SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 31, 1996
FIRST MANISTIQUE CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 2-54663 38-2062816
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.
Incorporation)
130 South Cedar Street, Manistique, Michigan 49854
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (906) 341-8401
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
As of the close of business on January 31, 1996, the Registrant acquired
ownership of 100% of the issued and outstanding stock of South Range State
Bank, South Range, Michigan. This transaction was accomplished by the merger
of the New Bank of South Range into the South Range State Bank. The New Bank
of South Range was recently formed as a wholly-owned subsidiary of the
Registrant solely for the purpose of effecting the acquisition.
On January 31, 1996, all of the outstanding 19,500 shares of stock of the
South Range State Bank were converted into the right to receive installment
notes of the Registrant in the aggregate principal amount of $2,362,851.29
and cash in the aggregate amount of $1,947,356.71. The installment notes bear
interest at 5.04% per annum, with one-third (1/3) of the initial principal of
the notes and accrued interest payable on the anniversary date of the issue
date of the notes.
The terms of the transaction were arrived at as a result of arms'-length
negotiations between the management of the Registrant and the management of
the South Range State Bank. The consideration exchanged for the stock of the
South Range State Bank was determined based upon such factors as existing
assets, operations and earnings of the South Range State Bank relative to the
Registrant, as well as consideration with respect to the prospects and future
worth of the South Range State Bank as a part of the Registrant.
All of the cash used in the transaction, $1,947,356.71, was borrowed
under Registrant's credit line with Associated Bank Green Bay, National
Association.
The Registrant intends to continue the operations of the South Range
State Bank at its present locations.
The installment notes issued by the Registrant in the transaction were
not registered under the Securities Act of 1933. An exemption from
registration is claimed by the Registrant under Rule 147 in that the
installment notes were issued only to residents of the state of Michigan.
The installment notes are not transferrable to parties other than residents
of the state of Michigan for a period of nine months following the date of
issue. Moreover, the installment notes are not transferrable at all without
the prior written consent of the Registrant.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Listed below are the financial statements, pro forma financial information
and exhibits filed as a part of this Report.
(a) Financial Statements of Business Acquired.
The following financial statements of the South Range State Bank are
filed herewith:
Page
Report of Independent Auditors F-1
Balance Sheet as of December 31, 1995 F-2
Statement of Income, Statement of Changes in
Shareholders' Equity, and Statement of Cash
Flows for the year ended December 31, 1995 F-3 - F-5
Notes to Financial Statements F-6 - F-14
<PAGE>
(b) Pro Forma Financial Information
At the time of this report, it is not practicable to provide pro
forma financial statements. Such statements will be filed by
amendment to this report as soon as practicable and not later than
April 15, 1996.
(c) Exhibits
Exhibits filed herewith:
(2) Affiliation Agreement and Plan of Reorganization between
First Manistique Corporation and South Range State Bank
and the related Consolidation Agreement, as amended
through January 30, 1996
(23) Consent of Crowe Chizek & Company LLP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST MANISTIQUE CORPORATION
Dated: February 14, 1996.
By /s/Ronald G. Ford
Ronald G. Ford, President and
Chief Executive Officer
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
South Range State Bank
South Range, Michigan
We have audited the accompanying balance sheet of South Range State Bank as
of December 31, 1995, and the related statements of income, changes in
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of South Range State Bank as
of December 31, 1995, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the financial statements, the Bank changed its
method of accounting for impaired loans in 1995 to conform to new accounting
guidance.
/s/ CROWE, CHIZEK AND COMPANY LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
January 5, 1996
<PAGE>
<TABLE>
<CAPTION>
SOUTH RANGE STATE BANK
BALANCE SHEET
December 31, 1995
<S> <C>
ASSETS
Cash and due from banks $ 1,541,959
Federal funds sold 700,000
Total cash and cash equivalents 2,241,959
Interest-bearing deposits with banks 1,187,000
Securities available for sale (Note 4)
Investment securities 3,087,798
Mortgage-backed securities 739,601
3,827,399
Loans (Note 5) 27,020,438
Allowance for loan losses (Note 6) 280,000
26,740,438
Bank premises and equipment - net (Note 7) 862,451
Accrued interest receivable 239,518
Other assets 523,824
$ 35,622,589
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 4,008,379
Interest-bearing deposits (Note 8) 28,599,048
32,607,427
Accrued interest payable 92,513
Other liabilities 459,673
Total liabilities 33,159,613
Commitments and contingencies (Note 13)
Shareholders' equity
Common stock, $20 par value: 19,500 shares
authorized and outstanding 390,000
Surplus 1,150,000
Retained earnings (Notes 11 and 12) 876,236
Net unrealized appreciation on securities
available for sale, net of income tax of $24,079
(Notes 4 and 9) 46,740
2,462,976
$ 35,622,589
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SOUTH RANGE STATE BANK
STATEMENT OF INCOME
Year ended December 31, 1995
<S> <C>
Interest income
Loans, including fees $ 2,504,123
Investment securities available for sale 223,645
Federal funds sold 56,773
Deposits with banks 105,152
2,889,693
Interest expense on deposits 1,155,610
Net interest income 1,734,083
Provision for loan losses (Note 6) 39,945
Net interest income after provision for loan losses 1,694,138
Other income
Service charges on deposit accounts 104,980
Safe-deposit box fees 45,747
Other 63,512
214,239
Other expense
Salaries and employee benefits (Note 10) 813,639
Occupancy 226,388
Supplies 72,117
Examination, audit and legal fees 68,040
Advertising 52,291
FDIC insurance 35,991
Postage 32,266
Other 262,834
1,563,566
Income before income tax expense 344,811
Income tax expense (Note 9) 83,592
Net income $ 261,219
Earnings per share (Note 2) $ 13.40
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Year ended December 31, 1995
Net Unrealized
Appreciation
(Depreciation)
on Securities Total
Common Retained Available Shareholders'
Stock Surplus Earnings for Sale Equity
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1994 $390,000 $1,150,000 $712,690 $(100,442) $2,152,248
Adjustment (Note 12) (19,673) (19,673)
Balance, January 1,
1995, as restated
(Note 12) 390,000 1,150,000 693,017 (100,442) 2,132,575
Net income for 1995 261,219 261,219
Cash dividends - $4.00
per share (78,000) (78,000)
Net change in unrealized
appreciation (depreciation)
on securities available
for sale, net of tax 147,182 147,182
Balance, December 31,
1995 $ 390,000 $ 1,150,000 $ 876,236 $ 46,740 $2,462,976
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Year ended December 31, 1995
<S> <C>
Cash flows from operating activities
Net income $ 261,219
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 133,412
Provision for loan losses 39,945
Increase in interest receivable and other assets (55,232)
Increase in interest payable and other accrued expenses 7,845
Net cash from operating activities 387,189
Cash flows from investing activities
Principal payments on mortgage-backed securities 157,417
Net decrease in interest-bearing deposits with bank 496,000
Purchases of investment securities available for sale (115,233)
Proceeds from maturities of investment securities
available for sale 50,000
Net increase in customer loans (2,098,553)
Premises and equipment expenditures, net (119,052)
Net cash from investing activities (1,629,421)
Cash flows from financing activities
Net increase in deposits 752,134
Dividends paid (78,000)
Net cash from financing activities 674,134
Net change in cash and cash equivalents (568,098)
Cash and cash equivalents at beginning of year 2,810,057
Cash and cash equivalents at end of year $ 2,241,959
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 1,131,860
Income taxes 135,966
See accompanying notes to financial statements.
</TABLE>
<PAGE>
SOUTH RANGE STATE BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE 1 - NATURE OF OPERATIONS
South Range State Bank ("Bank") is a Michigan banking corporation engaged in
the general commercial banking business. The Bank generates deposits and
makes loans primarily in Houghton County, in Michigan's upper peninsula, an
area partially dependent on the forestry, tourism and recreational industries.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements: The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amount of revenues and expenses during the reporting period. Areas
where estimates are used in the accompanying financial statements include
the allowance for loan losses, fair values of financial instruments, the
accrued liability associated with the deferred compensation plan, the carrying
value of impaired loans, deferred tax assets, the estimated life of loans and
securities and the carrying value of other real estate. Estimates associated
with the allowance for loan losses, fair values of financial instruments and
the deferred compensation plan are particularly susceptible to material
changes in the near term. Future results could differ from current estimates.
Statement of Cash Flows: Cash and cash equivalents are defined to include
the Bank's cash on hand, noninterest-bearing deposits in other institutions,
and federal funds sold. The Bank reports customer loan transactions and
deposit transactions on a net cash flow basis.
Securities: Investment securities available for sale consist of those
securities not classified as trading or held to maturity. Such securities
might be sold prior to maturity due to changes in interest rates, prepayment
risks, yield and availability of alternative investments, liquidity needs,
or other factors. Securities classified as available for sale are reported
at their fair value and the related net unrealized holding gain or loss is
reported, net of related income tax effects, as a separate component of
shareholders' equity, until realized. Securities for which the Bank has the
positive intent and ability to hold to maturity are reported at amortized
cost.
Premiums and discounts on securities are recognized in interest income using
the interest method over the period to maturity. Gains and losses on the
sale of securities available for sale are determined using the specific
identification method.
(Continued)
<PAGE>
SOUTH RANGE STATE BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is recorded. Increases to the allowance are
recorded by a provision for possible loan losses charged to expense.
Estimating the risk of loss and the amount of loss on any loan is necessarily
subjective. The estimates may change depending on changes in economic
conditions, the interest rate environment or specific situations of
individual borrowers. Accordingly, the allowance is maintained by management
at a level considered adequate to cover possible losses that are currently
anticipated based on past loss experience, general economic conditions and
collateral values, and other factors and estimates which are subject to change
over time. While management may periodically allocate portions of the
allowance for specific problem loan situations, the whole allowance is
available for any loan charge-offs that occur. A problem loan is charged-off
by management as a loss when deemed uncollectible, although collection
efforts may continue and future recoveries may occur.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, Accounting by Creditors for Impairment
of a Loan - (SFAS No. 114). SFAS No. 114, effective for the Bank at January 1,
1995, requires that impaired loans, as defined, by measured based on the
present value of expected cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or at the fair value of collateral if the loan is collateral dependent.
SFAS No. 114 as amended by SFAS No. 118 was adopted at January 1, 1995.
Under these statements, loans considered to be impaired are reduced to the
present value of expected future cash flows or to the fair value of
collateral, by allocating a portion of the allowance for loan losses to such
loans. If these allocations cause the allowance for loan losses to increase,
such increase is reported as bad debt expense. The effect of adopting SFAS
Nos. 114 and 118 is reported as bad debt expense, and is not material for
1995.
Smaller-balance homogeneous loans are residential first mortgage loans secured
by one-to-four family residences, residential construction loans, automobile,
home equity and second mortgage loans and are collectively evaluated for
impairment. Commercial loans and first mortgage loans secured by other
properties are evaluated individually for impairment. When credit analysis
of borrower operating results and financial condition indicates the underlying
ability of the borrower's business activity is not sufficient to generate
adequate cash flow to service the business' cash needs, including the Bank's
loans to the borrower, the loan is evaluated for impairment. Often this is
associated with a delay or shortfall in payments of 90 days or less.
Commercial credits are rated on a scale of 1 to 5, with grades 1 and 2 being
pass grades, 3 substandard, 4 doubtful and 5 loss. Loans graded 4 and 5 are
considered impaired. Loans are generally moved to nonaccrual status when 90
days or more past due. These loans are often not impaired. Once a loan is
evaluated as impaired, a loss is considered to have been identified, and a
chargeoff is taken.
(Continued)
<PAGE>
SOUTH RANGE STATE BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest Income: Interest on loans is accrued over the term of the loans
based upon the principal outstanding. Management reviews loans delinquent
90 days or more to determine if interest accrual should be discontinued based
on the estimated fair market value of the collateral. Under SFAS No. 114
as amended by SFAS No. 118, the carrying values of impaired loans are
periodically adjusted to reflect cash payments, revised estimates of future
cash flows, and increases in the present value of expected cash flows due to
the passage of time. Cash payments representing interest income are reported
as such. Other cash payments are reported as reductions in carrying value,
while increases or decreases due to changes in estimates of future payments
and due to the passage of time are reported as bad debt expense, if
reductions, or as reductions in bad debt expense.
Accounting Statements Issued, not yet Adopted: The Financial Accounting
Standards Board has recently issued the following Statements which have not
been adopted by the Bank at December 31, 1995.
SFAS No. 121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of, requires the Bank to periodically
consider whether an impairment loss should be recognized on long-lived assets
and other certain identifiable intangible assets based on an estimate of
future cash flows.
SFAS No. 122, Accounting for Mortgage Servicing Rights, requires the Bank
to recognize mortgage servicing rights on loans it purchases or originates
with the intent to sell as an asset. It also requires that these capitalized
mortgage servicing rights be evaluated for impairment based on the fair value
of those rights.
SFAS No. 123, Accounting for Stock-based Compensation, encourages but does
not require, the Bank to use a "fair value based method" to account for
stock-based compensation plans. If the fair value accounting encouraged
by SFAS No. 123 is not adopted, entities must disclose the proforma effect
on net income and earnings per share had the accounting been adopted.
The Statements discussed above are required to be implemented for years
beginning after December 15, 1995. Although management of the Bank has not
fully analyzed these Statements, they believe the impact of their adoption
will not be material to the Bank's operations.
Bank Premises and Equipment: Bank premises and equipment are stated at
cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets.
Maintenance, repairs and minor alterations are charged to current operations
as expenditures occur, and major improvements are capitalized.
Federal Income Taxes: The Bank records income tax expense based on the amount
of taxes due on its income tax return plus deferred taxes computed based on
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or refundable
for the period plus or minus the change during the period in deferred tax
assets and liabilities.
