaking, if any, required by applicable law. Avondale as the Surviving
Corporation shall insure, to the extent permitted under applicable law, that all
limitations of liability existing in favor of the Indemnified Parties as
provided in Avondale's or Coal City's governing corporation documents (as the
case may be), as in effect as of the date hereof, or allowed under applicable
state or federal law as in effect as of the date hereof or as amended applicable
to a time before the Company Merger Effective Time, with respect to claims or
liabilities arising from facts or events existing or occurring before the
Company Merger Effective Time (including, without limitation, the transactions
contemplated hereby), shall survive the Company Merger.
(b) For a period of six years from and after the Company Merger
Effective Time, Avondale as the Surviving Corporation shall cause to be
maintained in effect the current policies of directors' and officers' liability
insurance maintained by Coal City and the Coal City Subsidiaries (provided that
they may substitute therefor policies from financially capable insurers of at
least the same coverage and amounts and containing terms and conditions that are
carried by Avondale and its Subsidiaries in the ordinary course of business)
with respect to claims arising from facts or events which occurred before the
Company Merger Effective Time. Following consummation of the Company Merger,
the directors and officers of Avondale as the Surviving Corporation shall be
covered by the directors' and officers' liability insurance maintained by the
Surviving Corporation.
(c) The obligations of Avondale as the Surviving Corporation provided
under paragraphs (a) and (b) of this Section 6.1 are intended to be enforceable
against the Surviving Corporation directly by the Indemnified Parties and shall
be binding on all respective successors and permitted assigns of Avondale as the
Surviving Corporation.
6.2 Directors and Officers of the Surviving Corporation and Coal City
------------------------------------------------------------------
Bank
- ----
(a) Directors of the Surviving Corporation. The following provisions,
which are reflected in Exhibit 1.4(c), shall, to the
39
<PAGE>
greatest extent practicable, apply with respect to the Board of Directors of
Avondale as the Surviving Corporation:
(i) At the Company Merger Effective Time, but subject to the
following sentence, the Board of Directors of Avondale as the Surviving
Corporation shall consist of between 16 and 18 directors who shall consist
of (A) eight persons serving as directors of Avondale (each, an "Avondale-
Related Director") and (B) between eight and ten persons serving as
directors of Coal City(each, a "Coal City-Related Director"), in each case
serving in such capacity immediately prior to the Company Merger Effective
Time. Each of Avondale and Coal City shall use its best efforts to ensure
that they have eight directors and from eight to ten directors,
respectively, immediately prior to the Company Merger Effective Time
consisting of those persons named by them in regulatory applications for
approval of the Merger and in the Prospectus/Joint Proxy Statement. If at
any time during the three year period following the Company Merger
Effective Time any person who becomes a director of Avondale as the
Surviving Corporation at the Company Merger Effective Time shall for any
reason cease to serve as a director or shall not stand for reelection as a
director, it is the intention of Avondale and Coal City and their
respective Boards of Directors that he or she will be replaced, if an
Avondale-Related Director, by the Avondale-Related Directors, and if a Coal
City-Related Director, by the Coal City-Related Directors. It is also the
intention of Avondale and Coal City and their respective Boards of
Directors that during such three-year period, the Coal City-Related
Directors shall have the right to appoint up to that number of persons
equal to the remainder of ten minus the number of Coal City-Related
Directors at the Company Merger Effective Time. The Avondale-Related
Directors hereby commit to vote in favor of any such nominees of the Coal
City-Related Directors for any such additional new directorships, and shall
so vote, except to the extent that any such vote shall be in violation of
their fiduciary duties under the DGCL.
(ii) The Board of Directors of Avondale as the Surviving
Corporation shall have an Executive Committee and such other committees as
the Board shall establish in accordance with Section 141 of the DGCL, its
Certificate of Incorporation and these Bylaws. The Executive Committee
shall consist of six members: Robert S. Engelman, Jr., who shall be
Chairman of the Executive Committee, Mitchell Feiger, two members selected
by the Avondale-Related Directors and two members selected by the Coal
City-Related Directors. The Chairman of the Board, the President and the
Chief Executive Officer of Avondale as the Surviving Corporation may each
call meetings of the Board of Directors and the Executive Committee. Prior
to the Company Merger Effective Time, Avondale and Coal City shall
reasonably agree as to the
40
<PAGE>
initial members of each other committee of the Board of Directors of
Avondale as the Surviving Corporation. Each of such committees shall have
an even number of members, and at the Company Merger Effective Time and for
three years thereafter, one-half of the members of each such other
committee shall consist of Avondale-Related Directors and the other half
shall consist of Coal City-Related Directors, unless a majority of the
Avondale-Related Directors and a majority of the Coal City-Related
Directors shall otherwise agree.
(b) Chairman and Certain Officers of the Surviving Corporation and
Coal City Bank.
During the three year period following the Company Merger
Effective Time, as reflected with respect to Avondale as the Surviving
Corporation in Exhibit 1.4(c):
(i) Robert S. Engelman, Jr. shall be the Chairman of the Board of
Avondale as the Surviving Corporation.
(ii) Mitchell Feiger shall be the President and Chief Executive
Officer of Avondale as the Surviving Corporation and Chairman of the Board
of Coal City Bank as the resulting financial institution.
(iii) Burton Field shall be the President and Chief Executive
Officer of Coal City Bank as the resulting financial institution.
(iv) Howard Jaffe shall be the Chief Financial Officer of
Avondale as the Surviving Corporation and the Chief Financial Officer of
Coal City Bank as the resulting financial institution.
(v) Thomas Panos shall be the Senior Loan Officer of Coal City
Bank as the resulting financial institution.
(c) Amendment. It is the intention of Avondale and Coal City and
their respective Boards of Directors that during the above-referenced three-year
period, that the provisions of the Bylaws reflected in Exhibit 1.4(c) be amended
only upon the affirmative vote of a majority of both the Avondale-Related
Directors and the Coal City-Related Directors.
(d) Directors of Coal City Bank. At the Bank Merger Effective Time
or Purchase and Assumption Time, the Board of Directors of Coal City Bank shall
consist of the persons serving as directors of Coal City Bank immediately prior
to the Bank Merger Effective Time or Purchase and Assumption Time and the
persons serving as directors of Avondale Bank immediately prior to the Company
Merger Effective Time who shall have advised the Chief
41
<PAGE>
Executive Officer of Avondale at least 15 days prior to any required regulatory
filing that they desire to serve on the Board of Directors of Coal City Bank.
(e) Survival of Section 6.2. The provisions of Section 6.2(a), (b)
and (c) shall survive the Company Merger Effective Time and remain in effect
until the third anniversary of the Company Merger Effective Time, terminating
thereafter.
ARTICLE VII
GENERAL
7.1 Amendments. Subject to applicable law, this Agreement may be
----------
amended, whether before or after any stockholder approval hereof, by an
agreement in writing executed in the same manner as this Agreement and
authorized or ratified by the Boards of Directors of the parties hereto,
provided that after the approval of this Agreement by the stockholders of either
- -------- ----
party hereto, no such amendment may change the amount or form of the
consideration to be delivered hereunder pursuant to Section 1.3 herein without
their approval.
7.2 Confidentiality. All information disclosed by any party to any
---------------
other party, whether prior or subsequent to the date of this Agreement
including, without limitation, any information obtained pursuant to Section 3.1
hereof, shall be kept confidential by such other party and shall not be used by
such other party otherwise than as herein contemplated, all in accordance with
the terms of the confidentiality agreement between the parties dated May 29,
1998 (the "Confidentiality Agreement"). In the event of the termination of this
Agreement, each party shall use all reasonable efforts to return upon request to
the other party all documents (and reproductions thereof) received from such
other party (and, in the case of reproductions, all such reproductions) that
include information subject to the confidentiality requirement set forth above.
7.3 Governing Law. This Agreement and the legal relations between the
-------------
parties shall be governed by and construed in accordance with the laws of the
State of Illinois without taking into account any provision regarding choice of
law, except to the extent certain matters may be governed by federal law by
reason of preemption.
7.4 Notices. Any notices or other communications required or permitted
-------
hereunder shall be sufficiently given if sent by registered mail or certified
mail, postage prepaid, addressed, as follows:
If to Avondale, to
Avondale Financial Corp.
20 N. Clark Street
Chicago, Illinois 60602
42
<PAGE>
Attention: Robert S. Engelman, Jr.
with a copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Suite 700
Washington, D.C. 20005
Attention: Barry P. Taff, P.C.
Christopher R. Kelly, P.C.
If to Coal City, to
Coal City Corporation
1200 North Ashland Avenue
Chicago, Illinois 60622-2298
Attention: Mitchell Feiger
with a copy to:
Schwartz, Cooper, Greenberger & Krauss
180 North LaSalle Street
Suite 2700
Chicago, Illinois 60601
Attention: Robert Dunn Glick
or such other address as shall be furnished in writing by either party to the
other, and any such notice or communication shall be deemed to have been given
two business days after the date of such mailing (except that the notice of
change of address shall not be deemed to have been given until received by the
addressee). Notices may also be sent by telegram, telex, facsimile transmission
or hand delivery and in such event shall be deemed to have been given as of the
date received by the addressee.
7.5 No Assignment. This Agreement may not be assigned by any party
-------------
hereto, by operation of law or otherwise, except as contemplated hereby.
7.6 Headings. The descriptive headings of the several Articles and
--------
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
7.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
party and delivered to each other party.
7.8 Construction and Interpretation. Except as the context otherwise
-------------------------------
requires, all references herein to any state or federal regulatory agency shall
also be deemed to refer to any predecessor or successor agency, and all
references to state and federal statutes or regulations shall also be deemed to
refer to any successor statute or regulation.
43
<PAGE>
7.9 Entire Agreement. This Agreement, together with the schedules,
----------------
lists, exhibits and certificates required to be delivered hereunder, and any
amendment hereafter executed and delivered in accordance with Section 7.1,
constitutes the entire agreement of the parties and supersedes any prior written
or oral agreement or understanding among any parties pertaining to the Merger,
except that the Confidentiality Agreement shall remain in full force and effect
as contemplated in Section 7.2 herein and except with respect to the applicable
Stock Option Agreement.
7.10 Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law then such provision will be ineffective only
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of the Agreement.
7.11 No Third Party Beneficiaries. Nothing in this Agreement shall
----------------------------
entitle any person (other than the parties hereto and their respective
successors and assigns permitted hereby) to any claim, cause of action, remedy
or right of any kind, except for those provisions which are intended to be for
the benefit of the persons covered thereby and may be enforced by such persons,
including without limitation, as provided in Sections 1.8, 6.1 and 6.2.
7.12 No Employment Solicitation. If this Agreement is terminated, the
--------------------------
parties hereto agree that, for a period of two years subsequent to such
termination (i) none of the parties shall, without first obtaining the prior
written consent of the other, directly or indirectly, actively solicit the
employment of any current director, officer or employee of the other party and
(ii) none of the parties will actively solicit business relationships with
clients of the other party solely as a result of review of the information
contemplated in Section 7.2 herein.
44
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be executed on
its behalf by its duly authorized officers as of the date set forth above.
AVONDALE FINANCIAL CORP. COAL CITY CORPORATION
By: /s/ Robert S. Engelman, Jr. By: /s/ Mitchell Feiger
--------------------------- ---------------------
Robert S. Engelman, Jr. Mitchell Feiger
President and Chief President
Executive Officer
45
<PAGE>
AMENDMENT NO. ONE
TO
AGREEMENT AND PLAN OF MERGER
By and Between
Avondale Financial Corp.
And
Coal City Corporation
Section 4.3 shall be amended by adding a new subsection (g) to provide as
follows:
(g) National Mortgage Origination Operations. Avondale shall have sold or
-----------------------------------------
contracted for the sale of all assets and property owned and/or leased by
Avondale for use in its national mortgage origination business (the "NMOB") or
shall have discontinued originating loans pursuant to its NMOB; provided,
however, that it shall not be a condition to the Company Merger (A) that
Avondale discontinue originating any loans pursuant to its obligations under the
Community Reinvestment Act, through the Avondale Community Development
Corporation or otherwise not pursuant to its NMOB or discontinue honoring any
outstanding commitments as of the Effective Time, or (B) that Avondale sell any
loans or servicing rights or terminate any contracts.
<TABLE>
<S> <C>
AVONDALE FINANCIAL CORP. COAL CITY CORPORATION
By: /s/ Robert S. Engelman, Jr. By: /s/ Mitchell Feiger
------------------------------------- -------------------
Robert S. Engelman, Jr. Mitchell Feiger
President and Chief Executive Officer President
</TABLE>
<PAGE>
EXHIBIT A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of October 12, 1998, between Avondale
Financial Corp., a Delaware corporation ("Grantee"), and Coal City Corporation,
an Illinois corporation ("Issuer"").
W I T N E S S E T H:
WHEREAS, Grantee, and Issuer have entered into an Agreement and Plan of
Merger on even date herewith (the "Merger Agreement");
WHEREAS, as an inducement to the willingness of Grantee to enter into the
Merger Agreement, Issuer has agreed to grant Grantee the Option (as hereinafter
defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to an aggregate of
9,742 fully paid and nonassessable shares of the common stock, par value $10.00
per share, of Issuer ("Common Stock") at a price per share of $675.00; provided,
however, that in the event Issuer issues or agrees to issue any shares of Common
Stock (other than shares of Common Stock issued pursuant to stock options
granted pursuant to any employee benefit plan prior to the date hereof) at a
price less than such price per share (as adjusted pursuant to subsection (b) of
Section 5), such price shall be equal to such lesser price (such price, as
adjusted if applicable, the "Option Price"); provided, further, that in no event
shall the number of shares for which this Option is exercisable exceed 19.9% of
the issued and outstanding shares of Common Stock. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5(a) hereof), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, such number together with any
shares of Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section l(b) or elsewhere in this Agreement shall be deemed to
authorize Issuer to issue shares in breach of any provision of the Merger
Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in whole
or part, if, but only if, both an Initial Triggering Event (as hereinafter
defined) and a Subsequent Triggering Event (as hereinafter defined) shall have
occurred prior to the occurrence of an Exercise Termination Event
<PAGE>
(as hereinafter defined), provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2) within
six months following such Subsequent Triggering Event (or such later period as
provided in Section 10). Each of the following shall be an Exercise Termination
Event: (i) the Company Merger Effective Time; (ii) termination of the Merger
Agreement in accordance with the provisions thereof if such termination occurs
prior to the occurrence of an Initial Triggering Event except a termination by
Grantee pursuant to Section 4.4(e) of the Merger Agreement (but only if the
breach giving rise to the termination was willful) (a "Listed Termination");
(iii) the passage of 15 months (or such longer period as provided in Section 10)
after termination of the Merger Agreement if such termination follows the
occurrence of an Initial Triggering Event or is a Listed Termination or (iv) the
date on which the shareholders of the Grantee shall have voted and failed to
approve the Company Merger (unless (A) Issuer shall then be in material breach
of its covenants or agreements contained in the Merger Agreement or (B) on or
prior to such date, the stockholders of Issuer shall have also voted and failed
to approve and adopt the Merger Agreement). The term "Holder" shall mean the
holder or holders of the Option. Notwithstanding anything to the contrary
contained herein, (i) the Option may not be exercised at any time when Grantee
shall be in material breach of the Merger Agreement such that Issuer shall be
entitled to terminate the Merger Agreement pursuant to Section 4.4(e) thereof as
a result of a material breach and (ii) this Agreement shall automatically
terminate upon the proper termination of the Merger Agreement (x) by Issuer
pursuant to Section 4.4(e) thereof as a result of the material breach by
Grantee, or (y) by Issuer or Grantee pursuant to Section 4.4(b)(ii).
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring on or after the date hereof:
(i) Issuer or any Significant Subsidiary (as defined in Rule 1-02 of
Regulation S-X promulgated by the Securities and Exchange Commission (the
"SEC")) (an "Issuer Subsidiary"), without having received Grantee's prior
written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any person (the term
Aperson for purposes of this Agreement having the meaning assigned thereto
in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations thereunder) other
than Grantee or any of its Subsidiaries (each a "Grantee Subsidiary") or the
Board of Directors of Issuer (the "Issuer Board") shall have recommended that
the shareholders of Issuer approve or accept any Acquisition Transaction
other than the Merger. For purposes of this Agreement, (a) "Acquisition
Transaction" shall mean (x) a merger or consolidation, or any similar
transaction, involving Issuer or any Issuer Subsidiary (other than mergers,
consolidations or similar transactions (i) involving solely Issuer and/or one
or more wholly-owned (except for directors' qualifying shares and a de
minimis number of other shares) Subsidiaries of the Issuer, provided, any
such transaction is not entered into in violation of the terms of the Merger
Agreement or (ii) in which the shareholders of Issuer immediately prior to
the completion of such transaction own at least 65% of the Common Stock of
the Issuer (or the resulting or surviving entity in such transaction)
immediately after completion of such transaction, provided any such
-2-
<PAGE>
transaction is not entered into in violation of the terms of the Merger
Agreement), (y) a purchase, lease or other acquisition of all or any
substantial part of the assets or deposits of Issuer or any Issuer
Subsidiary, or (z) 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 Issuer or any Issuer
Subsidiary and (b) "Subsidiary" shall have the meaning set forth in Rule 12b-
2 under the Exchange Act;
(ii) Any person other than the Grantee or any Grantee Subsidiary shall
have acquired beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the outstanding shares of Common Stock (the term
"beneficial ownership" for purposes of this Agreement having the meaning
assigned thereto in Section 13(d) of the Exchange Act, and the rules and
regulations thereunder);
(iii) The shareholders of Issuer shall have voted and failed to adopt
the Merger Agreement at a meeting which has been held for that purpose or any
adjournment or postponement thereof, or such meeting shall not have been held
in violation of the Merger Agreement or shall have been cancelled prior to
termination of the Merger Agreement if, prior to such meeting (or if such
meeting shall not have been held or shall have been cancelled, prior to such
termination), it shall have been publicly announced that any person (other
than Grantee or any of its Subsidiaries) shall have made, or publicly
disclosed an intention to make, a proposal to engage in an Acquisition
Transaction;
(iv) (x) The Issuer Board shall have withdrawn or modified (or
publicly announced its intention to withdraw or modify) in any manner adverse
in any respect to Grantee its recommendation that the shareholders of Issuer
approve the transactions contemplated by the Merger Agreement, (y) Issuer or
any Issuer Subsidiary, without having received Grantee's prior written
consent, shall have authorized, recommended, proposed (or publicly announced
its intention to authorize, recommend or propose) an agreement to engage in
an Acquisition Transaction with any person other than Grantee or a Grantee
Subsidiary, or (z) Issuer shall have provided information to or engaged in
negotiations with a third party relating to a possible Acquisition
Transaction.
(v) Any person other than Grantee or any Grantee Subsidiary shall
have made a proposal to Issuer or its shareholders to engage in an
Acquisition Transaction and such proposal shall have been publicly announced;
(vi) Any person other than Grantee or any Grantee Subsidiary shall
have filed with the SEC a registration statement or tender offer materials
with respect to a potential exchange or tender offer that would constitute an
Acquisition Transaction (or filed a preliminary proxy statement with the SEC
with respect to a potential vote by its shareholders to approve the issuance
of shares to be offered in such an exchange offer);
-3-
<PAGE>
(vii) Issuer shall have willfully breached any covenant or obligation
contained in the Merger Agreement in anticipation of engaging in an
Acquisition Transaction, and following such breach Grantee would be entitled
to terminate the Merger Agreement (whether immediately or after the giving of
notice or passage of time or both); or
(viii) Any person other than Grantee or any Grantee Subsidiary other
than in connection with a transaction to which Grantee has given its prior
written consent shall have filed an application or notice with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") or
other federal or state thrift or bank regulatory or antitrust authority,
which application or notice has been accepted for processing, for approval to
engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 25% or more of the then outstanding
Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (z) of the second sentence thereof shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of any
Initial Triggering Event or Subsequent Triggering Event (together, a "Triggering
Event"), it being understood that the giving of such notice by Issuer shall not
be a condition to the right of the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the Option
(or any portion thereof), it shall send to Issuer a written notice (the date of
which being herein referred to as the "Notice Date") specifying (i) the total
number of shares it will purchase pursuant to such exercise and (ii) a place and
date not earlier than three business days nor later than 60 business days from
the Notice Date for the closing of such purchase (the "Closing Date"); provided,
that if prior notification to or approval of the Federal Reserve Board or any
other regulatory or antitrust agency is required in connection with such
purchase, the Holder shall promptly file the required notice or application for
approval, shall promptly notify Issuer of such filing, and shall expeditiously
process the same and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which any required notification
periods have expired or been terminated or such approvals have been obtained and
any requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall (i) pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the
-4-
<PAGE>
exercise of the Option in immediately available funds by wire transfer to a bank
account designated by Issuer and (ii) present and surrender this Agreement to
Issuer at its principal executive offices, provided that the failure or refusal
of the Issuer to designate such a bank account or accept surrender of this
Agreement shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to resale restrictions arising under the Securities Act of 1933,
as amended. A copy of such agreement is on file at the principal office of
Issuer and will be provided to the holder hereof without charge upon receipt
by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "Securities Act") in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the Holder shall have delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the Securities Act; (ii) the reference to the provisions of this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference in the opinion
of Counsel to the Holder; and (iii) the legend shall be removed in its entirety
if the conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) Upon the giving by the Holder to Issuer of the written notice of exercise
of the Option provided for under subsection (e) of this Section 2 and the tender
of the applicable purchase price in immediately available funds, the Holder
shall be deemed, subject to the receipt of any necessary regulatory approvals,
to be the holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of Issuer shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Holder. Issuer shall pay all expenses, and
any and all United States federal, state and local taxes and other charges that
may be payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its assignee,
transferee or designee.
-5-
<PAGE>
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all applicable premerger notification, reporting
and waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder and (y) in the event, under the Bank Holding
Company Act of 1956, as amended or any state or other federal thrift or banking
law, prior approval of or notice to the Federal Reserve Board or to any state or
other federal regulatory authority is necessary before the Option may be
exercised, cooperating fully with the Holder in preparing such applications or
notices and providing such information to the Federal Reserve Board or such
state or other federal regulatory authority as they may require) in order to
permit the Holder to exercise the Option and Issuer duly and effectively to
issue shares of Common Stock pursuant hereto; and (iv) promptly to take all
action provided herein to protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable, without
expense, at the option of the Holder, upon presentation and surrender of this
Agreement at the principal office of Issuer, for other Agreements providing for
Options of different denominations entitling the holder thereof to purchase, on
the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Agreements and
related Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5.
(a) In the event of any change in, or distributions in respect of, the Common
Stock by reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, subdivisions, conversions, exchanges of shares or the like, the
type and number of shares of Common Stock purchasable upon exercise hereof shall
be appropriately adjusted and proper provision shall be made so that, in the
event that any additional shares of Common Stock are to be issued or otherwise
become outstanding
-6-
<PAGE>
as a result of any such change (other than pursuant to an exercise of the
Option), the number of shares of Common Stock that remain subject to the Option
shall be increased so that, after such issuance and together with shares of
Common Stock previously issued pursuant to the exercise of the Option (as
adjusted on account of any of the foregoing changes in the Common Stock), it
equals 19.9% of the number of shares of Common Stock then issued and
outstanding.
(b) Whenever the number of shares of Common Stock purchasable upon exercise
hereof is adjusted as provided in this Section 5, the Option Price shall be
adjusted by multiplying the Option Price by a fraction, the numerator of which
shall be equal to the number of shares of Common Stock purchasable prior to the
adjustment and the denominator of which shall be equal to the number of shares
of Common Stock purchasable after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior to
an Exercise Termination Event, Issuer shall, at the request of Grantee delivered
within 12 months (or such later period as provided in Section 10) of such
Subsequent Triggering Event (whether on its own behalf or on behalf of any
subsequent holder of this Option (or part thereof) or any of the shares of
Common Stock issued pursuant hereto), promptly prepare, file and keep current a
registration statement under the Securities Act covering any shares issued and
issuable pursuant to this Option and shall use its reasonable best efforts to
cause such registration statement to become effective and remain current in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee. Issuer will use
its reasonable best efforts to cause such registration statement promptly to
become effective and then to remain effective for such period not in excess of
180 days from the day such registration statement first becomes effective or
such shorter time as may be reasonably necessary to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations.
The Issuer shall bear the costs of such registrations (including, but not
limited to, Issuer's attorneys' fees, printing costs and filing fees, except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto). The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering by Issuer of shares of Common Stock, and if in the
good faith judgment of the managing underwriter or managing underwriters, or, if
none, the sole underwriter or underwriters, of such offering the offer and sale
of the Option Shares would interfere with the successful marketing of the shares
of Common Stock offered by Issuer, the number of Option Shares otherwise to be
covered in the registration statement contemplated hereby may be reduced;
provided, however, that after any such required reduction the number of Option
Shares to be included in such offering for the account of all Holders shall
constitute at least 25% of the total number of shares to be sold by the Holders
and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then Issuer shall file a registration statement for the
balance as promptly as practicable thereafter as to which no reduction pursuant
to this Section 6 shall be permitted or occur and the Holder shall thereafter be
entitled to one additional registration and the 12-month period referred to in
the first sentence of this section shall be increased to 24 months. Each such
Holder shall provide all information
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<PAGE>
reasonably requested by Issuer for inclusion in any registration statement to be
filed hereunder. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for Issuer. Upon receiving
any request under this Section 6 from any Holder, Issuer agrees to send a copy
thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies. Notwithstanding anything to the contrary contained herein, in no event
shall the number of registrations that Issuer is obligated to effect be
increased by reason of the fact that there shall be more than one Holder as a
result of any assignment or division of this Agreement.
