<PAGE> 1
Registration No. 333-86855
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S - 4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
Merchants and Manufacturers Bancorporation, Inc.
(Exact name of registrant as specified in its charter)
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Wisconsin 6712 39-1413328
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation Industrial Identification
or organization) Classification No.)
Code Number)
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14100 West National Avenue
New Berlin, Wisconsin 53151
(414) 827-6713
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------
Michael J. Murry
Chairman of the Board of Directors
Merchants and Manufacturers Bancorporation, Inc.
14100 W. National Avenue
New Berlin, Wisconsin 53151
(414) 827-6713
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------
Copies of all correspondence to:
Erich Mildenberg Frank J. Pelisek
Davis & Kuelthau, S.C. Michael Best & Friedrich, LLP
111 E. Kilbourn Avenue 100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202 Milwaukee, Wisconsin 53202
(414) 276-0200 (414) 225-4928
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective and all
other conditions to the Merger (as defined herein) have been satisfied or
waived.
<PAGE> 2
If the securities being registered on this Form are offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box { }.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering { }.
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering { }.
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Title of Each Amount Proposed Proposed Amount
Class of to be Maximum Maximum of
Securities Registered(2) Offering Aggregate Registra-
to be Price Offering tion Fee (3)
Registered(1) per Share Price
<S> <C> <C> <C> <C>
Common 620,100 Not Not $2,483.65
Stock, $1.00 Shares Applicable Applicable
par value
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(1) This Registration Statement relates to securities of the Registrant
issuable to holders of Common Stock of Pyramid Bancorp., Inc
("Pyramid") in the proposed merger of Pyramid with and into a
wholly-owned subsidiary of Registrant (the "Merger").
(2) The actual number of shares of common stock, $1.00 par value of
Merchants and Manufacturers Bancorporation, Inc. ("Merchants") to be
issued in connection with the Merger will be determined based on the
number of shares of common stock, $1.00 par value of Pyramid
outstanding immediately prior to the effective date of the Merger
multiplied by the exchange ratio specified by that certain Agreement
and Plan of Merger, dated March 9, 1999, by and between Merchants and
Pyramid and will further be determined by the number of shares of
Pyramid stock as to which dissenters' rights will be perfected, if any.
(3) Pursuant to Rule 457(f)(2), the registration fee was computed on the
basis of $8,934,000, the book value of Pyramid stock to be exchanged in
the Merger as of June 30, 1999, the latest practicable date.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 3
[Pyramid Bancorp. Inc. Letterhead]
Dear Fellow Stockholder:
You are cordially invited to attend our special meeting of shareholders to be
held on , 1999 at p.m. (local time) at . At
the special meeting you will vote on a proposal to approve the merger of Pyramid
Bancorp., Inc. and Merchants Merger Corp.
If the merger is completed, Pyramid stockholders will receive 9 shares of
Merchants and Manufacturers Bancorporation, Inc. common stock for each share of
Pyramid common stock that they own, and Merchants stockholders will continue to
own their existing shares of Merchants common stock. In the merger, Merchants
will issue up to 620,100 shares of its common stock. On August 20, 1999, the bid
price of Merchants common stock was $42.00, making 9 shares of Merchants common
stock worth $378.00. The Merchants common stock is quoted in the Milwaukee
Journal/Sentinel under "Other Stocks." The price of Merchants common stock will,
however, fluctuate between now and the merger date.
Merchants common stock is quoted on the "Pink Sheets," an inter-broker quotation
medium and in the "Over the Counter Bulletin Board" an electronic quotation
service. The 620,100 shares of Merchants common stock to be issued in the merger
have been registered under the Securities Act of 1933 and the laws of the states
where such registration is required.
After the merger, Pyramid stockholders will own about 29% of the combined
company's common stock and Merchants stockholders will own about 71% of the
combined company's stock.
The merger will be tax-free to you for federal income tax purposes, except for
taxes on cash received for fractional shares, or cash received if you exercise
dissenters' rights.
Pyramid's Board of Directors has unanimously approved the merger and recommends
that you vote FOR the merger.
This proxy statement/prospectus provides you with detailed information about the
merger. We encourage you to read the entire document carefully. You can also get
information about Merchants from publically available documents Merchants has
filed with the SEC.
Your vote is very important. Whether or not you plan to attend this meeting,
please take the time to vote by completing and mailing the enclosed proxy card
to us in the envelope we have provided.
Very truly yours,
--------------------------------------
Thomas J. Sheehan
President and Chief Executive Officer
<PAGE> 4
This document incorporates business and financial information about Merchants
and Manufacturers Bancorporation, Inc. that is not included in or delivered with
this document but is incorporated by reference. You may obtain the incorporated
information without charge by writing to or calling:
Merchants and Manufacturers Bancorporation, Inc.
14100 West National Avenue
New Berlin, WI 53151
Attention: Michael J. Murry, Chairman of the Board
Telephone: (414) 827-6700
To obtain timely delivery, you must request the information no later than 5
business days before the date on which you must make your investment decision.
If you would like to request documents from Merchants, please do so by ,
1999 to receive them before the special meeting of shareholders of Pyramid.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
Proxy Statement/Prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The Securities offered in the merger are not savings accounts, deposits or other
obligations of a bank or savings association and are not insured by the Federal
Deposit Insurance Corporation or any other governmental agency.
This Proxy Statement/Prospectus is dated , 1999 and was mailed with a Proxy
on or about , 1999. Card
<PAGE> 5
PYRAMID BANCORP., INC.
101 Falls Road
Grafton, WI 53024
NOTICE OF SPECIAL MEETING OF SHAREHOLDER
TO BE HELD , 1999
TO THE SHAREHOLDERS OF PYRAMID BANCORP., INC.
A Special meeting of Shareholders of Pyramid Bancorp., Inc. ("Pyramid")
will be held at , Wisconsin on , 1999 at
.m. for the purpose of voting on the following matters:
1. To approve the Agreement and Plan of Merger dated as of March
9, 1999 as amended by the First Amendment to the Agreement and
Plan of Merger dated as of June 10 1999 among Merchants and
Manufacturers Bancorporation, INC. ("Merchants"), Merchants
Merger Corp. ("Merger Corp."), a wholly-owned subsidiary of
Merchants and Pyramid Bancorp., Inc. ("Pyramid") (the "Merger
Agreement"), providing for the merger of Pyramid with and into
Merger Corp. ("the Merger"). (A copy of the Merger Agreement
is attached as Exhibits A and A-1 hereto).
2. To transact such other business as may properly come before
the meeting.
THE DIRECTORS OF PYRAMID HAVE UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMEND THAT THE SHAREHOLDERS APPROVE THE MERGER AGREEMENT.
Any shareholder desiring to exercise dissenters' rights and be paid in
cash for the fair value of his or her shares of Pyramid Common stock in
accordance with the provisions of the Wisconsin Business Corporation Law (i)
must file a written notice of intention to demand payment for his or her shares
before the vote is taken at the Special Meeting of Shareholders, (ii) must not
vote in favor of the Merger, and (iii) must otherwise comply with the procedures
set forth in Subchapter XIII of the Wisconsin Business Corporation Law, a copy
of which is attached as Exhibit D to the Proxy Statement/Prospectus. See "THE
MERGER-Dissenters' Rights" in the accompanying Proxy Statement/Prospectus.
The Board of Directors has fixed the close of business on , 1999
as the record date for the determination of Pyramid shareholders entitled to
notice of and to vote at the Special Meeting and any adjournment thereof.
Whether or not you plan to attend the Special Meeting, holders of
Pyramid Common Stock are asked to please complete, date and sign the enclosed
proxy card, which is solicited by the Board of Directors of Pyramid, and return
it promptly in the accompanying envelope. No postage is required if mailed in
the United States. The giving of such proxy does not affect your right to vote
in person in the event you attend the Special Meeting. You may revoke the proxy
at any time prior to its exercise in the manner described in the Proxy
Statement/Prospectus.
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<PAGE> 6
The Special Meeting may be postponed or adjourned from time to time
without any notice other than by announcement at the Special Meeting of any
postponement or adjournment thereof, and any and all business for which notice
is hereby given may be transacted at such postponed or adjourned Special
Meeting.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST A MAJORITY OF THE
OUTSTANDING SHARES OF PYRAMID COMMON STOCK IS REQUIRED FOR APPROVAL OF THE
MERGR AGREEMENT. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES
YOU OWN.
Shareholders are invited to attend the Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
-------------------------------------
Thomas J. Sheehan
President and Chief Executive Officer
Grafton, Wisconsin
, 1999
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS
CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING HE SURRENDER OF YOUR
STOCK CERTIFICATES.
-2-
<PAGE> 7
Merchants and Manufacturers Bancorporation, Inc.
Pyramid Bancorp., Inc.
