Appeal from the Circuit Court of Peoria County; the Hon. John
A. Gorman, Judge, presiding.
PRESIDING JUSTICE BARRY DELIVERED THE OPINION OF THE COURT:
Rehearing denied November 30, 1982.
This interlocutory appeal is from an order of the circuit court of Peoria County granting a preliminary injunction to halt the merger of Peoria Savings and Loan Association with American Savings Association.
In July of 1981, American Savings Association was created by the merger of Citizens Savings of Belleville, Illinois, and Quincy People Savings and Loan Association of Quincy, Illinois, into American Savings and Loan Association of Springfield, Illinois. American has assets of approximately $900 million and has a net worth of about $22 million with 28 branch offices in western and central Illinois. During the same period of time, Jack Shinn, the executive vice-president of American, was also negotiating the possible acquisition of the Champaign Loan and Building Association of Champaign, Illinois, and the Mt. Vernon Savings and Loan Association of Mt. Vernon, both of which were in serious financial trouble. Shinn also discussed the possibility of merger with Samuel McFarland, president of Peoria Savings and Loan Association, and on August 4, 1981, Shinn presented to Peoria a plan for a proposed merger between Peoria and American. Peoria has assets of approximately $155 million, net worth of $11.2 million, and three branch offices in the Peoria area. Shinn was acting in accordance with the philosophy that savings and loan associations can best survive the current economic depression of their industry by diversifying and expanding market areas through mergers that would increase the size of the main association, that would expand into other major retail markets, that would permit "economies of scale," and that would generate profits from new business to offset the losses resulting from current high interest rates and the mismatch of short-term high-cost liabilities (deposits) with long-term low-yielding assets (mainly residential mortgage loans). At the time of the proposed merger, American was averaging $700,000 in monthly losses while Peoria was averaging approximately $150,000 monthly losses.
The merger proposal stated that tentative merger agreements had been entered into between American and two other savings and loan associations, one with assets of $150 million, a net worth of 1 1/2 percent and nine retail outlets, and the other with assets of $100 million, a net worth of two percent, and four retail outlets. These were the Mt. Vernon and Champaign associations. American indicated that it was negotiating with the Federal Savings and Loan Insurance Corporation to obtain financial assistance as a condition for these mergers. The Peoria merger proposal included, "American Savings will go forward with these merger plans only with adequate F.S.L.I.C. assistance." The Peoria Board of Directors approved the proposed merger agreement on November 17, 1981, and the agreement was signed by McFarland, Peoria's president, the next day. The executed agreement did not mention the proposed Mt. Vernon-Champaign mergers. A key provision of the agreement is that entitled "Conditions of Closing." "From the date hereof to the Closing, which for the purposes hereof shall mean the date on which the Certificate of Merger is issued by the Office of the Savings and Loan Commissioner of the State of Illinois and is recorded in the Office of the Recorder of Deeds of Sangamon County, Illinois and Peoria County, Illinois, there shall not have been any material adverse change in the financial condition or results of operations of any of the Merging Associations * * *." (Emphasis added.)
Joint application for approval of the merger was submitted to the Illinois Savings and Loan Commissioner and to the Federal Home Loan Bank Board. The Illinois Commissioner approved the merger on December 22, 1981, but Federal approval was delayed until March 4, 1982. In the meantime, on November 30, 1981, American entered into merger agreements with the Mt. Vernon and Champaign associations, and applications for these two mergers were filed with both the State and Federal agencies. Final approval of these mergers was received on December 28, 1981, and the certificates of merger were recorded on December 31, 1981.
During the course of negotiations with Mt. Vernon and Champaign, it was learned that financial assistance in the form of monetary aid was no longer available for supervisory mergers. However, the FSLIC was willing to permit the use of "purchase accounting" as a form of assistance where a weaker association merges into a stronger one. Under purchase accounting, American can discount the newly acquired assets of the Mt. Vernon and Champaign associations to market value and can amortize the markdown as good will over a period of time up to 40 years. Since the amortization period is longer than the average repayment time of existing loans, the net effect is to show an increase in income during the early years of the merger while spreading expenses over the longer life of the good will, thereby improving the profit position of American. The applications for approval of the Mt. Vernon-Champaign mergers were prepared with the help of Peoria's chief financial officer, Roger Kilpatrick. These applications included projections based upon the combined financial data of Peoria and American along with data showing the result of the additional merger with Mt. Vernon-Champaign. Thus the applications were based on projections that presupposed the completion of the merger of Peoria with American.