7. (a) At any time after the occurrence of a Repurchase Event (as defined
below) (i) at the request of the Holder, delivered prior to an Exercise
Termination Event (or such later period as provided in Section 10), Issuer (or
any successor thereto) shall repurchase the Option from the Holder at a price
(the "Option Repurchase Price") equal to the amount by which (A) the
market/offer price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered prior to an Exercise Termination Event (or such later period as
provided in Section 10), Issuer (or any successor thereto) shall repurchase such
number of the Option Shares from the Owner as the Owner shall designate at a
price (the "Option Share Repurchase Price) equal to the market/offer price
multiplied by the number of Option Shares so designated. The term "market/offer
price shall mean the highest of (i) the price per share of Common Stock at
which a tender or exchange offer therefor has been made, (ii) the price per
share of Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (iii) the highest closing price for shares of Common Stock within
the six-month period immediately preceding the date the Holder gives notice of
the required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a sale
of all or any substantial part of Issuer's assets or deposits, the sum of the
net price paid in such sale for such assets or deposits and the current market
value of the remaining net assets of Issuer as determined by a nationally
recognized investment banking firm selected by the Holder or the Owner, as the
case may be, and reasonably acceptable to Issuer, divided by the number of
shares of Common Stock of Issuer outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other than cash
shall be determined by a nationally recognized investment banking firm selected
by the Holder or Owner, as the case may be, and reasonably acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant to
this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. As promptly as practicable, and in any event
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within five business days after the surrender of the Option and/or certificates
representing Option Shares and the receipt of such notice or notices relating
thereto, Issuer shall deliver or cause to be delivered to the Holder the Option
Repurchase Price and/or to the Owner the Option Share Repurchase Price therefor
or the portion thereof that Issuer is not then prohibited under applicable law
and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
that it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however, that if
Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 7 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its reasonable best efforts to obtain all required regulatory
and legal approvals and to file any required notices as promptly as practicable
in order to accomplish such repurchase), the Holder or Owner may revoke its
notice of repurchase of the Option and/or the Option Shares whether in whole or
to the extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price and/or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Holder, a new Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Agreement was
exercisable at the time of delivery of the notice of repurchase by a fraction,
the numerator of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the Option
Repurchase Price, and/or (B) to the Owner, a certificate for the Option Shares
it is then so prohibited from repurchasing. If an Exercise Termination Event
shall have occurred prior to the date of the notice by Issuer described in the
first sentence of this subsection (c), or shall be scheduled to occur at any
time before the expiration of a period ending on the thirtieth day after such
date, the Holder shall nonetheless have the right to exercise the Option until
the expiration of such 30-day period.
(d) For purposes of this Section 7, a "Repurchase Event shall be deemed to
have occurred upon the occurrence of any of the following events or transactions
after the date hereof:
(i) the acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 50% or more of the then outstanding
Common Stock; or
(ii) the consummation of any Acquisition Transaction described in
Section 2(b)(i) hereof, except that the percentage referred to in clause (z)
shall be 50%.
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8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or a Grantee Subsidiary, or engage in a plan of exchange with
any person, other than Grantee or a Grantee Subsidiary and Issuer shall not be
the continuing or surviving corporation of such consolidation or merger or the
acquirer in such plan of exchange, (ii) to permit any person, other than Grantee
or a Grantee Subsidiary, to merge into Issuer or be acquired by Issuer in a plan
of exchange and Issuer shall be the continuing or surviving or acquiring
corporation, but, in connection with such merger or plan of exchange, the then
outstanding shares of Common Stock shall be changed into or exchanged for stock
or other securities of any other person or cash or any other property or the
then outstanding shares of Common Stock shall after such merger or plan of
exchange represent less than 50% of the outstanding shares and share equivalents
of the merged or acquiring company, or (iii) to sell or otherwise transfer all
or a substantial part of its or the Issuer Subsidiary's assets or deposits to
any person, other than Grantee or a Grantee Subsidiary, then, and in each such
case, the agreement governing such transaction shall make proper provision so
that the Option shall, upon the consummation of any such transaction and upon
the terms and conditions set forth herein, be converted into, or exchanged for,
an option (the "Substitute Option"), at the election of the Holder, of either
(x) the Acquiring Corporation (as hereinafter defined) or (y) any person that
controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving person of a consolidation or merger with Issuer (if other than
Issuer), (ii) the acquiring person in a plan of exchange in which Issuer is
acquired, (iii) the Issuer in a merger or plan of exchange in which Issuer is
the continuing or surviving or acquiring person, and (iv) the transferee of
all or a substantial part of Issuer's assets or deposits (or the assets or
deposits of the Issuer Subsidiary).
(ii) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the market/offer price, as defined in
Section 7.
(iv) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer of
the Substitute Option, the Average Price shall be computed with respect to a
share of common stock issued by the person merging into Issuer or by any
company which controls or is controlled by such person, as the Holder may
elect.
(c) The Substitute Option shall have the same terms as the Option, provided
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as
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similar as possible and in no event less advantageous to the Holder. The issuer
of the Substitute Option shall also enter into an agreement with the then Holder
or Holders of the Substitute Option in substantially the same form as this
Agreement (after giving effect for such purpose to the provisions of Section 9),
which agreement shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option was exercisable
immediately prior to the event described in the first sentence of Section 8(a),
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option was exercisable immediately prior to the
event described in the first sentence of Section 8(a) and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by
a nationally recognized investment banking firm selected by the Holder.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) 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, and at the request of the owner (the "Substitute Share
Owner") of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "Highest
Closing Price" shall mean the highest closing price for shares of Substitute
Common Stock within the six-month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
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(b) The Substitute Option Holder and the Substitute Share Owner, as the case
may be, may exercise its respective rights to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and/or certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable and in any event within five business days
after the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor or the
portion thereof which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
repurchasing the Substitute Option and/or the Substitute Shares in part or in
full, the Substitute Option Issuer shall immediately so notify the Substitute
Option Holder and/or the Substitute Share Owner and thereafter deliver or cause
to be delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Option
Repurchase Price and/or the Substitute Share Repurchase Price, respectively,
which it is no longer prohibited from delivering, within five business days
after the date on which the Substitute Option Issuer is no longer so prohibited;
provided, however, that if the Substitute Option Issuer is at any time after
delivery of a notice of repurchase pursuant to subsection (b) of this Section 9
prohibited under applicable law or regulation, or as a consequence of
administrative policy, from delivering to the Substitute Option Holder and/or
the Substitute Share Owner, as appropriate, the Substitute Option Repurchase
Price and the Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Issuer shall use its reasonable best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder and/or Substitute
Share Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of prohibition, whereupon, in
the latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that portion
of the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of shares of the Substitute Common Stock obtained by
multiplying the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the Substitute
Option Repurchase Price less the portion thereof theretofore delivered to the
Substitute Option Holder and the denominator of which is the Substitute Option
Repurchase Price, and/or (B) to the Substitute Share Owner, a certificate for
the Substitute
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Option Shares it is then so prohibited from repurchasing. If an Exercise
Termination Event shall have occurred prior to the date of the notice by the
Substitute Option Issuer described in the first sentence of this subsection (c),
or shall be scheduled to occur at any time before the expiration of a period
ending on the thirtieth day after such date, the Substitute Option Holder shall
nevertheless have the right to exercise the Substitute Option until the
expiration of such 30-day period.
10. The 30-day, 6-month, 12-month, 18-month or 24-month periods for exercise
of certain rights under Sections 2, 6, 7, 9, 12 and 15 shall be extended: (i) to
the extent necessary to obtain all regulatory approvals for the exercise of such
rights (for so long as the Holder, Owner, Substitute Option Holder or Substitute
Share Owner, as the case may be, is using commercially reasonable efforts to
obtain such regulatory approvals), and for the expiration of all statutory
waiting periods; and (ii) to the extent necessary to avoid liability under
Section 16(b) of the Exchange Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer 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 authorized by the Issuer Board
prior to the date hereof and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and reserve
and to permit it to issue, and at all times from the date hereof through the
termination of this Agreement in accordance with its terms will have reserved
for issuance upon the exercise of the Option, that number of shares of Common
Stock equal to the maximum number of shares of Common Stock at any time and from
time to time issuable hereunder, and all such shares, upon issuance pursuant
thereto, will be duly authorized, validly issued, fully paid, nonassessable, and
will be delivered free and clear of all claims, liens, encumbrance and security
interests and not subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder; provided, however,
that until the date 15 days following the date on which the Federal Reserve
Board has approved an application by Grantee to acquire the shares of Common
Stock subject to the Option, Grantee may not assign its rights under the Option
except in (i) a widely dispersed public distribution, (ii) a private placement
in which no one party acquires the right to purchase in excess of 2% of the
voting shares of Issuer, (iii) an assignment to a single party (e.g., a broker
or investment banker) for the purpose of conducting a
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widely dispersed public distribution on Grantee's behalf or (iv) any other
manner approved by the Federal Reserve Board.
13. Each of Grantee and Issuer will use its reasonable best efforts to make
all filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, but Grantee shall not be obligated to apply to state banking
authorities for approval to acquire the shares of Common Stock issuable
hereunder until such time, if ever, as it deems appropriate to do so.
14. (a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee=s Total Profit (as hereinafter defined) exceed $1,800,000
and, if it otherwise would exceed such amount, the Grantee, at its sole
election, shall either (a) reduce the number of shares of Common Stock subject
to this Option, (b) deliver to Issuer for cancellation Option Shares previously
purchased by Grantee, (c) pay cash to Issuer, or (d) any combination thereof, so
that Grantee=s actually realized Total Profit shall not exceed $1,800,000 after
taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option
may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Profit (as defined below) of more than
$1,800,000; provided that nothing in this sentence shall restrict any exercise
of the Option permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount received by Grantee
pursuant to Issuer=s repurchase of the Option (or any portion thereof) pursuant
to Section 7, (ii) (x) the amount received by Grantee pursuant to Issuer=s
repurchase of Option Shares pursuant to Section 7, less (y) Grantee=s purchase
price for such Option Shares, (iii) (x) the net cash amounts received by Grantee
pursuant to the sale of Option Shares (or any other securities into which such
Option Shares are converted or exchanged) to any unaffiliated party, less (y)
the Grantee=s purchase price of such Option Shares, (iv) any amounts received by
Grantee on the transfer of the Option (or any portion thereof) to any
unaffiliated party, and (v) any amount equivalent to the foregoing with respect
to the Substitute Option.
(d) As used herein, the term "Notional Total Profit" with respect to any
number of shares as to which Grantee may propose to exercise this Option shall
be the Total Profit determined as of the date of such proposed exercise assuming
that this Option were exercised on such date for such number of shares and
assuming that such shares, together with all other Option Shares held by Grantee
and its affiliates as of such date, were sold for cash at the closing market
price for the Common Stock as of the close of business on the preceding trading
day (less customary brokerage commissions).
15. (a) Grantee may, at any time following a Repurchase Event and prior to
the occurrence of an Exercise Termination Event (or such later period as
provided in Section 10), relinquish the
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Option (together with any Option Shares issued to and then owned by Grantee) to
Issuer in exchange for a cash fee equal to the Surrender Price; provided,
however, that Grantee may not exercise its rights pursuant to this Section 15 if
Issuer has repurchased the Option (or any portion thereof) or any Option Shares
pursuant to Section 7. The "Surrender Price" shall be equal to $1,800,000 (i)
plus, if applicable, Grantee's purchase price with respect to any Option Shares
and (ii) minus, if applicable, the excess of (A) the net cash amounts, if any,
received by Grantee pursuant to the arms' length sale of Option Shares (or any
other securities into which such Option Shares were converted or exchanged) to
any unaffiliated party, over (B) Grantee's purchase price of such Option Shares.
(b) Grantee may exercise its right to relinquish the Option and any Option
Shares pursuant to this Section 15 by surrendering to Issuer, at its principal
office, a copy of this Agreement together with certificates for Option Shares,
if any, accompanied by a written notice stating (i) that Grantee elects to
relinquish the Option and Option Shares, if any, in accordance with the
provisions of this Section 15 and (ii) the Surrender Price. The Surrender Price
shall be payable in immediately available funds on or before the second
business day following receipt of such notice by Issuer.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from paying the
Surrender Price to Grantee in full, Issuer shall immediately so notify Grantee
and thereafter deliver or cause to be delivered, from time to time, to Grantee,
the portion of the Surrender Price that it is no longer prohibited from paying,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of surrender pursuant to paragraph (b) of this Section 15 is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from paying to Grantee the Surrender Price in full, (i) Issuer shall (A)
use its reasonable best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to make such payments, (B) within five days of the submission or receipt of any
documents relating to any such regulatory and legal approvals, provide Grantee
with copies of the same, and (c) keep Grantee advised of both the status of any
such request for regulatory and legal approvals, as well as any discussions with
any relevant regulatory or other third party reasonably related to the same and
(ii) Grantee may revoke such notice of surrender by delivery of a notice of
revocation to Issuer and, upon delivery of such notice of revocation, the
Exercise Termination Event shall be extended to a date six months from the date
on which the Exercise Termination Event would have occurred if not for the
provisions of this Section 15(c) (during which period Grantee may exercise any
of its rights hereunder, including any and all rights pursuant to this Section
15).
16. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief. In connection therewith both
parties waive the posting of any bond or similar requirement.
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17. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section l(a) hereof (as adjusted pursuant to Section l(b) or Section
5 hereof), it is the express intention of Issuer to allow the Holder to acquire
or to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
18. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
fax, telecopy, or by registered or certified mail (postage prepaid, return
receipt requested) at the respective addresses of the parties set forth in the
Merger Agreement.
19. This Agreement shall be governed by and construed in accordance with the
laws of the State of Illinois, without regard to the conflict of law principles
thereof (except to the extent that mandatory provisions of Federal law are
applicable).
20. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
21. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
22. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assignees.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assignees, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided herein.
23. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
COAL CITY CORPORATION
By /s/ Mitchell Feiger
------------------------------------
Mitchell Feiger
President
AVONDALE FINANCIAL CORP.
By /s/ Robert S. Engelman, Jr.
------------------------------------
Robert S. Engelman, Jr.
President and Chief Executive Officer
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EXHIBIT B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of October 12, 1998, between Coal City
Corporation, an Illinois corporation ("Grantee"), and Avondale Financial Corp.,
a Delaware corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, Grantee, and Issuer have entered into an Agreement and Plan of
Merger on even date herewith (the "Merger Agreement");
WHEREAS, as an inducement to the willingness of Grantee to enter into the
Merger Agreement, Issuer has agreed to grant Grantee the Option (as hereinafter
defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to an
aggregate of 577,610 fully paid and nonassessable shares of the common stock,
par value $.01 per share, of Issuer ("Common Stock") at a price per share of
$7.40; provided, however, that in the event Issuer issues or agrees to issue any
shares of Common Stock (other than shares of Common Stock issued pursuant to
stock options granted pursuant to any employee benefit plan prior to the date
hereof) at a price less than such price per share (as adjusted pursuant to
subsection (b) of Section 5), such price shall be equal to such lesser price
(such price, as adjusted if applicable, the "Option Price"); provided, further,
that in no event shall the number of shares for which this Option is exercisable
exceed 19.9% of the issued and outstanding shares of Common Stock. The number of
shares of Common Stock that may be received upon the exercise of the Option and
the Option Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are
issued or otherwise become outstanding after the date of this Agreement (other
than pursuant to this Agreement and other than pursuant to an event described in
Section 5(a) hereof), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, such number together with any
shares of Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer to issue shares in breach of any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, if, but only if, both an Initial Triggering Event (as hereinafter
defined) and a Subsequent Triggering Event (as hereinafter defined) shall have
occurred prior to the occurrence of an Exercise Termination Event
<PAGE>
(as hereinafter defined), provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2) within
six months following such Subsequent Triggering Event (or such later period as
provided in Section 10). Each of the following shall be an Exercise Termination
Event: (i) the Company Merger Effective Time; (ii) termination of the Merger
Agreement in accordance with the provisions thereof if such termination occurs
prior to the occurrence of an Initial Triggering Event except a termination by
Grantee pursuant to Section 4.4(e) of the Merger Agreement (but only if the
breach giving rise to the termination was willful) (a "Listed Termination");
(iii) the passage of 15 months (or such longer period as provided in Section 10)
after termination of the Merger Agreement if such termination follows the
occurrence of an Initial Triggering Event or is a Listed Termination or (iv) the
date on which the shareholders of the Grantee shall have voted and failed to
approve the Company Merger (unless (A) Issuer shall then be in material breach
of its covenants or agreements contained in the Merger Agreement or (B) on or
prior to such date, the stockholders of Issuer shall have also voted and failed
to approve and adopt the Merger Agreement). The term "Holder" shall mean the
holder or holders of the Option. Notwithstanding anything to the contrary
contained herein, (i) the Option may not be exercised at any time when Grantee
shall be in material breach of the Merger Agreement such that Issuer shall be
entitled to terminate the Merger Agreement pursuant to Section 4.4(e) thereof as
a result of a material breach and (ii) this Agreement shall automatically
terminate upon the proper termination of the Merger Agreement (x) by Issuer
pursuant to Section 4.4(e) thereof as a result of the material breach by
Grantee, or (y) by Issuer or Grantee pursuant to Section 4.4(b)(ii).
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring on or after the date hereof:
(i) Issuer or any Significant Subsidiary (as defined in Rule 1-02 of
Regulation S-X promulgated by the Securities and Exchange Commission (the
"SEC")) (an "Issuer Subsidiary"), without having received Grantee's prior
written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any person (the term
"person" for purposes of this Agreement having the meaning assigned thereto
in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations thereunder)
other than Grantee or any of its Subsidiaries (each a "Grantee Subsidiary")
or the Board of Directors of Issuer (the "Issuer Board") shall have
recommended that the shareholders of Issuer approve or accept any
Acquisition Transaction other than the Merger. For purposes of this
Agreement, (a) "Acquisition Transaction" shall mean (x) a merger or
consolidation, or any similar transaction, involving Issuer or any Issuer
Subsidiary (other than mergers, consolidations or similar transactions (i)
involving solely Issuer and/or one or more wholly-owned (except for
directors' qualifying shares and a de minimis number of other shares)
Subsidiaries of the Issuer, provided, any such transaction is not entered
into in violation of the terms of the Merger Agreement or (ii) in which the
shareholders of Issuer immediately prior to the completion of such
transaction own at least 65% of the Common Stock of the Issuer (or the
resulting or surviving entity in such transaction) immediately after
completion of such transaction, provided any such
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<PAGE>
transaction is not entered into in violation of the terms of the Merger
Agreement), (y) a purchase, lease or other acquisition of all or any
substantial part of the assets or deposits of Issuer or any Issuer
Subsidiary, or (z) 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 Issuer or any Issuer
Subsidiary and (b) "Subsidiary" shall have the meaning set forth in Rule
12b-2 under the Exchange Act;
(ii) Any person other than the Grantee or any Grantee Subsidiary
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the outstanding shares of Common Stock (the
term "beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the Exchange Act, and the
rules and regulations thereunder);
(iii) The shareholders of Issuer shall have voted and failed to adopt
the Merger Agreement at a meeting which has been held for that purpose or
any adjournment or postponement thereof, or such meeting shall not have
been held in violation of the Merger Agreement or shall have been cancelled
prior to termination of the Merger Agreement if, prior to such meeting (or
if such meeting shall not have been held or shall have been cancelled,
prior to such termination), it shall have been publicly announced that any
person (other than Grantee or any of its Subsidiaries) shall have made, or
publicly disclosed an intention to make, a proposal to engage in an
Acquisition Transaction;
(iv) (x) The Issuer Board shall have withdrawn or modified (or
publicly announced its intention to withdraw or modify) in any manner
adverse in any respect to Grantee its recommendation that the shareholders
of Issuer approve the transactions contemplated by the Merger Agreement,
(y) Issuer or any Issuer Subsidiary, without having received Grantee's
prior written consent, shall have authorized, recommended, proposed (or
publicly announced its intention to authorize, recommend or propose) an
agreement to engage in an Acquisition Transaction with any person other
than Grantee or a Grantee Subsidiary, or (z) Issuer shall have provided
information to or engaged in negotiations with a third party relating to a
possible Acquisition Transaction.
(v) Any person other than Grantee or any Grantee Subsidiary shall
have made a proposal to Issuer or its shareholders to engage in an
Acquisition Transaction and such proposal shall have been publicly
announced;
(vi) Any person other than Grantee or any Grantee Subsidiary shall
have filed with the SEC a registration statement or tender offer materials
with respect to a potential exchange or tender offer that would constitute
an Acquisition Transaction (or filed a preliminary proxy statement with the
SEC with respect to a potential vote by its shareholders to approve the
issuance of shares to be offered in such an exchange offer);
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<PAGE>
(vii) Issuer shall have willfully breached any covenant or obligation
contained in the Merger Agreement in anticipation of engaging in an
Acquisition Transaction, and following such breach Grantee would be
entitled to terminate the Merger Agreement (whether immediately or after
the giving of notice or passage of time or both); or
(viii) Any person other than Grantee or any Grantee Subsidiary other
than in connection with a transaction to which Grantee has given its prior
written consent shall have filed an application or notice with the Office
of Thrift Supervision (the "OTS") or other federal or state thrift or bank
regulatory or antitrust authority, which application or notice has been
accepted for processing, for approval to engage in an Acquisition
Transaction.
(c) The term "Subsequent Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Grantee or any
Grantee Subsidiary) of beneficial ownership of 25% or more of the then
outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (z) of the second sentence thereof shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option (or any portion thereof), it shall send to Issuer a written notice (the
date of which being herein referred to as the "Notice Date") specifying (i) the
total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 60 business
days from the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if prior notification to or approval of the OTS or any other
regulatory or antitrust agency is required in connection with such purchase, the
Holder shall promptly file the required notice or application for approval,
shall promptly notify Issuer of such filing, and shall expeditiously process the
same and the period of time that otherwise would run pursuant to this sentence
shall run instead from the date on which any required notification periods have
expired or been terminated or such approvals have been obtained and any
requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall (i) pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated
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<PAGE>
by Issuer and (ii) present and surrender this Agreement to Issuer at its
principal executive offices, provided that the failure or refusal of the Issuer
to designate such a bank account or accept surrender of this Agreement shall not
preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder hereof
and Issuer and to resale restrictions arising under the Securities Act of
1933, as amended. A copy of such agreement is on file at the principal
office of Issuer and will be provided to the holder hereof without charge
upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "Securities Act") in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the Holder shall have delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the Securities Act; (ii) the reference to the provisions of this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference in the opinion
of Counsel to the Holder; and (iii) the legend shall be removed in its entirety
if the conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed, subject to the receipt of any necessary regulatory
approvals, to be the holder of record of the shares of Common Stock issuable
upon such exercise, notwithstanding that the stock transfer books of Issuer
shall then be closed or that certificates representing such shares of Common
Stock shall not then be actually delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state and local taxes and other
charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the Holder or
its assignee, transferee or designee.
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<PAGE>
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all applicable premerger notification, reporting
and waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder and (y) in the event, under the Savings and
Loan Holding Company Act or any state or other federal thrift or banking law,
prior approval of or notice to the OTS or to any state or other federal
regulatory authority is necessary before the Option may be exercised,
cooperating fully with the Holder in preparing such applications or notices and
providing such information to the OTS or such state or other federal regulatory
authority as they may require) in order to permit the Holder to exercise the
Option and Issuer duly and effectively to issue shares of Common Stock pursuant
hereto; and (iv) promptly to take all action provided herein to protect the
rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Agreements and
related Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5.
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Common Stock are to be
issued or otherwise become outstanding
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<PAGE>
as a result of any such change (other than pursuant to an exercise of the
Option), the number of shares of Common Stock that remain subject to the Option
shall be increased so that, after such issuance and together with shares of
Common Stock previously issued pursuant to the exercise of the Option (as
adjusted on account of any of the foregoing changes in the Common Stock), it
equals 19.9% of the number of shares of Common Stock then issued and
outstanding.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the numerator
of which shall be equal to the number of shares of Common Stock purchasable
prior to the adjustment and the denominator of which shall be equal to the
number of shares of Common Stock purchasable after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 12 months (or such later period as provided in Section 10) of
such Subsequent Triggering Event (whether on its own behalf or on behalf of any
subsequent holder of this Option (or part thereof) or any of the shares of
Common Stock issued pursuant hereto), promptly prepare, file and keep current a
registration statement under the Securities Act covering any shares issued and
issuable pursuant to this Option and shall use its reasonable best efforts to
cause such registration statement to become effective and remain current in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee. Issuer will use
its reasonable best efforts to cause such registration statement promptly to
become effective and then to remain effective for such period not in excess of
180 days from the day such registration statement first becomes effective or
such shorter time as may be reasonably necessary to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations. The
Issuer shall bear the costs of such registrations (including, but not limited
to, Issuer's attorneys' fees, printing costs and filing fees, except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto). The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering by Issuer of shares of Common Stock, and if in the
good faith judgment of the managing underwriter or managing underwriters, or, if
none, the sole underwriter or underwriters, of such offering the offer and sale
of the Option Shares would interfere with the successful marketing of the shares
of Common Stock offered by Issuer, the number of Option Shares otherwise to be
covered in the registration statement contemplated hereby may be reduced;
provided, however, that after any such required reduction the number of Option
Shares to be included in such offering for the account of all Holders shall
constitute at least 25% of the total number of shares to be sold by the Holders
and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then Issuer shall file a registration statement for the
balance as promptly as practicable thereafter as to which no reduction pursuant
to this Section 6 shall be permitted or occur and the Holder shall thereafter be
entitled to one additional registration and the 12-month period referred to in
the first sentence of this section shall be increased to 24 months. Each such
Holder shall provide all information
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<PAGE>
reasonably requested by Issuer for inclusion in any registration statement to be
filed hereunder. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for Issuer. Upon receiving
any request under this Section 6 from any Holder, Issuer agrees to send a copy
thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies. Notwithstanding anything to the contrary contained herein, in no event
shall the number of registrations that Issuer is obligated to effect be
increased by reason of the fact that there shall be more than one Holder as a
result of any assignment or division of this Agreement.
7. (a) At any time after the occurrence of a Repurchase Event (as defined
below) (i) at the request of the Holder, delivered prior to an Exercise
Termination Event (or such later period as provided in Section 10), Issuer (or
any successor thereto) shall repurchase the Option from the Holder at a price
(the "Option Repurchase Price") equal to the amount by which (A) the
market/offer price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered prior to an Exercise Termination Event (or such later period as
provided in Section 10), Issuer (or any successor thereto) shall repurchase such
number of the Option Shares from the Owner as the Owner shall designate at a
price (the "Option Share Repurchase Price") equal to the market/offer price
multiplied by the number of Option Shares so designated. The term "market/offer
price" shall mean the highest of (i) the price per share of Common Stock at
which a tender or exchange offer therefor has been made, (ii) the price per
share of Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (iii) the highest closing price for shares of Common Stock within
the six-month period immediately preceding the date the Holder gives notice of
the required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a sale
of all or any substantial part of Issuer's assets or deposits, the sum of the
net price paid in such sale for such assets or deposits and the current market
value of the remaining net assets of Issuer as determined by a nationally
recognized investment banking firm selected by the Holder or the Owner, as the
case may be, and reasonably acceptable to Issuer, divided by the number of
shares of Common Stock of Issuer outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other than cash
shall be determined by a nationally recognized investment banking firm selected
by the Holder or Owner, as the case may be, and reasonably acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant to
this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. As promptly as practicable, and in any event
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<PAGE>
within five business days after the surrender of the Option and/or certificates
representing Option Shares and the receipt of such notice or notices relating
thereto, Issuer shall deliver or cause to be delivered to the Holder the Option
Repurchase Price and/or to the Owner the Option Share Repurchase Price therefor
or the portion thereof that Issuer is not then prohibited under applicable law
and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
that it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however, that if
Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 7 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its reasonable best efforts to obtain all required regulatory
and legal approvals and to file any required notices as promptly as practicable
in order to accomplish such repurchase), the Holder or Owner may revoke its
notice of repurchase of the Option and/or the Option Shares whether in whole or
to the extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price and/or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Holder, a new Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Agreement was
exercisable at the time of delivery of the notice of repurchase by a fraction,
the numerator of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the Option
Repurchase Price, and/or (B) to the Owner, a certificate for the Option Shares
it is then so prohibited from repurchasing. If an Exercise Termination Event
shall have occurred prior to the date of the notice by Issuer described in the
first sentence of this subsection (c), or shall be scheduled to occur at any
time before the expiration of a period ending on the thirtieth day after such
date, the Holder shall nonetheless have the right to exercise the Option until
the expiration of such 30-day period.