Proxy Statement/Prospectus
TABLE OF CONTENTS
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Page
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SUMMARY....................................................................................... 1
Merchants and Manufacturers Bancorporation, Inc. ......................................... 1
Pyramid Bancorp., Inc. ................................................................... 1
The Special Meeting....................................................................... 1
Votes Required............................................................................ 1
Directors Of Pyramid Have Agreed To Vote For The Merger................................... 2
Recommendation of the Board of Directors of Pyramid....................................... 2
The Merger................................................................................ 2
General................................................................................... 2
What Pyramid Shareholders will receive in the Merger...................................... 2
Post-Merger Dividend Policy of Merchants.................................................. 3
What We Need to Do to Complete the Merger................................................. 3
Exchange of Stock Certificates............................................................ 3
Termination of the Merger Agreement....................................................... 4
Reimbursement of Expenses................................................................. 4
Break-Up Fee.............................................................................. 4
Pyramid Officers And Directors Have Interests in the Merger That Are Different From Yours 4
Financial Consultant Says The Exchange Ratio Is Fair From A Financial Point Of View....... 4
Dissenting Shareholders'Rights............................................................ 5
The Merger Will Be Tax-Free To You........................................................ 5
Regulatory Approvals Needed............................................................... 5
COMPARATIVE BOOK VALUES, DIVIDENDS AND EARNINGS PER COMMON SHARE.............................. 5
COMPARATIVE STOCK PRICES AND DIVIDENDS........................................................ 7
SELECTED HISTORICAL AND PRO FORMA DATA........................................................ 8
THE SPECIAL MEETING........................................................................... 11
Date, Place and Time.................................................................... 11
Matters to Be Considered at the Special Meeting......................................... 12
Required Vote........................................................................... 12
Voting of Proxies....................................................................... 12
Revocability of Proxies................................................................. 12
Record Date; Stock Entitled to Vote; Quorum............................................. 12
Solicitation of Proxies................................................................. 13
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i
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THE MERGER ................................................................................... 13
Background of the Merger ............................................................... 13
Reasons for the Merger; Recommendation of Board of Directors of Pyramid ................ 15
Certain Considerations ................................................................. 17
Opinion of Pyramid Financial Advisor ................................................... 18
Marshall's analysis ........................................................ 18
Analysis of Selected Comparable Transactions ............................... 19
Analysis of Pyramid Valuation Multiples .................................... 20
Analysis of Publicly Traded Companies Comparable to Pyramid ................ 20
Discounted Earnings Analysis ............................................... 20
Analysis of Merchants ...................................................... 21
Pro Forma Merger Analysis................................................... 21
Stock Trading Analysis ..................................................... 21
Contribution Analysis ...................................................... 21
Interests of Certain Persons in the Merger ............................................. 22
Merger Consideration ................................................................... 23
Regulatory Approvals Required .......................................................... 24
Federal .................................................................... 24
Wisconsin .................................................................. 25
General .................................................................... 25
The Effective Time ..................................................................... 25
Conversion of Shares, Procedure for Exchange of Certificates; Fractional Shares......... 26
Description of Merchants Common Stock Issuable in the Merger ........................... 28
General .................................................................... 28
Dividend Rights ............................................................ 28
Voting Rights .............................................................. 28
Rights Upon Liquidation .................................................... 28
Miscellaneous .............................................................. 28
Comparison of Shareholder Rights ....................................................... 29
Authorized Capital Stock ................................................... 29
Required Vote .............................................................. 29
Classified Board of Directors .............................................. 30
Removal of Directors ....................................................... 30
Newly Created Directorships and Vacancies on the Board of Directors ........ 30
Certain Business Combinations .............................................. 30
Resale of Merchants Common Stock Issued Pursuant to the Merger ......................... 31
Pre-merger Dividend Policy ............................................................. 31
Post-merger Dividend Policy ............................................................ 31
Conduct of Business Pending the Merger ................................................. 32
Certain Material Federal Income Tax Consequences ....................................... 32
Anticipated Accounting Treatment ....................................................... 33
Dissenters' Rights ..................................................................... 33
The Voting Agreement ................................................................... 35
Other Related Party Transactions ....................................................... 35
Management after the Merger ............................................................ 36
CERTAIN PROVISIONS OF THE MERGER AGREEMENT ................................................... 36
The Merger ............................................................................. 36
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ii
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Representations and Warranties.......................................................... 36
Certain Covenants....................................................................... 37
No Solicitation of Transactions ........................................................ 38
Conditions to Consummation of the Merger................................................ 39
Termination ............................................................................ 40
Amendment and Waiver ................................................................... 40
Expenses................................................................................ 40
Break-Up Fee ........................................................................... 41
CERTAIN PROVISIONS OF THE VOTING AGREEMENT.................................................... 41
CERTAIN INFORMATION CONCERNING MERCHANTS...................................................... 42
CERTAIN INFORMATION CONCERNING PYRAMID........................................................ 43
Ownership of Pyramid Common Stock.................................................... 44
EXPERTS....................................................................................... 45
LEGAL OPINIONS ............................................................................... 45
FUTURE SHAREHOLDER PROPOSALS ................................................................. 45
WHERE YOU CAN FIND MORE INFORMATION........................................................... 46
FORWARD-LOOKING STATEMENTS.................................................................... 47
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INDEX OF EXHIBITS
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<S> <C>
Exhibit A - Agreement and Plan of Merger ............................................ A-1
Exhibit A-1 - First Amendment to Agreement and Plan of Merger........................ A-1-1
Exhibit B - Voting Agreement ........................................................ B-1
Exhibit C - Opinion of Marshall Financial Consulting, LLC ........................... C-1
Exhibit D - Subchapter XIII of Wisconsin Business Corporation Law ................... D-1
Exhibit E - Pyramid Bancorp., Inc. and Subsidiary Financial
Statements and Management's Discussion and Analysis
of Financial Condition and Results of Operations ............... E-1
</TABLE>
iii
<PAGE> 10
SUMMARY
This Summary highlights selected information from this document . It does
not contain all the information that is important to you. To understand the
merger fully, you should carefully read this entire document and the other
documents to which this document refers you. See "WHERE YOU CAN FIND MORE
INFORMATION"on pages 46 and 47. We have included page numbers parenthetically to
direct you to a more complete description of the topics presented in this
Summary.
MERCHANTS AND MANUFACTURERS BANCORPORATION, INC. (pages 42-43)
Merchants and Manufacturers Bancorporation, Inc. is a Wisconsin multi-bank
holding company with three subsidiary banks operating a total of 17 facilities
in Milwaukee and Waukesha Counties. Merchants also owns three non-bank
subsidiaries, Lincoln Neighborhood Redevelopment Corporation, which was
organized for the purpose of redeveloping and rejuvenating certain areas in the
City of Milwaukee; M&M Services, Inc., which provides operational services to
the banks and Achieve Mortgage Corporation, which is a mortgage brokerage firm.
At June 30, 1999, Merchants had assets of $344 million, net loans of $270
million, total deposits of $298 million and shareholders' equity of $31 million.
The principal executive office of Merchants is located at 14100 West
National Avenue, New Berlin, Wisconsin, 53151, and its telephone number is (414)
827-6713.
PYRAMID BANCORP., INC. (pages 43-45)
Pyramid Bancorp., Inc. is a Wisconsin bank holding company and serves as
the holding company for Grafton State Bank , a Wisconsin commercial bank.
At June 30, 1999, Pyramid had total consolidated assets of $109 million,
loans of $61 million, deposits of $83 million and equity of $8.9 million.
The principal executive office of Pyramid is located at 101 Falls Road,
Grafton, Wisconsin, 53024, and its telephone number is (414)377-5511. The main
office of Grafton State Bank is located at the same address.
THE SPECIAL MEETING (pages 11-13)
A special meeting of the shareholders of Pyramid will be held at
, on , 1999, at p.m., local time. The
close of business on , 1999 is the record date for determining the
shareholders of Pyramid entitled to notice of and to vote at the Pyramid special
meeting and any postponement or adjournment thereof. The purpose of the Pyramid
special meeting is to consider and vote on the merger and other matters that may
come before the Pyramid special meeting.
Shareholders of Merchants are not required to approve the merger.
VOTES REQUIRED (page 12)
The Wisconsin Business Corporation Law requires that the merger be approved
by the majority of the outstanding shares of Pyramid common stock.
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<PAGE> 11
As of the record date, there were 68,900 shares of Pyramid common stock
outstanding. As of the record date, directors and executive officers of Pyramid
held or exercised voting control over approximately 19.3% of the outstanding
shares of Pyramid common stock.
DIRECTORS OF PYRAMID HAVE AGREED TO VOTE FOR THE MERGER (pages 41-42)
Merchants has entered into a voting agreement with each of the directors of
Pyramid. The directors have agreed to vote their shares in favor of the merger
and against any acquisition of control of Pyramid by a third party. The Pyramid
directors have also granted Merchants the exclusive right to purchase their
Pyramid common stock for $250 per share after a material breach of the Merger
Agreement by Pyramid or a breach by a director of Pyramid of the voting
agreement. The voting agreement may have the effect of discouraging persons who
might now or in the future be interested in acquiring all of or a significant
interest in Pyramid from considering such an acquisition. The voting agreement
is intended to increase the likelihood that the merger will be consummated.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF PYRAMID (pages 15-17)
The Board of Directors of Pyramid believes that the merger is fair to you
and in your best interests. They unanimously recommend that holders of Pyramid
common stock vote FOR approval of the merger
THE MERGER (pages 13-18)
GENERAL
Under the terms of the merger agreement, Pyramid will merge into Merchants
Merger Corp. As a result of the merger, Grafton State Bank will become a
wholly-owned subsidiary of Merger Corp. which, in turn is a wholly-owned
subsidiary of Merchants. The merger agreement is attached to this document as
Exhibit A and an amendment to the merger agreement is attached as Exhibit A-1 to
this document. We encourage you to read the merger agreement and the amendment.
They are the legal documents governing the merger.
WHAT PYRAMID SHAREHOLDERS WILL RECEIVE IN THE MERGER (pages 23-24)
In the merger, Merchants will issue up to 620,100 shares of Merchants
common stock to the shareholders of Pyramid for a total market value of $26
Million at the current $42.00 Bid price. As a shareholder of Pyramid, you will
receive 9 shares of Merchants common stock for each share of Pyramid common
stock you own unless you dissent from the merger and follow the statutory
procedure for perfecting your dissenters' rights.