Earnings Per Share: Earnings per share are computed using the weighted
average number of shares outstanding. The number of shares used in the
computation of earnings per share was 19,500 for 1995.
(Continued)
<PAGE>
SOUTH RANGE STATE BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE 3 - AFFILIATION AGREEMENT
On August 30, 1995, the Bank and First Manistique Corporation ("FMC"), entered
into an Affiliation Agreement and Plan of Reorganization ("Agreement"). Upon
the receipt of two-thirds affirmative approval by the shareholders of the
Bank, FMC will acquire the outstanding shares of the Bank by exchanging cash,
single installment notes, or a combination thereof. The Agreement specifies
that the exchange will be for a multiple of book value per share at
December 31, 1995 which equates to $221.04 per share. The shareholder
meeting to consider and vote upon the Agreement is scheduled to occur before
February 1, 1996 with the closing of the transaction to occur as soon as
practical thereafter.
<TABLE>
<CAPTION>
NOTE 4 - SECURITIES AVAILABLE FOR SALE
The amortized cost and fair values of securities available for sale at
December 31 are as follows:
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $2,006,426 $ 7,155 $ (6,909) $2,006,672
State and municipal securities 1,022,515 58,611 1,081,126
3,028,941 65,766 (6,909) 3,087,798
Mortgage-backed securities 727,639 11,962 739,601
$3,756,580 $ 77,728 $ (6,909) $3,827,399
</TABLE>
<TABLE>
<CAPTION>
The amortized cost and fair values of investment securities available for sale
at December 31, 1995, by contractual maturity, are shown below.
Amortized
Cost Fair Value
<S> <C> <C>
Due in one year or less $ 885,000 $ 879,985
Due after one year through five years 1,339,753 1,358,888
Due after five years through ten years 804,188 848,925
3,028,941 3,087,798
Mortgage-backed securities 727,639 739,601
$ 3,756,580 $ 3,827,399
</TABLE>
There were no investment securities pledged at December 31, 1995.
There were no sales of investment securities available for sale during 1995.
(Continued)
<PAGE>
SOUTH RANGE STATE BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
<TABLE>
<CAPTION>
NOTE 5 - LOANS
Loans presented in the balance sheet are comprised of the following
classifications:
<S> <C>
Commercial $ 6,899,820
Agricultural 1,294,877
Real estate 14,007,619
Installment 4,818,122
$ 27,020,438
</TABLE>
<TABLE>
<CAPTION>
Included in the loan portfolio are loans made to certain executive officers,
directors, principal shareholders and companies in which they have an
interest. The following is a summary of loans exceeding $60,000 in the
aggregate to these individuals and their associates.
<S> <C>
Balance - January 1 $ 869,374
New loans 697,317
Repayments (662,082)
Balance - December 31 $ 904,609
</TABLE>
<TABLE>
<CAPTION>
NOTE 6 - ALLOWANCE FOR LOAN LOSSES
An analysis of changes in the allowance for loan losses for the year ended
December 31 is as follows:
<S> <C>
Balance at beginning of year $ 260,000
Additions (deductions)
Provision charged to expense 39,945
Recoveries credited to allowance 23,125
Loans charged-off (43,070)
Balance at end of year $ 280,000
</TABLE>
Loans on nonaccrual status, past due more than 90 days or restructured, totaled
$34,554 at December 31, 1995. The difference between the interest that would
have accrued based on the original terms of nonaccrual loans and the interest
that was actually recorded approximated $2,386 for 1995.
<TABLE>
<CAPTION>
Information regarding impaired loans is as follows for 1995:
<S> <C>
Average investment in impaired loans $ 34,553
Interest income recognized on impaired loans on cash basis 0
Information regarding impaired loans at year end is as follows:
Total impaired loans 34,553
Less loans for which no allowance for loan losses is
allocated 34,553
Impaired loans for which an allowance for loan losses
is allocated $ 0
</TABLE>
(Continued)
<PAGE>
SOUTH RANGE STATE BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
<TABLE>
<CAPTION>
NOTE 7 - BANK PREMISES AND EQUIPMENT - NET
The following is a summary of premises and equipment by major category at
December 31:
<S> <C>
Land $ 64,500
Bank building and improvements 533,481
Furniture and equipment 898,080
1,496,061
Accumulated depreciation and amortization 633,610
$ 862,451
</TABLE>
<TABLE>
<CAPTION>
NOTE 8 - INTEREST-BEARING DEPOSITS
Interest-bearing deposits are comprised of the following at December 31:
<S> <C>
Interest-bearing demand $ 5,133,100
Savings 10,385,512
Time 13,080,436
$ 28,599,048
The Bank had approximately $1,532,339 in certificates of deposit issued in
denominations of $100,000 or more as of December 31, 1995. Interest expense
on these deposits was $91,393 in 1995.
</TABLE>
<TABLE>
<CAPTION>
NOTE 9 - INCOME TAXES
Income tax expense consists of the following:
<S> <C>
Current expense $ 92,108
Deferred expense (8,516)
$ 83,592
The net deferred tax asset at December 31 is comprised of the following:
Deferred tax assets
Deferred compensation $ 85,508
Allowance for loan losses 52,351
137,859
Deferred tax liabilities
Fixed assets 75,950
Unrealized appreciation on securities available
for sale 24,079
100,029
Net deferred tax asset $ 37,830
A valuation allowance related to deferred tax assets is required when it is
considered more likely than not that all or part of the benefits related to
such assets will not be realized. Management has determined that no such
allowance is required.
</TABLE>
(Continued)
<PAGE>
SOUTH RANGE STATE BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
<TABLE>
<CAPTION>
NOTE 9 - INCOME TAXES (Continued)
The difference between the financial statement tax expense and amounts
computed by applying the statutory federal tax rate of 34% to pretax income
is reconciled as follows:
<S> <C>
Statutory rate applied to income before taxes $ 117,236
Add (deduct)
Effect of tax-exempt interest (28,980)
Effect of life insurance policy
cash surrender value increases (5,181)
Other 517
Income tax expense $ 83,592
</TABLE>
NOTE 10 - BENEFIT PLANS
The Bank sponsors a defined contribution plan which meets the requirements of
Section 401(k) of the Internal Revenue Code. The plan covers substantially
all full-time employees. Contributions by the Bank under the plan are made
at the discretion of the Board of Directors. In 1995, the Bank matched $.50
on the dollar of an employee contribution up to 2 1/2% of their respective
annual salary. Employee benefits expense for 1995 includes $20,539 of
contributions to the plan.
As an incentive to retain key members of management and directors, the Bank
has a deferred compensation plan. Benefits are based on salary and length
of service and vest as service is provided from the date of participation
through age 65. A liability is recorded on a present value basis and
discounted at current interest rates. This liability may change depending
upon changes in long-term interest rates. Deferred compensation expense
included in salaries and wages was approximately $51,000 for the year ended
December 31, 1995. The liability at December 31, 1995 for vested benefits
was approximately $251,000. The Bank has funded this liability by obtaining
life insurance contracts on the plan's participants. The cash surrender
value of these policies was $316,000 which is included in other assets in
the accompanying financial statements.
NOTE 11 - RESTRICTIONS ON RETAINED EARNINGS
Federal and state banking laws and regulations place certain restrictions on
the amount of dividends a bank can pay and capital levels that must be
maintained. Under the most restrictive of these regulations, the Bank could
pay approximately $800,000 in dividends without prior regulatory approval.
In addition, the Agreement (Note 3) sets forth certain restrictions and
requirements in connection with the acquisition of the Bank by FMC. As a
result, the Bank will not pay any dividends between December 31, 1995 and
the closing date.
(Continued)
<PAGE>
SOUTH RANGE STATE BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE 12 - PRIOR PERIOD ADJUSTMENT
During 1995, management determined that the deferred compensation liability
was under accrued. This error was corrected in 1995 by decreasing January 1,
1995 retained earnings by $19,673. If the accrual had been recorded properly
for the 12 months ended December 31, 1994, net income after tax would have
been $275,316 and earnings per share would have been $14.12.
NOTE 13 - COMMITMENTS AND CONTINGENCIES AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to make loans, unused lines
of credit and standby letters of credit. The Bank's exposure to credit loss
in the event of nonperformance by the other party to the financial instrument
is represented by the contractual amount of those instruments. The Bank
follows the same credit policy to make such commitments as is followed for
those loans and investments recorded in the financial statements. As many
commitments to make loans expire without being used, the amount does not
necessarily represent future cash commitments.
<TABLE>
<CAPTION>
The Bank had the following off-balance sheet commitments at December 31:
<S> <C>
Commitments to make loans $ 1,336,620
Unused lines of credit 959,031
Standby letters of credit 148,565
</TABLE>
In the ordinary course of business, the Bank has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements.
Approximately $530,000 of the loan commitments are at fixed rates ranging
from 5.0% (qualified tax exempt) to 11.75% with maturities ranging from 9
months to 10 years.
<PAGE>
SOUTH RANGE STATE BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate
that value:
Carrying amount is a reasonable estimate of fair value for cash and cash
equivalents, interest-bearing deposits in financial institutions, FHLB and
Federal Reserve stock, accrued interest receivable and payable, the allowance
for loan losses, demand deposits, savings accounts and money market deposits.
Fair value of other financial instruments is estimated as follows:
The fair values for securities are based on quoted market prices or dealer
quotes. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar instruments.
The fair value of fixed and variable rate loans is principally estimated by
discounting future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
The fair value of fixed-maturity certificates of deposit is estimated by
discounting future cash flows using the rates currently offered for deposits
of similar remaining maturities.
The fair value of commitments is estimated using the fees currently charged
to enter similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For fixed-
rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value
of letters of credit is based on fees currently charged for similar agreements
or on the estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date. The fair values of commitments
to extend credit and standby letters of credit were immaterial at the
reporting date presented.
<TABLE>
<CAPTION>
The carrying values and fair values of the Bank's financial instruments are
as follows at December 31, 1995:
Carrying Values Fair Values
<S> <C> <C>
Financial assets
Cash and cash equivalents $ 2,241,959 $ 2,241,959
Interest-bearing deposits in
financial institutions 1,187,000 1,187,000
Securities available for sale 3,827,399 3,827,399
Loans, net 26,740,438 26,583,010
Accrued interest receivable 239,518 239,518
Financial liabilities
Deposits (32,607,427) (32,674,754)
Accrued interest payable (92,513) (92,513)
</TABLE>
(Continued)
<PAGE>
EXHIBIT 2
Affiliation Agreement and Plan of Reorganization between First Manistique
Corporation and South Range State Bank and the related Consolidation
Agreement, as amended through January 30, 1996
<PAGE>
AFFILIATION AGREEMENT AND PLAN OF REORGANIZATION
This Agreement is by and between FIRST MANISTIQUE CORPORATION, a
Michigan corporation with its principal office at 130 South Cedar, Manistique,
Michigan 49854 ("FMC") and SOUTH RANGE STATE BANK, a Michigan banking
corporation with its principal office located at 47 Trimountain Avenue,
South Range, Michigan 49963 ("the Bank").
RECITAL
The Board of Directors of the Bank and FMC have agreed and determined
that it would be in the best interest of the respective institutions for the
Bank to affiliate with FMC, pursuant to which the Bank will be consolidated
with a new Michigan banking corporation to be organized by FMC under the
Michigan banking code of 1969, as amended. The parties have set forth their
agreement of understanding with respect to such affiliation fully and
completely in writing.
ARTICLE I
CONSOLIDATION
1.1 Formation of New Bank. FMC agrees to use its best efforts to
promptly cause a new Michigan banking corporation ("New Bank") to be organized
for purposes of effecting the Consolidation (defined in Section 1.2 below).
New Bank shall be organized in South Range, Michigan under the name "New Bank
of South Range." FMC will acquire and own all the authorized capital shares
of New Bank before the Consolidation becomes effective.
1.2 Execution of Consolidation Agreement. Promptly after New Bank has
been organized, unless this Agreement has been terminated, the Bank, New Bank
and FMC will execute and enter into an agreement of Consolidation
substantially in the form of Exhibit A attached to this Agreement (the
"Consolidation Agreement"), providing for the Consolidation of the Bank with
the New Bank under the charter of the New Bank (the "Consolidation"). The
Bank resulting from the Consolidation ("Consolidated Bank") shall be a
wholly-owned subsidiary of FMC.
1.3 Name of Consolidated Bank. The name of the Consolidated Bank shall be
"South Range State Bank."
1.4. Business of Consolidated Bank. The business of the Consolidated
Bank shall be that of a Michigan banking corporation and any business related
or incidental thereto. This business shall be conducted by the Consolidated
Bank at its main office which shall be located at 47 Trimountain Avenue,
South Range, Michigan, and at its legally established branches.
1.5 Conversion of Bank Shares. At the time the Consolidation becomes
effective (the "Consolidation Date"), each issued and outstanding share of
common stock of the Bank, par value $20.00 per share ("Bank Share") shall be
converted into either cash or cash and <PAGE> FMC Notes (as defined in
Section 9 of the Consolidation Agreement), as provided in this Agreement
and the Consolidation Agreement.
For purposes of this Agreement and the Consolidation Agreement, the
term "Per Share Conversion Value" shall mean an amount equal to 1.75 times
the book value per share of the Bank's Common Stock (determined in accordance
with generally accepted accounting principles applied on a consistent basis)
as of the month end immediately preceding the Consolidation Date. The month
end immediately preceding the Consolidation Date is referred to in this
Agreement and in the Consolidation Agreement as the "Final Statement Date."
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FMC
Except as otherwise set forth in the FMC disclosure statement ("FMC
Disclosure Statement") previously delivered to the Bank, FMC represents and
warrants to the Bank that:
2.1 Organization and Good Standing. FMC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Michigan
and has the corporate power to carry on its business substantially as it is
now being conducted.