(d) For purposes of this Section 7, a "Repurchase Event" shall be deemed
to have occurred upon the occurrence of any of the following events or
transactions after the date hereof:
(i) the acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 50% or more of the then outstanding
Common Stock; or
(ii) the consummation of any Acquisition Transaction described in
Section 2(b)(i) hereof, except that the percentage referred to in clause
(z) shall be 50%.
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8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or a Grantee Subsidiary, or engage in a plan of exchange with
any person, other than Grantee or a Grantee Subsidiary and Issuer shall not be
the continuing or surviving corporation of such consolidation or merger or the
acquirer in such plan of exchange, (ii) to permit any person, other than Grantee
or a Grantee Subsidiary, to merge into Issuer or be acquired by Issuer in a plan
of exchange and Issuer shall be the continuing or surviving or acquiring
corporation, but, in connection with such merger or plan of exchange, the then
outstanding shares of Common Stock shall be changed into or exchanged for stock
or other securities of any other person or cash or any other property or the
then outstanding shares of Common Stock shall after such merger or plan of
exchange represent less than 50% of the outstanding shares and share equivalents
of the merged or acquiring company, or (iii) to sell or otherwise transfer all
or a substantial part of its or the Issuer Subsidiary's assets or deposits to
any person, other than Grantee or a Grantee Subsidiary, then, and in each such
case, the agreement governing such transaction shall make proper provision so
that the Option shall, upon the consummation of any such transaction and upon
the terms and conditions set forth herein, be converted into, or exchanged for,
an option (the "Substitute Option"), at the election of the Holder, of either
(x) the Acquiring Corporation (as hereinafter defined) or (y) any person that
controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving person of a consolidation or merger with Issuer (if other than
Issuer), (ii) the acquiring person in a plan of exchange in which Issuer is
acquired, (iii) the Issuer in a merger or plan of exchange in which Issuer
is the continuing or surviving or acquiring person, and (iv) the transferee
of all or a substantial part of Issuer's assets or deposits (or the assets
or deposits of the Issuer Subsidiary).
(ii) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the market/offer price, as defined
in Section 7.
(iv) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or by
any company which controls or is controlled by such person, as the Holder
may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as
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similar as possible and in no event less advantageous to the Holder. The issuer
of the Substitute Option shall also enter into an agreement with the then Holder
or Holders of the Substitute Option in substantially the same form as this
Agreement (after giving effect for such purpose to the provisions of Section 9),
which agreement shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option was exercisable
immediately prior to the event described in the first sentence of Section 8(a),
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option was exercisable immediately prior to the
event described in the first sentence of Section 8(a) and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the Holder.
(f) Issuer shall not enter into any transaction described in subsection
(a) of this Section 8 unless the Acquiring Corporation and any person that
controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) 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, and at the request of the owner (the "Substitute Share
Owner") of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "Highest
Closing Price" shall mean the highest closing price for shares of Substitute
Common Stock within the six-month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
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<PAGE>
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective rights to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and/or certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable and in any event within five business days
after the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor or the
portion thereof which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
repurchasing the Substitute Option and/or the Substitute Shares in part or in
full, the Substitute Option Issuer shall immediately so notify the Substitute
Option Holder and/or the Substitute Share Owner and thereafter deliver or cause
to be delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Option
Repurchase Price and/or the Substitute Share Repurchase Price, respectively,
which it is no longer prohibited from delivering, within five business days
after the date on which the Substitute Option Issuer is no longer so prohibited;
provided, however, that if the Substitute Option Issuer is at any time after
delivery of a notice of repurchase pursuant to subsection (b) of this Section 9
prohibited under applicable law or regulation, or as a consequence of
administrative policy, from delivering to the Substitute Option Holder and/or
the Substitute Share Owner, as appropriate, the Substitute Option Repurchase
Price and the Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Issuer shall use its reasonable best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder and/or Substitute
Share Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of prohibition, whereupon, in
the latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that portion
of the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of shares of the Substitute Common Stock obtained by
multiplying the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the Substitute
Option Repurchase Price less the portion thereof theretofore delivered to the
Substitute Option Holder and the denominator of which is the Substitute Option
Repurchase Price, and/or (B) to the Substitute Share Owner, a certificate for
the Substitute
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<PAGE>
Option Shares it is then so prohibited from repurchasing. If an Exercise
Termination Event shall have occurred prior to the date of the notice by the
Substitute Option Issuer described in the first sentence of this subsection (c),
or shall be scheduled to occur at any time before the expiration of a period
ending on the thirtieth day after such date, the Substitute Option Holder shall
nevertheless have the right to exercise the Substitute Option until the
expiration of such 30-day period.
10. The 30-day, 6-month, 12-month, 18-month or 24-month periods for
exercise of certain rights under Sections 2, 6, 7, 9, 12 and 15 shall be
extended: (i) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights (for so long as the Holder, Owner, Substitute Option
Holder or Substitute Share Owner, as the case may be, is using commercially
reasonable efforts to obtain such regulatory approvals), and for the expiration
of all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the Exchange Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer 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 authorized by the
Issuer Board prior to the date hereof and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant thereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder; provided, however,
that until the date 15 days following the date on which the OTS has approved an
application by Grantee to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which no one
party acquires the right to purchase in excess of 2% of the voting shares of
Issuer, (iii) an assignment to a single party (e.g., a broker or investment
banker) for the purpose of conducting a widely dispersed public distribution on
Grantee's behalf or (iv) any other manner approved by the OTS.
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<PAGE>
13. Each of Grantee and Issuer will use its reasonable best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, but Grantee shall not be obligated to apply to
state banking authorities for approval to acquire the shares of Common Stock
issuable hereunder until such time, if ever, as it deems appropriate to do so.
14. (a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Profit (as hereinafter defined) exceed $1,800,000 and,
if it otherwise would exceed such amount, the Grantee, at its sole election,
shall either (a) reduce the number of shares of Common Stock subject to this
Option, (b) deliver to Issuer for cancellation Option Shares previously
purchased by Grantee, (c) pay cash to Issuer, or (d) any combination thereof, so
that Grantee's actually realized Total Profit shall not exceed $1,800,000 after
taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as defined below) of more than $1,800,000;
provided that nothing in this sentence shall restrict any exercise of the Option
permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount received by Grantee
pursuant to Issuer's repurchase of the Option (or any portion thereof) pursuant
to Section 7, (ii) (x) the amount received by Grantee pursuant to Issuer's
repurchase of Option Shares pursuant to Section 7, less (y) Grantee's purchase
price for such Option Shares, (iii) (x) the net cash amounts received by Grantee
pursuant to the sale of Option Shares (or any other securities into which such
Option Shares are converted or exchanged) to any unaffiliated party, less (y)
the Grantee's purchase price of such Option Shares, (iv) any amounts received by
Grantee on the transfer of the Option (or any portion thereof) to any
unaffiliated party, and (v) any amount equivalent to the foregoing with respect
to the Substitute Option.
(d) As used herein, the term "Notional Total Profit" with respect to any
number of shares as to which Grantee may propose to exercise this Option shall
be the Total Profit determined as of the date of such proposed exercise assuming
that this Option were exercised on such date for such number of shares and
assuming that such shares, together with all other Option Shares held by Grantee
and its affiliates as of such date, were sold for cash at the closing market
price for the Common Stock as of the close of business on the preceding trading
day (less customary brokerage commissions).
15. (a) Grantee may, at any time following a Repurchase Event and prior
to the occurrence of an Exercise Termination Event (or such later period as
provided in Section 10), relinquish the Option (together with any Option Shares
issued to and then owned by Grantee) to Issuer in exchange for a cash fee equal
to the Surrender Price; provided, however, that Grantee may not exercise its
rights pursuant to this Section 15 if Issuer has repurchased the Option (or any
portion
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<PAGE>
thereof) or any Option Shares pursuant to Section 7. The "Surrender Price" shall
be equal to $1,800,000 (i) plus, if applicable, Grantee's purchase price with
respect to any Option Shares and (ii) minus, if applicable, the excess of (A)
the net cash amounts, if any, received by Grantee pursuant to the arms' length
sale of Option Shares (or any other securities into which such Option Shares
were converted or exchanged) to any unaffiliated party, over (B) Grantee's
purchase price of such Option Shares.
(b) Grantee may exercise its right to relinquish the Option and any Option
Shares pursuant to this Section 15 by surrendering to Issuer, at its principal
office, a copy of this Agreement together with certificates for Option Shares,
if any, accompanied by a written notice stating (i) that Grantee elects to
relinquish the Option and Option Shares, if any, in accordance with the
provisions of this Section 15 and (ii) the Surrender Price. The Surrender Price
shall be payable in immediately available funds on or before the second business
day following receipt of such notice by Issuer.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from paying the
Surrender Price to Grantee in full, Issuer shall immediately so notify Grantee
and thereafter deliver or cause to be delivered, from time to time, to Grantee,
the portion of the Surrender Price that it is no longer prohibited from paying,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of surrender pursuant to paragraph (b) of this Section 15 is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from paying to Grantee the Surrender Price in full, (i) Issuer shall (A)
use its reasonable best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to make such payments, (B) within five days of the submission or receipt of any
documents relating to any such regulatory and legal approvals, provide Grantee
with copies of the same, and (c) keep Grantee advised of both the status of any
such request for regulatory and legal approvals, as well as any discussions with
any relevant regulatory or other third party reasonably related to the same and
(ii) Grantee may revoke such notice of surrender by delivery of a notice of
revocation to Issuer and, upon delivery of such notice of revocation, the
Exercise Termination Event shall be extended to a date six months from the date
on which the Exercise Termination Event would have occurred if not for the
provisions of this Section 15(c) (during which period Grantee may exercise any
of its rights hereunder, including any and all rights pursuant to this Section
15).
16. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief. In connection therewith both
parties waive the posting of any bond or similar requirement.
17. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or
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<PAGE>
invalidated. If for any reason such court or regulatory agency determines that
the Holder is not permitted to acquire, or Issuer is not permitted to repurchase
pursuant to Section 7, the full number of shares of Common Stock provided in
Section 1(a) hereof (as adjusted pursuant to Section 1(b) or Section 5 hereof),
it is the express intention of Issuer to allow the Holder to acquire or to
require Issuer to repurchase such lesser number of shares as may be permissible,
without any amendment or modification hereof.
18. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
fax, telecopy, or by registered or certified mail (postage prepaid, return
receipt requested) at the respective addresses of the parties set forth in the
Merger Agreement.
19. This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois, without regard to the conflict of law
principles thereof (except to the extent that mandatory provisions of Federal
law are applicable).
20. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
21. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
22. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assignees.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assignees, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided herein.
23. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
COAL CITY CORPORATION
By /s/ Mitchell Feiger
-----------------------------------------
Mitchell Feiger
President
AVONDALE FINANCIAL CORP.
By /s/ Robert S. Engelman, Jr.
-----------------------------------------
Robert S. Engelman, Jr.
President and Chief Executive Officer
17
<PAGE>
APPENDIX II
PROPOSED REVISIONS TO THE CERTIFICATE OF INCORPORATION OF
AVONDALE FINANCIAL CORP.
ARTICLE FIRST SHALL BE AMENDED IN ITS ENTIRETY AS FOLLOWS:
FIRST: The name of the Corporation is MB Financial, Inc. (hereinafter
sometimes referred to as the "Corporation").
ARTICLE FOURTH, SECTION A SHALL BE AMENDED IN IT ENTIRETY AS FOLLOWS:
FOURTH: A. The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is twenty-one million (21,000,000)
consisting of:
1. one million (1,000,000) shares of Preferred Stock, par value one cent
($.01) per share (the "Preferred Stock"); and
2. twenty million (20,000,000) shares of Common Stock, par value one cent
($.01) per share (the "Common Stock").
ARTICLE SIXTH, SECTION B. SHALL BE AMENDED IN ITS ENTIRETY AS FOLLOWS:
SIXTH: B. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled, except as otherwise provided
in the By-laws of the Corporation, only by a majority vote of the directors then
in office, though less than a quorum, and directors chosen shall hold office for
a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been appointed expires. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
<PAGE>
APPENDIX III
[Hovde letterhead]
October 7, 1998
Board of Directors
Avondale Financial Corp.
20 North Clark Street
Chicago, IL 60602
Members of the Board:
Avondale Financial Corp. ("Avondale"), a Delaware corporation, and Coal
City Corporation ("Coal City"), an Illinois corporation, will enter into an
Agreement and Plan of Merger ("Agreement") whereby Coal City will be merged with
and into Avondale pursuant to a merger-of-equals (the "Merger"). As is set
forth in Section 1.3(a)(i) of the Agreement, at the effective time of the Merger
each of the outstanding shares of Coal City common stock ("Coal City Common
Stock") will be converted into and have the right to receive 83.5 shares
("Exchange Ratio") of Avondale common stock ("Avondale Common Stock"). In
connection therewith, you have requested our opinion as to the fairness, from a
financial point of view, of the Agreement to the shareholders of Avondale.
Hovde Financial, Inc. ("Hovde") specializes in providing investment banking
and financial advisory services to commercial bank and thrift institutions. Our
principals are experienced in the independent valuation of securities in
connection with negotiated underwritings, subscription and community offerings,
private placements, merger and acquisition transactions and recapitalizations.
We are familiar with Avondale, having acted as its financial advisor in
connection with, and having participated in the negotiations leading to, the
Agreement.
We were retained by Avondale to act as its exclusive financial advisor with
respect to a review of Avondale's strategic alternatives and the possible sale,
merger, consolidation, or other business combination, in one or a series of
transactions, involving all or a substantial amount of the business, securities
or assets of Avondale. We will receive compensation from Avondale in connection
with our services, a significant portion of which is contingent upon the
consummation of the Merger.
<PAGE>
Board of Directors
Avondale Financial Corp.
October 7, 1998
Page Two
During the course of our engagement, we reviewed and analyzed material
bearing upon the financial and operating conditions of Avondale and Coal City
and material prepared in connection with the proposed transaction, including the
following: the Agreement; certain historical publicly available information
concerning Avondale and Coal City; the terms of recent merger-of-equals
transactions involving banks, savings and loans, bank holding companies, and
savings and loan holding companies that we considered relevant; and financial
and other information provided to us by the managements of Avondale and Coal
City.
In addition, we have conducted meetings with members of the senior
management of Avondale and Coal City for the purpose of reviewing the future
prospects of Avondale and Coal City. We also evaluated the pro forma ownership
of Avondale Common Stock by Avondale's shareholders relative to the pro forma
contribution of Avondale's assets, liabilities, equity and earnings to the pro
forma company, and conducted such other studies, analyses and examinations as we
deemed appropriate. We also took into account our assessment of general
economic, market and financial conditions and our experience in other
transactions, as well as our knowledge of the banking industry and our general
experience in securities valuations.
In rendering this opinion, we have assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations contained in the materials provided to us by
Avondale and Coal City and in the discussions with Avondale and Coal City
management. We did not independently verify and have relied on and assumed that
the aggregate allowances for loan losses set forth in the balance sheets of each
of Avondale and Coal City at August 31, 1998 were adequate to cover such losses
and complied fully with applicable law, regulatory policy and sound banking
practices as of the date of such financial statements. We were not retained to
and did not conduct a physical inspection of any of the properties or facilities
of Avondale or Coal City, nor did we make any independent evaluation or
appraisal of the assets, liabilities or prospects of Avondale or Coal City, nor
were we furnished with any such evaluation or appraisal; in particular, we did
not make any independent evaluation or appraisal of the interest-only strips
("I/O Strips") on the balance sheet of Avondale and were not retained to
undertake any such evaluation. Further, we were not retained to and did not
review any individual credit files.
<PAGE>
Board of Directors
Avondale Financial Corp.
October 7, 1998
Page Three
We have assumed that the Merger is, and will be, in compliance with all
laws and regulations that are applicable to Avondale and Coal City. In
rendering this opinion, we have been advised by Avondale and Coal City and we
have assumed that there are no factors that would impede any necessary
regulatory or governmental approval for the Merger and we have further assumed
that in the course of obtaining the necessary regulatory and governmental
approvals, no restriction will be imposed on Avondale or the surviving
corporation that would have a material adverse effect on Avondale or the
contemplated benefits of the Merger. We have also assumed that there would not
occur any change in the applicable law or regulation that would cause a material
adverse change in the prospects or operations of Avondale or the surviving
corporation after the Merger.
Our opinion is based solely upon the information available to us and the
economic, market and other circumstances as they exist as of the date hereof.
Events occurring and information that becomes available after the date hereof
could materially affect the assumptions and analyses used in preparing this
opinion. We have not undertaken to reaffirm or revise this opinion or otherwise
comment upon any events occurring or information that becomes available after
the date hereof.
We are not expressing any opinion herein as to the prices at which shares
of Avondale Common Stock issued in the Merger may trade if and when they are
issued or at any future time, nor does our opinion constitute a recommendation
to any holder of Avondale Common Stock as to how such holder should vote with
respect to the Agreement at any meeting of holders of Avondale Common Stock.
This letter is solely for the information of the Board of Directors of
Avondale and is not to be used, circulated, quoted or otherwise referred to for
any other purpose, nor is it to be filed with, included in or referred to in
whole or in part in any registration statement, proxy statement or any other
document, except in each case in accordance with our prior written consent which
shall not be unreasonably withheld; provided, however, that we hereby consent to
the inclusion and reference to this letter in any registration statement, proxy
statement, information statement or tender offer document to be delivered to the
holders of Avondale Common Stock in connection with the Merger if and only if
this letter is quoted in full or attached as an exhibit to such document and
this letter has not been withdrawn prior to the date of such document.
<PAGE>
Board of Directors
Avondale Financial Corp.
October 7, 1998
Page Four
Subject to the foregoing and based on our experience as investment bankers,
our activities and assumptions as described above, and other factors we have
deemed relevant, we are of the opinion as of the date hereof that the Agreement
is fair, from a financial point of view, to the shareholders of Avondale.
Sincerely,
/s/ Hovde Financial, Inc.
HOVDE FINANCIAL, INC.
<PAGE>
APPENDIX IV
SECTIONS 11.65 AND 11.70 OF THE
ILLINOIS BUSINESS CORPORATION ACT
11.65 RIGHT TO DISSENT - (a) A shareholder of a corporation is entitled to
dissent from, and obtain payment for his or her shares in the event of any of
the following corporate actions:
(1) consummation of a plan of merger or consolidation or a plan
share exchange to which the corporation is a party if (i) shareholder
authorization is required for the Merger or consolidation or the share
exchange by Section 11.20 or the articles of incorporation or (ii) the
corporation is a subsidiary that is merged with its parent or another
subsidiary under Section 11.30;
(2) consummation of a sale, lease or exchange of all, or
substantially all, of the property and assets of the corporation other than
in the usual and regular course of business;
(3) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes preferential right of such shares;
(ii) alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of such shares;
(iii) in the case of a corporation incorporated prior to January
1, 1982, limits or eliminates cumulative voting rights with respects to
such share; or
(4) any other corporate action taken pursuant to a shareholder vote
if the articles of incorporation, bylaws, or a resolution of the Board of
Directors provide that shareholders are entitled to dissent and obtain
payment for their shares in accordance with the procedures set forth in
Section 11.70 or as may be otherwise provided in the articles, bylaws or
resolution.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this Section may not challenge the corporate action creating his or
her entitlement unless the action is fraudulent with respect to the shareholder
or the corporation or constitutes a breach of a fiduciary duty owed to the
shareholder.
(c) A record owner of shares may assert dissenter's rights as to fewer
than all the shares recorded in such person's name only if such person dissents
with respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the record owner asserts dissenters' rights. The rights of a partial dissenter
are determined as if the shares as to which dissent is made and the other shares
were recorded in the name of different shareholders. A beneficial owner of
shares who is not the record owner may assert dissenters' rights as to the
shares held on such person's behalf only if the beneficial owner submits to the
corporation the record owner's written consent to the dissent before or at the
same time the beneficial owner asserts dissenters' rights. (Last amended by P.A.
85-1269, L.'88, eff, 1-1-89.)
11.70 PROCEDURE TO DISSENT - (a) If the corporate action giving rise to the
right to dissent is to be approved at a meeting of shareholders, the notice of
meeting shall inform the shareholders of their right to dissent and the
procedure to dissent. If, prior to the meeting, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to vote on the transaction and to determine
whether or not to exercise dissenters' rights, a shareholder may assert
dissenters' rights only if the shareholder delivers to the corporation before
the vote is taken a written demand for payment for his or her share if
<PAGE>
the proposed action is consummated, and the shareholder does not vote in favor
of the proposed action.
(b) If the corporate action giving rise to the right to dissent is not to
be approved at a meeting of shareholders, the notice to shareholders describing
the action taken under Section 11.30 or Section 7.10 shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to or concurrently with the notice, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to determine whether or not to exercise
dissenters' rights, a shareholder may assert dissenter's rights only if he or
she delivers to the corporation within 30 days from the date of mailing the
notice a written demand for payment for his or her shares.
(c) if the corporate action giving rise to the right to dissent is not to
be approved at a meeting of shareholders describing the action taken under
Section 11.30 or Section 7.10 shall inform the shareholders of their right to
dissent and the procedure to dissent. If, prior to or concurrently with the
notice, the corporation furnishes to the shareholders material information with
respect to the transaction that will objectively enable a shareholder to
determine whether or not to exercise dissenters' rights, a shareholder may
assert dissenter's rights only if he or she delivers to the corporation within
30 days from the date of mailing the notice a written demand for payment for his
or her shares.
(d) Within 10 days after the date on which the corporate action giving
rise to the right to dissent is effective or 30 days after the shareholder
delivers to the corporation the written demand for payment, whichever is later,
the corporation shall send each shareholder who has delivered a written demand
for payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as of
the end of a fiscal year ending not earlier than 16 months before the delivery
of the statement, together with the statement of income of that year and the
latest available interim financial statements, and either a commitment to pay
for the shares of the dissenting shareholder at the estimated fair value thereof
upon transmittal to the corporation of the certificate or certificates or other
evidence of ownership, with respect to the shares, or instructions to the
dissenting shareholder to sell his or her shares within 10 days after delivery
of the corporation's statement to the shareholder. The corporation may instruct
the shareholder to sell only if there if a public market for the shares at which
the shares may be readily sold. If the shareholder does not sell within that 10
day period after being so instructed by the corporation, for purposes of this
Section the shareholder shall be deemed to have sold his or her shares at the
average closing price of the shares, if listed on a national exchange, or the
average of the bid and asked price with respect to the shares quoted by a
principal market, if not listed on a national exchange, during that 10 day
period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are canceled or
modified by the consummation of the proposed corporate action. Upon consummation
of that action, the corporation shall pay to each dissenter who transmits to the
corporation the certificate or other evidence of ownership of the shares the
amount the corporation estimates to be the fair value of the shares, plus
accrued interest, accompanied by a written explanation of how the interest was
calculated.
(e) If the shareholder does not agree with the opinion of the corporation
as to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the Corporation's statement of
value, shall notify the corporation in writing of the shareholder's estimated
fair value and the amount of interest due and demand payment for the difference
between the shareholder's estimate of fair value and interest due and the amount
of the payment by the corporation or the proceeds of sale by the shareholder,
whichever is applicable because of the procedure for which the corporation opted
pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay the
difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose
<PAGE>
demands remain unsettled parties to the proceeding as an action against their
shares and all parties shall be served with a copy of the petition. Nonresidents
may be served by registered or certified mail or by publication as provided by
law. Failure of the corporation to commence an action pursuant to this Section
shall not limit or affect the right of the dissenting shareholders to otherwise
commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced
under subsection (f) by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the power described
in the order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of the appraisers, if any, appointed by the court under subsection (g),
but shall exclude the fees and expenses of counsel and experts for the
respective parties. If the fair value of the shares as determined by the court
materially exceeds the amount which the corporation estimated to be the fair
value of the shares or if no estimate was made in accordance with subsection
(c), then all or any part of the costs may be assessed against the corporation.
If the amount which any dissenter estimated to be the fair value of the shares
materially exceeds the fair value of the shares as determined by the court, then
all or any part of the costs may be assessed against the dissenter. The court
may also assess the fees and expenses of counsel and experts for the respective
parties, in amounts the court funds equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if
the court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or as a dissenter and in favor of
any other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters' similarly situated and that the
fees for those services should not be assessed against the corporation, the
court may award to that counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who are benefitted. Except as otherwise
provided in this Section, the practice, procedure, judgment and costs shall
be governed by the Code of Civil Procedure.
(j) As used in this Section:
(1) "Fair Value," with respect to a dissenter's shares, means the
value of the shares immediately before the consummation of the corporate
action to which the dissenter objects excluding any appreciation or
depreciation in anticipation of the corporate action, unless exclusions
would be inequitable.
(2) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently
paid by the corporation on its principal bank loans or, if none, at a rate
that is fair and equitable under all circumstances. (Last amended by P.A.
86-1156, L. '90, eff.-10-90.)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents of
Avondale's may be insured or indemnified against liability which they may incur
in their capacities as such:
(S)145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE. (a) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made , with
respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be
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<PAGE>
determined that such person is not entitled to be indemnified by the corporation
as authorized in this section. Such expenses (including attorneys' fees)
incurred by former directors and officers or other employees and agents may be
so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
Article ELEVENTH of Avondale's certificate of incorporation further provides:
A. Each person who was or is made a party or is threatened to be made a
party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director or
an officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while service as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and
amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as
-------- -------
provided in Section C hereof with respect to
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<PAGE>
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
-------- -------
Delaware General Corporation Law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter and "undertaking"), by or on behalf of such indemnitee, to repay
all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there in no further right to appeal (hereinafter
a "final adjudication"), that such indemnitee is not entitled to be
indemnified for such expenses under this Section or otherwise. The rights to
indemnification and to the advancement of expenses conferred in Sections A
and B of this Article shall be contract rights and such rights shall continue
as to an indemnitee who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
C. If a claim under Section A or B of this Article is not paid in full by
the Corporation within sixty days after a written claim has been received by
the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall also be entitled to be paid the expenses of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not
met such applicable standards of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden
of proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article or otherwise shall be on the
Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, By-laws, agreement, vote of stockholders or
Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against
any expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
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<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following Exhibits are filed as part of this Registration Statement.
