<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------------
FIRST FINANCIAL BANCORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------
<TABLE>
<S> <C> <C>
OHIO 6711 31-1042001
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
-------------------------
THIRD AND HIGH STREETS
HAMILTON, OHIO 45011
(513) 867-4700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------------------------
MICHAEL R. O'DELL
COMPTROLLER
FIRST FINANCIAL BANCORP.
THIRD AND HIGH STREETS
HAMILTON, OHIO 45011
(513) 867-4700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------------------------
Copy to:
NEIL GANULIN
FROST & JACOBS
2500 PNC CENTER
201 EAST FIFTH STREET
CINCINNATI, OHIO 45202
(513) 651-6800
----------------------------------
Approximate date of commencement of proposed
sale to the public: As soon as practicable after the
effective date of this Registration Statement.
----------------------------------
If the securities being registered on this Form are being
offered in connection with the formation of a holding
company and there is compliance with General Instruction G,
check the following box: / /
CALCULATION OF REGISTRATION FEE
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<CAPTION>
=========================================================================================
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM
CLASS OF OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED UNIT (1) PRICE (1) FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$8.00 per share 400,000 $34.50 $13,800,000 $4,759.00
=========================================================================================
</TABLE>
(1) ESTIMATED IN ACCORDANCE WITH RULE 457(f)(1) SOLELY FOR THE PURPOSE OF
CALCULATING THE REGISTRATION FEE.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
FIRST FINANCIAL BANCORP. CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-4 ITEM PROXY STATEMENT CAPTION
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<S> <C> <C>
1. Forepart of Registration Facing Page of Registration Statement; Cross Reference Sheet;
Statement and Outside Front Cover Outside Front Cover Page of Proxy Statement-Prospectus;
Page of Prospectus Introduction
2. Inside Front and Outside Back Available Information; Documents Incorporated by Reference;
Cover Pages of Prospectus Table of Contents
3. Risk Factors, Ratio of Earnings Introduction; Summary; Comparative Market and Dividend
to Fixed Charges and Other Information; Principal Shareholders and Ownership By Management
Information
4. Terms of the Transaction Summary; Description of the Merger; Comparison of Common Stock
and Shareholders' Rights
5. Pro Forma Financial Information Pro Forma Consolidated Balance Sheet; Pro Forma Condensed
Consolidated Statements of Earnings; Pro Forma Consolidated
Selected Financial Data
6. Material Contacts with the Summary; Description of the Merger
Company Being Acquired
7. Additional Information Required Not Applicable
for Reoffering by Persons and
Parties Deemed to Be Underwriters
8. Interests of Named Experts and Not Applicable
Counsel
9. Disclosure of Commission Position Not Applicable
on Indemnification for Securities
Act Liabilities
10. Information with Respect to S-3 Not Applicable
Registrants
11. Incorporation of Certain Not Applicable
Information by Reference
12. Information with Respect to S-2 Documents Incorporated By Reference; Information About Bancorp;
or S-3 Registrants Comparative Market And Dividend Information
13. Incorporation of Certain Documents Incorporated By Reference
Information by Reference
14. Information with Respect to Not Applicable
Registrants Other Than S-3 or S-2
Registrants
15. Information with Respect to S-3 Not Applicable
Companies
16. Information with Respect to S-2 Not Applicable
or S-3 Companies
17. Information with Respect to Information About the Business of F&M; F&M's Consolidated
Companies Other than Financial Statements; Management's Discussion and Analysis of
S-3 or S-2 Companies Financial Condition and Results of Operations of F&M;
Comparative Market and Dividend Information; Comparison of
Common Stock and Shareholders' Rights
18. Information if Proxies, Consents Notice of Special Meeting of Shareholders; Documents
or Authorizations are to be Incorporated By Reference; Introduction; Summary; Description
Solicited of the Merger; Principal Shareholders and Ownership By
Management; Information About the Business of F&M
19. Information if Proxies, Consents Not Applicable
or Authorizations are not to be
Solicited or in an Exchange Offer
</TABLE>
<PAGE> 3
____________, 1996
Dear Fellow Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Special Meeting") of F & M Bancorp ("F&M") to be held on _________ __,
1996 at 3:00 p.m. local time. At the Special Meeting, you will be asked to
consider and vote on a proposal to approve the Plan and Agreement of Merger
dated September 11, 1995 (the "Merger Agreement") between First Financial
Bancorp. ("Bancorp") and F&M, pursuant to which F&M will merge with and into
Bancorp (the "Merger"). Upon consummation of the Merger, the number of Bancorp
shares to which the holders of F&M shares shall be entitled shall be determined
by dividing $12,500,000 by the per share value of Bancorp shares, which figure
will be determined and adjusted in accordance with and as specified in the
Merger Agreement, as summarized in the accompanying Proxy Statement-Prospectus.
The Merger Agreement has been unanimously approved by your Board of
Directors and is recommended by the Board to you for approval. The enclosed
Notice of Special Meeting and Proxy Statement-Prospectus include a description
of the proposed Merger and provide specific information concerning the
transaction. Please read these materials and consider carefully the information
set forth in them.
Whether or not you plan to attend the Special Meeting, you are urged to
complete, sign, and promptly return the enclosed proxy form. If you attend the
Special Meeting, you may vote in person if you wish, even if you have previously
returned your proxy. The Merger is a significant step for F&M and your vote on
this matter is of great importance.
On behalf of the Board of Directors, I recommend that you vote for
approval of the Merger by marking the enclosed proxy form "FOR" in item
one.
Sincerely,
William J. Gordon
President and
Chief Executive Officer
<PAGE> 4
F & M BANCORP
729 MAIN STREET
ROCHESTER, INDIANA 46975-0567
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ______ __, 1996
Notice is hereby given that a Special Meeting of Shareholders (the
"Special Meeting") of F & M Bancorp ("F&M") will be held at the Main Office of
Farmers & Merchants Bank, 729 Main Street, Rochester, Indiana 46975-0567, on
_______ __, 1996 at 3:00 p.m. local time, to consider and act upon the following
matters, each of which is more completely set forth in the accompanying Proxy
Statement-Prospectus:
1. The approval of the Plan and Agreement of Merger dated
September 11, 1995 by and between First Financial Bancorp. ("Bancorp")
and F&M, a copy of which is attached hereto as Appendix A (the "Merger
Agreement"), and the transactions contemplated thereby, including the
merger of F&M with and into Bancorp (the "Merger"), pursuant to which
the following will occur on the effective date of the Merger (the
"Effective Time"):
(a) Each of the outstanding shares of F&M will be canceled
and extinguished in consideration and exchange for a
number of shares of Bancorp specified by the Merger
Agreement;
(b) F&M will merge with and into Bancorp at the Effective
Time and Bancorp will be the continuing, surviving and
resulting corporation in the Merger; and
(c) Farmers & Merchants Bank ("Farmers & Merchants"),
F&M's only subsidiary, will merge with and into
Indiana Lawrence Bank ("Indiana Lawrence"), a wholly
owned subsidiary of Bancorp, and Indiana Lawrence will
be the continuing, surviving and resulting corporation
in the Merger.
2. A proposal to permit the Special Meeting to be adjourned or
postponed, in the discretion of the proxies, which adjournment or
postponement could be used for the purpose, among others, of allowing
time for the solicitation of additional votes to approve the Merger
Agreement.
3. A proposal to divide the members of the Board of Directors
of F&M into three groups, as nearly equal in number as possible, with
the term of the first group to expire at the 1996 annual meeting of F&M
shareholders, the term of the second group to expire at the 1997 annual
meeting and the term of the third group to expire at the 1998 annual
meeting; and to ratify all actions of the Board of Directors of F&M
taken prior to the division of its members into three groups.
4. The transaction of such other business as may properly come
before the Special Meeting or any adjournment thereof.
Only shareholders of record at the close of business on ______ __,
1995, are entitled to receive notice of and to vote at the Special Meeting or
any adjournment thereof. Shareholders of F&M entitled to vote at the Special
Meeting may dissent from the Merger and obtain payment of the value of their F&M
Common Stock in the manner provided under Indiana Code Chapter 23-1-44, a copy
of which is attached hereto as Appendix C.
Whether or not you plan to attend the Special Meeting, please complete,
date, and sign the enclosed proxy form and return it at once in the stamped
return envelope. The submission of such Proxy does not affect your right to vote
in person in the event that you attend the Special Meeting.
By order of the Board of Directors
-----------------------------------
George R. Hoover, Secretary
Rochester, Indiana
______ __, 1996
<PAGE> 5
F & M BANCORP
Proxy Statement For Special Meeting of Shareholders
To be Held _______ __, 1996
-------------------------
FIRST FINANCIAL BANCORP.
Prospectus
Up to 400,000 Shares of Common Stock, Par Value $8.00 Per Share
This Proxy Statement-Prospectus is being furnished to the shareholders
of F & M Bancorp ("F&M") in connection with the solicitation by the Board of
Directors of F&M of proxies for use at the Special Meeting of Shareholders
("Special Meeting") to be held _______ __, 1996, at 3:00 p.m., local time, at
the Main Office of Farmers & Merchants Bank, 729 Main Street, Rochester, Indiana
46975-0567, and at any adjournments thereof. This Proxy Statement-Prospectus and
the accompanying form of Proxy are being mailed to F&M's shareholders on or
about _______ __, 1995.
This Proxy Statement-Prospectus is also the prospectus of First
Financial Bancorp., an Ohio corporation ("Bancorp"), in respect of up to 400,000
shares of Bancorp's Common Stock, par value $8.00 per share (the "Bancorp Common
Stock"), to be issued in connection with the merger of F&M with and into Bancorp
(the "Merger"). Bancorp will be the surviving entity. Farmers & Merchants Bank,
the bank subsidiary wholly owned by F&M, will then merge with and into Indiana
Lawrence Bank, a wholly owned subsidiary of Bancorp (the "Subsidiary Merger"),
and Indiana Lawrence Bank will be the continuing, surviving and resulting
corporation in the Subsidiary Merger.
As a result of the Merger, the aggregate consideration to be received
by all F&M shareholders is fixed in the Merger Agreement at $12,500,000, payable
in shares of Bancorp Common Stock. The total number of shares of Bancorp Common
Stock to be issued as a result of the Merger (the "Deliverable Shares") will be
determined and adjusted in accordance with and as specified in the Merger
Agreement, as summarized in "DESCRIPTION OF THE MERGER--Exchange Ratio." Each
shareholder of F&M who does not dissent to the Merger will be entitled to
receive a number of shares of Bancorp Common Stock equal to the Deliverable
Shares multiplied by a fraction, the numerator of which is the number of F&M
Shares held by that shareholder immediately prior to the Effective Time and the
denominator of which is the number of F&M Shares outstanding immediately prior
to the Effective Time.
The Merger will constitute a "reorganization" for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, as a general rule, no gain or loss should be recognized by
shareholders of F&M to the extent such shareholders exchange their securities
solely for Bancorp Common Stock in the Merger. See "DESCRIPTION OF THE
MERGER-Federal Income Tax Consequences of the Merger."
The closing sales price of Bancorp Common Stock on _______ __, 1996 was
$__.__ per share. The Merger may be terminated by Bancorp if the average price
of Bancorp Common Stock, as defined in the Merger Agreement, (the "Average
Price") falls below $28.48 per share or by F&M if the Average Price of Bancorp
Common Stock exceeds $38.53 per share.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement-Prospectus and, if given or
made, such information or representation should not be relied upon as having
been authorized. This Proxy Statement-Prospectus does not constitute an offer to
sell, or a solicitation of an offer to purchase, the securities offered by this
Proxy Statement-Prospectus, or the solicitation of a proxy, in any jurisdiction
in which, or from any person to whom, it is unlawful to make such offer, or
solicitation of an offer, or proxy solicitation. Neither the delivery of this
Proxy Statement-Prospectus nor any distribution of the securities offered
pursuant to this Proxy Statement-Prospectus shall, under any circumstances,
create an implication that there has been no change in the information set forth
herein or in the affairs of F&M or Bancorp since the date of the Proxy
Statement-Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT ENTITY.
-------------------------
The date of this Proxy Statement-Prospectus is _______ __, 1996.
<PAGE> 6
AVAILABLE INFORMATION
Bancorp has filed a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with the Securities and Exchange Commission (the "SEC") with
respect to the Bancorp Common Stock to be issued in connection with the Merger.
As permitted by the rules and regulations of the SEC, this Proxy
Statement-Prospectus omits certain information contained in the Registration
Statement. Copies of that information may be obtained from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of the prescribed fees.
In addition, Bancorp is subject to the informational, reporting and
proxy statement requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the SEC. Copies of such reports, proxy
statements and other information can be obtained, at prescribed rates, from the
SEC by addressing written requests for such copies to the Public Reference
Section at 450 Fifth Street, N.W., Washington, D.C. 20549. Such reports, proxy
statements and other information can be inspected at the public reference
facilities referred to above and at the regional offices of the SEC as follows:
New York Regional Office Chicago Regional Office
7 World Trade Center Northwestern Atrium Center
Suite 1300 500 West Madison Street
New York, New York 10048 Suite 1400
Chicago, Illinois 60661
Bancorp Common Stock is traded in the over-the-counter market and
quoted on the Nasdaq National Market System. Documents filed by Bancorp with the
SEC can also be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
F&M is not subject to the requirements of the Exchange Act.
DOCUMENTS INCORPORATED BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE
WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST FROM MICHAEL R. O'DELL, COMPTROLLER,
FIRST FINANCIAL BANCORP., THIRD AND HIGH STREETS, HAMILTON, OHIO 45011.
TELEPHONE REQUESTS MAY BE DIRECTED TO BANCORP AT (513) 867-4700. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY ________
__, 199_.
<PAGE> 7
The following documents previously filed with the SEC by Bancorp are
hereby incorporated by reference herein:
1. Bancorp's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (the "Bancorp Form 10-K"); and
2. Bancorp's Quarterly Report on Form 10-Q for the quarters ended
March 31, June 30 and September 30, 1995.
3. The following information set forth in the 1994 Annual Report
of Bancorp to its shareholders:
(a) The information in the table set forth on page 42
under the caption "Quarterly Financial And Common
Stock Data."
(b) The information in the table set forth on page 17
under the caption "Table 1 - Financial Summary."
(c) The information set forth on pages 16 through 24 under
the caption "Management's Discussion And Analysis Of
Financial Condition And Results Of Operations."
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement-Prospectus to the extent that a statement
contained herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement-Prospectus.
This Proxy Statement-Prospectus is accompanied by Bancorp's 1994 Annual
Report to Shareholders and Bancorp's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995.
Following the Merger, Bancorp will continue to be subject to the
informational, reporting and proxy statement requirements of the Exchange Act.
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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INTRODUCTION
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Record Date, Solicitation And Revocability Of Proxy . . . . . . . . . . . . . . . . 4
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Shares Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Shareholder Proposals To Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SUMMARY
Terms Of The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Reasons For The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Approval Of Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Summary Of Selected Unaudited Financial Data And Per Share Data . . . . . . . . . . 12
Selected Unaudited Consolidated Financial Data And Per Share Data . . . . . . . . . 13
Notes To Selected Unaudited Consolidated Financial Data And Per Share Data . . . . 15
DESCRIPTION OF THE MERGER
Background And Reasons For The Merger . . . . . . . . . . . . . . . . . . . . . . . 17
Opinion Of Financial Advisor To F&M . . . . . . . . . . . . . . . . . . . . . . . . 19
Structure Of The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Deliverable Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Surrender Of Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Fractional Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Effective Time Of The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Conditions To Consummation Of The Merger . . . . . . . . . . . . . . . . . . . . . . 25
Termination Of The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Management Following The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Interest Of Certain Persons In The Merger . . . . . . . . . . . . . . . . . . . . . 27
Shareholders' Rights Of Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . 29
Federal Income Tax Consequences Of The Merger . . . . . . . . . . . . . . . . . . . 31
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Regulatory Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Pro Forma Unaudited Financial Information . . . . . . . . . . . . . . . . . . . . . 34
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET . . . . . . . . . . . . . . . . . . . . . . . 35
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS . . . . . . . . . . . . . . . . . . . 36
NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . 41
INFORMATION ABOUT BANCORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
INFORMATION ABOUT THE BUSINESS OF F&M
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Analysis Of Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Interest Income And Expense Rate/Volume Analysis . . . . . . . . . . . . . . . . . . 48
Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Return On Equity And Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
INFORMATION ABOUT THE MANAGEMENT OF F&M
F&M's Board Of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Board Meetings And Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Executive Officers Of F&M . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Certain Transactions With F&M . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
F & M Bancorp--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR YEARS ENDED APRIL 30, 1995, 1994 AND 1993 . . . . . . . . . . . . . . . . . 58
</TABLE>
1
<PAGE> 9
TABLE OF CONTENTS CONTINUED
<TABLE>
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F&M CONSOLIDATED FINANCIAL STATEMENTS
Report Of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets - April 30, 1995 And 1994 . . . . . . . . . . . . . . . F-3
Consolidated Statements Of Income -
Years Ended April 30, 1995, 1994 And 1993 . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements Of Changes In Shareholders' Equity -
Years Ended April 30, 1995, 1994 And 1993 . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements Of Cash Flows -
Years Ended April 30, 1995, 1994 And 1993 . . . . . . . . . . . . . . . . . . . . F-6
Notes To Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . F-7
F & M Bancorp--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE SIX MONTHS ENDED OCTOBER 31, 1995 AND 1994 . . . . . . . . . . . . . . 64
F&M CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet - October 31, 1995 . . . . . . . . . . . . . . . . . . . 69
Consolidated Statements Of Income -
Six Months Ended October 31, 1995 And 1994 . . . . . . . . . . . . . . . . . . . . 70
Consolidated Statements Of Changes In Shareholders' Equity -
Six Months Ended October 31, 1995 And 1994 . . . . . . . . . . . . . . . . . . . . 71
Consolidated Statements Of Cash Flows -
Six Months Ended October 31, 1995 And 1994 . . . . . . . . . . . . . . . . . . . . 72
Notes To Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 73
PRINCIPAL SHAREHOLDERS AND OWNERSHIP BY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . 76
COMPARATIVE MARKET AND DIVIDEND INFORMATION
Nature of Trading Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
COMPARISON OF COMMON STOCK AND SHAREHOLDERS' RIGHTS
Authorized But Unissued Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Dividend Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Quorum For Shareholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 80
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Liquidation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Redemption And Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Amendments To Articles And Code Of Regulations/By-Laws . . . . . . . . . . . . . . . 81
Seventy-Five Percent (75%) Affirmative Shareholder Vote Required . . . . . . . . . . 81
Restrictions On Resale Of Bancorp Common Stock . . . . . . . . . . . . . . . . . . . 81
Bancorp Shareholder Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 82
ADJOURNMENT OF THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
APPENDICES
Plan and Agreement of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix A
Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix B
Indiana Code Chapter 23-1-44. Dissenters' Rights . . . . . . . . . . . . . . . . . Appendix C
</TABLE>
2
<PAGE> 10
INTRODUCTION
General
This Proxy Statement-Prospectus and the accompanying form of proxy are
being furnished to the shareholders of F & M Bancorp ("F&M") in connection with
the solicitation of proxies by the Board of Directors of F&M for use at the
Special Meeting of Shareholders ("Special Meeting") to be held on ______ __,
1996, at 3:00 p.m. local time.
At the Special Meeting, F&M shareholders will be asked to approve the
Plan and Agreement of Merger dated September 11, 1995 by and between F&M and
First Financial Bancorp. ("Bancorp"), a copy of which is attached hereto as
Appendix A (the "Merger Agreement"), and the transactions contemplated thereby.
If the Merger Agreement is approved by the shareholders of F&M at the Special
Meeting by at least a 75% majority vote of the outstanding F&M shares and if
certain other conditions to the consummation of the transactions contemplated by
the Merger Agreement, including the receipt of all required regulatory
approvals, are satisfied or are waived on or before April 1, 1996, F&M will
merge (the "Merger") with Bancorp in a transaction in which the following will
occur on the date upon which the Merger becomes effective (the "Effective
Time"):
(a) The outstanding shares of F&M common stock, without par value
(the "F&M Common Stock"), will be surrendered to Bancorp in
consideration and exchange for a number of Bancorp common
shares, par value $8.00 per share (the "Bancorp Common Stock").
The number of shares of Bancorp Common Stock to which the
holders of F&M Common Stock shall be entitled as a result of
the Merger (the "Deliverable Shares") shall be determined by
dividing $12,500,000 by the mathematical average of the closing
prices for Bancorp Common Stock on the National Association of
Securities Dealers Automated Quotations System - National
Market System ("Nasdaq") for each of the twenty consecutive
trading days on which more than 200 shares of Bancorp Common
Stock are traded ending on the second trading day prior to the
Effective Time (the "Average Price").
(b) F&M will merge with and into Bancorp at the Effective Time and
Bancorp will be the continuing, surviving and resulting
corporation in the Merger.
(c) Farmers & Merchants Bank ("Farmers & Merchants"), F&M's only
subsidiary, will merge with and into Indiana Lawrence Bank
("Indiana Lawrence"), a wholly owned subsidiary of Bancorp (the
"Subsidiary Merger"), and Indiana Lawrence will be the
continuing, surviving and resulting corporation in the
Subsidiary Merger.
3
<PAGE> 11
On _______ __, 1996, the last trading date before the printing of the
Proxy Statement-Prospectus, the closing sales price of a share of Bancorp Common
Stock equalled $______. If ___________ __, 1996 were the Effective Time, the
Average Price would have been $_________, the Deliverable Shares of Bancorp
Common Stock issued in exchange for all shares of F&M Common Stock would have
been ____________ and each share of F&M Common Stock would have been exchanged
for ____________ shares of Bancorp Common Stock (the "Exchange Ratio"). The
Average Price of Bancorp Common Stock on ___________ __, 1996 is presented for
illustrative purposes only and may not be indicative of the Average Price at the
Effective Time.
A copy of the Merger Agreement, with Exhibits, setting forth the terms
of the Merger is attached to this Proxy Statement-Prospectus as Appendix A and
is incorporated herein by reference.
The Board of Directors of F&M has unanimously approved the Merger and
recommends that F&M shareholders vote FOR the approval of the Merger.
The principal executive office of F&M is located at 729 Main Street,
Rochester, Indiana 46975-0567. The telephone number of F&M's principal executive
office is (219) 223-3105.
The principal executive office of Bancorp is located at Third and High
Streets, Hamilton, Ohio 45011. The telephone number of Bancorp's principal
executive office is (513) 867-4700.
Record Date, Solicitation And Revocability Of Proxy
The Board of Directors of F&M has established the close of business on
_______ __, 199_ as the record date (the "Record Date") for the determination of
the F&M shareholders entitled to receive notice of and to vote at the Special
Meeting. Only F&M shareholders of record on the Record Date will be entitled to
notice of and to vote at the Special Meeting. Shares represented by properly
executed proxies, if such proxies are received before or at the Special Meeting
and not revoked, will be voted at the Special Meeting in accordance with
instructions indicated in such proxies. If no such instructions are given,
shares represented by such proxies will be voted:
FOR approval of the Merger Agreement;
FOR the adjournment of the Special Meeting in the event that a
sufficient number of votes necessary to approve the foregoing proposal
is not received;
FOR the division of the members of the Board of Directors of
F&M into three groups, as nearly equal in number as possible, with the
terms of the first, second and third groups to expire at the 1996, 1997
and 1998 annual meetings of F&M shareholders, respectively; and the
ratification of all actions of the Board of Directors of F&M taken
prior to the division of its members into three groups.
4
<PAGE> 12
In the discretion of the proxy holders on any other matter which may
properly come before the Special Meeting.
A shareholder who has given a proxy may revoke it at any time before
the Proxy is exercised by giving written notice of revocation to the Secretary
of F&M, by executing a later dated proxy, by attending and voting in person or
by giving F&M notice of revocation in writing addressed to and received by F&M
before the Special Meeting. All written notices of revocation and other
communication with respect to revocation of proxies should be addressed to F&M
as follows: F & M Bancorp, 729 Main Street, Rochester, Indiana 46975-0567,
Attention: George R. Hoover, Secretary.
The cost of the solicitation of proxies will be borne by F&M. F&M has
not specially engaged employees or paid solicitors to aid in the solicitation of
proxies, but will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of F&M Common Stock. In addition to solicitation by
mail, directors, officers and regular employees of F&M may solicit proxies
personally or by telegraph or telephone, without additional compensation.
F&M shareholders are requested to complete, date and sign the
accompanying proxy form and return it promptly to F&M in the enclosed postage
paid envelope.
Vote Required
APPROVAL OF MERGER. The affirmative vote of the holders of at least 75%
of the outstanding shares of F&M Common Stock entitled to vote at the Special
Meeting is required for approval of the Merger Agreement. Abstentions or
non-votes are counted as present; however, the effect of an abstention or a
non-vote is the same as a "no" vote.
No shareholder vote on the Merger is required by the shareholders of
Bancorp.
APPROVAL OF ADJOURNMENT. The affirmative vote of the holders of a
majority of the shares of F&M Common Stock represented in person or by proxy at
the Special Meeting will be required for approval of the adjournment in the
event that a sufficient number of votes necessary to approve the foregoing
proposals is not received. The effect of an abstention or a non-vote for
purposes of the vote required to approve the adjournment is the same as a "no"
vote.
APPROVAL OF DIVISION OF BOARD OF DIRECTORS. The affirmative vote of the
holders of a majority of the shares of F&M Common Stock will be required for
approval of the division of F&M's Board of Directors into three groups and the
ratification of all actions of the Board of Directors of F&M taken prior to the
division of its members into three groups. The effect of an abstention or a
non-vote for purposes of the vote required to approve the division of the Board
of Directors and the ratification of the Board's prior actions is the same as a
"no" vote.
5
<PAGE> 13
Shares Outstanding
At the close of business on the Record Date, there were 5,633 shares of
F&M Common Stock outstanding and entitled to vote, with each share being
entitled to one vote, and there were 100 holders of record of shares of F&M
Common Stock. On such date, the directors and executive officers of F&M as a
group beneficially owned 3,021 shares, an amount equal to 53.63% of the shares
of F&M Common Stock issued and outstanding on such date. The directors and
executive officers have indicated their intention to vote for the Merger. See
"DESCRIPTION OF THE MERGER--Interests Of Certain Persons In The Merger" and
"PRINCIPAL SHAREHOLDERS AND OWNERSHIP BY MANAGEMENT."
Other Matters
Both Article VII, Section 7.3 of the Articles of Incorporation of F&M
and Article III, Section 2 of the By-Laws of F&M (the "Provisions") require that
the Board of Directors of F&M be divided into three groups, each group to be
composed of three directors. The Provisions further require that each group of
directors serve for a term of three years, with one group to stand for
reelection at each annual meeting of the shareholders of F&M. The Board of
Directors of F&M, however, has not previously been divided into three groups
and, as a result, each individual previously elected to serve as a member of the
Board of Directors of F&M has served for only a one-year period. In order to
resolve this discrepancy, the Board of Directors of F&M has proposed that the
shareholders of F&M approve the division of the Board into three groups, as
nearly equal in number as possible, with terms of the three groups to expire at
the 1996, 1997 and 1998 annual meetings of the shareholders of F&M,
respectively. As a result, subject to the approval of the shareholders of F&M,
the terms of the current members of the Board of Directors of F&M will be as
follows:
Terms Expiring at 1996 Annual Meeting
Wendell B. Bearss
H. Robert Bradley
Carol J. Bridge
Terms Expiring at 1997 Annual Meeting
William J. Gordon
J. Frederick Hoffman
Terms Expiring at 1998 Annual Meeting
Robert E. Peterson
V. Lorene Rauschke
Although the shareholders of F&M may approve the division of the Board
of Directors of F&M as described above, if the Merger is consummated the
directors of F&M will resign as of the Effective Time and will not become
members of the Board of Directors of Bancorp.
The shareholders of F&M also will vote on whether to ratify all actions
of the Board of Directors of F&M taken prior to the division of its members into
three groups.
6
<PAGE> 14
The Board of Directors of F&M is not aware of any other business to
come before the Special Meeting other than the matters described above in the
Proxy Statement-Prospectus. However, if any other matters should properly come
before the Special Meeting, the holders of the proxies will act in accordance
with their best judgment.
Shareholder Proposals To Bancorp
If an eligible shareholder wishes to present a proposal for action at
the 1997 Annual Meeting of Bancorp, it shall be presented to management by
certified mail, written receipt requested, not later than November 16, 1996, for
inclusion in Bancorp's Proxy Statement and form of Proxy relating to that
meeting. Any such proposal must comply with Rule 14a-8 promulgated by the
Securities and Exchange Commission pursuant to the Exchange Act. Proposals shall
be sent to First Financial Bancorp., Attention: Mike O'Dell, Comptroller, 300
High Street, P.O. Box 476, Hamilton, Ohio 45012-0476.
7
<PAGE> 15
SUMMARY
The following is a brief summary of certain information in respect of
matters to be considered at the Special Meeting of F&M shareholders and is not
intended to be a complete statement of all material facts regarding the matters
to be considered at the Special Meeting. The Summary is qualified in its
entirety by reference to the more detailed information contained elsewhere in
this Proxy Statement-Prospectus, the accompanying appendices and the documents
incorporated herein by reference.
Terms Of The Merger Agreement
The Deliverable Shares to which F&M shareholders shall be entitled as a
result of the Merger shall be determined by dividing $12,500,000 by the Average
Price. In the event of the subdivision or split of the outstanding Bancorp
shares, the payment of a dividend in Bancorp shares or a capital reorganization
affecting the closing price for Bancorp shares during some but not all of said
trading days, the number of Deliverable Shares will be adjusted proportionately
so that the holders of outstanding F&M shares shall receive the number of
Bancorp shares that represents the same percentage of the value of outstanding
Bancorp shares at the Effective Time as would have been represented by the
number of shares such shareholders would have received if the event had not
occurred. Each holder of F&M shares shall be entitled to a portion of the
Deliverable Shares that is equal to the number of Deliverable Shares multiplied
by a fraction, the numerator of which is the number of F&M shares held by that
shareholder immediately prior to the Effective Time and the denominator of which
is the number of F&M shares outstanding immediately prior to the Effective Time.
Reasons For the Merger
The Board of Directors of F&M believes that the Merger is in the best
interests of F&M and its shareholders. The Board of Directors' recommendation is
based on a number of factors discussed in this Proxy Statement-Prospectus. See
"DESCRIPTION OF THE MERGER--Background And Reasons For The Merger." These
factors include the costs of regulatory compliance and technological
advancements and increased competition in the financial services industry.
8
<PAGE> 16
Approval Of Merger Agreement
PARTIES TO THE MERGER AGREEMENT. Bancorp is a corporation organized
under the laws of the State of Ohio and is registered as a bank holding company
as well as a savings and loan holding company. Its principal executive offices
are located in Hamilton, Ohio. Bancorp owns ten commercial banking subsidiaries
- -First National Bank of Southwestern Ohio, Hamilton, Ohio; Citizens Commercial
Bank & Trust Company, Celina, Ohio; Van Wert National Bank, Van Wert, Ohio;
Union Trust Bank, Union City, Indiana; Indiana Lawrence Bank, North Manchester,
Indiana; Citizens First State Bank, Hartford City, Indiana; Union Bank and Trust
Company, North Vernon, Indiana; Clyde Savings Bank Co., Clyde, Ohio; Peoples
Bank and Trust Company, Sunman, Indiana; Bright National Bank, Flora, Indiana;
and two savings bank subsidiaries - Fidelity Federal Savings Bank, Marion,
Indiana and Home Federal Bank, a Federal Savings Bank, Hamilton, Ohio. At
September 30, 1995, Bancorp had total assets of approximately $2.0 billion,
deposits of approximately $1.6 billion and shareholders' equity of approximately
$221 million. See Form 10-Q for the quarter ended September 30, 1995 and "Item
1. Business" in the Bancorp Form 10-K, both of which have previously been
incorporated herein by reference.
F&M was organized in 1984 under the laws of the State of Indiana and is
registered as a bank holding company. Its only subsidiary, Farmers & Merchants,
was organized in 1934 under the laws of the State of Indiana and is a state
chartered bank. Farmers & Merchants is engaged in the business of making loans
secured by residential or other real property, and Farmers & Merchants also
makes secured and unsecured consumer and commercial loans. Loan funds are
obtained primarily from deposits and loan principal repayments. In addition to
originating loans, Farmers & Merchants invests in U.S. Treasury and other
government agency securities, corporate notes and municipal securities. Farmers
& Merchants conducts its business through two offices located in Rochester and
one office located in Kewanna, Indiana. Its primary market area consists of the
cities of Rochester and Kewanna, Indiana and the contiguous area within Fulton
County, Indiana.
THE MERGER. If the Merger Agreement is approved by the F&M shareholders
by at least a 75% majority of the outstanding F&M shares and if certain other
conditions to the consummation, including the receipt of all required regulatory
approvals, are satisfied or are waived on or before April 1, 1996, F&M will
merge with and into Bancorp in a transaction in which the following will occur
as of the Effective Time:
(a) The outstanding shares of F&M Common Stock will be surrendered
to Bancorp in consideration and exchange for Bancorp Common
Stock. The Deliverable Shares to which the holders of F&M
Common Stock shall be entitled will be determined by dividing
$12,500,000 by the Average Price.
(b) F&M will merge with and into Bancorp at the Effective Time and
Bancorp will be the continuing, surviving and resulting
corporation in the Merger.
9
<PAGE> 17
(c) Farmers & Merchants will merge with and into Indiana Lawrence,
a wholly owned subsidiary of Bancorp, and Indiana Lawrence will
be the continuing, surviving and resulting corporation in the
Subsidiary Merger.
On _______ __, 1996, the last trading date before the printing of the
Proxy Statement-Prospectus, the closing sales price of a share of Bancorp Common
Stock equalled $______. If ________ __, 1996 were the Effective Time, the
Average Price would have been $_________, the Deliverable Shares of Bancorp
Common Stock issued in exchange for all shares of F&M Common Stock would have
been ____________ and the Exchange Ratio would have equaled ______________
shares. The Average Price of Bancorp Common Stock on ________ __, 1996 is
presented for illustrative purposes only and may not be indicative of the
Average Price at the Effective Time.
There were 5,633 shares of F&M Common Stock outstanding on _______ __,
19__. See "DESCRIPTION OF THE MERGER--Structure Of The Merger" and "--Effective
Time Of The Merger," as well as the copy of the Merger Agreement attached hereto
as Appendix A.
RECOMMENDATION OF THE BOARD OF DIRECTORS. The F&M Board of Directors
has unanimously approved the Merger Agreement and recommends that shareholders
vote FOR approval of the Merger Agreement. See "DESCRIPTION OF THE
MERGER--Background And Reasons For The Merger."
OPINION OF FINANCIAL ADVISOR TO F&M. Professional Bank Services, F&M's
financial advisor, has rendered its opinion to F&M's Board of Directors that, as
of the date of such opinion, the Average Price and Exchange Ratio are fair to
F&M's shareholders from a financial point of view. A copy of Professional Bank
Services' opinion is attached hereto as Appendix B and should be read in its
entirety for information with respect to the qualifications and assumptions
made, other matters considered and limitations on the reviews undertaken. See
"DESCRIPTION OF THE MERGER--Opinion of Financial Advisor To F&M"
RIGHTS OF APPRAISAL. Any shareholder of F&M who delivers before the
shareholders vote a written notice of intent to demand payment for such
shareholder's shares in the manner provided by Indiana Code Chapter 23-1-44 and
who does not vote in favor of the approval of the Merger Agreement shall be
entitled, if and when the Merger becomes effective, and upon strict compliance
with certain procedures set forth in Chapter 23-1-44, a copy of which is
attached hereto as Appendix C, to receive the value of the F&M Common Stock
owned by such shareholder at the time and in the manner set forth in Chapter
23-1-44. See "DESCRIPTION OF THE MERGER--Shareholders' Rights Of Appraisal."
10
<PAGE> 18
FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS. It is anticipated that
the Merger will be a non-taxable reorganization for federal income tax purposes
and that no gain or loss for federal income tax purposes will be recognized by
the shareholders of F&M upon distribution to them of shares of Bancorp. A gain
or loss may be recognized, however, on cash received in place of fractional
shares. Holders of F&M Common Stock, who demand, in accordance with Chapter
23-1-44 of the Indiana Business Corporation Law, to receive cash in exchange for
the shares of F&M Common Stock they actually own or are deemed by the Internal
Revenue Service ("IRS") to own constructively, will recognize a capital gain or
loss on the exchange. See "DESCRIPTION OF THE MERGER--Federal Income Tax
Consequences Of The Merger."
REPRESENTATIONS AND WARRANTIES. Both Bancorp and F&M have made certain
representations and warranties in the Merger Agreement. Such representations and
warranties address, among others, certain matters related to the organization,
capital structure, financial statements and the businesses of F&M and Bancorp.
They also specifically discuss payment of dividends in the period prior to
consummation as well as default under material contracts. See the Merger
Agreement attached as Appendix A for a more detailed discussion.
REGULATORY APPROVALS AND OTHER CONDITIONS. The proposed Merger and
related transactions are subject to approval by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), the Federal Deposit
Insurance Corporation (the "FDIC") and the Indiana Department of Financial
Institutions. Applications requesting approval were submitted to the Federal
Reserve Board on __________ __, 1995, to the FDIC on ___________ __, 1995 and to
the Indiana Department of Financial Institutions on _______ __, 1995. There can
be no assurance that the approval of the Federal Reserve Board, the FDIC or the
Indiana Department of Financial Institutions will be given or whether
conditions, if any, will be imposed on such approval. See "DESCRIPTION OF THE
MERGER--Regulatory Considerations."
The Merger is subject to numerous additional conditions, including, but
not limited to, approval of the Merger by F&M shareholders holding at least a
75% majority of F&M Common Stock and the absence of any material adverse changes
in the corporate status, business, operations or financial condition of Bancorp
since December 31, 1994 or of F&M since April 30, 1995. See "DESCRIPTION OF THE
MERGER--Conditions To Consummation Of The Merger."
TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be
terminated at any time prior to the Effective Time by the mutual consent of the
Boards of Directors of F&M and Bancorp. Either F&M or Bancorp may also terminate
the Merger Agreement upon the occurrence of certain events, such as not
obtaining the requisite approval of all required regulatory authorities or the
shareholders of F&M or not consummating the Merger on or before April 1, 1996.
The Merger may also be terminated by Bancorp if the Average Price of Bancorp
Common Stock falls below $28.48 per share or by F&M if the Average Price of
Bancorp Common Stock exceeds $38.53 per share. See "DESCRIPTION OF THE
MERGER--Termination Of The Merger."
11
<PAGE> 19
EFFECTIVE TIME. Bancorp and F&M intend to consummate the Merger as soon
as practicable after all required regulatory and shareholder approvals have been
obtained and the other conditions to consummation of the Merger have been
satisfied. Bancorp and F&M are hopeful that all conditions prior to consummation
of the Merger will be satisfied so that the Merger can be consummated during the
first quarter of 1996. The Merger Agreement provides that it may be terminated
by either party if the Merger has not been consummated by April 1, 1996. See
"DESCRIPTION OF THE MERGER--Effective Time Of The Merger."
MARKET VALUE OF COMMON STOCK. The Bancorp Common Stock is traded in the
over-the-counter market and is quoted by the Nasdaq National Market System. On
May 22, 1995, the last trading day prior to the first public announcement of the
proposed Merger, the closing sale price for a share of Bancorp Common Stock was
$33.125 per share. Assuming the Merger was consummated as of May 22, 1995, the
Average Price would have been $33.453125, the Exchange Ratio would have equaled
66.333600133 shares, the Deliverable Shares of Bancorp Common Stock issued in
exchange for all shares of F&M Common Stock would have been 373,657 shares and
the equivalent per share value of Bancorp Common Stock which would have been
issued and exchanged for each F&M share would have been $2,197.30. The market
price, and Average Price on May 22, 1995 are presented for illustrative purposes
only and may not be indicative of the market price and Average Price at the
Effective Time.
F&M Common Stock is not actively traded in any established market. See
"COMPARATIVE MARKET AND DIVIDEND INFORMATION" for additional market price
information.
Summary Of Selected Unaudited Financial Data And Per Share Data
The historical data presented on the following pages for Bancorp has
been derived from its consolidated financial statements; see "AVAILABLE
INFORMATION--Documents Incorporated by Reference." Bancorp has a December 31
fiscal year end while F&M has a fiscal year ending April 30. The historical data
for F&M presented on the following pages reflects the nine months ended
September 30 and the twelve months ended December 31 in order to be consistent
with Bancorp's year end and to aid comparability.
12
<PAGE> 20
SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
F&M (HISTORICAL) (1)
Net earnings (A) $ 471 $ 545 $ 700 $ 563 $ 598 $ 466 $ 389
Total assets (period end) 59,966 60,158 62,993 65,118 63,236 61,861 54,794
Long-term borrowings (period end) 0 0 0 0 0 0 0
Net earnings per share (A) 83.51 96.80 124.25 99.96 106.16 82.31 68.28
Dividends declared per share 30.00 26.00 26.00 26.00 26.00 26.00 27.50
Book value per share (period end) 1,384.55 1,292.93 1,320.43 1,247.32 1,173.36 1,093.21 1,027.97
Average shares outstanding (B) 5,633 5,633 5,633 5,633 5,633 5,665 5,697
Shares outstanding (period end) (B) 5,633 5,633 5,633 5,633 5,633 5,633 5,697
BANCORP (HISTORICAL) (2)
Net earnings (A) $ 23,475 $ 21,657 $ 28,173 $ 25,194 $ 21,770 $ 18,600 $ 14,053
Total assets (period end) 1,969,389 1,895,618 1,922,643 1,810,673 1,816,414 1,860,955 1,631,481
Long-term borrowings (period end) 0 0 0 3,983 4,564 5,119 1,252
Net earnings per share (A) 1.91 1.77 2.31 2.06 1.77 1.51 1.13
Dividends declared per share 0.78 0.66 0.98 0.82 0.74 0.66 0.62
Book value per share (period end) 17.55 15.90 15.95 14.85 13.66 12.44 11.60
Average shares outstanding (B) 12,311,609 12,213,201 12,210,753 12,211,405 12,318,805 12,356,986 12,402,738
Shares outstanding (period end) (B) 12,568,641 12,204,575 12,204,575 12,207,004 12,272,065 12,391,865 12,402,738
PRO FORMA BANCORP AND F&M COMBINED
ASSUMING 65.53167123 EXCHANGE RATIO (3)
Net earnings (A) $ 23,946 $ 22,202 $ 28,873 $ 25,757 $ 22,368 $ 19,066 $ 14,442
Net earnings per share (A) 1.89 1.76 2.30 2.05 1.76 1.50 1.13
Dividends declared per share:
Bancorp 0.78 0.66 0.98 0.82 0.74 0.66 0.62
Book value per share (period end) 17.65 16.01 16.07 14.97 13.79 12.57 11.73
Average shares outstanding (B) 12,680,749 12,582,341 12,579,893 12,580,545 12,687,945 12,726,126 12,771,878
Shares outstanding (period end) (B) 12,937,781 12,573,715 12,573,715 12,576,144 12,641,205 12,761,005 12,771,878
PRO FORMA F&M ONE SHARE EQUIVALENT
ASSUMING 65.53167123 EXCHANGE RATIO (4)
Net earnings per share (A) $ 123.85 $ 115.34 $ 150.72 $ 134.34 $ 115.34 $ 98.30 $ 74.05
Dividends declared per share 51.11 43.25 64.22 53.74 48.49 43.25 40.63
Book value per share 1,156.63 1,049.16 1,053.09 981.01 903.68 823.73 768.69
</TABLE>
- --------------------
(A) Before cumulative effect of changes in accounting principles.