2.2 Subsidiaries. FMC is the owner of all of the outstanding capital
shares of First Northern Bank & Trust, Bank of Stephenson, First Manistique
Agency and First Northern Services Company.
2.3 Financial Statements. The consolidated financial statements of FMC
and its subsidiaries as at and for the two years ended December 31, 1994, as
audited by FMC's independent accountants, Schneider, Larche, Haapala & Co.,
and as at and for the six months ended June 30, 1995, including all schedules
and notes relating thereto, are correct and complete in all material respects,
fairly present FMC's and its subsidiaries' financial condition and results of
operations, on a consolidated basis, on the dates and for the periods
indicated, and have been prepared in conformity with generally accepted
accounting principles applied consistently throughout the periods indicated
(except as otherwise noted in said financial statements).
2.4 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the consolidated balance sheet of FMC and
its subsidiaries as of December 31, 1994, and the notes thereto, to the best
of FMC's knowledge, FMC and its subsidiaries, on a consolidated basis, have
no material liabilities or obligations (whether accrued, absolute, contingent
or otherwise) of a nature and amount required to be reflected in such balance
sheet, or the notes thereto, in accordance with generally accepted accounting
principles.
2.5 Loan Guarantees and Loss Reserves. To the best of its knowledge,
all material guarantees of indebtedness owed to FMC's subsidiary bank,
including, but not <PAGE> limited to, those of the Federal Housing
Administration, the Small Business Administration, the Farmers Home
Administration, and other federal agencies, are valid and enforceable
in accordance with their respective terms. To the best of FMC's knowledge
and belief, its subsidiary bank's reserves for loan losses reflected in
FMC's June 30, 1995, consolidated financial statements were adequate to
meet all loan losses then reasonably anticipated based upon the facts and
circumstances known as of that date.
2.6 Capitalization. FMC has authorized capital of 2,000,000 shares
of common stock, without par value ("FMC Common Stock") and 25,000 shares
of series preferred stock, without par value. As of June 30, 1995, 699,774
shares of FMC Common Stock were issued and outstanding and no shares of
preferred stock were issued or outstanding. All of the issued and outstanding
shares of FMC Common Stock are validly issued, fully paid and not subject to
assessment. There are no warrants, options, contracts or rights outstanding
for the purchase of any additional shares of FMC except as reflected in the
notes to FMC's consolidated financial statements for the year ended
December 31, 1994, and for the quarter ended June 30, 1995.
2.7 Corporate Authorizations. The execution, delivery and performance
of this Agreement have been duly and validly authorized by FMC and its Board
of Directors, and do not violate or conflict with FMC's Articles of
Incorporation, Bylaws or any court order or decree to which it or any of its
subsidiaries is a party or subject, or by which FMC or any such subsidiary
is bound. No vote of the shareholders of FMC is required in order to
authorize this Agreement on behalf of FMC. The execution and performance
of this Agreement do not and will not result in any default or give rise
to any right of termination, cancellation or acceleration under any material
note, bond, mortgage, indenture or other agreement by which FMC or any of
its subsidiaries is bound. This Agreement, when executed and delivered, will
be a valid, binding and enforceable obligation of FMC.
2.8 Absence of Litigation. There are no legal, quasi-judicial or
administrative proceedings of any kind or nature now pending or, to its
knowledge, expressly threatened before any court or administrative body
specifically involving FMC or any of its subsidiaries or any of their
properties or capital shares that would have a material adverse effect on
FMC and such subsidiaries or their assets, operations or earnings on a
consolidated basis or the transaction proposed by this Agreement and the
Consolidation Agreement.
2.9 Conduct. Since December 31, 1994 neither FMC nor any of its
subsidiaries has: (a) experienced any material adverse change in financial
condition, assets, liabilities or business; (b) conducted its business or
entered into any material transaction otherwise than in the ordinary course,
or incurred or become subject to any material liabilities or obligations
except current liabilities incurred in the ordinary course of business;
(c) to the best of FMC's knowledge, suffered any union organizational efforts
or any labor trouble, or any event or condition of any character materially
and adversely affecting its business or prospects not generally affecting
banks in the upper peninsula of Michigan in substantially the same manner and
to substantially the same relative extent; (d) paid, other than in the
ordinary course of business, any material obligation or liability other than
those shown on the December 31, 1994, financial statements or incurred after
the date thereof in the <PAGE> ordinary course of business; (e) mortgaged,
pledged or subjected to lien, charge or other encumbrance any of its material
assets, or sold or transferred any such material assets, except in the
ordinary course of business; (f) learned of any basis for the institution
of any action, suit, proceeding or governmental investigation against it
with respect to its business, properties, assets or good will, that might
have a material adverse effect on FMC or any of its subsidiaries; or (g) made
or permitted any amendment or termination of any material contract to which
it is a party except for the expiration of contracts at the end of their term
and termination of contracts which are terminable by the other party without
any fault or omission on the part of FMC or a subsidiary of FMC.
2.10 Brokerage Fees. FMC has not employed any broker or finder in
connection with the transactions contemplated by this Agreement and has no
express or implied agreement with any person or company relative to
commissions or finder's fees as to such transactions.
2.11 Complete Information. No schedule, statement, list, certificate or
other information furnished or to be furnished by FMC in connection with this
Agreement contains, or will contain any untrue statement of a material fact
or omits or will omit, to state a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in
which they are made, not misleading.
2.12 Title to Properties. FMC and its subsidiaries are the owners of all
of the material property and assets reflected in FMC's consolidated balance
sheet at December 31, 1994 free of any material liens and encumbrances,
except as noted therein, and except for changes thereafter in the ordinary
course of business, which changes are not in the aggregate material to FMC's
business. FMC and its subsidiaries have good and marketable title to all
material properties and assets acquired after December 31, 1994 free of liens
and encumbrances except for purchase money security interests and except for
assets disposed of or encumbered in the ordinary course of business. Neither
FMC nor any subsidiary has received notice of any material violation of any
applicable zoning regulation, ordinance or other law, order, regulation or
requirement relating to its operations or properties.
2.13 Governmental Regulation. FMC and its subsidiaries hold all material
licenses, certificates, permits, franchises and rights from all appropriate
federal, state or other public authorities necessary for the conduct of their
business. To the best of FMC's knowledge, FMC and its subsidiaries have
conducted their business so as to comply in all material respects with all
applicable federal, state and local statutes, regulations, ordinances or
rules, particularly, but not by way of limitation, applicable banking laws,
federal and state securities laws, and laws and regulations concerning truth
in lending, usury, fair credit reporting, equal credit opportunity, community
reinvestment, redlining, loan insurance and guarantee programs, privacy,
trade practices, consumer protection, occupational safety, civil rights, age
discrimination in employment, employee benefits, labor relations, fair
employment practices and fair labor standards.
2.14 Taxes. FMC has filed with appropriate federal, state and local
governmental agencies all tax returns and tax reports required to be filed,
and has paid in full all taxes and <PAGE> assessments shown to be due or
claimed to be due (together with all interest, penalties and deficiencies
assessed in connection therewith). Such returns and reports were correct
in all material respects when and as filed or amended. FMC is not, as a
taxpayer, a party to any action or proceeding by any governmental authority
for assessment or collection of taxes, nor has any claim for assessment or
collection or taxes been asserted against FMC as a taxpayer.
2.15 Proxy Statement/Offering Memorandum None of the information to be
supplied by FMC for inclusion in: (a) the proxy statement and offering
memorandum relating to the Bank's special shareholder meeting and FMC's
offering of the Notes or (b) any documents to be filed with the Board of
Governors of the Federal Reserve System or any other regulatory agency in
connection with the transactions contemplated by this Agreement or the
Consolidation Agreement, will, at the respective time such documents are
filed and with respect to the proxy statement/offering memorandum, when
mailed, be false or misleading with respect to any material fact, or omit
to state any material fact necessary in order to make the statements therein
not misleading or, in the case of the proxy statement/offering memorandum or
any amendment thereof or supplement thereto, at the time of the special
meeting of shareholders of the Bank to consider and approve this Agreement
and the Consolidation Agreement, be false or misleading with respect to any
material fact necessary to correct any statement in any earlier communication
with respect to the Bank shareholders. All documents which FMC is responsible
for filing with any regulatory agency in connection with the Consolidation
will comply as to form in all material respects with the provisions of
applicable law.
2.16 SEC and Other Filings. To the best of FMC's knowledge after
reasonable investigation, in the last two years:
(a) SEC Filings. FMC has filed in a timely manner all required
filings with the SEC, including without limitation all Form 10K and 10Q
Reports;
(b) Regulatory Filings. FMC and its subsidiaries have each filed
in a timely manner all material filings with regulatory agencies for
which filings are required; and
(c) Complete and Accurate. All such filings, as amended, were
complete and accurate in all material respects as of the dates of such
filings. There were no misstatements or omissions in such filings
which, as of the making of this representation and warranty, would
presently be material to the business of FMC and its subsidiaries taken
as a whole or to the income or financial condition of FMC and its
subsidiaries on a consolidated basis.
2.17 FMC Notes. The Notes of FMC to be issued in accordance with this
Agreement and the Consolidation Agreement have been duly authorized and,
when issued as contemplated, will be duly and validly issued and outstanding.
<PAGE>
2.18 "Material" Defined. Except where the context otherwise indicates,
the term "material" as applied to FMC and its subsidiaries refers to FMC and
its subsidiaries on a consolidated basis, considering FMC and its subsidiaries
and their assets and businesses as a whole.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BANK
Except as otherwise set forth in the Bank disclosure statement ("Bank
Disclosure Statement") previously delivered to FMC, the Bank represents and
warrants to FMC that:
3.1 Organization and Good Standing. The Bank is a Michigan banking
corporation duly organized, validly existing and in good standing under the
laws of the State of Michigan and has the corporate power to carry on its
business substantially as it is now being conducted. The character of the
properties owned or leased by the Bank and the nature of the business
transacted by it do not require that the Bank be qualified to do business
in any other jurisdiction.
3.2 Subsidiaries. The Bank has no subsidiaries and owns no more than
a 1% equity interest in any other corporation, partnership or venture.
3.3 Financial Statements. The financial statements of the Bank for the
year ended December 31, 1994, including the notes thereto, are true, complete,
and correct in all material respects, have been prepared in accordance with
generally accepted accounting principles consistently applied, and fairly
present the financial position of the Bank on such date and results of
operations for the period covered thereby. None of the financial statements
of the Bank contain any undisclosed extraordinary or prior period items or
fail to disclose any items that should be disclosed. The reports of condition
and income ("Call Reports") of the Bank for each of the five years ended
December 31, 1994, and for the six months ended June 30, 1995, including all
schedules and notes relating thereto, are correct and complete in all
material respects, and fairly present the Bank's financial condition and
results of operations for the dates and the periods indicated, and the Call
Reports have been prepared in accordance with the Call Report instructions
on a consistent basis.
3.4 Absence of Undisclosed Liabilities. Except for liabilities reserved
against or otherwise reflected in the Bank's balance sheet and notes thereto,
dated June 30, 1995, the Bank has no material liabilities or obligations of
any nature, whether accrued, absolute, contingent or otherwise of a nature
and amount required to be reflected in such balance sheet, or the notes
thereto, in accordance with generally accepted accounting principles.
3.5 Loan Guarantees and Loss Reserves. To the best of its knowledge,
all material guarantees of indebtedness owed to the Bank, including, but not
limited to, those of the Federal Housing Administration, the Small Business
Administration, the Farmers Home Administration, and other federal agencies,
are valid and enforceable in accordance with their respective terms. The
Bank's loan loss reserve reflected in its statement of condition, dated
June 30, 1995, was adequate to meet all loan losses then reasonably <PAGE>
anticipated based upon the facts and circumstances as of that date and
the loan loss reserve met all applicable regulatory standards.
3.6 Capitalization. The Bank has authorized capital of 19,500 shares
of common stock, par value $20.00 per share, of which 19,500 shares are issued
and outstanding. All of the issued common shares are validly issued, fully
paid and not subject to assessment, except as provided in Section 201 of the
Michigan Banking Code of 1969, as amended. There are no warrants, options,
contracts or rights (including preemptive rights or rights contained in
convertible securities or any other rights) outstanding for the purchase or
acquisition of any additional shares of the Bank.
3.7 Authorizations. The execution, delivery and performance of this
Agreement and the Consolidation Agreement have been duly and validly
authorized by the Bank and its Board of Directors, and neither agreement
violates or conflicts with the Bank's Articles of Incorporation, Bylaws or
any court order or decree to which it is a party or subject, or by which the
Bank is bound. The execution and performance of this Agreement and the
Consolidation Agreement do not and will not result in any default or give
rise to any right of termination, cancellation or acceleration under any
material note, bond, mortgage, indenture or other agreement by which the Bank
is bound. This Agreement and the Consolidation Agreement are subject to
approval by the Bank's shareholders as described in the Consolidation
Agreement.
3.8 Title to Properties. The Bank is the owner of all material property
and assets reflected in its statement of condition at June 30, 1995, free of
any material liens and encumbrances, except as noted therein, and except for
changes thereafter in the ordinary course of business, which changes are not
in the aggregate material to the Bank's business. The Bank has good and
marketable title to all material properties and assets acquired after
June 30, 1995, free of liens and encumbrances, except assets disposed of
or encumbered in the ordinary course of business. All material leases to
which the Bank is a party are valid and enforceable in accordance with their
respective terms. The Bank has not received notice of violation of any
applicable zoning regulation, ordinance or other law, order, regulation or
requirement relating to its operations or properties.
3.9 Governmental Regulation. The Bank holds all material licenses,
certificates, permits, franchises and rights from all appropriate federal,
state or other public authorities necessary for the conduct of its business.