2.1 Agreement and Plan of Merger, as amended, dated as of October
12, 1998, by and between Avondale and Coal City (included as
Appendix I to the Proxy Statement/Prospectus).
2.2 Stock Option Agreement dated as of October 12, 1998, by and
between Coal City as Issuer and Avondale as Grantee (included as
Exhibit A to Exhibit 2.1).
2.3 Stock Option Agreement dated as of October 12, 1998, by and
between Avondale as Issuer and Coal City as Grantee (included as
Exhibit B to Exhibit 2.1).
3.1 Certificate of Incorporation of Avondale (incorporated by
reference to Exhibit 3.1 to Avondale's Registration Statement on
Form S-1 (No. 33-80774)).
3.2 Bylaws of Avondale (incorporated by reference to Exhibit 3.2 to
Avondale's Registration Statement on Form S-1 (No. 33-80774)).
4 Form of Certificate of Avondale Common Stock (incorporated by
reference to Exhibit 4 to Avondale's Registration Statement on
Form S-1 (No. 33-80774)).
5 Opinion of Silver, Freedman & Taff, L.L.P. as to the legality of
the securities being registered.
8.1 Opinion of Silver, Freedman & Taff, L.L.P. regarding tax
matters.
8.2 Opinion of Schwartz, Cooper, Greenberger & Krauss, Chartered
regarding tax matters.
10.1 Employment Agreement between Avondale and Robert S. Engelman,
Jr., dated March 10, 1998.
10.2 Employment Agreement between Avondale and Robert S. Engelman,
Jr., dated October 12, 1998.
10.3 Severance Agreement between Avondale and Howard A. Jaffe.
10.4 Form of Change in Control Severance Agreement between
Manufacturers Bank and Howard A. Jaffe.
10.5 Form of Employment Agreement between Avondale and Mitchell
Feiger.
10.6 Form of Voting Agreement between Coal City and each of the
Directors of Avondale.
10.7 Form of Voting Agreement between Avondale and each of the
Directors of Coal City.
10.8 Form of Affiliate Agreement between Avondale and each of the
Directors of Coal City.
10.9 1995 Stock Option and Incentive Plan (incorporated by reference
to Exhibit 4.3 to Avondale's Registration Statement on Form S-8
(No. 33-98860)).
10.10 Recognition and Retention Plan (incorporated by reference to
Exhibit 4.3 to Avondale's Registration Statement on Form S-8
(No. 33-98862)).
10.11 Unfunded Deferred Compensation Plan for Directors and Executive
Officers (incorporated by reference to Exhibit 4.3 to Avondale's
Registration Statement on Form S-8 (No.333-4592)).
10.12 Onmibus Plan (incorporated by reference to Exhibit 10.1 to
Avondale's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.13 Supplemental Executive Retirement Plan Agreement (incorporated
by reference to Exhibit 10.2 to Avondale's Annual Report on Form
10-K for the year ended December 31, 1996).
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of McGladrey & Pullen, LLP.
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<PAGE>
23.3 Consents of Silver, Freedman & Taff, L.L.P. (included in
Exhibits 5 and 8.1).
23.4 Consent of Schwartz, Cooper, Greenberger & Krauss, Chartered
(included in Exhibit 8.2).
23.5 Consent of Hovde Financial, Inc.
24 Power of Attorney (contained on signature page).
99.1 Consents of Coal City Directors.
99.2 Form of proxy card of Avondale.
99.3 Form of proxy card of Coal City.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
Avondale's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(d) Avondale undertakes that every prospectus (i) that is filed pursuant to
paragraph (c) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415,
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<PAGE>
will be filed as part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities and at that time shall be deemed to be the initial bona fide offering
thereof.
(e) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Avondale pursuant to the foregoing provisions, or otherwise, Avondale has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Avondale of expenses incurred or
paid by a director, officer or controlling person of Avondale 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,
Avondale will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(f) 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 of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) 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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Avondale has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Chicago, State of
Illinois, on December 31, 1998.
AVONDALE FINANCIAL CORP.
Date: December 31, 1998 By: /s/ Robert S. Engelman, Jr.
----------------------------------------
Robert S. Engelman, Jr.
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
We, the undersigned directors and officers of the Registrant, hereby
severally constitute and appoint Robert S. Engelman, Jr. and Howard A. Jaffe,
and each of them, our true and lawful attorneys and agents, to do any and all
things in our names in the capacities indicated below which said Robert S.
Engelman, Jr. and/or Howard A. Jaffe may deem necessary or advisable to enable
the Registrant to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with the registration statement on Form S-4 relating to the
offering of the registrant's common stock, including specifically, but not
limited to, power and authority to sign for us in our names in the capacities
indicated below this registration statement and any and all amendments
(including post-effective amendments) thereto; and, we hereby approve, ratify
and confirm all that said Robert S. Engelman, Jr. and/or Howard A. Jaffe shall
do or cause to be done by virtue thereof.
<TABLE>
<S> <C>
By: /s/ Robert S. Engelman, Jr. By: /s/ Howard A. Jaffe
---------------------------------------------- ----------------------------------------------
Robert S. Engelman, Jr. Howard A. Jaffe
President and Chief Executive Officer Executive Vice President and Chief
(Principal Executive Officer) Financial Officer
(Principal Financial and Accounting
Officer)
Date: December 31, 1998 Date: December 31, 1998
By: /s/ R. Thomas Eiff By: /s/ Robert S. Engelman, Jr.
---------------------------------------------- ----------------------------------------------
R. Thomas Eiff Robert S. Engelman, Jr.
Director Director
Date: December 31, 1998 Date: December 31, 1998
</TABLE>
<PAGE>
<TABLE>
<S> <C>
By: /s/ Arthur L. Knight, Jr. By: /s/ Jameson A. Baxter
--------------------------------------------- ---------------------------------------------
Arthur L. Knight, Jr. Jameson A. Baxter
Director Director
Date: December 31, 1998 Date: December 31, 1998
By: /s/ Sandra P. Guthman By: /s/ Peter G. Krivkovich
--------------------------------------------- ---------------------------------------------
Sandra P. Guthman Peter G. Krivkovich
Director Director
Date: December 31, 1998 Date: December 31, 1998
By: /s/ Hipolito Roldan By: /s/ Robert A. Wislow
--------------------------------------------- ---------------------------------------------
Hipolito Roldan Robert A. Wislow
Director Director
Date: December 31, 1998 Date: December 31, 1998
</TABLE>
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Merger, as amended, dated as of October 12, 1998,
by and between Avondale and Coal City (included as Appendix I to the
Proxy Statement/Prospectus).
2.2 Stock Option Agreement dated as of October 12, 1998, by and between Coal
City as Issuer and Avondale as Grantee (included as Exhibit A to Exhibit
2.1).
2.3 Stock Option Agreement dated as of October 12, 1998, by and between
Avondale as Issuer and Coal City as Grantee (included as Exhibit B to
Exhibit 2.1).
3.1 Certificate of Incorporation of Avondale (incorporated by reference to
Exhibit 3.1 to Avondale's Registration Statement on Form S-1 (No. 33-
80774)).
3.2 Bylaws of Avondale (incorporated by reference to Exhibit 3.2 to
Avondale's Registration Statement on Form S-1 (No. 33-80774)).
4 Form of Certificate of Avondale Common Stock (incorporated by reference
to Exhibit 4 to Avondale's Registration Statement on Form S-1 (No. 33-
80774)).
5 Opinion of Silver, Freedman & Taff, L.L.P. as to the legality of the
securities being registered.
8.1 Opinion of Silver, Freedman & Taff, L.L.P. regarding tax matters.
8.2 Opinion of Schwartz, Cooper, Greenberger & Krauss, Chartered regarding
tax matters.
10.1 Employment Agreement between Avondale and Robert S. Engelman, Jr., dated
March 10, 1998.
10.2 Employment Agrement between Avondale and Robert S. Engelman, Jr., dated
October 12, 1998.
10.3 Severance Agreement between Avondale and Howard A. Jaffe.
10.4 Form of Change in Control Severance Agreement between Manufacturers Bank
and Howard A. Jaffe.
10.5 Form of Employment Agreement between Avondale and Mitchell Feiger.
10.6 Form of Voting Agreement between Coal City and each of the Directors of
Avondale.
10.7 Form of Voting Agreement between Avondale and each of the Directors of
Coal City.
10.8 Form of Affiliate Agreement between Avondale and each of the Directors of
Coal City.
10.9 1995 Stock Option and Incentive Plan (incorporated by reference to
Exhibit 4.3 to Avondale's Registration Statement on Form S-8 (No. 33-
98860)).
10.10 Recognition and Retention Plan (incorporated by reference to Exhibit 4.3
to Avondale's Registration Statement on Form S-8 (No. 33-98862)).
10.11 Unfunded Deferred Compensation Plan for Directors and Executive Officers
(incorporated by reference to Exhibit 4.3 to Avondale's Registration
Statement on Form S-8 (No.333-4592)).
10.12 Onmibus Plan (incorporated by reference to Exhibit 10.1 to Avondale's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.13 Supplemental Executive Retirement Plan Agreement (incorporated by
reference to Exhibit 10.2 to Avondale's Annual Report on Form 10-K for
the year ended December 31, 1996).
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of McGladrey & Pullen, LLP.
23.3 Consents of Silver, Freedman & Taff, L.L.P. (included in Exhibits 5 and
8.1).
<PAGE>
23.4 Consent of Schwartz, Cooper, Greenberger & Krauss, Chartered (included in
Exhibit 8.2).
23.5 Consent of Hovde Financial, Inc.
24 Power of Attorney (contained on signature page).
99.1 Consents of Coal City Directors.
99.2 Form of proxy card of Avondale.
99.3 Form of proxy card of Coal City.
<PAGE>
[LETTERHEAD OF SILVER, FREEDMAN & TAFF, L.L.P.]
EXHIBIT 5
December 31, 1998
Avondale Financial Corp.
20 North Clark Street
Chicago, Illinois 60602
Re: Registration Statement on Form S-4
Avondale Financial Corp.
Ladies and Gentlemen:
We have examined (i) the Registration Statement on Form S-4 (the
"Registration Statement") filed by Avondale Financial Corp. (the "Company") with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), and the Proxy
Statement/Prospectus, relating to the issuance by the Company of up to 4,100,000
shares of common stock, par value $.01 per share (the "Common Stock"), in the
manner set forth in the Registration Statement and the Prospectus, (ii) the
Company's Certificate of Incorporation and Bylaws and (iii) records of the
Company's corporate proceedings relative to its organization and to the issuance
of the Common Stock.
We have examined originals, or copies identified to our satisfaction, of
such corporate records of the Company and have made such examinations of law as
we have deemed relevant. In our examination, we have assumed and have not
verified (i) the genuineness of all signatures, (ii) the authenticity of all
documents submitted to us as originals, (iii) the conformity with the originals
of all documents supplied to us as copies, and (iv) the accuracy and
completeness of all corporate records and documents and all certificates and
statements of fact, in each case given or made available to us by the Company.
We have relied upon certificates and other written documents from public
officials and government agencies and departments and we have assumed the
accuracy and authenticity of such certificates and documents.
Based upon the foregoing, and having a regard for such legal considerations
as we deem relevant, we are of the opinion that the Common Stock will be, upon
issuance, against payment therefore as contemplated in the Registration
Statement and the Proxy Statement/Prospectus, legally issued, fully paid and
non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us in the Proxy Statement/Prospectus under the
caption "Legal Matters." In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission.
Very truly yours,
/s/ Silver, Freedman & Taff, L.L.P.
SILVER, FREEDMAN & TAFF, L.L.P.
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF SILVER, FREEDMAN & TAFF, L.L.P.]
December 15, 1998
Board of Directors
Avondale Financial Corporation
20 North Clark Street
Chicago, Illinois 60602
RE: FEDERAL INCOME TAX CONSEQUENCES ARISING FROM THE COMPANY MERGER
CONTEMPLATED BY THAT CERTAIN AGREEMENT AND PLAN OF MERGER BY AND
BETWEEN AVONDALE FINANCIAL CORP. AND COAL CITY CORPORATION DATED
OCTOBER 12, 1998 (THE "AGREEMENT)
Gentlemen:
In connection with filings to be made by Avondale with the SEC and other
regulatory authorities, set forth hereinbelow is this firm's opinion relating to
certain federal income tax consequences applicable to the proposed Company
Merger contemplated by the Agreement. Capitalized terms used herein which are
not expressly defined herein shall have the meaning assigned to them in the
Agreement.
FACTS
Avondale is a unitary savings and loan holding company organized and
existing under the laws of the State of Delaware. Avondale's principal business
consists of lending and deposit taking activities through its wholly-owned
savings bank subsidiary, Avondale Federal Savings Bank.
Coal City is a bank holding company organized and existing under the laws
of the State of Illinois. Coal City's principal business consists of lending and
deposit taking activities through its state bank subsidiary, Manufacturers
Bank.
<PAGE>
Board of Directors
December 15, 1998
Page 2
Pursuant to the Agreement, it is proposed that the Company Merger will be
implemented through the merger of Coal City with and into Avondale. In the
Company Merger all of the outstanding Coal City Common Stock will be surrendered
and exchanged solely for Avondale Common Stock or cash in lieu of fractional
share interests (other than Dissenting Shares).
ASSUMPTIONS
A. The Company Merger will be implemented strictly in accordance with the
terms of the Agreement.
B. All conditions precedent contained in the Agreement shall be performed
or waived prior to the Company Merger Effective Time, including by way of
performance (not by waiver), the redemption by Coal City of all of the issued
and outstanding shares of Coal City Preferred Stock.
C. The representations of Avondale and Coal City made in their respective
tax representation letters to counsel shall be true and correct as of the
Company Merger Effective Time.
D. Our opinions relating to the federal income tax consequences to
stockholders of Coal City are limited to those holders of Coal City Common Stock
who are citizens or residents of the United States of America ("U.S. Holders").
For purposes hereof, U.S. Holders do not include certain classes of taxpayers
including but not limited to foreign persons, insurance companies, tax-exempt
organizations, financial institutions, dealers in securities, persons who
acquired or acquire Coal City Common Stock pursuant to the exercise of employee
stock options or otherwise as compensation and persons who hold shares of Coal
City Common Stock in a hedging transaction or as part of a straddle, conversion
or similar transaction.
OPINIONS
Subject to the foregoing and to the conditions and limitations expressed
elsewhere herein, we are of the opinion that for federal income tax purposes:
1. the Company Merger will constitute a tax-free reorganization within
the meaning of Section 368(a) of the Code and Avondale and Coal City will each
be a party to the reorganization;
2. no gain or loss will be recognized by Avondale or Coal City solely as
a result of the Company Merger;
<PAGE>
Boards of Directors
December 15, 1998
Page 3
3. except as provided in paragraph 6 below, no gain or loss will be
recognized by any U.S. Holder in the Company Merger upon the surrender and
exchange of all such U.S. Holder's Coal City Common Stock solely for Avondale
Common Stock;
4. the aggregate adjusted tax basis of shares of Avondale Common Stock
(including a fractional share interest in Avondale Common Stock deemed received
and redeemed as described below) received by a U.S. Holder will be the same as
the aggregate adjusted tax basis of the shares of the Coal City Common Stock
surrendered and exchanged therefor;
5. the holding period of the Avondale Common Stock received by a U.S.
Holder in the Company Merger will include the holding period of the Coal City
Common Stock surrendered and exchanged therefor, provided that such shares were
held as a capital asset by such U.S. Holder at the Company Merger Effective
Time; and
6. a U.S. Holder who receives cash in lieu of a fractional share interest
in Avondale Common Stock in the Company Merger will be treated as having
received such fractional share interest and then as having received the cash in
redemption of such fractional share interest. Under Section 302 of the Code, if
such deemed distribution was "substantially disproportionate" with respect to
the U.S. Holder or was "not essentially equivalent to a dividend" after giving
effect to the constructive ownership rules of the Code, the U.S. Holder would
generally recognize capital gain or loss equal to the difference between the
amount of cash received and the U.S. Holder's adjusted tax basis in the
fractional share interest (determined as described in paragraph 4 above). Such
capital gain or loss would be long-term capital gain or loss if the U.S.
Holder's holding period in a fractional share interest (determined as described
in paragraph 5 above) is more than one year. Long-term capital gain of a non-
corporate U.S. Holder is generally subject to a maximum federal tax rate of 20%
if the holding period exceeds one year.
7. A U.S. Holder who dissents from the Company Merger and receives solely
cash in exchange for Dissenting Shares will be treated as having received such
cash in redemption of such Dissenting Shares, subject to the provisions and
limitations of Section 302 of the Code after giving effect to the constructive
ownership rules of the Code.
The foregoing opinion reflects our legal judgment based upon the facts and
assumptions presented herein. This opinion has no official status or binding
effect of any kind. Accordingly, we cannot assure you that the IRS or any court
of competent jurisdiction will agree with this opinion.
<PAGE>
Boards of Directors
December 15, 1998
Page 4
We hereby consent to the filing of this letter with the SEC as an exhibit
to the Registration Statement and to all references made to this letter in the
Registration Statement.
Very truly yours
/s/ Barry P. Taff, P.C.
SILVER, FREEDMAN & TAFF, L.L.P.
<PAGE>
Exhibit 8.2
[LETTERHEAD OF SCHWARTZ, COOPER, GREENBERGER & KRAUSS, CHARTERED]
December 30, 1998
Board of Directors
Coal City Corporation
1200 North Ashland Avenue
Chicago, IL 60622-2298
RE: FEDERAL INCOME TAX CONSEQUENCES ARISING FROM THE COMPANY
MERGER CONTEMPLATED BY THAT CERTAIN AGREEMENT AND PLAN OF
MERGER BY AND BETWEEN AVONDALE FINANCIAL CORP. AND COAL
CITY CORPORATION DATED OCTOBER 12, 1998 (THE "AGREEMENT")
Gentlemen:
In connection with filings to be made by Avondale with the SEC and other
regulatory authorities, set forth hereinbelow is this firm's opinion relating to
certain federal income tax consequences applicable to the proposed Company
Merger contemplated by the Agreement. Capitalized terms used herein which are
not expressly defined herein shall have the meaning assigned to them in the
Agreement.
FACTS
Avondale is a unitary savings and loan holding company organized and
existing under the laws of the State of Delaware. Avondale's principal business
consists of lending and deposit taking activities through its wholly-owned
savings bank subsidiary, Avondale Federal Savings Bank.
Coal City is a bank holding company organized and existing under the laws
of the State of Illinois. Coal City's principal business consists of lending
and deposit taking activities through its state bank subsidiary, Manufacturers
Bank.
Pursuant to the Agreement, it is proposed that the Company Merger will be
implemented through the merger of Coal City with and into Avondale. In the
Company Merger all of the outstanding Coal City Common Stock will be surrendered
and exchanged solely for Avondale Common Stock or cash in lieu of fractional
share interests (other than Dissenting Shares).
<PAGE>
Board of Directors
Coal City Corporation
December 30, 1998
Page 2
ASSUMPTIONS
A. The Company Merger will be implemented strictly in accordance with the
terms of the Agreement.
B. All conditions precedent contained in the Agreement shall be performed
or waived prior to the Company Merger Effective Time.
C. The respective representations of Avondale and Coal City made in the
Agreement and in their respective tax representation letters to counsel are true
and correct as of the date hereof and will be true and correct as of the Company
Merger Effective Time.
D. Our opinions relating to the federal income tax consequences to
stockholders of Coal City are limited to those holders of Coal City Common Stock
who are citizens or residents of the United States of America ("U.S. Holders").
For purposes hereof, U.S. Holders do not include certain classes of taxpayers
including but not limited to foreign persons, insurance companies, tax-exempt
organizations, financial institutions, dealers in securities, persons who
acquired or acquire Coal City Common Stock pursuant to the exercise of employee
stock options or otherwise as compensation and persons who hold shares of Coal
City Common Stock in a hedging transaction or as part of a straddle, conversion
or similar transaction.
OPINIONS
We have examined originals, or copies certified or otherwise identified to
our satisfaction, of such records, documents, certificates or other instruments
and made such other inquiries as in our judgment are necessary or appropriate to
enable us to render the opinions set forth below. We have not, however,
undertaken any independent investigation of any factual matter set forth in any
of the foregoing.
Subject to the foregoing and to the conditions and limitations expressed
elsewhere herein, we are of the opinion that for federal income tax purposes:
1. The Company Merger will constitute a tax-free reorganization within the
meaning of Section 368(a) of the Code, and Avondale and Coal City will each be a
party to the reorganization.
2. No gain or loss will be recognized by Avondale or Coal City solely as a
result of the Company Merger.
3. Except as provided in paragraph 6 below, no gain or loss will be
recognized by any U.S. Holder in the Company Merger upon the surrender and
exchange of all such U.S. Holder's Coal City Common Stock solely for Avondale
Common Stock.
<PAGE>
Board of Directors
Coal City Corporation
December 30, 1998
Page 3
4. The aggregate adjusted tax basis of shares of Avondale Common Stock
(including a fractional share interest in Avondale Common Stock deemed received
and redeemed as described below) received by a U.S. Holder will be the same as
the aggregate adjusted tax basis of the shares of the Coal City Common Stock
surrendered and exchanged therefor.
5. The holding period of the Avondale Common Stock received by a U.S.
Holder in the Company Merger will include the holding period of the Coal City
Common Stock surrendered and exchanged therefor, provided that such shares were
held as a capital asset by such U.S. Holder at the Company Merger Effective
Time.
6. A U.S. Holder who receives cash in lieu of a fractional share interest
in Avondale Common Stock in the Company Merger will be treated as having
received such fractional share interest and then as having received the cash in
redemption of such fractional share interest. Under Section 302 of the Code, if
such deemed distribution is "substantially disproportionate" with respect to the
U.S. Holder or is "not essentially equivalent to a dividend" after giving effect
to the constructive ownership rules of the Code the U.S. Holder will generally
recognize capital gain or loss equal to the difference between the amount of
cash received and the U.S. Holder's adjusted tax basis in the fractional share
interest (determined as described in paragraph 4 above), and such capital gain
or loss will be long-term capital gain or loss if the U.S. Holder's holding
period in the fractional share interest (determined as described in paragraph 5
above) is more than one year. Long-term capital gain of a non-corporate U.S.
Holder is generally subject to a maximum federal tax rate of 20% if the holding
period exceeds one year. Based on the tax representation letters referred to
above and current administrative pronouncements of the Internal Revenue Service,
cash received in lieu of fractional shares should not be considered essentially
equivalent to a dividend.
7. A U.S. Holder who dissents from the Company Merger and receives solely
cash in exchange for Dissenting Shares will be treated as having received such
cash in redemption of such Dissenting Shares, subject to the provisions and
limitations of Section 302 of the Code after giving effect to the constructive
ownership rules of the Code.
The foregoing opinion reflects our legal judgment based upon the facts and
assumptions presented herein. This opinion has no official status or binding
effect of any kind. Accordingly, we cannot assure you that the IRS or any court
of competent jurisdiction will agree with this opinion.
We hereby consent to the filing of this letter with the SEC as an exhibit
to the Registration Statement and to all references made to this letter in the
Registration Statement.
<PAGE>
Board of Directors
Coal City Corporation
December 30, 1998
Page 4
Very truly yours,
SCHWARTZ, COOPER, GREENBERGER & KRAUSS, CHARTERED
/s/ Steven W. Swibel
Steven W. Swibel
SWS/lea
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
this 10th day of March , 1998, by and between Avondale Financial Corp. (the
"Company") and Robert S. Engelman, Jr. (the "Employee").
WHEREAS, the Employee serves as the President and Chief Executive Officer
of the Company and as the President and Executive Officer of the Company's
wholly-owned subsidiary Avondale Federal Savings Bank (the "Bank");
WHEREAS, the Employee has an existing employment agreement with the
Company, dated March 25, 1997 (the "Prior Employment Agreement") which he is
willing to terminate in consideration of this Agreement's becoming effective;
WHEREAS, the board of directors of the Company (the "Board of Directors")
believes it is in the best interests of the Company and its subsidiaries for the
Company to enter into this Agreement with the Employee in order to assure
continuity of management of the Company and its subsidiaries; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
-----------
(a) The term "Change in Control" means (1) an acquisition of
securities of the Company that is determined by the Board of Directors to
constitute a change in control of the Company or the Bank within the meaning of
the Home Owners' Loan Act of 1933 and 12 C.F.R. Part 574 as in effect on the
Effective Date (as defined below); (2) an event that would be required to be
reported in response to Item 1 of the current report on Form 8-K, as in effect
on the Effective Date, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); (3) any person (as the term is used
in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly
of securities of the Company or the Bank representing 25% or more of the
combined voting power of the Company's or the Bank's outstanding securities; (4)
individuals who are members of the Board of Directors on the Effective Date (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the
-------------
Effective Date whose election was approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board, or whose nomination for
election by the Company's stockholders was approved by the nominating committee
serving under an Incumbent Board, shall be considered a member of the Incumbent
Board; or (5) consummation of a plan of reorganization, merger, consolidation,
sale of all or substantially all of the assets of the Company or a similar
transaction in which the Company is not the resulting entity, or a transaction
at the completion of which the former stockholders of the
<PAGE>
acquired corporation become the holders of more than 40% of the outstanding
common stock of the Company and the Company is the resulting entity of such
transaction; provided that the term "change in control" shall not include an
-------------
acquisition of securities by an employee benefit plan of the Bank or the
Company. In the application of 12 C.F.R. Part 574 to a determination of a Change
in Control, determinations to be made by the Office of Thrift Supervision or its
Director under such regulations shall be made by the Board of Directors.
(b) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company (or its successors) that are part of the
consolidated group of the Company (or its successors) for federal income tax
reporting.
(c) The term "Date of Termination" means the date upon which the
Employee's employment with the Company or the Bank or both ceases, as specified
in a notice of termination pursuant to Section 8 of this Agreement.
(d) The term "Effective Date" means April 3, 1998.