(B) Average and period end shares outstanding are not rounded to the nearest
thousand.
13
<PAGE> 21
SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA BANCORP AND F&M COMBINED
ASSUMING 57.59320573 EXCHANGE RATIO (5)
Net earnings (A) $ 23,946 $ 22,202 $ 28,873 $ 25,757 $ 22,368 $ 19,066 $ 14,442
Net earnings per share (A) 1.90 1.77 2.30 2.05 1.77 1.50 1.13
Dividends declared per share:
Bancorp 0.78 0.66 0.98 0.82 0.74 0.66 0.62
Book value per share (period end) 17.71 16.07 16.13 15.02 13.84 12.61 11.77
Average shares outstanding (B) 12,636,032 12,537,624 12,535,176 12,535,828 12,643,228 12,681,409 12,727,161
Shares outstanding (period end) (B) 12,893,064 12,528,998 12,528,998 12,531,427 12,596,488 12,716,288 12,727,161
PRO FORMA F&M ONE SHARE EQUIVALENT
ASSUMING 57.59320573 EXCHANGE RATIO (5)
Net earnings per share (A) $ 109.43 $ 101.94 $ 132.46 $ 118.07 $ 101.94 $ 86.39 $ 65.08
Dividends declared per share 44.92 38.01 56.44 47.23 42.62 38.01 35.71
Book value per share 1,019.98 925.52 928.98 865.05 797.09 726.25 677.87
PRO FORMA BANCORP AND F&M COMBINED
ASSUMING 77.91665087 EXCHANGE RATIO (6)
Net earnings (A) $ 23,946 $ 22,202 $ 28,873 $ 25,757 $ 22,368 $ 19,066 $ 14,442
Net earnings per share (A) 1.88 1.75 2.28 2.04 1.75 1.49 1.12
Dividends declared per share:
Bancorp 0.78 0.66 0.98 0.82 0.74 0.66 0.62
Book value per share (period end) 17.56 15.92 15.98 14.89 13.71 12.50 11.66
Average shares outstanding (B) 12,750,513 12,652,105 12,649,657 12,650,309 12,757,709 12,795,890 12,841,642
Shares outstanding (period end) (B) 13,007,545 12,643,479 12,643,479 12,645,908 12,710,969 12,830,769 12,841,642
PRO FORMA F&M ONE SHARE EQUIVALENT
ASSUMING 77.91665087 EXCHANGE RATIO (6)
Net earnings per share (A) $ 146.48 $ 136.35 $ 177.65 $ 158.95 $ 136.35 $ 116.10 $ 87.27
Dividends declared per share 60.77 51.42 76.36 63.89 57.66 51.42 48.31
Book value per share 1,368.22 1,240.43 1,245.11 1,160.18 1,068.24 973.96 908.51
</TABLE>
- --------------------
(A) Before cumulative effect of changes in accounting principles.
(B) Average and period end shares outstanding are not rounded to the nearest
thousand.
14
<PAGE> 22
NOTES TO SELECTED UNAUDITED CONSOLIDATED FINANCIAL DATA AND PER SHARE DATA
(1) Earnings per share is calculated by dividing net earnings for the
period by the average number of common shares outstanding for the
period. Book value per share is calculated by dividing total
shareholders' equity at the end of the period by the number of shares
outstanding at the end of the period.
(2) Dividend information on Bancorp's subsidiaries which have merged with
Bancorp under the pooling-of-interests method after January 1, 1989,
has not been recalculated or added to Bancorp's historical dividend
information. Bancorp has adjusted historical information to reflect the
issuance of stock splits. The shares outstanding data has been adjusted
to reflect treasury stock transactions.
(3) The PRO FORMA BANCORP AND F&M COMBINED reflects the combined results of
Bancorp and F&M after giving effect to the pooling-of-interests method
of accounting. For illustrative purposes, the combined results assume
the merger was consummated on January 1, 1990.
The per share data, average shares outstanding and shares outstanding
(period end) were calculated assuming the issuance of 369,140
Deliverable Shares of Bancorp Common Stock at an Average equal to
$33.8625, which is the Average that would have been in effect if the
Merger was effective October 31, 1995 (65.53167123 Exchange Ratio).
The number of Bancorp shares to be issued at consummation is dependent
on the Average Price at that time and cannot be determined before that
date. The pro forma financial results included in this table are for
illustrative purposes only.
(4) The Deliverable Shares to which F&M shareholders shall be entitled as a
result of the Merger shall be determined by dividing $12,500,000 by the
Average Price. In the event of the subdivision or split of the
outstanding Bancorp shares, the payment of a dividend in Bancorp shares
or a capital reorganization affecting the closing price for Bancorp
shares during some but not all of said trading days, the number of
Deliverable Shares will be adjusted proportionately so that the holders
of outstanding F&M shares shall receive the number of Bancorp shares
that represents the same percentage of the value of outstanding Bancorp
shares at the Effective Time as would have been represented by the
number of shares such shareholders would have received if the event had
not occurred. The Exchange Ratio is determined by dividing the number
of Deliverable Shares by the number of F&M shares outstanding and
represents the number of shares of Bancorp Common Stock that each share
of F&M Common Stock will be exchanged for at the Effective Time.
Since the Deliverable Shares is not determinable at the printing of
this Proxy Statement-Prospectus, F&M's one share equivalent pro forma
net earnings, dividends and book value per share, calculated assuming
an Exchange Ratio of 65.53167123 shares, are shown for illustrative
purposes only.
15
<PAGE> 23
(5) The Merger may be terminated by F&M if the Average Price of Bancorp
Common Stock exceeds $38.53. If the Average Price at the Effective Time
is $38.53, the Deliverable Shares of Bancorp Common Stock issued in
exchange for all shares of F&M Common Stock will be 324,423 shares and
the Exchange Ratio will be 57.59320573 shares. The Deliverable Shares
to be issued at consummation is dependent on the Average Price at that
time and cannot be determined before that date. The pro forma financial
results assuming an Average Price of $38.53 are for illustrative
purposes only.
(6) The Merger may be terminated by Bancorp if the Average Price of Bancorp
Common Stock is less than $28.48. If the Average Price at the Effective
Time is $28.48, the Deliverable Shares of Bancorp Common Stock issued
in exchange for all shares of F&M Common Stock will be 438,904 shares
and the Exchange Ratio will be 77.91665087 shares. The Deliverable
Shares to be issued at consummation is dependent on the Average Price
at that time and cannot be determined before that date. The pro forma
financial results assuming an Average Price of $28.48 are for
illustrative purposes only.
16
<PAGE> 24
DESCRIPTION OF THE MERGER
This section of the Proxy Statement-Prospectus describes certain of the
more important aspects of the Merger. The following description does not purport
to be complete and is qualified in its entirety by reference to the Merger
Agreement which is set forth in Appendix A to this Proxy Statement-Prospectus.
All shareholders are urged to read the Merger Agreement in its entirety.
Background And Reasons For The Merger
Culminating in late 1994 and early 1995, the F&M Board of Directors
obtained a better understanding of the changed and changing environment in which
a community bank operates. The opportunities and challenges facing a community
bank centered in Fulton County, Indiana came into sharper perspective as a
result of the Board's strategic thinking about the future of Farmers & Merchants
Bank. It became apparent to the Board that (i) the regulatory burden every
commercial bank faces imposes a special hardship on a community bank that is not
operating at a scale to permit it to efficiently spread the costs of development
and implementation of compliance systems across a large base of revenues; (ii)
technological advances in financial products and services as well as in internal
bank systems can be exploited more efficiently by a larger institution; and
(iii) increased competition resulting from new and bigger financial services
competitors negatively affects the potential for growth of a community bank. The
cumulative effect of these and other factors on creating value for F&M's
shareholders weighed heavily in favor of changing F&M's historic course of
remaining independent.
With these and other factors in mind, in March 1995, the F&M Board of
Directors formed a Research Committee and charged it with the responsibility to
investigate possible affiliations with other financial institutions. From time
to time, F&M had received various unsolicited indications of interest in
possible affiliations with larger financial institutions in northern Indiana.
The Research Committee began discussions in earnest with such institutions, as
well as with other institutions that were determined to have a present interest
in an affiliation with F&M, provided that such financial institutions also met
the criteria the Board and the Committee developed for an attractive merger
partner, described below.
As a part of its deliberations in March 1995, the Board of Directors
of F&M reaffirmed its commitment to its various constituencies, including
shareholders, customers, employees, and the communities served by Farmers &
Merchants Bank, especially Rochester and Kewanna, and the Board especially
desired to maximize value to shareholders. As a result of these considerations,
the Board of Directors of F&M developed some criteria to use as a framework for
analysis in considering any merger partner, including the following:
(a) An attractive price, with a clear preference for F&M
shareholders having the ability to receive a merger partner's
stock in a transaction structured to be tax-free to F&M
shareholders who receive stock;
17
<PAGE> 25
(b) The likely continuation of the essential nature of the services
offered by Farmers & Merchants Bank in Rochester and Kewanna;
(c) Liquidity, through the ownership of the merger partner's stock
as compared to F&M stock; and
(d) The avoidance of undue disruption of the lives of the employees
of Farmers & Merchants Bank.
In March and April 1995, the Research Committee met with
representatives of five financial institutions, some of whom had previously
expressed an interest in a merger with F&M and others whose interest developed
for the first time. In April, four institutions, who were regarded preliminarily
as potentially acceptable merger partners and who had such interest in F&M that
they had visited the main office of Farmers & Merchants Bank to conduct "due
diligence" regarding the conditions and prospects of F&M, were advised in a
letter from F&M as to F&M's desires with respect to each institution submitting
an offer containing the essential terms and conditions of an acquisition. Of the
four interested parties who received a letter from F&M to such effect, all four
submitted offers by the May 1 deadline.
Following receipt of the four offers, the Research Committee proceeded
to analyze the offers. The Research Committee decided to retain the investment
banking firm of David A. Noyes & Company, which possesses expertise with respect
to valuation of banks and bank holding companies, for the purpose of having that
firm share with the F&M Board its analysis of the offers from the perspective of
the shareholders of F&M. David A. Noyes & Company independently prepared
analyses of the offers. These analyses were reviewed by the Research Committee
and then by the F&M Board at a meeting held May 17, 1995.
Two of the four offers included a price expressed as a number of shares
of the acquiring corporation to be received by the shareholders of F&M
determined on the basis of the average trading price for the offeror's shares
during a trading period preceding the closing date. Two other offers used a
different approach to determining the number of shares to be exchanged for the
5,633 outstanding shares of F&M. The offer from Bancorp provided for the largest
amount of consideration to be paid to shareholders of F&M, and provided for the
highest equivalent dividend per share. The offer from Bancorp compared favorably
to other offers under the other criteria set forth above. Accordingly, the Board
authorized and directed the Research Committee (renamed the Merger Committee) to
negotiate with Bancorp the terms and conditions of a definitive agreement and to
submit any such definitive agreement to the F&M Board for its approval. On May
19, 1995, F&M and Bancorp signed a non-binding letter of intent to merge, which
was announced in a news release shortly thereafter. As a matter of information
to its shareholders, F&M mentioned the proposed transaction in the May 23, 1995
letter to F&M shareholders that transmitted the notice of the annual
shareholders meeting held June 20, 1995 and the related proxy statement and form
of proxy for such meeting.
18
<PAGE> 26
Beginning in June 1995 and continuing for the next few months, F&M and
Bancorp negotiated the terms and conditions of the definitive agreement. The
Merger Committee and Board of Directors of F&M took action to retain the
services of Professional Banking Services, Inc. ("PBS"), an investment banking
firm, to provide a letter expressing its opinion as to the fairness to F&M's
shareholders from a financial point of view of the terms of any definitive
agreement (the "Fairness Opinion"). It was anticipated that the Fairness Opinion
would be delivered subsequent to the execution of a definitive agreement and
also after PBS had the opportunity to conduct a "due diligence" investigation of
Bancorp. Nevertheless, PBS reviewed drafts of the definitive agreement and
participated in related discussions and meetings, including the special meeting
of the Board of Directors of F&M held August 30, 1995.
At the August 30 Board meeting, the definitive agreement, entitled
"Plan and Agreement of Merger" was discussed in detail. Having concluded that
affiliating with Bancorp and executing and delivering the definitive agreement
were in the best interests of F&M and its shareholders, the F&M Board of
Directors unanimously approved the definitive agreement and authorized and
directed William J. Gordon, as President of F&M, to execute and deliver it after
certain conditions were met. Mr. Gordon did so on September 11, 1995.
Opinion Of Financial Advisor To F&M
PBS was engaged by F&M to advise the Board of Directors as to the
fairness of the consideration, from a financial perspective, to be paid by
Bancorp to shareholders as set forth in the Merger Agreement between Bancorp and
F&M. PBS is a bank consulting firm with offices in Louisville, Nashville,
Indianapolis, Washington, D.C. and Ocala, Florida. As part of its investment
banking business, PBS is regularly engaged in reviewing the fairness of
financial institution acquisition transactions from a financial perspective and
in the valuation of financial institutions and other businesses and their
securities in connection with mergers, acquisitions, estate settlements and
other transactions. Neither PBS nor any of its affiliates has a material
financial interest in F&M or Bancorp. PBS was selected to advise the F&M Board
of Directors based upon its familiarity with Indiana financial institutions and
its knowledge of the financial industry as a whole.
PBS performed certain analyses described below and discussed the range
of values for F&M resulting from such analyses with the Board of Directors of
F&M in connection with its advice as to the fairness of the consideration to be
paid by Bancorp.
An oral Fairness Opinion ("Opinion") of PBS was delivered to the Board
of Directors of F&M on August 30, 1995 at a special meeting of the Board of
Directors. A copy of the Opinion, which includes a summary of the assumptions
made and information analyzed in deriving the Fairness Opinion, is attached as
Appendix C to this Proxy Statement-Prospectus and should be read in its
entirety.
19
<PAGE> 27
In arriving at its Opinion, PBS reviewed certain publicly available
business and financial information relating to F&M and Bancorp. PBS considered
certain financial and stock market data of F&M and Bancorp, compared that data
with similar data for certain other private and publicly-held bank holding
companies which own Indiana financial institutions and considered the financial
terms of certain other comparable Indiana commercial bank transactions that had
recently been effected. PBS also considered such other information, financial
studies, analyses and investigations and financial, economic and market criteria
that it deemed relevant. In connection with its review, PBS did not
independently verify the foregoing information and relied on such information as
being complete and accurate in all material respects. PBS did not make an
independent evaluation or appraisal of the assets of F&M or Bancorp.
As part of preparing the Opinion, PBS performed a due diligence review
of Bancorp and its affiliate banks. As part of the due diligence, PBS reviewed
minutes of Board of Directors meetings beginning January 1994 through June 1995;
audited financial statements for the years ended December 31, 1992, 1993 and
1994; 1995 First and Second Quarter Reports to Shareholders; management letters
from independent auditors for 1992, 1993 and 1994 and management's responses
thereto; operating policies; overdraft and past due reports; Uniform Bank
Performance Reports; investment security holdings; listing of pending
litigation; internal audit and loan review reports; and the corporate business
plan.
PBS also interviewed senior management of Bancorp regarding operations,
performance and the future prospects of Bancorp. PBS compared the historical
common stock market of financial institutions headquartered in Indiana to
Bancorp.
PBS reviewed and analyzed the historical performance of F&M and its
wholly owned subsidiary, Farmers & Merchants, contained in: F&M Audited
Financial Statements for the years ended April 30, 1995; Form FRY-9SP as filed
by F&M with the Federal Reserve as of June 30, 1995; the June 30, 1995
Consolidated Reports of Condition and Income filed with the FDIC by Farmers &
Merchants; and the December 31, 1994 and March 31, 1995 Uniform Bank Performance
Reports of Farmers & Merchants. PBS also reviewed and analyzed the historical
common stock trading activity of F&M and the premises and other fixed assets.
PBS reviewed and tabulated statistical data regarding the loan portfolio,
securities portfolio and other performance ratios and statistics. Financial
projections were analyzed as well as other financial studies, analyses and
investigations as deemed relevant for the purposes of this Opinion. In review of
the aforementioned information, PBS took into account its assessment of general
market and financial conditions, its experience in other transactions and its
knowledge of the banking industry generally.
In connection with rendering the Opinion and preparing its various
written and oral presentations to F&M's Board of Directors, PBS performed a
variety of financial analyses, including those summarized below. The summary set
forth below does not purport to be a complete description of the analyses
performed by PBS in this regard. The preparation of an Opinion involves various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
20
<PAGE> 28
description. Accordingly, notwithstanding the separate factors summarized below,
PBS believes that its analysis must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying its opinion. In performing its analyses, PBS made
numerous assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond F&M's or Bancorp's
control. The analyses performed by PBS are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analysis. In addition, analyses relating to the values of
businesses do not purport to be appraisals nor to reflect the process by which
businesses actually may be sold.
ACQUISITION COMPARISON ANALYSIS. In performing this analysis, PBS
reviewed 171 Indiana bank acquisition transactions announced since 1985. The
purpose of the analysis was to obtain an evaluation range based on these Indiana
acquisition transactions. Multiples of earnings and book value implied by the
comparable transactions were utilized in obtaining a range for the acquisition
value of F&M. In addition to reviewing recent Indiana bank transactions, PBS
performed separate comparable analyses for acquisitions of Indiana banks which,
like F&M, had an equity-to-asset ratio above 11%, those located in non-MSA areas
and those with deposits between $25 and $75 million. Values for the 171 Indiana
bank acquisitions expressed as multiples of both book value and earnings were
1.45x and 14.42x, respectively. The median multiples of book value and earnings
for acquisitions of Indiana banks with equity-to-asset ratios above 11% were
1.41x and 15.52x, respectively. The median multiples of book value and earnings
for acquisitions of Indiana banks located in non-MSA areas were 1.40x and
13.89x, respectively. The median multiples of book value and earnings for those
institutions with total deposits between $25 and $75 million were 1.42x and
13.12x, respectively. The value of the transaction equals $2,219.07 per F&M
common share. This represents a multiple of book value and a multiple of
earnings, as of June 30, 1995, of 1.67x and 18.44x, respectively.
ADJUSTED NET ASSET VALUE ANALYSIS. For analysis purposes only, PBS
reviewed F&M's balance sheet data to determine the amount of material
adjustments that would be required to stockholders' equity if F&M's assets were
adjusted to market value. PBS determined that two adjustments were warranted.
The investment securities portfolio had depreciation of approximately $374,000
after adjustment for income taxes. PBS also determined a value of the
non-interest bearing deposits of approximately $1,847,000. The adjusted net
asset value, as of June 30, 1995, was determined to be $1,593.11 per share of
F&M's common stock.
DISCOUNTED EARNINGS ANALYSIS. A dividend discount analysis was
performed by PBS pursuant to which a range of stand-alone values of F&M was
determined by adding (i) the present value of estimated future dividend streams
that F&M could generate over a five-year period beginning in 1996 and ending in
2000, and (ii) the present value of the "terminal value" of F&M's common equity
at the end of 2000. The "terminal value" of F&M's common equity at the end of
the five-year period was determined by applying a multiple of 1.45 times the
projected terminal year's book value. The 1.45 multiple represents the median
price paid as a multiple of book value for all Indiana banks since 1989.
21
<PAGE> 29
Dividend streams and terminal values were discounted to present values
using a discount rate of 12%. This rate reflects assumptions regarding the
required rate of return of holders or buyers of F&M Common Stock. The value of
F&M, determined by adding the present value of the total cash flows, was
$1,668.17 per F&M share. In addition, using the five-year projection as a base,
a 20-year projection was prepared assuming an annual growth rate of 7% and a
return on assets of 1.15% by year five and remaining at this level for the
entire period, beginning in 2000. Dividends also were assumed to be 50% of
income for all years. This long-term projection resulted in a value of $1,424.32
per F&M share.
SPECIFIC ACQUISITION ANALYSIS. For analysis purposes only, PBS valued
F&M based on an acquisition analysis assuming a "break-even" earnings scenario
to an acquirer as to price, current interest rates and amortization of the
premium paid. Based on this analysis, an acquiring institution would pay
$1,750.58 per share of F&M Common Stock, assuming they were willing to accept no
impact to their net income in the initial year. This analysis was based on a
funding cost of 8% adjusted for taxes, amortization of the acquisition premium
over 15 years and a projected earnings level for F&M of $678,000 in 1995.
PRO FORMA MERGER ANALYSIS. PBS compared the historical performance of
F&M to that of Bancorp and other regional bank holding companies. This included,
among other things, a comparison of profitability, asset quality and capital
adequacy measures. In addition, the contribution of each of F&M and Bancorp to
the income statement and balance sheet of the pro forma combined company was
analyzed.
The effect of the affiliation on the historical and pro forma financial
data of F&M, as well as the projected financial data prepared by PBS, was
analyzed. F&M's historical financial data was compared to pro forma combined
historical and projected earnings and book value per share as well as other
measures of profitability, capital adequacy and asset quality.
CONCLUSION. The Fairness Opinion is directed only to the question of
whether the consideration to be received by F&M's shareholders under the Merger
Agreement is fair and equitable from a financial perspective and does not
constitute a recommendation to any F&M shareholder to vote in favor of the
Merger Agreement. No limitations were imposed on PBS regarding the scope of its
investigation or otherwise by F&M or Bancorp or any of its affiliates.
Based on the results of the various analyses described above, PBS
concluded that the consideration to be received by F&M shareholders under the
Merger Agreement is fair and equitable from a financial perspective to the
shareholders of F&M.
PBS will receive a fee not to exceed $15,000 from F&M for all of its
services performed in connection with rendering the Opinion. In addition, F&M
has agreed to indemnify PBS and its directors, officers and employees from
liability in connection with the Merger and to hold PBS harmless from any
losses, actions, claims, damages, expenses or liabilities related to any of
PBS's acts or decisions made in good faith and in the best interest of F&M.
22
<PAGE> 30
Structure Of The Merger
If the Merger is approved by F&M shareholders at the Special Meeting by
at least a 75% majority vote of the outstanding shares of F&M Common Stock and
if necessary regulatory approvals are received and certain other conditions to
the consummation of the transactions contemplated by the Merger Agreement are
satisfied or waived prior to April 1, 1996, F&M will merge with Bancorp in a
transaction in which the following will occur at the Effective Time:
(a) All of the then outstanding shares of F&M will be canceled and
extinguished in consideration and exchange for a number of
shares of Bancorp Common Stock, determined by dividing
$12,500,000 by the Average Price.
(b) F&M will merge with and into Bancorp at the Effective Time and
Bancorp will be the continuing, surviving and resulting
corporation in the Merger.
(c) Farmers & Merchants will merge with and into Indiana Lawrence,
a wholly owned subsidiary of Bancorp, and Indiana Lawrence will
be the continuing, surviving and resulting corporation in the
Subsidiary Merger.
Deliverable Shares
The Deliverable Shares to which F&M shareholders shall be entitled as a
result of the Merger shall be determined by dividing $12,500,000 by the Average
Price. In the event of the subdivision or split of the outstanding Bancorp
shares, the payment of a dividend in Bancorp shares or a capital reorganization
affecting the closing price for Bancorp shares during some but not all of said
trading days, the number of Deliverable Shares will be adjusted proportionately
so that the holders of outstanding F&M shares shall receive the number of
Bancorp shares that represents the same percentage of the value of outstanding
Bancorp shares at the Effective Time as would have been represented by the
number of shares such shareholders would have received if the event had not
occurred. Each holder of F&M shares shall be entitled to a portion of the
Deliverable Shares that is equal to the number of Deliverable Shares multiplied
by a fraction, the numerator of which is the number of F&M shares held by that
shareholder immediately prior to the Effective Time and the denominator of which
is the number of F&M shares outstanding immediately prior to the Effective Time.
23
<PAGE> 31
Surrender Of Stock Certificates
Prior to the Effective Time, Bancorp and First National Bank of
Southwestern Ohio (the "Exchange Agent"), a wholly owned subsidiary of Bancorp,
shall enter into an Exchange Agent Agreement with respect to the Deliverable
Shares, which Agreement shall be subject to F&M's approval which shall not be
unreasonably withheld. The Exchange Agent Agreement shall require Bancorp to
deliver the Deliverable Shares to the Exchange Agent at the Effective Time. As
promptly as practicable after the Effective Time, the Exchange Agent shall
prepare and mail to each holder of record of an outstanding certificate or
certificates representing shares of F&M a letter of transmittal containing
instructions for the surrender of the certificate or certificates. Upon
surrender of the F&M certificate or certificates in accordance with instructions
set forth in the letter of transmittal, such holder shall be entitled to receive
in exchange therefor certificates representing the number of whole shares of
Bancorp into which the shares represented by the certificate or certificates so
surrendered shall have been converted, without interest. As part of its
services, the Exchange Agent shall make itself available for at least three
business days during regular banking hours at the main office of Farmers &
Merchants to accept and provide receipts for surrendered certificates.
Approval of the Exchange Agent Agreement by F&M and approval of the
Merger Agreement by the shareholders of F&M shall constitute ratification of the
appointment of First National Bank of Southwestern Ohio as the Exchange Agent
for this purpose. The Exchange Agent shall not be obligated to deliver
certificates for Bancorp Common Stock to a former shareholder of F&M until such
former shareholder surrenders his or her certificate or certificates
representing shares of F&M or, in lieu thereof, an appropriate affidavit of loss
and an indemnity agreement as may be required by Bancorp. Until so surrendered
for exchange, each such stock certificate formerly representing shares of F&M
Common Stock will be deemed for all corporate purposes (except for the payment
of dividends, which will be subject to the exchange of stock certificates as
above provided) to evidence the ownership of the number of shares of common
stock of the surviving corporation that the holder thereof would be entitled to
receive upon its surrender to Bancorp.
Fractional Interests
No fractional shares of Bancorp Common Stock will be issued as a result
of the Merger. In lieu thereof, F&M shareholders having a fractional interest
will be paid in cash by Bancorp for the fractional interest. Such payment shall
be equal to the fractional interest times the Average Price.
Effective Time Of The Merger
The Effective Time is expected to be as soon as practicable after the
approval of the Merger Agreement by F&M shareholders, the satisfaction of all
conditions set forth in the Merger Agreement and the receipt of approvals from
regulatory authorities, or at such later date as may be agreed upon by F&M and
Bancorp. See "DESCRIPTION OF THE MERGER--Regulatory Considerations".
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<PAGE> 32
No assurance can be provided that the necessary shareholder and
regulatory approvals will be obtained or that other conditions precedent to the
Merger will be satisfied. It is anticipated that the Merger will be consummated
in the first quarter of 1996. In the event the Merger is not consummated by
April 1, 1996, either party may terminate the Merger Agreement or the parties
may agree to extend the time for completion of the Merger.
Conditions To Consummation Of The Merger
Consummation of the Merger is subject to a number of conditions, each
of which may be waived by the party entitled thereto to the extent permissible
by applicable law, including the following:
(a) The receipt of all required regulatory approvals for the
completion of the Merger and the expiration of any applicable
waiting periods, with no such approval or authorization
containing any provision which would be materially adverse to
the merged businesses of F&M and Bancorp;
(b) The validity or legality of the transactions contemplated by
the Merger Agreement shall not have been materially questioned
by any suit, action, investigation by any governmental body or
other legal or administrative proceedings;
(c) The receipt of all consents required for the consummation of
the Merger or for the prevention of any default under any
contract, agreement or permit of Bancorp or F&M which, if not
obtained or made, is reasonably likely to have, individually or
in the aggregate, a material adverse effect on the combined
business affairs of Bancorp and F&M;
(d) Compliance by Bancorp and F&M with their respective covenants
and the truth of all representations and warranties as of the
Effective Time;
(e) The absence of any material adverse change in the financial
condition, operations, corporate status or business of Bancorp
since December 31, 1994 or F&M since April 30, 1995;
(f) The receipt of opinions from Bancorp's special counsel and from
F&M's special counsel with respect to various corporate
matters, due execution and delivery of the Merger Agreement and
various other Merger related matters;
(g) The receipt of an opinion of counsel, in form and substance
satisfactory to Bancorp and F&M, to the effect that, under the
Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), no taxable gain or loss will be recognized by
F&M, Bancorp or their respective shareholders as a result of
the Merger (except in respect of fractional share interests
sold);
25
<PAGE> 33
(h) The receipt of letters from Bancorp's independent accountants
stating that they are not aware of any reason that Bancorp is
not in compliance with certain pooling-of-interests criteria
and that the Merger can be accounted for as a
pooling-of-interests from Bancorp's perspective and the receipt
of similar letters from F&M's independent accountants;
(i) The receipt by Bancorp of a satisfactory Phase I Environmental
Site Assessment of the real estate owned or leased by F&M or,
if such assessment is not satisfactory to Bancorp, F&M and
Bancorp shall have reached agreement as to the remedial actions
necessary to correct any unsatisfactory conditions;
(j) The approval of the Merger Agreement by F&M shareholders at the
Special Meeting by at least a 75% majority vote of the
outstanding F&M shares; and
(k) The receipt by F&M of an opinion from Professional Bank
Services, Inc. that the value and number of Deliverable Shares
to be received by the F&M shareholders pursuant to the Merger
Agreement is fair to the F&M shareholders from a financial
point of view.
No assurance can be given that all of the conditions to the Merger will
be satisfied or waived by any party permitted to do so.
Termination Of The Merger
The Merger may be terminated at any time prior to the Effective Time
under any one or more of the following circumstances:
(a) By the mutual consent of the Boards of Directors of F&M and
Bancorp;
(b) By Bancorp if the holders of 10.0% or more of the outstanding
shares of F&M Common Stock immediately prior to the Effective
Time will be entitled to receive cash in exchange for their F&M
shares pursuant to perfected dissenters' rights under the
Indiana Business Corporation Law;
(c) By F&M or Bancorp if, prior to the Effective Time, the
conditions to such party's obligation to consummate the Merger
are not met;
(d) By either F&M or Bancorp if the requisite approval of the
shareholders of F&M is not obtained or if the Merger is not
consummated on or before April 1, 1996; and
(e) By Bancorp if the Average Price is less than $28.48 or by F&M
if the Average Price is greater than $38.53, (in either case,
as may be adjusted by the declaration of a stock dividend,
stock split or other such recapitalization).
26
<PAGE> 34
Management Following The Merger
If the Merger is consummated, F&M and Bancorp will merge into a single
corporation and Bancorp will be the surviving corporation. The directors of
Bancorp at the Effective Time of the Merger will be the directors of the
surviving corporation until their respective successors are duly elected and
qualified. Subject to the authority of the Board of Directors as provided by law
and the Regulations of the surviving corporation, the officers of Bancorp at the
Effective Time will be the officers of the Surviving Corporation.
If the Merger is consummated, Farmers & Merchants, F&M's only
subsidiary, will merge with and into Indiana Lawrence, a wholly owned subsidiary
of Bancorp, and Indiana Lawrence will be the surviving bank. The directors of
Indiana Lawrence at the Effective Time of the Merger will be directors of the
surviving bank until their respective successors are duly elected and qualified.
Subject to the authority of the Board of Directors of Indiana Lawrence as
provided by law and the By-Laws of the surviving bank, the officers of Indiana
Lawrence at the Effective Time will be the officers of the surviving bank.
Interest Of Certain Persons In The Merger
The directors and officers of F&M and Farmers & Merchants have certain
interests in the Merger in addition to their interests as shareholders of F&M
generally. The Board of Directors of F&M was aware of these interests and
considered them, among others, in approving the Merger Agreement.
If the Merger is consummated, Bancorp shall itself employ or cause
Indiana Lawrence or another of its affiliates to employ, for at least a period
of two years after the Effective Time, those persons who are employees of
Farmers & Merchants immediately prior to the Effective Time, except for
voluntary or just-cause terminations. The compensation to be paid to former
Farmers & Merchants employees during such two year period shall be reviewed, but
not reduced, in accordance with the "Indiana Lawrence Bank Pay System
Documentation and Review Procedures" in effect as of September 11, 1995.
The Merger Agreement contains certain provisions regarding employee
benefits. If the Merger is consummated, Bancorp and Indiana Lawrence will make
available to the employees and officers of Farmers & Merchants who continue
employment after the Merger and the Subsidiary Merger the same employee benefits
on the same terms and conditions that are offered to similarly situated
employees of Indiana Lawrence.
27
<PAGE> 35
The First Financial Bancorp Thrift Plan (the "Thrift Plan"), which is a
401-K Plan, and the First Financial Bancorp Employees' Pension Plan (the
"Pension Plan") cover the majority of the employees of Bancorp and its
subsidiaries. All employees who are 21 years of age and have completed one year
of service are covered. The Thrift Plan is voluntary and participants may
contribute up to 12.0% of base salary to the plan. Subject to the limitation
described below, Bancorp subsidiaries contribute $0.50 for each $1.00 a
participant contributes. The matching contribution by Bancorp subsidiaries is
limited to 3.00% of each participant's base salary and all contributions become
fully vested when made. Participants are 100% vested in the Pension Plan after
five years of credited service. For more information about Bancorp's Thrift Plan
and Pension Plan, see Bancorp's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, previously incorporated by reference.
Years of service of an employee of Farmers & Merchants prior to the
Effective Time of the Merger will be credited to such employee for purposes of
eligibility and vesting, but not for purposes of benefit accrual or
contributions, under the Thrift Plan and the Pension Plan. Farmers & Merchants
employees who satisfy the applicable eligibility requirements under the Pension
Plan will be eligible to participate immediately in the Pension Plan as of the
Effective Time. Farmers & Merchants employees who satisfy the applicable
eligibility requirements under the Thrift Plan will be eligible to participate
in the Thrift Plan on the first entry date, either January 1 or July 1,
following the Effective Time.
The Farmers and Merchants Bank Retirement Plan and Trust (the
"Retirement Plan") will be terminated as soon as practicable after the Effective
Time in a manner which will assure its tax-qualified status upon termination. In
the event the Effective Time occurs prior to the date of the required
contribution to the Retirement Plan, Bancorp or Indiana Lawrence will assume
responsibility for this contribution as well as for any pro-rata contribution
requirements for the period from December 31, 1995 to the Effective Time. Such
contributions, if required, shall be made before termination of the Retirement
Plan. Upon termination of the Retirement Plan, provisions will be made for the
distribution of each participant's account in accordance with the terms of the
Retirement Plan, the Internal Revenue Code, and the Employee Retirement Income
Security Act of 1974 ("ERISA").
Years of service of an employee of Farmers & Merchants prior to the
Effective Time will also be credited for purposes of determining eligibility for
all other employee benefits offered to Indiana Lawrence employees, including but
not limited to group health coverage, group term life and accidental death and
dismemberment coverage, and short-term and long-term disability coverage.
Farmers and Merchants employees who satisfy the applicable eligibility
requirements to participate in said other employee benefits shall be eligible to
participate immediately therein as of the Effective Time. If any employee of
Farmers & Merchants who continues employment with Indiana Lawrence is subject to
any pre-existing conditions exclusions or limitations under the group health
plan for employees of Indiana Lawrence, Bancorp or Indiana Lawrence will either
obtain other health insurance coverage or self-insure such employee so that the
employees' health coverage is not substantially more or less advantageous than
the terms of the group health plan.
28
<PAGE> 36
The directors and executive officers of F&M have indicated their
intention to vote the shares of F&M Common Stock held by them in favor of the
Merger Agreement. On the Record Date, such directors and executive officers as a
group beneficially owned an aggregate of 3,021 shares of F&M Common Stock, which
represented 53.63% of the shares issued and outstanding at that date.
Shareholders' Rights Of Appraisal
Under Indiana Code Chapter 23-1-44, any holder of record of F&M Common
Stock on the Record Date who does not vote in favor of the Merger may exercise
dissenting shareholder rights and receive the fair value of such holder's shares
by complying with the requirements of Chapter 23-1-44.
Set forth below is a summary of the procedures relating to the exercise
of statutory dissenters' rights ("Dissenters' Rights"). THIS SUMMARY DOES NOT
PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY EXPRESS REFERENCE TO
APPLICABLE INDIANA LAW, INCLUDING INDIANA CODE CHAPTER 23-1-44, A COPY OF WHICH
IS APPENDED AS APPENDIX C TO THIS PROXY STATEMENT-PROSPECTUS. Any shareholder of
F&M contemplating exercising Dissenters' Rights with respect to F&M Common Stock
is urged to review carefully such provisions and to consult an attorney, because
Dissenters' Rights will be lost if the procedural requirements under Chapter
23-1-44 are not fully and precisely satisfied. Each step must be taken in strict
compliance with the applicable provisions of Chapter 23-1- 44 in order for
holders to perfect Dissenters' Right.
Under Chapter 23-1-44, a shareholder of record on the record date for
the Special Meeting who desires to assert Dissenters' Rights must (1) deliver to
F&M before the shareholder vote is taken written notice of the shareholder's
intent to demand payment for his or her shares if the Merger is effectuated and
(2) not vote the shareholder's shares in favor of the Merger. A shareholder's
failure to vote against the Merger will not constitute a waiver of that
shareholder's Dissenters' Rights. BECAUSE A PROXY WHICH DOES NOT CONTAIN VOTING
INSTRUCTIONS WILL, UNLESS REVOKED, BE VOTED FOR ADOPTION OF THE MERGER
AGREEMENT, A HOLDER OF F&M SHARES WHO VOTES BY PROXY AND WHO WISHES TO EXERCISE
HIS/HER DISSENTERS' RIGHTS MUST (i) VOTE AGAINST, OR (ii) ABSTAIN FROM VOTING ON
SUCH APPROVAL AND ADOPTION. For purposes of Chapter 23-1-44, the fair value of a
dissenting shareholder's shares is the value of the shares immediately before
the effectuation of the Merger, excluding any appreciation or depreciation in
anticipation of the Merger unless the exclusion would be inequitable.
Within ten days after the approval of the Merger by the shareholders,
F&M or Bancorp as the surviving corporation (hereinafter referred to for
purposes of this section as the "Corporation") must mail or deliver written
notice to each dissenting shareholder, which dissenters' notice must: (1) state
where the payment demand must be sent and where and when certificates for
certificated shares must be deposited; (2) inform holders of uncertificated
shares to what extent transfer of the shares will be restricted after the
payment demand is received; (3) supply a form for demanding payment that
includes the date of the first announcement to news media or to shareholders of
the terms of the proposed Merger and requires that the dissenting shareholder
certify whether or not he or she acquired beneficial ownership of the shares
before that date; (4) set a date
29
<PAGE> 37
by which the Corporation must receive the payment demand, which date may not be
fewer than thirty nor more than sixty days after the date the dissenters' notice
is delivered; and (5) be accompanied by a copy of Indiana Code Chapter 23-1-44.
A shareholder sent a dissenters' notice, as described above, must demand
payment, certify whether the shareholder acquired beneficial ownership of the
shares before the date set forth in the dissenters' notice and deposit the
shareholder's certificates in accordance with the terms of the dissenters'
notice. IF THE SHAREHOLDER FAILS TO TAKE THESE STEPS, HE OR SHE WILL NOT BE
ENTITLED TO PAYMENT FOR THE SHAREHOLDER'S SHARES AND WILL BE CONSIDERED TO HAVE
VOTED HIS OR HER SHARES IN FAVOR OF THE MERGER.
Following effectuation of the Merger, the Corporation will pay each
shareholder who filed a payment demand with the Corporation the amount that the
Corporation estimates to be the fair value of the dissenting shareholder's
shares.
If the dissenting shareholder believes the amount paid by the
Corporation is less than the fair value for his or her shares or if the
Corporation fails to make payment to the dissenting shareholder within sixty
days after the date set for demanding payment, the dissenting shareholder may
notify the Corporation in writing of his or her own estimate of the fair value
of his or her shares and demand payment of his or her estimate. Such a demand
for payment must be made in writing within thirty days after the Corporation has
made payment for the dissenting shareholder's shares. A dissenter who fails to
make the demand waives his or her right to demand payment.
If a demand for payment remains unsettled, the Corporation must
commence a proceeding in the circuit or superior court of Fulton County within
sixty days after receiving the payment demand and petition the court to
determine the fair value of the shares. If the Corporation fails to commence the
proceeding within the sixty day period, it must pay each dissenter whose demand
remains unsettled the amount demanded. The Corporation must make all dissenters
whose demands remain unsettled parties to the proceeding and all parties must be
served a copy of the petition. The court may appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. Each dissenting shareholder made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds the fair value of the
dissenters' shares, plus interest, exceeds the amount paid by the Corporation.
The court in an appraisal proceeding shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court, and shall assess these costs and the fees and expenses
of counsel and experts for the respective parties against the parties in amounts
the court finds equitable.
Every shareholder who does not deliver a notice of intent to demand
payment for his or her shares as aforesaid, or who votes in favor of the Merger,
is bound by the vote of the assenting shareholders and will have no right to the
payment of the fair value of his or her shares as a result of the Merger. Voting
against the Merger does not in itself constitute the notice of intent to demand
payment required by Indiana Code Chapter 23-1-44.
30
<PAGE> 38
The Merger Agreement includes a provision that Bancorp may terminate
the Merger Agreement before the Merger becomes effective if the number of shares
of F&M Common Stock for which Dissenters' Rights are perfected is 10% or more of
the outstanding shares of F&M Common Stock.
The Board of Directors of F&M has determined that the Merger is fair to
and in the best interest of F&M's shareholders and has recommended that the F&M
shareholders vote in favor of the Merger.
Federal Income Tax Consequences Of The Merger
Assuming that (i) the Merger constitutes a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code; (ii) after the
transaction, Bancorp, as successor of F&M, will hold substantially all of F&M's
assets; and (iii) in the transaction, the F&M shareholders will exchange an
amount of stock constituting control of F&M solely for Bancorp Common Stock; the
following is a summary of the tax consequences which will result:
(1) No gain or loss will be recognized by F&M shareholders who
exchange all of their F&M Common Stock for Bancorp Common Stock
pursuant to the Merger, except to the extent of any cash
received in lieu of receipt of a fractional share of Bancorp
Common Stock.
(2) The basis of the Bancorp Common Stock (including fractional
share interests) received by F&M shareholders who exchange all
of their F&M Common Stock for Bancorp Common Stock will be the
same as the basis of the F&M Common Stock surrendered in
exchange therefor.
(3) The holding period of the Bancorp Common Stock (including
fractional share interests) received by F&M shareholders who
exchange all of their F&M Common Stock for Bancorp Common Stock
will include the period during which the F&M Common Stock was
held, provided the F&M Common Stock was held as a capital asset
on the date of the exchange.