To the best of its knowledge, the Bank has conducted its business so as to
comply in all material respects with all applicable federal, state and local
statutes, regulations, ordinances or rules, particularly, but not by way of
limitation, applicable banking laws, federal and state securities laws, and
laws and regulations concerning truth-in-lending, usury, fair credit
reporting, equal credit opportunity, community reinvestment, redlining,
loan insurance and guarantee programs, privacy, trade practices, consumer
protection, occupational safety, civil rights, age discrimination in
employment, employee benefits, labor relations, fair employment practices
and fair labor standards.
<PAGE>
3.10 Absence of Litigation. There are no legal, quasi-judicial or
administrative proceedings or, to its knowledge, investigations of any kind
or nature now pending before any court, administrative body or governmental
agency specifically involving the Bank as a subject or party or any of its
properties or capital shares that would have a material adverse effect on the
Bank or its assets, operations or earnings or the transaction proposed by this
Agreement and the Consolidation Agreement, and the Bank is not aware of any
expressed threat of any such proceeding or investigation.
3.11 Taxes. The Bank has filed with appropriate federal, state, and
local governmental agencies all tax returns and tax reports required to be
filed, and has paid in full all taxes and assessments shown to be due or
claimed to be due (together with all interest, penalties and deficiencies
assessed in connection therewith). Such returns and reports were correct
in all material respects when and as filed. The Bank, as a taxpayer, has
not executed or filed with the Internal Revenue Service any agreement
extending the period for assessment and collection of any federal tax. The
Bank is not, as a taxpayer, a party to any action or proceeding by any
governmental authority for assessment or collection of taxes, nor has any
claim for assessment or collection of taxes been asserted against the Bank
as a taxpayer.
3.12 Contracts. Except as to contracts and agreements listed or
described in the Bank Disclosure Statement, as of the date of this Agreement
the Bank is not a party to (in its own name or as successor in interest to
any predecessor) or bound by any material written or oral: (a) employment,
management or consulting contract or service agreement which by its terms the
Bank knows or should know is not terminable by the Bank on 30 day's notice or
less without cost or penalty; (b) collective bargaining agreement with any
labor or trade union or association or employee group; (c) bonus, pension,
profit-sharing, retirement, stock option, stock purchase, hospitalization,
insurance or other similar plan providing for benefits for its employees;
(d) lease, installment purchase agreement or other contract with respect to
any property (real, personal or mixed) used or proposed to be used in the
Bank's operation; (e) contract or agreement for the purchase or disposition
of material, supplies, equipment or services; (f) instrument evidencing or
relating to indebtedness for money borrowed or money to be borrowed or
creating any lien or security interest in any real or personal property
excluding such instruments with customers relating to banking transactions;
(g) contract or agreement that by its terms requires the consent of any
party thereto to the consummation of the transactions contemplated by this
Agreement; (h) agreement not to compete in any line of business or any
geographic area; (i) contract or agreement (or outstanding solicitation for
bids) for capital expenditures; (j) any lease, indenture, note or other
contract under which the Bank is in material default; (k) any contract,
except ordinary and customary banking relationships and employment agreements,
with any executive officer, director, or holder of more than 5% of the
outstanding stock of the Bank; (l) any deferred compensation or severance
pay agreement; or (m) any other material agreement not made in the ordinary
course of the Bank's business. True and correct copies of all contracts and
agreements listed or described in the Bank Disclosure Statement are attached
to the Bank Disclosure Statement except to the extent described therein. As
of the date of this Agreement, the Bank has in all material respects performed
all material obligations required to be performed by it to date and is not
in default under, and no event has occurred that, with the lapse of time or
action by a third party, could result <PAGE> in a default under any
outstanding indenture, mortgage, contract, lease or other agreement to which
the Bank is a party or by which the Bank is bound or under any provision of
its Articles of Incorporation or Bylaws.
3.13 Duties as Fiduciary. As of the date of this Agreement, the Bank,
in its capacity as trustee, escrow agent, executor, administrator, custodian,
guardian, receiver or other fiduciary, has, to the best of its knowledge,
performed all of its material duties in accordance with all legal standards
applicable to such duties whether imposed by contract, statute or common law.
3.14 Insurance. As of the date of this Agreement, the Bank has in effect
insurance coverage on its assets, properties, premises, operations and
personnel in such amounts and against such risks and losses as it reasonably
believes to be adequate and customary for the business conducted by the Bank.
3.15 Conduct. Since June 30, 1995, until the date of this Agreement, the
Bank has not: (a) experienced any materially adverse change in financial
condition, assets, liabilities or business; (b) conducted its business or
entered into any material transaction otherwise than in the ordinary course,
or incurred or become subject to any material liabilities or obligations
except current liabilities incurred in the ordinary course of business;
(c) to the best of the Bank's knowledge, suffered any union organizational
efforts or labor trouble, or any event or condition of any character
materially and adversely affecting its business or prospects not generally
affecting banks in the upper peninsula of Michigan in substantially the same
manner and to substantially the same relative extent; (d) paid any material
obligation or liability other than those shown on the June 30, 1995,
statement of condition or incurred after the date thereof in the ordinary
course of business; (e) mortgaged, pledged or subjected to lien, charge or
other encumbrance any of its material assets, or sold or transferred any such
material assets, except in the ordinary course of business; (f) made or
permitted any amendment or termination of any material contract to which it
is a party except for the expiration of contracts at the end of their term
and termination of contracts which are terminable by the other party without
any fault or omission on the part of the Bank; (g) issued or sold any of its
bonds, debentures or other similar corporate capital debt obligations;
(h) declared or set aside or paid any dividend or other distribution in
respect to its capital shares or, directly or indirectly, purchased, redeemed
or otherwise acquired any such shares; or (i) except for pay increases which
have been consistent with established past practice, granted any increase in
the salary or bonus payable, or to be payable, to any officer, director or
holder of 5% or more of the outstanding Bank Shares, or any spouse, child,
parent or sibling of any such person, or to any employee whose annual rate
of salary and bonus at June 30, 1995, exceeded $15,000.
3.16 Books and Records. The Bank's minute books accurately reflect all
actions taken by its shareholders, directors, and committees of directors,
and such books, accounts and records of the Bank have been maintained in a
regular manner and in compliance with all applicable laws.
<PAGE>
3.17 Employee Benefit Plans and Other Employee Matters. The Bank
Disclosure Statement includes a list of all of the "pension" and "welfare"
benefit plans (within the respective meanings of sections 3(2) and 3(1) of
the Employee Retirement Income Security Act of 1974, as amended ["ERISA"]),
maintained by, or to which the Bank has made payments or contributions, with
respect to its employees (the "Bank Employee Benefit Plans"), together with
a list of any such plans terminated since September 1, 1974 or merged into
or consolidated with any of the current Bank Employee Benefit Plans. The
Bank Disclosure Statement includes copies of the most recent actuarial reports
prepared for the Bank as to each Bank Employee Benefit Plan (the "Actuarial
Report"), together with copies of the Bank's annual reports on Form 5500 for
the past three years. The Bank is in compliance with all material provisions
of ERISA and all other provisions of the Internal Revenue Code, including
without limitation Sections 401 through 501 and Section 89 insofar as such
provisions apply to the Bank Employee Benefit Plans. No reportable event
as defined by Section 4043 of ERISA has occurred with respect to any Bank
Employee Benefit Plan subject to ERISA ("Plan"). No such plan has been
terminated since September 1, 1974, and no such plan has been involved in
any prohibited transaction or transaction subject to an excise tax under
ERISA. To the best of its knowledge, there would be no liability incurred
by the Bank under Title IV of ERISA if any such plan were terminated as of
the date of the Actuarial Report with respect to such plan. The Bank has not
sought or obtained from the Internal Revenue Service any waiver of standard
funding requirements under any Bank Employee Benefit Plan during the past
five years. The Bank's policies concerning hours worked by, and payments
made to, employees of the Bank have not been in any material violation of
the Fair Labor Standards Act or any other applicable laws dealing with such
matters. All payments due from the Bank on account of employee health and
welfare insurance have been paid or accrued as a liability on the books of
the Bank, and all severance payments which are or were due under the terms
of any agreement, oral or written, have been paid or accrued as a liability
on the books of the Bank.
3.18 Brokerage Fees. The Bank has not employed any broker or finder
in connection with the transactions contemplated by this Agreement and has
no express or implied agreement with any person or company relative to
commissions or finder's fees as to such transactions.
3.19 Environmental Liability. There are no material actions, suits,
investigations, liabilities, inquiries or other proceedings, rules, orders
or citations involving the Bank, or any of its material assets, pending or
threatened as a result of any failure of the Bank, or any predecessor thereof,
to comply with any requirement of federal, state, local or foreign law,
civil or common, or regulation relating to air, water, soil, solid waste
management, hazardous or toxic substances, or the protection of health or the
environment, nor is there, to the knowledge of the Bank, any factual basis
for any of the foregoing. None of the property owned or leased by the Bank
is, to the knowledge of the Bank, contaminated with any waste or hazardous
substances. To the knowledge of the Bank after reasonable investigation, the
Bank is not and may not be deemed to be an "owner or operator" of a "facility"
or "vessel" which owns, possesses, transports, generates, or disposes of a
"hazardous substance," as those terms are defined in Section 9601 of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
42 U.S.C.A. Section 9601 et. seq.
<PAGE>
3.20 Complete Information. Neither this Agreement nor any schedule,
statement, list, certificate or other written information furnished or to be
furnished by the Bank in connection with this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they are made, not misleading.
3.21 Stock Transactions. Except for the transactions described in the
Bank Disclosure Statement, to the knowledge of the Bank after reasonable
investigation, no officer or director of the Bank, and no person related to
any such officer or director by blood or marriage and residing in the same
household, has since December 31, 1993, purchased or sold or caused to be
purchased or sold any shares of the Bank of which such officer, director or
related person is a record or beneficial owner as determined under Regulation
13d-3 under the Securities Exchange Act of 1934.
3.22 Disclosure of Deeds, Leases, Agreements, Etc. The Bank has
furnished to FMC, as part of Bank's Disclosure Statement, true copies of
the following documents:
(a) Deeds and Titles. Deeds or other relevant title documents
relating to all real estate actively utilized by the Bank in the conduct
of its business and a complete and correct list of all items of personal
property which had a net after depreciation book value in excess of
$15,000 as of June 30, 1995, reflected in the books and records of Bank
as being owned (including those reflected in the statement of condition
of Bank as of June 30, 1995, except as since disposed of in the ordinary
course of business).
(b) Lease Agreements. All leases pursuant to which Bank as lessee
leases real or personal property, excepting leases as to personal
property under which the aggregate lease payments do not exceed $5,000
for the current term of the lease.
(c) Agreements. (i) All contracts and agreements with respect to
any real property used or proposed to be used in the operations of Bank
which obligate the Bank to make aggregate annual payments in excess of
$5,000 or are not terminable at least annually without penalty; (ii) all
material data processing agreements, service agreements, consulting
agreements, or any similar arrangements not terminable by Bank upon 30
days or less notice without penalties; (iii) all contracts or agreements
for the purchase or disposition of material, equipment, supplies, or
other personal property or the purchase of services which obligate the
Bank to make aggregate payments in excess of $5,000 or are not terminable
at least annually without penalty.
(d) Insurance Policies. All material policies of insurance
maintained by Bank with respect to assets, properties, premises, operations
and personnel, and copies of the most recent insurance audit, review or
report, if any.
<PAGE>
(e) Charter Documents and Bylaws. The Articles of Incorporation
of Bank, together with the Bylaws of the Bank, including all amendments
to date.
(f) Employee Benefit Plans. All employee benefits plans, including,
without limitation, all hospitalization, insurance or other similar plans
providing benefits for the Bank's employees.
3.23 Shareholders of the Bank. Schedule 3.23 to the Bank Disclosure
Statement accurately identifies the names and addresses of all of the
shareholders of the Bank as of the date of said schedule and the number of
shares of stock of the Bank held by each shareholder. From the date hereof
until the Consolidation Date, the Bank shall notify FMC in writing of any
change regarding any information contained on such schedule.
3.24 Proxy Statement/Offering Memorandum. None of the information to
be supplied by the Bank for inclusion in: (a) the proxy statement/offering
memorandum relating to the Bank's special shareholder meeting and FMC's
offering of the Notes or (b) (c) any documents to be filed with the Board
of Governors of the Federal Reserve System or any other regulatory agency in
connection with the transactions contemplated by this Agreement, will, at the
respective time such documents are filed and with respect to the proxy
statement/offering memorandum, when mailed, be false or misleading with
respect to any material fact, or omit to state any material fact necessary
in order to make the statements therein not misleading or, in the case of
the proxy statement/offering memorandum or any amendment thereof or supplement
thereto, at the time of the shareholder meeting, be false or misleading with
respect to any material fact, or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of any proxy for purposes of voting at the shareholder meeting.
All documents which the Bank is responsible for filing with any regulatory
agency in connection with the Consolidation will comply as to form in all
material respects with the provisions of applicable law.
3.25 "Material" Defined. Except where the context otherwise indicates,
the sum of $15,000 or a contract or transaction or series of similar
transactions involving aggregate cash payments, values or amounts in excess
of the sum of $15,000 per year shall be rebuttably presumed to be material
with respect to the Bank. Lesser sums or contracts or transactions involving
lesser sums may or may not be material depending on their circumstances, but
will be rebuttably presumed not to be material.
ARTICLE IV
CERTAIN COVENANTS
4.1 Truth and Completeness of Representations and Warranties. Each
party represents and warrants to the other that the representations and
warranties made by it in this Agreement are true as of the date hereof and
will be true at the Consolidation Date.