(e) The term "Involuntarily Termination" means the termination of the
employment of Employee (i) by either the Company or the Bank or both without his
express written consent; or (ii) by the Employee by reason of a material
diminution of or interference with his duties, responsibilities or benefits,
including (without limitation) any of the following actions unless consented to
in writing by the Employee: (1) a requirement that the Employee be based at any
place other than Chicago, Illinois, or within a radius of 35 miles from the
location of the Company's office as of the date of this Agreement, except for
reasonable travel on Company or Bank business; (2) a material demotion of the
Employee; (3) a material reduction in the number or seniority of personnel
reporting to the Employee or a material reduction in the frequency with which,
or in the nature of the matters with respect to which such personnel are to
report to the Employee, other than as part of a Bank- or Company-wide reduction
in staff; (4) a reduction in the Employee's salary or a material adverse change
in the Employee's perquisites, benefits, contingent benefits or vacation, other
than as part of an overall program applied uniformly and with equitable effect
to all members of the senior management of the Bank or the Company; (5) a
material permanent increase in the required hours of work or the workload of the
Employee; or (6) the failure of the Board of Directors (or a board of directors
of a successor of the Company) to elect him as Chief Executive Officer of the
Company (or a successor of the Company) or any action by the Board of Directors
(or a board of directors of a successor of the Company) removing him from such
office, or the failure of the board of directors of the Bank (or any successor
of the Bank) to elect him as Chief Executive Officer of the Bank (or any
successor of the Bank) or any action by such board (or board of a successor of
the Bank) removing him from such office. The term "Involuntary Termination"
does not include Termination for Cause, termination of employment due to death
or permanent disability pursuant to Section 7(i) of this Agreement, retirement
or suspension or temporary or permanent prohibition from participation in the
conduct of the Bank's affairs under Section 8 of the Federal Deposit Insurance
Act.
2
<PAGE>
(f) The term "Merger of Equals" means a reorganization, merger or
consolidation with another company or a similar transaction in which the
stockholders of the Company become the holders of more than 40% of the
outstanding common stock of the resulting entity.
(g) The terms "Termination for Cause" and "Terminated For Cause" mean
termination of the employment of the Employee with either the Company or the
Bank, as the case may be, because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or (except as provided below) material breach of
any provision of this Agreement. No act or failure to act by the Employee shall
be considered willful unless the Employee acted or failed to act with an absence
of good faith and without a reasonable belief that his action or failure to act
was in the best interest of the Company. The Employee shall not be deemed to
have been Terminated for Cause unless and until there shall have been delivered
to the Employee a copy of a resolution, duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors at a
meeting of the Board duly called and held for such purpose (after reasonable
notice to the Employee and an opportunity for the Employee, together with the
Employee's counsel, to be heard before the Board), stating that in the good
faith opinion of the Board of Directors the Employee has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
2. Term; Termination of Prior Employment Agreement. The term of this
-----------------------------------------------
Agreement shall be a period of three years commencing on the Effective Date,
subject to earlier termination as provided herein. Beginning on the first day of
the term of this Agreement, and on each day thereafter, the term of this
Agreement shall be extended for a period of one day in addition to the then-
remaining term, provided that the Company has not given notice to the Employee
-------------
in writing at least 90 days prior that the term of this Agreement shall not be
extended further, and provided further that the Employee has not received an
---------------------
unsatisfactory performance review by either the Board of Directors or the board
of directors of the Bank. The Employee's Prior Employment Agreement shall
terminate immediately prior to the commencement of the term of this Agreement
with no obligation thereunder to the Employee on the part of the Company or the
Bank.
3. Employment. The Employee is employed as the President and Chief
----------
Executive Officer of the Company and as the President and Chief Executive
Officer of the Bank. As such, the Employee shall have supervision and control
over strategic planning and daily operations of the Bank, shall render
administrative and management services as are customarily performed by persons
situated in similar executive capacities, and shall have such other powers and
duties as the Board of Directors or the board of directors of the Bank may
prescribe from time to time. The Employee shall also render services to any
subsidiary or subsidiaries of the Company or the Bank as requested by the
Company or the Bank from time to time consistent with his executive position.
The Employee shall devote his best efforts and reasonable time and attention to
the business and affairs of the Company and the Bank to the extent necessary to
discharge his responsibilities hereunder. The Employee may (i) serve on
charitable boards or committees and, in addition, on such corporate boards as
are approved in a resolution adopted by a majority of the Board of Directors,
and (ii)
3
<PAGE>
manage personal investments, so long as such activities do not interfere
materially with performance of his responsibilities hereunder.
4. Cash Compensation.
-----------------
(a) Salary. The Company agrees to pay the Employee during the term
------
of this Agreement a base salary (the "Company Salary") the annualized amount of
which shall be not less than the annualized aggregate amount of the Employee's
base salary from the Company and any Consolidated Subsidiaries in effect at the
Effective Date; provided that any amounts of salary actually paid to the
-------------
Employee by any Consolidated Subsidiaries shall reduce the amount to be paid by
the Company to the Employee. The Company Salary shall be paid no less
frequently than monthly and shall be subject to customary tax withholding. The
amount of the Employee's Company Salary shall be increased (but shall not be
decreased) from time to time in accordance with the amounts of salary approved
by the Board of Directors or the board of directors of any of the Consolidated
Subsidiaries after the Effective Date. The amount of the Company Salary shall
be reviewed by the Board of Directors at least annually during the term of this
Agreement.
(b) Bonuses. The Employee shall be entitled to participate in an
-------
equitable manner with all other executive officers of the Company and the Bank
in such performance-based and discretionary bonuses, if any, as are authorized
and declared by the Board of Directors for executive officers of the Company and
by the board of directors of the Bank for executive officers of the Bank.
(c) Expenses. The Employee shall be entitled to receive prompt
--------
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Company and the Bank, provided that
-------------
the Employee accounts for such expenses as required under such policies and
procedures.
5. Benefits.
--------
(a) Participation in Benefit Plans. The Employee shall be entitled
------------------------------
to participate, to the same extent as executive officers of the Company and the
Bank generally, in all plans of the Company and the Bank relating to pension,
retirement, thrift, profit-sharing, savings, group or other life insurance,
hospitalization, medical and dental coverage, travel and accident insurance,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof. In addition, the Employee shall be entitled to be
considered for benefits under all of the stock and stock option related plans in
which the Company's or the Bank's executive officers are eligible or become
eligible to participate.
(b) Fringe Benefits. The Employee shall be eligible to participate
---------------
in, and receive benefits under, any other fringe benefit plans or perquisites
which are or may become generally available to the Company's or the Bank's
executive officers, including but not limited to supplemental retirement,
incentive compensation, supplemental medical or life insurance plans, company
cars, club dues, physical examinations, financial planning and tax preparation
services.
4
<PAGE>
(c) Retirement Bonus. In the event the Employee retires from
----------------
employment with the Company and the Bank during the term of this Agreement, the
Company shall pay him a cash retirement bonus of no less than $175,000 or a
greater amount as established by the Compensation Policy Committee.
6. Vacations; Leave. The Employee shall be entitled (i) to annual paid
----------------
vacation in accordance with the policies established by the Board of Directors
and the board of directors of the Bank for executive officers, and (ii) to
voluntary leaves of absence, with or without pay, from time to time at such
times and upon such conditions as the Board of Directors may determine in its
discretion.
7. Termination of Employment.
-------------------------
(a) Involuntary Termination. If the Employee experiences an
-----------------------
Involuntary Termination, such termination of employment shall be subject to the
Company's obligations under this Section 7. In the event of the Involuntary
Termination of the Employee, if the Employee has offered to continue to provide
services as contemplated by this Agreement and such offer has been declined,
then, subject to Section 7(b) of this Agreement, the Company shall, as
liquidated damages (i) during the remaining term of this Agreement, pay to the
Employee monthly one-twelfth of the Company Salary at the annual rate in effect
immediately prior to the Date of Termination and one-twelfth of the average
annual amount of cash bonus and cash incentive compensation of the Employee,
based on the average amounts of such compensation earned by the Employee for the
two full fiscal years preceding the Date of Termination; and (ii) if the
Employee is not fully vested under the Avondale Federal Savings Bank
Supplemental Executive Retirement Plan (the "SERP") as of the Date of
Termination, deem the Employee to continue to be employed for purposes of the
SERP until such time as he is fully vested under the SERP and the Company shall
guarantee that he shall receive benefits under the SERP accordingly. The
payments due under clause (i) of the preceding sentence shall be reduced by the
amounts of cash compensation, if any, actually paid to the Employee by the
Consolidated Subsidiaries for such period.
(b) Reduction of the Company's Obligations Under Section 7(a).
---------------------------------------------------------
(1) In the event that the Employee becomes entitled to
liquidated damages pursuant to Section 7(a), (i) the Company's obligation under
clause (i) of Section 7(a) with respect to cash damages shall be reduced by the
amount of the Employee's cash income, if any, earned from providing services
other than to the Company (or its successors) or the Consolidated Subsidiaries
during the remaining term of this Agreement or three years following the Date of
Termination; and (ii) the Company's obligation under clause (ii) of Section 7(a)
shall be reduced to the extent, if any, that the Employee receives benefits
under a supplemental retirement plan of an employer other than the Company or
the Bank. For purposes of this Section 7(b), the term "cash income" shall
include amounts of salary, wages, bonuses, incentive compensation and fees paid
to the Employee in cash from full time employment as an executive but shall not
include shares of stock, stock options, stock appreciation rights or other
earned income from such employment not paid to the Employee in cash and shall
not include incidental income from service on boards of directors, miscellaneous
consulting or part time employment in the not-for-profit sector.
5
<PAGE>
(2) The Employee agrees that in the event he becomes
entitled to liquidated damages pursuant to Section 7(a), throughout the period
during which he is so entitled, he shall promptly inform the Company of the
nature and amounts of cash income and other non-cash income and benefits which
he earns from providing services other than to the Company (or its successors)
or the Consolidated Subsidiaries, and shall provide such documentation of such
cash and non-cash income and benefits as the Company may request. In the event
of changes to such cash and non-cash income and benefits from time to time, the
Employee shall inform the Company of such changes, in each case within fifteen
days after the change occurs, and shall provide such documentation concerning
the change as the Company may request.
(c) Change in Control. Except as provided in Section 7(d) of this
-----------------
Agreement, in the event that the Employee experiences an Involuntary Termination
within the 12 months following a Change in Control, in addition to the Company's
obligation under Section 7(a) of this Agreement, the Company shall pay to the
Employee in cash, within 25 days after the later of the date of such Change in
Control or the Date of Termination, an amount equal to 299% of the Employee's
"base amount" as determined under Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), reduced by the present value of payments to be
made under clause (i) of Section 7(a) of this Agreement. For this purpose,
present value shall be determined as present value of a payment is determined
under Section 280G of the Code. Notwithstanding any other provision of this
Agreement, if the payment under this Section 7(c), together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with the Change in Control would cause any amount to be nondeductible
by the Company for federal income tax purposes pursuant to or by reason of
Section 280G of the Code, then the payment under this Section 7(c) shall be
further reduced (not less than zero) to the extent necessary so as to maximize
amounts and the value of benefits to be received by the Employee without causing
any amount to become nondeductible pursuant to or by reason of Section 280G of
the Code. The Employee shall determine the allocation of such reduction among
payments and benefits to the Employee.
(d) Merger of Equals. In the event that following a Merger of Equals
----------------
the Employee continues to be employed either as President and Chief Executive
Officer of the Company (or its successor) and of the Bank (or its successor) or
in another executive position to which he consents, and his employment as such
is terminated, voluntarily or involuntarily, within 18 months from the
consummation of the Merger of Equals, for any reason other than death, permanent
disability pursuant to Section 7(i) of this Agreement, retirement or suspension
or temporary or permanent prohibition from participation in the conduct of the
affairs of the Bank (or a successor) under Section 8 of the Federal Deposit
Insurance Act, the Employee shall be entitled to (i) liquidated damages under
Section 7(a) (subject to reduction pursuant to Section 7(b)) as if Involuntary
Termination had occurred, regardless of whether Involuntary Termination actually
occurs, provided that, notwithstanding any other provision of this Agreement,
-------------
for purposes of making payments of liquidated damages pursuant to this Section
7(d), the remaining term of this Agreement for purposes of clause (i) of Section
7(a) shall be the period of three years following the date on which his
employment terminates, and (ii) the payment of 299% of "base amount" as provided
for in Section 7(c) (and subject to reduction as provided thereunder) as if
Involuntary Termination within 12 months following a Change in Control had
occurred, regardless of whether Involuntary Termination within 12 months
following a Change in Control actually occurs.
6
<PAGE>
(e) Termination for Cause. In the event of Termination for Cause,
---------------------
the Company shall have no further obligation to the Employee under this
Agreement after the Date of Termination.
(f) Voluntary Termination. The Employee may terminate his employment
---------------------
voluntarily at any time by a notice pursuant to Section 8 of this Agreement.
Except as provided in Section 7(d) of this Agreement, in the event that the
Employee voluntarily terminates his employment other than by reason of any of
the actions that constitute Involuntary Termination under Section 1(e)(ii) of
this Agreement ("Voluntary Termination"), the Company shall be obligated to the
Employee for the amount of his Company Salary and benefits only through the Date
of Termination, at the time such payments are due, and the Company shall have no
further obligation to the Employee under this Agreement, except that in the
event that the Employee voluntarily terminates his employment by reason of
retirement, he shall be entitled to (i) a retirement bonus as provided for in
Section 5(c) hereof, and (ii) a final annual bonus in an amount consistent with
the Company's and the Bank's year-end bonus practices, provided that the Board
--------
of Directors shall determine the amount of such bonus in good faith at the time
of the Employee's retirement, taking into consideration the portion of the year
elapsed prior to retirement, and the Company shall pay such bonus in cash upon
the Employee's retirement.
(g) Health Benefits. Notwithstanding any other provision of this
---------------
Agreement, upon cessation of the Employee's service as an employee of the
Company (or any successor) for any reason other than death, the Company (or any
successor, directly or through its subsidiaries) shall provide to the Employee
thereafter during his lifetime the same insurance, hospitalization, medical,
dental, prescription drug and other health benefits, and long-term disability
insurance, as he would have been eligible for if he had continued to serve as an
executive officer of the Company (or any successor) for the benefit of himself
and his dependents and beneficiaries who would have been eligible for such
benefits if the Employee had continued to serve as an executive officer of the
Company (or any successor), on terms as favorable to the Employee, including
amounts of coverage and deductibles and other costs to him, as apply to
executive officers of the Company (or any successor) from time to time; provided
--------
that the Company's obligations under this Section 7(i) shall be reduced to the
- ----
extent that, and so long as, the Employee receives such benefits on no less
favorable terms from another employer.
(h) Death. In the event of the death of the Employee while employed
-----
under this Agreement and prior to any termination of employment, the Company
shall pay to the Employee's estate, or such person as the Employee may have
previously designated in writing, the Company Salary which was not previously
paid to the Employee and which he would have earned if he had continued to be
employed under this Agreement through the last day of the calendar month in
which the Employee died.
(i) Disability. If the Employee becomes entitled to benefits under
----------
the terms of the then-current disability plan, if any, of the Company or the
Bank (a "Disability Plan") or becomes otherwise unable to fulfill his duties
under this Agreement, he shall be entitled to receive such group and other
disability benefits, if any, as are then provided by the Company or the Bank for
executive employees. In the event of such disability, this Agreement shall not
be suspended, except that (i) the Company's obligation to pay the Company Salary
to the Employee shall be reduced in
7
<PAGE>
accordance with the amount of disability income benefits received by the
Employee, if any, pursuant to this paragraph such that, on an after-tax basis,
the Employee shall realize from the sum of disability income benefits and
Company Salary the same amount as he would realize on an after-tax basis from
Company Salary if the Company's obligation to pay salary were not reduced
pursuant to this Section 7(g); and (ii) upon a resolution adopted by a majority
of the disinterested members of the Board of Directors, the Company may
discontinue payment of the Company Salary beginning six months following a
determination that the Employee has become entitled to benefits under a
Disability Plan or otherwise unable to fulfill his duties under this Agreement.
(j) Regulatory Action. Notwithstanding any other provisions of this
-----------------
Agreement:
(1) If the Employee is removed and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act
("FDIA"), 12 U.S.C. (S) 1818(e)(4) and (g)(1), all obligations of the Company
under this Agreement shall terminate as of the effective date of the order, but
vested rights of the contracting parties shall not be affected;.
(2) If the Bank is in default (as defined in Section
3(x)(1) of the FDIA), all obligations of the Company under this Agreement shall
terminate as of the date of default, but this provision shall not affect any
vested rights of the contracting parties; and
(3) All obligations of the Company under this Agreement
shall be terminated, except to the extent determined that continuation of this
Agreement is necessary for the continued operation of the Bank: (i) by the
Director of the Office of Thrift Supervision (the "Director") or his or her
designee, at the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the FDIA; or (ii) by the Director or his or her
designee, at the time the Director or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank or when the Bank is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by any
such action.
8. Notice of Termination. In the event that the Company or the Bank, or
---------------------
both, desire to terminate the employment of the Employee during the term of this
Agreement, the Company or the Bank, or both, shall deliver to the Employee a
written notice of termination, stating whether such termination constitutes
Termination for Cause or Involuntary Termination, setting forth in reasonable
detail the facts and circumstances that are the basis for the termination, and
specifying the date upon which employment shall terminate, which date shall be
at least 30 days after the date upon which the notice is delivered, except in
the case of Termination for Cause. In the event that the Employee determines in
good faith that he has experienced an Involuntary Termination of his employment,
he shall send a written notice to the Company stating the circumstances that
constitute such Involuntary Termination and the date upon which his employment
shall have ceased due to such Involuntary Termination. In the event that the
Employee desires to effect a Voluntary Termination, he shall deliver a written
notice to the Company, stating the date upon which employment shall terminate,
which date shall be at least 90 days after the date upon which the notice is
delivered, unless the parties agree to a date sooner.
8
<PAGE>
9. Attorneys' Fees. The Company shall pay all legal fees and related
---------------
expenses (including the costs of experts, evidence and counsel) incurred by the
Employee as a result of (i) the Employee's contesting or disputing any
termination of employment, or (ii) the Employee's seeking to obtain or enforce
any right or benefit provided by this Agreement or by any other plan or
arrangement maintained by the Company (or its successors) or the Consolidated
Subsidiaries under which the Employee is or may be entitled to receive benefits;
provided that the Company's obligation to pay such fees and expenses is subject
- -------------
to the Employee's prevailing with respect to the matters in dispute in any
action initiated by the Employee or the Employee's having been determined to
have acted reasonably and in good faith with respect to any action initiated by
the Company or the Bank.
10. No Assignments.
--------------
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Company shall require any successor or assign (whether direct
or indirect, by purchase, merger, consolidation or otherwise) by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession or
assignment had taken place. Failure of the Company to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation and
benefits from the Company in the same amount and on the same terms as the
compensation pursuant to Section 7(a) - (c) hereof. For purposes of
implementing the provisions of this Section 10(a), the date on which any such
succession becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
11. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Company at its home
office, to the attention of the Board of Directors with a copy to the Secretary
of the Company, or, if to the Employee, to such home or other address as the
Employee has most recently provided in writing to the Company.
12. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless in writing and signed by both parties, except as herein otherwise
provided.
13. Headings. The headings used in this Agreement are included solely
--------
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
14. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
9
<PAGE>
15. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of Illinois.
16. Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: Avondale Financial Corp.
/s/ Doria L. Koros /s/ R. Thomas Eiff
- --------------------------- -----------------------------------
Secretary By: R. Thomas Eiff
Its: Chairman of the Board
Employee
/s/ Robert S. Engelman, Jr.
-----------------------------------
Robert S. Engelman, Jr.
10
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
this 12th day of October, 1998, by and between Avondale Financial Corp. (the
---- -------
"Company") and Robert S. Engelman, Jr. (the "Employee").
WHEREAS, pursuant to an agreement dated the same date as this Agreement,
Coal City Corporation ("Coal City") shall merge (the "Holding Company Merger")
into the Company, which shall be the resulting corporation of the Holding
Company Merger, and the Company's wholly owned subsidiary, Avondale Federal
Savings Bank ("Avondale") shall merge (the "Bank Merger") into Coal City's
wholly owned subsidiary, Manufacturers Bank (the "Bank"), which shall be the
resulting bank of the Bank Merger (the "Definitive Agreement");
WHEREAS, prior to the Holding Company Merger and the Bank Merger, the
Employee serves as the President and Chief Executive Officer of the Company and
of Avondale;
WHEREAS, pursuant to Sections 6.2(a) and 6.2(b) of the Definitive
Agreement, after such mergers, the Employee shall be a director and Chairman of
the board of directors of the Company (the "Board of Directors") but not
President or Chief Executive Officer of the Company as the resulting entity of
the Holding Company Merger or President and Chief Executive Officer of the Bank
as the resulting entity of the Bank Merger;
WHEREAS, the Employee has an existing employment agreement with the Company
(the "Prior Employment Agreement") which he is willing to terminate in
consideration of this Agreement's becoming effective;
WHEREAS, the Board of Directors believes it is in the best interests of the
Company and its subsidiaries for the Company to enter into this Agreement with
the Employee in order to assure continuity of management of the Company and its
subsidiaries and to obtain for the Company the benefit of the services that the
Employee consents in this Agreement to perform and the covenant not to compete
provided for herein; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
-----------
(a) The term "Covenant Period" means the period commencing on
the Effective Date and concluding on January 31, 2004.
<PAGE>
(b) The term "Date of Termination" means the date upon which the
Employee's employment with the Company ceases, as specified in a notice pursuant
to Section 8 of this Agreement.
(c) The term "Employment Period" means the period commencing on
the consummation of the Holding Company Merger and concluding on the date of the
annual meeting of stockholders of the Company in the year 2000.
(d) The term "Good Reason" means any of the following without
the Employee's express written consent: (i) a material diminution of or
interference with his duties and responsibilities, compensation or benefits, as
set forth in this Agreement, (ii) a requirement that the Employee be based at
any place other than Chicago, Illinois, or within a radius of 35 miles from the
location of the Company's office as of the date of this Agreement, except for
reasonable travel on Company or Bank business; (iii) a reduction in the
Employee's salary or a material adverse change in the Employee's perquisites,
benefits, contingent benefits or vacation, other than as part of an overall
program applied uniformly and with equitable effect to all members of the senior
management of the Company; (iv) the failure of the shareholders of the Company
to elect him as a director of the Company; and (v) the failure of the Board of
Directors (or a board of directors of a successor of the Company) to elect him
as Chairman of the Board of Directors or any action by the Board of Directors
(or a board of directors of a successor of the Company) removing him from his
position as a director of the Company or as Chairman of the Board of Directors.
(e) The term "SERP" means the Avondale Federal Savings Bank
Supplemental Executive Retirement Plan, including the related Participation
Agreement between Avondale and the Employee dated June 10, 1996.
(f) The term "Termination for Cause" means termination of the
employment of the Employee by the Company prior to the expiration of the
Employment Period because of the Employee's personal dishonesty, willful
misconduct, breach of a fiduciary duty involving personal profit, intentional
failure to perform duties stated in Section 3 of this Agreement, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order. No act or failure to act by
the Employee shall be considered willful unless the Employee acted or failed to
act with an absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Company. Termination
for Cause shall not occur unless and until there shall have been delivered to
the Employee a copy of a resolution stating that in the good faith opinion of
the Board of Directors the Employee has engaged in conduct described in the
preceding sentence, specifying the particulars thereof in detail and duly
adopted by the affirmative vote of not less than 75% of the entire membership of
the Board of Directors at a meeting of the Board duly called and held for such
purpose after reasonable notice to the Employee and an opportunity for the
Employee, together with the Employee's counsel, to be heard before the Board.
2
<PAGE>
2. Termination of Prior Employment Agreement. The Prior Employment
------------------------------------------
Agreement shall terminate immediately prior to the consummation of the Holding
Company Merger with no obligation to the Employee thereunder on the part of the
Company, provided that nothing herein is intended to deprive the Employee of his
-------------
entitlement to a retirement bonus, which shall be honored under Section 3.10(a)
of the Definitive Agreement.
3. Employment. In addition to the Employee serving as a director of the
----------
Company and as Chairman of the Board of Directors as provided in Sections 6.2(a)
and 6.2(b) of the Definitive Agreement, the Company shall employ the Employee
during the Employment Period to guide its activities in the following areas: (i)
integration of the operations of Avondale into the operations of the Bank, (ii)
promoting the services offered by the Bank in the market areas of and
communities served by Avondale prior to the Effective Date, (iii) marketing to
the customers of Avondale, (iv) mergers and acquisitions by the Company and its
affiliates, (v) long term strategic planning for the Company and its affiliates,
and (vi) such additional matters as may be requested from time to time by the
Company. The Employee shall also render similar services to any subsidiary or
subsidiaries of the Company as requested by the Board of Directors from time to
time. The Employee shall devote his best efforts and reasonable time and
attention to the business and affairs of the Company and its affiliates to the
extent necessary to discharge his responsibilities hereunder. During the
Employment Period, the Employee may (i) serve on charitable boards or committees
and, in addition, on such corporate boards as are approved in a resolution
adopted by a majority of the Board of Directors, which approval shall not be
unreasonably withheld, and (ii) manage personal investments, so long as such
activities do not interfere materially with performance of his responsibilities
hereunder.
4. Cash Compensation.
-----------------
(a) Salary. The Company agrees to pay the Employee during the
------
Employment Period a salary of $310,000 per year, except as provided in Section
7(b) and Section 7(c) of this Agreement. Such salary shall be paid no less
frequently than the salary payable to the executive officers of the Company
generally and shall be subject to customary tax withholding. Such salary shall
be payable pro rata for any portion of a year during the Employment Period.
(b) Bonuses. The Employee shall be entitled to a bonus of
-------
$150,000 per year during the Employment Period, except as provided in Section
7(b) and Section 7(c) of this Agreement. Such bonus shall be payable pro rata
for any portion of a year during the Employment Period.
(c) Expenses. The Employee shall be entitled to receive prompt
--------
reimbursement for all reasonable expenses incurred by the Employee in performing
services under Section 3 of this Agreement during the Employment Period in
accordance with the policies and procedures applicable to the executive officers
of the Company generally.
3
<PAGE>
5. Benefits.
--------
(a) Participation in Benefit Plans. The Employee shall be
------------------------------
entitled to participate during the Employment Period, to the same extent as
executive officers of the Company generally, in all plans of the Company and the
Bank relating to pension, retirement, thrift, profit-sharing, savings, group or
other life insurance, hospitalization, medical and dental coverage, travel and
accident insurance, education, cash bonuses, and other retirement or employee
benefits or combinations thereof, except as provided in Section 7(b) and Section
7(c) of this Agreement.