(4) Where a cash payment is received by a F&M shareholder in lieu
of fractional shares of Bancorp Common Stock, the cash payment
will be treated as a distribution in redemption of the
fractional share interest by Bancorp, subject to the provisions
and limitations of Section 302 of the Internal Revenue Code.
Where such exchange qualifies under Section 302(a) of the
Internal Revenue Code, such shareholder will recognize a
capital gain or loss provided that the F&M Common Stock was
held as a capital asset on the date of the Merger.
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<PAGE> 39
(5) Any F&M shareholder who perfects dissenters' rights and
receives solely cash in exchange for such shareholder's F&M
Common Stock shall be treated as having received such cash as a
distribution in redemption of the F&M Common Stock subject to
the provisions and limitations of Section 302 of the Internal
Revenue Code. Where, as a result of such distribution, such F&M
shareholder owns no Bancorp Common Stock, either directly or
through the application of the constructive ownership rules of
Section 318(a) of the Internal Revenue Code, the redemption
will be a complete termination of interest within the meaning
of Section 302(b)(3) of the Internal Revenue Code and the cash
will be treated as a distribution in full payment and exchange
for F&M Common Stock as provided in Section 302(a) of the
Internal Revenue Code. Gain or loss will be realized and
recognized to such F&M shareholder in an amount equal to the
difference between the redemption price and the adjusted basis
of the F&M Common Stock surrendered in exchange therefor.
(6) No gain or loss will be recognized by F&M or Bancorp in
connection with the transaction.
Receipt of an opinion of tax counsel (the "Tax Opinion") with respect
to the above is a condition precedent to consummation of the Merger.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS BASED UPON THE
CODE, TREASURY REGULATIONS, CASE LAW AND INTERNAL REVENUE SERVICE RULINGS AS IN
EFFECT ON THE DATE HEREOF WITHOUT CONSIDERATION OF THE FACTS AND CIRCUMSTANCES
OF ANY PARTICULAR SITUATION OF ANY F&M SHAREHOLDER. THIS DISCUSSION ASSUMES THAT
F&M SHAREHOLDERS HOLD THEIR F&M COMMON STOCK AS CAPITAL ASSETS WITHIN THE
MEANING OF SECTION 1221 OF THE CODE. SPECIAL TAX CONSIDERATIONS NOT DISCUSSED
HEREIN MAY BE APPLICABLE TO PARTICULAR CLASSES OF TAXPAYERS, SUCH AS
BROKER-DEALERS, OR TO ANY SHAREHOLDER WHO ACQUIRED F&M COMMON STOCK THROUGH THE
EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION. EACH
SHAREHOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISER WITH RESPECT TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE APPLICATION
AND EFFECT OF EXISTING AND PROPOSED FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS.
Accounting Treatment
It is anticipated that the Merger will be accounted for as a
pooling-of-interests. The receipt by Bancorp of letters from its independent
accountants stating that they are not aware of any reason that Bancorp is not in
compliance with the pooling-of-interests criteria and that the Merger can be
accounted for as a pooling-of-interests from Bancorp's perspective and the
receipt of similar letters from F&M's independent accountants is a condition
precedent to the respective party's obligation to consummate the Merger.
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<PAGE> 40
Regulatory Considerations
The proposed transaction requires the approval of the Federal Reserve
Board under section 3(a)(5) of the Bank Holding Company Act of 1956, as amended,
and also requires the approval of the FDIC under Section 18(c) of the Federal
Deposit Insurance Act. The Bank Holding Company Act provides that the Federal
Reserve Board may not approve any transaction which would result in a monopoly
or which would be in furtherance of any combination or conspiracy to monopolize
or attempt to monopolize the business of banking in any part of the United
States, or any transaction the effect of which in any section of the United
States may be substantially to lessen competition or to tend to create a
monopoly or which in any other manner might restrain trade, unless the Federal
Reserve Board determines that the anti-competitive effects of the proposed
merger are clearly outweighed in the public interest by the probable effect of
the transaction in meeting the convenience and needs of the community to be
served. The same anticompetitive considerations regarding monopoly or lessening
of competition are also provided for in the Federal Deposit Insurance Act.
The Merger may generally not be consummated for fifteen days after the
receipt of Federal Reserve Board approval and FDIC approval. Such fifteen day
period will become thirty days, however, if the United States Department of
Justice issues an adverse comment relating to competitive factors. During such
fifteen or thirty day period, the United States Department of Justice may
commence legal action challenging the Merger under the Federal Anti-trust Laws.
If the Justice Department does not commence a legal action during such period,
the Merger may be consummated and the Justice Department may not thereafter
challenge the transaction except in an action commenced under Section 2 of the
Sherman Anti-Trust Act.
The Merger is also subject to approval by the Indiana Department of
Financial Institutions under Chapter 28-2-16 of the Indiana Code, which provides
for foreign bank holding company acquisitions, and under Chapter 28-1-7 of the
Indiana Code, which provides for mergers of Indiana state banks.
Applications requesting approval were submitted to the Federal Reserve
Board on __________ __, 1995, to the FDIC on ___________ __, 1995 and to the
Indiana Department of Financial Institutions on _______ __, 1995. Bancorp and
F&M anticipate that the Merger will be approved by the Federal Reserve Board,
the FDIC and the Indiana Department of Financial Institutions and will not be
challenged by the Justice Department under the anti-trust laws. However, there
can be no assurance that the Federal Reserve Board, the FDIC, the Indiana
Department of Financial Institutions and the Justice Department will concur in
this assessment.
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<PAGE> 41
Pro Forma Unaudited Financial Information
The following pro forma unaudited consolidated balance sheet as of
September 30, 1995 and the pro forma unaudited consolidated statements of
earnings for the nine months ended September 30, 1995 and 1994 and the years
ended December 31, 1994, 1993 and 1992 indicate the pro forma effects of the
merger of F&M into Bancorp and the issuance of shares of Bancorp Common Stock in
exchange for all of the outstanding F&M Common Stock using the
pooling-of-interests method of accounting. Each share of F&M Common Stock will
be canceled and extinguished in consideration and exchange for a number of
shares of Bancorp Common Stock equal to the Exchange Ratio. The pro forma
information has been calculated assuming the issuance of 369,140 shares of
Bancorp Common Stock, which is the Deliverable Shares which would have been
issued if the Merger was effective on October 31, 1995.
Bancorp has a December 31 fiscal year end while F&M has a fiscal year
ending April 30. For purposes of the pro forma unaudited consolidated financial
statements, F&M's statements of earnings have been adjusted to reflect the nine
months ended September 30 and the years ended December 31. Even though F&M uses
an April 30 fiscal year end for reporting purposes, its internal books and
records are maintained on a calendar year basis. F&M's internal financial
statements were therefore used for the pro forma financial information on the
following pages.
On July 15, 1995 Peoples Bank & Trust Co. ("Peoples") merged with and
into a wholly owned interim subsidiary of Bancorp and on October 1, 1995 Bright
Financial Services, Inc. ("Bright") merged with and into Bancorp. Both mergers
used the pooling-of-interest method of accounting. At December 31, 1994, its
most recent fiscal year end, Peoples had total assets of approximately $53.0
million and net earnings of $703,000 for the year then ended. Bright had total
assets of approximately $114.3 million at December 31, 1994 and net earnings of
$920,000 for the year then ended. The following pro forma financial information
has not been restated to include Peoples and Bright because these mergers did
not result in the acquisition by Bancorp of significant subsidiaries, either
individually or in the aggregate, under applicable regulations of the Exchange
Act and are not expected to have a material effect on the financial condition
and results of operations of Bancorp.
The pro forma information is based on the historical financial
statements of the organizations presented giving effect to the accounting method
proposed and the assumptions and adjustments in the accompanying notes to the
pro forma financial statements. These pro forma unaudited statements are
presented for illustrative purposes only and may not be indicative of the
results that actually would have occurred if the combination had been in effect
on the dates indicated or which may be obtained in the future. The pro forma
unaudited financial statements should be read in conjunction with the audited
and unaudited financial statements and related notes set forth or incorporated
by reference in this Proxy Statement-Prospectus.
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<PAGE> 42
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Consolidated
Bancorp F&M Pro Forma
---------- ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 93,539 $ 2,754 $ 96,293
Interest-bearing deposits with other banks 5,512 0 5,512
Federal funds sold and securities purchased
under agreements to resell 8,006 0 8,006
Investment securities held to maturity 105,849 20,494 126,343
Investment securities available for sale,
at fair value 248,540 2,848 251,388
Loans:
Commercial 321,846 7,032 328,878
Real estate-construction 36,730 77 36,807
Real estate-mortgage 753,777 19,009 772,786
Installment 315,097 6,420 321,517
Credit card 14,086 0 14,086
Lease financing 14,968 0 14,968
---------- ---------- ----------
Total loans 1,456,504 32,538 1,489,042
Less:
Unearned income 612 2 614
Allowance for loan losses 19,364 652 20,016
---------- ---------- ----------
Net loans 1,436,528 31,884 1,468,412
Premises and equipment 37,710 851 38,561
Deferred income taxes 3,964 176 4,140
Accrued interest and other assets 29,741 959 30,700
---------- ---------- ----------
TOTAL ASSETS $1,969,389 $ 59,966 $2,029,355
========== ========== ==========
LIABILITIES
Deposits:
Noninterest-bearing $ 192,099 $ 6,766 $ 198,865
Interest-bearing 1,448,951 44,074 1,493,025
---------- ---------- ----------
Total deposits 1,641,050 50,840 1,691,890
Short term borrowings
Federal funds purchased and securities
sold under agreements to repurchase 64,332 800 65,132
Other 21,645 0 21,645
---------- ---------- ----------
Total short-term borrowings 85,977 800 86,777
Accrued interest and other liabilities 21,801 527 22,328
---------- ---------- ----------
TOTAL LIABILITIES 1,748,828 52,167 1,800,995
SHAREHOLDERS' EQUITY
Common stock 100,549 600 (A) 103,502
Surplus 14,241 1,200 (A) 12,957
Retained earnings 104,957 6,212 111,169
Treasury stock, at cost 0 (131)(A) 0
Unrealized net gain (losses) on securities
available-for-sale, net of deferred income taxes 865 (82) 783
Restricted stock awards (51) 0 (51)
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 220,561 7,799 228,360
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,969,389 $ 59,966 $2,029,355
========== ========== ==========
</TABLE>
- -------------------
See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page
41.
35
<PAGE> 43
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Consolidated
Bancorp F&M Pro Forma
---------- ---------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 94,305 $ 2,313 $ 96,618
Investment securities:
Taxable 11,751 741 12,492
Tax-exempt 5,758 276 6,034
----------- ---------- -----------
Total investment securities 17,509 1,017 18,526
Interest-bearing deposits with other banks 224 0 224
Federal funds sold and securities
purchased under agreements to resell 128 32 160
----------- ---------- -----------
Total interest income 112,166 3,362 115,528
INTEREST EXPENSE:
Deposits 42,747 1,366 44,113
Short-term borrowings 3,376 3 3,379
----------- ---------- -----------
Total interest expense 46,123 1,369 47,492
----------- ---------- -----------
Net interest income 66,043 1,993 68,036
Provision for loan losses 1,151 135 1,286
----------- ---------- -----------
Net interest income after
provision for loan losses 64,892 1,858 66,750
NONINTEREST INCOME:
Service charges on deposit accounts 6,314 145 6,459
Trust income 5,706 7 5,713
Gains on investment securities 300 0 300
Other 2,908 78 2,986
----------- ---------- -----------
Total noninterest income 15,228 230 15,458
NONINTEREST EXPENSES:
Salaries and employee benefits 24,321 827 25,148
Net occupancy 3,260 102 3,362
Furniture and equipment 2,415 85 2,500
Data processing 3,977 24 4,001
Deposit insurance 1,860 42 1,902
State taxes 1,224 0 1,224
Other 9,738 359 10,097
----------- ---------- -----------
Total noninterest expenses 46,795 1,439 48,234
----------- ---------- -----------
INCOME BEFORE INCOME TAXES 33,325 649 33,974
Income tax expense 9,850 178 10,028
----------- ---------- -----------
NET EARNINGS $ 23,475 $ 471 $ 23,946
=========== ========== ===========
NET EARNINGS PER SHARE $ 1.91 $ 83.51 $ 1.89
=========== ========== ===========
AVERAGE SHARES OUTSTANDING 12,311,609 5,633 12,680,749 (B)
=========== ========== ===========
</TABLE>
- --------------------
See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page
41.
36
<PAGE> 44
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Consolidated
Bancorp F&M Pro Forma
------------ ------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 76,459 $2,190 $ 78,649
Investment securities:
Taxable 13,800 789 14,589
Tax-exempt 7,349 269 7,618
------------ ------ ------------
Total investment securities 21,149 1,058 22,207
Interest-bearing deposits with other banks 298 0 298
Federal funds sold and securities
purchased under agreements to resell 281 63 344
------------ ------ ------------
Total interest income 98,187 3,311 101,498
INTEREST EXPENSE:
Deposits 34,634 1,357 35,991
Short-term borrowings 1,342 3 1,345
Long-term borrowings 124 0 124
------------ ------ ------------
Total interest expense 36,100 1,360 37,460
------------ ------ ------------
Net interest income 62,087 1,951 64,038
Provision for loan losses 657 76 733
------------ ------ ------------
Net interest income after
provision for loan losses 61,430 1,875 63,305
NONINTEREST INCOME:
Service charges on deposit accounts 6,154 145 6,299
Trust income 5,308 2 5,310
Losses on investment securities (618) 0 (618)
Other 3,179 83 3,262
------------ ------ ------------
Total noninterest income 14,023 230 14,253
NONINTEREST EXPENSES:
Salaries and employee benefits 23,446 807 24,253
Net occupancy 3,165 90 3,255
Furniture and equipment 2,217 73 2,290
Data processing 3,863 21 3,884
Deposit insurance 2,652 107 2,759
State taxes 1,318 0 1,318
Other 9,583 289 9,872
------------ ------ ------------
Total noninterest expenses 46,244 1,387 47,631
------------ ------ ------------
INCOME BEFORE INCOME TAXES 29,209 718 29,927
Income tax expense 7,552 173 7,725
------------ ------ ------------
NET EARNINGS $ 21,657 $ 545 $ 22,202
============ ====== ============
NET EARNINGS PER SHARE $ 1.77 $96.80 $ 1.76
============ ====== ============
AVERAGE SHARES OUTSTANDING 12,213,201 5,633 12,582,341(B)
============ ====== ============
</TABLE>
- --------------------
See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page
41.
37
<PAGE> 45
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Consolidated
Bancorp F&M Pro Forma
------------ ------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 104,936 $2,906 $ 107,842
Investment securities:
Taxable 18,229 1,050 19,279
Tax-exempt 9,676 365 10,041
------------ ------ ------------
Total investment securities 27,905 1,415 29,320
Interest-bearing deposits with other banks 388 0 388
Federal funds sold and securities
purchased under agreements to resell 275 76 351
------------ ------ ------------
Total interest income 133,504 4,397 137,901
INTEREST EXPENSE:
Deposits 47,042 1,783 48,825
Short-term borrowings 2,421 4 2,425
Long-term borrowings 124 0 124
------------ ------ ------------
Total interest expense 49,587 1,787 51,374
------------ ------ ------------
Net interest income 83,917 2,610 86,527
Provision for loan losses 1,268 157 1,425
------------ ------ ------------
Net interest income after
provision for loan losses 82,649 2,453 85,102
NONINTEREST INCOME:
Service charges on deposit accounts 8,222 192 8,414
Trust income 7,017 2 7,019
Losses on investment securities (1,754) 0 (1,754)
Other 3,977 106 4,083
------------ ------ ------------
Total noninterest income 17,462 300 17,762
NONINTEREST EXPENSES:
Salaries and employee benefits 31,296 1,033 32,329
Net occupancy 4,211 125 4,336
Furniture and equipment 3,006 98 3,104
Data processing 5,205 26 5,231
Deposit insurance 3,537 142 3,679
State taxes 1,726 0 1,726
Other 13,158 409 13,567
------------ ------ ------------
Total noninterest expenses 62,139 1,833 63,972
------------ ------ ------------
INCOME BEFORE INCOME TAXES 37,972 920 38,892
Income tax expense 9,799 220 10,019
------------ ------ ------------
NET EARNINGS $ 28,173 $ 700 $ 28,873
============ ====== ============
NET EARNINGS PER SHARE $ 2.31 $124.25 $ 2.30
============ ====== ============
AVERAGE SHARES OUTSTANDING 12,210,753 5,633 12,579,893(B)
============ ====== ============
</TABLE>
- --------------------
See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page
41.
38
<PAGE> 46
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Consolidated
Bancorp F&M Pro Forma
------------ ------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 99,333 $3,219 $ 102,552
Investment securities:
Taxable 19,363 1,197 20,560
Tax-exempt 10,659 291 10,950
------------ ------ ------------
Total investment securities 30,022 1,488 31,510
Interest-bearing deposits with other banks 578 0 578
Federal funds sold and securities
purchased under agreements to resell 806 141 947
------------ ------ ------------
Total interest income 130,739 4,848 135,587
INTEREST EXPENSE:
Deposits 50,862 2,108 52,970
Short-term borrowings 790 0 790
Long-term borrowings 228 0 228
------------ ------ ------------
Total interest expense 51,880 2,108 53,988
------------ ------ ------------
Net interest income 78,859 2,740 81,599
Provision for loan losses 3,747 395 4,142
------------ ------ ------------
Net interest income after
provision for loan losses 75,112 2,345 77,457
NONINTEREST INCOME:
Service charges on deposit accounts 8,513 195 8,708
Trust income 6,425 10 6,435
Losses on investment securities (71) 0 (71)
Other 4,722 103 4,825
------------ ------ ------------
Total noninterest income 19,589 308 19,897
NONINTEREST EXPENSES:
Salaries and employee benefits 29,633 1,116 30,749
Net occupancy 4,219 113 4,332
Furniture and equipment 3,147 87 3,234
Data processing 4,741 56 4,797
Deposit insurance 3,468 142 3,610
State taxes 1,704 0 1,704
Other 15,126 383 15,509
------------ ------ ------------
Total noninterest expenses 62,038 1,897 63,935
------------ ------ ------------
INCOME BEFORE INCOME TAXES 32,663 756 33,419
Income tax expense 7,469 193 7,662
------------ ------ ------------
NET EARNINGS $ 25,194 $ 563 $ 25,757
============ ====== ============
NET EARNINGS PER SHARE $ 2.06 $99.96 $ 2.05
============ ====== ============
AVERAGE SHARES OUTSTANDING 12,211,405 5,633 12,580,545(B)
============ ====== ============
</TABLE>
- --------------------
See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page
41.
39
<PAGE> 47
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
Consolidated
Bancorp F&M Pro Forma
----------- ------ -----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 109,072 $3,502 $ 112,574
Investment securities:
Taxable 20,778 1,256 22,034
Tax-exempt 10,918 253 11,171
----------- ------ -----------
Total investment securities 31,696 1,509 33,205
Interest-bearing deposits with other banks 883 0 883
Federal funds sold and securities
purchased under agreements to resell 1,788 94 1,882
----------- ------ -----------
Total interest income 143,439 5,105 148,544
INTEREST EXPENSE:
Deposits 65,743 2,511 68,254
Short-term borrowings 878 0 878
Long-term borrowings 337 0 337
----------- ------ -----------
Total interest expense 66,958 2,511 69,469
----------- ------ -----------
Net interest income 76,481 2,594 79,075
Provision for loan losses 6,543 320 6,863
----------- ------ -----------
Net interest income after
provision for loan losses 69,938 2,274 72,212
NONINTEREST INCOME:
Service charges on deposit accounts 7,810 176 7,986
Trust income 5,912 0 5,912
Gains on investment securities 1,811 3 1,814
Other 4,281 131 4,412
----------- ------ -----------
Total noninterest income 19,814 310 20,124
----------- ------ -----------
NONINTEREST EXPENSES:
Salaries and employee benefits 28,260 1,011 29,271
Net occupancy 3,858 107 3,965
Furniture and equipment 3,228 136 3,364
Data processing 4,725 22 4,747
Deposit insurance 3,553 118 3,671
State taxes 1,638 0 1,638
Other 15,377 412 15,789
----------- ------ -----------
Total noninterest expenses 60,639 1,806 62,445
----------- ------ -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 29,113 778 29,891
Income tax expense 7,343 180 7,523
----------- ------ -----------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES $ 21,770 $ 598 $ 22,368
=========== ====== ===========
EARNINGS PER SHARE BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES $ 1.77 $106.16 $ 1.76
=========== ====== ===========
AVERAGE SHARES OUTSTANDING 12,318,805 5,633 12,687,945(B)
=========== ====== ===========
</TABLE>
- --------------------
See Notes to the Pro Forma Unaudited Consolidated Financial Statements on page
41.
40
<PAGE> 48
NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
General
Reclassification of information has been made at times to provide
consistency in the presentation of financial information for the corporations
involved. These reclassifications are not material in nature and had no effect
on net earnings.
Listed below are certain costs that are directly attributable to the
Merger and some of these can reasonably be expected to be included in the
expenses of Bancorp during the next 12 months. At September 30, 1995,
approximately $80,000 of the costs listed below have already been paid and
expensed or accrued and expensed by F&M. Those costs not previously paid or
accrued were not considered in the preparation of the Pro Forma Unaudited
Consolidated Financial Statements.
<TABLE>
<CAPTION>
Classification Amount
-------------- --------
<S> <C>
Legal $125,000
Accounting 95,000
Financial advisor 15,000
Regulatory filing fees 13,000
Other 13,000
--------
Total $261,000
</TABLE>
(A) Bancorp is offering to exchange shares of Bancorp Common Stock for
outstanding shares of F&M Common Stock. The exact number of Bancorp
shares to be issued (Deliverable Shares)is not yet known. It will be
calculated by dividing $12,500,000 by the Average Price. In the event
of the subdivision or split of the outstanding Bancorp shares, the
payment of a dividend in Bancorp shares or a capital reorganization
affecting the closing price for Bancorp shares during some but not all
of said trading days, the number of Deliverable Shares will be adjusted
proportionately so that the holders of outstanding F&M shares shall
receive the number of Bancorp shares that represents the same
percentage of the value of outstanding Bancorp shares at the Effective
Time as would have been represented by the number of shares such
shareholders would have received if the event had not occurred. Each
holder of F&M shares shall be entitled to a portion of the Deliverable
Shares that is equal to the number of Deliverable Shares multiplied by
a fraction, the numerator of which is the number of F&M shares held by
that shareholder immediately prior to the Effective Time and the
denominator of which is the number of F&M shares outstanding
immediately prior to the Effective Time.
Total Deliverable Shares would equal 369,140 shares if the Merger was
consummated on October 31, 1995.
41
<PAGE> 49
(B) The par value of Bancorp Common Stock is $8.00 per share, while the F&M
Common Stock is without par. The additional par value of the shares of
Bancorp Common Stock issued, in the aggregate, over the par value of
F&M Common Stock, in the aggregate, is transferred from surplus, as
shown in the table below:
<TABLE>
<CAPTION>
F&M Retirement of Transfer from F&M
Actual Treasury Stock Surplus Pro Forma
------- -------------- ------------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Common stock $ 600 $ (37) $ 2,390 $ 2,953
Surplus 1,200 (94) (2,390) (1,284)
Treasury stock, at cost (131) 131 0 0
------- ----- ------- -------
Total common stock and surplus $ 1,669 $ 0 $ 0 $ 1,669
======= ===== ======= =======
</TABLE>
The consolidated pro forma shareholders' equity per share was
calculated assuming the issuance of 369,140 shares of Bancorp Common
Stock at an Average equal to $33.8625, which is the Average that would
have been in effect if the Merger was effective October 31, 1995. The
use of the number of shares is for illustrative purposes only and does
not attempt to predict the actual number of shares to be issued in the
Merger.
42
<PAGE> 50
INFORMATION ABOUT BANCORP
Information about Bancorp is included in the Bancorp Form 10-K,
previously incorporated herein by reference, and in Bancorp's Quarterly Report
on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1995,
previously incorporated herein by reference.
43
<PAGE> 51
INFORMATION ABOUT THE BUSINESS OF F&M
General
F&M, a bank holding company, was established in 1984 and is
headquartered in Rochester, Indiana, the county seat of Fulton County. The
holding company's wholly owned subsidiary, Farmers & Merchants Bank, is a
state-chartered commercial bank, chartered by the State of Indiana in 1934.
Farmers & Merchants conducts its business through a main office and drive-up
facility, both of which are located in Rochester, Indiana, and a full service
branch located in Kewanna, Indiana. Its primary market area includes the cities
of Rochester and Kewanna, Indiana and the contiguous area within Fulton County,
Indiana. The only commercial community banking operation in the Rochester area,
Farmers & Merchants' primary market area contains a diverse business and
economic base of light manufacturing, recreational areas, service companies and
farms.
As of April 30, 1995, F&M had total assets of $59.2 million and total
deposits of $51.4 million. It had 32 employees at October 31, 1995.
Farmers & Merchants has operated as a traditional community bank since
its founding. As with many community banks, its lending focus has been strongly
real estate-oriented. At April 30, 1995, approximately 59.3% of its lending
portfolio was comprised of real estate loans. The balance of its loan portfolio
is comprised primarily of consumer and commercial loans. Lendable funds are
obtained primarily from deposits and loan principal payments. Farmers &
Merchants offers a full line of checking and NOW accounts, passbook savings,
certificates of deposit and individual retirement accounts. In addition to
originating loans, Farmers & Merchants invests in U.S. treasury and government
agency securities, corporate notes and municipal securities.
Competition
Farmers & Merchants competes for deposits with other commercial banks,
savings associations, savings banks, credit unions and with issuers of
commercial paper and other securities, such as shares in money market mutual
funds. The primary factors in competing for deposits are interest rates and
convenience of office location.
In making loans, Farmers & Merchants competes with other commercial
banks, savings associations, savings banks, consumer finance companies, credit
unions, leasing companies, mortgage companies, and other lenders. Farmers &
Merchants competes for loan originations primarily through the interest rates
and loan fees it charges and through the efficiency and quality of services it
provides to borrowers. Competition is affected by, among other things, the
general availability of lendable funds, general and local economic conditions,
current interest rate levels and other factors which are not readily
predictable.
44
<PAGE> 52
Regulation
F&M, as a bank holding company, is subject to supervision and/or
regular examination by the Federal Reserve Board and the Federal Deposit
Insurance Corporation (the "FDIC"). Farmers & Merchants, as a state-chartered
bank, is subject to supervision and regular examination by the Indiana
Department of Financial Institutions and by the FDIC.
Properties
Farmers & Merchants operates a main office and drive-up facility in
Rochester, Indiana and a branch office in Kewanna, Indiana. All offices are
owned by Farmers & Merchants. F&M does not directly own any real property.
Legal Proceedings
Neither F&M nor Farmers & Merchants is presently involved in any legal
proceedings of a material nature. From time to time, Farmers & Merchants is a
party to legal proceedings incidental to its business to enforce its security
interest in collateral pledged to secure loans made by Farmers & Merchants.
45
<PAGE> 53
Selected Financial Data
The following table sets forth certain information concerning the
financial condition, earnings and other data regarding F&M at the dates and for
the periods indicated:
<TABLE>
<CAPTION>
Financial condition At April 30,
and other data: --------------------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets $59,186 $60,949 $63,045 $59,458 $55,519
Investment securities:
Held-to-maturity 21,352 23,151 23,476 22,854 19,627
Available-for-sale 2,775 2,940 0 0 0
Loans receivable, net of
unearned income and
deferred loan fees 31,981 28,850 31,735 32,367 31,170
Deposits 51,424 53,591 55,903 53,051 49,112
Shareholders' equity 7,397 7,040 6,651 5,953 5,895
</TABLE>
<TABLE>
<CAPTION>
Earnings and other Year ended April 30,
data: -------------------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $ 4,382 $ 4,657 $ 5,082 $5,241 $4,884
Interest expense 1,743 1,994 2,428 2,786 2,742
------- ------- ------- ------ ------
Net interest income 2,639 2,663 2,654 2,455 2,142
Provision for loan losses 184 408 86 512 145
------- ------- ------- ------ ------
Net interest income after
provision for loan losses 2,455 2,255 2,568 1,943 1,997
Other income 297 297 313 312 321
Other expenses 1,903 1,832 1,774 1,801 1,684
------- ------- ------- ------ ------
Earnings before income taxes and
cumulative effect of change
in accounting principle 849 720 1,107 454 634
Income taxes 223 148 263 208 200
------- ------- ------- ------ ------
Net earnings $ 626 $ 572 $ 844 $ 246 $ 434
======= ======= ======= ====== ======
Net earnings per share $111.12 $101.55 $149.89 $43.60 $76.18
======= ======= ======= ====== ======
Dividends per share $ 30.00 $ 26.00 $ 26.00 $26.00 $26.00
Return on equity (net earnings
divided by average equity) 8.41% 8.22% 13.04% 4.11% 7.50%
Return on assets (net earnings
divided by average total assets) 1.03% 0.90% 1.34% 0.43% 0.81%
</TABLE>
46
<PAGE> 54
Analysis Of Net Interest Income
The following table sets forth for the years ended April 30, 1995, 1994
and 1993 the average balances of major categories of interest earning assets and
interest bearing liabilities, interest income earned and interest expense paid
during such periods and the related weighted average rates for F&M.
<TABLE>
<CAPTION>
Year ended April 30,
-----------------------------------------------------------------
1995 1994
------------------------------ --------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $30,358 $ 2,933 9.66% $30,212 $ 3,079 10.19%
Investment securities:
Taxable 19,405 1,036 5.34% 19,037 1,120 5.88%
Tax-exempt (2) 6,345 566 8.92% 5,171 474 9.16%
Federal funds sold 728 40 5.46% 4,709 146 3.10%
------- ------- ------ ------- ------- ------
Total interest-earning assets 56,836 4,575 8.05% 59,129 4,819 8.15%
Noninterest-earning assets:
Allowance for loan losses (545) (537)
Other 4,644 5,079
------- -------
Total assets $60,935 $63,671
======= =======
Interest-bearing liabilities:
Demand deposits $11,956 290 2.43% $12,779 313 2.45%
Savings deposits 8,314 227 2.73% 7,593 207 2.73%
Time deposits 26,056 1,220 4.68% 29,912 1,469 4.91%
Federal funds purchased 87 6 7.07% 0 0 0.00%
Capital lease obligations 0 0 0.00% 46 5 11.54%
------- ------- ------ ------- ------- ------
Total interest-bearing liabilities 46,413 1,743 3.75% 50,330 1,994 3.96%
------- ------ ------- ------
Noninterest-bearing liabilities 7,083 6,385
------- -------
Total liabilities 53,496 56,715
Stockholders' equity 7,439 6,956
------- -------
Total liabilities and
stockholders' equity $60,935 $63,671
======= =======
Net interest income;
interest rate spread $ 2,832 4.30% $ 2,825 4.19%
======= ===== ======= ======
Net interest margin (net interest income as a
percent of average interest-earning assets) 4.98% 4.78%
===== ======
Average interest-earning assets to
average interest-bearing liabilities 122.5% 117.5%
====== ======
</TABLE>
<TABLE>
<CAPTION>
Year ended April 30,
--------------------------------
1993
--------------------------------
Average Interest
Outstanding Earned/ Yield/
Balance Paid Rate
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $32,470 $ 3,470 10.69%
Investment securities:
Taxable 18,594 1,242 6.68%
Tax-exempt (2) 4,459 403 9.03%
Federal funds sold 3,348 105 3.13%
------- ------- ------
Total interest-earning assets 58,871 5,220 8.87%
Noninterest-earning assets:
Allowance for loan losses (487)
Other 4,466
-------
Total assets $62,850
=======
Interest-bearing liabilities:
Demand deposits $11,601 342 2.95%
Savings deposits 6,678 218 3.26%
Time deposits 32,762 1,836 5.61%
Federal funds purchased 0 0 0.00%
Capital lease obligations 259 32 12.21%
------- ------- ------
Total interest-bearing liabilities 51,300 2,428 4.73%
------- ------
Noninterest-bearing liabilities 5,073
-------
Total liabilities 56,373
Stockholders' equity 6,477
-------
Total liabilities and
stockholders' equity $62,850
=======
Net interest income;
interest rate spread $ 2,792 4.14%
======= ======
Net interest margin (net interest income as a
percent of average interest-earning assets) 4.74%
======
Average interest-earning assets to
average interest-bearing liabilities 114.8%
======
</TABLE>
- --------------------
(1) For purposes of these computations, nonaccrual loans are included in the
average loan balances outstanding.
(2) Interest income on tax-exempt investments has been adjusted to a taxable
equivalent basis using a marginal federal income tax rate of 34.0%.
47
<PAGE> 55
Interest Income And Expense Rate/Volume Analysis
The table below describes the extent to which changes in interest rates
and changes in the volume of interest earning assets and interest bearing
liabilities have affected F&M's interest income and expense during the periods
indicated. For each category of interest earning assets and interest bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), (ii) changes in rate
(change in rate multiplied by prior year volume) and (iii) total changes in rate
and volume. The combined effects of changes in both volume and rate, which
cannot be separately identified, have been allocated proportionately to the
change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Year ended April 30,
-------------------------------------------------------------
1995 vs. 1994 1994 vs. 1993
---------------------------- ----------------------------
Increase (decrease) Increase (decrease)
due to due to
----------------- -----------------
Volume Rate Total Volume Rate Total
------ ----- ----- ------ ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans receivable $ 15 $(161) $(146) $(234) $(157) $(391)
Investment securities:
Taxable 21 (105) (84) 29 (151) (122)
Tax-exempt (1) 105 (13) 92 65 6 71
Federal funds sold (173) 67 (106) 42 (1) 41
----- ----- ----- ----- ----- -----
Total interest income (32) (212) (244) (98) (303) (401)
Interest expense attributable to:
Interest-bearing demand deposits (20) (3) (23) 33 (62) (29)
Savings deposits 20 0 20 28 (39) (11)
Time deposits (183) (66) (249) (152) (215) (367)
Federal funds purchased 6 0 6 0 0 0
Capital lease obligations (3) (2) (5) (25) (2) (27)
----- ----- ----- ----- ----- -----
Total interest expense (180) (71) (251) (116) (318) (434)
----- ----- ----- ----- ----- -----
Increase (decrease) in net
interest income $ 148 $(141) $ 7 $ 18 $ 15 $ 33
===== ===== ===== ===== ===== =====
</TABLE>
--------------------
(1) Interest income on tax-exempt investments has been adjusted to
a taxable equivalent basis using a marginal federal income tax
rate of 34.0%.
Investment Securities
The following table sets forth the carrying amount of investment
securities at April 30, 1995 and 1994:
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
April 30, April 30,
--------------------- -------------------
1995 1994 1995 1994
------- ------- ------ ------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 0 $ 500 $ 0 $ 0
U.S. Government agencies 13,988 15,069 2,775 2,940
Obligations of states and
political subdivisions 6,861 6,819 0 0
Other securities 503 763 0 0
------- ------- ------ ------
Total $21,352 $23,151 $2,775 $2,940
======= ======= ====== ======
</TABLE>
48
<PAGE> 56
The following table presents the contractual maturities or terms to
repricing of investment debt securities and the weighted average yield at April
30, 1995.
<TABLE>
<CAPTION>
Due 0-1 year Due 1-5 years Due 5-10 years Due after 10
after after after years after
4-30-95 4-30-95 4-30-95 4-30-95 Totals
-------------- --------------- -------------- -------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------- ----- ------ ----- ------ ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY:
U.S. Government Agencies $ 999 4.76% $12,989 5.39% $ 0 0.00% $ 0 0.00% $13,988 5.35%
Obligations of states and
political subdivisions(1) 421 6.77 1,637 9.14 2,549 8.97 2,254 8.94 6,861 8.87
Other securities 503 7.02 0 0.00 0 0.00 0 0.00 503 7.02
------ ---- ------- ---- ------ ---- ------ ---- ------- ----
Total Held-to-Maturity $1,923 5.79% $14,626 5.80% $2,549 8.97% $2,254 8.94% $21,352 6.51%
====== ==== ======= ==== ====== ==== ====== ==== ======= ====
AVAILABLE-FOR-SALE:
U.S. Government agencies $ 0 0.00% $ 2,775 4.81% $ 0 0.00% $ 0 0.00% $ 2,775 4.81%
====== ==== ======= ==== ====== ==== ====== ==== ======= ====
</TABLE>
- --------------------
(1) Yields on tax-exempt investments have been computed on a tax equivalent
basis using a marginal federal income tax rate of 34.0%.
At April 30, 1995 there were no holdings of securities of any one
issuer, other than the U.S. Government and its agencies and corporations, in an
amount greater than 10% of shareholders' equity.
Loan Portfolio
LOAN PORTFOLIO COMPOSITION. F&M's primary lending area are the cities
of Rochester and Kewanna, Indiana and the contiguous area in Fulton County,
Indiana.
The following table presents certain information in respect of the
composition of F&M's loan portfolio at the dates indicated:
<TABLE>
<CAPTION>
At April 30,
---------------------
1995 1994
------- -------
(In thousands)
<S> <C> <C>
Commercial & agricultural $ 6,810 $ 6,711
Real estate-construction 175 183
Real estate-mortgage 18,778 16,244
Installment 6,218 5,712
------- -------
Total loans 31,981 28,850
Allowance for loan losses 643 602
------- -------
Net loans $31,338 $28,248
======= =======
</TABLE>
LOAN MATURITY SCHEDULE. The following table sets forth certain
information at April 30, 1995 regarding loans maturing or repricing in F&M's
portfolio, based on the earlier of contractual terms to maturity or the next
scheduled repricing date for variable rate loans:
<TABLE>
<CAPTION>
Due 0-1 year Due 1-5 years Due 5-10 years Due after 10
after after after years after
4-30-95 4-30-95 4-30-95 4-30-95 Total
------------ ------------- -------------- ------------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial and agricultural $4,830 $1,415 $565 $0 $6,810
Real estate-construction 175 0 0 0 175
------ ------ ---- -- ------
Total $5,005 $1,415 $565 $0 $6,985
====== ====== ==== == ======
</TABLE>
49
<PAGE> 57
The following table sets forth the dollar amount of all loans due after
one year after April 30, 1995 that have predetermined interest rates and have
floating or adjustable interest rates:
<TABLE>
<CAPTION>
Predetermined Floating or
rates adjustable rates
------------- ----------------
(In thousands)
<S> <C> <C>
Commercial & agricultural $1,980 $0
Real estate-construction 0 0
------ --
Total $1,980 $0
====== ==
</TABLE>
DELINQUENT LOANS AND NONPERFORMING ASSETS. All loans are reviewed on a
regular basis and are placed on non-accrual status when, in the opinion of
management, the collection of interest is doubtful. Loans are classified as
restructured when management, to protect its investment, grants concessions that
would not otherwise be considered to a debtor. Other real estate owned ("OREO")
represents real estate acquired by F&M as a result of loan defaults by
customers. The following table summarizes F&M's nonaccrual loans, restructured
loans, OREO and past due loans at April 30, 1995 and 1994:
<TABLE>
<CAPTION>
At April 30,
------------------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Nonaccrual loans $646 $527
Restructured loans 0 0
Other real estate owned 0 128
---- ----
Total nonperforming assets $646 $655
==== ====
Accruing loans past due
90 days or more $192 $140
==== ====
</TABLE>
Interest income which would have been recorded under the original terms
of nonaccrual loans and the interest income actually recognized are summarized
below:
<TABLE>
<CAPTION>
Year ended April 30,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Interest income which would
have been recorded $59 $57
Interest income recognized 0 0
--- ---
Interest income foregone $59 $57
=== ===
</TABLE>
At April 30, 1995 F&M did not have any loans not currently classified
as nonaccrual or 90 days past due and accruing where known information about
possible credit problems of borrowers causes management to have serious doubts
as to the ability of such borrowers to comply with the present loan repayment
terms and which may result in future disclosure of such loans.
ALLOWANCE FOR LOAN LOSSES. F&M maintains an allowance to absorb
anticipated losses on loans. Additions to the allowance for loan losses are
charged to the provision for loan losses on the statement of income. Management
reviews on a quarterly basis the allowance for loan losses as it relates to a
number of relevant factors, including, but not limited to, trends in the level
of nonperforming assets, current and anticipated economic conditions in the
primary lending area, past loss experience, loan concentrations, composition of
the loan portfolio and possible losses arising from specific problem loans.
While management believes that it uses the best information available to
determine the allowance for loan losses, unforeseen market conditions could
result in adjustments and net earnings could be significantly affected if
circumstances differ substantially from the assumptions used in evaluating the
adequacy of the allowance for loan losses.
50
<PAGE> 58
The following table sets forth an analysis of F&M's allowance for loan
losses for the periods indicated:
<TABLE>
<CAPTION>
Year ended April 30,
---------------------------------
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period $602 $489 $491
Charge-offs:
Commercial and agricultural 28 243 42
Real estate-construction 0 0 0
Real estate-mortgage 76 16 3
Installment 105 99 112
---- ---- ----
Total charge-offs 209 358 157
Recoveries:
Commercial and agricultural 8 2 27
Real estate-construction 0 0 0
Real estate-mortgage 2 22 14
Installment 56 39 28
---- ---- ----
Total recoveries 66 63 69
Net charge-offs (recoveries) 143 295 88
Provision for loan losses 184 408 86
---- ---- ----
Balance at end of period $643 $602 $489
==== ==== ====
Ratio of net charge-offs during
the period to average loans
outstanding during the period 0.47% 0.98 % 0.27%
==== ==== ====
</TABLE>
The following table provides an allocation of F&M's allowance for loan
losses by category for the periods indicated. The allowance can be allocated by
category only on an approximate basis. The allocation of allowance to each
category is not necessarily indicative of future losses and does not restrict
the use of the allowance to absorb losses in any other category.
<TABLE>
<CAPTION>
At April 30,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Commercial and agricultural $158 $253
Real estate-construction 0 0
Real estate-mortgage 262 187
Installment loans 129 98
Unallocated 94 64
---- ----
Total $643 $602
==== ====
</TABLE>
Deposits
Deposits have traditionally been the primary source of F&M's funds for
use in lending and other investment activities. Deposits are attracted
principally within the cities of Rochester and Kewanna, Indiana and the
contiguous area in Fulton County, Indiana through the offering of a broad
selection of deposit instruments, including checking and NOW accounts, money
market deposit accounts, regular passbook savings accounts, term certificate
accounts and retirement savings plans. F&M does not presently use brokers to
attract deposits.