<PAGE>
4.2 Survival of Representations and Warranties. The representations and
warranties of the parties contained in Articles II and III of this Agreement
shall survive any investigation by the other party hereto, but shall terminate
and be of no further force or effect upon the Consolidation Date.
4.3 Conduct of Business Pending Consolidation Date. From the date
hereof until the Consolidation Date, the Bank agrees that, except as consented
to by FMC in writing, the Bank will:
(a) use its best efforts to maintain its properties and assets in
their present state of repair, order and condition, reasonable wear and
tear excepted;
(b) maintain its books, accounts and records in a regular manner
and, where applicable, in accordance with generally accepted accounting
principles or regulatory standards, as applicable;
(c) comply in all material and substantial respects with all laws
applicable to the conduct of its business;
(d) conduct its business only in the usual, regular and ordinary
course and not otherwise, in substantially the same manner as it has in
the past;
(e) make no change in its Articles of Incorporation or Bylaws;
(f) use its best efforts to maintain and keep in full force and
effect all fire and other insurance on property and assets, all of the
liability and other casualty insurance, and all bonds on personnel,
presently carried by it;
(g) not sell, mortgage, pledge, encumber or otherwise dispose of
any of its material property and assets otherwise than in the ordinary
course of business except as to dispositions that the Bank is compelled
to make or over which it has no control, which it will use its best
efforts to prevent;
(h) not redeem or otherwise acquire any of its capital shares;
(i) perform all of its duties as a fiduciary in all material
respects in accordance with all legal standards applicable to such duties
whether imposed by contract, statute, regulations or common law;
(j) preserve its business organization intact, to keep available
the services of its present officers and employees, and to preserve the
good will of its customers and others having business relations with it;
and
<PAGE>
(k) not declare or pay any dividends, nor make any other distribu-
tion in respect of its capital stock, in liquidation or otherwise, except
for cash dividends consistent with prior practice, which shall not be
less than prior practice; and
(l) after the Final Statement Date, the Bank will not declare or
pay any dividends, nor make any other distributions in respect of its
capital stock, in liquidation or otherwise.
4.4 Further Provisions Concerning Conduct by Bank of Business Pending
Consolidation Date. From the date hereof until the Consolidation Date, the
Bank agrees that, except as consented to by FMC in writing, the Bank will not:
(a) negotiate or solicit any agreement concerning any merger,
consolidation or sale of substantial assets of the Bank prior to
abandonment of the Consolidation provided for in Section 15 of the
Consolidation Agreement;
(b) increase or agree to increase the compensation payable to or
fringe benefits of any officer, director or employee, except as
permitted under Section 3.15(i) above;
(c) introduce or agree to introduce any pension, profit-sharing or
employee benefit plan, fringe benefit program or other plan or program of
any kind for the benefit of its employees except as may be necessary to
comply with applicable laws or regulations;
(d) enter into an employment contract or agreement which is not
terminable by the Bank without cost or penalty upon thirty days' notice;
(e) pay, agree to pay, or incur aggregate liabilities in excess of
$10,000 in any single transaction for the purchase or lease of real
property, fixtures, equipment or other capital assets except normal
replacements;
(f) enter into or commit to enter into any agreement to purchase
trust, consulting, professional, data processing or other material non-
employee services which is not terminable by the Bank without cost or
penalty upon thirty days' notice;
(g) terminate (excluding failure to exercise a renewal option) or
amend any material lease or other material agreement except for the
expiration of contracts at the end of their term and termination of
contracts which are terminable by the other party without any fault or
omission on the part of the Bank;
(h) open, enlarge or remodel any Bank facilities;
<PAGE>
(i) lease, purchase, or otherwise acquire any real property for use
as a branch bank;
(j) apply for regulatory approval of any new branch banking
facility;
(k) make any change in the number of its capital shares issued and
outstanding;
(l) fail to use its best efforts to prevent a material adverse
change in the quality of its loan or investment portfolios;
(m) lengthen or shorten the average maturities of its investment
portfolio or make material loans having maturities longer than is
customary for the Bank as of the date of this Agreement; or
(n) make any borrowings except in the ordinary course of business.
In the event the Board of Directors of the Bank shall fail to recommend
to the shareholders of the Bank that the shareholders approve the proposed
Consolidation and if such failure is due in whole or in part to the existence
of a proposal for any transaction involving the Bank or its assets, which
proposal competes, or is otherwise inconsistent with, the proposed
Consolidation, then the Bank shall promptly pay to FMC a fee equal to
$100,000 and an amount equal to all out-of-pocket costs, expenses, and
fees incurred or to be incurred by FMC in connection with the proposed
Consolidation and other transactions contemplated thereby or incidental
thereto. However, in the event that the competing or inconsistent proposal
referred to in the preceding sentence has been directly or indirectly
solicited by any officer, director, shareholder, agent or other
representatives of the Bank, the $100,000 fee shall be increased to $200,000
and the amount for out-of-pocket costs, expenses and fees described above
shall also be payable by the Bank to FMC. In the event that the Bank's Board
of Directors recommends in good faith that the Bank's shareholders approve the
Consolidation and the shareholders nonetheless fail to approve the proposed
Consolidation, the Bank shall not be obligated to pay the fees and amounts,
out-of-pocket costs, expenses, and fees referred to in the preceding sentence.
4.5 Shareholder Approvals. Subsequent to execution of the Consolidation
Agreement, the Bank will, at a meeting of its shareholders duly called by its
Board of Directors to be held as soon thereafter as practicable, present for
the adoption of its shareholders, this Agreement and the Consolidation
Agreement. The Bank agrees that the proxy materials distributed to its
shareholders for purposes of soliciting their vote for the adoption of this
Agreement and the Consolidation Agreement shall be those described in Section
5.1. After the execution and delivery of this Agreement, FMC agrees to
procure the adoption, by written consent or otherwise, of this Agreement
and the approval of the Consolidation Agreement by the New Bank's shareholder.
4.6 Investigation. From the date hereof to the Consolidation Date,
the Bank shall permit full access to its properties, books, and records at
reasonable times, and shall cause <PAGE> the Bank's officers and employees
to cooperate fully, for the purpose of permitting a complete and detailed
examination of the Bank by FMC and its officers, attorneys, accountants, and
representatives. The Bank shall furnish to FMC, upon request, any information
requested respecting the property, assets, business, and affairs of the Bank.
The Bank shall give FMC advance notice of, and permit representatives of FMC
to attend, all meetings of the Bank's board of directors or committees
thereof. FMC acknowledges that certain information may not be disclosed
by the Bank without the prior written approval of other parties. If such
information is requested by FMC, the Bank shall use its best efforts to
obtain such prior approval, and FMC shall not require disclosure of such
information unless and until such prior approval has been obtained. Except
as contemplated by this Agreement, FMC agrees to treat as strictly
confidential, during and after the investigation contemplated by this Section,
and agrees not to divulge to any other person (other than employees of, and
attorneys and accountants for, FMC), any non-public financial statements,
schedules, contracts, agreements, instruments, papers, documents, or other
non-public information relating to the Bank which it may come to know as a
direct result of a disclosure by the Bank, or which may come into its
possession directly as a result of and during the course of such
investigation; provided, however, that such obligation shall not apply to any
information or documents that are in the public domain at the time furnished
or that became in the public domain thereafter, through any means other than
as a result of any act of FMC or its agents, officers, directors or
shareholders which constitutes a breach of this Agreement. If the
transactions contemplated hereby are not consummated for any reason, FMC
agrees to promptly return to the Bank all written materials furnished to FMC
by the Bank in connection with such investigation.
4.7 Cooperation as to State Securities Laws. The Bank shall furnish all
information reasonably required by FMC in order to determine the applicability
of, and to make proper filings where applicable, under the securities laws of
Michigan with respect to the Notes of FMC to be issued in the Consolidation.
4.8 Final Statement. The Bank covenants and agrees that the Statement
of Condition of the Bank prepared as of the Final Statement Date ("Final
Statement") will be prepared in accordance with generally accepted accounting
principles, applied on a consistent basis, and such Final Statement will be
correct and complete in all material respects and will fairly present the
Bank's financial condition on the Final Statement Date.
ARTICLE V
PROXY MATERIALS, GOVERNMENTAL FILINGS AND
OTHER AGREEMENTS
5.1 Preparation of Proxy Materials/Offering Memorandum. FMC agrees to
prepare as soon as reasonably practicable a proxy statement and offering
memorandum relating to a special meeting of the Bank's shareholders and
offering of FMC's Notes. FMC shall make any filings under the securities
laws of Michigan with respect to the FMC Notes to be issued pursuant to the
Consolidation. FMC shall notify the Bank of any stop orders or threatened
stop orders or other administrative action pertaining to the securities laws
filings of which it has knowledge. The Bank and FMC will cooperate fully
with one another <PAGE> in preparation of the proxy statement/offering
memorandum and will supply all information necessary, in the opinion of their
respective counsel, in order to complete the preparation of the proxy
statement/offering memorandum.
5.2 Other Filings and Appeals. FMC shall have primary responsibility
for preparation of all applications for regulatory approval of the
Consolidation. The Bank shall cooperate fully in the preparation of such
applications and filings. FMC shall use its best reasonable and lawful
efforts to procure the approvals from all regulatory agencies whose approval
of the Consolidation is required. If there is an adverse or unfavorable
action by any regulatory authority, or should the proposed Consolidation be
challenged or opposed by any administrative or legal proceeding, whether by
the United States Department of Justice or otherwise, the determination of
whether and to what extent to seek appeal or review, administrative or
otherwise, or other appropriate remedy shall be made by FMC after consultation
with the Bank, and FMC shall be fully responsible for the conduct of such
appeal, review or other proceeding.
5.3 Tax Matters. FMC and the Bank will seek to obtain an opinion or
opinions of Varnum, Riddering, Schmidt & Howlett LLP, in reasonably acceptable
form and content to FMC and the Bank, substantially to the effect that:
(a) A shareholder of the Bank who receives a Note in exchange for
all or any part of his Bank stock, unless he elects not to have the
exchange treated as an installment sale, will, assuming the Note is held
to maturity, recognize as income in any taxable year an amount equal to
that proportion of the payments actually received in that year which the
gross profit (realized or to be realized when payment is completed) bears
to the total price. The gross profit will be the total prices less the
adjusted basis of the shares sold as determined under Section 1011 of
the Internal Revenue Code. Provided Bank stock is a capital asset in
the hands of a Bank shareholder, gain or loss will be a capital gain or
loss subject to the provisions and limitations of Subchapter P of
Chapter 1 of the Internal Revenue Code.
(b) A shareholder of the Bank who receives a Note in exchange for
all or part of his Bank stock and who elects not to have the exchange
treated as an installment sale, will realize and recognize, in the
taxable year in which such Note is received, gain or loss, as provided
in Section 1001 of the Internal Revenue Code, measured by the difference
between the fair market value of the Note received and the adjusted
basis of the Bank stock surrendered as determined under Section 1011 of
the Internal Revenue Code. Provided Bank stock is a capital asset in
the hands of a Bank shareholder, gain or loss will be a capital gain or
loss subject to the provisions and limitations of Subchapter P of
Chapter 1 of the Internal Revenue Code.
(c) A shareholder of the Bank who receives cash in exchange for
all or any part of his Bank stock in the consolidation will realize and
recognize gain or loss, as provided in Section 1001 of the Internal
Revenue <PAGE> Code, measured by the difference between the cash received
and the adjusted basis of the Bank stock surrendered as determined under
Section 1011 of the Internal Revenue Code. Provided Bank stock is a
capital asset in the hands of a Bank shareholder, gain or loss will be
a capital gain or loss subject to the provisions and limitations of
Subchapter P of Chapter 1 of the Internal Revenue Code.
The opinion may contain qualifications as to factual matters, including
whether the Notes are readily tradeable, whether the Notes constitute debt or
equity or whether the principal amount of Notes received by a Bank shareholder
represents the fair market value of Bank stock surrendered.
5.4 Press Releases. The Bank and FMC shall consult with each other
with respect to the form and substance of any press release or other public
disclosure of matters related to this Agreement and the Consolidation
Agreement.
5.5 Miscellaneous Agreements and Consents. Subject to the terms and
conditions of this Agreement and the Consolidation Agreement, each of the
parties agrees to use all reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper,
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement and the
Consolidation Agreement. FMC and the Bank will use their best efforts to
obtain consents of all third parties and governmental bodies necessary or
desirable for the consummation of the Consolidation.
5.6 Exchange of Financial Information. FMC shall deliver to Bank, and
Bank shall deliver to FMC, copies of each quarterly consolidated financial
statement prepared, and of each consolidated financial report or statement
submitted to regulatory authorities, after the date of this Agreement until
the Consolidation Date, as promptly after the preparation or submission
thereof as practicable.
ARTICLE VI
CONDITIONS PRECEDENT TO CONSOLIDATION
The Consolidation contemplated by this Agreement shall not take effect
unless and until each of the conditions precedent set forth in Section 14 of
the Consolidation Agreement shall have been satisfied or waived as set forth
in the Consolidation Agreement.
ARTICLE VII
ABANDONMENT AND TERMINATION OF CONSOLIDATION
This Agreement and the Consolidation Agreement may be abandoned and
terminated at any time before the Consolidation Date, whether before or after
any shareholder action, in accordance with the provisions of Section 15 of
the Consolidation Agreement.
<PAGE>
ARTICLE VIII
EXPENSES
The costs and expenses (out-of-pocket and otherwise) incurred by the
parties in connection with the transactions contemplated by this Agreement
shall be borne as follows:
8.1 FMC Expenses. FMC shall bear all fees and expenses of its counsel
and accountants, and all other costs and expenses incurred by it in (a) the
preparation of this Agreement and the Consolidation Agreement, (b) its
examination of the Bank, (c) the preparation of the offering memorandum
which will also constitute the proxy statement of the Bank, and (d) the
preparation, filing and prosecution of all applications for regulatory
approval, and any appeals therefrom.