(b) Fringe Benefits. The Employee shall be eligible to
---------------
participate during the Employment Period in, and receive benefits under, any
other fringe benefit plans or perquisites which are or may become generally
available to the Company's executive officers generally, including but not
limited to, incentive compensation, supplemental medical or life insurance
plans, company cars, club dues, physical examinations, financial planning and
tax preparation services, but excluding supplemental retirement benefits, except
as provided in Section 7(b) and Section 7(c) of this Agreement.
6. Vacations; Leave. The Employee shall be entitled during the Employment
----------------
Period (i) to annual paid vacation in accordance with the policies established
by the Board of Directors for executive officers, and (ii) to voluntary leaves
of absence, with or without pay, from time to time at such times and upon such
conditions as the Board of Directors may determine in its discretion.
7. Termination of Employment Prior to Expiration of the Employment
---------------------------------------------------------------
Period.
- ------
(a) Termination by the Company Other Than For Cause and
---------------------------------------------------
Termination for Good Reason. In the event that, prior to the expiration of the
- ---------------------------
Employment Period, the Company terminates the employment of the Employee other
than Termination for Cause, or the Employee voluntarily terminates his
employment for Good Reason, the Company shall continue during the remainder of
the Employment Period to pay to the Employee the salary and bonus under Section
4 of this Agreement and to provide benefits to the Employee under Section 5 of
this Agreement as if the Employee had continued to be employed.
(b) Voluntary Termination by the Employee. Notwithstanding any
-------------------------------------
other provision of this Agreement, in the event that prior to the expiration of
the Employment Period, the Employee voluntarily terminates his employment other
than for Good Reason, the Company shall pay him salary and bonus under Section 4
of this Agreement and provide benefits under Section 5 of this Agreement only
through the date on which his employment terminates.
(c) Termination for Cause. In the event of Termination for
---------------------
Cause, the Company shall pay the Employee salary and bonus under Section 4 of
this Agreement and provide benefits under Section 5 of this Agreement only
through the date on which his employment terminates.
4
<PAGE>
(d) Death of the Employee. Notwithstanding any other provision
---------------------
of this Agreement, in the event of the death of the Employee during the
Employment Period and prior to any Termination for Cause, the Company shall pay
to the Employee's estate, or such person as the Employee may have previously
designated in writing, the amount of salary and bonus which was not previously
paid to the Employee and which he would have earned if he had continued to be
employed under this Agreement through the last day of the calendar month in
which the Employee died and shall have no obligation to him or to his estate
thereafter under this Agreement.
(e) Continued Health Benefits. Notwithstanding any other
-------------------------
provision of this Agreement, upon cessation of the employment of the Employee
for any reason, including expiration of the Employment Period, the Company (or
any successor, directly or through its subsidiaries) shall provide to the
Employee thereafter during his lifetime the same group life insurance,
hospitalization, medical, dental, prescription drug and other health benefits,
and long-term disability insurance (if any), as it provides to the executive
officers of the Company (or any successor) from time to time, for the benefit of
himself and his dependents and beneficiaries who would have been eligible for
such benefits if the Employee were an executive officer of the Company (or any
successor), on terms as favorable to the Employee, including amounts of coverage
and deductibles and other costs to him, as apply to executive officers of the
Company (or any successor) from time to time; provided that the Employee shall
-------------
reimburse the Company for the cost of premiums attributable to such coverage for
himself and his dependents and beneficiaries except to the extent, if any, that
the Company is obligated to provide such coverage under Section 7(a) of this
Agreement.
(f) Termination of Employment Not to Affect Service as Chairman.
-----------------------------------------------------------
Termination of the employment of the Employee for any reason, including
expiration of the Employment Period, shall not affect the Employee's right to
serve as a director and Chairman of the Board of Directors of the Company as
provided in Sections 6.2(a) and 6.2(b) of the Definitive Agreement, and after
such termination of employment the Employee shall be entitled to compensation
for his service as a director of the Company on the same basis as directors of
the Company who are not employees of the Company.
8. Notice of Termination. In the event that the Company desires to
---------------------
terminate the employment of the Employee prior to the expiration of the
Employment Period, the Company shall deliver to the Employee a written notice of
termination, specifying the date upon which employment shall terminate. In the
event that the Employee desires to terminate his employment voluntarily prior to
the expiration of the Employment Period, he shall send a written notice to the
Company specifying the date upon which employment shall terminate and whether he
has Good Reason to terminate his employment, and, if so, stating the facts and
circumstances that constitute Good Reason.
9. Covenant Not to Compete.
-----------------------
(a) Covenant. The Employee agrees that during the Covenant
--------
Period he shall not, without the prior written consent of the Board of
Directors, render services, whether or not compensated, as an employee,
independent contractor, director or otherwise, to any depository
5
<PAGE>
institution insured by the Federal Deposit Insurance Corporation, or any
affiliate of such an institution, with respect to activity in the State of
Illinois.
(b) Compensation for Non-Competition. In consideration of the
--------------------------------
Employee's covenant in Section 9(a) of this Agreement, after expiration of the
Employment Period, the Company shall pay to the Employee $310,000 per year for
so long as he lives during the Covenant Period. Such amount shall be payable in
regular increments no less frequently than the salary payable to the executive
officers of the Company generally. Such amount shall be paid pro rata for any
portion of a year during the Covenant Period.
10. SERP. The Covenant Period shall constitute a period of employment by
----
the Company for purposes of the SERP.
11. Attorneys' Fees. The Company shall pay all legal fees and related
---------------
expenses (including the costs of experts, evidence and counsel) incurred by the
Employee as a result of (i) the Employee's contesting or disputing any
termination of employment, or (ii) the Employee's seeking to obtain or enforce
any right or benefit provided by this Agreement or by any other plan or
arrangement maintained by the Company (or its successors) or any of its
subsidiaries under which the Employee is or may be entitled to receive benefits;
provided that the Company's obligation to pay such fees and expenses is subject
- -------------
to the Employee's prevailing with respect to the matters in dispute in any
action initiated by the Employee or the Employee's having been determined to
have acted reasonably and in good faith with respect to any action initiated by
the Company.
12. No Assignments.
--------------
(a) This Agreement is personal to each of the parties hereto,
and neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided that the Company shall require any successor or assign (whether direct
- -------------
or indirect, by purchase, merger, consolidation or otherwise) by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession or
assignment had taken place.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
13. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Company at its home
office, to the attention of the Board of Directors with a copy to the Secretary
of the Company, or, if to the Employee, to such home or other address as the
Employee has most recently provided in writing to the Company.
6
<PAGE>
14. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless in writing and signed by both parties, except as herein otherwise
provided.
15. Headings. The headings used in this Agreement are included solely for
--------
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
17. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of Illinois.
18. Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
Attest: Avondale Financial Corp.
/s/ Doria L. Koros /s/ Howard A. Jaffe
- ------------------------------------- --------------------------------------
Secretary By:
Its:
Employee
/s/ Robert S. Engelman, Jr.
--------------------------------------
Robert S. Engelman, Jr.
8
<PAGE>
EXHIBIT 10.3
SEVERANCE AGREEMENT
THIS SEVERANCE PAY AGREEMENT ("Agreement") is made and entered into as of
this 25th day of January, 1996, by and between AVONDALE FINANCIAL CORP. AND ITS
SUBSIDIARIES, Jointly and Severally, (the "Company") (which, together with any
successor thereto which executes and delivers the assumption agreement provided
for in Section 11(a) hereof or which otherwise becomes bound by the terms and
provisions of this Agreement by operation of law), and Howard A. Jaffe (the
"Employee").
WHEREAS, the Employee is currently serving as Executive Vice President of
the Company and Vice President of Avondale Financial Corp. (the "Holding
Company"); and
WHEREAS, the Board of Directors of the Company recognizes that, as is the
case with publicly held corporations generally, the possibility of a change in
control of the Company may exist and that such possibility, and the uncertainty
and questions which it may raise among management, may result in the departure
or distraction of key management personnel to the detriment of the Company and
its stockholders; and
WHEREAS, the Board of Directors of the Company believes it is in the best
interests of the Company to enter into this Agreement with the Employee in order
to assure continuity of management of the Company and to reinforce and encourage
the continued attention and dedication of the Employee to his assigned duties
without distraction in the face of potentially disruptive circumstances arising
from the possibility of a change in control of the Company, although no such
change is now contemplated; and
WHEREAS, the Board of Directors of the Company has approved and authorized
the execution of this Agreement with the Employee to take effect as stated in
Section 1 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, it is AGREED as
follows:
1. Term. The term of this Agreement shall be a period of three years
----
commencing January 1, 1996 (the "Commencement Date"), subject to
earlier termination as provided herein. Beginning on the first
anniversary of the Commencement Date, and on each anniversary
thereafter, the term of this Agreement shall be extended for a period
of one year in addition to the then remaining term of this Agreement,
unless either the Company or the Employee gives contrary written
notice to the other not less than 90 days in advance of the date on
which the term of this Agreement would otherwise be extended.
Notwithstanding any other statement or provision in this Agreement to
the contrary, this Agreement will not be automatically extended
unless, prior thereto, the Board of Directors of the Company reviews a
formal performance evaluation of the Employee performed by
disinterested members of the Board of Directors of the Company and
<PAGE>
reflected in the minutes of the Board of Directors. Reference herein to the
term of this Agreement shall refer to both such initial term and such
extended terms.
2. Termination of Agreement
------------------------
(a) The Employee may terminate this Agreement at any time upon 90 days
written notice to the Company or upon such shorter period as may be
agreed upon between the Employee and the Board of Directors of the
Company.
(b) In the event the Company terminates the Employee without there being a
"Change of Control" as defined below; or in the event the Company
terminated the employee for cause (as defined below) at any time
before or after a "Change of Control", this Agreement shall terminate
as of the Date of Termination (as defined below).
(c) In the event of the death of the Employee during the term of this
Agreement and prior to any termination hereunder, this Agreement shall
terminate as of the date of such death.
(d) If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Company's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit
Insurance Act ("FDIA"), 12 U.S.C. (S)1818(e)(3) and (g)(1), the
Company's obligations under this Agreement shall be suspended as of
the date of service, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Company may in its discretion
reinstate in whole or in part any of its obligations which were
suspended.
(e) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Company's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. (S)1818
(e)(4) and (g)(1), all obligations of the Company under this Agreement
shall terminate as of the effective date of the order, but vested
rights of the contacting parties shall not be affected.
(f) If the Company is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the
date of default, but this provision shall not affect any vested rights
of the contacting parties.
(g) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary
for the continued operation of the Company: (i) by the Director of the
Office of Thrift Supervision (the "Director") or his or her designee,
at the time the Federal Deposit Insurance Corporation ("FDIC") enters
into an agreement to provide assistance to or on behalf of the Company
under the authority contained in Section 13(c) of the FDIA; or (ii) by
the Director or his or her designee, at the time the Director or his
or her designee approves a supervisory merger to
<PAGE>
resolve problems related to operation of the Company or when the
Company is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by any such action.
(h) If the Employee shall become disabled as defined in the Company's
then current disability plan or if the Employee shall be
otherwise unable to serve as Executive Vice President, this
Agreement shall not be suspended.
(i) In the event the Company purports to terminate the Employee for
cause, but it is determined by a court of competent jurisdiction
or by an arbitrator pursuant to Section 17 that cause did not
exist for such termination, or if in any event it is determined
by such court or arbitrator that the Company has failed to make
timely payment of any amounts owed to the Employee under this
Agreement, the Employee shall be entitled to reimbursement for
all reasonable costs, including attorneys' fees, incurred in
challenging such termination or collecting such amounts. Such
reimbursement shall be in addition to all rights to which the
Employee is otherwise entitled under this Agreement.
3. Change in Control
-----------------
(a) Involuntary Termination. If the Employee's employment is
-----------------------
involuntarily terminated (other than for cause or pursuant to any
of Sections 2(d) through 2(g)) in connection with or within 12
months after a change in control which occurs at any time during
the term of this Agreement, the Employee shall be entitled to the
benefits provided below:
(i) The Company shall pay to the Employee in a lump sum in cash
within 25 business days after the Date of Termination (as
hereinafter defined) of employment an amount equal to 200
percent of the Employee's "base amount" of compensation, as
defined in Section 280G(b)(3) of the Internal Revenue Code
of 1986, as amended ("Code"); plus 200 percent of the
Employee's average annual bonus paid over the prior two
years; plus
(ii) The Company shall continue to provide the Employee with the
health benefits he was receiving before the Date of
Termination for twenty-four months from the Date of
Termination.
Notwithstanding any other provision herein to the contrary,
the amounts payable to the Employee pursuant to subsection (i)
above shall be limited, such that these amounts will not exceed
three times the Employee's average annual compensation over the
most recent five year period or be nondeductible by the Company
for Federal income tax purposes pursuant to Section 280G of the
Code.
<PAGE>
(b) Definitions. For purposes of this Agreement, "Date of Termination" means
-----------
the earlier of (i) the date upon which the Company gives notice to the
Employee of the termination of his employment with the Company or (ii) the
date upon which the Employee ceases to serve as an Employee of the Company.
"Change in control" is defined solely as any acquisition of control (other
than pursuant to the Conversion or by a trustee or other fiduciary holding
securities under an employee benefit plan of the Holding Company or a
subsidiary of the Holding Company), as defined in 12 C.F.R. (S) 574.4, or
any successor regulation, of the Company or Holding Company which would
require the filing of an application for acquisition of control or notice
of change in control in a manner as set forth in 12 C.F.R. (S) 574.3, or
any successor regulation.
The terms "termination" or "involuntarily terminated" in this Agreement
shall refer to the termination of the employment of Employee without his
express written consent. In addition, a material diminution of or
interference with the Employee's duties, responsibilites and benefits as an
Executive Officer of the Company shall be deemed and shall constitute an
involuntary termination of employment to the same extent as express notice
of such involuntary termination. Any of the following actions shall
constitute such diminution or interference unless consented to in writing
by the Employee: (1) a change in the principal workplace of the Employee to
a location outside of a 50 mile radius from the Company's headquarters
office as of the date hereof; (2) a material demotion of the Employee, a
material reduction in the number or seniority of other Company personnel
reporting to the Employee, or a material reduction in the frequency with
which, or in the nature of the matters with respect to which, such
personnel are to report to the Employee, other than as part of a Company-
wide reduction in staff; (3) a material reduction or adverse change in the
salary, perquisites, benefits, contingent benefits or vacation time which
had theretofore been provided to the Employee, other than part of an
overall program applied uniformly and with equitable effect to all members
of the senior management of the Company; and (4) a material increase in the
required hours of work or the workload of the Employee.
For purposes of this Agreement, termination for "cause" shall include
termination for personal dishonesty, incompetence, willful misconduct,
breach of a fiduciary duty involving personal profit, intentional failure
to perform stated duties, willful violation of any law, rule, or regulation
(other than traffic violations or similar offenses) or final cease-and-
desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, the Employee shall not be deemed to have
been terminated for cause unless and until there shall have been
delivered to the Employee a copy of resolution, duly adopted by the
affirmative vote of not less than a majority of the entire membership of
the Board of Directors of the Company at a meeting of the Board called and
held for such purpose (after reasonable notice to the Employee and an
<PAGE>
opportunity for the Employee, together with the Employee's counsel, to
be heard before the Board), stating that in the good faith opinion of
the Board the Employee was guilty of conduct constituting "cause" as
set forth above and specifying the particulars thereof in detail.
4. Certain Reduction of Payments by the Company
--------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Employee (whether paid or payable
or distributed or distributable pursuant to the terms of this
Agreement or otherwise) (a "Payment) would be nondeductible (in whole
or part) by the Company for Federal income tax purposes because of
Section 280G of the Code, then the aggregate present value of amounts
payable or distributable to or for the benefit of the Employee
pursuant to this Agreement (such amounts payable or distributable
pursuant to this Agreement are hereinafter referred to as "Agreement
Payments") shall be reduced to the Reduced Amount. The "Reduced
Amount" shall be an amount, not less than zero, expressed in present
value which maximizes the aggregate present value of Agreement
Payments without causing any Payment to be nondeductible by the
Company because of Section 280G of the Code. For purposes of this
Section 4, present value shall be determined in accordance with
Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section 4 shall be
made by the Company's independent auditors, or at the election of such
auditors by such other firm or individuals of recognized expertise as
such auditors may select (such auditors or, if applicable, such other
firm or individual, are hereinafter referred to as the "Advisory
Firm"). The Advisory Firm shall within ten business days of the Date
of Termination, or at such earlier time as is requested by the
Company, provide to both the Company and the Employee an opinion (and
detailed supporting calculations) that the Company has substantial
authority to deduct for federal income tax purposes the full amount of
the Agreement Payments and that the Employee has substantial authority
not to report on his federal income tax return any excise tax imposed
by Section 4999 of the Code with respect to the Agreement Payments.
Any such determination and opinion by the Advisory Firm shall be
binding upon the Company and the Employee. The Employee shall
determine which and how much, if any, of the Agreement Payments shall
be eliminated or reduced consistent with the requirements of this
Section 4, provided that, if the Employee does not make such
determination within ten business days of the receipt of the
calculations made by the Advisory Firm, the Company shall elect which
and how much, if any, of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4 and shall
notify the Employee promptly of such election. Within five business
days of the earlier of (i) the Company's receipt of the Employee's
determination pursuant to the immediately preceding
<PAGE>
sentence of this Agreement or (ii) the Company's election in lieu of
such determination, the Company shall pay to or distribute to or for
the benefit of the Employee such amounts as are then due the Employee
under this Agreement. The Company and the Employee shall cooperate
fully with the Advisory Firm, including without limitation providing
to the Advisory Firm all information and materials reasonably
requested by it, in connection with the making of the determinations
required under this Section 4.
(c) As a result of uncertainty in application of Section 280G of the Code
at the time of the initial determination by the Advisory Firm
hereunder, it is possible that Agreement Payments will have been made
by the Company which should not have been made ("Overpayment") or that
additional Agreement Payments will not have been made by the Company
which should have been made ("Underpayment"), in each case, consistent
with the calculations required to be made hereunder. In the event that
the Advisory Firm, based upon the assertion by the Internal Revenue
Service against the Employee of a deficiency which the Advisory Firm
believes has a high probability of success determines that an
Overpayment has been made, any such Overpayment paid or distributed by
the Company to or for the benefit of Employee shall be treated for all
purposes as a loan ab initio which the Employee shall repay to the
-- ------
Company together with interest at the applicable federal rate provided
for in Section 7872(f)(2) of the Code; provided, however, that no such
loan shall be deemed to have been made and no amount shall be payable
by the Employee to the Company if and to the extent such deemed loan
and payment would not either reduce the amount on which the Employee
is subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Advisory Firm,
based upon controlling precedent or other substantial authority,
determines that an Underpayment has occurred, any such Underpayment
shall be promptly paid by the Company to or for the benefit of the
Employee together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code.
5. No Mitigation. The Employee shall not be required to mitigate the amount of
-------------
any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by the
Employee as the result of employment by another employer, by retirement
benefits after the date of termination or otherwise.
6. No Assignments
--------------
(a) This Agreement is personal to each of the parties hereto, and neither
party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other
party; provided, however, that the Company will require any successor
or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
<PAGE>
business and/or assets of the Company, by an assumption agreement
in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform
it if no such succession or assignment had taken place. Failure
of the Company to obtain such an assumption agreement prior to
the effectiveness of any such succession or assignment shall be a
breach of this Agreement and shall entitle the Employee to
compensation from the Company in the same amount and on the same
terms as the compensation pursuant to Section 3(a) hereof. For
purposes of implementing the provisions of this Section 6(a), the
date on which any such succession becomes effective shall be
deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's
personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the
Employee should die while any amounts would still be payable to
the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Employee's
devisee, legatee or other designee or if there is no such
designee, to the Employee's estate.
7. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered or
sent by certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of
this Agreement (provided that all notices to the Company shall be
directed to the attention of the Board of Directors of the Company
with a copy to the Secretary of the Company), or to such other address
as either party may have furnished to the other in writing in
accordance herewith.
8. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless in writing and signed by both parties, except herein
otherwise provided. The parties hereto agree to amend this Agreement
to comply with any required provisions of 12 C.F.R. (S) 563.39(b),
as the same may be amended.
9. Paragraph Headings. The paragraph headings used in this Agreement are
------------------
included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
10. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other
provisions hereof.
11. Governing Law. This Agreement shall be governed by the laws of the
-------------
United States to the extent applicable and otherwise by the laws of
the State of Illinois.
<PAGE>
12. Arbitration. Any dispute or controversy arising under or in connection
-----------
with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then
in effect. Judgment may be entered on the arbitrator's award in any
court having jurisdiction.
13. Regulatory Compliance. Any payments made to the Employee pursuant to
---------------------
this Agreement, or otherwise, are subject to and conditioned upon
their compliance with 12 U.S.C. (S) 1828(k) and any regulations
promulgated thereunder. Notwithstanding anything in this Agreement to
the contrary, no payments may be made pursuant to this Agreement
without the prior approval of the OTS if the Company is not in
compliance with its regulatory capital requirements, or if such
payment would cause the Company to fail its regulatory capital
requirements.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
AVONDALE FINANCIAL CORP.
By: /s/ Robert S. Engelman, Jr.
--------------------------------
Robert S. Engelman, Jr.
President
EMPLOYEE
By: /s/ Howard A. Jaffe
--------------------------------
Howard A. Jaffe
<PAGE>
EXHIBIT 10.4
CHANGE IN CONTROL SEVERANCE AGREEMENT
-------------------------------------
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made and
entered into as of this ___ day of __________, 199_ by and between
Manufacturers Bank (the "Bank") and Howard Jaffe (the "Employee").
WHEREAS, the Employee has been employed by Avondale Federal Savings Bank
("Avondale Bank") and is a party to a severance agreement with Avondale Bank's's
parent company, Avondale Financial Corp. ("Avondale Financial"), and its
subsidiaries dated December 1, 1997 (the "Prior Severance Agreement");
WHEREAS, upon the merger of Avondale Bank into the Bank (the "Bank
Merger"), the Employee is employed as _____________ of the Bank;
WHEREAS, in consideration of the Bank's entering this Agreement, the
Employee is willing to forego any rights under the Prior Severance Agreement;
WHEREAS, the board of directors of the Bank recognizes that, as is the case
with publicly held corporations generally, the possibility of a change in
control of the parent company of the Bank, MB Financial Inc. (the "Company"),
and/or the Bank may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of key management personnel to the detriment of the Company, the
Bank and their respective stockholders; and
WHEREAS, the board of directors of the Bank believes it is in the best
interests of the Bank, to enter into this Agreement with the Employee in order
to assure continuity of management of the Bank, and to reinforce and encourage
the continued attention and dedication of the Employee to the Employee's
assigned duties without distraction in the face of potentially disruptive
circumstances arising from the possibility of a change in control of the Company
or the Bank, although no such change is now contemplated; and
WHEREAS, the board of directors of the Bank has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
-----------
(a) The term "Change in Control" means (1) an event of a nature
that (i) results in a change in control of the Company or the Bank within the
meaning of the Bank Holding Company Act of 1956, as amended and 12 C.F.R. Part
225 (or any successor statute or regulation) or (ii) requires the filing of a
notice with the Federal Deposit Insurance Corporation under 12 U.S.C. (S)1817(j)
and 12 C.F.R. Part 303 (or any successor statute or regulation); (2) an event
that would be required to be reported in response to Item 1 of the current
report on Form 8-K, as in effect on the Effective Date, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the
<PAGE>
"Exchange Act"), other than an event at the completion of which the stockholders
of the Company hold more than 40% of the outstanding stock of the resulting
entity; (3) any person (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act) directly or indirectly of securities of the Company or the
Bank representing 25% or more of the combined voting power of the Company's or
the Bank's outstanding securities, except by reason of the merger of Coal City
Corporation into Avondale Financial (the "Holding Company Merger"); (4)
individuals who are members of the Board of Directors of the Company immediately
following consummation of the Holding Company Merger (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
-------------
any person becoming a director subsequently whose election was approved by a
vote of at least three-quarters of the directors comprising the Incumbent Board,
or whose nomination for election by the Company's stockholders was approved by
the nominating committee serving under an Incumbent Board, shall be considered a
member of the Incumbent Board; or (5) consummation of a plan of reorganization,
merger, consolidation, sale of all or substantially all of the assets of the
Company or a similar transaction in which the Company is not the resulting
entity, other than an event at the completion of which the stockholders of the
Company hold more than 40% of the outstanding stock of the resulting entity;
provided that the term "change in control" shall not include an acquisition of
- -------------
securities by an employee benefit plan of the Bank or the Company.
(b) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company (or its successors) that are part of the
consolidated group of the Company (or its successors) for federal income tax
reporting.
(c) The term "Date of Termination" means the date upon which the
Employee's employment with the Bank ceases.
(d) The term "Effective Date" means the date of consummation of the
Bank Merger.
(e) The term "Involuntary Termination" means the termination of the
employment of Employee (i) by the Bank without the Employee's express written
consent; or (ii) by the Employee by reason of a material diminution of or
interference with the Employee's duties and responsibilities as specified in
Exhibit A to this Agreement, or benefits, including (without limitation) any of
the following actions unless consented to in writing by the Employee: (1) a
change in the principal workplace of the Employee to a location outside of a 50
mile radius of the Bank's headquarters office as of the date of this Agreement,
except for reasonable travel on Company or Bank business; (2) a material
demotion of the Employee; (3) a material reduction in the number or seniority of
personnel reporting to the Employee or a material reduction in the frequency
with which, or in the nature of the matters with respect to which such personnel
are to report to the Employee, other than as part of a Bank- or Company-wide
reduction in staff; (4) a reduction in the Employee's salary or a material
adverse change in the Employee's perquisites, benefits, contingent benefits or
vacation, other than as part of an overall program applied uniformly and with
equitable effect to all members of the senior management of the Company or the
Bank; or (5) a material permanent increase in the required hours of work or the
workload of the Employee. The term "Involuntary Termination" does not include
Termination for Cause, termination of employment due to death or permanent
disability, retirement or suspension or temporary or permanent prohibition
2
<PAGE>
from participation in the conduct of the Bank's affairs under Section 8 of the
Federal Deposit Insurance Act (the "FDIA").
(f) The terms "Termination for Cause" and "Terminated For Cause"
mean termination of the employment of the Employee with the Bank, because of the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or cease-and-desist order, or (except as
provided below) material breach of any provision of this Agreement.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the board of directors of the
Bank, at a meeting of the board duly called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with the Employee's counsel, to be heard before the board), stating that in the
good faith opinion of the board the Employee has engaged in conduct described in
the preceding sentence and specifying the particulars thereof in detail.