51
<PAGE> 59
The following table presents the average balance of and the average
rate paid on various deposit categories for the periods indicated:
<TABLE>
<CAPTION>
Year ended April 30,
---------------------------------------------
1995 1994
---------------------- ------------------
Average Average Average Average
Balance Rate Balance Rate
------- --------- ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Noninterest bearing demand deposits $ 6,703 $ 6,030
Interest bearing demand deposits 11,956 2.43% 12,779 2.45%
Savings deposits 8,314 2.73 7,593 2.73
Time deposits 26,056 4.68 29,912 4.91
------- --------- ------- ----
Total $53,029 3.27% $56,314 3.53%
======= ========= ======= ====
</TABLE>
The following table presents the amount of F&M's time deposits of
$100,000 or more by the time remaining until maturity as of April 30, 1995:
<TABLE>
<CAPTION>
Maturity April 30, 1995
-------- --------------
(In thousands)
<S> <C>
Three months or less $ 350
Over three through six months 100
Over six through twelve months 100
Over twelve months 560
------
Total $1,110
======
</TABLE>
Return On Equity And Assets
The following table sets forth certain performance ratios of F&M for
the periods indicated:
<TABLE>
<CAPTION>
Year ended April 30,
----------------------
1995 1994
------ ------
<S> <C> <C>
Return on assets (net income
divided by average total assets) 1.03% 0.90%
Return on equity (net income
divided by average equity) 8.41% 8.22%
Dividend payout ratio (dividends
declared per share divided by
net income per share) 27.00% 25.60%
Equity to assets ratio (average
equity divided by average assets) 12.21% 10.92%
</TABLE>
52
<PAGE> 60
INFORMATION ABOUT THE MANAGEMENT OF F&M
F&M's Board Of Directors
F&M currently has a Board of Directors consisting of seven persons,
each serving for a term of one year. The following persons are serving on F&M's
Board of Directors:
<TABLE>
<CAPTION>
Year First Term
Name Age(1) Elected Director Expires
---- ------ ---------------- -------
<S> <C> <C> <C>
WENDELL B. BEARSS 65 1987 1996
Farmer
H. ROBERT BRADLEY 77 1958 1996
Retired Farmer
CAROL J. BRIDGE 56 1987 1996
Secretary-Treasurer,
Rochester Telephone Company
WILLIAM J. GORDON 60 1987 1996
President/CEO of F&M and
Farmers & Merchants Bank
J. FREDERICK HOFFMAN 73 1990 1996
Partner, Law firm of
Hoffman, Luhman & Busch
ROBERT E. PETERSON 65 1984 1996
Chairman of the Board of F&M/
Senior Partner, Law Firm of
Peterson & Waggoner
V. LORENE RAUSCHKE 73 1975 1996
Retired
</TABLE>
-------------------------
(1) As of October 31, 1995.
Board Meetings And Committees
The Board of Directors meets the second Wednesday of each month for
regular meetings. Additional special meetings may also be held from time to
time. During the year ended April 30, 1995 the Board of Directors met 12 times
for regular and special meetings.
The Board of Directors has the following committees:
<TABLE>
<CAPTION>
Committee Members Function
-------------------- -------------------- -----------------------------------------------------------
<S> <C> <C>
Trust All Directors Meets monthly after regular board meeting to review all
trust activity and specific accounts.
Loan William J. Gordon Meets on an as-needed basis to review and act upon loan
Wendell B. Bearss requests of $50,000 or more. The committee also makes
V. Lorene Rauschke recommendations to the full board of directors when
Robert E. Peterson necessary.
Asset & Liability William J. Gordon Meets monthly to discuss and monitor Farmers & Merchants
Management V. Lorene Rauschke rate sensitive assets and liabilities. This committee also
Wendell B. Bearss adjusts the rates of such assets and liabilities. The
following F&M and/or Farmers and Merchants officers,
who are not members of the Board of Directors, are also
members of this committee: Michael R. Terrone, George
R. Hoover, Harry J. Richter and Dean A. Dolph.
</TABLE>
53
<PAGE> 61
<TABLE>
<S> <C> <C>
Community Reinvestment William J. Gordon Meets on an as needed basis to monitor Farmers & Merchants
Act V. Lorene Rauschke compliance with the Community Reinvestment Act, the intent
Wendell B. Bearss of which is to encourage financial institutions to assess
and meet the credit needs of their local communities,
including low to moderate income areas. The following F&M
and/or Farmers and Merchants officers, who are not members
of the Board of Directors are also members of this
committee: Michael R. Terrone, George R. Hoover, Harry J.
Richter and Dean A. Dolph.
Salary Carol J. Bridge Meets annually to review bank staff evaluations and
J. Frederick Hoffman and appraisals and to make wage adjustments. Michael R.
Terrone, who is an officer of F&M and Farmers & Merchants
but not a member of the Board of Directors, is also a
member of this committee.
Compliance & Audit Robert E. Peterson This committee is a temporary committee formed in August
V. Lorene Rauschke 1993 to monitor compliance with the terms of a Memorandum
Wendell B. Bearss of Understanding ("MOU") entered into with the Indiana
Carol J. Bridge Department of Financial Institutions and the FDIC. The
committee met monthly during the period that the MOU was in
effect. The FDIC released Farmers & Merchants from the
requirements of the MOU in June 1994 and the Indiana
Department of Financial Institutions released Farmers &
Merchants from the terms of the MOU in November 1994, at
which time this committee became inactive. For more
information about the MOU, see note 11 to the April 30,
1995 Consolidated Financial Statements of F & M Bancorp and
Subsidiary.
</TABLE>
Each director attended at least 75% of the aggregate of the meetings of
the Board of Directors and the meetings of committees of the Board of Directors
on which he/she served.
Director Compensation
During the twelve months prior to December 31, 1994, each director
received an annual fee of $3,600 for serving on the Board of Directors. Members
of the Loan Committee received an additional $1,000 for serving on that
committee and members of the Compliance & Audit Committee received an additional
$1,500.
Executive Officers Of F&M
The table below sets forth certain information with respect to the
executive officers of F&M with additional information being provided in the
following narrative section on each officer.
<TABLE>
<CAPTION>
Name Age(1) Position with F&M
------------------------- ------ -----------------
<S> <C> <C>
Robert E. Peterson 65 Chairman of the Board
William J. Gordon 60 President/CEO
George R. Hoover 57 Secretary-Treasurer
Michael R. Terrone 48 Vice President
</TABLE>
-------------------------
(1) As of October 31, 1995.
54
<PAGE> 62
ROBERT E. PETERSON was first elected to F&M's Board of Directors in
1984 and became Chairman in June 1995. Mr. Peterson is a senior partner of the
law firm of Peterson & Waggoner, where he has been affiliated for thirty years.
He was an Indiana State Senator from 1961 to 1968 and from 1977 to 1980. He was
Assistant Minority Leader during 1979 and 1980. He was also Fulton County
Auditor from 1957 to 1960 and was a farmer from 1954 to 1956. Mr. Peterson is a
veteran of the Korean War. He graduated from Purdue University in 1952 with a
Bachelor of Science Degree in Agriculture and earned a Doctor of Jurisprudence
degree in 1964 from Indiana University. He is a member of the Fulton County,
Indiana State and American Bar Associations and was a member of the Indiana Bar
Association's Board of Managers from 1983 to 1985. Mr. Peterson is a member of
the First Baptist Church and is a former member of the State Board of Managers
for the Judian Association of American Baptist Churches. He is a member and
former lieutenant governor of the Rochester Kiwanis and is also a former
president of the Indiana University Law Alumni Association. He is also a member
of the Masonic Lodge, American Legion, VFW and Indiana Historical Society.
WILLIAM J. GORDON started his banking career at Farmers & Merchants in
October 1959 as a teller. He held the positions of Assistant Cashier, Cashier,
Vice President and Senior Vice President before his appointment in June 1995 as
President and CEO of F&M and Farmers & Merchants. He is a member and past
president of the Rochester Rotary Club and is a member of the Rochester Elks
Lodge, Rochester Moose Lodge, Rochester High School Athletic Boosters and the
Rochester Chamber of Commerce. Mr. Gordon is a member of the First Christian
Church, where he has served as a deacon and elder and is a 35 year member of the
church choir.
GEORGE R. HOOVER joined Farmers & Merchants as a teller in February
1969. He has served as Assistant Cashier and Cashier and was appointed to his
present position of Vice President-Cashier of Farmers & Merchants in April 1984.
He was appointed to the position of Secretary-Treasurer of F&M in September
1984. Mr. Hoover is a member of Grace United Methodist Church, where he is a
member of the church choir and is secretary of the Administration Board. He
previously served as financial secretary of Grace.
MICHAEL R. TERRONE joined Farmers & Merchants as Assistant Cashier in
July 1980. He was appointed to the position of Assistant Vice President of
Farmers and Merchants in January 1985 and was appointed a Vice President of F&M
in April 1988. Mr. Terrone is responsible for the overall daily operation of
F&M, including teller and branch operations, bookkeeping and lending functions.
Mr. Terrone has a Bachelor of Science Degree in Business Administration from the
University of Maryland and is a graduate of the Graduate School of Banking at
the University of Wisconsin. He is a current board member and past president of
Lake Manitou Association, Inc. and is a current board member and vice president
of the Rochester Athletic Booster Club. Mr. Terrone is a current board member of
the Fulton Economic Development Commission. He is a past board member of the
Rochester & Lake Manitou Chamber of Commerce and a past treasurer of the
Rochester Kiwanis Club. He is also an instructor for the Junior Achievement of
Fulton County. He is a member of St. Joseph Catholic Church.
55
<PAGE> 63
Executive Compensation
CASH COMPENSATION. No executive officer of F&M other than Richard
Mitchell received more than $100,000 in salary and bonus payments during the
year ended December 31, 1994. The following table sets forth certain information
as to the cash compensation received by Richard Mitchell, who retired as
President and CEO on June 20, 1995, during the nine months ended September 30,
1995 and the years ended December 31, 1994 and 1993.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and All Other
Principal Position Year Salary Bonus Compensation
------------------- ---- ------- ----- ------------
<S> <C> <C> <C> <C>
Richard Mitchell 1995 $46,042 $ 9,029 $25,000 (1)
Former President/CEO 1994 92,086 9,208 4,600 (2)
1993 89,400 9,835 4,600 (2)
</TABLE>
--------------------
(1) Represents a retirement bonus.
(2) Represents fees received for serving on the Board of Directors and
the Loan Committee.
RETIREMENT PLAN. Farmers and Merchants sponsors a contributory target
benefit pension plan covering substantially all employees who meet certain age
and service requirements. Farmers and Merchants' contribution and expense for
the Retirement Plan are determined annually by a formula as defined in the plan.
After completion of five years of service, the Retirement Plan provides for a
100% vested interest. In general, distributions from the plan are made only at
retirement, death, disability, termination of employment or termination of the
Retirement Plan.
The following table sets forth the amounts that are payable to persons
in selected remuneration and service classifications under F&M's retirement
plan:
RETIREMENT PLAN TABLE
ESTIMATED ANNUAL BENEFITS (1) (2) (3)
<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------------------
Remuneration 15 20 25 30 35
------------ -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
$25,000 $ 4,875 $ 6,500 $ 8,125 $ 9,750 $11,375
$50,000 10,500 14,000 17,500 21,000 24,500
$75,000 16,125 21,500 26,875 32,250 37,625
$100,000 21,750 29,000 36,250 43,500 50,570
</TABLE>
--------------------
(1) Pension amounts shown under the foregoing table are computed on a
straight-line annuity basis prior to deduction for Social
Security benefits. There is no Social Security benefit offset.
(2) The normal monthly retirement benefit at the normal retirement
age (65), effective January 1, 1994 is 1.0% of the average
monthly compensation multiplied by years of service (maximum of
35), plus .5% of average monthly compensation minus $833.33
($10,000 annually) multiplied by years of service (maximum of
35). Average monthly compensation is the average monthly
compensation for the highest five consecutive years which produce
the highest monthly average within the last ten years.
(3) Mr. Mitchell had 11 years of credited service at December 31,
1994 for the purposes of computing a benefit under this
Retirement Plan.
56
<PAGE> 64
CERTAIN TRANSACTIONS WITH F&M
At April 30, 1995, certain directors and executive officers of Farmers
& Merchants and members of the immediate families of such directors and
executive officers were indebted to Farmers & Merchants in the aggregate amount
of $47,926, constituting all indebtedness outstanding to directors, executive
officers or their respective affiliates. Such indebtedness was incurred in the
ordinary course of business on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons. All such loans were current at April 30,
1995 and are not considered to involve more than the normal risk of
collectibility or to present other unfavorable features. No affiliate of F&M is
currently indebted to F&M or was indebted to F&M at April 30, 1995.
57
<PAGE> 65
F & M BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEARS ENDED APRIL 30, 1995, 1994 AND 1993
The following discussion provides information about the Company's
financial condition and results of operations which may not otherwise be
apparent from the consolidated financial statements included elsewhere herein.
This discussion should be read in conjunction with the consolidated financial
statements and the related footnotes.
Earnings Summary
Consolidated net income for F & M Bancorp (the "Company") for the year
ended April 30, 1995 totaled $626,000 ($111.12 per share), an increase of
$54,000 or 9% over the $572,000 ($101.55 per share) earned during the same
period in 1994. The 1994 earnings were lower than 1993 earnings of $844,000
($149.89 per share) by $272,000 or 32%. Cash dividends declared per share
amounted to $30 in 1995 and $26 in 1994 and 1993.
Results Of Operations - 1995 Versus 1994
Net interest income for 1995 was $2,639,000, a decrease of $24,000 or
1% from 1994. This modest decrease in net interest income resulted from a
decrease in interest income of $276,000 offset by a decrease in interest expense
of $252,000. Although a small decrease in net interest income occurred in 1995
as compared to 1994, the net interest margin (on a tax equivalent basis)
improved to 4.98% in 1995 as compared to 4.78% in 1994 due primarily to a
reduction in lower yielding earning assets and maturities of higher rate time
deposits.
The overall yield on average earning assets in 1995 was 8.05% as
compared to 8.15% in 1994. The yields on loans and investment securities
decreased. These decreases were partially offset by an increase in the yield on
federal funds sold. In addition to a decrease in yields, average earning assets
(on a tax equivalent basis) decreased nearly 4% or $2,292,000 as compared to
1994. However, the decrease was only attributable to federal funds sold as loans
and investment securities had modest increases.
The decrease in interest expense of $252,000 is partially attributable
to a decrease in volume (accounting for $180,000) and partially attributable to
a decline in interest rates paid (accounting for $72,000). Average
interest-bearing liabilities declined $3,917,000 or nearly 8%, with time
deposits decreasing $3,856,000. Overall rates paid on interest-bearing
liabilities decreased from 3.96% in 1994 to 3.75% in 1995 with the decrease
principally related to time deposits.
Based on the current interest rate environment and the local
competition for deposits, management anticipates the net interest margin may
decline as higher yielding assets continue to pay down and are replaced with
lower yielding assets. In addition, the competition for deposits may not allow
for a similar decline in interest rates paid.
58
<PAGE> 66
At April 30, 1995, net loans amounted to $31,338,000, an increase of
11% over net loans of $28,248,000 at April 30, 1994. The increase in loans was
funded by a decrease in cash and cash equivalents and a decrease in securities
held-to-maturity. Of the $3,090,000 increase in net loans, $2,527,000 was
related to net growth in real estate loans. Management expects loan demand to
continue as the local market has remained stable with little change in major
employers and their employee bases.
Securities totaled $24,127,000 at April 30, 1995 which represents a
decrease of $1,963,000 or 8% from total securities of $26,090,000 at April 30,
1994. The decrease in securities is the result of proceeds from maturities being
used to finance other needs and not due to the sale of securities.
Total deposits at April 30, 1995 amounted to $51,424,000, a decrease of
$2,167,000 or 4% over total deposits of $53,591,000 at April 30, 1994. This
decrease was primarily through a $2,125,000 decrease in time deposits. The
decrease in deposits was financed in part through a decrease in cash and cash
equivalents and through the proceeds from maturities of investment securities. A
portion of the decline in time deposits is believed to be attributable to lower
rates offered on new certificates of deposits as compared to local competition.
Management believes that such run-off has been slowed or stabilized and
increased net interest income as most of these deposits were invested in
low-yielding overnight funds (federal funds sold).
The provision for loan losses which was charged to operations was based
on the growth of the loan portfolio, the amount of charge-offs incurred and
management's estimation of losses based on an evaluation of portfolio risk and
economic factors. The provision for loan losses was $184,000 in 1995 as compared
to $408,000 in 1994, or a decrease of $224,000. The decrease in the loan loss
provision is partially a result of improved loss experience. Gross charge-offs
in 1995 were $209,000 as compared to 1994 amounts totaling $358,000, or a
decrease of $149,000. In 1994, one commercial credit incurred a charge-off of
$200,000. At April 30, 1995, the allowance for loan losses was $643,000 or 2.01%
of total loans, compared to $602,000 or 2.09% of total loans at April 30, 1994.
Non-performing loans increased to $838,000 (or 2.6% of total loans) at
April 30, 1995 from $667,000 (or 2.3% of total loans) at April 30, 1994.
Management believes the allowance for loan losses balance at April 30, 1995 is
adequate to absorb losses that may occur on these and other loans.
Total non-interest income remained stable in 1995 as compared to 1994.
Service charges on deposits decreased 3%, or $5,000 to $193,000 in 1995 from
$198,000 in 1994.
Total non-interest expense increased $71,000 or 4% to $1,903,000 in
1995. This increase was primarily a result of an increase in salaries and
employee benefits of $40,000 or 4%, occupancy expense of $26,000 or 13% and
other operating expenses of $45,000 or 23%, offset by a decrease of $35,000 or
63% in electronic data processing expenses due to certain capital lease
obligations on computer equipment expiring in 1994.
Income tax expense for the year ended April 30, 1995 was $223,000, an
increase of $75,000 or 51% from 1994. This increase is primarily due to an
increase in income before income taxes in 1995 as compared to 1994.
59
<PAGE> 67
Results Of Operations - 1994 Versus 1993
Net interest income for 1994 was $2,663,000, an increase of $9,000 or
0.3% from 1993. This modest increase in net interest income resulted from a
decrease in interest expense of $434,000 and a decrease in interest income of
$425,000. In addition, the net interest margin (on a tax equivalent basis)
improved to 4.78% in 1994 as compared to 4.74% in 1993.
The overall yield earned on average earning assets in 1994 was 8.15% as
compared to 8.87% in 1993. The 1994 yield on each category of earning assets
declined from the 1993 levels. Average earning assets had a modest increase of
$256,000 compared to the prior year. However, the mix shifted from higher
earning loan assets (a decrease of $2,258,000) to lower earning assets such as
investment securities and federal funds sold.
The decrease in interest expense of $434,000 is partially attributable
to a decrease in volume (accounting for $116,000) and partially attributable to
a decline in interest rates paid (accounting for $318,000). Average
interest-bearing liabilities declined $969,000 or nearly 2%. The mix of the
deposit base also shifted as average time deposits declined $2,850,000, which
was offset by increases in the average balances in lower rate interest-bearing
demand deposits and savings deposits. Overall rates paid on interest-bearing
liabilities decreased from 4.73% in 1993 to 3.96% in 1994.
The provision for loan losses which was charged to operations was based
on the amount of charge-offs incurred and management's estimation of losses
based on an evaluation of portfolio risk and economic factors. The provision for
loan losses was $408,000 in 1994 compared with $86,000 in 1993, or an increase
of $322,000. The increase in the loan loss provision is partially a result of
increased charge-offs. Gross charge-offs in 1994 were $358,000 as compared to
1993 amounts totaling $157,000, or an increase of $201,000. In 1994, one
commercial credit incurred a charge-off of $200,000. At April 30, 1994, the
allowance for loan losses was $602,000 or 2.09% of total loans compared to
$489,000 or 1.54% of total loans at April 30, 1993.
Non-performing loans increased modestly to $667,000 at April 30, 1994
from $644,000 at April 30, 1993. Management believes the allowance for loan
losses balance at April 30, 1994 is adequate to absorb losses that may occur on
these and other loans.
Total non-interest income remained relatively constant, declining by 5%
from $313,000 in 1993 to $297,000 in 1994. However, service charges on deposits,
the major component of non-interest income, increased 9% or $17,000 to $198,000
in 1994 from $181,000 in 1993. This is primarily due to an increase in
transaction-based accounts.
Total non-interest expense increased $58,000 or 3% to $1,832,000 in
1994. In 1994, losses on the sale of assets were $38,000 and no such losses were
incurred in 1993.
Income tax expense for the year ended April 30, 1994 was $148,000, a
decrease of $115,000 or 44% from 1993. This decrease is primarily attributable
to a decrease in income before income taxes in 1994 as compared to 1993.
60
<PAGE> 68
Liquidity
The Company manages its primary liquidity position to provide funding
at the lowest possible cost for anticipated loan demand and/or deposit run-off
that occurs in the regular course of business. Such sources of liquidity are:
federal funds purchased, lines with correspondent banks and maturities from the
securities held-to- maturity portfolio. At April 30, 1995, scheduled maturities
over the next twelve months total $1,923,000.
The Company manages a secondary liquidity position to provide funding
in the event of unanticipated loan demand and/or deposit run-off. Management
maintains approximately 12% or $2,775,000 of its securities portfolio as
available-for-sale as of April 30, 1995. This designation provides additional
liquidity to fund abnormal loan demand, or to manage unanticipated run-off of
deposits. These securities are readily marketable as they are U.S. federal
agency securities directly or indirectly guaranteed by the Federal government.
The following is a brief description of the sources and uses of funds
for the periods indicated:
During the year ended April 30, 1995, there was a net decrease of
$2,764,000 in cash and cash equivalents. The major uses of cash during
the period included the funding of a $3,274,000 increase in loans, a
$2,168,000 decrease in deposits, and a $1,488,000 purchase of
securities held-to-maturity. Major sources of funds consisted of:
$1,027,000 from operating activities and maturing securities of
$3,180,000.
During the year ended April 30, 1994, there was a net decrease of
$1,692,000 in cash and cash equivalents. The major uses of cash during
the period included the purchase of securities totaling $15,897,000 and
a $2,312,000 decrease in deposits. Major sources of funds were:
$1,098,000 from operating activities, maturing securities of
$13,151,000 and a decline in loans of $2,524,000.
During the year ended April 30, 1993, there was a net increase of
$3,601,000 in cash and cash equivalents. The major use of cash during
the period included the purchase of securities totaling $9,998,000.
Major sources of funds were: $1,116,000 from operating activities,
maturing securities of $9,280,000, a decline in loans of $544,000, and
an increase of deposits of $2,852,000.
61
<PAGE> 69
Interest Rate Sensitivity
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period,
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. During a
period of rising interest rates, a negative gap would tend to adversely affect
net interest income while a positive gap would tend to result in an increase in
net interest income. During a period of falling interest rates, a negative gap
would tend to result in an increase in net interest income while a positive gap
would tend to adversely affect net interest income. The following table
illustrates the asset (liability) funding gaps for selected time periods as of
April 30, 1995.
INTEREST SENSITIVITY GAP ANALYSIS
<TABLE>
<CAPTION>
Repricing Or Maturing Within
--------------------------------------------------------------------------------
Within 4-6 7-12 1-5 Over 5
3 Months Months Months Years Years Total
-------- -------- -------- -------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable,
net of unearned income $ 1,658 $ 0 $ 3,517 $ 9,202 $17,604 $31,981
Investment securities held-to-maturity:
Taxable 251 0 1,252 12,989 0 14,492
Tax exempt 0 0 421 1,637 4,802 6,860
Investment securities available-for-sale:
Taxable 0 0 0 2,775 0 2,775
-------- -------- -------- -------- ------- -------
Total interest-earning assets 1,909 0 5,190 26,603 22,406 56,108
Interest-bearing liabilities:
Demand deposits (1) 11,418 0 0 0 0 11,418
Savings deposits (1) 7,799 0 0 0 0 7,799
Time deposits:
Less than $100,000 3,951 3,972 5,453 10,911 22 24,309
$100,000 or more 350 100 100 560 0 1,110
-------- -------- -------- -------- ------- -------
Total interest-bearing liabilities 23,518 4,072 5,553 11,471 22 44,636
-------- -------- -------- -------- ------- -------
Rate sensitivity gap $(21,609) $ (4,072) $ (363) $ 15,132 $22,384 $11,472
======== ======== ======== ======== ======= =======
Cumulative gap $(21,609) $(25,681) $(26,044) $(10,912) $11,472
======== ======== ======== ======= =======
Cumulative gap as a percentage of
earning assets (38.51)% (45.77)% (46.42)% (19.45)% 20.44%
======== ======== ======== ======= =======
</TABLE>
- --------------------------
(1) Savings and interest-bearing demand deposit accounts are subject to
immediate withdrawal and may be repriced on an immediate basis.
Therefore, these accounts are shown within the 3 months category.
However, based on past experience, management anticipates the majority
of these accounts to remain with the Company beyond one year.
62
<PAGE> 70
Capital Management
Total shareholders' equity was $7,397,000 as of April 30, 1995, an
increase of $357,000 over total shareholders' equity of $7,040,000 as of April
30, 1994. The increase in total shareholders' equity was due to 1995 net income
of $626,000 partially offset by dividends declared of $169,000. In addition, the
overall increase in equity was offset by the effects of SFAS No. 115, Accounting
for Certain Debt and Equity Securities adopted by the Company on April 30, 1994.
The effect of accounting for securities available-for-sale under SFAS No. 115
decreased equity $100,000, net of tax of $65,000, through an increase in the
unrealized loss on securities available-for-sale. Cash dividends per common
share outstanding increased 15% to $30 per share in 1995 from $26 per share in
1994.
Restrictions exist regarding the ability of the subsidiary bank to
transfer funds to the Company in the form of cash dividends, loans or advances.
(See Note 1 to the consolidated financial statements.) These restrictions have
had no major impact on the Company's dividend policy or operations and are not
anticipated to have any major impact in the future.
The Company's bank subsidiary remains above the minimum capital
requirements at April 30, 1995 for a well capitalized bank. At April 30, 1995,
management is not aware of any current recommendations by banking regulatory
authorities which, if they were to be implemented, would have, or are reasonably
likely to have, a material adverse effect on the Company's liquidity, capital
management or operations.
Inflation
For a financial institution, the effects of price changes and inflation
can vary substantially. Inflation affects the growth of total assets, but it is
difficult to assess its impact since neither the timing nor the magnitude of the
changes in the consumer price index (CPI) coincides with changes in interest
rate. The price of one or more of the important components of the CPI may
fluctuate considerably and thereby influence the overall CPI without having a
corresponding affect on interest rates or upon the cost of those goods and
services normally purchased by the Corporation. In years of high inflation and
high interest rates, intermediate and long-term fixed interest rates tend to
increase, thereby adversely impacting the market values of investment
securities, mortgage loans and other long-term fixed rate loans, In addition,
higher short-term interest rates caused by inflation tend to increase the cost
of funds. In other years, the reverse situation may occur.
63
<PAGE> 71
F&M BANCORP AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS - April 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . F-3
CONSOLIDATED STATEMENTS OF INCOME - Years ended
April 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY - Years ended April 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . .F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS - Years ended
April 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE> 72
REPORT OF INDEPENDENT AUDITORS
Board of Directors
F&M Bancorp
Rochester, Indiana
We have audited the accompanying consolidated balance sheets of F&M Bancorp
(the Company) and Subsidiary as of April 30, 1995 and 1994 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of F&M Bancorp and
Subsidiary as of April 30, 1995 and 1994, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes effective May 1, 1993 and for
securities effective April 30, 1994.
Crowe, Chizek and Company
South Bend, Indiana
July 7, 1995, except for
Note 14, as to which the
date is September 11, 1995
F-2
<PAGE> 73
F&M BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
April 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks (Note 10) $ 1,813,747 $ 2,677,519
Federal funds sold - 1,900,000
--------------- --------------
Cash and cash equivalents 1,813,747 4,577,519
Securities available-for-sale (Note 2) 2,774,687 2,939,687
Securities held-to-maturity (fair value of $20,740,000
in 1995 and $22,826,000 in 1994) (Note 2) 21,352,059 23,150,580
Total loans (Note 3) 31,980,708 28,849,565
Allowance for loan losses (Note 4) (643,008) (602,038)
-------------- -------------
Net loans 31,337,700 28,247,527
Premises and equipment, net (Note 5) 869,768 891,075
Accrued interest receivable 688,273 703,490
Other assets 350,184 439,279
--------------- --------------
$ 59,186,418 $ 60,949,157
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 6,787,505 $ 6,350,484
Interest-bearing (Note 6) 44,636,343 47,240,869
--------------- --------------
51,423,848 53,591,353
Accrued interest payable 261,448 258,714
Other liabilities 103,971 59,022
--------------- --------------
51,789,267 53,909,089
Commitments, off-balance sheet risk and contingencies
(Notes 10 and 14)
Shareholders' equity
Common stock: no par value; 6,000 shares
authorized and issued 600,000 600,000
Additional paid-in capital 1,200,000 1,200,000
Retained earnings 5,863,967 5,407,006
Treasury stock, at cost, 367 shares (130,750) (130,750)
Net unrealized loss on securities available-for-sale,
net of tax of $89,247 in 1995 and $24,125 in 1994 (136,066) (36,188)
--------------- --------------
7,397,151 7,040,068
--------------- --------------
$ 59,186,418 $ 60,949,157
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 74
F&M BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years ended April 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,933,141 $ 3,078,959 $ 3,469,739
Interest and dividends on securities
Taxable 1,035,418 1,120,040 1,242,375
Non-taxable 373,686 312,650 265,853
Interest on federal funds sold 39,766 145,946 104,710
-------------- ------------- -------------
4,382,011 4,657,595 5,082,677
INTEREST EXPENSE
Deposits (Note 6) 1,736,585 1,988,969 2,396,527
Other 6,176 5,310 31,596
-------------- ------------- -------------
1,742,761 1,994,279 2,428,123
-------------- ------------- -------------
NET INTEREST INCOME 2,639,250 2,663,316 2,654,554
Provision for loan losses (Note 4) 183,615 408,231 86,000
-------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,455,635 2,255,085 2,568,554
Other income
Service charges on deposits 192,875 198,290 181,190
Other service charges and fees 70,630 48,366 55,091
Rental income 17,107 16,941 17,702
Other income 15,968 33,522 58,849
-------------- ------------- -------------
296,580 297,119 312,832
Other expenses
Salaries and employee benefits (Note 8) 1,099,850 1,059,701 1,032,047
Occupancy expense 233,085 207,091 230,579
FDIC assessment 134,445 142,981 133,780
Electronic data processing services 20,554 55,249 29,919
Advertising and marketing 37,028 36,208 39,140
Supplies and postage expense 90,897 95,909 75,238
Loss on sale of assets 45,147 37,995 -
Other operating expenses 242,201 197,131 233,451
-------------- ------------- -------------
1,903,207 1,832,265 1,774,154
-------------- ------------- -------------
INCOME BEFORE INCOME TAX EXPENSE 849,008 719,939 1,107,232
Income tax expense (Note 9) 223,057 147,910 262,900
-------------- ------------- -------------
NET INCOME $ 625,951 $ 572,029 $ 844,332
============== ============= =============
Earnings per common share (Note 1) $ 111.12 $ 101.55 $ 149.89
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 75
F&M BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended April 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Net
Unrealized
Loss
Additional on Securities Total
Common Paid-In Retained Treasury Available- Shareholders'
Stock Capital Earnings Stock For-Sale Equity
----- ------- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balances, May 1, 1992
(unaudited) $ 600,000 $ 1,200,000 $ 4,283,561 $ (130,750) $ - $ 5,952,811
Cash dividends ($26
per share) (unaudited) - - (146,458) - - (146,458)
Net income (unaudited) - - 844,332 - - 844,332
---------- ------------- ------------- ----------- ---------- ------------
Balances, April 30, 1993
(unaudited) 600,000 1,200,000 4,981,435 (130,750) - 6,650,685
Cash dividends ($26
per share) - - (146,458) - - (146,458)
Net income - - 572,029 - - 572,029
Effect of adopting State-
ment of Financial
Accounting Standards
No. 115, as of April 30,
1994 - - - - (36,188) (36,188)
---------- ------------- ------------- ----------- --------- -----------
Balances, April 30, 1994 600,000 1,200,000 5,407,006 (130,750) (36,188) 7,040,068
Cash dividends ($30
per share) - - (168,990) - - (168,990)
Net income - - 625,951 - - 625,951
Net change in unrea-
lized loss on securities
available-for-sale - - - - (99,878) (99,878)
---------- ------------- ------------- ----------- --------- -----------
Balances, April 30, 1995 $ 600,000 $ 1,200,000 $ 5,863,967 $ (130,750) $ (136,066) $ 7,397,151
========== ============= ============= ========== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 76
F&M BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 625,951 $ 572,029 $ 844,332
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 72,777 73,357 107,139
Provision for loan losses 183,615 408,231 86,000
Net amortization (accretion) on securities 106,661 72,642 95,712
Loss on sale of premises and equipment - 31,806 -
Loss on sale of foreclosed assets 45,147 6,189 -
Change in accrued interest receivable 15,217 135,419 98,344
Change in other assets (69,710) (23,182) (152,027)
Change in accrued interest payable 2,734 (45,753) (53,878)
Change in other liabilities 44,949 (132,269) 90,281
------------- ------------- --------------
Total adjustments 401,390 526,440 271,571
------------- -------------- --------------
Net cash from operating activities 1,027,341 1,098,469 1,115,903
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities
held-to-maturity 3,180,000 - -
Proceeds from maturities of securities - 13,150,619 9,280,000
Purchase of securities held-to-maturity (1,488,140) - -
Purchase of securities - (15,897,499) (9,998,165)
Loans made to customers and principal
collections, net (3,273,788) 2,524,431 543,904
Proceeds from sale of property and equipment - 1,100 -
Property and equipment expenditures (51,470) (170,274) (68,409)
Proceeds from sale of foreclosed real estate 178,780 59,811 22,200
------------- -------------- --------------
Net cash from investing activities (1,454,618) (331,812) (220,470)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in deposits (2,167,505) (2,311,911) 2,852,420
Dividends paid (168,990) (146,458) (146,458)
------------- -------------- --------------
Net cash from financing activities (2,336,495) (2,458,369) 2,705,962
------------- -------------- --------------
Net change in cash and cash equivalents (2,763,772) (1,691,712) 3,601,395
Cash and cash equivalents at beginning of year 4,577,519 6,269,231 2,667,836
------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,813,747 $ 4,577,519 $ 6,269,231
============= ============== ==============
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 1,740,027 $ 2,040,032 $ 2,482,001
Income taxes 209,000 258,980 225,610
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 77
F&M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995, 1994 and 1993,
Information as of and Prior to April 30, 1993 is Unaudited
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF REPORTING: The accompanying consolidated financial statements include
the accounts of F&M Bancorp ("the Company") and its wholly- owned subsidiary,
Farmers & Merchants Bank of Rochester, Indiana ("the Bank"). All significant
intercompany balances and transactions have been eliminated.
SECURITIES: At April 30, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting For Certain Investments in
Debt and Equity Securities." Securities are now classified into
held-to-maturity, available-for-sale and trading categories. Held-to-maturity
securities are those which the Company has the positive intent and ability to
hold to maturity, and are reported at amortized cost. Available-for-sale
securities are those the Company may decide to sell if needed for liquidity,
asset-liability management or other reasons. Available-for-sale securities are
reported at fair value, with unrealized gains and losses included as a separate
component of shareholders' equity, net of tax. Trading securities are bought
principally for sale in the near term, and are reported at fair value with
unrealized gains and losses included in earnings.
Prior to April 30, 1994, securities were reported at amortized cost. The
adoption of SFAS No. 115 decreased equity, net of tax, by $36,188 at April 30,
1994.
Realized gains and losses resulting from the sale of securities are computed by
the specific identification method. Interest and dividend income, adjusted by
amortization of purchase premium or discount, is included in earnings.
INTEREST INCOME ON LOANS: Interest income on loans is calculated using the
simple interest method on daily balances of the principal amounts outstanding.
When serious doubt exists as to collectibility of a loan, the accrual of
interest is discontinued.
LOAN FEES AND COSTS: Loan fees and related origination costs are netted and
deferred under SFAS No. 91. The net deferral is included as part of loans and
recognized in interest income over the loan term on the level yield method.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses represents that
amount which management estimates is adequate to provide for losses on existing
loans, based on an evaluation of the loan portfolio and prior loan loss
experience. The evaluation, which is necessarily subjective, takes into
consideration such factors as changes in the nature and volume of the loan
portfolio, the level and seriousness of delinquencies and problem loans, and
current economic conditions which may affect the borrowers' ability to pay.
(Continued)
F-7
<PAGE> 78
F&M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995, 1994 and 1993,
Information as of and Prior to April 30, 1993 is Unaudited
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The allowance is established through a provision for loan losses charged to
expense. The allowance is reduced by charging off loans deemed uncollectible
by management. After a loan is charged off, collection efforts continue, and
any recoveries of loans previously charged off are added to the allowance.
CONCENTRATIONS OF CREDIT RISK: The Company grants commercial, real estate and
consumer loans to customers located primarily in North Central Indiana.
Commercial loans make up approximately 21% of the loan portfolio and are
secured by both real estate and business assets. These loans are generally
expected to be repaid from cash flow from operations of businesses. Real
estate loans make up approximately 59% of the loan portfolio and are secured by
both commercial and residential real estate. Installment loans make up
approximately 20% of the loan portfolio and are primarily secured by consumer
assets.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed principally by the
straight-line method over the estimated useful life of the asset. Maintenance
and repairs are expensed and major improvements are capitalized.
OTHER REAL ESTATE OWNED: Real estate properties acquired through, or in lieu
of, loan foreclosure are initially recorded at fair value at the date of
acquisition. Any reduction to fair value from the carrying value of the
related loan at the time of acquisition is accounted for as a loan loss and
charged against the allowance for loan losses. After acquisition, a valuation
allowance is recorded through a charge to income for the amount of estimated
selling costs. Valuations are periodically performed by management and
valuation allowances are adjusted through a charge to income for changes in
fair value or estimated selling costs. Other real estate owned amounted to
$-0- and $128,000 at April 30, 1995 and 1994, respectively.
INCOME TAXES: The Company and its subsidiary file consolidated federal and
state income tax returns. Effective May 1, 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109. The
Company records income tax expense based on the amount of taxes due on its tax
return plus deferred taxes computed based on the expected future tax
consequences of temporary differences between the carrying amounts and tax
bases of assets and liabilities, using enacted tax rates. Previously, the
Company computed deferred taxes for the tax effects of timing differences
between financial reporting and tax return income. The effect of the adoption
of SFAS No. 109 as of May 1, 1993 was not material.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents are defined to include
the Company's cash on hand, its demand deposits in other institutions and
federal funds sold. The Company reports net cash flows for customer loan and
deposit transactions.
(Continued)
F-8
<PAGE> 79
F&M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995, 1994 and 1993,
Information as of and Prior to April 30, 1993 is Unaudited
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
DIVIDEND RESTRICTION: The Company's subsidiary bank is subject to banking
regulations which require the maintenance of certain capital levels and which
may limit the amount of dividends which may be paid.
EARNINGS PER COMMON SHARE: Earnings and dividends per common share have been
computed based on the weighted average number of shares outstanding during the
periods presented. The number of shares used in the computation of earnings
per common share was 5,633 for all periods presented.
NOTE 2 - SECURITIES
The amortized cost and fair value of securities as presented on the
consolidated balance sheets are as follows:
Securities available-for-sale at April 30, 1995
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government corporations
and agencies $ 3,000,000 $ - $ (225,313) $ 2,774,687
============== ============== ============= ==============
Securities held-to-maturity at April 30, 1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government corporations
and agencies $ 13,988,129 $ - $ (590,129) $ 13,398,000
Obligations of states and political
subdivisions 6,860,651 104,534 (132,185) 6,833,000
Corporate notes 503,279 5,721 - 509,000
-------------- -------------- -------------- --------------
$ 21,352,059 $ 110,255 $ (722,314) $ 20,740,000
============== ============== ============= ==============
Securities available-for-sale at April 30, 1994
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government corporations
and agencies $ 3,000,000 $ - $ (60,313) $ 2,939,687
============== ============== ============= ==============
</TABLE>
(Continued)
F-9
<PAGE> 80
F&M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995, 1994 and 1993,
Information as of and Prior to April 30, 1993 is Unaudited
NOTE 2 - SECURITIES (Continued)
Securities held-to-maturity at April 30, 1994
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 500,048 $ 952 $ - $ 501,000
U.S. Government corporations
and agencies 15,068,663 39,142 (305,805) 14,802,000
Obligations of states and
political subdivisions 6,819,063 98,061 (157,124) 6,760,000
Corporate notes 762,806 194 - 763,000
-------------- -------------- ------------- --------------
$ 23,150,580 $ 138,349 $ (462,929) $ 22,826,000
============== ============== ============= ==============
</TABLE>
The amortized cost and fair value of debt securities at April 30, 1995,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
. . . . Securities . . . . . . . . Securities . . . .
<S> <C> <C> <C> <C>
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
Due in one year or less $ - $ - $ 1,923,838 $ 1,912,000
Due after one year through
five years 3,000,000 2,774,687 14,625,943 14,051,000
Due after five years through
ten years - - 2,549,222 2,554,000
Due after ten years - - 2,253,056 2,223,000
-------------- -------------- -------------- --------------
$ 3,000,000 $ 2,774,687 $ 21,352,059 $ 20,740,000
============== ============== ============== ==============
</TABLE>
There were no sales of securities during the period May 1, 1992 through April
30, 1995.
As of April 30, 1995 and 1994, investments in debt securities with an amortized
cost of approximately $489,000 and $519,000, respectively, were pledged to
secure public deposits.
(Continued)
F-10
<PAGE> 81
F&M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995, 1994 and 1993,
Information as of and Prior to April 30, 1993 is Unaudited
NOTE 3 - LOANS
Loans as presented on the consolidated balance sheets are comprised of the
following classifications:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Real estate loans $ 18,953,374 $ 16,426,868
Commercial loans 6,809,529 6,711,319
Installment loans 6,217,805 5,711,378
-------------- --------------
$ 31,980,708 $ 28,849,565
============== ==============
</TABLE>
At April 30, 1995 and 1994, loans on nonaccrual status totaled approximately
$646,000 and $527,000, respectively. Interest income not recognized on these
loans totaled approximately $59,000, $57,000 and $35,000 during 1995, 1994 and
1993, respectively.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses for the years ended
April 30, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 602,038 $ 488,773 $ 491,052
Provision for loan losses 183,615 408,231 86,000
Loans charged-off (209,080) (358,274) (156,784)
Recoveries on loans previously charged-off 66,435 63,308 68,505
-------------- -------------- --------------
Balance, end of year $ 643,008 $ 602,038 $ 488,773
============== ============== ==============
</TABLE>
(Continued)
F-11
<PAGE> 82
F&M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995, 1994 and 1993,
Information as of and Prior to April 30, 1993 is Unaudited
NOTE 5 - PREMISES AND EQUIPMENT, NET
The following is a summary of premises and equipment by major category as of
April 30:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land $ 76,200 $ 76,200
Buildings and improvements 1,171,650 1,142,745
Furniture and equipment 591,659 569,094
-------------- --------------
1,839,509 1,788,039
Accumulated depreciation (969,741) (896,964)
-------------- --------------
$ 869,768 $ 891,075
============== ==============
</TABLE>
NOTE 6 - INTEREST-BEARING DEPOSITS
Total interest-bearing deposits as presented on the consolidated balance sheets
are comprised of the following classifications:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Interest-bearing demand $ 11,417,850 $ 11,417,547
Savings 7,798,904 8,279,159
Time
In denominations under $100,000 24,309,248 26,917,309
In denominations of $100,000 or more 1,110,341 626,854
-------------- --------------
$ 44,636,343 $ 47,240,869
============== ==============
</TABLE>
Interest expense on deposits for the years ended April 30, is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C> <C>
Interest-bearing demand $ 290,235 $ 312,926 $ 342,360
Savings 227,050 207,059 217,867
Time 1,219,300 1,468,984 1,836,300
-------------- -------------- --------------
$ 1,736,585 $ 1,988,969 $ 2,396,527
============== ============== ==============
</TABLE>
(Continued)
F-12
<PAGE> 83
F&M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995, 1994 and 1993,
Information as of and Prior to April 30, 1993 is Unaudited
NOTE 7 - RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Company, including associates
of such persons, are loan customers of the Bank. As of April 30, 1995 and
1994, there were no such loans aggregating $60,000 or more with any director,
executive officer or their related interests.