The 9-for-1 ratio at which your Pyramid common stock will be converted into
Merchants common stock will be renegotiated by Merchants and Pyramid if the
daily average price of Merchants common stock is less than $36 or greater than
$44. On August 20, 1999, the Bid price for Merchants common stock was $42 per
share. Based on the 9 for 1 exchange ratio in the merger, the market value that
Pyramid shareholders would have received on August 20 for each share of Pyramid
common stock would have been $378. The market price of Merchants common stock
may fluctuate prior to consummation of the merger, while the exchange ratio is
fixed. Shareholders of Pyramid should obtain current stock price quotations for
Merchants common stock.
The daily average price is the daily average of the "Bid" and "Ask"
quotations of Merchants common stock as published in the Milwaukee Journal
Sentinel during 30 trading days before the merger.
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<PAGE> 12
If the daily average price is less than $36 or greater than $44, then
Merchants and Pyramid will make a good faith effort to promptly renegotiate the
exchange ratio. The renegotiated exchange ratio will be submitted to the Pyramid
shareholders for their approval.
You should note that the 9 for 1 exchange ratio will not change even if the
market price of Merchants common stock increases or decreases within the $36.00
to $44.00 range. You will, therefore, not know when you vote on merger what the
Merchants shares will be worth when issued in the merger, and the market value
of the Merchants shares you will receive at the time of the merger could be
higher or lower than the current market value.
For additional explanation of what you will receive in the merger, please
refer to pages 23 and 24.
POST-MERGER DIVIDEND POLICY OF MERCHANTS (page 31)
It is presently expected that dividend payments will continue at Merchants
current quarterly dividend rate of $0.15 per share. Merchants Board of Directors
determines the level of dividends to be declared each quarter based on various
economic and financial factors.
WHAT WE NEED TO DO TO COMPLETE THE MERGER (pages 39-40)
The completion of the merger depends on a number of conditions being met,
including the following:
1. Shareholders of Pyramid vote in favor of the Agreement and Plan of
Merger.
2. We receive all necessary regulatory approvals.
3. Receipt by us of a legal opinion that, for United States federal
income tax purposes, Merchants, Pyramid, Merger Corp. and Pyramid
shareholders who exchange their shares of Pyramid common stock for
shares of Merchants common stock, will not recognize any gain or loss
as a result of the merger, except in connection with the payment of
cash instead of fractional shares. The tax opinion will be subject to
various limitations, and we recommend that you read the fuller
description of material tax consequences on pages 32 and 33.
4. Receipt by Merchants of a letter from its independent accountant that
the merger will qualify for "pooling of interests" accounting
treatment.
5. The absence of any injunction or legal restraint blocking the merger.
Where the law permits, Merchants or Pyramid could decide to complete the
merger even though one or more of these conditions has not been met. We cannot
be certain when or if the conditions to the merger will be satisfied or waived,
or that the merger will be completed.
EXCHANGE OF STOCK CERTIFICATES (pages 26-28).
At or prior to the time the merger becomes effective, Merchants will deposit
with Firstar Trust Company certificates of Merchants common stock to be issued
in accordance with the terms of the merger agreement.
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<PAGE> 13
After the merger becomes effective, Firstar Trust Company will mail to each
Pyramid shareholder instructions on how to exchange Pyramid common stock for
Merchants common stock.
TERMINATION OF THE MERGER AGREEMENT. (page 40)
The Boards of Directors of Merchants and Pyramid can agree at any time to
terminate the Agreement and Plan of Merger without completing the merger. Other
reasons for terminating the merger are discussed on page 40 of this document.
REIMBURSEMENT OF EXPENSES. (pages 40-41)
Except in case of a breach of the merger agreement, Pyramid and Merchants
will pay their own expenses in connection with the merger.
BREAK-UP FEE (page 41)
If the Merger Agreement is terminated because Pyramid failed to support the
merger or failed to oppose an offer from a third party to acquire it, then
Pyramid must pay Merchants a break-up fee. If the Merchants Board of Directors
withdraws or modifies its approval of the merger, then Merchants must pay the
break-up fee to Pyramid. The break-up fee is the lesser of 1.5% of the total
value of the merger price or $400,000.
PYRAMID OFFICERS AND DIRECTORS HAVE INTERESTS IN THE MERGER THAT ARE DIFFERENT
FROM YOURS (pages 22-23)
When considering the recommendation of the Pyramid Board, you should be
aware that some of the directors and officers of Pyramid have interests in the
merger that are different from, or in addition to, your interests as
stockholders in Pyramid. These interests exist because of the employment
agreements that 4 officers of Grafton State Bank have with Grafton State Bank.
The agreements will be taken over by Merchants. The agreements provide the
officers with severance benefits if their employment is terminated after the
merger.
The interests also arise from provisions in the merger agreement relating
to the appointment of three Pyramid directors to the Merchants Board. In
addition, Mr. Thomas Sheehan, president of Pyramid, will be vice chairman of
Merchants and will be responsible for all retail banking services of Merchants
after the merger. Our directors were aware of these interests and considered
them in approving the merger.
FINANCIAL CONSULTANT SAYS THE EXCHANGE RATIO IS FAIR FROM A FINANCIAL POINT OF
VIEW (pages 18-22)
Marshall Financial Consulting LLC delivered to the Pyramid Board its
written opinion that the 9 for 1 exchange ratio is fair, from a financial point
of view, to the Pyramid shareholders. The written opinion of Marshall is
attached as Exhibit C to this document. We encourage you to read the opinion in
its entirety. For a description of the assumptions made and matters considered
by Marshall, see 'THE MERGER-Opinion of Financial Advisor" and Exhibit C.
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<PAGE> 14
DISSENTING SHAREHOLDERS RIGHTS (pages 33-35)
If you follow certain procedural requirements, you may be entitled to
receive cash in the amount of the fair value of your Pyramid stock instead of
the shares of Merchants common stock offered in the merger . The fair value of
the shares of Pyramid common stock will be determined under Wisconsin law which
defines "fair value" as "-- 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."
IF YOU WANT TO EXERCISE DISSENTERS' RIGHTS YOU MUST NOT VOTE IN FAVOR OF
THE MERGER AGREEMENT AND MUST COMPLY WITH ALL OF THE PROCEDURAL REQUIREMENTS
PROVIDED BY WISCONSIN LAW. A COPY OF THE DISSENTERS' RIGHTS STATUTE IS ATTACHED
AS EXHIBIT D TO THIS DOCUMENT. WE ENCOURAGE YOU TO READ THE STATUTE CAREFULLY
AND TO CONSULT WITH LEGAL COUNSEL IF YOU DESIRE TO EXERCISE YOUR DISSENTERS'
RIGHTS.
THE MERGER WILL BE TAX-FREE TO YOU (pages 32-33)
The merger will be tax-free to Pyramid shareholders for federal income tax
purposes, except for taxes on cash received for a fractional share or cash
received if you exercise dissenters' rights. The merger will also be tax-free to
Pyramid and Merchants for federal income tax purposes. However, because tax
matters are complicated, and tax results may vary among shareholders, we urge
you to contact your own tax advisor to understand fully how the merger will
affect you.
REGULATORY APPROVALS NEEDED (pages 24-25)
The Merger is subject to the approval of the Federal Reserve Board and the
Wisconsin Department of Financial Institutions .
COMPARATIVE BOOK VALUES, DIVIDENDS AND EARNINGS PER COMMON SHARE
The following tables present selected comparative per common share data for
Merchants Common Stock for the years ended December 31, 1998, 1997 and 1996 and
the six months ended June 30, 1999, and Pyramid Common Stock for the years ended
December 31, 1998, 1997 and 1996 and the six months ended June 30, 1999 on both
a historical and pro forma basis giving effect to the Merger. The pro forma
information has been prepared on the basis of accounting for the Merger as a
pooling-of-interests. The information is derived from the consolidated
historical financial statements of Merchants and Pyramid, including the related
notes thereto, included or incorporated by reference in this Proxy
Statement/Prospectus. This information should be read in conjunction with such
historical financial statements and the related notes thereto. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "INDEX TO FINANCIAL
STATEMENTS."
This information is not necessarily indicative of the results of the future
operations of the combined entity or the actual results that would have occurred
had the Merger been consummated prior to the periods indicated.
-5-
<PAGE> 15
Merchants Common Stock
<TABLE>
<CAPTION>
At or For the Six At or For the Year
Months Ended June Ended December 31,
30, 1999 (unaudited)
1998 1997 1996
<S> <C> <C> <C> <C>
Historical:
Net income $ 0.69 $ 1.81 $ 1.67 $ 0.91
Cash dividends declared 0.30 0.59 0.48 0.48
Book value 20.81 20.80 19.78 18.48
Pro forma combined:
Net income (1) $ 0.68 $ 1.86 $ 1.69 $ 1.07
Cash dividends
declared (2) 0.30 0.59 0.48 0.48
Book value 18.77 19.03 17.90 16.44
</TABLE>
Pyramid Common Stock
<TABLE>
<CAPTION>
At or for the Six At or for the Year
Months Ended June Ended December 31,
30, 1999 (unaudited)
1998 1997 1996
<S> <C> <C> <C> <C>
Historical:
Net income $ 8.73 $ 18.07 $ 15.55 $ 13.43
Cash dividends declared 2.00 2.00 1.00
Book value 131.19 130.40 116.23 101.14
Equivalent pro forma
combined: (3)
Net income $ 0.97 $ 2.01 $ 1.73 $ 1.49
Cash dividends declared 0.22 0.22 0.11
Book Value 14.41 14.49 12.91 11.24
</TABLE>
(1) Pro forma net income was computed assuming 2,110,000; 2,067,355;
2,004,809 and 2,001,160 fully diluted shares of Merchants outstanding
for the periods ended June 30, 1999, December 31, 1998, 1997 and 1996,
respectively.