8.2 Bank Expenses. The Bank shall bear all fees and expenses of its
counsel and accountants and all other costs and expenses incurred by it in
(a) the preparation of this Agreement and the Consolidation Agreement, (b)
its examination of FMC, (c) the calling and holding of a meeting of its
shareholders to consider and act upon the Consolidation, (d) the preparation
of proxy materials for such meetings and (e) the furnishing of information
or other cooperation to FMC in connection with the preparation of information
and regulatory applications, and any appeals therefrom. All such fees and
expenses shall be paid or accrued by the Bank before or as of the Final
Statement Date.
8.3 Obligations Upon Breach. Except as otherwise provided in Section
4.4, in the event that this Agreement shall terminate prior to the
Consolidation Date by virtue of a breach set forth in Section 15(e) or
Section 15(f) of the Consolidation Agreement, and if such breach was
intentional, the party causing such breach agrees to reimburse the other
party for all reasonable expenses incurred by such party in connection with
the transactions contemplated by this Agreement. Otherwise, the sole remedy
for breach shall be abandonment of this Agreement.
ARTICLE XI
AMENDMENT AND WAIVER
9.1 Amendment. The Bank and FMC, by mutual consent of a majority of
their respective Boards of Directors, may amend, modify or supplement this
Agreement and, with the New Bank's written consent, the Consolidation
Agreement, in whole or in part, and in such manner as may be agreed upon by
them in writing, provided that any such amendment, modification, or supplement
subsequent to the adoption of this Agreement and the Consolidation Agreement
by the Bank's shareholders may be effected only if FMC and the Board of
Directors of the Bank determine that such amendment, modification, or
supplement does not and will not have a material adverse effect on the Bank's
shareholders.
9.2 Waiver. The failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect such party's
right at a later time to enforce the same. No waiver by any party of any
condition or of the breach of any term, covenant, representation or warranty
contained in this Agreement or the Consolidation <PAGE> Agreement, whether by
conduct or otherwise, in any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
a waiver of any other condition or of the breach of any other term, covenant,
representation or warranty of this Agreement or the Consolidation Agreement.
ARTICLE X
GENERAL
10.1 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed, registered or certified mail, postage prepaid, as
follows:
(a) If to the Bank:
Mr. Del Harma
South Range State Bank
45 Trimountain Avenue
P.O. Box 39
South Range, MI 49963-0039
with a copy to:
Lloyd C. Fell, Esquire
Bodman, Longley & Dahling
229 Court Street
P.O. Box 405
Cheboygan, MI 49721-0405
(b) If to FMC:
Mr. Ronald G. Ford
First Manistique Corporation
130 South Cedar
P.O. Box 369
Manistique, MI 49854
with a copy to:
Donald L. Johnson, Esquire Overnight Deliveries
Varnum, Riddering, Schmidt & Howlett 333 Bridge St., N.W.
Bridgewater Place Grand Rapids, MI 49504
P.O. Box 352
Grand Rapids, MI 49501-0352
or to such other address as the parties hereto may designate in writing as
aforesaid.
<PAGE>
10.2 Authority of FMC With Respect to Other Transactions. Nothing stated
or contained in this Affiliation Agreement or the Consolidation Agreement
shall be construed to limit or restrict the unilateral authority of FMC (a)
to enter into other agreements to buy, sell or invest in other assets or (b)
to buy or sell or otherwise issue shares of FMC's Common Stock consistent
with maintaining, improving or maximizing value to the shareholders of FMC
as determined by FMC's board of directors.
10.3 Efforts to Conclude Transaction. Each party to this Agreement
acknowledges that time is of the essence in completing the transactions
contemplated hereunder. Each party to this Agreement agrees to use all
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper, or advisable under applicable
laws or regulations to consummate and make effective the transactions
contemplated by this Agreement and the Consolidation Agreement as soon as
reasonably practicable. FMC and the Bank will use all reasonable efforts to
obtain consents from all third parties and governmental authorities necessary
or desirable for consummation of the transactions contemplated by this
Agreement and the Consolidation Agreement as soon as reasonably practicable.
10.4 Governing Law. This Agreement shall be construed and interpreted
according to the laws of Michigan, except as otherwise provided herein.
10.5 Benefit and Binding Effect. This Agreement and the Consolidation
Agreement shall be binding upon and inure to the benefit of the parties named
herein and their respective successors and assigns, provided that neither
this Agreement, the Consolidation Agreement nor any of the parties' rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other party hereto.
10.6 Entire Agreement. This Agreement, and the Consolidation Agreement
to be entered into pursuant to this Agreement, and the documents described
herein or attached or delivered pursuant hereto, set forth the entire
agreement and understanding of the parties in respect of the transactions
contemplated hereby and supersede all prior agreements, arrangements, and
understandings related to the subject matter hereof.
10.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of
which together shallconstitute one and the same instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
10.8 Reliance on Headings, Etc. The cover page, table of contents,
article headings and section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Affiliation Agreement and Plan of Reorganization to be duly executed as of
the 30th day of August, 1995.
SOUTH RANGE STATE BANK ("Bank")
ATTEST:/s/Gerald D. Jukuri By /s/Del Harma
Del Harma
President
(SEAL OF BANK)
FIRST MANISTIQUE CORPORATION
("FMC")
ATTEST: /s/Sherry Littlejohn By /s/Ronald G. Ford
Ronald G. Ford
President & CEO
<PAGE>
CONSOLIDATION AGREEMENT
This Consolidation Agreement, dated as of December 14, 1995, is by and
between SOUTH RANGE STATE BANK ("Bank") and NEW BANK OF SOUTH RANGE ("New
Bank"), and is joined in by FIRST MANISTIQUE CORPORATION ("FMC").
RECITALS
The Bank is a Michigan banking corporation with its principal office in
South Range, Michigan, with an authorized capital of $390,000, consisting of
19,500 shares of common stock, par value $20.00 per share, all of which shares
are issued and outstanding. The New Bank is a Michigan banking corporation,
organized under the provisions of Section 130 of the Michigan Banking Code of
1969, as amended (the "Banking Code"), for the sole purpose of effecting the
Consolidation (defined in Section 1), with an authorized capital of $20.00,
consisting of 1 share of common stock, par value $20.00 per share, which
share is, or will at the time of the Consolidation be, issued and outstanding
and owned beneficially by FMC.
This Consolidation Agreement has been executed and delivered pursuant to
an Affiliation Agreement and Plan of Reorganization, dated August 30, 1995,
between the Bank and FMC ("Affiliation Agreement") and fulfills all the
requirements of Section 1.2 of the Affiliation Agreement. To the extent that
this Consolidation Agreement is inconsistent with the Affiliation Agreement,
the Affiliation Agreement shall be deemed amended by this Consolidation
Agreement.
A majority of the entire Board of Directors of the Bank and the New Bank
have, respectively, approved, made and executed this Consolidation Agreement
and authorized its execution by the Bank and the New Bank, and a majority of
the entire Board of Directors of FMC has approved this Consolidation Agreement
and the undertakings of FMC herein set forth, and has authorized FMC, by
execution hereof, to join in and be bound hereby.
At the time the Consolidation becomes effective, and as and when required
by the provisions of this Consolidation Agreement, FMC will issue its Notes,
as defined in the Affiliation Agreement and in this Consolidation Agreement,
and tender cash payments to the shareholders of the Bank in accordance with
the terms of this Consolidation Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Consolidation. The Bank and the New Bank shall be consolidated into
a single bank under the charter of the New Bank, in accordance with the
provisions of the Banking Code (the "Consolidation"). The consolidated
organization is hereinafter referred to as the "Consolidated Bank."
2. Charter. The charter of the Consolidated Bank shall be the charter
of the New Bank, with such changes and amendments as may be made by this
Consolidation Agreement or as may be required in order to conform such
charter with the provisions of this Consolidation Agreement.
<PAGE>
3. Name. The name of the Consolidated Bank shall be "South Range State
Bank."
4. Effect of Consolidation. At the effective time of the consolidation
("Consolidation Date"), the corporate existence of the Bank and the New Bank
shall be merged into and continue in the Consolidated Bank, which shall be
deemed to be the same corporation as each of the consolidating banks,
possessing all the rights, interests, privileges, powers and franchises and
being subject to all the restrictions, disabilities, obligations, liabilities
and duties of each of the consolidating banks. All and singular the rights,
interests, privileges and franchises of each of the consolidating banks and
all property, real, personal and mixed, and all debts and obligations owing
by or due to either of the consolidating banks on whatever account, shall be
transferred to, become the obligation of and be vested in the Consolidated
Bank without any deed or other transfer and without any order or other action
on the part of any court or otherwise. All property, rights, privileges,
powers, franchises and interests and each and every other interest shall be
thereafter as effectually the property of the Consolidated Bank as they were
of each of the consolidating banks. The title to any real estate, whether
by deed or otherwise, vested in either the Bank or the New Bank, shall not
revert or be in any way impaired by reason of the Consolidation. The
Consolidated Bank, by virtue of the Consolidation, and without any order or
other action on the part of any court or otherwise, shall hold and enjoy the
same and all rights of property, franchises and interests, including
appointments, designations and nominations and all other rights and interests
as trustee, executor, administrator, registrar of stocks and bonds, guardian
of estates, assignee, receiver, guardian of mentally incompetent persons and
in every other fiduciary capacity, in the same manner and to the same extent
as such rights, franchises and interests were held or enjoyed by each
consolidating bank at the Consolidation Date.
5. Principal Office and Branches. The principal office of the
Consolidated Bank shall be the principal banking office presently occupied
by the Bank in the City of South Range, Houghton County, Michigan, and the
branches of the Consolidated Bank shall be all of the branches of the Bank
in operation at the Consolidation Date and such other branches as may be duly
authorized and established from time to time.
6. Capital. The authorized capital of the Consolidated Bank shall be
$390,000, consisting of 19,500 shares of common stock, par value $20.00 per
share.
7. Directors and Officers. The Board of Directors and the officers of
the Consolidated Bank shall be the same persons, holding the same offices, as
the directors and officers of the Bank immediately prior to the Consolidation
Date.
8. Bylaws. The Bylaws of the Consolidated Bank shall be the Bylaws of
the New Bank in effect immediately prior to the Consolidation Date.
9. Conversion of Shares. The manner of converting the shares of the
Bank and the New Bank shall be as follows:
<PAGE>
(a) Shares of the New Bank. At the Consolidation Date, the share
of the New Bank, par value $20.00 per share, issued and outstanding shall
be converted into and remain outstanding as a share of the Consolidated
Bank, and the capital of the New Bank shall become capital of the
Consolidated Bank.
(b) Issuance of Consolidated Bank Shares. At the Consolidation
Date, the Consolidated Bank shall issue 19,499 shares, par value $20.00
per share, to FMC in consideration of the FMC Notes and cash payments to
be issued and tendered to the shareholders of the Bank under the terms
of this Consolidation Agreement, and $389,980 of the capital of the Bank
shall become capital of the Consolidated Bank and the remainder of the
Bank's capital and all of its surplus shall become surplus of the
Consolidated Bank.
(c) Conversion of Bank Shares. At the Consolidation Date, each
share of common stock of the Bank, par value $20.00 per share, issued
and outstanding ("Bank Shares") shall be converted into: (i) the right
to receive cash; or (ii) a combination of the right to receive cash and
Notes of FMC (as defined below and in the Affiliation Agreement) as
follows:
(A) Each Bank Share owned of record by a shareholder of record
who owns of record one hundred (100) or fewer Bank Shares as of the
Consolidation Date will be converted into the right to receive cash
in an amount equal to the Per Share Conversion Value.
(B) Each Bank Share owned of record by a shareholder of record
who owns of record more than one hundred (100) Bank Shares as of
the Consolidation Date and who, on the date of this Consolidation
Agreement or on the Consolidation Date, is a resident of a state
other than Michigan, will be converted into the right to receive
cash in an amount equal to the Per Share Conversion Value.
(C) Each Bank Share owned of record by a shareholder of record
who owns of record more than one hundred (100) Bank Shares as of
the Consolidation Date and who, on the date of this Consolidation
Agreement and on the Consolidation Date, is a resident of the State
of Michigan, will be converted into (i) the right to receive thirty
percent (30%) of the Per Share Conversion Value in cash and (ii) the
principal amount of a Note (as defined below) equal to seventy
percent (70%) of the Per Share Conversion Value.
For purposes of this Section 9, whether Bank Shares are held of
record in the name of one owner or in the names of multiple owners, they shall
be deemed to be held of record by a single, separate and distinct "shareholder
of record." For example, if X owns Bank Shares registered solely in his or her
own name and other Bank Shares registered in X's name and the name of his or
her spouse, X would be deemed to be a shareholder of record as to those Bank
Shares owned solely in his or her own name and X and his or her spouse would
be deemed to be a single, separate and distinct shareholder of record as to
those Bank Shares registered in their joint names.
<PAGE>
For purposes of the Affiliation Agreement and this Consolidation
Agreement, the term "Per Share Conversion Value" shall mean an amount equal
to 1.75 times the book value per share of the Bank's Common Stock (determined
in accordance with generally accepted accounting principles applied on a
consistent basis) as of the month end immediately preceding the Consolidation
Date. The month end immediately preceding the Consolidation Date is referred
to in this Consolidation Agreement and in the Affiliation Agreement as of the
Final Statement Date.