NOTE 8 - EMPLOYEE BENEFITS
The Bank sponsors a contributory target benefit pension plan covering
substantially all employees who meet certain age and service requirements. The
Bank's contribution and expense for the plan is an amount determined annually
by a formula (as defined in the plan). The plan provides for 100% vested
interest after completion of seven years of service. In general, distributions
from the plan are made only at retirement, death, disability, termination of
employment, or termination of the plan. Pension plan expense was $101,542,
$70,255 and $77,362 for the years ended April 30, 1995, 1994 and 1993,
respectively.
NOTE 9 - INCOME TAXES
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal
Current $ 168,913 $ 114,932 $ 183,933
Deferred (20,127) (20,479) (16,654)
----------- ----------- ----------
148,786 94,453 167,279
State
Current 79,794 62,125 103,705
Deferred (5,523) (8,668) (8,084)
----------- ----------- ----------
74,271 53,457 95,621
------------ ------------ -----------
$ 223,057 $ 147,910 $ 262,900
============ ============ ===========
</TABLE>
The components of the net deferred tax asset recorded on the consolidated
balance sheets as of April 30, 1995 and 1994 are as follows. No valuation
allowance was required.
(Continued)
F-13
<PAGE> 84
F&M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995, 1994 and 1993,
Information as of and Prior to April 30, 1993 is Unaudited
NOTE 9 - INCOME TAXES (Continued)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets
Bad debts $ 208,866 $ 191,538
Net unrealized losses on securities
available-for-sale 89,247 24,125
Other 10,200 -
----------- -----------
Total deferred tax assets 308,313 215,663
Deferred tax liabilities
Depreciation (54,805) (54,805)
Franchise tax (15,550) (13,672)
---------- ----------
Total deferred tax liabilities (70,355) (68,477)
---------- ----------
Net deferred tax asset $ 237,958 $ 147,186
=========== ===========
</TABLE>
The difference between income tax expense shown on the consolidated statements
of income and amounts computed by applying the statutory federal income tax
rate to income before income tax expense are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income taxes computed at statutory federal
rate (34% in 1995, 1994 and 1993) $ 288,663 $ 244,779 $ 376,459
Increase (decrease) in taxes resulting from
Tax-exempt income (132,173) (123,614) (111,918)
Non-deductible interest expense 14,016 12,500 10,750
State tax, net of federal income tax effect 49,019 35,282 63,110
Other 3,532 (21,037) (75,501)
----------- ---------- ----------
$ 223,057 $ 147,910 $ 262,900
============ =========== ===========
</TABLE>
NOTE 10 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES
The Company is a party to financial instruments with off-balance-sheet risk in
the ordinary course of business to meet financing needs of its customers.
These financial instruments include commitments to make loans, unused lines of
credit and standby letters of credit. The Company's exposure to credit loss in
the event of nonperformance by the other party to the financial instrument for
commitments to make loans, unused lines of credit and standby letters of credit
is represented by the contractual amount of those instruments. The Company
follows the same credit policy to make such commitments as is followed for
those loans recorded in the financial statements.
(Continued)
F-14
<PAGE> 85
F&M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995, 1994 and 1993,
Information as of and Prior to April 30, 1993 is Unaudited
NOTE 10 - COMMITMENTS, OFF-BALANCE-SHEET RISK AND CONTINGENCIES
(Continued)
As of April 30, 1995 and 1994, commitments to make loans and unused lines of
credit amounted to approximately $1,908,000 and $3,115,000, respectively, and
commitments under outstanding standby letters of credit amounted to
approximately $49,000 for both periods. Since many commitments to make loans
and standby letters of credit expire without being used, the amount does not
necessarily represent future cash commitments. No losses are anticipated as a
result of these transactions. Collateral obtained upon exercise of the
commitment is determined using management's credit evaluation of the borrower
and may include real estate, vehicles, business assets, deposits and other
items.
The Company was required to have approximately $414,000 and $372,000 of cash on
hand or on deposit with the Federal Reserve Bank to meet regulatory reserve
requirements at April 30, 1995 and 1994, respectively. These balances do not
earn interest.
The Company is a party to various legal actions arising in the ordinary course
of business. In the opinion of management, after consultation with legal
counsel, the ultimate disposition of these matters is not expected to have a
material adverse effect on the financial position of the Company.
NOTE 11 - MEMORANDUM OF UNDERSTANDING (MOU) AND RELEASE FROM MOU
On June 16, 1992, the Bank entered into a Memorandum of Understanding with the
Indiana Department of Financial Institutions (IDFI) and the Federal Deposit
Insurance Corporation (FDIC).
The MOU set forth provisions including drafting or revising certain bank
policies, enhancing credit practices and loan documentation, adopting a
methodology for the review of the adequacy of the allowance for loan losses and
addressing certain other matters. Management believes it has substantially
complied with these matters. As of June 17, 1994, the FDIC released the Bank
from the requirements of the MOU and the FDIC notified the IDFI of that
release. As of November 3, 1994, the IDFI also released the Bank from the
requirements of the MOU.
(Continued)
F-15
<PAGE> 86
F&M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995, 1994 and 1993,
Information as of and Prior to April 30, 1993 is Unaudited
NOTE 12 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Presented below are condensed financial statements for the parent company only,
F&M Bancorp.
CONDENSED BALANCE SHEETS
April 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 45,363 $ 33,598
Investment in subsidiary bank 7,351,788 7,006,470
-------------- --------------
$ 7,397,151 $ 7,040,068
============== ==============
SHAREHOLDERS' EQUITY
Common stock $ 600,000 $ 600,000
Additional paid-in capital 1,200,000 1,200,000
Retained earnings 5,863,967 5,407,006
Treasury stock (130,750) (130,750)
Net unrealized loss on securities available-for-sale,
net of tax (136,066) (36,188)
------------- -------------
$ 7,397,151 $ 7,040,068
============== ==============
</TABLE>
(Continued)
F-16
<PAGE> 87
F&M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995, 1994 and 1993,
Information as of and Prior to April 30, 1993 is Unaudited
NOTE 12 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF INCOME
Years ended April 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating income
Interest income $ 906 $ 644 $ 402
Dividends from subsidiary bank 180,000 156,000 156,000
----------- ----------- ------------
180,906 156,644 156,402
INCOME BEFORE EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARY BANK 180,906 156,644 156,402
Equity in undistributed income
of subsidiary bank 445,196 415,385 687,930
----------- ----------- ------------
INCOME BEFORE INCOME TAX 626,102 572,029 844,332
Provision for income tax 151 - -
----------- ----------- ------------
NET INCOME $ 625,951 $ 572,029 $ 844,332
=========== =========== ============
</TABLE>
(Continued)
F-17
<PAGE> 88
F&M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995, 1994 and 1993,
Information as of and Prior to April 30, 1993 is Unaudited
NOTE 12 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended April 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 625,951 $ 572,029 $ 844,332
Adjustments to reconcile net income
to net cash from operating activities
Equity in undistributed income
of subsidiary bank (445,196) (415,385) (687,930)
---------- ---------- -----------
Net cash from operating activities 180,755 156,644 156,402
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (168,990) (146,458) (146,458)
---------- ---------- -----------
Cash flows from financing activities (168,990) (146,458) (146,458)
Net change in cash and cash equivalents 11,765 10,186 9,944
Cash and cash equivalents at beginning of year 33,598 23,412 13,468
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 45,363 $ 33,598 $ 23,412
=========== =========== ============
</TABLE>
NOTE 13 - IMPACT OF NEW ACCOUNTING STANDARDS
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
Accounting by Creditors for Impairment of a Loan. SFAS No. 114 as amended by
SFAS No. 118 requires that allowances for loan losses on impaired loans be
determined using the present value of estimated future cash flows of the loan,
discounted at the loan's effective interest rate. A loan is considered to be
impaired when it is probable that all principal and interest amounts will not
be collected according to the loan contract. SFAS No. 114 and No. 118 are
effective for fiscal years beginning after December 15, 1994. The Company does
not anticipate the effect of adopting the new accounting pronouncement to be
material to the Company's consolidated financial statements.
(Continued)
F-18
<PAGE> 89
F&M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995, 1994 and 1993,
Information as of and Prior to April 30, 1993 is Unaudited
NOTE 14 - PROPOSED ACQUISITION OF THE COMPANY
On September 11, 1995, the Company entered into a Plan and Agreement of Merger
(the "Agreement") to be acquired by First Financial Bancorp (FFB), a holding
company, headquartered in Hamilton, Ohio with total assets of $1,922,643,000
and total equity of $194,673,000 at December 31, 1994. FFB will pay
$12,500,000 in common stock of FFB for all the outstanding shares of the
Company. It is anticipated that the transaction will be a tax free exchange of
stock and will be recorded using the pooling-of-interests method of accounting.
The exchange ratio will be subject to a final pricing period (as defined) prior
to the consummation date of the merger. The Agreement allows for termination
and abandonment under various conditions. One such provision allows FFB to
terminate the Agreement if the average price (computed according to the terms
defined in the Agreement) of FFB common stock is less than $28.48 per share.
Similarly, the Company has the option to terminate the Agreement if the average
price of FFB common stock is greater than $38.53 per share.
Upon consummation of the transaction, the Company will be merged into FFB and
the Company's subsidiary bank, Farmers & Merchants Bank, will be merged into
Indiana Lawrence Bank, a subsidiary of FFB.
The transaction is subject to the approval of the Company's shareholders and
various regulatory agencies.
F-19
<PAGE> 90
F & M BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1995 AND 1994
The following discussion provides information about the Company's
financial condition and results of operations which may not otherwise be
apparent from the consolidated financial statements included elsewhere herein.
This discussion should be read in conjunction with the consolidated financial
statements and the related footnotes.
Earnings Summary
Consolidated net income for F & M Bancorp (the "Company") for the six
month period ended October 31, 1995 totaled $326,000 ($57.95 per share), a
decrease of $31,000 or 9% over the $357,000 ($63.33 per share) earned during the
same period in 1994. No cash dividends were declared for the six month periods
ended October 31, 1995 and 1994. Historically, the Company declares an annual
dividend in the first quarter of the calendar year.
Results Of Operations - Six Months Ended October 31, 1995 Versus 1994
Net interest income for the six month period ended October 31, 1995 was
$1,337,000, an increase of $11,000 or 0.8% from the same period in 1994. This
modest increase in net interest income resulted from an increase in interest
income of $82,000 offset by an increase in interest expense of $71,000.
Federal funds sold increased $4,500,000 during the six month period,
from $0 at April 30, 1995 to $4,500,000 at October 31, 1995. This increase was
funded by a decrease in securities held-to-maturity and an increase in deposits.
Securities (available-for-sale and held-to-maturity) totaled
$23,224,000 at October 31, 1995 which represents a decrease of $903,000 or 3.7%
from total securities of $24,127,000 at April 30, 1995. The decrease in
securities is the result of proceeds from maturities being shifted into short
term federal funds sold to provide increased liquidity. The decrease in
securities was tempered by an increase in fair value for securities
available-for-sale totaling $157,000 over the six month period. There were no
purchases of securities for the six month period ended October 31, 1995.
As discussed in Note 2 of the October 31, 1995 Consolidated Financial
Statements, management and the Board of Directors are presently evaluating the
Special Report issued by the Financial Accounting Standards Board on November
15, 1995 providing guidance on the implementation of Statement of Financial
Accounting Standards No. 115. See Note 2 for further discussion regarding the
Special Report and the possible impact on future financial statements.
Total loans remained fairly constant over the six month period ended
October 31, 1995.
64
<PAGE> 91
Total deposits at October 31, 1995 amounted to $56,084,000, an increase
of $4,660,000 or 9.1% over total deposits of $51,424,000 at April 30, 1995. This
increase predominately occurred in October, 1995. Approximately $3,000,000 of
the increase related to municipal funds received from a bond issue being
deposited at the Bank subsidiary. At November 30, 1995, approximately $1,300,000
of these funds remain on deposit. Management has invested these deposits in
overnight federal funds to ensure adequate liquidity.
The provision for loan losses was $82,000 for the six months ended
October 31, 1995 as compared to $55,000 for the similar period in 1994, or an
increase of $27,000. Gross charge-offs for the six month period ended October
31, 1995 were $63,000 as compared to the six month period ended October 31, 1994
amount of $129,000, or a decrease of $66,000. At October 31, 1995, the allowance
for loan losses was $688,000 or 2.15% of total loans, compared to $643,000 or
2.01% of total loans at April 30, 1995. Management believes the allowance for
loan losses balance at October 31, 1995 is adequate to absorb losses on loans
that may occur. Statement of Financial Accounting Standards (SFAS) No. 114,
"Accounting by Creditors for Impairment of a Loan" was adopted at May 1, 1995.
The effect of adopting this standard was not material to the consolidated
financial statements.
Other income remained consistent for the six months ended October 31,
1995 as compared to the same period in 1994.
Total non-interest expense decreased $14,000 or 1.5% to $933,000 for
the six months ended October 31, 1995 as compared to the same period in 1994.
The more significant changes were a decrease in salaries and employee benefits
of $61,000 or 11% and a decrease in FDIC assessment of $63,000 or 88%, offset by
merger related expenses of $121,000. The decrease in salaries and employee
benefits is principally related to a reduction in the number of officer
positions. The decrease in FDIC assessment is the result of the FDIC
substantially decreasing the deposit insurance rate for insured funds and
providing a refund of certain prior funds paid during the six month period ended
October 31, 1995. Management anticipates that the near-term FDIC assessment
levels will continue at low levels. As a result of the proposed acquisition of
the Company (see Note 14 in the April 30, 1995 Consolidated Financial Statements
for further information), certain professional fees have been incurred during
the six months ended October 31, 1995. These fees include attorney, accounting
and various consulting fees associated with the proposed merger.
Income tax expense for the six month period ended October 31, 1995 was
$156,000, an increase of $31,000 or 25% over the same period in 1994. This
increase is primarily due to the nondeductible nature of certain merger related
expenses.
Liquidity
The Company manages its primary liquidity position to provide funding
at the lowest possible cost for anticipated loan demand and/or deposit run-off
that occurs in the regular course of business. Such sources of liquidity are:
federal funds, purchased lines with correspondent banks and maturities from the
securities held-to- maturity portfolio. At October 31, 1995, scheduled
maturities over the next six months total $1,673,000.
65
<PAGE> 92
The Company manages a secondary liquidity position to provide funding
in the event of unanticipated loan demand and/or deposit run-off. Management
maintains approximately 14% or $2,933,000 of its securities portfolio as
available-for-sale as of October 31, 1995. This designation provides additional
liquidity to fund abnormal loan demand, or to manage unanticipated run-off of
deposits. These securities are readily marketable as they are U.S. federal
agency securities directly or indirectly guaranteed by the Federal government.
The following is a brief description of the sources and uses of funds
for the period indicated:
During the six month period ended October 31, 1995, there was a net
increase of $6,171,000 in cash and cash equivalents. Major sources of
funds included a $4,660,000 increase in deposits (see previous
discussion regarding the impact of municipal funds on the growth of
deposits), $1,050,000 in maturities of securities held-to-maturity and
$467,000 from operating activities. There were no significant uses of
funds.
Capital Management
Total shareholders' equity was $7,819,000 as of October 31, 1995, an
increase of $422,000 over total shareholders' equity of $7,397,000 as of April
30, 1995. The increase in total shareholders' equity was primarily due to net
income for the six months ended October 31, 1995 of $326,000. In addition,
equity was positively impacted by the effects of SFAS No. 115. The effect of
accounting for securities available-for-sale under SFAS No. 115 increased equity
$95,000, net of tax of $62,000, through an increase in the fair value of
securities available-for-sale.
Restrictions exist regarding the ability of the subsidiary bank to
transfer funds to the Company in the form of cash dividends, loans or advances
(see Note 1 in the April 30, 1995 Consolidated Financial Statements). These
restrictions have had no major impact on the Company's dividend policy or
operations and are not anticipated to have any major impact in the future.
The Company's bank subsidiary remains above the minimum capital
requirements at October 31, 1995 for a well capitalized bank. At October 31,
1995, management is not aware of any current recommendations by banking
regulatory authorities which, if they were to be implemented, would have, or are
reasonably likely to have, a material adverse effect on the Company's liquidity,
capital management or operations.
66
<PAGE> 93
Inflation
For a financial institution, the effects of price changes and inflation
can vary substantially. Inflation affects the growth of total assets, but it is
difficult to assess its impact since neither the timing nor the magnitude of the
changes in the consumer price index (CPI) coincides with changes in interest
rate. The price of one or more of the important components of the CPI may
fluctuate considerably and thereby influence the overall CPI without having a
corresponding affect on interest rates or upon the cost of those goods and
services normally purchased by the Corporation. In years of high inflation and
high interest rates, intermediate and long-term fixed interest rates tend to
increase, thereby adversely impacting the market values of investment
securities, mortgage loans and other long-term fixed rate loans. In addition,
higher short-term interest rates caused by inflation tend to increase the cost
of funds. In other years, the reverse situation may occur.
67
<PAGE> 94
F & M BANCORP AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET - October 31, 1995............................ 69
CONSOLIDATED STATEMENTS OF INCOME - Six months ended
October 31, 1995 and 1994.............................................. 70
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY - Six months ended October 31, 1995 and 1994.................... 71
CONSOLIDATED STATEMENTS OF CASH FLOWS - Six months ended
October 31, 1995 and 1994.............................................. 72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................... 73
</TABLE>
68
<PAGE> 95
F & M BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
October 31, 1995
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Cash and due from banks $ 3,485,038
Federal funds sold 4,500,000
------------
Cash and cash equivalents 7,985,038
Securities available-for-sale (Note 2) 2,932,812
Securities held-to-maturity
(fair value of $20,283,002) (Note 2) 20,291,561
Total loans 31,923,036
Allowance for loan losses (Note 3) (687,803)
------------
Net loans 31,235,233
Premises and equipment, net 843,344
Accrued interest receivable 880,781
Other assets 289,918
------------
$ 64,458,687
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 8,062,296
Interest-bearing 48,021,617
------------
56,083,913
Accrued interest payable 277,436
Other liabilities 278,288
------------
56,639,637
Commitments, off-balance sheet risk and contingencies
Shareholders' equity
Common stock: no par value; 6,000 shares
authorized and issued 600,000
Additional paid-in capital 1,200,000
Retained earnings 6,190,375
Treasury stock, at cost, 367 shares (130,750)
Net unrealized loss on securities available-for-sale,
net of tax of $26,613 (40,575)
------------
7,819,050
------------
$ 64,458,687
============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
69
<PAGE> 96
F & M BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Six months ended October 31, 1995 and 1994
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $1,594,684 $1,472,056
Interest and dividends on securities
Taxable 481,245 525,829
Non-taxable 183,830 187,251
Interest on federal funds sold 27,196 19,617
---------- ----------
2,286,955 2,204,753
INTEREST EXPENSE
Deposits 947,889 874,068
Other 1,784 4,372
---------- ----------
949,673 878,440
---------- ----------
NET INTEREST INCOME 1,337,282 1,326,313
Provision for loan losses (Note 3) 82,000 54,615
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,255,282 1,271,698
Other income
Service charges on deposits 99,846 99,528
Other service charges and fees 36,059 38,757
Rental income 7,955 8,475
Other income 16,094 10,003
---------- ----------
159,954 156,763
Other expenses
Salaries and employee benefits 488,158 549,588
Occupancy expense 124,772 110,551
FDIC assessment 8,473 71,389
Electronic data processing services 19,195 9,665
Advertising and marketing 18,162 15,806
Supplies and postage expense 37,718 42,229
Loss on sale of assets 10,622 36,000
Merger expense 120,664 --
Other operating expenses 105,182 111,295
---------- ----------
932,946 946,523
---------- ----------
INCOME BEFORE INCOME TAX EXPENSE 482,290 481,938
Income tax expense 155,882 125,213
---------- ----------
NET INCOME $ 326,408 $ 356,725
========== ==========
Earnings per common share $ 57.95 $ 63.33
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
70
<PAGE> 97
F & M BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Six months ended October 31, 1995 and 1994
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Unrealized
Loss
Additional on Securities Total
Common Paid-In Retained Treasury Available- Shareholders'
Stock Capital Earnings Stock For-Sale Equity
------ ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, May 1, 1994 $600,000 $1,200,000 $5,407,006 $(130,750) $ (36,188) $ 7,040,068
Net income -- -- 356,725 -- -- 356,725
Net change in
unrealized loss
on securities
available-for-sale -- -- -- -- (105,750) (105,750)
-------- ---------- ---------- --------- --------- -----------
Balances, October 31, 1994 $600,000 $1,200,000 $5,763,731 $(130,750) $(141,938) $ 7,291,043
======== ========== ========== ========= ========= ===========
Balances, May 1, 1995 $600,000 $1,200,000 $5,863,967 $(130,750) $(136,066) $ 7,397,151
Net income -- -- 326,408 -- -- 326,408
Net change in unreal-
ized loss on securities
available-for-sale -- -- -- -- 95,491 95,491
-------- ---------- ---------- --------- --------- -----------
Balances, October 31, 1995 $600,000 $1,200,000 $6,190,375 $(130,750) $ (40,575) $ 7,819,050
======== ========== ========== ========= ========= ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
71
<PAGE> 98
F & M BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended October 31, 1995 and 1994
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 326,408 $ 356,725
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 42,066 37,118
Provision for loan losses 82,000 54,615
Net amortization on securities 10,498 56,483
Loss on sale of premises and equipment 10,622 --
Loss on sale of foreclosed assets -- 36,000
Change in accrued interest receivable (192,508) (151,985)
Change in other assets (2,368) 114,997
Change in accrued interest payable 15,988 (3,730)
Change in other liabilities 174,317 79,796
----------- -----------
Total adjustments 140,615 223,294
----------- -----------
Net cash from operating activities 467,023 580,019
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities
held-to-maturity 1,050,000 1,250,000
Purchase of securities held-to-maturity -- (1,195,000)
Loans made to customers and principal
collections, net 20,467 (1,359,558)
Proceeds from sale of property and equipment 66,704 --
Property and equipment expenditures (92,968) (47,795)
Proceeds from sale of foreclosed real estate -- 92,000
----------- -----------
Net cash from investing activities 1,044,203 (1,260,353)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in deposits 4,660,065 (625,930)
----------- -----------
Net cash from financing activities 4,660,065 (625,930)
----------- -----------
Net change in cash and cash equivalents 6,171,291 (1,306,264)
Cash and cash equivalents at beginning of period 1,813,747 4,577,519
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,985,038 $ 3,271,255
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 933,685 $ 882,170
Income taxes 150,000 40,151
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
72
<PAGE> 99
F & M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Allowance For Loan Losses: The allowance for loan losses represents that amount
which management estimates is adequate to provide for losses on existing loans,
based on an evaluation of the loan portfolio and prior loan loss experience. The
evaluation, which is necessarily subjective, takes into consideration such
factors as changes in the nature and volume of the loan portfolio, the level and
seriousness of delinquencies and problem loans, and current economic conditions
which may affect the borrowers' ability to pay.
The allowance is established through a provision for loan losses charged to
expense. The allowance is reduced by charging off loans deemed uncollectible by
management. After a loan is charged off, collection efforts continue, and any
recoveries of loans previously charged off are added to the allowance.
Financial Accounting Standards Board (FASB) Standard No. 114 was adopted at May
1, 1995. Under this standard, loans considered to be impaired are reduced to the
present value (using the loan agreement rate) 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 require increase, such increase is reported as bad debt expense. The
effect of adopting this standard was not material to the consolidated financial
statements.
Interest Income on Loans: 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 or as reductions in bad debt expense.
NOTE 2 - SECURITIES
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115
on April 30, 1994. Upon adoption of the standard, management classified
$3,000,000 of investment securities as securities available-for-sale. On
November 15, 1995, the Financial Accounting Standards Board issued a Special
Report entitled "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments In Debt and Equity Securities" (the Guide). The Guide
addresses questions regarding various SFAS No. 115 implementation issues. Of
particular interest is paragraph 61 which provides for a one-time opportunity
for an entity to reassess the appropriateness of the classifications of all
securities held and reclassify securities as deemed appropriate. Any
reclassifications must occur no later than December 31, 1995 and should be
accounted for and disclosed in accordance with guidance provided in SFAS No.
115. The December 31, 1995 deadline applies not only to entities with calendar
year ends, but also to entities whose fiscal year does not correspond to the
calendar year. Restatement of financial statements of prior periods to reflect
the effects of any reclassifications is not permitted. Reclassifications from
the held-to-maturity category resulting from this one time reassessment will
not call into question the intent of management to hold other debt securities to
maturity in the future.
- --------------------------------------------------------------------------------
73
<PAGE> 100
F & M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (CONTINUED)
Management and the Board of Directors are presently evaluating the Guide and
considering the reclassification of certain securities from held-to-maturity to
available-for-sale. Management has identified approximately $8,000,000 of
securities classified as held-to-maturity that may be transferred. The
unrealized loss on these securities totals $119,000 at October 31, 1995.
Furthermore, consideration is being given to selling these securities as well as
the securities presently classified as available-for-sale. If these securities
had been sold as of October 31, 1995, a loss of approximately $182,000 would
have been realized. The after-tax reduction to net income would have been
approximately $110,000. However, no decision to reclassify or to sell have been
made.
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses for the six months
ended October 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Balance, May 1 $ 643,008 $ 602,038
Provision for loan losses 82,000 54,615
Loans charged-off (62,780) (129,269)
Recoveries on loans previously charged-off 25,575 37,171
--------- ---------
Balance, October 31 $ 687,803 $ 564,555
========= =========
</TABLE>
Information regarding impaired loans is as follows for the six months ended
October 31, 1995:
<TABLE>
<S> <C>
Average investment in impaired loans $750,000
Interest income recognized on impaired loans
including interest income recognized on cash basis $ 4,403
Interest income recognized on impaired loans on cash basis $ --
Information regarding impaired loans at October 31, 1995 is as follows:
Balance of impaired loans $663,687
Less portion for which no allowance for loan losses is allocated --
--------
Portion of impaired loan balance for which
an allowance for credit losses is allocated $663,687
========
Portion of allowance for loan losses
allocated to the impaired loan balance $178,533
========
</TABLE>
- --------------------------------------------------------------------------------
74
<PAGE> 101
F & M BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 3 - ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Installment loans on nonaccrual status totaled approximately $43,000 at October
31, 1995. These loans were not considered for impairment, as they are
collectively evaluated for impairment due to the smaller-balance homogeneous
nature of the loans.
- --------------------------------------------------------------------------------
75
<PAGE> 102
PRINCIPAL SHAREHOLDERS AND OWNERSHIP BY MANAGEMENT
For information regarding the principal shareholders of Bancorp and
ownership of Bancorp Common Stock by Bancorp's directors and executive officers,
see "Item 12. Security Ownership of Certain Beneficial Owners and Management" in
the Bancorp Form 10-K, which is incorporated herein by reference.
The following table sets forth certain information with respect to the
only persons known to F&M to own beneficially more than 5% of the outstanding
common stock of F&M as of the Record Date:
<TABLE>
<CAPTION>
Number of Percent of Shares
Name and Address Shares Outstanding
-------------------- --------- -----------------
<S> <C> <C>
H. Robert/Elizabeth A. Bradley 628 11.15%
3601 Manitou Park Road
Rochester, IN 46975
J. Frederick/Patricia B. Hoffman 1,850 32.84%
C/O Hoffman, Luhman & Busch
700 Life Building
P.O. Box 99
Lafayette, IN 47902
Indiana Farmers Mutual Insurance Company 600 10.65%
NBD Trust & Investment Management
NBD Bank, NA
One Indiana Square, Suite 624
Indianapolis, IN 46266
</TABLE>
The following table sets forth certain information regarding the number
of shares of common stock of F&M beneficially owned by each director of F&M and
by all directors and executive officers of F&M as a group as of the Record Date:
<TABLE>
<CAPTION>
Number of Percent of Shares
Name Shares Outstanding
-------------------- --------- -----------------
<S> <C> <C>
Wendell B. Bearss 34 (1) .60%
H. Robert Bradley 628 (2) 11.15%
Carol J. Bridge 20 (3) .36%
William J. Gordon 106 (4) 1.88%
J. Frederick Hoffman 1,850 (5) 32.84%
Robert E. Peterson 281 (6) 4.99%
V. Lorene Rauschke 66 1.17%
All executive officers and
directors as a group
(9 persons) 3,021 53.63%
</TABLE>
--------------------
(1) Of these, 24 shares are owned jointly with Mr. Bearss's wife.
(2) Of these, 200 shares and 10 shares are owned by Mr. Bradley's
wife and son, respectively, for which Mr. Bradley disclaims
beneficial ownership.
(3) All shares are owned jointly with Ms. Bridge's husband.
(4) Of these, 6 shares are owned by Mr. Gordon's wife, for which Mr.
Gordon disclaims beneficial ownership, 25 shares are owned
jointly with Mr. Gordon's wife, and 30 shares are owned jointly
with Mr. Gordon's children and grandchildren.
(5) Of these, 50 shares are owned by Mr. Hoffman's wife, for which
Mr. Hoffman disclaims beneficial ownership.
(6) Of these, 50 shares are owned by Mr. Peterson's wife, for which
Mr. Peterson disclaims beneficial ownership.
76
<PAGE> 103
COMPARATIVE MARKET AND DIVIDEND INFORMATION
Nature Of Trading Market
The Bancorp Common Stock is quoted on the Nasdaq National Market System
under the symbol "FFBC". On _______ __, 19__, the last reported sale price of
Bancorp Common Stock as reported on the Nasdaq National Market System was
$______ per share.
The F&M Common Stock is not traded on an established public market. The
last known trading price of F&M Common Stock was $450.00 per share in August
1994. As there is not an established public trading market for the shares of F&M
Common Stock, the stock is not liquid and the price indicated above may not
reflect the prices which would be paid for such shares on an active market. The
information should not necessarily be relied upon when determining the value of
a shareholder's investment.
The following table sets forth, for the periods indicated, the high and
low sales prices per share of Bancorp Common Stock as reported on the Nasdaq
National Market System. All prices have been adjusted to give retroactive effect
to stock dividends and stock splits.
<TABLE>
<CAPTION>
BANCORP BANCORP
HIGH LOW
------- -------
<S> <C> <C>
1992
First Quarter $22.09 $19.64
Second Quarter 23.18 21.00
Third Quarter 23.86 22.23
Fourth Quarter 24.55 23.18
1993
First Quarter 25.05 23.40
Second Quarter 26.40 24.15
Third Quarter 32.55 25.50
Fourth Quarter 33.45 30.90
1994
First Quarter 39.80 29.20
Second Quarter 31.60 30.00
Third Quarter 32.20 30.20
Fourth Quarter 33.75 29.50
1995
First Quarter 34.75 32.50
Second Quarter 34.50 33.00
Third Quarter 35.50 33.00
Fourth Quarter (1)
</TABLE>
--------------------
(1) Through ______ __, 1995
The following information reflects actual trade transactions in F&M
Common Stock made during 1993, 1994 and through October 31, 1995. The
information should not necessarily be relied upon when determining the value of
shareholder's investment.
<TABLE>
<CAPTION>
F&M Trades In
----------------------------------------
1993 1994 1995(1)
-------- -------- ---------
<S> <C> <C> <C>
Number of trades 5 9 None
Number of shares traded 40 55
Selling price $435 $450
</TABLE>
- -------------------
(1) Through October 31, 1995
As of ______ __, 1996, there were approximately _,___ holders of record
of the Bancorp Common Stock. As of _________ __, 1996, F&M had 100 shareholders
of record.
77
<PAGE> 104
Dividends
The following table sets forth the per share cash dividends declared on
Bancorp and F&M Common Stock, respectively, for each quarter since January 1,
1992. Bancorp dividends have been adjusted to give retroactive effect to all
stock dividends and stock splits.
<TABLE>
<CAPTION>
BANCORP F&M
------- ---
<S> <C> <C>
1992
First Quarter $.1800 $26.00
Second Quarter .1800 .00
Third Quarter .1800 .00
Fourth Quarter .1980 .00
1993
First Quarter .1980 26.00
Second Quarter .1980 .00
Third Quarter .1980 .00
Fourth Quarter .2160 .00
1994
First Quarter .2160 26.00
Second Quarter .2160 .00
Third Quarter .2160 .00
Fourth Quarter .3200 .00
1995
First Quarter .2600 30.00
Second Quarter .2600 .00
Third Quarter .2600 .00
Fourth Quarter .3000 .00
</TABLE>
F&M anticipates paying cash dividends in an amount not to exceed the
greater of (a) 30% of its net earnings for the year ending December 31, 1995, or
(b) $198,000. In the Merger Agreement, Bancorp and F&M agreed to cooperate with
each other to ensure that, from December 31, 1995 until the Effective Time, the
shareholders of F&M receive a quarterly cash dividend from either F&M or Bancorp
and that during the quarter in which the Effective Time of the Merger occurs
such shareholders of F&M do not receive dividends from both F&M and Bancorp.
The future dividend policy of Bancorp is subject to the discretion of
Bancorp's Board of Directors, cash needs, general business conditions and
dividends from subsidiaries.
For certain restrictions on the payment of dividends by Bancorp and F&M
see "COMPARISON OF COMMON STOCK AND SHAREHOLDERS' RIGHTS--Dividend Rights."
78
<PAGE> 105
COMPARISON OF COMMON STOCK AND SHAREHOLDERS' RIGHTS
The following summary comparison of the terms of the common stock of
F&M and Bancorp, and the rights of holders thereof, does not purport to be
complete and is qualified in its entirety by reference to Bancorp's and F&M's
Articles of Incorporation, Bancorp's Code of Regulations and F&M's By-Laws.
Various features of the Articles of Incorporation and Code of Regulations of
Bancorp differ from F&M's Articles of Incorporation and By-Laws. The following
discussion summarizes the differences that are deemed to be material by Bancorp.
Authorized But Unissued Shares
Bancorp's Articles of Incorporation authorize the issuance of
25,000,000 shares, par value $8.00 per share, of Bancorp Common Stock, of which
12,568,641 shares were issued and outstanding at September 30, 1995. The
remaining authorized but unissued shares of Bancorp Common Stock may be issued
upon authorization of the Board of Directors without prior shareholder approval.
F&M's Articles of Incorporation authorize the issuance of 6,000 shares,
without par value, of which 5,633 shares were issued and outstanding at
September 30, 1995.
Dividend Rights
The holders of F&M and Bancorp Common Stock are entitled to dividends
and other distributions when, as and if declared by their respective Boards of
Directors out of funds legally available therefor. Subject to certain regulatory
restrictions, dividends may be paid in cash, property or shares of common stock,
unless the entity is insolvent or the dividend payment would render it
insolvent. In general, dividends by F&M are limited by Indiana law to the
balance of its undivided profit account adjusted for statutorily-defined bad
debts, losses and all other expenses.
The amount of dividends, if any, that may be declared by Bancorp
following the purchase will necessarily depend upon many factors, including
without limitation, future earnings, capital requirements, business conditions
of subsidiaries (since Bancorp will be dependent upon dividends paid to it by
its subsidiaries) and the discretion of Bancorp's Board of Directors. Dividends
paid to Bancorp by its subsidiary financial institutions are subject to the
regulations of various regulatory authorities. A Federal Reserve Board Policy
Statement provides that cash dividends paid by a bank holding company should
meet the following two guidelines: (1) the organization's net income available
to common shareholders over the past year should be sufficient to fully fund the
dividends and (2) the prospective rate of earnings retention by the organization
appears consistent with capital needs, asset quality, and overall financial
condition. Bancorp has complied with the first guideline since its organization
in 1983 and believes it has also complied with the second guideline.
Directors
After the Merger, F&M's Board of Directors will be dissolved and
Bancorp's Board of Directors will be the Board of Directors for the Surviving
Corporation.
The number of directors of Bancorp can be no less than nine and no more
than 25. Bancorp currently has 15 directors, divided into three classes of five
directors. Directors are elected to three-year terms, with the term of office of
one class expiring each year. Shareholders of Bancorp annually elect one-third
of its Board of Directors. This method of election could be considered an
impediment for a takeover of control of Bancorp by third parties.
79
<PAGE> 106
F&M's By-Laws fix the number of directors at nine members, who shall be
divided into three equal classes, with the term of one class expiring each year.
According to the By-Laws, shareholders of F&M shall annually elect one-third of
its Board of Directors, which method of election could be considered an
impediment for a takeover of control of F&M by third parties. Despite F&M's
By-Laws, its Board of Directors currently consists of seven members elected for
terms of one year each.
In its Code of Regulations, Bancorp has an age limitation preventing
election or re-election of directors who have reached the age of 70 years or
older. F&M's Articles of Incorporation or By-Laws do not contain any such age
limitation.
Quorum For Shareholders' Meetings
Except as provided by law, the holders of record of a majority of
outstanding shares, in person or by proxy, are required for a quorum at all
Bancorp shareholders' meetings. Except as provided by law, its Articles of
Incorporation or By-Laws, a majority of the outstanding shares which may be
voted on the business to be transacted at any F&M shareholders' meeting, in
person or by proxy, shall constitute a quorum.
Voting Rights
The holders of F&M Common Stock and Bancorp Common Stock are entitled
to one vote per share on all matters presented for shareholder vote.
Shareholders of Bancorp do not have cumulative voting rights in the election of
directors. F&M's Articles of Incorporation provide for cumulative voting.
Special Meetings
Special Meetings of the shareholders of Bancorp may be called for any
purpose by the Board of Directors or by any three or more shareholders owning,
in the aggregate, not less than 50% percent of the stock of Bancorp. Notice of
the meeting, including the purpose or purposes of the meeting, must be mailed,
postage prepaid, to every shareholder of record at the address appearing on
Bancorp's books at least 10 days prior to the date of the meeting.
Special Meetings of the shareholders of F&M may be called by the Board
of Directors, the President or shareholders owning, in the aggregate, not less
than one-fourth of all outstanding shares of capital stock entitled to vote.
Notice of the meeting, including the purpose or purposes of the meeting, must be
delivered or mailed, postage prepaid, at least 10 days prior to the date of the
meeting to every shareholder of record at the address appearing on F&M's books.
Preemptive Rights
As permitted by law, neither Bancorp's nor F&M's Articles of
Incorporation provide for preemptive rights.
Liquidation Rights
In the event of liquidation, the holders of shares of Bancorp Common
Stock are entitled, subject to the payment in full of Bancorp's debts and other
liabilities, to receive pro rata any assets distributable to shareholders with
respect to the number of shares held by them. The same applies to F&M.
80
<PAGE> 107
Redemption And Assessment
Shares of Bancorp and F&M Common Stock are not subject to further call
or assessment. Bancorp may redeem or purchase shares of its Common Stock with
funds legally available therefor, provided it gives prior notice to the Federal
Reserve Board if the consideration to be paid for the purchase or redemption,
when aggregated with the consideration paid for all purchases or redemptions for
the preceding last 12 months, equals or exceeds 10% of Bancorp's consolidated
net worth. Redemptions may not be made when Bancorp is insolvent or, as a result
of the redemption, would be rendered insolvent. Redemptions or repurchases of
F&M Common Stock are also subject to regulatory limitations.
Amendments To Articles And Code Of Regulations/By-Laws
The Articles of Incorporation for Bancorp may be amended, altered,
changed or repealed by following the procedures prescribed by the laws of the
State of Ohio at the time of amendment. F&M's Articles of Incorporation require
the affirmative vote of at least 75% of the outstanding common shares entitled
to vote to amend, alter, change or repeal any provision of the Articles. F&M's
By-Laws may be amended by a majority of the entire Board of Directors at any
meeting of the Board. Bancorp's Code of Regulations may be amended by a majority
vote of shareholders at any regular or special meeting of shareholders.
Seventy-Five Percent (75%) Affirmative Shareholder Vote Requirement
F&M's Articles of Incorporation require the affirmative vote of at
least 75% of F&M's outstanding common shares entitled to vote to (1) amend,
alter, change, or repeal any provision of the Articles of Incorporation; (2)
authorize a special corporate transaction such as a merger, share exchange or
sale of all or substantially all of the assets of F&M; and (3) approve a
liquidation or dissolution of F&M. Bancorp's Articles of Incorporation and Code
of Regulations do not contain any such voting requirements.
Restrictions On Resale Of Bancorp Common Stock
The issuance of the shares of Bancorp Common Stock in connection with
the Merger has been registered under the Securities Act. Such shares may be
traded freely and without restriction under federal and state securities laws by
those shareholders not deemed to be "affiliates" of F&M as that term is defined
in Rules 144 and 145 under the Securities Act. "Affiliates" are generally
defined as persons who control, are controlled by, or are under common control
with F&M at the time of the F&M Special Meeting. Accordingly, affiliates of F&M
will generally include the directors and executive officers of F&M as well as
F&M's largest shareholders. In general, shares of Bancorp Common Stock received
by affiliates of F&M pursuant to the Merger may not be publicly resold without
registration under the Securities Act except pursuant to the volume and manner
of sale limitations and other requirements provided in Rules 144 and 145. This
Proxy Statement-Prospectus does not cover any resales of Bancorp Common Stock
received by affiliates of F&M. Any owner of F&M Common Stock who becomes an
affiliate of Bancorp will be subject to similar restrictions under Rule 144.
Pursuant to the terms of the Merger Agreement, in order for the Merger
to qualify for pooling-of-interests accounting treatment, none of the Bancorp
Common Shares held by shareholders who are affiliates of Bancorp or F&M may be
sold until such time as financial results covering at least thirty days of
post-Merger combined operations of Bancorp and F&M have been published (the
"Publication Date"). As a result, no shareholder who is an affiliate of Bancorp
or F&M will be permitted to sell any Bancorp Common Shares for the period from
the Effective Time to the Publication Date.