2. Term; Forfeiture of Prior Severance Agreement. The term of this
---------------------------------------------
Agreement shall be the period of three years commencing on the Effective Date,
subject to earlier termination as provided herein. On the first anniversary of
the Effective Date and on each anniversary thereafter, the term of this
Agreement shall be extended for a period of one year in addition to the then-
remaining term of this Agreement, if the board of directors of the Bank approves
such extension. In consideration of the Bank's entering into this Agreement, the
Employee agrees to forfeit any rights under the Prior Severance Agreement and to
make no claim thereunder against the Company, any of its subsidiaries, or the
Bank.
3. Severance Benefits Payable Upon Involuntary Termination Following
-----------------------------------------------------------------
Change in Control.
- -----------------
(a) Change in Control. In the event of Involuntary Termination in
-----------------
connection with or within 12 months after the Bank Merger or after a Change in
Control which occurs at any time following the Effective Date and during the
term of this Agreement, the Bank shall (i) pay to the Employee in a lump sum in
cash within 25 business days after the Date of Termination an amount equal to
200% of the Employee's "base amount" as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"); and (ii) provide to the Employee
so long as the Employee lives during the 24 months following the date on which
the employment of the Employee terminates substantially the same group life
insurance, hospitalization, medical, dental, prescription drug and other health
benefits, and long-term disability insurance (if any) for the benefit of the
Employee and the Employee's dependents and beneficiaries who would have been
eligible for such benefits if the Employee had not suffered Involuntary
Termination, on terms substantially as favorable to the Employee, including
amounts of coverage and deductibles and other costs to him, as if the Employee
had not suffered Involuntary Termination.
(b) Reduction of Benefits. Notwithstanding any other provision of
---------------------
this Agreement, if payments and the value of benefits received or to be received
under this Agreement, together with any other amounts and the value of benefits
received or to be received by the Employee, would cause
3
<PAGE>
any amount to be nondeductible by the Company or any of the Consolidated
Subsidiaries for federal income tax purposes pursuant to or by reason of Section
280G of the Code, then payments and benefits under this Agreement shall be
reduced (not less than zero) to the extent necessary so as to maximize amounts
and the value of benefits to be received by the Employee without causing any
amount to become nondeductible pursuant to or by reason of Section 280G of the
Code. The Employee shall determine the allocation of such reduction among
payments and benefits to the Employee.
4. Termination and Suspension of Agreement.
---------------------------------------
(a) If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the affairs of the Bank by a notice served under
Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. (S) 1818(e)(3) or (g)(1), the
obligations of the Bank under this Agreement shall be suspended as of the date
of service of the notice, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Bank, in its discretion, may reinstate
the obligations which were suspended.
(b) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. (S) 1818(e)(4) or (g)(1), all
obligations of the Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(c) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA, 12 U.S.C. (S) 1813(x)(1)), all obligations of the the Bank under this
Agreement shall terminate as of the date of default, but this provision shall
not affect any vested rights of the contracting parties.
(d) All obligations of the Bank shall terminate at such time as the
Federal Deposit Insurance Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under Section 13(c) of the FDIA, 12
U.S.C. (S) 1823(c), or determines that the Bank is in an unsafe or unsound
condition. Any rights of the parties that have already vested, however, shall
not be affected by such action.
5. Attorneys' Fees. In the event the Bank exercises its right of
---------------
Termination for Cause, but it is determined by a court of competent jurisdiction
that cause did not exist for such termination, or if in any event it is
determined by any such court that the Bank has failed to make timely payment of
any amounts owed to the Employee under this Agreement, the Employee shall be
entitled to reimbursement for all reasonable costs, including attorneys' fees,
incurred in challenging such termination or collecting such amounts. Such
reimbursement shall be in addition to all rights to which the Employee is
otherwise entitled under this Agreement.
6. No Mitigation. The Employee shall not be required to mitigate the
-------------
amount of any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Agreement be reduced by any compensation earned by the Employee as
the result of employment by another employer or by retirement benefits after the
Date of Termination or otherwise.
4
<PAGE>
7. Regulatory Compliance. Any payments or benefits to the Employee
---------------------
pursuant to this Agreement are subject to compliance with 12 U.S.C. (S) 1828(k)
and any regulations promulgated thereunder.
8. No Assignments.
--------------
(a) This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other parties; provided,
however, that the Bank shall require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) by an assumption
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform it if no such succession or
assignment had taken place. Failure to obtain such an assumption agreement
prior to the effectiveness of any such succession or assignment shall be a
breach of this Agreement and shall entitle the Employee to compensation and
benefits from the Bank in the same amount and on the same terms as the
compensation pursuant to Section 3 of this Agreement. For purposes of
implementing the provisions of this Section 8(a), the date on which any such
succession becomes effective shall be deemed the Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
9. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Bank at its
headquarters office, to the attention of the board of directors with a copy to
the Secretary of the Bank, or, if to the Employee, to such home or other address
as the Employee has most recently provided in writing to the Bank.
10. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless in writing and signed by both parties, except as herein otherwise
provided.
11. Headings. The headings used in this Agreement are included solely
--------
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
12. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
13. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of Illinois.
14. Successors to Code Sections. All provisions of this Agreement
---------------------------
referring to sections of the U.S.C. (United State Code) or to the Internal
Revenue Code shall be deemed to refer to successor code sections in the event of
renumbering of code sections.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
Manufacturers Bank
____________________________
By:
Its:
Employee
____________________________
Howard Jaffe
6
<PAGE>
EXHIBIT A
During the term of this Agreement, the duties and responsibilities of the
Employee shall be the management and operations of:
1. the finance and accounting department of the Bank and the Company,
2. the treasury and investment securities portfolio of the Bank and the
Company
3. the information systems and analysis departments of the Bank and the
Company,
4. investor relations and holding company administration,
5. the planning and analysis functions of the Bank and the Company,
6. the internal auditing department of the Bank and the Company, and
7. the brokerage division of the Bank.
7
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT (the "Agreement") is made and entered into as of this ____
day of ____________, 199__, by and between Avondale Financial Corp. ("Avondale")
and Mitchell Feiger (the "Employee").
WHEREAS, pursuant to certain agreements, Coal City Corporation (the
"Company") shall merge (the "Holding Company Merger") into or combine with
Avondale, which shall be the surviving corporation of the Holding Company Merger
(the "Surviving Corporation"), and Avondale's wholly-owned subsidiary, Avondale
Federal Savings Bank shall merge (the "Bank Merger") into Manufacturers Bank
(the "Bank"), the Company's wholly-owned subsidiary, which shall be the
resulting bank of the Bank Merger;
WHEREAS, the Employee shall serve after the Holding Company Merger as the
President and Chief Executive Officer of the Surviving Corporation and after the
Bank Merger as the Chairman of the Bank;
WHEREAS, the board of directors of Avondale (the "Board of Directors")
believes it is in the best interests of Avondale and its subsidiaries for
Avondale to enter into this Agreement with the Employee in order to assure
continuity of management of the Surviving Corporation and its subsidiaries;
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee;
NOW THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
-----------
(a) The term "Change in Control" means (1) an event of a nature that
(i) results in a change in control of the Surviving Corporation or the Bank
within the meaning of the Bank Holding Company Act of 1956, as amended and 12
C.F.R. Part 225 (or any successor statute or regulation) or (ii) requires the
filing of a notice with the Federal Deposit Insurance Corporation under 12
U.S.C. (S)1817(j) and 12 C.F.R. Part 303 (or any successor statute or
regulation); (2) an event that would be required to be reported in response to
Item 1 of the current report on Form 8-K, as in effect on the Effective Date,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), other than an event at the completion of which the stockholders
of the Surviving Corporation hold more than 40% of the outstanding stock of the
resulting entity; (3) any person (as the term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act) directly or indirectly of securities of the
Surviving Corporation or the Bank representing 25% or more of the combined
voting power of the Surviving Corporation's or the Bank's outstanding
securities, except by reason of the Holding
<PAGE>
Company Merger; (4) individuals who are members of the Board of Directors of the
Surviving Corporation immediately following consummation of the Holding Company
Merger (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequently
-------------
whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Surviving Corporation's stockholders was approved by the nominating
committee serving under an Incumbent Board, shall be considered a member of the
Incumbent Board; or (5) consummation of a plan of reorganization, merger,
consolidation, sale of all or substantially all of the assets of the Surviving
Corporation or a similar transaction in which the Surviving Corporation is not
the resulting entity, other than an event at the completion of which the
stockholders of the Surviving Corporation hold more than 40% of the outstanding
stock of the resulting entity; provided that the term "change in control" shall
-------------
not include an acquisition of securities by an employee benefit plan of the Bank
or the Surviving Corporation.
(b) The term "Date of Termination" means the date upon which the
Employee's employment with the Surviving Corporation or the Bank or both ceases,
as specified in a notice of termination Pursuant to Section 8 of this Agreement,
(c) The term "Effective Date" means the date on which the Holding
Company Merger is consummated,
(d) The term "Involuntary Termination" means the termination of the
employment of Employee (i) by either the Surviving Corporation or the Bank or
both without his express written consent; or (ii) by the Employee by reason of a
material diminution of or interference with his duties, responsibilities or
benefits, including (without limitation) any of the following actions unless
consented to in writing by the Employee: (1) a requirement that the Employee be
based at any place other than Chicago, Illinois, or within a radius of 35 miles
from the location of the Bank's principal office located at 1200 N. Ashland
Avenue, Chicago, Illinois, except for reasonable travel on Surviving Corporation
or Bank business; (2) a material demotion of the Employee; (3) a material
reduction in the number or seniority of personnel reporting to the Employee or a
material reduction in the frequency with which, or in the nature of the matters
with respect to which such personnel are to report to the Employee, other than
as part of a Bank and Surviving Corporation-wide reduction in staff; (4) a
reduction in the Employee's salary or a material adverse change in the
Employee's perquisites, benefits, contingent benefits or vacation, other than as
part of an overall program applied uniformly and with equitable effect to all
members of the senior management of the Bank and the Surviving Corporation; (5)
a material permanent increase in the required hours of work or the workload of
the Employee; or (6) the failure of the Board of Directors (or a board of
directors of a successor of the Surviving Corporation) to elect Employee as
President and Chief Executive Officer of the Surviving Corporation (or a
successor of the Surviving Corporation) or any action by the Board of Directors
(or a board of directors of a successor of the Surviving Corporation) removing
him from such office, or the failure of the board of directors of the Bank (or
any successor of the Bank) to elect him as Chairman of the Bank (or any
successor of the Bank) or any action by such board (or board of a successor of
the Bank) removing him from such office. The term "Involuntary
2
<PAGE>
Termination" does not include Termination for Cause, termination of employment
due to death or permanent disability or termination pursuant to Section 7(i) of
this Agreement, retirement or suspension or temporary or permanent prohibition
from participation in the conduct of the Bank's affairs under Section 8 of the
Federal Deposit Insurance Act.
(e) The terms "Termination for Cause" and "Terminated For Cause" mean
termination of the employment of the Employee with either the Surviving
Corporation or the Bank, as the case may be, because of the Employee's willful
misconduct, breach of a fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final cease-
and-desist order, or (except as provided below) material breach of any provision
of this Agreement. No act or failure to act by the Employee shall be considered
willful unless the Employee acted or failed to act in bad faith and without a
reasonable belief that his action or failure to act was in the best interest of
the Surviving Corporation or the Bank. The Employee shall not be deemed to have
been Terminated for Cause unless and until there shall have been delivered to
the Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors at a
meeting of the Board duly called and held for such purpose (after reasonable
notice to the Employee and an opportunity for the Employee, together with the
Employee's counsel, to be heard before the Board), stating that in the good
faith opinion of the Board of Directors the Employee has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
(f) The term "Voluntary Termination" shall mean termination of
employment by the Employee voluntarily as set forth in Section 7(e) of this
Agreement.
2. Term: Termination of Prior Employment Agreement. The term of this
-----------------------------------------------
Agreement shall be a period of three years commencing on the Effective Date,
subject to earlier termination as provided herein. Beginning on the first day
of this Agreement, and on each day thereafter, the term of this Agreement shall
be extended for a period of one day in addition to the then-remaining term,
provided that the Surviving Corporation has not given 90 days prior written
- -------- ----
notice that the extensions will cease.
3. Employment. The Employee is employed as the President and Chief
----------
Executive Officer of the Surviving Corporation and as the Chairman of the Bank.
As such, the Employee shall have supervision and control over strategic planning
and daily operations of the Surviving Corporation and the Bank, shall render
administrative and management services as are customarily performed by persons
situated in similar executive capacities, and shall have such other powers and
duties as the Board of Directors or the board of directors of the Bank may
prescribe from time to time consistent with services performed by similarly
situated executives and consistent with the terms of this Agreement. The
Employee shall also render services to any subsidiary or subsidiaries of the
Surviving Corporation or the Bank as requested by the Surviving Corporation or
the Bank from time to time consistent with his executive position and with the
terms of this Agreement. The Employee shall devote his best efforts and
reasonable time and attention to the business and affairs
3
<PAGE>
of the Surviving Corporation and the Bank to the extent necessary to discharge
his responsibilities hereunder. The Employee may (i) serve on charitable boards
or committees at the Employee's discretion without consent of either the Board
of Directors or the board of directors of the Bank and, in addition, on such
corporate boards as are approved in a resolution adopted by a majority of the
Board of Directors, and (ii) manage personal investments, so long as such
activities do not interfere materially with performance of his responsibilities
hereunder.
4. Cash Compensation.
-----------------
(a) Salary. The Surviving Corporation agrees to pay the Employee
------
during the term of this Agreement a base salary (the "Company Salary") the
annualized amount of which shall be not less than $325,000. The Company Salary
shall be paid no less frequently than monthly and shall be subject to customary
tax withholding. The amount of the Employee's Company Salary shall be increased
(but under no circumstances may the Company Salary be decreased) from time to
time in accordance with the amounts of salary approved by the Board of Directors
after the Effective Date. In order to effectuate the purpose of the preceding
sentence, the amount of the Company Salary shall be reviewed by the Board of
Directors at least every three (3) years during the term of this Agreement. If
and to the extent that any of the Consolidated Subsidiaries pay salary or other
amounts or provide benefits to the Employee that the Surviving Corporation is
obligated to pay or to provide to the Employee under this Agreement, the
Surviving Corporation's obligations to the Employee shall be reduced
accordingly.
(b) Bonuses. The Employee shall be entitled to participate in an
-------
equitable manner with all other executive officers of the Surviving Corporation
and the Bank in such performance-based and discretionary bonuses, if any, as are
authorized and declared by the Board of Directors for executive officers of the
Surviving Corporation and by the board of directors of the Bank for executive
officers of the Bank.
(c) Expenses. The Employee shall be entitled to receive prompt
--------
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Surviving Corporation and the Bank,
provided that the Employee accounts for such expenses as required under such
- -------- ----
policies and procedures.
5. Benefits.
--------
(a) Participation in Benefit Plans. The Employee shall be entitled
------------------------------
to participate, to the same extent as executive officers of the Surviving
Corporation and the Bank generally, in all plans of the Surviving Corporation
and the Bank relating to pension, retirement thrift, profit-sharing, savings,
group or other life insurance, hospitalization, medical and dental coverage,
travel and accident insurance, education, cash bonuses, retirement or employee
benefits or combination thereof. In addition, the Employee shall be entitled to
be considered for benefits under all of the stock and
4
<PAGE>
stock option related plans in which the Surviving Corporation's or the Bank's
executive officers are eligible or become eligible to participate.
(b) Fringe Benefits. The Employee shall be eligible to participate
---------------
in, and receive benefits under, any other fringe benefit plans or perquisites
which are or may become generally available to the Surviving Corporation's or
the Bank's executive officers, including but not limited to supplemental
retirement, incentive compensation, supplemental medical or life insurance
plans, company cars, club dues, physical examinations, financial planning and
tax preparation services. Without limiting the generality of the foregoing, the
Surviving Corporation and the Bank agree to pay for Employee's membership dues
and related expenses in Twin Orchard Country Club (Long Grove, Illinois), the
Standard Club, and expenses for an automobile provided to Employee by the
Surviving Corporation and the Bank commensurate with similarly situated officers
of the Surviving Corporation and the Bank.
6. Vacations; Leave. The Employee shall be entitled (i) to annual paid
----------------
vacation in accordance with the policies established by the Board of Directors
and the board of directors of the Bank for executive officers, and (ii) to
voluntary leaves of absence, with or without pay, from time to time at such
times and upon such conditions as the Board of Directors may determine in its
discretion.
7. Termination of Employment.
--------------------------
(a) Involuntary Termination. If the Employee experiences an
-----------------------
Involuntary Termination, such termination of employment shall be subject to the
Surviving Corporation's obligations under this Section 7. In the event of the
Involuntary Termination of the Employee, if the Employee has offered to continue
to provide services as contemplated by this Agreement and such offer has been
declined, then, subject to Section 7(b) of this Agreement, the Surviving
Corporation shall, as liquidated damages (i) during the remaining term of this
Agreement, pay to the Employee monthly one-twelfth of the Company Salary at the
annual rate in effect immediately prior to the Date of Termination and one-
twelfth of the average annual amount of cash bonus and cash incentive
compensation of the Employee, based on the average amounts of such compensation
earned by the Employee for the two full fiscal years preceding the Date of
Termination (or if the Date of Termination occurs before one full fiscal year
has elapsed since the Effective Date, the amount of $162,500, or if one but not
two full fiscal years have elapsed since the Effective Date, the amount of cash
bonus and cash incentive compensation earned by the Employee for such one fiscal
year); (ii) provide the benefits set forth in Section 7(f) of this Agreement on
the terms set forth therein; (iii) if the Employee is the record or beneficial
owner of any options relating to the stock of the Surviving Corporation as of
the Date of Termination, then notwithstanding the provisions of any other
agreements or documents relating to such options, such options shall be deemed
to be fully vested on the Date of Termination and shall be exercisable for a
period of not less than 90 days from the Date of Termination; and (iv) if the
Employee is not fully vested under any other benefit plan or arrangement in
which he is a participant as of the Date of Termination (except for any
"employee pension plan" as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974,
5
<PAGE>
as amended, including any "multiemployer plan" as defined in Section 3(37) of
such Act), shall deem the Employee to be fully vested therein and the Surviving
Corporation shall guarantee that he shall receive benefits thereunder
accordingly.
(b) Mitigation of the Surviving Corporation's Obligations Under
-----------------------------------------------------------
Section 7(a).
- ------------
(1) In the event that the Employee becomes entitled to
liquidated damages pursuant to Section 7(a), (i) the Surviving Corporation's
obligation under clause (i) of Section 7(a) with respect to cash damages shall
be reduced by the amount of the Employee's cash income, if any, earned from
providing services other than to the Surviving Corporation (or any successor) or
the Consolidated Subsidiaries during the remaining term of this Agreement; and
(ii) if the Employee receives benefits under a supplemental retirement plan
pursuant to clause (iv) of Section 7(a), the Surviving Corporation's obligation
under clause (iii) of Section 7(a) shall be reduced to the extent, if any, that
the Employee receives benefits under a supplemental retirement plan of an
employer other than the Surviving Corporation (or any successor) or the
Consolidated Subsidiaries. For purposes of this Section 7(b), the term "cash
income" shall include amounts of salary, wages, bonuses, incentive compensation
and fees paid to the Employee in cash but shall not include shares of stock,
stock options, stock appreciation rights or other earned income not paid to the
Employee in cash.
(2) The Employee agrees that in the event he becomes
entitled to liquidated damages pursuant to Section 7(a), throughout the period
during which he is so entitled, he shall promptly inform the Surviving
Corporation of the nature and amounts of cash income and other non-cash income
and benefits which he earns from providing services other than to the Surviving
Corporation (or any successor) or the Consolidated Subsidiaries, and shall
provide such documentation of such cash and non-cash income and benefits as the
Surviving Corporation may request. In the event of changes to such cash and non-
cash income and benefits from time to time, the Employee shall inform the
Surviving Corporation of such changes, in each case within 15 days after the
change occurs, and shall provide such documentation concerning the change as the
Surviving Corporation may request.
(c) Change in Control. In the event that within the 18 months
-----------------
following a Change in Control the Employee exercises his right to Voluntary
Termination or experiences an Involuntary Termination, in addition to the
Surviving Corporation's obligations under Section 7(a) of this Agreement, the
Surviving Corporation shall pay to the Employee in cash, within 25 days after
the Date of Termination, an amount equal to 299% of the Employee's "base amount"
as determined under Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), reduced (not less than zero) by the present value of
payments to be made under clause (i) of Section 7(a) of this Agreement. For
this purpose, present value shall be determined as present value of a payment is
determined under Section 280G of the Code. Notwithstanding any other provision
of this Agreement, if the payment under this Section 7(c), together with any
other amounts and the value of benefits received or to be received by the
Employee in connection with the Change in Control would cause any amount to be
nondeductible by the Surviving Corporation (or any successor) for
6
<PAGE>
federal income tax purposes pursuant to or by reason of Section 280G of the
Code, then the payment under this Section 7(c) shall be further reduced (not
less than zero) to the extent necessary so as to maximize amounts and the value
of benefits to be received by the Employee without causing any amount to become
nondeductible pursuant to or by reason of Section 280G of the Code. The Employee
shall determine the allocation of such reduction among payments and benefits to
the Employee.
(d) Termination for Cause. In the event of Termination for Cause,
---------------------
the Surviving Corporation shall have no further obligation to the Employee under
this Agreement after the Date of Termination except as set forth in Section 7(f)
hereof.
(e) Voluntary Termination. The Employee may terminate his employment
---------------------
voluntarily at any time by a notice pursuant to Section 8 of this Agreement.
Except as may be provided in Sections 7(c) and 7(f) of this Agreement, in the
event that the Employee voluntarily terminates his employment other than by
reason of any of the actions that constitute Involuntary Termination under
Section 7(b) of this Agreement ("Voluntary Termination"), the Surviving
Corporation shall be obligated to the Employee for the amount of his Company
Salary and benefits only through the Date of Termination, at the time such
payments are due (accrued vacation shall be payable within seven days after the
Date of Termination), and the Surviving Corporation shall have no further
obligation to the Employee under this Agreement except a final annual bonus in
an amount consistent with the Surviving Corporation's and the Bank's year-end
bonus practices, provided that the Board of Directors shall determine the amount
--------
of such bonus in good faith at the time of the Employee's termination, taking
into consideration the portion of the year elapsed prior to termination, and the
Surviving Corporation shall pay such bonus in cash on the Date of Termination.
(f) Health Benefits. Notwithstanding any other provision of this
---------------
Agreement, upon cessation of the Employee's service as an employee of the
Surviving Corporation (or any successor) or the Consolidated Subsidiaries for
any reason other than death, the Surviving Corporation (or any successor,
directly or through its subsidiaries) shall provide or make available to the
Employee thereafter during the lifetime of the Employee the same health
insurance, hospitalization, medical, dental, prescription drug and other health
benefits, and long-term disability insurance, as he would have been eligible for
if he had continued to serve as an executive officer of the Surviving
Corporation (or any successor), for the benefit of himself and his dependents
and beneficiaries who would have been eligible for such benefits if the Employee
had continued to serve as an executive officer of the Surviving Corporation (or
any successor), on terms as favorable to the Employee as to other executive
officers of the Surviving Corporation (or any successor) from time to time,
including amounts of coverage and deductibles, which shall be at the Surviving
Corporation's cost during the remaining term of this Agreement and at Employee's
cost at any other time; provided that the Surviving Corporation's obligations
-------------
under this Section 7(f) shall be reduced to the extent that, and so long as, the
Employee receives such benefits on no less favorable terms from another
employer. Surviving Corporation's obligation under this Section 7(f) shall
survive the term of this Agreement.
7
<PAGE>
(g) Death. In the event of the death of Employee during the term of
-----
this Agreement and prior to any termination of employment, the Surviving
Corporation shall pay to the Employee's estate, or such person as the Employee
may have previously designated in writing, the Company Salary which was not
previously paid to the Employee and which he would have earned if he had
continued to be employed under this Agreement through the last day of the
calendar month in which the Employee died.
(h) Disability. If the Employee becomes entitled to benefits under
----------
the terms of the then-current disability plan, if any, of the Surviving
Corporation or the Bank (a "Disability Plan"), he shall be entitled to receive
such group and other disability benefits, if any, as are then provided by the
Surviving Corporation or the Bank for executive employees. In the event of such
disability, this Agreement shall not be suspended, except that (i) the Surviving
Corporation's obligation to pay the Company Salary to the Employee shall be
reduced in accordance with the amount of disability income benefits received by
the Employee, if any, pursuant to this Section 7(h) such that, on an after-tax
basis, the Employee shall realize from the sum of disability income benefits and
Company Salary the same amount as he would realize on an after-tax basis from
Company Salary if the Surviving Corporation's obligation to pay salary were not
reduced pursuant to this Section 7(h); and (ii) upon a resolution adopted by a
majority of the disinterested members of the Board of Directors, the Surviving
Corporation may discontinue payment of the Company Salary beginning six months
following a determination that the Employee has become entitled to benefits
under a Disability Plan or otherwise unable to fulfill his duties under this
Agreement. In addition to, and not in substitution of, the foregoing, following
the Holding Company Merger and the Bank Merger, the Surviving Corporation shall
continue or cause to be continued any and all Company or Bank-paid personal
disability policies covering Employee in existence as of the Effective Date.
(i) Regulatory Action. Notwithstanding any other provisions of this
-----------------
Agreement, if the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S. C. (S)
1818(e)(4) and (g)(1), all obligations of the Surviving Corporation under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
8. Notice of Termination. Subject to the provisions of Section 1(e) of
---------------------
this Agreement, in the event that the Surviving Corporation or the Bank, or
both, desire to terminate the employment of the Employee during the term of this
Agreement, the Surviving Corporation or the Bank, or both, shall deliver to the
Employee a written notice of termination, stating whether such termination
constitutes Termination for Cause or Involuntary Termination, setting forth in
reasonable detail the facts and circumstances that are the basis for the
termination, and specifying the date upon which employment shall terminate,
which date shall be at least 30 days after the date upon which the notice is
delivered, except in the case of Termination for Cause. In the event that the
Employee determines in good faith that he has experienced an Involuntary
Termination of his employment, he shall send a written notice to the Surviving
Corporation stating the circumstances that constitute such Involuntary
Termination and the date upon which his employment shall have ceased due to such
8
<PAGE>
Involuntary Termination. In the event that the Employee desires to effect a
Voluntary Termination, he shall deliver a written notice to the Surviving
Corporation, stating the date upon which employment shall terminate, which date
shall be at least 90 days after the date upon which the notice is delivered,
unless the parties agree to a date sooner.