-6-
<PAGE> 16
(2) Based on historical dividends of Merchants.
(3) The pro forma equivalent per share data for Pyramid has been computed by
multiplying the pro forma combined per share information by 9, which
represents the Exchange Ratio assuming that the Daily Average Price of
Merchants is not greater than $44 or less than $36 per share.
COMPARATIVE STOCK PRICES AND DIVIDENDS
Merchants Common Stock
Merchants Common Stock is quoted on the "Pink Sheets," an inter-broker
quotation medium and in the "Over the Counter Bulletin Board," an electronic
quotation service. Merchants Common Stock is quoted in the "Other Stocks"
section of the Milwaukee Journal Sentinel. The following table sets forth, for
the periods indicated, the High and Low Bid quotations per share as furnished by
Robert W. Baird, Inc., a Wisconsin investment banking firm, and the regular cash
dividends declared for Merchants Common Stock as adjusted to reflect stock
dividends. It should be noted that such Bid quotations do not necessarily
represent actual sales.
<TABLE>
<CAPTION>
MERCHANTS COMMON STOCK
-------------------------------------------
HIGH LOW
BID BID DIVIDEND
--- --- --------
<S> <C> <C> <C>
1996
First quarter $17.73 $ 16.06 $ 0.10
Second Quarter 17.73 16.82 0.10
Third Quarter 18.18 17.27 0.12
Fourth Quarter 18.18 17.57 0.15
1997
First Quarter $19.24 $ 16.97 $ 0.12
Second Quarter 20.00 18.79 0.12
Third Quarter 20.15 19.55 0.12
Fourth Quarter 28.48 20.15 0.12
1998
First Quarter $30.30 $ 27.88 $ 0.12
Second Quarter 33.64 28.64 0.13
Third Quarter 35.45 28.10 0.15
Fourth Quarter 39.50 34.63 0.20
1999
First Quarter $ 43.00 $ 38.00 $ 0.15
Second Quarter 43.00 41.50 0.15
</TABLE>
On March 10, 1999, the last trading day before the announcement of the
signing of the Merger Agreement, the Bid price of Merchants Common Stock as
reported in the Milwaukee Journal Sentinel was
-7-
<PAGE> 17
$38 per share. On August 20, 1999, the latest practicable date before the filing
of the Proxy Statement/Prospectus with the Commission, the Bid price of
Merchants Common Stock as reported was $42 per share. Assuming the Merger had
occurred on such date, the equivalent market value per share of Pyramid Common
Stock, calculated by multiplying the Bid price of Merchants Common Stock by the
Exchange Ratio, would have been $378 which represents 288.1% of June 30, 1999
book value of Pyramid and a price to earnings ratio of 21.65x, based on
Pyramid's annualized net income for the first 6 months of 1999. See also "THE
MERGER-Opinion of Pyramid Financial Advisor". Shareholders are urged to obtain
current market prices for Merchants Common Stock. No assurance can be given as
to the market price of Merchants Common Stock prior to the Effective Time or
after consummation of the Merger.
On the Record Date, there were approximately 601 holders of record of
Merchants Common Stock.
Pyramid Common Stock
Pyramid Common Stock is not listed on any exchange or quoted in the
over-the-counter market. There is no established trading market for Pyramid
Common Stock. In the opinion of Pyramid, due to the lack of an active market for
Pyramid Common Stock, transactions in Pyramid Common Stock of which Pyramid is
aware are not frequent enough to produce representative prices. The last sale of
which Pyramid is aware was to the best knowledge of Pyramid at $100 per share on
April 17, 1998.
The Board of Directors of Pyramid declared the following per-share
dividends in 1996, 1997, 1998 and during the first half of 1999, respectively:
$-0-, $1.00, $2.00, $2.00. Pursuant to the Merger Agreement, the ability of
Pyramid to pay dividends on Pyramid Common Stock prior to the Effective Time has
been restricted except that commencing in the first quarter of 1999 Pyramid is
permitted to declare and pay a quarterly dividend not to exceed $1.00 per share.
On the Record Date, there were 111 holders of record of Pyramid Common
Stock.
SELECTED HISTORICAL AND PRO FORMA DATA
The summary below sets forth selected historical and other data and
selected unaudited pro forma financial data. The financial data should be read
in conjunction with the historical consolidated financial statements and related
notes thereto of Merchants and Pyramid and in conjunction with the unaudited pro
forma combined financial statements and related notes thereto of Merchants as
the surviving corporation in the Merger included elsewhere in this Proxy
Statement/Prospectus. See "INDEX TO FINANCIAL STATEMENTS" and "UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION."
-8-
<PAGE> 18
Selected Historical Financial and Other Data
(In thousands, except per-share data)
Merchants
<TABLE>
<CAPTION>
At or for the Six At or for the Year
Months Ended June Ended December 31,
30, (unaudited)
1999 1998 1998 1997 1996 1995 1994
------------- --------------- ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $344,164 $312,705 $334,503 $296,678 $267,723 $264,247 $248,181
Loans, net 270,033 231,653 251,815 227,178 189,791 163,650 149,925
Investment
Securities held - - - - - - 4,326
to maturity
Deposits 298,012 280,382 289,230 264,699 232,933 233,083 223,446
Long-term 1,190 260 - - - --
debt
Shareholders'
equity 31,000 30,378 30,997 29,496 28,380 26,543 23,573
Interest income 11,679 11,324 23,215 21,094 19,328 18,383 16,139
Interest 5,131 5,118 10,589 9,090 8,362 7,921 6,155
expense
Provision for
loan losses 100 150 250 192 460 132 43
Other income 925 1,009 2,330 1,656 1,555 1,328 941
Other expenses 5,836 5,511 10,532 9,620 10,021 9,040 8,484
Income tax 502 547 1,468 1,439 730 917 874
Net income 1,035 1,007 2,706 2,409 1,310 1,701 1,524
</TABLE>
-9-
<PAGE> 19
Pyramid
<TABLE>
<CAPTION>
At or for the Six At or for the Year
Months Ended June Ended December 31,
30, (unaudited)
1999 1998 1998 1997 1996 1995 1994
------------- -------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $108,936 $ 97,829 $106,909 $95,007 $90,971 $83,744 $81,586
Loans 61,291 54,158 60,947 53,880 51,544 51,759 53,684
receivable, net
Investment
Securities held
to maturity 7,344 7,049 6,958 6,669 5,274 4,843 5,637
Deposit
accounts 83,456 75,457 82,974 72,580 69,545 63,406 61,948
Borrowed 8,150 5,190 8,750 4,740 5,190 6,890 5,540
funds
Shareholders'
equity 8,934 7,773 8,441 7,276 6,311 5,512 4,590
Interest income 3,794 3,652 7,472 6,933 6,503 6,228 4,959
Interest 1,723 1,757 3,531 3,404 3,236 3,120 2,294
expense
Provision for
loan losses 36 12 64 35 145 24 64
Noninterest
income 311 287 621 519 502 486 801
Noninterest
expenses 1,477 1,344 2,780 2,526 2,427 2,383 2,429
Income tax
expenses 281 275 574 515 359 456 359
Net income 588 551 1,144 972 838 731 614
</TABLE>
-10-
<PAGE> 20
Selected Unaudited Pro Forma Financial Data
($ in thousands except per share data)
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year Ended
June 30, December 31,
1999 1998 1998 1997 1996
---------------- ------------------ ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Income Statement
Interest Income $15,473 $14,976 $30,687 $28,027 $25,831
Interest Expense 6,854 6,875 14,120 12,494 11,598
Net Interest
Income 8,619 8,101 16,567 15,533 14,233
Loss Provision 136 162 314 227 605
Other Income 1,236 1,296 2,951 2,175 2,057
Other Expense 7,313 6,855 13,312 12,146 12,448
Income Before Tax 2,406 2,380 5,892 5,335 3,237
Income Tax 783 822 2,042 1,954 1,089
Net Income 1,623 1,558 3,850 3,381 2,148
Per Share
Basic earnings per
share $ 0.77 $ 0.76 $ 1.86 $ 1.69 $ 1.07
Diluted earnings
per share 0.76 0.74 1.82 1.64 1.05
</TABLE>
<TABLE>
<CAPTION>
At the Six At the Year Ended
Months ended June 30 December 31
Balance Sheet 1999 1998 1998 1997 1996
---------------- ------------------ ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Loans-Net $331,324 $285,811 $312,762 $281,058 $241,335
Assets 453,100 410,534 441,412 391,685 358,694
Deposits 381,468 355,839 372,204 337,249 302,387
Shareholders'
Equity 39,934 38,151 39,438 36,772 32,691
Weighted Average
Shares
Basic weighted 2,096 2,062 2,067 2,005 2,005
average shares
outstanding
Diluted weighted 2,136 2,106 2,112 2,059 2,052
average shares
outstanding
</TABLE>
THE SPECIAL MEETING
Date, Place and Time
The Special Meeting will be held at ,
Wisconsin, on , 1999 at p.m. (local time).
-11-
<PAGE> 21
Matters to Be Considered at the Special Meeting.
At the Special Meeting, holders of Pyramid Common Stock will consider and
vote upon a proposal to approve the Merger Agreement and any other matters that
may properly come before the Special Meeting. For a detailed description of the
Merger and the Merger Agreement, see "The Merger" and "Certain Provisions of the
Merger Agreement."