On February 8, 1982, the board of directors of Peoria met in a special session and approved a resolution to withdraw from the merger with American. The resolution recited that just prior to its merger with American, the Champaign association had a net worth of slightly under $30,000 and the Mt. Vernon association had a net worth of slightly under $600,000; that the two associations had combined net losses for the month of December of $700,000 which would produce a negative net worth within two months; that American had acquired the assets and assumed the liabilities of the two associations without any assistance from Federal agencies; that the acquisition of the two associations without assistance constituted a material adverse change in the financial condition of American; that American cannot for long absorb the substantial losses which all three associations have been sustaining; and that to continue the proposed merger would not be in the best interest of Peoria, its shareholders and depositors, its employees and the community in which it operates.
Peoria then attempted to withdraw the application pending before the Federal Bank Board and also requested the Illinois Commissioner to rescind his December 22 approval of the merger. Both agencies refused Peoria's request, and Federal approval of the merger was given on March 4, 1982. Peoria immediately filed suit for an injunction to prevent the recording of the merger certificate. A temporary restraining order was entered ex parte on March 12, and thereafter a three-week trial was held. On July 1, 1982, the court ordered that a preliminary injunction issue enjoining American from recording the merger documents and from taking any further steps toward consummation of the merger. American then perfected this interlocutory appeal pursuant to Illinois Supreme Court Rule 307 (87 Ill.2d R. 307).
• 1 Initially American contends that Peoria failed to establish the prerequisites for the issuance of a preliminary injunction. It has been held that a preliminary injunction will not be issued unless there is a probability of success on the merits and a need to preserve the status quo in order to prevent an irreparable injury for which there is no adequate remedy at law. (McErlean v. Harvey Area Community Organization (1972), 9 Ill. App.3d 527, 292 N.E.2d 279.) This court has, in addition, required a showing that the threatened injury would be immediate, certain and great if the injunction were denied, while the loss or inconvenience to the opposing party would be relatively small if it were granted, and also a showing that granting the injunction will not have an injurious effect upon the general public. (Illinois Housing Development Authority v. Arbor Trails Development (1980), 84 Ill. App.3d 97, 404 N.E.2d 1097.) The order in the instant case must be examined in light of these requirements.
The trial court expressly found that Peoria is likely to prevail on the merits of this cause and that American sustained material adverse change in its financial condition as a result of its mergers with Mt. Vernon and Champaign, which were accomplished without the consent of Peoria's board of directors, who were not provided with written notice or financial information. The court also found that Peoria would suffer irreparable harm if the merger were completed since Peoria would cease to exist as an entity as soon as the certificate was recorded and, therefore, would have no adequate remedy at law. Implicit in these findings is a determination that American's defenses of waiver, estoppel and failure to pursue administrative remedies would not be reasonably likely to prevail.
• 2 The necessity of preserving the status quo to prevent the termination of Peoria's existence would seem to satisfy the requirement that irreparable harm be shown. American urges that it offered "in open court" to permit Peoria to maintain its identity as a separate division of American during the course of the litigation. However, this seems only to be an offer to keep separate books while using Peoria's assets. In the record is defendant's exhibit No. 35 where the regional director of the Federal Home Loan Bank Board stated in his January 19, 1982, report that American (after its merger with Peoria) would have a projected 29 month survival time but with the proposed merger of American-Peoria with Mt. Vernon-Champaign, using the current rate of loss experienced individually by the associations, the merged entity would survive only 20-24 months before net worth would be depleted. We think this is sufficient evidence to support a finding that a merger of assets would harm Peoria irreparably, even if separate books and a separate identity were maintained during the course of the litigation of this cause. By the time final judgment is entered, Peoria might well have no assets remaining to be returned. Thus we believe the "irreparable harm" requirement was met in this case, regardless of American's oral offer to preserve Peoria's identity during litigation.
• 3 Furthermore, since the filing of the certificate would terminate Peoria's existence, there can be no adequate remedy at law because there would be no entity to bring a legal action. The applicable statute provides: "When duly recorded, the certificate of merger is conclusive evidence * * * of the merger and of the correctness and validity of all proceedings in connection with the merger." (Ill. Rev. Stat. 1981, ch. 17, par. 3167(c).) Accordingly, once the merger certificate is recorded, Peoria would have no standing to pursue a legal remedy and, in the face of "conclusive evidence" of validity of the merger, Peoria would have no legal basis for asserting a cause of action. The legal consequences of the recording of the merger certificate fulfill the requirement that the threatened injury to Peoria be immediate, certain, and great as compared to the loss or inconvenience to American. The evidence indicates that American has been denied use of the assets of Peoria to improve its financial condition, but its existence is not immediately threatened by postponement of the merger.
• 4 American also contends that Peoria failed to sustain its burden of establishing that there would be no adverse effect upon the general public if the injunction were granted. We disagree. We think the trial court could reasonably infer that there would be no harm to the general public from the fact that both American and Peoria are private corporations, as opposed to governmental, and that both will continue to exist and serve their respective communities if ...