81
<PAGE> 108
In addition, in order to preserve the proposed tax-free status of the
Merger and in order to ensure that the continuity of shareholder interest
requirements related thereto, and set forth in Treasury Regulation Section
1.368-1(b), will be satisfied with respect to the Merger, certain shareholders
of F&M participating in the Merger will be required to execute a letter (the
"Tax Letter") indicating the number of Bancorp Common Shares, if any, received
by such shareholder in connection with the Merger with respect to which such
shareholder has a present plan or intention to dispose of or sell.
Except as provided above, there will be no restrictions on the transfer
of shares of Bancorp Common Stock issued by Bancorp pursuant to the Merger.
Bancorp Shareholder Rights Plan
On November 26, 1993, Bancorp adopted a shareholder rights plan (the
"Plan") and declared a dividend of one right on each outstanding share of
Bancorp Common Stock ("Right") to shareholders of record as of December 6, 1993.
Each share of Bancorp Common Stock issued after December 6, 1993 will include
one Right. Under the Plan, the Rights will actually be distributed only if one
or more of certain designated actions involving Bancorp Common Stock occur. See
Note 17 of Bancorp's 1994 Financial Statements for more information on the Plan.
82
<PAGE> 109
ADJOURNMENT OF THE SPECIAL MEETING
The shareholders of F&M are asked to approve a proposal to permit the
adjournment of the Special Meeting, if necessary, to solicit additional proxies
with respect to the approval of the Merger Agreement. The Merger Agreement must
be approved by the affirmative vote of at least 75% of the outstanding shares of
F&M Common Stock. If such matter does not receive the requisite vote of
shareholders at the Special Meeting and does not receive a sufficient number of
negative votes to assure the failure of the matter, the Board of Directors may
decide to adjourn the Special Meeting to solicit additional proxies. If the
Board of Directors decides to adjourn the Special Meeting with respect to the
Merger Agreement, the Chairman of the Special Meeting will request a motion that
the Special Meeting be adjourned for up to 30 days. An adjournment of up to 30
days would not require either the setting of a new meeting date or the giving of
notice of the adjourned meeting.
Each proxy given in connection with the Special Meeting will be voted
on a motion for adjournment in accordance with the instructions contained
therein. If no contrary instructions are given, each proxy will be voted in
favor of any motion to adjourn the Special Meeting. The holders of the majority
of the shares of F&M represented in person or by proxy at the Special Meeting
will be required to approve a motion to adjourn the Special Meeting.
If a motion to adjourn the Special Meeting is approved, no vote will be
taken on the Merger Agreement at the Special Meeting on ____________ __, 1996,
but the Merger Agreement will be voted upon at the adjourned meeting. Unless
revoked prior to its use, any proxy solicited for the Special Meeting will
continue to be valid and will be voted in accordance with the instructions
contained therein at the adjourned meeting.
Because the Board of Directors recommends that the shareholders vote
for the Merger Agreement, the Board of Directors similarly recommends that the
shareholders vote FOR the proposal to adjourn the Special Meeting, which will
facilitate the approval of the Merger Agreement. Such an adjournment would be
disadvantageous to shareholders who oppose the Merger Agreement because the
adjournment will give F&M additional time to solicit votes in favor of the
Merger Agreement, thereby increasing the chances of passing the Merger Agreement
proposal. F&M has no reason to believe that an adjournment of the Special
Meeting will be required.
If a quorum is not present at the Special Meeting, none of the
proposals will be acted upon, and the Board of Directors will adjourn the
Special Meeting to a later date in order to solicit additional proxies to assure
the presence of a quorum. The proposal to approve a motion to adjourn the
Special Meeting does not apply to an adjournment relating to the absence of a
quorum.
83
<PAGE> 110
EXPERTS
The consolidated financial statements of Bancorp incorporated by
reference in First Financial Bancorp.'s Annual Report on Form 10-K for the year
ended December 31, 1994, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The financial statements of F&M at April 30, 1995 and for the year then
ended appearing in this Proxy Statement-Prospectus have been audited by Crowe,
Chizek and Company LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of Bancorp Common Stock to be issued in the
Merger described herein will be passed upon by Frost & Jacobs, 2500 PNC Center,
201 East Fifth Street, Cincinnati, Ohio 45202.
Certain legal matters in connection with the Merger will be passed upon
for F&M by Ice Miller Donadio & Ryan, One American Square, Indianapolis, Indiana
46282-0002.
84
<PAGE> 111
APPENDIX A
PLAN AND AGREEMENT OF MERGER
BETWEEN
FIRST FINANCIAL BANCORP.
AND
F & M BANCORP
SEPTEMBER 11, 1995
<PAGE> 112
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
1. Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 1 -
2. The Merger; Effective Time of the Merger . . . . . . . . . . . . . . .- 2 -
3. Governing Law; Articles of Incorporation . . . . . . . . . . . . . . .- 2 -
4. Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 2 -
5. Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . .- 2 -
6. Conversion of Shares in the Merger . . . . . . . . . . . . . . . . . .- 2 -
6.1 FFB's Common Stock . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
6.2 F&M Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
6.3 Consideration: Exchange Ratio. . . . . . . . . . . . . . . . . . . - 3 -
6.4 Surrender of F&M Certificates . . . . . . . . . . . . . . . . . . - 3 -
6.5 Fractional Interests . . . . . . . . . . . . . . . . . . . . . . . - 4 -
6.6 Bank Certificates . . . . . . . . . . . . . . . . . . . . . . . . - 4 -
7. Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . .- 4 -
8. Approval of the Shareholders; Filing of Articles of Merger . . . . . .- 5 -
9. F&M's Representations and Warranties . . . . . . . . . . . . . . . . .- 5 -
9.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . - 5 -
9.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . - 5 -
9.3 Information Furnished by F&M . . . . . . . . . . . . . . . . . . . - 5 -
9.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . - 5 -
9.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . - 6 -
9.6 Good and Marketable Title . . . . . . . . . . . . . . . . . . . . - 6 -
9.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7 -
9.8 Absence of Certain Changes or Events . . . . . . . . . . . . . . . - 7 -
9.9 Contracts and Agreements . . . . . . . . . . . . . . . . . . . . . - 7 -
9.10 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
9.11 Litigation and Proceedings . . . . . . . . . . . . . . . . . . . - 8 -
9.12 Material Contracts; No Conflict with Other Instruments . . . . . - 8 -
9.13 Governmental Authorizations and Filings . . . . . . . . . . . . . - 8 -
9.14 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . - 8 -
9.15 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
9.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . - 9 -
</TABLE>
- i -
<PAGE> 113
<TABLE>
<CAPTION>
<S> <C> <C>
9.17 Validity of Contemplated Transactions . . . . . . . . . . . . . .- 10 -
10. FFB's Representations and Warranties . . . . . . . . . . . . . . . . - 10 -
10.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . .- 10 -
10.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
10.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . .- 11 -
10.4 Shares to be Issued . . . . . . . . . . . . . . . . . . . . . . .- 11 -
10.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . .- 11 -
10.6 Good and Marketable Title . . . . . . . . . . . . . . . . . . . .- 11 -
10.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 12 -
10.8 Absence of Certain Changes or Events . . . . . . . . . . . . . .- 12 -
10.9 Information Furnished by FFB . . . . . . . . . . . . . . . . . .- 12 -
10.10 Litigation and Proceedings . . . . . . . . . . . . . . . . . . .- 12 -
10.11 Material Contracts; No Conflict with Other Instruments . . . . - 13 -
10.12 Governmental Authorizations and Filings . . . . . . . . . . . - 13 -
10.13 Consents and Approvals . . . . . . . . . . . . . . . . . . . . - 13 -
10.14 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13 -
10.15 Validity of Contemplated Transactions . . . . . . . . . . . . - 13 -
11. Conduct of Business Pending the Merger . . . . . . . . . . . . . . . - 14 -
11.1 Negative Covenants of F&M . . . . . . . . . . . . . . . . . . . . - 14 -
11.2 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14 -
11.3 Respective Efforts of FFB and F&M . . . . . . . . . . . . . . . - 14 -
12. Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . - 15 -
12.1 Access and Information . . . . . . . . . . . . . . . . . . . . - 15 -
12.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . - 15 -
12.3 Registration Statement . . . . . . . . . . . . . . . . . . . . - 15 -
12.4 Other Filings and Appeals . . . . . . . . . . . . . . . . . . . - 16 -
12.5 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . - 16 -
12.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
12.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . . - 17 -
12.8 Director and Officer Liability Insurance . . . . . . . . . . . - 17 -
12.9 Pooling . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
12.10 Audited Financial Statements . . . . . . . . . . . . . . . . . - 18 -
12.11 SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
12.12 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
12.13 Fiduciary Responsibility . . . . . . . . . . . . . . . . . . . - 19 -
12.14 Continued Employment of Bank Employees . . . . . . . . . . . . - 19 -
12.15 Publication of Financial Results . . . . . . . . . . . . . . . - 19 -
13. Conditions Precedent; Terminations . . . . . . . . . . . . . . . . . - 20 -
13.1 Conditions Precedent to Obligations of the Parties . . . . . . - 20 -
13.2 Conditions Precedent to FFB's Obligations . . . . . . . . . . . - 20 -
</TABLE>
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<PAGE> 114
<TABLE>
<CAPTION>
<S> <C>
13.3 Conditions Precedent to F&M's Obligation . . . . . . . . . . . . . . .- 22 -
13.4 Termination and Abandonment . . . . . . . . . . . . . . . . . . . . . .- 23 -
13.5 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . .- 23 -
13.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 24 -
13.7 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 24 -
14. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . .- 24 -
14.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 24 -
14.2 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 24 -
14.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 24 -
14.4 Binding Nature of Agreement . . . . . . . . . . . . . . . . . . . .- 25 -
14.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 25 -
14.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . .- 25 -
14.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
14.8 Termination of Representations and Warranties . . . . . . . . . . . - 26 -
</TABLE>
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<PAGE> 115
PLAN AND AGREEMENT OF MERGER
BETWEEN
FIRST FINANCIAL BANCORP.
AND
F & M BANCORP
PLAN AND AGREEMENT OF MERGER (hereafter called "this Agreement") dated
as of September 11, 1995 by and between FIRST FINANCIAL BANCORP., an Ohio
corporation and registered as a bank holding company under the Bank Holding
Company Act of 1956 and a savings and loan holding company under the Savings
and Loan Holding Company Act ("FFB"), and F & M BANCORP, an Indiana corporation
and registered as a bank holding company under the Bank Holding Company Act of
1956 ("F&M"), pursuant to which FFB and F&M hereby agree as set forth more
fully herein.
1. RECITALS
--------
1.1 FFB is a corporation duly organized and existing under the laws of
the State of Ohio, having been incorporated on August 8, 1982. F&M is a
corporation duly organized and existing under the laws of the State of Indiana,
having been incorporated on September 10, 1984.
1.2 The Boards of Directors of FFB and F&M deem it advisable for the
general welfare and advantage of FFB and F&M and their respective shareholders
that FFB and F&M merge into a single corporation pursuant to this Agreement and
pursuant to the applicable provisions of the laws of the States of Ohio and
Indiana and the United States of America, subject to the approval of various
federal and state regulatory authorities.
1.3 As of December 31, 1994, the authorized capital stock of FFB
consisted of 25,000,000 shares of common stock, par value $8.00 per share (the
"FFB Shares"), of which 12,204,575 shares were outstanding.
1.4 As of the date hereof, F&M is authorized to issue 6,000 common
shares, without par value (the "F&M Shares"), of which 5,633 shares are
outstanding.
1.5 In consideration of the foregoing premises and of the mutual
agreements herein contained, the parties hereby agree, in accordance with the
applicable provisions of the laws of the States of Ohio and Indiana, the United
States of America, and any regulatory approvals, that FFB and F&M will be
merged pursuant to the terms and conditions of the merger hereby agreed upon
(hereafter called the "Merger") into a single corporation, which will be FFB,
one of the constituent corporations and which will continue its corporate
existence and be the corporation surviving the merger (said corporation
hereafter being sometimes called the "Surviving
<PAGE> 116
Corporation"), and the parties covenant to observe, keep, perform and carry
into effect the Merger and this Agreement as hereafter set forth.
2. THE MERGER; EFFECTIVE TIME OF THE MERGER. Upon satisfaction (or waiver)
of the conditions specified in Section 13 below, articles of merger in form and
substance reasonably satisfactory to the parties shall be executed and filed in
the offices of the Secretary of State of the States of Ohio and Indiana,
respectively, in the manner provided by law. The date of the later of such
filings shall be the effective time of the Merger (the "Effective Time").
Promptly after the Effective Time, Farmers & Merchants Bank of Rochester,
Indiana (the "Bank"), a wholly owned subsidiary of F&M, shall be merged into
Indiana Lawrence Bank ("ILB"), a wholly owned subsidiary of the Surviving
Corporation (the "Bank Merger"). The Bank Merger will be effected pursuant to
the terms of an agreement of merger in form and substance reasonably
satisfactory to the parties.
3. GOVERNING LAW; ARTICLES OF INCORPORATION. The laws which are to govern
the Surviving Corporation are the laws of the State of Ohio. The Articles of
Incorporation of FFB, at the Effective Time, will be the Articles of
Incorporation of the Surviving Corporation until the same will be further
amended or altered in accordance with the provisions thereof.
4. REGULATIONS. The Regulations of FFB at the Effective Time will be the
Regulations of the Surviving Corporation until the same will be altered or
amended in accordance with the provisions thereof.
5. DIRECTORS AND OFFICERS. The directors of FFB at the Effective Time of the
Merger will be the directors of the Surviving Corporation until their
respective successors are duly elected and qualified. Subject to the authority
of the Board of Directors as provided by law and the Regulations of the
Surviving Corporation, the officers of FFB at the Effective Time will be the
officers of the Surviving Corporation.
6. CONVERSION OF SHARES IN THE MERGER. The mode of carrying into effect the
Merger provided in this Agreement and the manner and basis of converting the
shares of the constituent corporation into shares of the Surviving Corporation
are as follows:
6.1 FFB'S COMMON STOCK. None of the shares of common stock, par value
$8.00 per share, of FFB issued at the Effective Time will be converted as a
result of the Merger, but all such shares (including shares held in the
treasury) will remain issued shares of common stock of FFB.
6.2 F&M SHARES. At the Effective Time, the F&M Shares outstanding
immediately prior to the Effective Time (except for dissenters' shares and as
otherwise provided in Section 6.5) will by virtue of the Merger be converted
into shares of FFB common stock as determined pursuant to Section 6.3 below,
and the F&M Shares held in treasury immediately prior to the Effective Time
will be cancelled.
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<PAGE> 117
6.3 CONSIDERATION: EXCHANGE RATIO.
-----------------------------
6.3.1 The number of FFB Shares to which the holders of F&M Shares
shall be entitled as a result of the Merger (the "Deliverable Shares") shall be
determined by dividing $12,500,000 by the mathematical average of the closing
prices for FFB Shares on the National Association of Securities Dealers
Automated Quotations System - National Market System ("NASDAQ") for each of the
twenty (20) consecutive trading days ending on the second trading day prior to
the Effective Time (the "Average Price"); provided, however, that in the event
that there occurs one or more of such individual trading days on which two
hundred (200) or fewer FFB Shares are traded as reported by NASDAQ
(collectively, "Low-Trade Days"), the Low-Trade Days will be ignored and the
closing price for FFB Shares on the trading day or days immediately preceding
the first of said twenty consecutive trading days (excluding Low-Trade Days),
to the extent necessary, shall be taken into account in order that the
calculation of the Average Price be based on twenty (20) actual trading days on
which more than two hundred (200) FFB Shares are traded; provided further,
however, that in the event of the subdivision or split of the outstanding FFB
Shares, the payment of a dividend in FFB Shares or a capital reorganization,
reclassification or recapitalization affecting the closing price for FFB Shares
during some but not all of said trading days, the number of Deliverable Shares
will be adjusted proportionately so that the holders of outstanding F&M Shares
shall receive the number of FFB Shares that represents the same percentage of
the value of outstanding FFB Shares at the Effective Time as would have been
represented by the number of shares such shareholders would have received if
the event had not occurred. Each holder of F&M Shares shall be entitled to a
portion of the Deliverable Shares that is equal to the number of Deliverable
Shares multiplied by a fraction, the numerator of which is the number of F&M
Shares held by that shareholder immediately prior to the Effective Time and the
denominator of which is the number of F&M Shares outstanding immediately prior
to the Effective Time.
6.3.2 Each holder of F&M Shares outstanding immediately prior to the
Effective Time, upon surrender to FFB of one or more stock certificates
representing former shares of F&M, will be entitled to receive one or more
stock certificates of FFB into which the F&M Shares will have been converted.
No dividends that may have been declared by FFB after the Effective Time and
prior to the surrender of F&M shares will be paid until such shares have been
presented for exchange to FFB. FFB shall deliver certificates to F&M
shareholders within ten business days of receipt by the Exchange Agent (as
defined in Section 6.4 below) of F&M certificates.
6.4 SURRENDER OF F&M CERTIFICATES. Prior to the Effective Time, FFB and
First National Bank of Southwestern Ohio (the "Exchange Agent") shall enter
into an Exchange Agent Agreement with respect to the Deliverable Shares, which
Agreement shall be subject to F&M's approval which shall not be unreasonably
withheld. The Exchange Agent Agreement shall require FFB to deliver the
Deliverable Shares to the Exchange Agent at the Effective Time. As promptly as
practicable after the Effective Time, the Exchange Agent shall prepare and mail
to each holder of record of an outstanding certificate or certificates
representing shares of F&M a letter of transmittal containing instructions for
the surrender of the certificate or certificates.
- 3 -
<PAGE> 118
Upon surrender of the F&M certificate or certificates in accordance with
instructions set forth in the letter of transmittal, such holder shall be
entitled to receive in exchange therefor certificates representing the number
of whole shares of FFB into which the shares represented by the certificate or
certificates so surrendered shall have been converted, without interest. As
part of its services, the Exchange Agent shall make itself available for at
least three business days during regular banking hours at the main office of
the Bank to accept and provide receipts for surrendered certificates. Approval
of the Exchange Agent Agreement by F&M and approval of this Agreement by the
shareholders of F&M shall constitute ratification of the appointment of First
National Bank of Southwestern Ohio as the Exchange Agent for this purpose. The
Exchange Agent shall not be obligated to deliver certificates for FFB stock to
a former shareholder of F&M until such former shareholder surrenders his or her
certificate or certificates representing shares of F&M or, in default thereof,
an appropriate affidavit of loss and indemnity agreement as may be required by
FFB. Until so surrendered for exchange, each such stock certificate formerly
representing F&M Shares will be deemed for all corporate purposes (except for
the payment of dividends, which will be subject to the exchange of stock
certificates as above provided) to evidence the ownership of the number of
shares of common stock of the Surviving Corporation that the holder thereof
would be entitled to receive upon its surrender to FFB.
6.5 FRACTIONAL INTERESTS. No fractional shares of common stock of
FFB or certificate or scrip representing the same will be issued. In lieu
thereof, each holder of F&M Shares having a fractional interest arising upon
the conversion of F&M Shares in the Merger will be paid in cash by FFB for the
fractional interest. Such payment shall be equal to the fractional interest
times the Average Price. This amount shall not be paid to any holder of F&M
Shares who shall not have surrendered his certificates for exchange pursuant to
Section 6.4 hereof, and FFB shall retain such amount until such time as such
certificates have been surrendered.
6.6 BANK CERTIFICATES. Share certificates that name the Bank as
issuer but represent F&M Shares will be deemed share certificates representing
F&M Shares in connection with the Merger and for the purposes of rights and
obligations under this Agreement.
7. EFFECT OF THE MERGER. At the Effective Time, the Surviving
Corporation will succeed to, without other transfer, and will possess and
enjoy, all the rights, privileges, immunities, powers and franchises both of a
public and a private nature, and be subject to all the restrictions,
disabilities and duties of each of FFB and F&M, and all the rights, privileges,
immunities, powers and franchises of each of FFB and F&M and all property,
real, personal and mixed, and all debts due to either of said constituent
corporations on whatever account, for stock subscriptions as well as for all
other things in action or belonging to each of said corporations, will be
vested in the Surviving Corporation; and all property, rights, privileges,
immunities, powers and franchises, and all and every other interest will be
thereafter as effectually the property of the Surviving Corporation as they
were of FFB and F&M, respectively, and the title to any real estate vested by
deed or otherwise in either of FFB and F&M will not revert or be in any way
impaired by reason of the Merger; provided, however, that all rights of
creditors and all liens upon any property of either of FFB or F&M will be
preserved unimpaired, limited in lien to the property affected by such liens at
the Effective Time, and all debts, liabilities and
- 4 -
<PAGE> 119
duties of said constituent corporations, respectively, will thenceforth attach
to the Surviving Corporation and may be enforced against it to the same extent
as if said debts, liabilities and duties had been incurred or contracted by the
Surviving Corporation.
8. APPROVAL OF THE SHAREHOLDERS; FILING OF ARTICLES OF MERGER. This
Agreement will be submitted to the shareholders of F&M for adoption and
approval. After such adoption and approval, and subject to the conditions
contained in this Agreement, articles of merger as described in Section 2 will
be signed, verified and delivered to the Secretary of State of the States of
Ohio and Indiana for filing as provided by the respective statutes of such
states.
9. F&M'S REPRESENTATIONS AND WARRANTIES. Except as provided in the schedules
contained in the disclosure statement attached hereto ("Disclosure Statement"),
F&M represents and warrants to FFB as of the date hereof and as of the
Effective Time as follows:
9.1 ORGANIZATION. F&M is a corporation duly organized and validly
existing under the laws of the State of Indiana and is registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended ("Bank
Holding Company Act"). F&M has the corporate power to carry on its businesses
as they are now being conducted and is qualified to do business in each
jurisdiction in which the character and location of the assets owned by it, or
the nature of the business transacted by it, requires qualification, except
where the absence of such qualification would not have a material adverse
effect on its businesses or properties. The Board of Directors of F&M has
authorized and directed the persons executing this Agreement on behalf of F&M
to do so, and this Agreement, when executed and delivered, will be legally
binding upon F&M.
9.2 CAPITALIZATION. F&M is authorized to issue 6,000 common shares,
without par value, of which, as of the date hereof, 5,633 shares are issued and
outstanding. Each issued share of F&M was validly issued, fully paid,
non-assessable and each outstanding share of F&M is entitled to one vote. F&M
has not issued or granted nor is it a party to any outstanding subscriptions,
options, warrants, calls or rights of any kind relating to or providing for the
issuance, sale, delivery or transfer of any class of securities of F&M.
9.3 INFORMATION FURNISHED BY F&M. In connection with FFB's due
diligence examination prior to the date hereof, F&M has delivered to FFB
certain information concerning F&M dated as of the date furnished or such other
date as disclosed to FFB. Such information and the copies of documents
furnished to FFB are accurate in all material respects as of the date furnished
or such other date.
9.4 SUBSIDIARIES. F&M has one wholly owned subsidiary, the Bank.
F&M has no other subsidiaries. The Bank is a state bank duly organized and
validly existing under the laws of the State of Indiana. The Bank has the
corporate power to carry on its businesses as they are now being conducted and
is qualified to do business in each jurisdiction in which the character and
location of the assets owned by it, or the nature of the business transacted by
it, requires qualification, except where the absence of such qualification
would not have a material adverse
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effect on the businesses or properties of F&M. The Bank is authorized to issue
6,000 shares, par value $100 per share, of which, as of the date hereof, 6,000
shares are issued and outstanding. All of the Bank's shares are validly
issued, fully paid, non-assessable and all such shares are owned by F&M free
and clear of all liens, claims, charges or encumbrances. The Bank has not
issued or granted nor is it a party to any outstanding subscriptions, options,
warrants, calls or rights of any kind relating to or providing for the
issuance, sale, delivery or transfer of any class of securities of the Bank.
9.5 FINANCIAL STATEMENTS. The Disclosure Statement will contain
copies of F&M's consolidated balance sheets as of April 30, 1995 and 1994 and
F&M's related statements of income, changes in shareholders' equity, and cash
flows for each of the years ended April 30, 1995, 1994 and 1993. Except for
the 1993 financial statements and related notes (which are unaudited), in each
case all such documents, including the notes thereto, will be certified by
Crowe, Chizek and Company, independent public accountants. The balance sheets
and statements referred to in this Section are hereinafter referred to as the
"F&M Financial Statements." F&M will deliver the F&M Financial Statements to
FFB as soon as practicable after F&M receives them from said accountants. The
F&M Financial Statements will be prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods indicated,
except as otherwise indicated in the notes thereto. All liabilities of F&M
(including any contingent liabilities), as of the date of each balance sheet,
will be properly accrued in such balance sheet or disclosed in the related
footnotes, in accordance with generally accepted accounting principles, except
as may be noted therein.
9.6 GOOD AND MARKETABLE TITLE. F&M and the Bank have and at the
Effective Time will have good and marketable title in fee simple to all lands
and buildings shown as assets of F&M or the Bank in their records and books of
account except for properties held in trust or other fiduciary capacity, free
and clear of all liens, encumbrances and charges except as reflected in the F&M
Financial Statements and except for current taxes and assessments not
delinquent or being contested in good faith and liens, encumbrances and charges
shown in their records and books of account which are not substantial in
character or amount and do not materially detract from the value or interfere
with the use of the properties subject thereto or affected thereby. F&M and
the Bank have and at the Effective Time will have valid leases under which they
are entitled to occupy and use in their business all real property of which
they are lessees, and F&M and the Bank have no knowledge of any material
default under any such lease. As of the date hereof, neither F&M nor the Bank
has title to any real property or buildings as a result of foreclosure or by
otherwise realizing on collateral held by either of them. Neither F&M nor the
Bank shall take action to foreclose or otherwise realize on any real property
collateral held by either of them prior to the Effective Time without the prior
consent of FFB, which consent shall not be unreasonably withheld.
F&M and the Bank have and at the Effective Time will have good and
marketable title to the machinery, equipment, merchandise, materials, supplies
and other property of every kind, tangible or intangible, contained in their
offices and other facilities or shown as assets in their records and books of
account, except for properties held in trust or other fiduciary capacity, free
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and clear of all liens, encumbrances and charges except as reflected in the F&M
Financial Statements and except for liens, encumbrances and charges, if any,
which do not materially detract from the value of or interfere with the use of
the properties subject thereto or affected thereby. F&M and the Bank have and
will have immediately prior to the Effective Time valid leases under which they
are entitled to use in their business all personal property of which they are
lessees, and neither F&M nor the Bank has any knowledge of any material default
under any such leases.
9.7 TAXES. All taxes imposed by the United States or by any state,
municipality, subdivision or instrumentality of the United States or by any
other taxing authority, which are due or payable by either F&M or the Bank
("Taxes"), and all claims asserted against each of them for the payment of
Taxes have been paid in full or are adequately accrued in the records and books
of accounts of each of F&M and the Bank and will be so paid or provided for at
the Effective Time. All income tax returns for each of F&M and the Bank for
tax years through and including 1994 have been filed with the taxing
authorities having jurisdiction thereof, and no extension of time for the
assessment of deficiencies for any such years is in effect. Neither F&M nor
the Bank has knowledge of any unassessed Tax deficiency proposed or threatened
against it.
9.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. From April 30, 1994 to the
date hereof, there has not been:
9.8.1 any change in or event affecting the corporate status,
businesses, operations or condition (financial or otherwise) of either of F&M
or the Bank (whether or not covered by insurance), other than changes in the
ordinary course of business, which are not, in the aggregate, materially
adverse to F&M; or
9.8.2 any declaration, setting aside or payment of any dividend or
other distribution, with respect to F&M Shares, except the cash dividend of $30
per share paid on or about February 1, 1995.
9.9 CONTRACTS AND AGREEMENTS. Neither F&M nor the Bank is a party to:
(a) any sales agency agreement not subject to termination without liability on
notice of 60 days or less; (b) any contract for the purchase or sale of any
materials, products or supplies which contains any escalator, renegotiation or
redetermination clause or which commits it for a fixed term; (c) any contract
of employment with any officer or employee not terminable at will without
liability; (d) any pension, retirement or profit sharing plan or agreement not
cancelable within 60 days without liability; (e) any management or consultation
agreement not terminable at will without liability; (f) any lease, license,
royalty, union agreement or loan agreement except those entered into in the
ordinary course of business; (g) any contract, accepted order or commitment for
the purchase or sale of materials, products or supplies having a total contract
price in excess of $20,000; or (h) any other agreement which materially affects
the business properties, assets or condition (financial or otherwise) of F&M,
or which was entered into other than in the ordinary course of business. The
Disclosure Statement contains the following with respect to each
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pension or profit sharing plan of F&M and the Bank: a copy of the plan and any
relevant trust agreements, a copy of the 1994 Form 5500-C/R filed with the
Internal Revenue Service, the latest report of the value of the assets or the
cash surrender values as of the latest anniversary of the insurance polices
held under the plan, and the latest actuarial evaluation or statement of
individual accounts.
9.10 INSURANCE. The Disclosure Statement contains a list, and is
accompanied by copies, of all existing insurance policies of F&M and the Bank,
including but not limited to group insurance and pension plans. All such
policies are in full force and effect. The Disclosure Statement also contains
a list of all claims for insured losses filed by F&M and the Bank during the
three-year period immediately preceding the date of this Agreement, including
but not limited to worker's compensation, automobile and general liability.
9.11 LITIGATION AND PROCEEDINGS. There is no suit, action or legal
or administrative proceeding pending or, to the knowledge of F&M, threatened,
against it or the Bank, which, if adversely determined, might materially and
adversely affect the financial condition, on a consolidated basis, of F&M and
the Bank or the conduct of their businesses, nor is there any decree,
injunction or order of any court, governmental department or agency outstanding
against F&M or the Bank having any such effect.
9.12 MATERIAL CONTRACTS; NO CONFLICT WITH OTHER INSTRUMENTS. Neither
F&M nor the Bank is in default under the terms of any outstanding contract,
agreement, lease or other commitment which default would have a material and
adverse effect, on a consolidated basis, on F&M and the Bank, and at the
Effective Time, the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of or
constitute a default under any indenture, mortgage, deed of trust or other
agreement or instrument to which F&M or the Bank is a party, which default or
breach would have a material and adverse effect, on a consolidated basis, on
F&M and the Bank.
9.13 GOVERNMENTAL AUTHORIZATIONS AND FILINGS. Each of F&M and the
Bank has all valid and sufficient licenses, franchises, permits and other
governmental authorizations for all businesses presently carried on by F&M and
the Bank, respectively. F&M has filed with the Federal Reserve Board all
reports necessary to the conduct of its business as a bank holding company and
is current in all respect as to such filings. F&M has provided in the
Disclosure Statement its Annual Reports on Form FRY-6 for 1990, 1991 and 1994
and on Form FRY-9 for 1990, 1991, 1992, 1993 and 1994, proxy materials for its
Annual Meetings in such years and its Annual Meeting in 1995. The Bank has
provided in the Disclosure Statement its Year-End Call Reports for 1991, 1992,
1993 and 1994, as filed with the Federal Deposit Insurance Corporation.
9.14 CONSENTS AND APPROVALS. Except for consents and approvals of
federal and state regulatory authorities, the only consent and approval
required to be obtained by or on behalf of F&M or the Bank on or prior to the
Effective Time is the approval of the holders of seventy-five percent of the
outstanding shares of F&M in the manner provided by law.
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9.15 BROKERS. Neither F&M, the Bank nor any of their officers,
directors or employees have employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finders' fees in connection with this Agreement or with the transactions
contemplated hereby.
9.16 ENVIRONMENTAL MATTERS. For purposes hereof, "environmental
laws" means all applicable federal, state or local statutes, laws, ordinances,
codes, rules, regulations and guidelines relating to public health and
protection of the environment and natural resources.
(a) F&M and the Bank have filed all notices, permit applications and
other required governmental submissions and have obtained all permits, licenses
and other authorizations which are required and which are material in
connection with the conduct of their respective businesses under all applicable
environmental laws, including approvals relating to emissions, discharges,
releases or threatened releases, use, treatment, storage, disposal, transport
or handling of pollutants, contaminants, chemicals, new or used petroleum
products, industrial, toxic or hazardous substances or solid wastes into the
environment (including, without limitation, ambient air, surface water,
groundwater, land or sewers).
(b) Each of F&M and the Bank is in compliance, in all material
respects, in the conduct of its business with all terms and conditions of the
necessary permits, licenses and authorizations, and to the best of their
knowledge is also in compliance in all material respects with all other
applicable limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
environmental laws or contained in any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered, promulgated or
approved under the environmental laws.
(c) Neither F&M nor the Bank has received notice of, or has
knowledge of, any past or present events, conditions, circumstances,
activities, practices, incidents, actions or plans which may materially
interfere with or prevent compliance or continued compliance in the conduct of
its business with the environmental laws or any regulations, codes, plans,
orders, decrees, judgments, injunctions, notices or demand letters issued,
entered, promulgated or approved under the environmental laws, or which may
give rise to any common law or legal liability, or otherwise form the basis of
any claim, action, demand, suit, or proceeding, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment (including, without limitation, ambient air,
surface water, groundwater, land or sewers), of any pollutant, contaminant,
chemical, or industrial, toxic or hazardous substance or waste or new or used
petroleum products.
(d) Neither F&M nor the Bank has received notice of, or has
knowledge of, any material civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation, or proceeding pending or threatened against either F&M or the
Bank relating in any way to the environmental laws or any regulation, code,
plan, order,
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decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved under the environmental laws.
(e) To the best knowledge of each of F&M and the Bank, there is no
asbestos-containing material located on the premises on which F&M and the Bank
conduct their respective businesses the presence of which violates any
environmental law.
9.17 VALIDITY OF CONTEMPLATED TRANSACTIONS. The execution, delivery
and performance of this Agreement will not: (i) violate, or conflict with, or
require any consent under, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of any
material lien upon any of the assets of either of F&M or the Bank, under any of
the terms, conditions or provisions of the Articles of Incorporation or Bylaws
of F&M or the Bank, or of any material note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
either of F&M or the Bank is a party or by which either of F&M or the Bank or
any of their assets may be bound or affected or (ii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to F&M, the Bank or
any of their assets.
10. FFB'S REPRESENTATIONS AND WARRANTIES. FFB represents and warrants to
F&M as of the date hereof and as of the Effective Time as follows:
10.1 ORGANIZATION. FFB is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio and is
registered as a bank holding company under the Bank Holding Company Act, and a
savings and loan holding company under the Savings and Loan Holding Company
Act. FFB has the corporate power to carry on its businesses as they are now
being conducted and is qualified to do business in each jurisdiction in which
the character and location of the assets owned by it, or the nature of the
business transacted by it, requires qualification. FFB, by order of its Board
of Directors, has authority to enter into this Agreement and this Agreement is
legally binding.
10.2 SUBSIDIARIES. Each indirect and direct subsidiary of FFB which,
as of the Effective Time would be deemed to be a "significant subsidiary," as
such term is defined in Rule 405 of the rules and regulations promulgated in
the Securities Act of 1933, as amended (the "1933 Act"), is either a national
bank or federal savings association duly organized, validly existing, and in
good standing under a charter granted by the Office of the Comptroller of the
Currency or the Office of Thrift Supervision, or is a corporation or state bank
duly organized, validly existing and in good standing under the laws of the
state of its incorporation, and in either case, is duly qualified to do
business and is in good standing in all jurisdictions where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified and where failure to so qualify would have a material and adverse
effect on the consolidated business, financial condition or results of
operations of FFB.
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10.3 CAPITALIZATION. FFB's capitalization consists of 25,000,000
authorized shares of common stock (par value $8.00 per share), of which, as of
December 31, 1994, 12,204,575 shares were issued and outstanding. Each issued
share is validly issued, fully paid and nonassessable, and each outstanding
share is entitled to one vote.
10.4 SHARES TO BE ISSUED. All shares of common stock of FFB into
which F&M Shares will be converted will be, immediately after the Effective
Time and when issued upon such conversion, duly and validly authorized and
issued, fully paid and nonassessable, and no stockholder of FFB will have any
preemptive right of subscription or purchase in respect thereof. FFB shall
take such steps as may be necessary for such shares to be listed on NASDAQ
immediately after the Effective Time.
10.5 FINANCIAL STATEMENTS. FFB will have delivered to F&M copies of
its consolidated balance sheets as of December 31, 1994, 1993 and 1992, and the
related consolidated statements of earnings, changes in shareholders' equity,
and cash flows for each of the three years then ended, in each case including
the notes thereto, all certified by Ernst & Young, independent public
accountants, or one of said accountant's predecessor firms (the "FFB Financial
Statements").
All of the FFB Financial Statements have been prepared in accordance
with generally accepted accounting principles consistently followed throughout
the periods indicated, except as otherwise indicated in the notes thereto. All
liabilities of FFB (including any contingent liabilities), as of the date of
each balance sheet, were properly accrued in such balance sheet or disclosed in
the related footnotes, in accordance with generally accepted accounting
principles.
10.6 GOOD AND MARKETABLE TITLE. FFB has and at the Effective Time
will have good and marketable title in fee simple to all lands and buildings
shown as assets m its records and books of account, except for properties held
in trust or other fiduciary capacity, free and clear of all liens, encumbrances
and charges except as reflected in the FFB Financial Statements and except for
current taxes and assessments not delinquent or being contested in good faith
and liens, encumbrances and charges shown in its records and books of account
which are not substantial in character or amount and do not materially detract
from the value or interfere with the use of the properties subject thereto or
affected thereby. FFB has and at the Effective Time will have valid leases
under which it is entitled to occupy and use in its business all real property
of which it is lessee, and FFB has no knowledge of any material default under
any such lease.
FFB has and at the Effective Time will have good and marketable title
to the machinery, equipment, merchandise, materials, supplies and other
property of every kind, tangible or intangible, contained in its offices and
other facilities or shown as assets in its records and books of account, except
for properties held in trust or other fiduciary capacity, free and clear of all
liens, encumbrances and charges except as reflected in the FFB Financial
Statements and except for liens, encumbrances and charges, if any, which do not
materially detract from the value of or interfere with the use of the
properties subject thereto or affected thereby. FFB has and will have
immediately prior to the Effective Time valid leases under which it is entitled
to use in its
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business all personal property of which it is lessee, and FFB has no knowledge
of any material default under any such lease.
10.7 TAXES. All Taxes which are due or payable by FFB, and all
claims asserted against it have been paid in full or are adequately accrued in
the records and books of accounts of FFB and will be so paid or provided for at
the Effective Time. All income tax returns for FFB have been filed with the
taxing authorities having jurisdiction thereof for all years through FFB's 1993
tax year, and no extension of time for the assessment of deficiencies for any
such years is in effect. FFB has no knowledge of any unassessed tax deficiency
proposed or threatened against it.
10.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. From December 31, 1994 to
the date hereof, there has not been:
10.8.1 any change in or event affecting the corporate status,
businesses, operations or condition (financial or otherwise) of FFB and its
consolidated Subsidiaries, other than changes in the ordinary course of
business, those changes described in any FFB filings with the Securities and
Exchange Commission, and those changes that may result from FFB's acquisition
of Bright Financial Services Inc., of Flora, Indiana, and its subsidiary bank,
which are not, in the aggregate, materially adverse to FFB;
10.8.2 with respect to FFB's common stock, any declaration, setting
aside or payment of any dividend or other distribution, other than quarterly
dividends of $0.26 per share paid on January 1, 1995, April 1, 1995 and July 1,
1995; and
10.8.3 any other event or condition of any character which has
materially and adversely affected the corporate status, business, operations or
financial condition of FFB and its consolidated Subsidiaries taken as a whole.
10.9 INFORMATION FURNISHED BY FFB. Neither this Agreement nor any
written report, statement, list, certificate or information furnished or to be
furnished by FFB to F&M in connection with this Agreement or any of the
transactions contemplated hereby (including, without limitation, any
information which has been or will be supplied by FFB with respect to its
business, operations, financial condition, directors and officers for inclusion
in the proxy statement and registration statement relating to the Merger)
contains or will contain (in the case of information relating to the proxy
statement at the time it is mailed and to the registration statement at the
time it becomes effective) 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.
10.10 LITIGATION AND PROCEEDINGS. There is no suit, action or legal
or administrative proceeding pending, or to the knowledge of FFB threatened,
against it or any of FFB's consolidated Subsidiaries, which, if adversely
determined, might materially and adversely affect the financial condition, on a
consolidated basis, of FFB and FFB's consolidated Subsidiaries or
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the conduct of their businesses, nor is there any decree, injunction or order
of any court, governmental department or agency outstanding against FFB or any
of FFB's consolidated Subsidiaries having any such effect.
10.11 MATERIAL CONTRACTS; NO CONFLICT WITH OTHER INSTRUMENTS.
Neither FFB nor any of its consolidated Subsidiaries is in default under the
terms of any outstanding contract, agreement, lease or other commitment which
default would have a material and adverse effect, on a consolidated basis, on
FFB and FFB's consolidated Subsidiaries, and at the Effective Time, the
consummation of the transactions contemplated by this Agreement will not result
in the breach of any term or provision of or constitute a default under any
indenture, mortgage, deed of trust or other agreement or instrument to which
FFB or any of its consolidated Subsidiaries is a party, which default or breach
would have a material and adverse effect, on a consolidated basis, on FFB and
FFB's consolidated Subsidiaries.
10.12 GOVERNMENTAL AUTHORIZATIONS AND FILINGS. FFB and each of FFB's
consolidated Subsidiaries has all valid and sufficient licenses, franchises,
permits and other governmental authorizations necessary to the conduct of its
business and has filed with the Board of Governors of the Federal Reserve
System ("FRB"), the Office of Thrift Supervision and the Securities and
Exchange Commission all reports necessary to the conduct of its business as a
bank holding company and savings and loan holding company and is current in all
respects as to such filings.
10.13 CONSENTS AND APPROVALS. The consents and approvals required to
be obtained by FFB on or prior to the Effective Time are set forth below:
10.13.1 approval and effectiveness of the Registration
Statement referred to in Section 12.3 or of any post effective amendment
thereto,
10.13.2 approval of the FRB under the Bank Holding Company Act,
10.13.3 approval of the Department of Financial Institutions of the
State of Indiana ("Department"), and
10.13.4 any other required consents for the completion of the
Merger.
10.14 BROKERS. Neither FFB nor any of its officers, directors or
employees have employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finders' fees in
connection with this Agreement or with the transactions contemplated hereby.
10.15 VALIDITY OF CONTEMPLATED TRANSACTIONS. The execution, delivery
and performance of this Agreement will not: (i) violate, or conflict with, or
require any consent under, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of any lien
upon any of
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the assets of FFB or ILB, under any of the terms, conditions or provisions of
the Articles of Incorporation or bylaws of FFB or ILB, or of any note, bond,
mortgage, indenture, deed of trust, material license, lease, agreement or other
instrument or obligation to which FFB or ILB is a party or by which FFB or any
of its assets may be bound or affected or (ii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to FFB or ILB or any
of their assets.