Required Vote
The affirmative vote of the holders of a majority of the outstanding shares
of Pyramid Common Stock entitled to vote at the Special Meeting is required to
approve the Merger Agreement. Each share of Pyramid Common Stock outstanding on
the Record Date (as defined herein) is entitled to one vote. Shareholders of
Merchants are not required to approve the Merger Agreement and no further
corporate authorization by Merchants is required to consummate the Merger.
Pursuant to the Voting Agreement, the directors who have voting power with
respect to a total of 13,312 shares or approximately 19.3% of Pyramid Common
Stock entitled to vote at the Special Meeting have agreed, among other things,
to vote their shares in favor of the approval and adoption of the Merger
Agreement and against certain other transactions.
Voting of Proxies
Shares represented by all properly executed proxies for Pyramid Common
Stock received in time for the Special Meeting will be voted at the Special
Meeting in the manner specified by the holders thereof. Proxies which do not
contain voting instructions will be voted FOR approval of the Merger Agreement.
It is not expected that any matter other than that referred to herein will
be brought before the Special Meeting. If, however, other matters are properly
presented, the persons named as proxies will vote in accordance with their
judgment with respect to such matters.
Revocability of Proxies
The grant of a proxy on the enclosed form of proxy does not preclude a
shareholder from voting in person. A shareholder may revoke a proxy at any time
prior to its exercise by delivering to the Secretary of Pyramid a duly executed
proxy or revocation of proxy bearing a later date or by voting in person at the
Special Meeting. Attendance at the Special Meeting will not of itself constitute
revocation of a proxy.
Record Date; Stock Entitled to Vote; Quorum
Only holders of record of Pyramid Common Stock at the close of business on
, 1999 (the "Record Date") will be entitled to receive notice of and
to vote at the Special Meeting.
At the Record Date, 68,900 shares of Pyramid Common Stock were outstanding.
Shares representing a majority of the outstanding shares of Pyramid Common Stock
entitled to vote must be represented in person or by proxy at the Special
Meeting in order for a quorum to be present. Abstentions will be treated as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum but as unvoted for purposes of determining the approval of
the Merger Agreement. If a broker or other holder of record indicates on the
proxy that it does not have discretionary authority as to certain shares to vote
on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.
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<PAGE> 22
Solicitation of Proxies
Pyramid will bear the cost of the solicitation of proxies from its
shareholders, except that Merchants and Pyramid will share equally the cost of
printing this Proxy Statement/Prospectus and all regulatory filing fees in
connection therewith. In addition to solicitation by mail, the directors,
officers and employees of Pyramid may solicit proxies from shareholders of
Pyramid by telephone or telegram, or in person, but will receive no additional
compensation for such services.
SHAREHOLDERS SHOULD NOT RETURN THEIR STOCK CERTIFICATES WITH THEIR PROXY
CARDS. AS SOON AS PRACTICABLE FOLLOWING THE EFFECTIVE TIME, PYRAMID SHAREHOLDERS
WILL BE PROVIDED WITH MATERIALS RELATING TO THE EXCHANGE OF THEIR STOCK
CERTIFICATES. SEE "THE MERGER - CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF
CERTIFICATES; FRACTIONAL SHARES."
THE MERGER
Background of the Merger
For the past several years, the Board of Directors of Pyramid has monitored
the changes in the banking industry and the future of independent banks in
smaller communities in Wisconsin.
The Pyramid Board considered the increasing competition in the banking
industry, the need for ever-larger capital expenditures to provide desired
customer services and the increasingly complex regulatory and market structure.
The Pyramid Board recognized that the banking industry has substantially changed
in recent years and that changes of equal or greater magnitude are likely in the
future.
In that connection, the Pyramid Board discussed from time to time the
possibility of combining with another bank, forming an expanded bank holding
company and making suitable acquisitions and growing internally.
As a result of these discussions, the Pyramid Board realized that it would
not be possible to realize sufficient growth through small acquisitions and
internally-generated growth to effectively compete with the increasing numbers
of larger competitors entering its market.
The Pyramid Board thus concluded that a combination with another bank would
provide the size and the necessary resources for the Bank to remain an effective
competitor in its market and to properly service its community.
-13-
<PAGE> 23
The Board believed that it was very important for the Bank to retain its
identity as a community bank and also to retain the name of Grafton State Bank
along with its local management. Based on its review of other transactions, the
Board felt that the Bank's customers and the community would suffer a reduction
in service by a sale of the Bank and its conversion to a branch of another bank,
resulting in the decision making process being moved out of the local community
to a corporate headquarters in another location.
To that end, in 1997, the Pyramid Board attempted to effect a combination
with another community bank ("other organization"). The combination was intended
to assure relative independence and local control for both organizations.
However, because of the ownership structure of the other organization, the Board
determined that the combination with that bank would not be in the best
interests of Pyramid, its shareholders or its customers. Accordingly,
discussions were terminated in January, 1998. In the summer of 1998, discussions
between Pyramid and the other organization resumed in an attempt to restructure
the ownership of the other organization to protect Pyramid's interests. After
several months of unsuccessful negotiations, discussions with the other
organization were finally terminated.
In 1998, Pyramid also discussed possible combinations with several other
bank holding companies. However, none of the potential acquirors agreed to allow
the Bank to retain its community identity and operate under its own name. No
specific offers were ever received by Pyramid as a result of such discussions.
The Pyramid Board continued to believe that in order to remain competitive
and provide appropriate banking services to its customers, an increase in size
and resources by means of a combination with another bank was required.
Over the past several years, Merchants had periodically expressed an
interest in exploring a combination with Pyramid. Pyramid's Board was aware that
Merchants' subsidiary banks were operating under local control and with local
autonomy. Pyramid's Board was also mindful of the desire of many of its
shareholders and customers to retain a community-oriented bank with local
control.
Accordingly, in the second half of 1998, the management and Board of
Directors of Pyramid commenced discussing a possible combination with Merchants.
The Pyramid Board found that the Merchants' banking philosophy closely resembled
Pyramid's. Additionally, Pyramid concluded that the subsidiary banks of
Merchants and Grafton State Bank complemented each other in loan activities
because Merchants had a strong emphasis on commercial lending while Grafton
State Bank emphasized mortgage lending. As a result of the combination, Grafton
State Bank could increase its commercial lending limit to approximately $7
million and would be able to more effectively service many business customers in
its market area which it had difficulty accommodating in the past.
In addition, the Pyramid Board believed that the shareholders of Pyramid
will enjoy greater liquidity for their stock and a means of accurately valuing
their investment through a transaction with Merchants.
As a result, the Pyramid Board determined to pursue further discussions
with Merchants. The Pyramid Board and management held several meetings with the
management and Directors of Merchants to further discuss post-merger operational
matters and the merger consideration. Subsequently, the Pyramid Board engaged
Marshall as a financial advisor to assist it in evaluating the Merchants stock
and advise it on the fairness of the exchange, from a financial point of view.
-14-
<PAGE> 24
On December 19, 1998, the Merchants Board held a special meeting, attended
by its financial advisor and legal counsel, to consider and approve the terms of
a letter of intent to be submitted to Pyramid. The letter of intent was executed
by Merchants on December 28, 1998 and delivered to Pyramid.
After further negotiations and discussions with its financial advisor and
legal counsel regarding the proposed stock exchange, on January 4, 1999, the
Pyramid Board accepted the letter of intent pursuant to which Pyramid
stockholders would receive an aggregate of 620,100 shares of Merchants stock,
subject to renegotiation of the exchange ratio under certain conditions related
to the price of Merchants' stock . The parties issued a joint press release
announcing the execution of the letter of intent.
Following public announcement of the proposed transaction and prior to the
execution of the Agreement and Plan of Merger, a Pyramid shareholder suggested
to the management that Pyramid consider an auction which the shareholder
believed would enhance the value to be received by Pyramid shareholders. The
management and the Board of Directors of Pyramid determined an auction process
was not in the best interests of the Pyramid shareholders or the customers of
the Bank.
After further discussions, an Agreement and Plan of Merger embodying the
terms of the letter of intent was negotiated with the assistance of legal
counsel and executed by Merchants and Pyramid as of March 9, 1999. The parties
issued a joint press release announcing the transaction.
As of June 10, 1999, the First Amendment to the Merger Agreement was
entered into by Merchants and Pyramid. The purpose of the First Amendment was to
provide for the merger of Pyramid with Merchants Merger Corp., a wholly-owned
subsidiary of Merchants organized exclusively to facilitate the Merger
transaction.
The Board of Directors of Pyramid has approved the Merger Agreement and
believes that the proposed Merger is in the best interest of Pyramid and its
shareholders. Accordingly, the Pyramid Board recommends that the shareholders of
Pyramid vote in favor of the adoption of the Merger Agreement as discussed
herein.
Reasons for the Merger; Recommendation of Board of Directors of Pyramid
Merchants. The Merchants Board has concluded that the Merger would be in
the best interests of Merchants and its shareholders. In reaching this
determination, the Merchants Board considered many factors including the
following:
(i) The Merger meets Merchants' strategic objectives of maintaining
and strengthening a locally owned and operated community-oriented financial
institution.
(ii) The Merger will create a significantly larger financial
institution that will have capabilities to offer a wider array of financial
products and services.
For instance, Merchants' current customers will have access to the products
and services offered by Pyramid and, conversely, Pyramid will offer its
products and services to Merchants' customers. Moreover, the combined
resources of the two companies will improve the efficiencies associated
with the development of new products and services to be offered by
Merchants.
(iii) Merchants will have immediate access to the Ozaukee County
market which is currently served by Merchants on a limited basis.
-15-
<PAGE> 25
(iv) The similarities between the operations of Merchants and Pyramid
will result in cost savings and more efficient utilization of resources and
technology thereby offering economies of scale not currently available to
Merchants.