9. Attorneys' Fees. The Surviving Corporation shall pay all legal fees
---------------
and related expenses (including the costs of experts, evidence and counsel)
incurred by the Employee as a result of (i) the Employee's contesting or
disputing any termination of employment, or (ii) the Employee's seeking to
obtain or enforce any right or benefit provided by this Agreement or by any
other plan or arrangement maintained by the Surviving Corporation (or any
successor) or the Consolidated Subsidiaries under which the Employee is or may
be entitled to receive benefits; provided that the Surviving Corporation's
-------------
obligation to pay such fees and expenses is subject to the Employee's prevailing
with respect to the matters in dispute in any proceeding initiated by the
Employee or the Employee's having been determined to have acted reasonably and
in good faith with respect to any proceeding initiated by the Surviving
Corporation or the Consolidated Subsidiaries.
10. No Assignments.
--------------
(a) This Agreement is personal to each of the parties hereto, and
neither may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Surviving Corporation and Bank shall require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) by an assumption agreement in form and substance satisfactory to the
Employee, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Surviving Corporation would be required
to perform it if no such succession or assignment had taken place. Failure of
the Surviving Corporation to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a breach of this
Agreement and shall entitle the Employee to compensation and benefits from the
Surviving Corporation in the same amount and on the same terms as the
compensation pursuant to Section 7(a), Section 7(c) and Section 7(f) hereof.
For purposes of implementing the provisions of this Section 10, the date on
which any such succession becomes effective shall be deemed the Date of
Termination.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
11. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Surviving Corporation at
its home office, to the attention of the Board of Directors with a copy to the
Secretary of the Surviving Corporation, or, if to the Employee, to such home or
other address as the Employee has most recently provided in writing to the
Surviving Corporation.
9
<PAGE>
12. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless in writing and signed by both parties.
13. Headings. The headings used in this Agreement are included solely for
--------
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
14. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provisions shall not
affect the validity or enforceability of the other provisions hereof.
15. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of Illinois.
16. Attorney's Fees. Avondale shall be solely responsible for payment of
---------------
any and all legal fees incurred by Employee in the preparation, negotiation and
execution of this Agreement.
17. Successors to Code Sections. All provisions of this Agreement
---------------------------
referring to sections of the U.S.C. (United State Code) or to the Internal
Revenue Code shall be deemed to refer to successor code sections in the event of
renumbering of code sections.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
Attest: Avondale Financial Corp.
___________________________ ___________________________________________
Secretary By: Robert S. Engelman, Jr.
Its: President and Chief Executive Officer
EMPLOYEE:
___________________________
Mitchell Feiger
11
<PAGE>
EXHIBIT 10.6
October 12, 1998
Coal City Corporation
1200 North Ashland Avenue
Chicago, Illinois 60622-2298
Dear Sirs:
The undersigned understands that Avondale Financial Corp. ("Avondale")
and Coal City Corporation ("Coal City") are entering into an Agreement and Plan
of Merger (the "Merger Agreement") providing for, among other things, a merger
between Avondale and Coal City (the "Merger"), in which all of the outstanding
shares of capital stock of Coal City will be exchanged for shares of common
stock, par value $.01 per share, of Avondale ( subject to the issuance of cash
in lieu of fractional shares).
The undersigned is a stockholder of Avondale and is entering into
this agreement to induce Coal City to enter into the Merger Agreement and to
consummate the transactions contemplated thereby.
The undersigned confirms its agreement with Coal City as follows:
1. The undersigned represents, warrants and agrees that Schedule I
annexed hereto sets forth shares of the capital stock of Avondale of which the
undersigned is the record or beneficial owner (the "Shares") and that the
undersigned is on the date hereof the lawful owner of the Shares set forth in
Schedule I, free and clear of all liens, charges, encumbrances, voting
agreements and commitments of every kind, except as disclosed in Schedule I.
Except as set forth in the Schedule, the undersigned does not own or hold any
rights to acquire any additional shares of the capital stock of Avondale (by
exercise of stock options or otherwise) or any interest therein or any voting
rights with respect to any additional shares.
2. The undersigned agrees that the undersigned will not, and will
not permit any company, trust or other entity controlled by the undersigned to,
contract to sell, sell or otherwise transfer or dispose of any of the Shares or
any interest therein or securities convertible thereunto or any voting rights
with respect thereto until after the Avondale Stockholders' Meeting (as defined
in the Merger Agreement), other than (i) pursuant to the Merger or (ii) with
Coal City's prior written consent.
3. The undersigned agrees that all of the shares of capital stock of
Avondale
<PAGE>
Coal City Corporation
October 12, 1998
Page 2
beneficially owned by the undersigned, or over which the undersigned has voting
power or control, directly or indirectly, at the record date for any meeting of
stockholders of Avondale called to consider and vote to adopt the Merger
Agreement and/or the transactions contemplated thereby will be voted by the
undersigned in favor thereof.
4. The undersigned agrees to, and will cause any company, trust or
other entity controlled by the undersigned to, cooperate fully with Coal City in
connection with the Merger Agreement and the transactions contemplated thereby.
The undersigned agrees that the undersigned will not, and will not permit any
such company, trust or other entity to directly, or indirectly (including
through its officers, directors, employees or other representatives) initiate,
solicit or encourage any discussions, inquiries or proposals with any third
party relating to a Takeover Proposal (as defined in the Merger Agreement), or
provide any such person with information or assistance or negotiate with any
such person with respect to a Takeover Proposal or agree to or otherwise assist
in the effectuation of any Takeover Proposal except as permitted by the Merger
Agreement. Nothing herein is intended to preclude the undersigned in his or her
capacity as a director of Avondale to exercise his or her fiduciary duties
related to a Takeover Proposal (as defined in the Merger Agreement).
5. The undersigned represents and warrants to Coal City that (i) the
undersigned has all necessary power and authority to enter into this agreement
and (ii) this agreement is the legal, valid and binding agreement of the
undersigned, and is enforceable against the undersigned in accordance with its
terms.
6. The undersigned agrees that damages are an inadequate remedy for
the breach by the undersigned of any term or condition of this agreement and
that Coal City shall be entitled to a temporary restraining order and
preliminary and permanent injunctive relief in order to enforce the agreements
provided herein.
7. This letter agreement may be terminated at the option of any
party at any time after the earlier of (i) termination of the Merger Agreement
and (ii) the day following the Closing (as defined in the Merger Agreement).
8. This agreement may be amended, modified or supplemented at any
time by the written approval of such amendment, modification or supplement by
the undersigned and Coal City.
9. This agreement evidences the entire agreement among the parties
hereto with respect to the matters provided for herein and there are no
agreements, representations or warranties with respect to the matters provided
for herein other than those set forth herein and in the Merger Agreement.
<PAGE>
Coal City Corporation
October 12, 1998
Page 3
10. The parties agree that if any provision of this agreement shall
under any circumstances be deemed invalid or inoperative, this agreement shall
be construed with the invalid or inoperative provisions deleted and the rights
and obligations of the parties shall be construed and enforced accordingly.
11. This agreement may be executed in two counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same agreement.
12. The validity, construction, enforcement and effect of this
agreement shall be governed by the internal laws of the State of Illinois.
13. This agreement shall be binding upon and inure to the benefit of
Coal City and its successors, and the undersigned, the undersigned's respective
executors, personal representatives, administrators, heirs, legatees, guardians
and other legal representatives. This agreement shall survive the death or
incapacity of the undersigned.
14. Nothing in this Agreement shall be construed to give Coal City
any rights to exercise or direct the exercise of voting power as owner of the
shares, either beneficially or otherwise, for any purpose.
<PAGE>
Coal City Corporation
October 12, 1998
Page 4
Please confirm that the foregoing correctly states the understanding
between the undersigned and Coal City by signing and returning to Coal City a
counterpart hereof.
Very truly yours,
__________________________
Signature
__________________________
Name
Accepted as of the ___ day
of October, 1998
Coal City Corporation
By:______________________
Mitchell Feiger
President
<PAGE>
Schedule I
----------
Number of shares of Avondale common
stock beneficially owned ...................... _____
<PAGE>
EXHIBIT 10.7
October 12, 1998
Avondale Financial Corp.
20 N. Clark Street
Chicago, Illinois 60602
Dear Sirs:
The undersigned understands that Avondale Financial Corp. ("Avondale")
and Coal City Corporation ("Coal City") are entering into an Agreement and Plan
of Merger (the "Merger Agreement") providing for, among other things, a merger
between Avondale and Coal City (the "Merger"), in which all of the outstanding
shares of capital stock of Coal City will be exchanged for shares of common
stock, par value $.01 per share, of Avondale ( subject to the issuance of cash
in lieu of fractional shares).
The undersigned is a stockholder of Coal City and is entering into
this agreement to induce Avondale to enter into the Merger Agreement and to
consummate the transactions contemplated thereby.
The undersigned confirms its agreement with Avondale as follows:
1. The undersigned represents, warrants and agrees that Schedule I
annexed hereto sets forth shares of the capital stock of Coal City of which the
undersigned is the record or beneficial owner (the "Shares") and that the
undersigned is on the date hereof the lawful owner of the Shares set forth in
Schedule I, free and clear of all liens, charges, encumbrances, voting
agreements and commitments of every kind, except as disclosed in Schedule I.
Except as set forth in the Schedule, the undersigned does not own or hold any
rights to acquire any additional shares of the capital stock of Coal City (by
exercise of stock options or otherwise) or any interest therein or any voting
rights with respect to any additional shares.
2. The undersigned agrees that the undersigned will not, and will
not permit any company, trust or other entity controlled by the undersigned to,
contract to sell, sell or otherwise transfer or dispose of any of the Shares or
any interest therein or securities convertible thereunto or any voting rights
with respect thereto until after the Coal City Stockholders' Meeting (as defined
in the Merger Agreement), other than (i) as contemplated by the Merger
Agreement, (ii) pursuant to the Merger or (iii) with Avondale's prior written
consent.
3. The undersigned agrees that all of the shares of capital stock of
Coal City
<PAGE>
Avondale Financial Corp
October 12, 1998
Page 2
beneficially owned by the undersigned, or over which the undersigned has voting
power or control, directly or indirectly, at the record date for any meeting of
stockholders of Coal City called to consider and vote to adopt the Merger
Agreement and/or the transactions contemplated thereby will be voted by the
undersigned in favor thereof.
4. The undersigned agrees to, and will cause any company, trust or
other entity controlled by the undersigned to, cooperate fully with Avondale in
connection with the Merger Agreement and the transactions contemplated thereby.
The undersigned agrees that the undersigned will not, and will not permit any
such company, trust or other entity to directly, or indirectly (including
through its officers, directors, employees or other representatives) initiate,
solicit or encourage any discussions, inquiries or proposals with any third
party relating to a Takeover Proposal (as defined in the Merger Agreement), or
provide any such person with information or assistance or negotiate with any
such person with respect to a Takeover Proposal or agree to or otherwise assist
in the effectuation of any Takeover Proposal except as permitted by the Merger
Agreement. Nothing herein is intended to preclude the undersigned in his or her
capacity as a director of Coal City to exercise his or her fiduciary duties
related to a Takeover Proposal (as defined in the Merger Agreement).
5. The undersigned represents and warrants to Avondale that (i) the
undersigned has all necessary power and authority to enter into this agreement
and (ii) this agreement is the legal, valid and binding agreement of the
undersigned, and is enforceable against the undersigned in accordance with its
terms.
6. The undersigned agrees that damages are an inadequate remedy for
the breach by the undersigned of any term or condition of this agreement and
that Avondale shall be entitled to a temporary restraining order and
preliminary and permanent injunctive relief in order to enforce the agreements
provided herein.
7. This letter agreement may be terminated at the option of any
party at any time after the earlier of (i) termination of the Merger Agreement
and (ii) the day following the Closing (as defined in the Merger Agreement).
8. This agreement may be amended, modified or supplemented at any
time by the written approval of such amendment, modification or supplement by
the undersigned and Avondale .
9. This agreement evidences the entire agreement among the parties
hereto with respect to the matters provided for herein and there are no
agreements, representations or warranties with respect to the matters provided
for herein other than those set forth herein and in the Merger Agreement.
<PAGE>
Avondale Financial Corp
October 12, 1998
Page 3
10. The parties agree that if any provision of this agreement shall
under any circumstances be deemed invalid or inoperative, this agreement shall
be construed with the invalid or inoperative provisions deleted and the rights
and obligations of the parties shall be construed and enforced accordingly.
11. This agreement may be executed in two counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same agreement.
12. The validity, construction, enforcement and effect of this
agreement shall be governed by the internal laws of the State of Illinois.
13. This agreement shall be binding upon and inure to the benefit of
Avondale and its successors, and the undersigned, the undersigned's respective
executors, personal representatives, administrators, heirs, legatees, guardians
and other legal representatives. This agreement shall survive the death or
incapacity of the undersigned.
14. Nothing in this Agreement shall be construed to give Avondale
any rights to exercise or direct the exercise of voting power as owner of the
shares, either beneficially or otherwise, for any purpose.
<PAGE>
Avondale Financial Corp
October 12, 1998
Page 4
Please confirm that the foregoing correctly states the understanding
between the undersigned and Avondale by signing and returning to Avondale a
counterpart hereof.
Very truly yours,
__________________________
Signature
__________________________
Name
Accepted as of the ___ day
of October, 1998
Avondale Financial Corp.
By:_______________________
Robert S. Engelman, Jr.
President and Chief Executive Officer
<PAGE>
Schedule I
----------
Number of shares of Coal City common stock
beneficially owned ....................... _________
<PAGE>
EXHIBIT 10.8
October 12, 1998
Avondale Financial Corp.
20 N. Clark Street
Chicago, IL 60602
Attn: Robert S. Engelman, Jr.
Ladies and Gentlemen:
I have been advised that I may be deemed to be, but do not admit
that I am, an "affiliate" of Coal City Corporation, an Illinois corporation
("Coal City"), as that term is defined in Rule 145 promulgated by the Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Securities Act"), and/or SEC Accounting Series Releases 130 and 135. I
understand that pursuant to the terms of the Agreement and Plan of Merger, dated
as of October 12, 1998 (the "Merger Agreement"), by and between Avondale
Financial Corp. ("Avondale"), a Delaware corporation, and Coal City, Avondale
and Coal City will merge (the "Merger"). I further understand that as a result
of the Merger, I may receive shares of common stock, par value $.01 per share,
of Avondale ("Avondale Common Stock") in exchange for shares of common stock,
par value $10.00 per share, of Coal City ("Coal City Common Stock") and that
each outstanding option to purchase Coal City Common Stock will continue
outstanding as an option to purchase shares of Avondale Common Stock, as
determined under the terms of the Merger Agreement.
I have carefully read this letter and reviewed the Merger
Agreement and discussed their requirements and other applicable limitations upon
my ability to sell, transfer, or otherwise dispose of Avondale Common Stock, to
the extent I felt necessary, with my counsel or counsel for Coal City.
I represent, warrant and covenant with and to Avondale that:
1. I shall not make any sale, transfer, or other disposition of Avondale
Common Stock distributed to me pursuant to the Merger or received by
me upon the exercise of options received in the Merger unless (i) such
sale, transfer or other disposition has been registered under the
Securities Act, (ii) such sale, transfer or other disposition is made
<PAGE>
in conformity with the provisions of Rule 145 under the Securities Act
(as such rule may be amended from time to time), or (iii) in the
opinion of counsel in form and substance reasonably satisfactory to
Avondale, or under a "no-action" letter obtained by me from the staff
of the SEC, such sale, transfer or other disposition will not violate
or is otherwise exempt from registration under the Securities Act.
2. I understand that Avondale is under no obligation to register the
sale, transfer or other disposition of shares of Avondale Common Stock
by me or on my behalf under the Securities Act or to take any other
action necessary in order to make compliance with an exemption from
such registration available.
3. I understand that stop transfer instructions will be given to
Avondale's transfer agent with respect to shares of Avondale Common
Stock distributed to me pursuant to the Merger or received by me upon
the exercise of options received in the Merger and that there will be
placed on the certificates for such shares, or any substitutions
therefor, a legend stating in substance:
"The shares represented by this certificate were issued in
connection with a transaction to which Rule 145 promulgated under
the Securities Act of 1933 applies. The shares represented by this
certificate may be transferred only in accordance with the terms of
a letter agreement, dated October 12, 1998, between the registered
holder hereof and Avondale, a copy of which agreement is on file at
the principal offices of Avondale."
4. I understand that, unless transfer by me of the Avondale Common Stock
distributed to me pursuant to the Merger or received by me upon the
exercise of options received in the Merger has been registered under
the Securities Act or such transfer is made in conformity with the
provisions of Rule 145(d) under the Securities Act, Avondale reserves
the right, in its sole discretion, to place the following legend on
the certificates issued to my transferee:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and were acquired from a person who
received such shares in connection with a transaction to which Rule
145 under the Securities Act of 1933 applies. The shares have been
acquired by the holder not with a view to, or for resale in connection
with, any distribution thereof within the meaning of the Securities
Act of 1933 and may not be offered, sold, pledged or otherwise
transferred except in accordance with a registration under, or an
exemption from the registration requirements of, the Securities Act of
1933."
It is understood and agreed that the legends set forth in paragraphs 3
and 4 above shall be removed by delivery of substitute certificates without such
legends if I shall have delivered to Avondale (i) a copy of a "no action"
letter from the staff of the SEC, or an opinion of counsel in form and substance
reasonably satisfactory to Avondale, to the effect that such legends are not
required for purposes of the Securities Act, or (ii) evidence or representations
satisfactory to Avondale that the Avondale Common Stock represented by such
certificates is being or has been sold in conformity with the provisions of Rule
145(d).
2
<PAGE>
I further understand and agree that this letter agreement shall apply to
all shares of Avondale Common Stock that I am deemed to beneficially own
pursuant to applicable federal securities law.
Very truly yours,
__________________________
Name:
Agreed and accepted this _____ day of
October, 1998.
Avondale Financial Corp.
By________________________
Robert S. Engelman, Jr.
President and Chief Executive Officer
3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
AVONDALE FINANCIAL CORP.
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4 to be filed with the
Securities and Exchange Commission on or about December 31, 1998, of our report
dated February 5, 1998, included in Avondale Financial Corp. Form 10-K for the
year ended December 31, 1997, and to all references to our firm included in this
registration statement.
/s/ Arthur Andersen LLP
Chicago, Illinois
December 31, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
The Board of Directors
Coal City Corporation:
We consent to the use in the Proxy Statement/Prospectus forming a part of the
Registration Statement on Form S-4 filed by Avondale Financial Corp. of our
report dated February 20, 1998, on our audits of the consolidated balance sheet
of Coal City Corporation and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997, and to
the reference of our firm under the heading "INDEPENDENT ACCOUNTANTS" in the
Proxy Statement/Prospectus.
/s/ McGladrey & Pullen, LLP
Mokena, Illinois
December 31, 1998
<PAGE>
EXHIBIT 23.5
[Letterhead of Hovde Financial, Inc.]
CONSENT OF
HOVDE FINANCIAL, INC.
---------------------
We hereby consent to the use of our opinion letter dated October 7,
1998 to the Board of Directors of Avondale Financial Corporation (the
"Company") attached as Appendix III to the Company's Joint Proxy Statement-
Prospectus constituting part of the Registration Statement on Form S-4 (the
"Prospectus") and to the references to our firm in the Prospectus under the
heading "THE MERGER - Opinion of Avondale Financial Advisor". 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 and we do not thereby admit that we are experts with
respect to any part of the Registration Statement under the meaning of the
term "Expert" as used in the Securities Act.
HOVDE FINANCIAL, INC.
By: /s/ Hovde Financial, Inc.
-----------------------------
Inverness, Illinois
December 31, 1998
<PAGE>
EXHIBIT 99.1
CONSENT
-------
Pursuant to Rule 438 of the General Rules and Regulations under the
Securities Act of 1933, I hereby consent to being named in the Proxy
Statement/Prospectus included in the Registration Statement on Form S-4 to which
this consent is an exhibit and confirm my consent to serve in such capacity.
By: /s/ Thomas F. Carey
----------------------------
Dated: December 31, 1998
------------------
Thomas F. Carey
<PAGE>
CONSENT
-------
Pursuant to Rule 438 of the General Rules and Regulations under the
Securities Act of 1933, I hereby consent to being named in the Proxy
Statement/Prospectus included in the Registration Statement on Form S-4 to which
this consent is an exhibit and confirm my consent to serve in such capacity.
By: /s/ Burton Field
-------------------------------
Dated: December 31, 1998
-----------------
Burton Field
<PAGE>
CONSENT
-------
Pursuant to Rule 438 of the General Rules and Regulations under the
Securities Act of 1933, I hereby consent to being named in the Proxy
Statement/Prospectus included in the Registration Statement on Form S-4 to which
this consent is an exhibit and confirm my consent to serve in such capacity.
By: /s/ Lawrence Gilford
-----------------------------
Dated: December 31, 1998
------------------
Lawrence Gilford
<PAGE>
CONSENT
-------
Pursuant to Rule 438 of the General Rules and Regulations under the
Securities Act of 1933, I hereby consent to being named in the Proxy
Statement/Prospectus included in the Registration Statement on Form S-4 to which
this consent is an exhibit and confirm my consent to serve in such capacity.
By: /s/ Richard Gilford
------------------------------
Dated: December 31, 1998
------------------
Richard Gilford
<PAGE>
CONSENT
-------
Pursuant to Rule 438 of the General Rules and Regulations under the
Securities Act of 1933, I hereby consent to being named in the Proxy
Statement/Prospectus included in the Registration Statement on Form S-4 to which
this consent is an exhibit and confirm my consent to serve in such capacity.
By: /s/ Clarence Mann
-----------------------------
Dated: December 31, 1998
------------------
Clarence Mann
<PAGE>
CONSENT
-------
Pursuant to Rule 438 of the General Rules and Regulations under the
Securities Act of 1933, I hereby consent to being named in the Proxy
Statement/Prospectus included in the Registration Statement on Form S-4 to which
this consent is an exhibit and confirm my consent to serve in such capacity.
By: /s/ David Husman
----------------------------
Dated: December 31, 1998
-----------------
David Husman
<PAGE>
CONSENT
-------
Pursuant to Rule 438 of the General Rules and Regulations under the
Securities Act of 1933, I hereby consent to being named in the Proxy
Statement/Prospectus included in the Registration Statement on Form S-4 to which
this consent is an exhibit and confirm my consent to serve in such capacity.
By: /s/ Alfred Feiger
--------------------------------
Dated: December 31, 1998
-------------------
Alfred Feiger
<PAGE>
CONSENT
-------
Pursuant to Rule 438 of the General Rules and Regulations under the
Securities Act of 1933, I hereby consent to being named in the Proxy
Statement/Prospectus included in the Registration Statement on Form S-4 to which
this consent is an exhibit and confirm my consent to serve in such capacity.
By: /s/ Mitchell Feiger
-------------------------------
Dated: December 31, 1998
------------------
Mitchell Feiger
<PAGE>
EXHIBIT 99.2
AVONDALE FINANCIAL CORP.
SPECIAL MEETING, FEBRUARY 10, 1999
PROXY SOLICITED BY BOARD OF DIRECTORS
The undersigned hereby appoints Robert S. Engelman, Jr., and Howard A.
Jaffe, and each of them, proxies with power of substitution to vote on behalf of
the shareholders of Avondale Financial Corp. ("Avondale") on February 10, 1999,
and any adjournments and postponements thereof, with all powers that the
undersigned would possess if personally present, with respect to the proposals
set forth on the reverse hereof.
The shares represented by this proxy will be voted as specified on the
reverse hereof, but if no specification is made, this proxy will be voted FOR
approval of all proposals. The proxies may vote in their discretion as to other
matters which may come before the meeting.
The undersigned acknowledges receipt from Avondale Financial Corp. prior to
the execution of this proxy of Notice of the Meeting and a Proxy
Statement/Prospectus dated January 8, 1999.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
================================================================================
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS.
I. The approval and adoption of the Agreement and Plan of Merger, dated
as of October 12, 1998, as amended, by and between Avondale and Coal
City Corporation, and the transactions contemplated thereby, including
the conversion of certain Coal City stock options into Avondale stock
options and the amendment of Avondale's Certificate of Incorporation
to change Avondale's name to MB Financial, Inc.
[_] FOR [_] AGAINST [_] ABSTAIN
II. The approval and adoption of an amendment to the Avondale Certificate
of Incorporation to increase the number of authorized shares of common
stock from 10,000,000 to 20,000,000.
[_] FOR [_] AGAINST [_] ABSTAIN
III. The approval and adoption of amendment to the Avondale Certificate of
Incorporation to establish procedures for filling newly created
directorships and vacancies.
[_]FOR [_] AGAINST [_] ABSTAIN
IV. The approval and adoption of amendments to Avondale's 1997 Omnibus
Incentive Plan to increase from 350,000 to 1,000,000 the number of
shares of common stock that can be issued under the Plan, to increase
from 75,000 to 200,000 the number of shares of restricted stock that
can be issued under the Plan and to increase from 35,000 to 75,000 the
number of shares of Avondale common stock that may be subject to
awards granted to any one participant in any calendar year.
[_] FOR [_] AGAINST [_] ABSTAIN
A majority of the proxies or substitutes present at the meeting may exercise all
powers granted hereby.
<TABLE>
<S> <C>
Please date and sign as name is imprinted
hereon, including designation as executor,
trustee, etc. if applicable. A corporation Signature:_______________________Date______________
must sign in name by the president or
other officers. All co-owners must sign. Signature:_______________________Date______________
</TABLE>
<PAGE>
EXHIBIT 99.3
PROXY COAL CITY CORPORATION
The undersigned hereby appoints Mitchell Feiger and Burton Field, and each
of them, proxies, with power of substitution and revocation, acting unanimously
if both are present and voting, or if only one is present and voting, then that
one, to vote shares of stock of Coal City Corporation, which the undersigned is
entitled to vote, at the special meeting of stockholders to be held in Chicago,
Illinois on February 10, 1999 at 1:30 p.m. local time, and at any adjournment
thereof, with all the powers the undersigned would possess if present:
1. For [ ] against [ ] or abstain on [ ] the adoption of the
Agreement and Plan of Merger dated as of October 12, 1998, as amended, by and
between Coal City Corporation and Avondale Financial Corp. and the transactions
contemplated therein; and
2. Upon any other matter which may properly come before the meeting.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
such shares at said meeting or at any adjournment thereof.
Date:_______________, 1999 _____________________________________________
_____________________________________________
SIGNATURE(S) OF STOCKHOLDER(S). (Please sign
exactly as name appears on this proxy,
including, where proper, official position or
representative capacity.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF COAL CITY
CORPORATION AND WILL BE VOTED ON THE PROPOSAL IN ACCORDANCE WITH THE
SPECIFICATION INDICATED HEREON. IN THE ABSENCE OF A SPECIFICATION AS TO THE
PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL.
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PLEASE SIGN AND DATE ABOVE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. NO
POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