For purposes of this Consolidation Agreement and the Affiliation
Agreement, the term "Notes" shall mean the installment promissory notes of
FMC described in this paragraph and to be issued in substantially the form
annexed hereto as Exhibit I. Each Note will be issued in a principal amount
equal to seventy percent (70%) of the Per Share Conversion Value times the
number of Bank Shares owned of record by a Bank shareholder entitled to
receive such a Note. Each Note will be dated and issued as of the
Consolidation Date and bear interest from that date at a per annum rate
equal to the three-year U.S. Treasury note interest rate in effect on the
Consolidation Date, but in no event less than five percent (5%) per annum.
Equal annual payments of principal plus accrued interest will be payable under
the Notes on each anniversary of the Consolidation Date, until the third
anniversary when the entire remaining unpaid principal and interest shall be
due and payable. The final payment of principal and interest on each Note
shall be made only on presentment and surrender of that Note. The Notes shall
be nontransferable without the prior written consent of FMC.
10. Exchange of Bank Stock Certificates. Each holder of an outstanding
certificate or certificates theretofore representing shares of the Bank (other
than those who have perfected "dissenters' rights") shall be entitled, upon
surrender of such certificates, to receive: cash or a combination of cash
and FMC Notes, into which the holder's Bank Shares shall be converted, subject
to and as determined under Subsection 9(c) above. On or before the fifth
business day following the Consolidation Date, FMC will send a notice and a
transmittal form to each holder of an outstanding certificate or certificates
which immediately prior to the Consolidation Date represented shares of common
stock of the Bank ("Preconsolidation Certificates"), advising such shareholder
of the terms of the conversion effected by the Consolidation, and the
procedure for surrendering to FMC such Preconsolidation Certificate or
Certificates for exchange for (a) cash, in the form of a certified check, or
(b) a combination of cash, in the form of a certified check, and an FMC Note,
as determined under Subsection 9(c) above, which such shareholder is entitled to
receive pursuant to the terms of this Consolidation Agreement. Until so
surrendered, each such outstanding Preconsolidation Certificate shall be
deemed for all corporate purposes (subject to the further provisions of this
Section) to evidence ownership of FMC Notes into which such Bank Shares shall
have been converted and/or the right to receive the amount of cash into which
such shares of Bank Shares shall have been converted. After the Consolidation
Date there shall be no further registry of transfers on the records of the
Bank of Bank Shares outstanding immediately prior to the Consolidation Date,
and when Preconsolidation Certificates representing such shares are presented
to the Consolidated Bank, they shall be cancelled and exchanged for an FMC
Note and/or cash, as herein provided. No payments will be paid to persons
entitled to receive FMC Notes until such persons have surrendered their
Preconsolidation Certificate(s); provided, however, that when <PAGE> the
Preconsolidation Certificate(s) shall have been so surrendered, there shall
be paid to the holders thereof, all amounts payable as of or subsequent to
the Consolidation Date on the FMC Notes for which such Preconsolidation
Certificates shall have been so exchanged.
11. Further Documentation. The directors of the Bank and the New Bank
shall, from time to time, as and when requested by the Consolidated Bank or
its successors or assigns, execute and deliver or cause to be executed and
delivered such deeds, instruments, assignments or assurances as the
Consolidated Bank may reasonably deem necessary, desirable or convenient
in order to vest in and confirm to the Consolidated Bank title to or
possession of any property or rights of the Bank or the New Bank acquired
or to be acquired by reason of or as a result of the Consolidation, or
otherwise to carry out the purposes of this Consolidation Agreement. Any
person who, immediately before the Consolidation Date, was an officer or
director of the Bank or the New Bank is hereby fully authorized, in the name
of such institution, to execute any and all such deeds, instruments,
assignments or assurances, or to take any and all such action, as may be
requested by the Consolidated Bank.
12. Shareholder Approval. This Consolidation Agreement shall be
submitted to the shareholders of the Bank and the New Bank at separate
meetings of such shareholders, each duly called and held in accordance with
the provisions of the Banking Code and other applicable statutes. In order
for the Consolidation to be effective, this Consolidation Agreement and the
Affiliation Agreement must be adopted by the affirmative vote of the holders
of not less than two thirds (2/3) of the issued and outstanding common shares
of the Bank, and not less than two thirds (2/3) of the issued and outstanding
common shares of the New Bank.
13. Dissenters' Shares. Any shareholder of the Bank who votes against
the Consolidation, or who has given notice in writing to the Bank at or prior
to the shareholders' meeting to be held for the purpose of considering this
Consolidation Agreement, that he or she dissents from the contemplated
Consolidation, shall be entitled to receive in cash from FMC the fair value
of all shares held by him or her, if and when the Consolidation is consummated
in accordance with the provisions of Section 130 of the Banking Code. Each
share of such dissenting shareholder that is surrendered to FMC for payment
shall be deemed cancelled as of the Consolidation Date without any further act
or action. The Consolidated Bank shall act as the Bank's agent for purposes
of receiving surrendered dissenters' shares and making any required payment.
14. Conditions Precedent to Consolidation. The Consolidation
contemplated by this Consolidation Agreement shall not take effect unless
and until each of the following conditions precedent has been satisfied or
waived in writing as hereinafter set forth:
(a) Compliance with Covenants, Representations and Warranties.
Neither the Bank nor FMC shall have discovered any material breach by
the other of any of the representations, warranties and covenants of the
Affiliation Agreement or of this Consolidation Agreement; provided, that
the party for whose benefit such representation, warranty or covenant is
made may at its option waive this condition precedent with respect
thereto.
<PAGE>
(b) Shareholder Approval. The Affiliation Agreement and this
Consolidation Agreement shall have been adopted by the affirmative vote
of the shareholders of the Bank and the New Bank owning at least two
thirds (2/3) of the capital shares outstanding of each institution.
(c) Governmental Approvals. The parties to this Consolidation
Agreement shall have received approval of the Consolidation from all
necessary governmental agencies and authorities, and such approvals
shall have become final and shall not be the subject of any formal
administrative review proceeding or appeal, and the Consolidation may
be consummated pursuant to the terms of such approvals, provided, that
the parties may waive this condition in whole or in part as is consistent
with all applicable laws and regulations.
(d) Challenge in Legal Proceedings. No proceeding shall be pending
by the United States Department of Justice or any other federal or state
governmental agency, challenging or seeking to prevent the Consolidation
under any antitrust, trade regulation laws, or any other applicable laws,
provided that the parties may waive this condition in whole or in part.
(e) Opinions of Legal Counsel. The Bank and FMC each shall have
delivered to the other (provided that either party may waive this
condition in whole or in part as to the opinion to be delivered by the
other) an opinion of counsel, dated the Consolidation Date, in form and
substance reasonably satisfactory to the other party and its counsel, to
the effect that: (i) such party is duly organized or incorporated, is
validly existing and in good standing according to the laws under which
it was created; (ii) the number of authorized and issued and outstanding
capital shares of such party are as represented in, or permitted by, the
Affiliation Agreement and Consolidation Agreement; (iii) except as set
forth in such opinion, counsel does not know or believe that such party
is a party to or affected by any material adverse pending litigation,
proceeding or investigation before any court or by or before any federal,
state, municipal or other governmental department, commission, board or
agency or that any such litigation, proceeding or investigation has been
expressly threatened against any such party; and (iv) the Affiliation
Agreement and this Consolidation Agreement have been duly and validly
authorized, executed and delivered by such party and are binding and
enforceable according to their terms. In rendering such opinions,
counsel may rely as to certain factual matters on certificates of one
or more officers of the Bank and of public officials.
(f) Officer Certifications. The President and Executive Vice
President of the Bank shall have given to FMC their certificates, dated
as of the Consolidation Date, that the representations, warranties and
covenants of the Bank contained in the Affiliation Agreement and the
Consolidation Agreement, subject to disclosures contained in the Bank's
Disclosure Statement, have not, to the best of their knowledge and
belief, been breached and all representations and warranties are, to
the best of their knowledge and belief, true as of the Consolidation
Date, provided FMC may waive this condition, in whole or in part. The
President and Secretary of FMC shall have given to the Bank their
certificates, dated as of the Consolidation <PAGE> Date, that the
representations, warranties and covenants of FMC contained in the
Affiliation Agreement and the Consolidation Agreement, have not, to the
best of their knowledge and belief, been breached, and all representations
and warranties are, to the best of their knowledge and belief, true as of
the Consolidation Date, provided that the Bank may waive this condition,
in whole or in part.
(g) Conduct of Business Pending Consolidation. From and after the
date of this Agreement and prior to the Consolidation Date, the Bank
shall, unless waived by FMC, have:
(1) Conducted its business and operated only in the usual and
ordinary course of business;
(2) Conducted its business and operated only in accordance
with banking laws and regulations and sound banking practices;
(3) Executed an employment agreement with Del Harma in form
and substance satisfactory to FMC;
(4) Remained in good standing with all applicable banking and
other regulatory authorities and preserved each of its existing
banking locations;
(5) Retained the services of such of its present officers
and employees that its goodwill and business relationships with
customers and others are not materially and adversely affected.
(h) Absence of Certain Changes or Events. From and after the date
of this Agreement and prior to the Consolidation Date, the Bank will not
have, without the prior written consent of FMC:
(1) Amended its Articles of Incorporation or Bylaws;
(2) Issued any stock, stock options, warrants, rights, calls
or commitments of any character calling for or permitting the issue,
transfer, sale or delivery of its capital stock;
(3) Issued or sold any shares of its capital stock (or
securities convertible into or exchangeable, with or without
additional consideration for such capital stock);
(4) Increased or reduced the number of shares of its capital
stock by split, reverse split, reclassification, distribution of
stock dividends, or change of par value;
<PAGE>
(5) Purchased or otherwise acquired any outstanding shares of
its capital stock or securities carrying the right to acquire, or
convertible into or exchangeable for such stock, with or without
additional consideration;
(6) Adopted or materially modified any bonus, pension, profit
sharing, retirement or other compensation plan or entered into any
contract of employment with any officer which is not terminable at
will without cost or other liability;
(7) Incurred any obligations or liabilities except obligations
incurred in the ordinary course of business, none of which is
materially adverse to the Bank;
(8) Except with regard to repurchase transactions in the
ordinary course of business and except for inchoate liens or
mechanics liens, mortgaged, pledged or subjected to lien, charge,
security interest, or to any other encumbrance, any of its assets
or property, except pledges to secure public and trust deposits;
(9) Transferred or leased any of its assets or property except
in the ordinary course of business, or closed any banking office;
(10) Transferred or granted any rights, under any leases,
licenses or agreements, other than in the ordinary course of
business;
(11) Made or granted any general or individual wage or salary
increase except for general salary and wage adjustments permitted
under Section 3.15 of the Affiliation Agreement;
(12) Entered into any transaction other than in the ordinary
course of business;
(13) Increased the number of directors, filled any vacancy on
the Board of Directors, or elected or appointed any person to an
executive office, without the consent of FMC, which consent shall
not be unreasonably withheld; or
(14) Declared or paid any dividends, nor made any other
distribution in respect of any shares of its capital stock, except
for cash dividends consistent with prior practices, provided such
dividends are declared prior to the Final Statement Date.
(i) MESC Form 1027. The Bank shall have furnished to FMC a
complete, accurate and executed copy of MESC Form 1027, Business
Transferor's Notice of Unemployment Tax Liability and Rate.
<PAGE>
(j) Loan Loss Reserve. The Bank's loan loss reserve as reflected
in the Bank's June 30, 1995 statement of condition and as reflected in
the Bank's statement of condition as of the Final Statement Date shall
be adequate to cover all known loan losses and meet applicable regulatory
standards. FMC will perform a final due diligence review of the Bank's
loan portfolio as of the Final Statement Date in order to confirm
satisfaction of this condition.
15. Abandonment and Termination of Consolidation. The Affiliation
Agreement and this Consolidation Agreement may be abandoned and terminated
at any time before the Consolidation Date, whether before or after any
shareholder action, in accordance with the following:
(a) Mutual Consent. By mutual written consent of the Bank and FMC
if, in the opinion of a majority of each of the Boards of Directors of
such institutions, proceeding with the Consolidation shall be inadvisable.
(b) Consolidation Date. By either FMC or the Bank if the
abandoning party has used its best reasonable efforts to consummate the
Consolidation and if the Consolidation Date shall not have occurred on
or before March 15, 1996, or if it is reasonably apparent that the
Consolidation will not have occurred by March 15, 1996.
(c) Adverse Financial Changes. By either FMC or the Bank if there
has occurred any change in the business, business prospects, asset
portfolio, financial condition, fixed or contingent liabilities or
management of the other party that, in the reasonable opinion of the
abandoning party, is materially adverse.
(d) Litigation. By either the Bank or FMC if any material
litigation shall be pending or threatened against or affecting the other
party or any of their respective assets or the Consolidation; provided
such material litigation renders it inadvisable to proceed with the
Consolidation in the reasonable judgment of the Board of Directors of
the party terminating and abandoning the Affiliation Agreement and this
Consolidation Agreement.
(e) Misrepresentations. By either the Bank or FMC if any warranty
or representation made by the other party in the Affiliation Agreement
or in this Consolidation Agreement shall be discovered to be false in
any material respect and such breach shall not have been cured without
material cost or damage.
(f) Breach of Covenants. By either the Bank or FMC if the other
party shall have committed any material breach of any covenant of the
Affiliation Agreement or this Consolidation Agreement which has not been
or cannot be cured without material cost or damage within 30 days.
Termination and abandonment, except pursuant to Section 15(a), may be effected
at any time prior to the Consolidation Date, by written notice by either party
to the other, as the case may be, authorized and approved by resolution
adopted by the Board of Directors of the party giving such notice. In the
event of the termination and abandonment of the <PAGE> Affiliation Agreement
and this Consolidation Agreement pursuant to this Section 15, the Affiliation
Agreement and this Consolidation Agreement shall become null and void and of
no effect, without liability on the part of the Bank, the New Bank, FMC or
their respective shareholders, directors or officers in any respect hereof,
except to the extent provided in Sections 4.4, and 8.3 of the Affiliation
Agreement.