11. CONDUCT OF BUSINESS PENDING THE MERGER.
11.1 NEGATIVE COVENANTS OF F&M. From and after the date of this
Agreement and prior to the Effective Time, without the prior written consent of
FFB, F&M will not:
11.1.1 amend its Articles of Incorporation or Bylaws;
11.1.2 engage in any material activity or transaction or incur
any material obligation (by contract or otherwise) except in the
ordinary course of business or other than as described in this
Section 11;
11.1.3 issue rights or options to purchase or subscribe to any
of its shares or subdivide or otherwise change any such shares; or
11.1.4 issue or sell any of its shares.
11.2 DIVIDENDS. From and after the date of this Agreement and prior
to the Effective Time, neither FFB nor F&M will declare or pay any dividends on
or make any distributions in respect of any shares of its capital stock, except
that (i) FFB may declare and pay, on or about the dates when such dividends
have customarily been declared and paid by it in the past, quarterly cash
dividends in the amount of $0.26 or more (plus such additional amount, which
may be stock dividends, if any, consistent with FFB's practices during recent
years as its Board of Directors may determine) per share during each calendar
quarter on the outstanding shares of FFB's common stock; and (ii) F&M may
declare and pay cash dividends in an amount not to exceed thirty percent (30%)
of F&M's net earnings as determined by F&M for the year ending December 31,
1995. For the period from December 31, 1995 until the Effective Time, and
assuming the financial condition of F&M justifies such action, the parties
agree to cooperate with each other to ensure that the shareholders of F&M
receive a quarterly cash dividend from either F&M or FFB and that during the
quarter in which the Effective Time occurs such shareholders of F&M do not
receive cash dividends from both F&M and FFB.
11.3 RESPECTIVE EFFORTS OF FFB AND F&M. From and after the date of
this Agreement and prior to the Effective Time, each of F&M and the Bank will
make their respective reasonable efforts to preserve their respective business
organizations intact; to keep available the services of their respective
present officers and employees; and to preserve the goodwill of their
respective suppliers, customers and others with whom they have business
relations. During the same period, neither F&M nor the Bank will put into
effect any increase in the compensation
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or other benefits applicable to employees of the Bank, except annual increases
effective in 1996 that do not exceed in the aggregate five percent (5%) or as
to any individual six percent (6%).
12. ADDITIONAL AGREEMENTS
12.1 ACCESS AND INFORMATION. FFB and F&M hereby agree that each will
give to the other and to the other's accountants, counsel and other
representatives full access during normal business hours throughout the period
prior to the Merger to all of its properties, books, contracts, commitments and
records, and that each will furnish the other during such period with all such
information concerning its affairs as such other party may reasonably request.
In the event of the termination of this Agreement each party will deliver to
the other all documents, work papers and other material obtained from the other
relating to the transactions contemplated hereby, whether so obtained before or
after the execution hereof, and will use its best efforts to have any
information so obtained and not heretofore made public kept confidential.
12.2 CONFIDENTIALITY. From and after the date of this Agreement, the
parties and their respective Subsidiaries shall, and they shall cause their
respective directors, officers, employees and advisors ("Affiliates") to, treat
all information received from or on behalf of another party hereto or its
Affiliates concerning the business, assets, operations and financial condition
of such other party or its Subsidiaries as confidential, unless and to the
extent that the party receiving such information can demonstrate that such
information was in the public domain, and the party receiving such information
and its Subsidiaries shall, and shall cause their respective Affiliates to, not
use any such confidential information for any purpose except in furtherance of
the transactions contemplated by this Agreement. In the event this Agreement
is terminated pursuant to Section 13.4 hereof, each party and its Subsidiaries
shall promptly return to the other party all documents and work papers and all
copies thereof, containing any such confidential information received from or
on behalf of another party hereto in connection with the transactions
contemplated by this Agreement. The covenants contained in this Section are of
the essence and shall survive any termination of this Agreement and the closing
of the transactions contemplated by this Agreement.
12.3 REGISTRATION STATEMENT. FFB will use its best efforts to
prepare and file as soon as practicable with the Securities and Exchange
Commission ("SEC") a Registration Statement on Form S-4 under the 1933 Act to
register the Deliverable Shares at the Effective Time. FFB will use its best
efforts to cause such Registration Statement to become effective. FFB will use
reasonable efforts to make all proper filings under any applicable state
securities laws. The prospectus which forms a part of the Registration
Statement will also constitute the Proxy Statement of F&M for solicitation of
proxies in connection with the meeting of shareholders referred to in Section
13.3.7. The Registration Statement will comply in all material respects with
the rules and regulations of the Securities and Exchange Commission. Each of
the parties hereto will cooperate fully with each other in preparation of the
Registration Statement and Proxy Statement (and any and all amendments thereto)
and supply all information necessary, in the opinion of their respective
counsel, in order to complete the preparation of the Registration and Proxy
Statement. FFB will list the Deliverable Shares on NASDAQ.
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12.4 OTHER FILINGS AND APPEALS. FFB will have primary responsibility
for preparation of all applications for regulatory approval of the Merger
including but not limited to the preparation of: (i) an application or any
amendment thereto filed or to be filed by any party with the FRB under the Bank
Holding Company Act for authority to consummate the transactions contemplated
by this Agreement, the Articles of Merger and the Agreement of Merger; (ii) an
application or any amendment thereto filed or to be filed with the Department
for authority to consummate the transactions contemplated by this Agreement,
the Articles of Merger and the Agreement of Merger; and (iii) any application
or statements to be made by any party to any governmental body in connection
with such matters and in connection with plans and agreements of merger
heretofore or hereafter entered into between the parties hereto. FFB will
deliver copies of all applications to F&M prior to filing, keep F&M apprised of
the status of all applications and file the application with the FRB as
promptly as practicable following the date of this Agreement. Each of the
parties hereto shall use its best efforts, separately and jointly with the
other party, in good faith to take or cause to be taken all such steps as shall
be necessary or advisable to obtain all consents and approvals of governmental
authorities as are required by law or otherwise to effect the Merger. In the
event of an adverse or unfavorable determination by any regulatory authority,
or should the Merger 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 remedies shall be made by FFB
with the concurrence of F&M, which concurrence shall not be unreasonably
withheld, and FFB agrees to be fully responsible for the conduct of such review
or other proceeding.
12.5 EMPLOYEE BENEFIT PLANS. Notwithstanding anything to the
contrary contained herein, (i) in the event that the Effective Time occurs
prior to the date on which the Bank makes its required contribution to the
Farmers and Merchants Bank Retirement Plan and Trust ("Retirement Plan") for
the 1995 plan year, as determined in accordance with the terms of the
Retirement Plan, the Surviving Corporation shall assume or cause ILB to assume
such obligation and shall make or cause ILB to make such required contribution
as soon as practicable after the amount of such required contribution shall be
determined; and (ii) the Surviving Corporation shall assume or cause ILB to
assume the obligation of the Bank to make a pro rata contribution to the
Retirement Plan for the period from December 31, 1995 until the Effective Time
(the "1996 Partial Plan Year"), in accordance with an amendment to the
Retirement Plan to be adopted by the Bank to require a Bank contribution to the
Retirement Plan for the 1996 Partial Plan Year. As soon as practicable after
the Effective Time, but in no event prior to making the required contribution
or contributions, if any, described in the preceding sentence, the Surviving
Corporation shall cause the termination of the Retirement Plan in a manner
which shall assure the tax-qualified status of the Retirement Plan upon
termination. Upon termination of the Retirement Plan, provisions will be made
for the distribution of each participant's account in accordance with the terms
of the Retirement Plan, the Internal Revenue Code, and the Employee Retirement
Income Security Act of 1974 ("ERISA"). Former employees of the Bank who are
employed by ILB as of the Effective Time shall receive credit for their prior
service with the Bank for purposes of calculating years of service for
eligibility and vesting purposes under the First Financial Bancorp Thrift Plan
("Thrift Plan") and the First Financial Bancorp Employees'
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Pension Plan ("Pension Plan"). Prior service with the Bank shall not be
credited, however, for purposes of calculating years of service for benefit
accrual purposes under the Pension Plan. Former employees of the Bank who
satisfy the applicable eligibility requirements under the Pension Plan shall be
eligible to participate immediately in the Pension Plan as of the Effective
Time. Former employees of the Bank satisfying the applicable eligibility
requirements under the Thrift Plan shall be eligible to participate on the
first entry date (January 1 or July 1) following the Effective Time. Former
employees of the Bank who are employed by ILB as of the Effective Time shall
also receive credit for prior service with the Bank for purposes of determining
eligibility for all other employee benefits offered to employees of ILB,
including, but not limited to, group health coverage, group term life and
accidental death and dismemberment coverage, and short-term and long-term
disability coverage. Former employees of the Bank who satisfy the applicable
eligibility requirements to participate in said other employee benefits shall
be eligible to participate immediately therein as of the Effective Time. In
addition, in the event that former employees of the Bank who are employed by
ILB as of the Effective Time are subject to any pre-existing conditions
exclusions or limitations under the group health plan for employees of ILB
("ILB Health Plan"), FFB or ILB shall either (i) obtain for said former
employees other health insurance comparable to the ILB Health Plan or (ii)
self-insure said former employees as necessary to place them in a position not
substantially more or less advantageous to them than if they were covered under
the ILB Health Plan. Furthermore, former employees of the Bank who are
employed by ILB as of the Effective Date shall receive credit under the ILB
Health Plan for amounts paid toward the satisfaction of the yearly deductibles
and yearly payment limits under the Bank's group health plan.
12.6 EXPENSES. Upon a termination of this Agreement as provided in
Section 13.4, each party will pay all costs and expenses of its performance of
and compliance with all agreements and conditions contained herein on its part
to be performed or complied with, including fees, expenses and disbursements of
its accountants and counsel.
12.7 FURTHER ASSURANCES. If at any time the Surviving Corporation
will consider or be advised that any further assignment or assurance in law or
other action is necessary or desirable to vest, perfect, or confirm, of record
or otherwise, in the Surviving Corporation, the title to any property or rights
of F&M acquired or to be acquired by or as a result of the Merger, the proper
officers and directors of F&M and the Surviving Corporation, respectively, will
be and they hereby are severally and fully authorized to execute and deliver
such proper deeds, assignments and assurances in law and take such other action
as may be necessary or proper in the name of F&M or the Surviving Corporation
to vest, perfect or confirm title to such property or rights in the Surviving
Corporation and otherwise carry out the purposes of this Agreement.
12.8 DIRECTOR AND OFFICER LIABILITY INSURANCE. Prior to the
Effective Time, F&M shall pay the single premium to continue insurance
coverage, under the policy of director and officer liability insurance
presently maintained by F&M or the Bank, insuring those individuals serving, at
any time during the three (3) years preceding the Effective Time, as directors
or officers of F&M or the Bank, with respect to claims made during the three
(3) years after the
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Effective Time as to acts or omissions occurring on or within the three (3)
years preceding the Effective Time.
12.9 POOLING. Each of F&M, Bank, FFB and FFB's consolidated
Subsidiaries has used and will use its best efforts to refrain from taking any
action that would prevent F&M and FFB from accounting for the business
combination to be effected by the Merger as a "pooling of interests." F&M has
received from its independent accountants, Crowe, Chizek and Company, a letter
stating that, based upon Crowe, Chizek and Company's review of such relevant
documents and information which Crowe, Chizek and Company deemed relevant, such
firm is currently unaware of any reason why the business combination to be
effected by the Merger cannot be accounted for as a "pooling of interests" in
regard to F&M and the Bank. FFB has received from its independent accountants,
Ernst & Young, a letter stating that, based upon Ernst & Young's review of such
relevant documents and information which Ernst & Young deemed relevant, such
firm is currently unaware of any reason why the business combination to be
effected by the Merger cannot be accounted for as a "pooling of interests" in
regard to FFB and its consolidated Subsidiaries.
12.10 AUDITED FINANCIAL STATEMENTS. As soon as reasonably
practicable, F&M will deliver to FFB the information required by Item 17 of the
instructions to Registration Statement Form S-4, including but not limited to a
copy of its consolidated balance sheet as of April 30, 1995 and 1994 and
related consolidated statements of income, changes in shareholders' equity and
cash flows for the years ended April 30, 1995, 1994 and 1993, and such
financial statements for the most recently ended fiscal year will be in the
format required by the Securities and Exchange Commission and will include a
Management's Discussion and Analysis of Financial Condition and Results of
Operations section. If the effective date of the Registration Statement
described in Section 12.3 is after October 31, 1995, F&M will deliver to FFB a
copy of its balance sheet (unaudited) and related statements of income and cash
flows (unaudited) for the six-month period ending October 31, 1995, and/or the
nine-month period ending January 31, 1996, as applicable, in each case
including the notes thereto. All of such financial statements shall present
fairly the financial positions as of and at the date shown and the results of
operations for the periods covered thereby. They shall have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods indicated, except as otherwise indicated in the notes
thereto. All liabilities of F&M (including any contingent liabilities), as of
the date of each balance sheet, shall be properly accrued in such balance sheet
or disclosed in the related footnotes in accordance with generally accepted
accounting principles. Each of such consolidated statements of earnings of F&M
shall be fairly presented in accordance with generally accepted accounting
principles for the periods indicated.
12.11 SEC FILINGS. Within 15 days after the date hereof, FFB will
deliver to F&M copies of its Forms 10-K, 10-Q and 8-K that have been filed with
the SEC since December 31, 1992.
12.12 PRESS RELEASES. The parties shall consult with each other as
to the form and substance of any press release, written communication with
their shareholders, or other public
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disclosure of matters related to this Agreement, and a party shall not issue
any such press release, written communication, or public disclosure without the
prior consent of the other party, which consent shall not be unreasonably
withheld or delayed; provided, however, that nothing contained herein shall
prohibit any party, following notification to the other party, from making any
disclosures which its counsel deems necessary to conform with requirements of
law or the rules of NASDAQ.
12.13 FIDUCIARY RESPONSIBILITY. F&M shall not, directly or
indirectly, and shall instruct and otherwise use its diligent efforts to cause
its officers, directors, employees, agents and advisors not to, directly or
indirectly, solicit or initiate any proposals or offers from any person or
entity, or discuss or negotiate with any such person or entity, relating to any
acquisition or purchase of all or a material amount of the assets of, or any
equity securities of, or any merger or business combination with, F&M (such
transactions are referred to herein as "Acquisition Transactions"), provided,
however, that nothing contained in this section shall prohibit (i) F&M from
furnishing information to, or entering into discussions or negotiations with,
any person or entity that makes an unsolicited proposal of an Acquisition
Transaction if and to the extent that (a) the Board of Directors of F&M, after
consultation with and based upon the written advice of legal counsel,
determines in good faith that such action is required for the directors of F&M
to fulfill their fiduciary duties and obligations to the F&M shareholders and
other constituencies under Indiana law, taking into consideration the bidding
procedures in connection with the transactions contemplated hereby and (b)
prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, F&M provides immediate written notice
to FFB to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity, or (ii) the Board of
Directors of F&M from failing to make, withdrawing or modifying its
recommendation to shareholders regarding the merger with FFB following receipt
of a proposal for an Acquisition Transaction if the Board of Directors of F&M,
after consultation with and based upon the written advice of legal counsel,
determines in good faith that such action is required for the directors of F&M
to fulfill their fiduciary duties and obligations to the F&M shareholders and
other constituencies under Indiana law, taking into consideration the bidding
procedures in connection with the transactions contemplated hereby.
12.14 CONTINUED EMPLOYMENT OF BANK EMPLOYEES. FFB shall itself
employ, or cause ILB or another of its affiliates to employ, for at least a
period of two (2) years after the Effective Time, those persons who are
employees of the Bank immediately prior to the Effective Time ("Retained
Employees") except for voluntary terminations and terminations for just causes.
During such period the compensation of a Retained Employee shall be reviewed,
but not reduced, in accordance with the "Indiana Lawrence Bank Pay System
Documentation and Review Procedures" in effect as of the date hereof.
12.15 PUBLICATION OF FINANCIAL RESULTS. In accordance with the
Codification of Financial Reporting Policies of the Securities and Exchange
Commission, in order to permit the sale of Deliverable Shares following the
Effective Time and also to preserve the treatment of the transactions described
herein as a pooling of interests for accounting purposes, FFB agrees to
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publish the financial results of the combined operations of FFB and F&M and the
Bank, covering at least thirty (30) days of such combined operations, no later
than the last to occur of (a) sixty (60) days following the end of the month in
which the Effective Time occurs and (b) ten (10) days following delivery of
such financial information with respect to the operations previously owned by
F&M and the Bank as FFB considers reasonably necessary to prepare the combined
financial results described in this Section.
13. CONDITIONS PRECEDENT; TERMINATIONS
13.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES.
The obligations of each of the parties hereto to effect the Merger is subject
to the fulfillment on or prior to the Effective Time of the following
conditions precedent:
13.1.1 The Merger shall have been approved by the FRB or the
entity to which the FRB has delegated authority to grant such approvals, and by
any other governmental authority having jurisdiction and any applicable waiting
period shall have expired, with no such approval or authorization containing
any provision which would be materially adverse to the merged businesses of F&M
and FFB as contemplated by this Agreement.
13.1.2 No suit, action, investigation by any governmental
body, or other legal or administrative proceedings shall have been brought or
threatened which materially questions the validity or legality of the
transactions contemplated herein. For the purposes hereof, inquiries which
could give rise to any such suit, investigation or proceeding given by any
governmental agency may, at the option of either party, be deemed such a
threat.
13.1.3 The parties hereto shall have obtained any and all
consents required for the consummation of the Merger or for the preventing of
any default under any contract, agreement or permit of the parties hereto,
which, if not obtained or made, is reasonably likely to have, individually or
in the aggregate, a material adverse effect on the combined business affairs of
F&M and FFB.
13.2 CONDITIONS PRECEDENT TO FFB'S OBLIGATIONS. The obligation of
FFB to effect the Merger will be subject to the following conditions (which may
be waived in writing by FFB):
13.2.1 The representations and warranties of F&M herein
contained will be true as of and at the Effective Time with the same effect as
though made at such time; F&M will have performed all obligations and complied
with all covenants required by this Agreement to be performed or complied with
by it prior to the Effective Time; and F&M will have delivered to FFB a
certificate, dated the effective date of the Merger and signed by its president
or one of its vice presidents and its secretary or one of its assistant
secretaries, to both such effects.
13.2.2 Except as set forth in the Disclosure Statement, no
change in or event affecting the corporate status, businesses, operations or
condition (financial or otherwise) of either of F&M or the Bank will have
occurred since April 30, 1995, (whether or not covered
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by insurance), other than changes in the ordinary course of business and
changes permitted by Section 11, which have not been, in the aggregate,
materially adverse to F&M.
13.2.3 FFB will have received from Ice Miller Donadio & Ryan, counsel
for F&M, a favorable opinion, dated immediately prior to the Effective Time, in
form and substance reasonably satisfactory to FFB's counsel. In rendering this
opinion, such counsel may rely on certificates of public officials and of
corporate officers, opinions of recognized local counsel in jurisdictions where
such counsel is not qualified to practice, and such other evidence as it may
deem appropriate. The provisions of the preceding sentence are applicable to
all other opinions of counsel to be delivered hereunder.
13.2.4 A Registration Statement on Form S-4 under the 1933 Act will
have become effective relating to the shares of FFB which the shareholders of
F&M will receive at the Effective Time.
13.2.5 FFB will have received an opinion of counsel, in form and
substance satisfactory to FFB, to the effect that, under the Internal Revenue
Code of 1986, as amended (the "IRC"), and particularly Section 368(a)(1)(A)
thereof, no gain or loss will be recognized to FFB or its shareholders or to
F&M or its shareholders as a result of the Merger except for gain (but not
loss) on cash received by the shareholders of F&M.
13.2.6 FFB will have received such written consents and confirmations
(or opinions of its counsel to the effect that such consents or confirmations
are not required), as it may reasonably request to the effect that the
Surviving Corporation will succeed upon consummation of the Merger to all of
F&M's right, title and interest in and to its material contracts, agreements,
leases and other commitments and that the Surviving Corporation will possess
and enjoy all material licenses, permits and other governmental authorizations
possessed by F&M at the date hereof. FFB will have received those approvals
and consents described in Section 10.12 hereof.
13.2.7 At the date of signing this Agreement and immediately prior to
the Effective Time, FFB shall receive from FFB's independent accountants
letters to the effect that they are not aware of any reason that FFB is not in
compliance with the pooling of interests criteria as specified under APB No.
16, and that, accordingly, the Merger can be accounted for as a pooling of
interests from FFB's perspective.
13.2.8 FFB shall have had performed and reviewed the results of a
Phase I Environmental Site Assessment of the real estate owned or leased by F&M
and is satisfied with the results thereof and has determined that no further
testing is required and no remedial action is necessary, or if the results of
such Assessment are not satisfactory in form and substance to FFB, FFB and F&M
shall have reached a reasonable agreement as to the remedial actions necessary
to correct any unsatisfactory conditions and the payment for such remedial
actions.
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13.3 CONDITIONS PRECEDENT TO F&M'S OBLIGATION. The obligation of F&M to
effect the Merger will be subject to the following conditions (which may be
waived in writing by F&M):
13.3.1 The representations and warranties of FFB herein contained
will be true as of and at the Effective Time with the same effect as though
made at such time; FFB will have performed all obligations and complied with
all covenants required by this Agreement to be performed or complied with by it
prior to the Effective Time; and FFB will have delivered to F&M a certificate,
dated the effective date of the Merger and signed by its president or one of
its vice presidents and its secretary or one of its assistant secretaries, to
both such effects.
13.3.2 No material change in the corporate status, businesses,
operations or condition (financial or otherwise) of FFB and its consolidated
Subsidiaries will have occurred since December 31, 1994 (whether or not covered
by insurance), none of which has been materially adverse in relation to FFB and
its consolidated Subsidiaries, taken as a whole, and no other event or
condition of any character will have occurred or arisen since that date which
will have materially and adversely affected the corporate status, businesses,
operations or financial condition of FFB and its consolidated Subsidiaries,
taken as a whole.
13.3.3 F&M will have received from Frost & Jacobs, counsel for FFB,
a favorable opinion, dated immediately prior to the Effective Time, in form and
substance reasonably satisfactory to F&M's counsel. In rendering this opinion,
such counsel may rely on certificates of public officials and of corporate
officers, opinions of recognized local counsel in jurisdictions where such
counsel is not qualified to practice, and such other evidence as he may deem
appropriate. The provisions of the preceding sentence are applicable to all
other opinions of counsel to be delivered hereunder.
13.3.4 A Registration Statement on Form S-4 under the 1933 Act will
have become effective relating to the shares of FFB common stock which the
shareholders of F&M will receive at the Effective Time.
13.3.5 F&M will have received an opinion from Professional Bank
Services, Inc. as independent investment advisor satisfactory to it as to the
fairness of the proposed transaction with FFB, from a financial point of view,
to F&M's shareholders.
13.3.6 F&M will have received an opinion of counsel, in form and
substance satisfactory to F&M, to the effect that, under the IRC (i) no gain or
loss will be recognized to F&M as a result of the Merger, and (ii) no gain or
loss (except in respect of fractional share interests sold) will be recognized
to F&M's shareholders as a result of their exchange of F&M Shares for common
stock of FFB, and covering such other matters as are typically covered by such
opinion.
13.3.7 At the date of signing this Agreement and immediately prior
to the Effective Time, F&M shall receive from F&M's independent accountants a
letter to the effect
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that they are not aware of any reason that F&M is not in compliance with the
pooling of interests criteria as specified under APB No. 16, and that,
accordingly, the Merger can be accounted for as a pooling of interests from
F&M's perspective.
13.3.8 At a special meeting of shareholders of F&M called for the
purpose of considering the Merger, the Merger will have been approved by an
affirmative vote of the holders of at least seventy-five percent of the F&M
Shares entitled to be voted in person or by proxy at such meeting.
13.4 TERMINATION AND ABANDONMENT. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be terminated and abandoned at any
time before the Effective Time, whether before or after adoption or approval of
this Agreement by the shareholders of F&M, under any one or more of the
following circumstances:
13.4.1 By the mutual consent of the Boards of Directors of FFB and
F&M;
13.4.2 By FFB if the holders of 10.0% or more of the F&M Shares
outstanding immediately prior to the Effective Time will be entitled to receive
cash in exchange for their F&M shares pursuant to perfected dissenters' rights
under the Indiana Business Corporation Law;
13.4.3 By FFB if, prior to the Effective Time, the conditions set
forth in Sections 13.2.1 through 13.2.8, inclusive, will not have been met;
13.4.4 By F&M if, prior to the Effective Time, the conditions set
forth in Sections 13.3.1 through 13.3.8, inclusive, will not have been met;
13.4.5 By either FFB or F&M if prior to the Effective Time, the
conditions set forth in Sections 13.1.1 through 13.1.3, inclusive, shall not
have been met, or any action or proceeding before any court or other
governmental body or agency will have been instituted or threatened to restrain
or prohibit the Merger and such constituent corporation deems it unadvisable to
proceed with the Merger;
13.4.6 By either FFB or F&M if the requisite approval of the
shareholders of F&M will not have been obtained or if the Effective Time shall
not have occurred on or before April 1, 1996; or
13.4.7 By FFB if the Average Price is less than $28.48 or by F&M if
the Average Price is greater than $38.53 (in either case, as may be adjusted by
the declaration of a stock dividend, stock split or other such
recapitalization).
13.5 EFFECT OF TERMINATION. Upon any termination and abandonment of this
Agreement under any one or more of the circumstances described in Section 13.4,
neither party will have any liability or obligation hereunder to the other,
except for the return of all documents
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exchanged and the preservation of the confidentiality by each party of the
information exchanged. In the event that FFB or F&M declines to effect the
Merger notwithstanding the performance of all conditions precedent to the
obligation of FFB or F&M, as the case may be, to effect the Merger, the
non-breaching party shall be entitled to recover from the breaching party all
its expenses, including reasonable attorney's fees and fees of other
professionals, incurred in connection with the Merger, and shall be entitled to
such other remedies against the defaulting party as may exist at law or in
equity.
13.6 EXPENSES. Upon a termination of this Agreement as provided in
Section 13.4, each party will pay all costs and expenses of its performance of
and compliance with all agreements and conditions contained herein on its part
to be performed or complied with, including fees, expenses and disbursements of
its accountants and counsel.
13.7 CLOSING. Subject to the satisfaction of the conditions
precedent specified in Section 13.1 through 13.3 hereof and of the terms set
forth herein, the consummation of the transactions contemplated by this
Agreement, the Agreement of Merger and the Articles of Merger (the "Closing")
shall take place at a place and time satisfactory to the parties on the last
day of the month within which occurs the later of the date on which the
approvals specified in Section 12.4 have become effective and the date upon
which the shareholder approval specified in Section 13.3.8 has been obtained
(or at such other place or on such other date and time as the parties may
agree)(the "Closing Date"). At the Closing, such documents as are contemplated
by 13.2 and 13.3 to be delivered at Closing shall be delivered, including the
certificates specified in Sections 13.2.1 and 13.3.1, and the parties shall
execute and cause to be filed in the appropriate offices the Articles of
Merger, Agreement of Merger, and such other documents as may be deemed
necessary or advisable in the opinion of FFB to effectuate the Merger as
promptly as practicable.
14. GENERAL PROVISIONS.
14.1 DEFINITIONS. "Subsidiaries" as used herein means any corporation
50% or more of whose outstanding voting securities are owned directly or
indirectly by FFB or F&M, as the context may require, whether consolidated or
unconsolidated. The headings in this Agreement will not affect in any way its
meaning or interpretation.
14.2 AMENDMENTS. Any of the terms or conditions of this Agreement
may be modified or waived at any time before the Effective Time by the party
which is, or the shareholders of which are, entitled to the benefit thereof
upon the authority of the Board of Directors of such party.
14.3 NOTICES. All notices, demands, requests, consents or approvals
required hereunder will be in writing and will be given (and shall be deemed to
have been duly given upon receipt) by delivery in person or by certified or
registered mail, return receipt requested, postage prepaid, addressed to such
party at the address set forth below or to such other address as any party may
give to the other by like notice:
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If to FFB: First Financial Bancorp.
300 High Street
P.O. Box 476
Hamilton, Ohio 45012-0476
ATTENTION: Stanley N. Pontius, President
and Chief Executive Officer
With copies to: Frost & Jacobs
2500 PNC Center
201 East Fifth Street
P.O. Box 5715
Cincinnati, Ohio 45201-5715
ATTENTION: Neil Ganulin
If to F&M: F & M Bancorp
729-31 Main Street
P.O. Box 567
Rochester, Indiana 46975-0567
ATTENTION: William J. Gordon, President
With copies to: Ice Miller Donadio & Ryan
One American Square, Box 82001
Indianapolis, Indiana 46282
ATTENTION: Thomas H. Ristine
14.4 BINDING NATURE OF AGREEMENT. This Agreement will be
binding upon and inure to the benefit of FFB and F&M and their respective
successors and permitted assigns.
14.5 ASSIGNMENT. Neither this Agreement nor any obligation
or right hereunder may be assigned by any party hereto, whether directly or
indirectly, without the prior written consent of the other party.
14.6 GOVERNING LAW. This Agreement will in all respects be
governed and construed in accordance with the laws of the State of Indiana.
14.7 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which will be deemed an original and all of which
together will constitute one and the same instrument.
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14.8 TERMINATION OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties and covenants in this Agreement or in any closing
certificate delivered pursuant to this Agreement shall expire with, and be
terminated and extinguished at, the Effective Time; provided, however, that the
covenants of FFB contained in Sections 12.5, 12.8, 12.14 and 12.15 hereof shall
survive the Effective Time and may be enforced by any person entitled to the
benefits thereof.
IN WITNESS WHEREOF, pursuant to authority duly given by its Board of
Directors, each of FFB, and F&M has caused this Agreement to be executed and
attested by its authorized officers as of the date and year first above
written.
FIRST FINANCIAL BANCORP.
ATTEST:
By: /s/ Stanley N. Pontius
---------------------------
/s/ Richard E. Weinman Print Name: Stanley N. Pontius
- ----------------------
Richard E. Weinman
Secretary Title: President/CEO
F & M BANCORP
ATTEST:
/s/ George R. Hoover By: /s/William J. Gordon
- --------------------------- ------------------------------
George R. Hoover, Secretary William J. Gordon, President
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FIRST AMENDMENT OF
PLAN AND AGREEMENT OF MERGER
BETWEEN
FIRST FINANCIAL BANCORP.
AND
F & M BANCORP
THIS FIRST AMENDMENT of Plan and Agreement of Merger between First
Financial Bancorp. and F & M Bancorp (hereafter called "this Amendment") dated
as of December 15, 1995, by and between First Financial Bancorp. ("FFB") and
F & M Bancorp ("F&M"),
W I T N E S S E T H :
WHEREAS, FFB and F&M entered into a Plan and Agreement of Merger dated
September 11, 1995 (the "Agreement"), and
WHEREAS, FFB and F&M now desire to amend the Agreement, as
hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the parties hereto
agree as follows:
Section 1. Amendment of Agreement. Section 11.2 of the Agreement
is hereby amended to read as follows:
11.2. Dividends. From and after the date of this Agreement and
prior to the Effective Time, neither FFB nor F&M will declare
or pay any dividends on or make any distributions in respect
of any shares of its capital stock, except that (i) FFB may
declare and pay, on or about the dates when such dividends
have customarily been declared and paid by it in the past,
quarterly cash dividends in the amount of $0.26 or more (plus
such additional amount, which may be stock dividends, if any,
consistent with FFB's practices during recent years as its
Board of Directors may determine) per share during each
calendar quarter on the outstanding shares of FFB's common
stock; and (ii) F&M may declare and pay cash dividends in an
amount not to exceed the greater of (A) thirty percent (30%)
of F&M's net earnings as determined by F&M for the year ending
December 31, 1995, or (B) $198,000. For the period from
December 31, 1995 until the Effective Time, and assuming the
financial condition of F&M justifies such action, the parties
agree to cooperate with each other to ensure that the
shareholders of F&M receive a quarterly cash dividend from
either F&M or FFB and that during the quarter in which the
Effective Time occurs such shareholders of F&M do not receive
cash dividends from both F&M and FFB.
<PAGE> 142
Section 2. Agreement Otherwise Unaffected. Except as set forth
in Section 1 of this Amendment, the Agreement is not affected by this
Amendment and shall remain in full force and effect.
IN WITNESS WHEREOF, pursuant to authority duly given by its Board of
Directors, each of FFB and F&M has caused this Agreement to be executed and
attested by its authorized officers as of the date and year first above written.
FIRST FINANCIAL BANCORP.
By:_________________________________
Stanley N. Pontius, President/CEO
Attest:
_____________________________
Richard G. Weinman, Secretary
F & M BANCORP
By:________________________________
William J. Gordon, President
Attest:
______________________________
George R. Hoover, Secretary
-2-
<PAGE> 143
APPENDIX B
FORM OF OPINION OF PROFESSIONAL BANK SERVICES
TO BE ISSUED ON CONSUMMATION OF MERGER
Professional Bank Services
The 1000 Building
6200 Dutchman's Lane, Suite 305
Louisville, Kentucky 40205
________________, 1996
Board of Directors
F & M Bancorp
729 Main Street
Rochester, Indiana 46975
Dear Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial perspective, to the common shareholders of F & M Bancorp, Rochester,
Indiana (the "Company") of the proposed merger of the Company with First
Financial Bancorp, Hamilton, Ohio ("FFB"). In the proposed merger, Company
shareholders will receive FFB common shares equal to the quotient of $12,500,000
and the average of the closing prices for FFB Shares on the National Association
of Securities Dealers Automated Quotations System - National Market System
("NASDAQ") for each of the twenty consecutive trading days ending on the second
trading day prior to the Effective Time as defined by the Plan and Agreement of
Merger between FFB and the Company (the "Agreement").
Professional Bank Services, Inc. ("PBS") is a bank consulting firm and as part
of its investment banking business is continually engaged in reviewing the
fairness, from a financial perspective, of bank acquisition transactions and in
the valuation of banks and other businesses and their securities in connection
with mergers, acquisitions, estate settlements and other purposes. We are
independent with respect to the parties of the proposed transaction.
For purposes of this opinion, PBS reviewed and analyzed the historical
performance of the Company and its wholly owned subsidiary Farmers & Merchants
Bank of Rochester, Rochester, Indiana ("the "Bank") contained in: (i) FRY-9SP as
filed with the Federal Reserve as of June 30, 1995; (ii) June 30, 1995
Consolidated Reports of Condition and Income filed with the Federal Deposit
Insurance Corporation by the Bank; (iii) December 31, 1994 and March 31, 1995
Uniform Bank Performance Report of the Bank; (iv) historical common stock
trading activity of the Company; and (v) the premises and other fixed assets. We
have reviewed and tabulated statistical data regarding the loan portfolio,
securities portfolio and other performance ratios and statistics. Financial
projections were prepared and analyzed as well as other financial studies,
analyses and investigations as deemed relevant for the purposes of this opinion.
In review of the aforementioned information, we have taken into account our
assessment of general market and financial conditions, our experience in other
transactions, and our knowledge of the banking industry generally.
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Board of Directors
F & M Bancorp
Page 2
In conjunction with our opinion, we have evaluated the historical performance
and current financial condition of FFB contained in: (i) June 30, 1995 financial
information; (ii) audited financial statements for the years ending December 31,
1991, 1992, 1993 and 1994; (iii) historical common stock trading and dividend
activity to date; (iv) the Agreement; and (v) the financial terms of certain
other comparable transactions. We have prepared and analyzed the pro forma
consolidated financial condition of the Company, the Bank and FFB. We have
reviewed and tabulated consolidated statistical data regarding growth, growth
prospects for service markets, liquidity, asset composition and quality,
profitability, leverage and capital adequacy.
We have not compiled, reviewed or audited the financial statements of the
Company, the Bank or FFB, nor have we independently verified any of the
information reviewed; we have relied upon such information as being complete and
accurate in all material respects. We have not made independent evaluation of
the assets of the Company, the Bank or FFB.
Based on the foregoing and all other factors deemed relevant, it is our opinion
as investment bankers, that, as of the date hereof, the consideration proposed
to be received by the shareholders of the Company under the Agreement is fair
and equitable from a financial perspective.
Very truly yours,
PROFESSIONAL BANK SERVICES, INC.
Christopher L. Hargrove
Vice President
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<PAGE> 145
APPENDIX C
CHAPTER 44
DISSENTERS' RIGHTS
<TABLE>
<CAPTION>
Section. Section.
<S> <C> <C> <C>
23-1-44-1. "Corporation" defined. 23-1-44-14. Transfer of shares restricted after demand
23-1-44-2. "Dissenter" defined. for payment.
23-1-44-3. "Fair value" defined. 23-1-44-15. Payment to dissenter.
23-1-44-4. "Interest" defined. 23-1-44-16. Return of shares and release of restrictions.
23-1-44-5. "Record shareholder" defined. 23-1-44-17. Offer of fair value for shares obtained after
23-1-44-6. "Beneficial shareholder" defined. first announcement.
23-1-44-7. "Shareholder" defined. 23-1-44-18. Dissenter demand for fair value under certain
23-1-44-8. Shareholder dissent. conditions.
23-1-44-9. Beneficial shareholder dissent. 23-1-44-19. Effect of failure to pay demand -
23-1-44-10. Notice of dissenters' rights Commencement of judicial appraisal
preceding shareholder vote. proceeding.
23-1-44-11. Notice of intent to dissent. 23-1-44-20. Judicial determination and assessment of
23-1-44-12. Notice of dissenter's rights costs.
following action creating rights.
23-1-44-13. Demand for payment by dissenter.
</TABLE>
23-1-44-1. "CORPORATION" DEFINED. - As used in this chapter, "corporation" means
the issuer of the shares held by a dissenter before the corporate action, or the
surviving or acquiring corporation by merger or share exchange of that
issuer. [P.L.149-1986, Section 28.]
23-1-44-2. "DISSENTER" DEFINED. - As used in this chapter, "dissenter" means a
shareholder who is entitled to dissent from corporate action under section 8 [IC
23-1-44-8] of this chapter and who exercises that right when and in the manner
required by sections 10 through 18 [IC 23-1-44-10 through IC 23-1-44-18] of this
chapter. [P.L.149-1986, Section 28.]
23-1-44-3. "FAIR VALUE" DEFINED.- As used in this chapter, "fair value," with
respect to a dissenter's shares, means the value of the shares immediately
before the effectuation of the corporate action to which the dissenter objects,
excluding any appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable. [P.L. 149-1986, Section 28.]
23-1-44-4. "INTEREST" DEFINED. - As used in this chapter, "interest" means
interest from the effective date of the corporate action until the date of
payment, at the average rate currently paid by the corporation on its principal
bank loans or, if none, at a rate that is fair and equitable under all the
circumstances. [P.L. 149-1986, Section 28.]
23-1-44-5. "RECORD SHAREHOLDER" DEFINED. - As used in this chapter, "record
shareholder" means the person in whose name shares are registered in the records
of a corporation or the beneficial owner of shares to the extent that treatment
as a record shareholder is provided under a recognition procedure or a
disclosure procedure established under IC 23-1-30-4. [P.L.149-1986, Section 28.]
23-1-44-6. "BENEFICIAL SHAREHOLDER" DEFINED. - As used in this chapter,
"beneficial shareholder" means the person who is a beneficial owner of shares
held by a nominee as the record shareholder. [P.L. 149-1986, Section 28.]
23-1-44-7. "SHAREHOLDER" DEFINED. - As used in this chapter, "shareholder" means
the record shareholder or the beneficial shareholder. [P.L.149-1986, Section
28.]
23-1-44-8. SHAREHOLDER DISSENT. - (a) A shareholder is entitled to dissent from,
and obtain payment of the fair value of the shareholder's shares in the event
of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party if:
(A) Shareholder approval is required for the merger by IC
23-1-40-3 or the articles of incorporation; and
(B) The shareholder is entitled to vote on the merger.
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan.
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(3) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than in the
usual and regular course of business, if the shareholder is
entitled to vote on the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to court order
or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be
distributed to the shareholders within one (1) year after the
date of sale.
(4) The approval of a control share acquisition under IC 23-1-42.
(5) Any corporate action taken pursuant to a shareholder vote to
the extent the articles of incorporation, bylaws, or a
resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain
payment for their shares.
(b) This section does not apply to the holders of shares of any class or
series if, on the date fixed to determine the shareholders entitled to receive
notice of and vote at the meeting of shareholders at which the merger, plan of
share exchange, or sale or exchange of property is to be acted on, the shares of
that class or series were:
(1) Registered on a United States securities exchange registered
under the Exchange Act (as defined in IC 23-1-43-9); or
(2) Traded on the National Association of Securities Dealers, Inc.
Automated Quotations System Over-the-Counter Markets -
National Market Issues or a similar market.
(c) A shareholder:
(1) Who is entitled to dissent and obtain payment for the
shareholder's shares under this chapter; or
(2) Who would be so entitled to dissent and obtain payment but for
the provisions of subsection (b); may not challenge the
corporate action creating (or that, but for the provisions of
subsection (b), would have created) the shareholder's
entitlement. [P.L.149-1986, Section 28; P.L.107-1987, Section
19.]
23-1-44-9. BENEFICIAL SHAREHOLDER DISSENT. - (a) A record shareholder may assert
dissenters' rights as to fewer than all the shares registered in the
shareholder's name only if the shareholder dissents with respect to all shares
beneficially owned by any one (1) person and notifies the corporation in writing
of the name and address of each person on whose behalf the shareholder asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which the shareholder dissents and the
shareholder's other shares were registered in the names of different
shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on the shareholder's behalf only if:
(1) The beneficial shareholder submits to the corporation the
record shareholder's written consent to the dissent not later
than the time the beneficial shareholder asserts dissenters'
rights; and
(2) The beneficial shareholder does so with respect to all the
beneficial shareholder's shares or those shares over which the
beneficial shareholder has power to direct the vote.
[P.L.149-1986, Section 28.]
23-1-44-10. NOTICE OF DISSENTERS' RIGHTS PRECEDING SHAREHOLDER VOTE. - (a) If
proposed corporate action creating dissenters' rights under section 8 [IC
23-1-44-8] of this chapter is submitted to a vote at a shareholders' meeting,
the meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights under this chapter.
(b) If corporate action creating dissenters' rights under section 8 of this
chapter is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in section 12 [IC
23-1-44-12] of this chapter. [P.L.149-1986, Section 28; P.L.107-1987,
Section 20.]
23-1-44-11. NOTICE OF INTENT TO DISSENT. - (a) If proposed corporate action
creating dissenters' rights under section 8 [IC 23-1-44-8] of this chapter is
submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken
written notice of the shareholder's intent to demand payment
for the shareholder's shares if the proposed action is
effectuated; and
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(2) Must not vote the shareholder's shares in favor of the
proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for the shareholder's shares under this chapter.
[P.L.149-1986, Section 28.]