(v) The size and capital structure of Merchants following the Merger
will provide greater opportunities and flexibility in responding to the
rapidly changing industry for financial service providers.
(vi) The asset size, capital position, management strength and market
position of Merchants will enable the combined company to remain
competitive and take advantage of current and emerging opportunities for
growth and profitability.
(vii) The opinion of Merchants that the consideration to be paid by
Merchants in the Merger is fair, from a financial point of view, to
Merchants and its shareholders.
Numerous factors were considered by the Merchants Board in approving the terms
of the Merger. These factors included information concerning the financial
structure, results of operations, and prospects of Merchants and Pyramid; the
capital adequacy of the resulting entity; the composition of the businesses of
the two organizations; the overall compatibility of the management and employees
of the organizations; the outlook for the organizations in the rapidly changing
financial services industry; the relationship of the consideration to be paid in
the Merger to market prices and the book value and earnings per share of Pyramid
and the financial terms of certain other recent business combinations in the
banking industry.
Pyramid. In considering the Merger, the Directors of Pyramid reviewed the
terms and conditions of the proposed Merger Agreement, along with certain
business and financial information relating to Merchants and Pyramid. In
addition, the Board of Directors of Pyramid determined to approve the proposed
transaction primarily because the Merger will increase the financial strength of
the Bank by enabling it to better serve its depositors and customers, while at
the same time allowing the Bank to retain its identity as a community bank and
retain the name of Grafton State Bank along with local management; to provide
additional opportunities for professional advancement for the Bank's employees,
and to be more competitive with other bank subsidiaries of large bank holding
companies currently doing business in Ozaukee County or which might locate in
the community. The directors of Pyramid also concluded that the Merger will
enhance both the long-term and short-term value of Pyramid shareholders'
investment. Among the factors important to the Directors of Pyramid in
determining to approve the Merger, were: ( i) the increased opportunity and
resources to serve the Bank's customers; (ii) the possibility for career
enhancement which employees of Pyramid and the Bank might be provided as a
result of the merger; (iii) the increased resources and expertise to keep the
Bank competitive and meet the ever-changing demands of the banking industry;
(iv) the marketability and liquidity of Merchants' Common Stock and the
consistent dividend history and rate of dividends of the Merchants Common stock
to be received in the Merger as compared to the illiquidity and lack of
marketability of Pyramid Common Stock and the dividend history of Pyramid Common
stock; (v) the tax-free nature of the Merger for federal income tax purposes
which would permit Pyramid's shareholders who receive shares of Merchants Common
Stock to defer federal income taxation under certain circumstances; (vi) the
potential for future appreciation of Merchants' Common Stock due to Merchants'
greater market presence and financial resources; and (vii) the financial terms
of other recent business combinations in the financial services industry. See
"THE MERGER - Certain Material Federal Income Tax Consequences."
While each member of Pyramid's Board of Directors evaluated each of the
foregoing as well as other factors, the Board of Directors collectively did not
assign any specific or relative weights to the factors
-16-
<PAGE> 26
considered and did not make any determination with respect to any individual
factor. Pyramid's Board of Directors collectively made its determination with
respect to the Merger based on its unanimous conclusion that the Merger, in
light of the factors which each of them individually considered as appropriate,
is fair and in the best interests of Pyramid's shareholders.
The Board of Directors of Pyramid has determined that the terms of the
Merger are fair to, and in the best interests of, Pyramid and its shareholders
for the reasons stated immediately above.
THE BOARD OF DIRECTORS OF PYRAMID HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
Certain Considerations
In deciding whether to vote in favor of the Merger, the Pyramid
shareholders should consider the following factors, in addition to the other
matters set forth herein.
(i) Uncertain Legislative and Regulatory Environment. The banking
and financial services businesses in which Pyramid and Merchants engage are
highly regulated. The laws and regulations affecting such businesses may be
changed in the future. Such changes could affect the ability of banks to
engage in nationwide branch banking and the ability of bank holding
companies to engage in non-banking businesses, such as securities
underwriting and insurance, in which they have been allowed to engage only
on a limited basis. Such changes may also affect the capital that banks and
bank holding companies are required to maintain, the premiums paid for or
the availability of deposit insurance or other matters directly affecting
earnings. Neither Pyramid nor Merchants can predict what changes will occur
and the effect that any such changes would have on the ability of the
combined entity to compete effectively or to take advantage of new
opportunities after the Merger.
(ii) Competition. The markets in which Pyramid and Merchants operate
are highly competitive. Competition in such markets is likely to increase
in light of the changing legislative and regulatory environment in which
Pyramid and Merchants operate. In addition, consolidation and mergers in
the banking industry are expected to continue, resulting in stronger and
more effective competitors. Neither Pyramid nor Merchants can predict the
degree to which competition in the industry will increase in the future or
the effect any such increased competition will have on the combined entity.
(iii) Rapid Technological Changes. Evolving technology will play a
major role in the processing and delivery of financial services. The
effective use of new technology will enable banking and financial service
businesses to improve information concerning their customers and markets.
It will also enable them to reduce overhead expenses while improving the
quality of service to customers. Communications technology will
substantially improve the ability of financial institutions to exchange
information with their customers and employees. Banks and financial
institutions that are unwilling or unable to access this evolving new
technology could experience lower earnings and a loss of customers.
(iv) Uncertain Economic Environment. Banks and financial service
companies in the Midwest have experienced a relatively long period of price
stability and a growing economy. Price stability enables banks to better
protect themselves against interest rate risks. A strong economy
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enhances the opportunity of the commercial sector of the economy to improve
earnings and performance. It also provides an environment for financial
institutions to experience positive and profitable growth. Potentially
adverse economic changes present additional risks for banks and financial
service companies.
(v) Nature of Business. The financial performance of Pyramid results
primarily from its retail banking activities located in Ozaukee County.
Pyramid shareholders who receive shares of Merchants Common Stock will own
an interest in a diversified multi-bank holding company currently operating
17 banking offices located in Milwaukee and Waukesha Counties,, which is
engaged in several non-banking businesses. Financial performance of
Merchants is accordingly dependent on its activities and the economic
factors in such markets and businesses.
(vi) Business Combinations. Merchants seeks additional expansion
opportunities and accordingly may enter into business combinations with
banking and non-banking entities involving the issuance of its shares or
payment of cash consideration which may not require a vote of holders of
Merchants Common Stock at the time of such additional acquisitions.
(vii) Share Price Fluctuation. The price of shares of Pyramid Common
Stock is based essentially upon the financial condition of Pyramid and the
market value for similar non-publicly traded bank holding companies and
other factors. The share price of Merchants Common Stock is by nature more
subject to the general price fluctuations in the market for publicly-traded
equity securities. Such fluctuations are not necessarily related to a
change in the financial performance or condition of Merchants.
Opinion of Pyramid Financial Advisor
The Pyramid Board retained Marshall to act as its financial advisor in
connection with the Merger and to assist it in its examination of the fairness,
from a financial point of view, of the merger consideration to the holders of
Pyramid Common Stock. On March 8, 1999, Marshall rendered its opinion to the
Pyramid Board (subsequently confirmed as of the date of this Proxy
Statement/Prospectus) to the effect that the merger consideration was fair, from
a financial point of view, to the holders of Pyramid Common Stock.
THE FULL TEXT OF MARSHALL'S OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF
REVIEW UNDERTAKEN BY MARSHALL IN RENDERING ITS OPINION, IS ATTACHED AS EXHIBIT C
TO THIS PROXY STATEMENT/PROSPECTUS. THE MARSHALL OPINION IS DIRECTED ONLY TO THE
FAIRNESS OF THE MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW TO THE
HOLDERS OF PYRAMID COMMON STOCK AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
PYRAMID SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE
MERGER. THE SUMMARY OF THE MARSHALL OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION ATTACHED AS AN EXHIBIT HERETO, AND SHAREHOLDERS OF PYRAMID SHOULD
READ THE MARSHALL OPINION CAREFULLY AND IN ITS ENTIRETY.
Marshall's analysis. In conducting its investigation and analysis and in
arriving at its opinion, Marshall reviewed such information and took into
account such financial and economic factors as it deemed relevant. In doing so,
Marshall, among other things; (i) reviewed certain internal information,
primarily financial in nature, including projections, as well as publicly
available information, including but not limited
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to Pyramid's and Merchants' recent filings with regulatory authorities; (ii)
reviewed the Merger Agreement; (iii) compared the historical market prices and
trading activity of Pyramid and Merchants Common Stock with those of certain
other publicly traded companies Marshall deemed relevant; (iv) compared the
financial position and operation results of Pyramid and Merchants with those of
other publicly traded companies Marshall deemed relevant; (v) compared the
proposed financial terms of the Merger with the financial terms of certain other
business combinations involving banking institutions Marshall deemed relevant;
and (vi) reviewed certain potential pro forma effects of the Merger on
Merchants. Marshall held discussions with certain members of Pyramid's and
Merchants' senior management concerning Pyramid's and Merchants' historical and
current financial condition and operating results, as well as the future
prospects of Pyramid and Merchants, respectively. Marshall had not been
requested to, and did not, solicit third party indications of interest in
acquiring all or any part of Pyramid. Marshall also considered such other
information, financial studies, analysis and investigations and financial,
economic and market criteria as Marshall deemed relevant for the preparation of
its opinion. The merger consideration was determined by Pyramid and Merchants in
arm's-length negotiations. Pyramid did not place any limitation upon Marshall
with respect to the procedures followed or factors considered by Marshall in
rendering its opinion.