16. Effective Time of Consolidation. The Consolidation shall be
consummated following the satisfaction or waiver of the conditions precedent
set forth in Section 14 of this Consolidation Agreement, and at the time
determined by FMC. The Consolidation shall be effective at such time as may
be designated by the Financial Institutions Bureau of the Michigan Department
of Commerce in its certificate confirming the effective time of the
Consolidation.
17. Defined Terms. All capitalized terms not otherwise defined in
this Consolidation Agreement shall have the meanings ascribed to them in the
Affiliation Agreement.
IN WITNESS WHEREOF, the Bank and the New Bank have caused this Consolida-
tion Agreement to be executed in counterparts by their duly authorized
officers and their corporate seals to be hereunto affixed as of the date
first written above, and directors constituting a majority of the Board of
Directors of each such bank have hereunto subscribed their names.
SOUTH RANGE STATE BANK
Attest:/s/Carlton J. Wyse By /s/Del Harma
Del Harma, President
/s/Del Harma /s/Gerald D. Jukuri
Del Harma Gerald D. Jukuri
/s/Lawrence Julio /s/Clarence Hocking
Lawrence Julio Clarence Hocking
/s/Robert Nara /s/Donald Turner
Robert Nara Donald Turner
/s/J. Bernard Coon
J. Bernard Coon
A Majority of the Directors of
South Range State Bank
<PAGE>
NEW BANK OF SOUTH RANGE
Attest:/s/Dennis K. Boyd By/s/Ronald G. Ford
Ronald G. Ford, President
/s/Ronald G. Ford /s/Sherry Littlejohn
Ronald G. Ford Sherry Littlejohn
/s/Michael C. Henricksen /s/Richard B. Demers
Michael C. Henricksen Richard B. Demers
/s/John Lindroth
John Lindroth
A Majority of the Directors of
New Bank of South Range
FIRST MANISTIQUE CORPORATION hereby joins in the foregoing Consolidation
Agreement and undertakes that it will be bound thereby and that it will do
and perform all acts and things therein referred to or provided to be done
by it.
IN WITNESS WHEREOF, First Manistique Corporation has caused this
undertaking to be executed by its duly authorized officers as of the date
first above written.
FIRST MANISTIQUE CORPORATION
Attest:/s/Dennis K. Boyd By /s/Ronald G. Ford
Ronald G. Ford, President
and Chief Executive Officer
<PAGE>
EXHIBIT I
THIS OBLIGATION IS UNSECURED, IS NOT THE OBLIGATION OF ANY BANK, IS NOT A
DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
FIRST MANISTIQUE CORPORATION
_____ % INSTALLMENT PROMISSORY NOTE DUE _________, 1999
Principal and Interest Payment Date: of Each Year
First Manistique Corporation, including any successor, promises to pay to
or registered assigns, the principal sum of ____ Dollars, payable in ____ annual
principal installments of____ Dollars, each, commencing on ____, 1997,
and continuing on each ____ thereafter until ____, 1999.
Dated: , 1996
FIRST MANISTIQUE CORPORATION
By
Ronald G. Ford, President and Chief
Executive Officer
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THE OFFER AND SALE OF THIS PROMISSORY
NOTE HAS BEEN MADE PURSUANT TO A CLAIM OF EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933. THIS PROMISSORY NOTE HAS BEEN OFFERED
FOR SALE ONLY IN THE STATE OF MICHIGAN TO BONA FIDE RESIDENTS OF THE STATE
OF MICHIGAN AND MAY NOT BE SOLD OR TRANSFERRED TO ANY PERSON WHO IS NOT
A BONA FIDE RESIDENT OF THE STATE OF MICHIGAN FOR A PERIOD OF AT LEAST NINE
CONSECUTIVE MONTHS FROM THE DATE OF THIS PROMISSORY NOTE. THIS PROMISSORY
NOTE MAY NOT BE SOLD OR TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF
FIRST MANISTIQUE CORPORATION.
<PAGE>
FIRST MANISTIQUE CORPORATION
____ % INSTALLMENT PROMISSORY NOTE DUE _________, 1999
1. INTEREST
First Manistique Corporation, a Michigan corporation, including any
successor (the "Corporation") promises to pay interest on the principal amount
of this Promissory Note at the rate of _____________ (______%) per annum. The
Corporation will pay interest annually on ________________of each year, each
of which shall be referred to as a Payment Date. Interest on the Promissory
Notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from the original date of issue of this
Promissory Note. Interest will be computed on the basis of a 360-day year
of twelve 30-day months.
2. PRINCIPAL PAYMENTS
The Corporation promises to pay ______________ (______%) of the principal
amount of this Promissory Note on each Payment Date, the final payment of
which shall be due ______________, 1999 (the "Date of Maturity").
3. METHOD OF PAYMENT
The Corporation shall pay principal and interest on the Promissory Notes
to the persons who are registered holders of the Promissory Notes at the close
of business on _______________ next preceding a Payment Date. Holders must
surrender Promissory Notes to the Corporation to collect the final principal
and interest payment due at the Date of Maturity. The Corporation shall pay
principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts. The
Corporation, however, may pay principal and interest by its check payable
in such money. It may mail interest or principal checks to a registered
holder's registered address.
4. REDEMPTION BY THE CORPORATION
This Promissory Note may not be redeemed by the Corporation prior to the
Date of Maturity.
5. TRANSFER
This Promissory Note may not be sold, transferred or otherwise disposed
of without the Corporation's prior written consent and in no event in the
absence of registration under the Securities Act of 1933 and applicable state
securities laws or an exemption from such registration under the Securities
Act of 1933 or applicable state law. This Promissory Note may not be
transferred to a person that is not a bona fide resident of the state of
Michigan during the nine month period following the date of this Promissory
Note.
6. PERSONS DEEMED OWNERS
The registered holder of a Promissory Note will be treated as the owner
of such Promissory Note for all purposes.
7. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed for
two years, the Corporation may hold such funds until a holder entitled to the
money contacts the Corporation for payment, unless an abandoned property law
designates another person.
<PAGE>
8. DEFAULTS AND REMEDIES
An Event of Default shall be deemed to occur if: (a) the Corporation
defaults in the payment of interest on this Promissory Note when the same
becomes due and payable and a default continues for a period of 30 days;
(b) the Corporation defaults in the payment of principal on this Promissory
Note when the same becomes due and payable and continues for a period of
30 days; (c) the Corporation, pursuant to or within the meaning of any
Bankruptcy Law commences a voluntary case, consents to the entry of an order
for relief against it in an involuntary case, consents to the appointment of
a Custodian of it or for any substantial part of its property, makes a
general assignment for the benefit of its creditors, or fails generally to
pay its debts as they become due; or in a court of competent jurisdiction
enters an order or decree under any Bankruptcy Law that is for relief against
the Corporation in an involuntary case, appoints a custodian of the
Corporation or for any substantial part of its property or orders a
liquidation of the Corporation, any order or decree remains unstayed and in
effect for a period of at least 90 days. The term Bankruptcy Law shall mean
Title 11, United States Code, or any similar federal or state law for the
relief of debtors. The term "Custodian" means any receiver, trustee,
assignee, liquidator or any similar official under any Bankruptcy Law. If
an Event of Default occurs and is continuing, a holder of a Promissory Note
by notice to the Corporation may declare the principal of and accrued interest
on the Promissory Note to be due and payable immediately. Upon such
declaration, such principal and interest shall be due and payable immediately.
9. NO RECOURSE AGAINST OTHERS
A director, officer, employee, or shareholder, as such, of the
Corporation shall not have any liability for any obligations of the
Corporation under the Promissory Notes or for any claim based on, in respect
of or by reason of such obligation or its creation. Each holder by accepting
a Promissory Note waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Promissory Notes.
10. ABBREVIATIONS
Customary abbreviations may be used in the name of a holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minor
Act).
<PAGE>
TRANSFER OF PROMISSORY NOTE
I or we assign and transfer to:
______________________________________
______________________________________
______________________________________
(Print or type name, address, and zip code of assignee,
including social security number or federal identification
number)
this Promissory Note and irrevocably appoint _____________________________
______agent to transfer this Promissory Note on the books of the Corporation.
The agent may substitute another to act for him.
Dated:_________________________
Signed:________________________
(Signature must be guaranteed by a bank
through its officer or by a member firm
of a major stock exchange.)
THE SALE, TRANSFER, OR OTHER DISPOSITION OF THIS PROMISSORY NOTE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS PROMISSORY NOTE MAY
NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT OF 1933.
THIS PROMISSORY NOTE HAS BEEN OFFERED FOR SALE ONLY IN THE STATE OF
MICHIGAN TO BONA FIDE RESIDENTS OF THE STATE OF MICHIGAN AND MAY NOT BE
SOLD OR TRANSFERRED TO ANY PERSON WHO IS NOT A BONA FIDE RESIDENT OF THE
STATE OF MICHIGAN FOR A PERIOD OF AT LEAST NINE CONSECUTIVE MONTHS FROM
THE DATE OF THIS PROMISSORY NOTE. THIS PROMISSORY NOTE MAY NOT BE SOLD OR
TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF FIRST MANISTIQUE
CORPORATION.
<PAGE>
FIRST AMENDMENT TO AFFILIATION AGREEMENT AND
CONSOLIDATION AGREEMENT
This is the First Amendment, dated January 30, 1996, to a certain
Affiliation Agreement and Plan of Reorganization between First Manistique
Corporation ("FMC") and South Range State Bank ("Bank") dated August 30, 1995
(Affiliation Agreement) and the Consolidation Agreement between Bank and the
New Bank of South Range ("New Bank") and joined in by FMC dated December 14,
1995. Except as specifically otherwise provided in this Amendment capitalized
terms have the same meanings as stated in the Affiliation Agreement and the
Consolidation Agreement.
This First Amendment is made pursuant to the provisions of the
Affiliation Agreement and the Consolidation Agreement permitting amendment to
those agreements either before or after approval of the Affiliation Agreement
and the Consolidation Agreement by the Bank's shareholders as long as FMC and
the Board of Directors of the Bank determine that the amendment does not and
will not have a material adverse affect on the Bank's shareholders. The
parties have determined that the transaction should be structured in such a
way that the New Bank is consolidated with and into the Bank and under the
charter of the Bank rather than as initially provided in the Affiliation
Agreement and Consolidation Agreement for the New Bank and the Bank to be
consolidated under the charter of New Bank. The parties have determined to
their satisfaction, including the satisfaction of FMC and the Board of
Directors of the Bank, that this Amendment does not and will not materially
adversely affect the Bank's shareholders. Accordingly, the parties have
agreed as follows:
1. Section 1.2 of the Affiliation Agreement and Section 1 of the
Consolidation Agreement are hereby amended to provide that the consolidation
of the Bank with the New Bank shall be under the charter of the Bank.
2. Section 2 of the Consolidation Agreement is hereby amended in its
entirety to read as follows:
"2. Charter. The charter of the Consolidated Bank shall be the
charter of the Bank, with such changes and amendments, if any, as may be
made by this Consolidation Agreement or as may be required in order to
conform such charter with the provisions of this Consolidation Agreement."
3. Section 9(a) and Section 9(b) of the Consolidation Agreement are
amended in their entirety to read as follows:
"(a) Shares of the New Bank. At the Consolidation Date, the share
of the New Bank, par value $20.00 per share, issued and outstanding shall
be canceled and the capital of the New Bank shall become surplus of the
Bank.
<PAGE>
(b) Issuance of Consolidated Bank Stock. At the Consolidation
Date, the Consolidated Bank shall issue 19,500 shares, par value $20.00
per share, to FMC in consideration of the FMC Notes and cash payments to
be issued and tendered to the shareholders of the Bank under the terms
of this Consolidation Agreement, and the capital and surplus of the Bank
shall remain as capital and surplus of the Consolidated Bank."
4. All provisions, conditions and terms in the Affiliation Agreement
and the Consolidation Agreement inconsistent with this First Amendment shall
be and hereby are revised and amended to reflect that the consolidation shall
provide for and be effected pursuant to the consolidation of the New Bank
with and into the Bank and under the charter of the Bank.
5. Except as modified pursuant to this Amendment, the Affiliation
Agreement and the Consolidation Agreement are hereby ratified and confirmed
in all respects.
SOUTH RANGE STATE BANK
Attest:/s/Carlton J. Wyse By /s/Del Harma
Del Harma
Its President
/s/Del Harma /s/Lawrence Julio
Del Harma Lawrence Julio
/s/Robert Nara /s/J. Bernard Coon
Robert Nara J. Bernard Coon
/s/Gerald D. Jukuri /s/Clarence Hocking
Gerald D. Jukuri Clarence Hocking
/s/Donald Turner
Donald Turner
A Majority of the Directors of
South Range State Bank
<PAGE>
NEW BANK OF SOUTH RANGE
Attest:/s/Janet M. Peterson By /s/Ronald G. Ford
Ronald G. Ford
Its President
/s/Ronald G. Ford /s/Sherry Littlejohn
Ronald G. Ford Sherry Littlejohn
/s/Richard B. Demers
Michael C. Henrickson Richard B. Demers
/s/John Lindroth
John Lindroth
A Majority of the Directors of
New Bank of South Range
FIRST MANISTIQUE
CORPORATION
Attest: /s/Janet M. Peterson By /s/Ronald G. Ford
Ronald G. Ford
Its President
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Report on Form 8-K of First Manistique
Corporation of our report dated January 5, 1996 on the 1995 financial
statements of South Range State Bank, included herein.
/s/CROWE, CHIZEK AND COMPANY LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
February 12, 1996