23-1-44-12. NOTICE OF DISSENTERS' RIGHTS FOLLOWING ACTION CREATING RIGHTS. - (a)
If proposed corporate action creating dissenters' rights under section 8 [IC
23-1-44-8] of this chapter is authorized at a shareholders' meeting, the
corporation shall deliver a written dissenters' notice to all shareholders who
satisfied the requirements of section 11 [IC 23-1-44-11] of this chapter.
(b) The dissenters' notice must be sent no later than ten (10) days after
approval by the shareholders, or if corporate action is taken without approval
by the shareholders, then ten (10) days after the corporate action was taken.
The dissenters' notice must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(3) Supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the
terms of the proposed corporate action and requires that the
person asserting dissenters' rights certify whether or not the
person acquired beneficial ownership of the shares before that
date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty (30) nor more
than sixty (60) days after the date the subsection (a) notice
is delivered; and
(5) Be accompanied by a copy of this chapter. [P.L.149-1986,
Section 28.]
23-1-44-13. DEMAND FOR PAYMENT BY DISSENTER. - (a) A shareholder sent a
dissenters' notice described in IC 23-1-42-11 or in section 12 [IC 23-1-44-12]
of this chapter must demand payment, certify whether the shareholder acquired
beneficial ownership of the shares before the date required to be set forth in
the dissenter's notice under section 12(b)(3) [IC 23-1-44-12(b)(3)] of this
chapter, and deposit the shareholder's certificates in accordance with the terms
of the notice.
(b) The shareholder who demands payment and deposits the shareholder's
shares under subsection (a) retains all other rights of a shareholder until
these rights are canceled or modified by the taking of the proposed corporate
action.
(c) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter and is considered, for purposes of this article, to have voted the
shareholder's shares in favor of the proposed corporate action. [P.L.149-1986,
Section 28.]
23-1-44-14. TRANSFER OF SHARES RESTRICTED AFTER DEMAND FOR PAYMENT. - (a) The
corporation may restrict the transfer of uncertificated shares from the date the
demand for their payment is received until the proposed corporate action is
taken or the restrictions released under section 16 [IC 23-1-44-16] of this
chapter.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
[P.L.149- 1986, Section 28.]
23-1-44-15. PAYMENT TO DISSENTER. - (a) Except as provided in section 17 [IC
23-1-44-17] of this chapter, as soon as the proposed corporate action is taken,
or, if the transaction did not need shareholder approval and has been completed,
upon receipt of a payment demand, the corporation shall pay each dissenter who
complied with section 13 [IC 23-1-44-13] of this chapter the amount the
corporation estimates to be the fair value of the dissenter's shares.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of
payment, an income statement for that year, a statement of
changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
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(2) A statement of the corporation's estimate of the fair value of
the shares; and
(3) A statement of the dissenter's right to demand payment under
section 18 [IC 23-1-44-18] of this chapter. [P.L.149-1986,
Section 28; P.L. 107-1987, Section 21.]
23-1-44-16. RETURN OF SHARES AND RELEASE OF RESTRICTIONS. - (a) If the
corporation does not take the proposed action within sixty (60) days after the
date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 12 [IC 23-1-44-12] of this chapter and repeat
the payment demand procedure. [P.L.149-1986, Section 28.]
23-1-44-17. OFFER OF FAIR VALUE FOR SHARES OBTAINED AFTER FIRST ANNOUNCEMENT. -
(a) A corporation may elect to withhold payment required by section 15 [IC
23-1-44-15] of this chapter from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares and shall pay this amount to each dissenter who
agrees to accept it in full satisfaction of the dissenter's demand. The
corporation shall send with its offer a statement of its estimate of the fair
value of the shares and a statement of the dissenter's right to demand payment
under section 18 [IC 23-1-44-18] of this chapter. [P.L.149-1986, Section 28.]
23-1-44-18. DISSENTER DEMAND FOR FAIR VALUE UNDER CERTAIN CONDITIONS. - (a) A
dissenter may notify the corporation in writing of the dissenter's own estimate
of the fair value of the dissenter's shares and demand payment of the
dissenter's estimate (less any payment under section 15 [IC 23-1-44-15] of this
chapter), or reject the corporation's offer under section 17 [IC 23-1-44-17] of
this chapter and demand payment of the fair value of the dissenter's shares, if:
(1) The dissenter believes that the amount paid under section 15
of this chapter or offered under section 17 of this chapter is
less than the fair value of the dissenter's shares;
(2) The corporation fails to make payment under section 15 of this
chapter within sixty (60) days after the date set for
demanding payment; or
(3) The corporation, having failed to take the proposed action,
does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within
sixty (60) days after the date set for demanding payment.
(b) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (a) within thirty (30) days after the corporation made
or offered payment for the dissenter's shares. [P.L.149-1986, Section 28.]
23-1-44-19. EFFECT OF FAILURE TO PAY DEMAND - COMMENCEMENT OF JUDICIAL APPRAISAL
PROCEEDING. - (a) If a demand for payment under IC 23-1-42-11 or under section
18 [IC 23-1-44-18] of this chapter remains unsettled, the corporation shall
commence a proceeding within sixty (60) days after receiving the payment demand
and petition the court to determine the fair value of the shares. If the
corporation does not commence the proceedings within the sixty (60) day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit or
superior court of the county where a corporation's principal office (or, if none
in Indiana, its registered office) is located. If the corporation is a foreign
corporation without a registered office in Indiana, it shall commence the
proceeding in the county in Indiana where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign corporation
was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
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(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one (1) or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment.
(1) For the amount, if any, by which the court finds the fair
value of the dissenter's shares, plus interest, exceeds the
amount paid by the corporation; or
(2) For the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to
withhold payment under section 17 [IC 23-1-44-17] of this
chapter. [P.L.149-1986, Section 28.]
23-1-44-20. JUDICIAL DETERMINATION AND ASSESSMENT OF COSTS. - (a) The court in
an appraisal proceeding commenced under section 19 [IC 23-1-44-19] of this
chapter shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against such parties and in such amounts as the court finds
equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters
if the court finds the corporation did not substantially
comply with the requirements of sections 10 through 18 [IC
23-1-44-10 through IC 23-1-44-18] of this chapter; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom
the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights
provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted. [P.L.149-1986, Section 28.]
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INFORMATION NOT REQUIRED IN THE PROXY-STATEMENT PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Ohio General Corporation Law allows a corporation under certain
circumstances to indemnify its directors, officers, and employees. Generally,
whether by its articles of incorporation or its code of regulations or by
statute, the indemnification permits the Corporation to pay expenses actually
and necessarily incurred in the defense of any pending or threatened suit. The
determination of the right of indemnification is determined by a quorum of
disinterested directors not involved in such a pending matter and if they are
unable to make such determination, then such determination shall be made by
independent legal counsel, Bancorp's shareholders or by the Butler County, Ohio,
Court of Common Pleas. Bancorp has such an indemnification provision in its Code
of Regulations, and that provision is set forth below. The Code of Regulations
of Bancorp and the statute do not allow indemnification of an officer or
director wherein such person has been adjudicated negligent or guilty of
misconduct and, additionally, such officer or director must have acted in good
faith or had no reason to believe such officer's or director's conduct was
unlawful to be indemnified.
Article III-A of the Code of Regulations of Bancorp provides:
SECTION 3-A.1. MANDATORY INDEMNIFICATION. The Corporation shall
indemnify any officer or director, or any other employee of the
Corporation who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including,
without limitation, any action threatened or instituted by or in the
right of the Corporation), by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, trustee,
officer, employee or agent of another corporation (domestic or foreign,
nonprofit or for profit), partnership, joint venture, trust or other
enterprise, against expenses (including, without limitation, attorneys'
fees, filing fees, court reporters' fees and transcript costs),
judgment, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, and with
respect to any criminal action or proceeding, he had no reasonable
cause to believe his conduct was unlawful. A person claiming
indemnification under this Section 3-A.1 shall be presumed to have met
the applicable standard of conduct set forth herein, and the
termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contenders or its
equivalent, shall not, of itself, rebut such presumption.
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SECTION 3-A.2. COURT-APPROVED INDEMNIFICATION. Anything contained in
the Regulations or elsewhere to the contrary notwithstanding:
(A) the Corporation shall not indemnify any officer or director or
employee of the Corporation who was a party to any completed
action or suit instituted by or in the right of the
Corporation to procure a judgment in its favor by reason of
the fact he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the
Corporation as a director, trustee, officer, employee or agent
of another corporation (domestic or foreign, nonprofit or for
profit), partnership, joint venture, trust or other
enterprise, in respect of any claim, issue or matter asserted
in such action or suit as to which he shall have been adjudged
to be liable for misconduct (other than negligence of any
degree) in the performance of his duty to the Corporation
unless and only to the extent that the Court of Common Pleas
of Butler County, Ohio or the court in which such action or
suit was brought shall determine upon application that,
despite such adjudication of liability, and in view of all the
circumstances of the case, he is fairly and reasonably
entitled to such indemnity as such Court of Common Pleas or
such other court shall deem proper; and
(B) the Corporation shall promptly make any such unpaid
indemnification as is determined by a court to be proper as
contemplated by this Section 3-A.2.
SECTION 3-A.3. INDEMNIFICATION FOR EXPENSES. Anything contained in the
Regulations or elsewhere to the contrary notwithstanding, to the extent
that an officer, director or employee of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 3-A.1, or in defense of any claim,
issue or matter therein, he shall be promptly indemnified by the
Corporation against expenses (including, without limitation, attorneys'
fees, filing fees, court reporters' fees and transcript costs) actually
and reasonably incurred by him in connection therewith.
SECTION 3-A.4. DETERMINATION REQUIRED. Any indemnification required
under Section 3-A.1 and not precluded under Section 3-A.2 shall be made
by the Corporation only upon a determination that such indemnification
of the officer or director or employee is proper in the circumstances
because he has met the applicable standard of conduct set forth in
Section 3-A.1. Such determination may be made only (A) by a majority
vote of a quorum consisting of directors of the Corporation who were
not and are not parties to, or threatened with, any such action, suit
or proceeding, or (B) if such a quorum is not obtainable or if a
majority of a quorum of disinterested directors so directs, in a
written opinion by independent legal counsel other than an attorney, or
a firm having associated with it an attorney, who has been retained by
or who has performed services
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for the Corporation, or any person to be indemnified, within the past
five years, or (C) by the shareholders, or (D) by the Court of Common
Pleas of Butler County, Ohio or (if the Corporation is a party thereto)
the court in which such action, suit or proceeding was brought, if any.
Any determination made by the disinterested directors under
subparagraph (A) of this Section or by independent legal counsel under
subparagraph (B) of this Section to make indemnification in respect of
any claim, issue or matter asserted in an action or suit threatened or
brought by or in the right of the Corporation shall be promptly
communicated to the person who threatened or brought such action or
suit, and within ten (10) days after receipt of such notification such
person shall have the right to petition the Court of Common Pleas of
Butler County, Ohio or the Court in which such action or suit was
brought, if any, to review the reasonableness of such determination.
SECTION 3-A.5. ADVANCES FOR EXPENSES. Unless the only liability
asserted against a director in an action, suit or proceeding referred
to in Section 3-A.1 of this article arises pursuant to Section 1701.95
of the Ohio Revised Code, expenses, including attorney's fees, incurred
by a director in defending the action, suit or proceeding shall be paid
by the Corporation as they are incurred, in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director in which he agrees: (i) to
repay amounts so advanced if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or
failure to act was undertaken with deliberate intent to cause injury to
the Corporation or with reckless disregard for the best interests of
the Corporation; and (ii) to reasonably cooperate with the Corporation
with respect to the action, suit or proceeding.
Expenses, including attorneys' fees, incurred by a director,
trustee, officer, employee or agent in defending any action, suit or
proceeding referred to in Section 3-A.3 of this Article, may be paid by
the Corporation as they are incurred, in advance of the final
disposition of the action, suit or proceeding as authorized by the
directors in the specific case, upon receipt of any undertaking by or
on behalf of the director, trustee, officer, employee, or agent to
repay such undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount if it is ultimately
determined that he is not entitled to be indemnified by the
Corporation.
SECTION 3-A.6. ARTICLE III-A NOT EXCLUSIVE. The indemnification
provided by this Article III-A shall not be deemed exclusive of any
other rights to which any person seeking indemnification may be
entitled under the Articles or the Regulations or any agreement, vote
of shareholders or disinterested directors, or otherwise, both as to
action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has
ceased to be an officer or director or employee of the Corporation and
shall inure to the benefit of the heirs, executors, and administrators
of such a person.
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<PAGE> 153
SECTION 3-A.7. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, trustee, officer, employee or
agent of another corporation (domestic or foreign, nonprofit or for
profit), partnership, joint venture, trust or other enterprise, against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
Corporation would have the obligation or the power to indemnify him
against such liability under the provisions of this Article III-A.
SECTION 3-A.8. VENUE. Any action by a person claiming indemnification
under this Article III-A, or by the Corporation, to determine such
claim for indemnification may be filed as to the Corporation and each
such person in Butler County, State of Ohio. The Corporation and (by
claiming such indemnification) each such person consent to the exercise
of jurisdiction over its or his person by the Court of Common Pleas of
Butler County, Ohio.
Item 21. Exhibits and Financial Statement Schedules
(a) See Index to Exhibits.
(b) See "F&M BANCORP FINANCIAL STATEMENTS"
(c) Fairness Opinion furnished as Appendix B to Proxy
Statement-Prospectus.
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
II-4
<PAGE> 154
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus
and furnished pursuant to and meeting the requirements of Rule 14a-3 or
Rule 14c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or
given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial
information.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes
that such reoffering prospectus will contain the information called for
by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other Items of the applicable form.
(6) That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements
of section 10(a)(3) of the Securities Act of 1933, as amended (the
"Securities Act") and is used in connection with an offering of
securities subject to Rule 415 will be filed as a part of an amendment
to the registration statement and will not be used until such amendment
is effective, and that, for purposes of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(7) That, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such
II-5
<PAGE> 155
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(8) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
this Form, within one business day of receipt of such request and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through
the date of responding to the request.
(9) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.
II-6
<PAGE> 156
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Hamilton, State of Ohio,
on December 22, 1995.
FIRST FINANCIAL BANCORP.
By: /s/ Stanley N. Pontius
-------------------------------------
Stanley N. Pontius
President and Chief Executive Officer
Date: December 22, 1995
- -----------------------------------------
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated:
/s/ Stanley N. Pontius /s/ Richard E. Weinman
- --------------------------------------- -------------------------------------
Stanley N. Pontius, Director, President Richard E. Weinman, Exec. Vice
and Chief Executive Officer President, Chief Financial Officer,
Secretary and Treasurer
Date: December 22, 1995 Date: December 22, 1995
----------------------------------- ---------------------------------
/s/ Murph Knapke /s/ Vaden Fitton
- --------------------------------------- -------------------------------------
Murph Knapke, Director Vaden Fitton, Director
Date: December 22, 1995 Date: December 22, 1995
----------------------------------- ---------------------------------
/s/ Carl R. Fiora /s/ Thomas C. Blake
- --------------------------------------- -------------------------------------
Carl R. Fiora, Director Thomas C. Blake, Director
Date: December 22, 1995 Date: December 22, 1995
----------------------------------- ---------------------------------
/s/ Joel H. Schmidt /s/ Barry S. Porter
- --------------------------------------- ------------------------------------
Joel H. Schmidt, Director Barry S. Porter, Director
Date: December 22, 1995 Date: December 22, 1995
----------------------------------- ---------------------------------
/s/ Arthur W. Bidwell /s/ Joseph L. Marcum
- --------------------------------------- -------------------------------------
Arthur W. Bidwell, Director Joseph L. Marcum, Director
Date: December 22, 1995 Date: December 22, 1995
----------------------------------- ---------------------------------
II-7
<PAGE> 157
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
2.1 Plan and Agreement of Merger between First Financial Bancorp.
and F&M Bancorp (Included as Appendix A in the Proxy
Statement-Prospectus)
5. Opinion of Counsel
8. Form of Tax Opinion of Ice Miller Donadio & Ryan to be Issued
on Consummation of Merger
23.1 Consent of Ernst & Young LLP, Independent Auditors for First
Financial Bancorp.
23.2 Consent of Crowe, Chizek and Company LLP, Independent Auditors
for F&M Bancorp.
23.3 Consent of Frost & Jacobs, Counsel for Registrant
(Incorporated in Exhibit 5)
23.4 Consent of Ice Miller Donadio & Ryan (Incorporated in
Exhibit 8)
23.5 Consent of Professional Bank Services
99.1 Fairness Opinion of Professional Bank Services (Included as
Appendix B in the Proxy Statement-Prospectus.)
99.2 Exchange Agent Agreement
99.3 F&M's Form of Proxy
II-8
<PAGE> 1
EXHIBIT 5.--OPINION OF COUNSEL
FROST & JACOBS
2500 PNC Center
201 East Fifth Street
Post Office Box 5715
Cincinnati, Ohio 45201-5715
(513) 651-6800
December 18, 1995
First Financial Bancorp.
300 High Street
Hamilton, Ohio 45012-0476
Re: First Financial Bancorp.
Form S-4 Registration Statement
-------------------------------
Gentlemen:
We are counsel for First Financial Bancorp., an Ohio corporation (the
"Company"), which is named as the registrant in the Registration Statement on
Form S-4 which is being filed on or about December 22, 1995 with the Securities
and Exchange Commission for the purpose of registering under the Securities Act
of 1933, as amended (the "Act"), certain common shares, par value $8.00 per
share (the "Common Shares"), of the Company.
With respect to the Common Shares being registered pursuant to such
Registration Statement as filed and as it may be amended, it is our opinion that
the Common Shares, when issued and paid for pursuant to the Plan and Agreement
of Merger dated as of September 11, 1995 between First Financial Bancorp. and F
& M Bancorp, will be validly issued, fully paid and non-assessable.
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Registration Statement.
Very Truly Yours,
Frost & Jacobs
NG/gam
<PAGE> 1
EXHIBIT 8.--FORM OF TAX OPINION OF ICE MILLER DONADIO & RYAN TO BE ISSUED ON
CONSUMMATION OF MERGER
FORM OF OPINION
OF ICE MILLER DONADIO & RYAN
TO BE ISSUED TO F & M BANCORP
_______________, 1996
Board of Directors
F & M Bancorp
729-31 Main Street
Rochester, Indiana 46975
Dear Board of Directors:
You have requested our opinion regarding certain federal income tax
consequences of the proposed merger (the "Merger") of F & M Bancorp ("F&M"), an
Indiana corporation, with and into First Financial Bancorp. ("Acquiror"), an
Ohio corporation, pursuant to the Plan and Agreement of Merger between Acquiror
and F&M dated as of September 11, 1995 (the "Merger Agreement"). Our opinions
hereinafter set forth are given pursuant to Section 13.3.6 of the Merger
Agreement. Terms which are not defined herein and are used with initial
capitalization when the rules of grammar would not otherwise so require and
which are defined in the Merger Agreement and the documents executed and
delivered therewith (collectively referred to as the "Transaction Documents")
shall have the meanings assigned to such terms in the Transaction Documents.
Representations of the Facts
In connection with our opinions hereinafter set forth, the parties to
the Merger Agreement have represented to us and advised us of the following
facts:
Acquiror is an Ohio corporation and is registered as a bank holding
company under the Bank Holding Company Act of 1956 and a savings and loan
holding company under the Savings and Loan Holding Company Act and has its
principal offices located in Hamilton, Ohio. Acquiror's direct and indirect
subsidiaries include national banks, federal savings associations, state banks,
and other bank-related subsidiaries engaged in insurance, leasing, mortgage
banking and other activities. The authorized capital stock of Acquiror consists
of 25,000,000 shares of common stock, par value $8.00 per share (the "Acquiror
Shares"), of which 12,204,575 were issued and outstanding on December 31, 1994.
F&M is an Indiana corporation and is registered as a bank holding
company under the Bank Holding Company Act of 1956 and has its principal offices
in Rochester, Indiana. F&M is engaged in the business of banking through its
wholly owned subsidiary, Farmers & Merchants Bank of Rochester, Indiana
("Bank"). F&M has no other subsidiaries. The authorized capital stock of F&M
consists of 6,000 shares, without par value ("F&M Shares"), of which 5,633 share
are outstanding.
<PAGE> 2
Board of Directors
_________________, 1996
Page 2
The Transaction Documents provide that F&M shall be merged with and
into Acquiror in accordance with applicable law. The Merger Agreement was
approved by the Board of Directors of F&M on September ___, 1995, and by the
holders of a majority of the outstanding shares of F&M at a duly called and held
meeting of the F&M shareholders on _______________, 1996. F&M shareholders were
entitled to dissent from the proposed Merger and to obtain payment of the fair
market value of their F&M Shares as provided in IC 23-1-44. The Merger Agreement
was approved by the Board of Directors of Acquiror on _______________, 1995, and
does not require the approval of the Acquiror shareholders.
At the Effective Time, the following will occur: (1) all of the assets
and liabilities of F&M will become by operation of law the assets and
liabilities of Acquiror, and the separate corporate existence of F&M will cease;
and (2) the F&M Shares then outstanding, other than shares held in F&M's
treasury, automatically will be converted into the number of Acquiror Shares
equal to $12,500,000 divided by the Average Price of the Acquiror Shares as
defined in the Merger Agreement. The Average Price is defined in the Merger
Agreement as the average closing price for the Acquiror Shares on the NASDAQ
National Market System during the period of 20 consecutive trading days ending
on the 2nd trading day prior to the Effective Time. Low-Trade Days will be
ignored for such purposes. F&M Shares held in F&M's treasury at the Effective
Time will be canceled as a result of the Merger. Each holder of F&M Shares shall
be entitled to the portion of the Acquiror Shares so created that is equal to
the number of such shares multiplied by a fraction, the numerator of which is
the number of F&M Shares held by that shareholder immediately prior to the
Effective Time and the denominator of which is the number of F&M Shares
outstanding immediately prior to the Effective Time.
No fractional Acquiror Shares will be issued in the Merger. Instead,
each holder of F&M Shares who otherwise would be entitled to receive a fraction
of an Acquiror Share will receive an amount of cash equal to such fraction
multiplied by the Average Price.
There are no options to purchase F&M Shares and no securities or other
instruments convertible into F&M Shares have been or will be canceled in
contemplation of the Merger, nor will there be any such options, securities or
interests outstanding at the Effective Time.
After the Effective Time, it is anticipated that the Bank will be
merged with and into Indiana Lawrence Bank ("ILB"), a first tier wholly owned
subsidiary of Acquiror, in a reorganization described in Section 368(a)(1)(A) of
the Internal Revenue Code of 1986, as amended (the "Code") pursuant to an
agreement of merger dated as of _______________ (the "Bank Merger"). The Bank
Merger will have independent, meaningful economic significance, and will be
undertaken for valid business purposes apart from federal income taxes. We
express no opinion as to the effect of the Bank Merger on the Merger, and our
opinions herein are based on the assumption that the Bank Merger will have no
effect on the Merger.
<PAGE> 3
Board of Directors
_________________, 1996
Page 3
Scope of Investigation
In connection with our opinions hereinafter set forth, we have
investigated such questions of law as we have deemed necessary or appropriate
for purposes of this opinion. As to questions of fact material to our opinion,
we have relied exclusively, without independent investigation, upon the
statements and representations of F&M, the F&M shareholders, and Acquiror, and
our opinions are limited by the facts and circumstances as represented to and
understood by us.
Additional Assumptions and Representations
For purposes of our opinions hereinafter set forth, we have assumed and
you have represented that: (1) all of the terms of the Merger are contained in
the Transaction Documents, and the Merger will be consummated in accordance with
the terms, conditions, and other provisions of the Transaction Documents; (2) as
of the Effective Time, all applicable federal and state regulatory approvals and
other approvals necessary to consummate the Merger will have been received and
will be in full force and effect, and all applicable waiting periods will have
expired; and (3) all of the factual information, descriptions, representations,
and assumptions set forth in the "Representations of the Facts," the Transaction
Documents, the Form S-4 Registration Statement filed with the Securities and
Exchange Commission on December ___, 1995, in connection with the Merger, as
amended (the "Registration Statement"), and in the certificates and agreements
identified above are accurate and complete in all respects at the Effective
Time.
In our examinations, we have assumed the genuineness of all documents
submitted to us as originals and the conformity with the original documents of
all documents submitted to us as copies. In addition, we have assumed: (1) the
genuineness of all signatures; (2) the legal capacity of all natural persons and
the power and authority of all parties to execute and deliver such documents;
(3) the due authorization, execution, and delivery of the documents by all
parties thereto; and (4) that the documents are legal, valid, and binding as
against all parties.
You have represented the following which we have assumed with your
permission without independent investigation:
1. The fair market value of the Acquiror Shares received by each
F&M shareholder will be approximately equal to the fair market
value of the F&M Shares surrendered in exchange therefor.
2. There is no plan or intention by the F&M shareholders who own
one percent or more of the F&M Shares, and, to the best of the
knowledge of the management of F&M, there is no plan or
intention on the part of the remaining shareholders of F&M to
sell, exchange, pledge, or otherwise dispose of a number of
Acquiror Shares received in the Merger that would reduce F&M
shareholders' ownership of such Acquiror Shares to a number of
shares having an aggregate value, as of the Effective Time, of
less than 50 percent of the value of all of the formerly
outstanding F&M Shares as of the same date. For purposes of
this assumption, F&M Shares surrendered by dissenters, or
exchanged for cash in lieu of fractional shares of Acquiror
Shares will be treated as outstanding F&M Shares at the
Effective
<PAGE> 4
Board of Directors
_______________, 1996
Page 4
Time. Moreover, F&M Shares and Acquiror Shares held by F&M
shareholders and otherwise sold, redeemed, or disposed of
prior or subsequent to the Merger will be considered in making
this representation.
3. Acquiror has no plan or intention to reacquire any of the
Acquiror Shares issued in the Merger.
4. Except for the possibility of the Bank Merger, Acquiror has no
plan or intention to sell or otherwise dispose of any of the
assets of F&M acquired in the merger or to permit the Bank to
sell or otherwise dispose of any of its assets, except for
dispositions made in the ordinary course of business or
transfers described in Code Section 368(a)(2)(C).
5. The liabilities of F&M assumed by Acquiror and the liabilities
to which the transferred assets of F&M are subject were
incurred by F&M in the ordinary course of its business.
6. Following the Merger, Acquiror will continue the historic
business which F&M conducted through the Bank, and will
conduct the Bank's historic business through a wholly owned,
first tier subsidiary of Acquiror, either as the Bank or
through ILB if the Bank Merger is effected. In either event,
Acquiror will use a significant portion of F&M's historic
business assets in a business.
7. F&M, Acquiror, and the F&M shareholders will pay their
respective expenses, if any, incurred in connection with the
Merger.
8. There neither is nor will be any intercorporate indebtedness
existing between F&M and Acquiror, that was issued, acquired,
or will be settled at a discount.
9. Neither F&M nor Acquiror is an investment company as defined
in Code Sections 368(a)(2)(F)(iii) and 368(a)(2)(F)(iv).
10. Neither F&M nor Acquiror is under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Code
Section 368(a)(3)(A).
11. The fair market value of the assets of F&M transferred to
Acquiror will equal or exceed the sum of the liabilities
assumed by Acquiror, plus the amount of liabilities, if any,
to which the transferred assets are subject.
12. The payment of cash in lieu of fractional Acquiror Shares is
solely for the purpose of avoiding the expense and
inconvenience to Acquiror of issuing fractional Acquiror
Shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid
in the Merger to the shareholders of F&M instead of issuing
fractional Acquiror Shares will not exceed one percent of the
total consideration that will be issued in the Merger for
their F&M Shares. The fractional share interest of each
<PAGE> 5
Board of Directors
_________________, 1996
Page 5
of the F&M shareholders will be aggregated, and no F&M
shareholders will receive cash in an amount equal to or
greater than the value of one full Acquiror Share.
13. None of the compensation received by any shareholder-employees
of F&M will be separate consideration for, or allocable to,
any of their F&M Shares. None of the Acquiror Shares received
by any shareholder-employees will be separate consideration
for, or allocable to, any employment agreement. The
compensation paid to any shareholder-employees will be for
services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for
similar services.
14. Acquiror does not now own, directly or indirectly, and has not
owned during the past five years, directly or indirectly, any
F&M shares, including any ownership by any Acquiror
subsidiary. Acquiror will not acquire, directly or indirectly,
any F&M shares prior to the Effective Time.
15. The Merger is being effected for bona fide business reasons,
including without limitation the reasons set forth in the
Registration Statement, which include a desire by Acquiror and
its subsidiaries for growth opportunities which would increase
their percentage share of the banking business market while
increasing their operating efficiencies by achieving economies
of scale as a larger banking service provider and a desire by
F&M to seek affiliation with a larger financial institution
because of changes in federal and state banking laws,
increased competition for customer services and expansion of
banking products and services.
Opinions
Based upon and subject to the foregoing, and subject to the
qualifications, limitations, and assumptions set forth in this letter, we are of
the opinion that:
(a) The Merger will constitute a reorganization within the meaning
of Code Section 368(a)(1)(A), in which F&M and Acquiror will
each be a "party to a reorganization" within the meaning of
Code Section 368(b).
(b) No gain or loss will be recognized by the F&M shareholders
pursuant to the Merger. Code Section 354(a)(1).
(c) No gain or loss will be recognized by F&M pursuant to the
Merger. Rev. Rul. 57-278, 1957-1 C.B. 124.
(d) The basis of the Acquiror Shares received by the F&M
shareholders in exchange for their F&M Shares will be the
same, in each instance, as the basis of the F&M Shares
surrendered in exchange therefor. Code Section 358(a)(1).
<PAGE> 6
Board of Directors
_________________, 1996
Page 6
(e) The holding period of the Acquiror Shares received by the F&M
shareholders in exchange for their F&M Shares will include, in
each instance, the holding period of the F&M Shares
surrendered in exchange therefor, provided the F&M Shares were
held by such shareholder as a capital asset at the Effective
Time. Code Section 1223(1).
The opinions set forth in this letter are limited to the foregoing
federal income tax consequences of the Merger and are based solely on, and are
limited to, the federal income tax laws of the United States of America. We
express no opinion as to any other federal laws, or any foreign, state, or local
laws, and we express no opinion as to any federal, state or other tax
consequences of the other aspects of the Merger.
The opinions expressed in this letter speak as to the documents, facts,
and the law in existence as of the date hereof and at no time subsequent hereto.
No opinion is expressed in this letter concerning the tax treatment of the
Merger under other provisions of the Code and regulations adopted thereunder or
under foreign, state or local law, or as to the tax treatment of any conditions
existing at the time of, or the effects resulting from, the Merger that are not
specifically covered above.
We assume no obligation to update our opinions for any deletions,
additions, or modifications to any laws applicable to the Merger subsequent to
the date hereof. The opinions expressed herein are matters of professional
judgment and are not a guarantee of results.
The opinions expressed in this letter are solely for the benefit of the
addressee hereof in connection with the transactions provided for in, or
contemplated by, the Transaction Documents. Because tax consequences can vary
among shareholders due to each shareholder's unique circumstances, each F&M
shareholder should consult such shareholder's own tax advisor for assurance as
to the particular tax consequences to such shareholder as a result of the
Merger.
The opinions expressed in this letter may not be used for any other
purpose or otherwise distributed or relied upon by any person. Except for
reproductions for inclusion in transcripts of the documentation relating to the
Transaction Documents, and for inclusion in the Registration Statement on Form
S-4 for the Acquiror Shares to be received by F&M shareholders in the Merger, to
which such inclusion we hereby consent, this opinion may not be quoted or
reproduced, in whole or in part, in any other document without our prior written
consent.
Very truly yours,
<PAGE> 1
EXHIBIT 23.1--CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 and related Prospectus of First Financial
Bancorp. for the registration of 400,000 shares of its common stock and to the
incorporation by reference therein of our report dated January 20, 1995, with
respect to the consolidated financial statements of First Financial Bancorp.
incorporated by reference in its Annual Report (Form 10-K) for the year ended
December 31, 1994, as filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Cincinnati, Ohio
December 22, 1995
<PAGE> 1
EXHIBIT 23.2--CONSENT OF CROWE, CHIZEK AND COMPANY LLP, INDEPENDENT AUDITORS
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-4 and
Prospectus of First Financial Bancorp. of our report, dated July 7, 1995, except
for Note 14 as to which the date is September 11, 1995, on the consolidated
financial statements of F&M Bancorp for the year ended April 30, 1995. We also
consent to the use of our name and the statements with respect to us appearing
under the heading of "Experts" in the Prospectus.
CROWE, CHIZEK AND COMPANY LLP
South Bend, Indiana
December 21, 1995
<PAGE> 1
EXHIBIT 23.5--CONSENT OF PROFESSIONAL BANK SERVICES
CONSENT OF INVESTMENT BANKER
We consent to the inclusion of our fairness opinion letter addressed to the
Board of Directors of F&M Bancorp and the references to and summary of our
fairness opinion analysis in the Proxy Statement, which is part of the
Registration Statement, and to the inclusion of our report of our fairness
opinion analysis as an exhibit to the Registration Statement.
PROFESSIONAL BANK SERVICES, INC.
By:_____________________________
Christopher L. Hargrove
Vice President
Louisville, Kentucky
December 22, 1995
<PAGE> 1
EXHIBIT 99.2--EXCHANGE AGENT AGREEMENT
EXCHANGE AGENT AGREEMENT
This Agreement is made as of the _____ day of ___________, 199__, by
and between First Financial Bancorp., an Ohio corporation, with its principal
place of business at Third and High Streets, Hamilton, Ohio 45011 (the
"Company"), and First National Bank of Southwestern Ohio, an Ohio corporation
and wholly owned subsidiary of the Company, with it principal place of business
at Third and High Streets, Hamilton, Ohio 45011 (the "Bank").
ARTICLE I RECITALS.
1.01 Pursuant to a Plan and Agreement of Merger dated September 11,
1995 (the "Merger Agreement") between F&M Bancorp ("F&M") and the Company, an
exchange agent (the "Exchange Agent") is necessary for the surrender of the
share certificates of F&M and the delivery of the Deliverable Shares (as defined
in the Merger Agreement).
1.02 The Company desires to appoint the Bank as the Exchange Agent
and the Bank desires to accept such appointment.
1.03 Unless otherwise defined herein, capitalized terms used herein
shall have the same meaning given in the Merger Agreement.
ARTICLE II TERMS OF APPOINTMENT; DUTIES OF THE BANK.
2.01 Subject to the terms and conditions set forth in this
Agreement, the Company hereby employs and appoints the Bank to act as, and the
Bank hereby agrees to act as, the Exchange Agent to accept the surrender of the
share certificates of F&M and to deliver the Deliverable Shares.
2.02 The Company agrees to deliver the Deliverable Shares to the
Exchange Agent at the Effective Time.
<PAGE> 2
2.03 The Exchange Agent agrees to the following:
(a) As promptly as practicable after the Company delivers
the Deliverable Shares to the Exchange Agent, the Exchange Agent shall prepare
and mail to each holder of record of an outstanding certificate or certificates
representing shares of F&M a letter of transmittal containing instructions for
the surrender of such certificate or certificates. Upon surrender of the F&M
certificate or certificates in accordance with the instructions set forth in the
letter of transmittal, such person or entity surrendering such certificate or
certificates shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of the Company into which the shares of
F&M represented by the certificate or certificates so surrendered shall have
been converted. The Exchange Agent shall be available to accept and provide
receipts for surrendered certificates for at least three business days during
regular banking hours at the main office of the Farmers & Merchants Bank located
at 729 Main Street, Rochester, Indiana 46795-0567.
(b) The Exchange Agent shall not be obligated to deliver
certificates of the Company to a former shareholder of F&M unless and until such
former shareholder surrenders such certificate or certificates representing the
shares of F&M or, if in default thereof an appropriate affidavit of loss and
indemnity agreement as required by the Company.
(c) The Exchange Agent shall provide additional services
on behalf of the Company which additional services are mutually agreed upon in
writing by the parties hereto.
ARTICLE III FEES AND EXPENSES.
3.01 For the performance of the services of the Exchange Agent as
set forth in this Agreement, the Company agrees to pay the Exchange Agent the
fee as set forth in Schedule 1 attached hereto.
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<PAGE> 3
3.02 In addition to the fee set forth in Section 3.01, the Company
agrees to reimburse the Exchange Agent for out-of-pocket expenses incurred by in
the performance of the services set forth in this Agreement. In addition, any
other expenses incurred by the Exchange Agent at the request or with the consent
of the Company will be reimbursed by the Company.
3.03 The Company agrees to pay all fees and reimbursable expenses
within thirty days following receipt by the Company of the respective billing
notice. Postage or other costs associated with mailings made by the Exchange
Agent pursuant to this Agreement may be advanced to the Exchange Agent by the
Company on or before the mailing upon the request of the Exchange Agent.
ARTICLE IV INDEMNIFICATION.
4.01 The Exchange Agent shall not be responsible for, and the
Company shall indemnify and hold the Exchange Agent harmless from and against,
any and all losses, damages, costs, charges, counsel fees, payments, expenses
and liability arising out of or attributable to:
(a) all actions of the Exchange Agent or its agents or
employees required to be taken pursuant to this Agreement, provided that such
actions are taken in good faith and without negligence or willful misconduct;
(b) the Company's lack of good faith, negligence or
willful misconduct;
(c) the reliance on or use by the Exchange Agent or its
agents or employees of information, records and documents which (i) are received
by the Exchange Agent or its agents or employees and furnished to it by or on
behalf of the Company or F&M, and (ii) have been prepared and/or maintained by
the Company, F&M or any other person or firm on behalf of the Company or F&M;
(d) the reliance on, or the carrying out by the Exchange
Agent or its agents or employees of any instructions or requests made by the
Company; and
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<PAGE> 4
(e) the offer or sale of the Deliverable Shares in
violation of any requirement under the federal securities laws or regulations or
the securities laws or regulations of any state that the Deliverable Shares be
registered in such state or in violation of any stop order or other
determination or ruling by any federal agency or any state with respect to the
offer or sale of the Deliverable Shares in such state.
4.02 At any time the Exchange Agent may apply to any officer of the
Company for instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the Exchange
Agent under this Agreement, and the Exchange Agent and its agents or employees
shall not be liable and shall be indemnified by the Company for any action taken
or omitted by it in reliance upon such instructions or upon the opinion of such
counsel. The Exchange Agent, its agents and employees shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Company or F&M reasonably believed to be genuine and to have been signed by
the proper person or persons, or upon any instruction, information, data,
records or documents provided the Exchange Agent or its agents or employees by
telephone, in person, machine readable input, telex, CRT data entry or other
similar means authorized by the Company or F&M, and shall not be held to have
notice of any change of authority of any person, until receipt of written notice
thereof from the Company or F&M. The Exchange Agent, its agents and employees
shall also be protected and indemnified in recognizing stock certificates which
are reasonably believed to bear the proper manual or facsimile signatures of the
officers of the Company or F&M, and the proper countersignature of any former
transfer agent or former registrar, or of a co-transfer agent or co-registrar.
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<PAGE> 5
4.03 In order that the indemnification provisions contained in this
Article IV shall apply, upon the assertion of a claim for which the Company may
be required to indemnify the Exchange Agent, the Exchange Agent shall promptly
notify the Company of such assertion, and shall keep the Company advised with
respect to all developments concerning such claim. The Company shall have the
option to participate with the Exchange Agent in the defense of such claim or to
defend against said claim in its own name or in the name of the Exchange Agent.
The Exchange Agent shall in no case confess any claim or make any compromise in
any case in which the Company may be required to indemnify it except with the
Company's prior written consent.
ARTICLE V STANDARD OF CARE.
5.01 The Exchange Agent shall at all times act in good faith and
agrees to use its best efforts within reasonable limits to insure the accuracy
of all services performed under this Agreement, but assumes no responsibility
and shall not be liable for loss or damage due to errors unless said errors are
caused by its negligence, bad faith, or willful misconduct or that of its
employees.
ARTICLE VI AMENDMENT.
6.01 This Agreement may be amended or modified by a written
agreement executed by both parties.
ARTICLE VII GOVERNING LAW.
7.01 This Agreement shall be construed and provisions hereof
interpreted under and in accordance with the laws of the State of Ohio.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
FIRST FINANCIAL BANCORP.
By:________________________
Attest:
_________________________
FIRST NATIONAL BANK
OF SOUTHWESTERN OHIO
By:_______________________
Attest:
_________________________
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<PAGE> 1
EXHIBIT 99.3--F&M'S FORM OF PROXY
REVOCABLE PROXY
F & M BANCORP
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF F&M BANCORP.
The undersigned shareholder of F&M BANCORP, an Indiana Corporation,
("F&M") hereby nominates, constitutes and appoints _______ _______ and _______
_______, or any one of them, as proxy or proxies for the undersigned, each with
full power of substitution and resubstitution, to vote all of the shares of F&M
which the undersigned is entitled to cast at the Special Meeting of the
Shareholders of F&M to be held at 3:00 p.m., local time, on ______ __, 1996, at
the Main Office of Farmers & Merchants Bank,729 Main Street, Rochester, Indiana
46975-0567 and at any adjournments thereof (the "Special Meeting"), on the
following proposals, all of which are described in the accompanying Proxy
Statement-Prospectus:
1. Approval of the Plan and Agreement of Merger.
/ / FOR / / AGAINST / / ABSTAIN
2. Adjournment of the Special Meeting in the event that a
sufficient number of votes necessary to approve the Plan and
Agreement of Merger at the Special Meeting is not received.
/ / FOR / / AGAINST / / ABSTAIN
3. Division of the Board of Directors into three groups with
individual terms expiring as shown below and ratification of
all actions of the Board of Directors of F&M taken prior to
the division of its members:
Terms Expiring at 1996 Annual Meeting: Wendell B.
Bearss, H. Robert Bradley and Carol J. Bridge
Terms Expiring at 1997 Annual Meeting: William J.
Gordon and J. Frederick Hoffman
Terms Expiring at 1998 Annual Meeting: Robert E.
Peterson and V. Lorene Rauschke
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion, upon such other matters as may properly
come before the Special Meeting.
This Revocable Proxy will be voted as directed by the undersigned
shareholder. If no direction is given, this Revocable Proxy will be voted FOR
proposals 1 through 3.
All proxies previously given by the undersigned are hereby revoked.
Receipt of the Notice of the Special Meeting of F&M Bancorp and of the
accompanying Proxy Statement is hereby acknowledged.
This Revocable Proxy may be revoked by the undersigned at any time
before it is exercised by (i) executing and delivering to F&M a later dated
proxy, (ii) attending the Special Meeting and voting in person, or (iii) giving
written notice of revocation to the Secretary of F&M.
NOTE: Please sign your name exactly as it appears on your stock certificate(s).
Joint accounts require only one signature. If you are signing this Proxy as an
attorney, administrator, agent, corporation, officer, executor, trustee, or
guardian, etc., please add your full title to your signature.
_______________________________________________________
Signature
_______________________________________________________
Print Name
_______________________________________________________
Address
_______________________________________________________
Dated:___________________, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. PLEASE DATE, SIGN
AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING
IN THE U.S.A.