In arriving at its opinion, Marshall assumed and relied upon the accuracy
and completeness of all of the financial and other information that was publicly
available or provided to it by or on behalf of Pyramid and Merchants, and was
not engaged to independently verify any such information. Marshall assumed, with
Pyramid's and Merchants' consent, that (i) all material assets and liabilities
(contingent or otherwise, known or unknown) of Pyramid and Merchants are set
forth in their respective financial statements; (ii) the Merger will be
accounted for under the pooling of interest method of accounting; (iii) the
Merger will be consummated in accordance with the terms of the Merger Agreement
without any additional amendments thereto and without any condition; (iv) the
prospective cost savings and revenue enhancements contemplated by management of
both companies following the Merger will be realized; and (v) all shareholder
and required regulatory approvals will be obtained in a timely manner. Marshall
also assumed that the financial forecasts examined by it were reasonably
prepared on bases reflecting the best available estimates and good faith
judgments of Pyramid's and Merchants' respective senior management, as to future
performance of their respective companies. Marshall did not undertake or obtain
an independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of Pyramid or Merchants, nor did it make a physical
inspection of the properties or facilities of Pyramid or Merchants. Marshall's
opinion necessarily was based upon economic, monetary and market conditions as
they existed and could be evaluated on the date thereof, and did not predict or
take into account any changes which may occur, or information which may become
available, after the date thereof. Furthermore, Marshall expressed no opinion as
to the pricing or trading range at which shares of Merchants' securities would
trade following the date of such opinion.
Analysis of Selected Comparable Transactions. Marshall reviewed a selected
group of ten completed or pending acquisitions of banks or bank holding
companies that were announced since January 1, 1997. Marshall focused on
transactions where the acquired entity had a transaction value of less than $50
million. The assets of the comparables ranged from $75 million to $171 million
and the mean being $106 million. The equity to asset ratio for the comparables
ranged from 6.97% to 13.57% with the median and the mean being 11.53% and 10.93%
respectively. The return on average assets for the comparables ranged from 1.10%
to 1.86% with the median and the mean being 1.34% and 1.43%, respectively. The
comparables' return on equity ranged from 9.35% to 25.61% with the median and
the mean being 11.68% and 13.88%, respectively. The price to book of the
comparables ranged from 151.00% to 320.57% with the median and the mean being
229.31% and 227.79%, respectively. The price to tangible book for the
comparables ranged from 158.84% to 363.37% with the median and the mean being
229.31% and 236.03%, respectively. The comparables' price to latest twelve
months net income ranged from 11.39x to 30.12x with the median being 18.58x and
the mean being 18.31x, respectively. The tangible premium to core deposits
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for the comparable companies ranged from 8.63% to 25.14% with the median and
mean being 18.45% and 18.38%, respectively.
Analysis of Pyramid Valuation Multiples. Marshall calculated the "implied
Equity Value Per Share" reflected by the terms of the Merger to be $351 for each
share of Pyramid Common Stock, obtained by multiplying an Exchange Ratio of 9 by
the bid price share of Merchants Common Stock of $39 on March 1, 1999. Marshall
then calculated the "Implied Total Equity Value: to be $24,183,900 million,
obtained by multiplying the implied equity Value Per Share by the total number
of outstanding shares of Pyramid Common Stock, including shares issuable upon
exercise of stock options. In performing its analysis, Marshall used, among
other items, operating statistics for Pyramid's twelve months through December
31, 1998. Marshall calculated multiples of the Implied Total Equity Value to
Pyramid's earnings per share, book value, tangible book value and tangible
premium to core deposits. The calculations resulted in ratios of the Implied
Total Equity Value to net income ("P/E Ratios") of 21.99x based on December 31,
1998 results, 288.3% of book value, 288.3% of tangible book value and an 18.97%
tangible premium to core deposits.
As no comparative group or transaction from any comparative group is
identical to the Merger, Marshall indicated to the Pyramid Board that the
analyses described above are not mathematical, but rather involve complex
consideration and judgments concerning differences in operating and financial
characteristics including, among other things, differences in revenue
composition and earnings performance among Pyramid and Merchants and the
selected companies and transactions reviewed.
Analysis of Publicly Traded Companies Comparable to Pyramid. Marshall
reviewed certain publicly available financial and stock market information for
certain publicly traded companies which Marshall deemed relevant. These
companies consisted of: F&M Bancorporation, ANB Corp., Baylake Corp., State
Financial Services, Empire Banc Corp., Princeton National Bancorp., Northern
States Financial Corp., Union Bancorp, Merchants Bancorp and German American
Bancorp (the "Comparable Companies"). The data described below for such group is
as of December 31, 1998 and is compared to Pyramid's financial information, as
reported, as of December 31, 1998.
Marshall noted that the equity to assets for Pyramid was 7.90% compared
with a median of 9.47% and a mean of 9.80% for the Comparable Companies. The
equity to assets for the Comparable Companies ranged from a high of 13.40% to a
low of 8.17%. Marshall also noted the following operating performance statistics
for Pyramid compared to the Comparable Companies: (i) the net interest margin
for Pyramid was 4.28% compared to a median of 4.42% and a mean of 4.44%. (The
range for net interest margin of the Comparable Companies was a high of 4.92% to
a low of 3.99%); (ii) the efficiency ratio for Pyramid was 60.60% compared to a
median of 58.62% and a mean of 60.81% for the Comparable Companies. (The range
for the efficiency ratio for the Comparable Companies was 45.61% to 64.71%);
(iii) the return on average assets for Pyramid was 1.13% compared to a median of
1.18% and a mean of 1.21% for the Comparable Companies. (The range on average
assets was .88% and 1.55% for the Comparable Companies), (iv) the return on
average equity for Pyramid was 14.60% compared to a median of 11.67% and a mean
of 12.36% for the Comparable Companies. (The range for the return on average
equity was 9.94% to 15.85% for the Comparable Companies.)
Discounted Earnings Analysis. Marshall performed a discounted earnings
analysis of Pyramid on a stand-alone basis using Pyramid management's
projections of future earnings for the 5 year period ending December 31, 2003.
Marshall estimated terminal values for Pyramid using asset growth rates of
6.00%, return on average assets of 1.20%, cash dividends of $4.00 per share in
1999 and $7.00 per share in 2000, 2001, 2002, and 2003, discount rates of 9%,
11% and 13%, and terminal book value multiples of 100%, 110% and 120%. Based
upon projections, Marshall calculated an implied per share price from $183 to
$253
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per share of Pyramid Common Stock. Marshall noted that the discounted earnings
analysis was included because it is a widely used valuation methodology, but
noted that the results of such methodology are highly dependent upon the
numerous assumptions that must be made, including earnings growth ratios,
dividend payout rates, terminal values and discount rates.
Analysis of Merchants. In order to assess the relative public market
valuation of the Merchants Common Stock to be issued in the Merger, Marshall
reviewed certain publicly available financial information of the most recently
reported period as of December 31, 1998 for Merchants and stock market
information of certain selected publicly traded companies which Marshall deemed
relevant. Such comparable companies consist of F&M Bancorporation, ANB Corp.,
Baylake Corp., State Financial Services, Empire Banc Corp., Princeton National
Bancorp., Northern States Financial Corp., Union Bancorp, Merchants Bancorp and
German American Bancorp. (the "Merchants' Comparable Companies"). The data
described below for such group is as of December 31, 1998. Marshall noted the
following operating performance statistics for Merchants compared to the
Merchants Comparable Companies: (i) Merchants' net interest margin was 4.45%
compared to a median of 4.42% and a mean 4.44% for the Merchants' Comparable
Companies (the range for net interest margin was 3.99% to 4.92% for the
Merchants' Comparable Companies); (ii) the efficiency ratio for Merchants was
70.88% compared with a median of 58.62% and a mean of 60.81% for the Merchants'
Comparable Companies (The range for the efficiency ratio was 45.61% to 64.71%
for the Merchants' Comparable Companies); (iii) the return on average assets for
Merchants was .86% compared to a median of 1.18% and a mean of 1.21% for the
Merchants' Comparable Companies (The range for the return on average assets was
.88% to 1.55% for the Merchants' Comparable Companies); (iv) the return on
average equity for Merchants was 8.92% compared to a median of 11.67% and a mean
of 12.36% for the Merchants' Comparable Companies (The range for the return on
average equity was 9.94% to 15.85% for the Merchants' Comparable Companies); (v)
the ratio of non-performing assets to total assets for Merchants was .31%
compared with a median of .61% and a mean of .69% for the Merchants' Comparable
Companies (The range for the non-performing assets to total assets was .31% to
1.36% for the Merchants' Comparable Companies).
Pro Forma Merger Analysis. Marshall prepared a pro forma analysis of the
financial impact of the Merger. Using financial forecasts for Pyramid (prepared
by Pyramid's management) and Merchants (prepared by Merchants' management),
Marshall compared Merchants' earnings per share and book value on a stand-alone
basis to earnings and book value of the combined companies on a pro forma basis.
Without any synergies, this analysis indicated that the Merger would be dilutive
to earnings per share in 1999 and after synergies as provided by Merchants
management non-dilutive to earnings per share in 1999. However, this analysis
shows that it is immediately dilutive to book value per share by 10.1%.
Stock Trading Analysis. Marshall reviewed the historical trading prices and
volume of Merchants Common Stock for the two years ending December 31, 1998. The
price of Merchants Common Stock ranged from a high to a low from January 1, 1997
through December 31, 1997 of $16.97 to $29.09, and from $28.03 to $42.50 from
January 1, 1998 through December 31, 1998. The trading volumes in calendar year
1997 and 1998 were 54,185 and 98,565 shares, respectively.
Contribution Analysis. Marshall analyzed the contribution of each of
Pyramid and Merchants to the pro forma company of assets, deposits, net income,
estimated net income, tangible equity and ownership at or through December 31,
1998. Marshall calculated that: Merchants would contribute 75.8% and Pyramid
24.2% of assets; Merchants would contribute 77.7% and Pyramid 22.3% of deposits;
Merchants would contribute 71.1% and Pyramid 28.9% of 1998 net income, Merchants
would contribute 71.1% and Pyramid 28.9% of forecasted 1999 net income;
Merchants would contribute 78.7% and Pyramid 21.3% of tangible
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equity; and Merchants would represent 71.6% and Pyramid 28.4% based on the
issuance by Merchants of 620,100 shares out of a pro forma total of 2,183.961
shares.
In connection with its written opinion dated , 1999, Marshall
confirmed the appropriateness of its reliance on the analyses used to render its
opinion dated March 8, 1999, by performing procedures to update certain of its
analyses and by reviewing assumptions on which such analyses were based and the
factors considered therewith.
The summary of the opinion set forth above does not purport to be a
complete description of the presentation of Marshall to the Pyramid Board or the
analyses performed by Marshall. The preparation of a fairness opinion is a
complex process and is not susceptible to partial analysis or summary
description. Marshall believes that its analysis must be considered as a whole
and that selecting portions of its analyses, without considering all factors and
analyses would create an incomplete view of the processes underlying the
analyses conducted by Marshall and its opinion. Marshall did not attempt to
assign particular weights to particular analyses. Any estimates contained in
Marshall's analyses are not necessarily indicative of actual values, which may
be significantly more or less favorable than as set forth therein. Estimates of
values of companies do not purport to be appraisals or necessarily to reflect
the prices at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty. Marshall does not assume responsibility for
their accuracy.
Marshall, as part of its investment banking business, is engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. Pyramid retained Marshall because of its experience and
expertise in the valuation of businesses and their securities in connection with
mergers and acquisitions.
Pursuant to an agreement, dated December 17, 1998, between Pyramid and
Marshall, Pyramid has paid Marshall a non-refundable retainer fee of $25,000, a
fee of $25,000 for rendering its opinion dated March 8, 1999, and will pay a
closing fee of $15,000. Pyramid also has agreed to reimburse Marshall for
certain of its out-of-pocket expenses incurred in connection with its
engagement. Additionally, Pyramid has agreed to indemnify Marshall against
certain liabilities, including liabilities under the federal securities laws,
incurred in connection with the engagement of Marshall by Pyramid.
Interests of Certain Persons in the Merger
Assuming that the Merger is consummated, the Directors of Merchants
immediately prior to the Effective Time will be the directors of Merchants at
the Effective Time, each to hold office in accordance with the Amended Articles
of Incorporation and By-Laws of Merchants. The officers of Merchants immediately
prior to the Effective Time will be the officers of Merchants at the Effective
Time, in each case until their respective successors are duly elected and
qualified.
Upon consummation of the Merger, Mr. Thomas J. Sheehan, Chairman of the
Board of Directors and President and Chief Executive Officer of Pyramid and the
Bank will be elected to the Board of Directors of Merchants and will serve as
its Vice Chairman. In addition, Mr. Jerome T. Sarnowski and Mr. James Kacmarcik,
Directors of Pyramid and the Bank will be elected to the Board of Directors of
Merchants. Mr. Sheehan will also assume responsibility for the retail banking
services of Merchants subsidiary banks. Mr. Sheehan and three officers of the
Bank have entered into employment agreements with the Bank which will continue
in effect after the Bank becomes a subsidiary of Merchants as a result of the
Merger. The employment agreements are effective as of April 1, 1999, continue
for three years (unless sooner terminated
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as provided in the employment agreements.) and provide for one-year renewals on
each anniversary date, unless notice of non-renewal is given. The employment
agreements provide for Mr. Sheehan to serve as Chief Executive Officer, for Mr.
Jefford Larson to serve as Vice President-Commercial Banking, for Mr. Peter
Schumacher to serve as Controller and for Mr. Richard Belling to serve as Vice
President-Mortgages of the Bank. In addition to an annual base salary , each of
the named officers will be entitled to such other benefits as are generally made
available to others officers serving in comparable positions at the Bank or
other subsidiaries of Merchants. Messrs. Sheehan, Larson, Schumacher and Belling
have agreed not to compete with the Bank or its affiliates during the employment
period or during the lesser of the remaining term of the employment agreement or
12 months following termination of employment.
Merchants (through the Bank as employer) will succeed to the Bank's
obligations with respect to the employment agreements. The Boards of Directors
of Merchants and Pyramid were aware of these interests and took them into
account in approving the Merger Agreement.
Merger Consideration
Upon consummation of the Merger, each share of Pyramid Common Stock
outstanding at the Effective Time will be converted (subject to the provisions
with respect to fractional shares described below) into the right to receive 9
shares of Merchants Common Stock, (the "Exchange Ratio"), subject to
renegotiation of the exchange ratio if the Daily Average Price (as defined
below) of Merchants Common Stock is less than $36 or greater than $44. The Daily
Average Price is the daily average of the "Bid" and "Ask" quotations of
Merchants Common Stock as published in the Milwaukee Journal Sentinel (or
obtained from another source acceptable to Merchants and Pyramid if such
quotations are not published in the Milwaukee Journal Sentinel) on each of the
thirty (30) trading days preceding the third day prior to the Effective Time. On
each of such thirty (30) trading days, the Bid and Ask prices will be averaged
to calculate the market quotation for that day, and the resulting thirty (30)
market quotations will be summed and the result divided by thirty (30) to
determine the Daily Average Price. In the event that "Ask" quotations are not
listed, or if the "Ask" price exceeds the "Bid" price by more than $2 on any of
the thirty (30) trading days used to compute the Daily Average Price, then the
"Bid" quotes will be used on those days to calculate the Daily Average Price. If
the Daily Average Price is less than $36 or greater than $44, then Merchants and
Pyramid will make a good-faith effort to promptly renegotiate the Exchange
Ratio.
Because the market value of Merchants Common Stock at the Effective Time is
not known at this time, the actual value that Merchants would pay and Pyramid
shareholders would receive in the Merger and whether Merchants and Pyramid will
renegotiate the Exchange Ratio will not be known until the scheduled closing
date or shortly before the Effective Time, respectively. It is currently
anticipated that, if approved by Pyramid shareholders, the Merger will be
completed in the fourth calendar quarter of 1999, although no assurance as to
the time of completion can be given.
In the event that the Daily Average Price is less than $36 or greater than
$44 and it becomes necessary to renegotiate the Exchange Ratio, Merchants' Board
is likely to consult with its legal and financial advisors regarding the
fairness of such renegotiated ratio.
In addition, the Merchants' Board and its advisors would consider many of
the same factors they considered in determining whether to approve and adopt the
Merger Agreement in the first instance. In particular, the Merchants Board of
Directors would analyze, among other factors, the relationship of the
consideration to be paid by Merchants to the market price and book value and
earnings per share of Pyramid, the financial terms of recent business
combinations in the banking industry and the dilutive or accretive effect of the
renegotiated exchange ratio on Merchants' future earnings and book value.
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In the event it becomes necessary to renegotiate the Exchange Ratio
pursuant to the terms of the Merger Agreement, the Pyramid Board of Directors is
likely to consult with its legal and financial advisors to determine the
fairness of a renegotiated exchange ratio. Shareholders of Pyramid should note
that the fairness opinion obtained by the Pyramid Board and included as Exhibit
'C' to this Proxy Statement/Prospectus does not express an opinion as to the
fairness of the Merger, from a financial point of view, in the event that the
Daily Average Price of Merchants Common Stock is less than $36 or more than $44.
No assurance can be given that a fairness opinion regarding such renegotiated
exchange ratio can be obtained. In making a determination on a renegotiated
exchange ratio, the Pyramid Board of Directors would consider many of the same
factors it considered in determining whether to approve and accept the Merger
Agreement in the first instance. In particular, the Pyramid Board would analyze,
among other factors, whether the then current consideration to be received in
the Merger would deliver more value to the shareholders than could be expected
if Pyramid were to continue as an independent entity. In addition, the Pyramid
Board would consider whether, in light of then prevailing market and other
industry conditions, the renegotiated exchange ratio is fair from a financial
point of view to the Pyramid shareholders.
Regulatory Approvals Required
Federal. The Merger is subject to prior approval by the Federal Reserve
Board under the BHC Act, which requires that the Federal Reserve Board take into
consideration, among other factors, the financial and managerial resources and
future prospects of the respective institutions and the convenience and needs of
the communities to be served. The BHC Act prohibits the Federal Reserve Board
from approving the Merger if it would result in a monopoly or be in furtherance
of any combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States, or if its effect in any
section of the country may be to substantially lessen competition or to tend to
create a monopoly, or if it would in any other manner be a restraint of trade,
unless the Federal Reserve Board finds that the anti-competitive effects of the
Merger are clearly outweighed in the public interest by the probable effect of
the transaction in meeting the convenience and needs of the communities to be
served. It is highly improbable that the Merger poses any antitrust issues. The
Federal Reserve Board also has the authority to deny an application if it
concludes that the combined organization would have an inadequate capital
position. Furthermore, the Federal Reserve Board must also assess the records of
the Bank subsidiaries of Merchants and Pyramid under the Community Reinvestment
Act of 1977, as amended (the "CRA"). The CRA requires that the Federal Reserve
Board analyze, and take into account when evaluating an application, each bank's
record of meeting the credit needs of its local communities, including low and
moderate income neighborhoods, consistent with safe and sound operation.
Under the BHC Act, the Merger may not be consummated until up to 30 days
following the date of Federal Reserve Board approval, during which time the
United States Department of Justice may challenge the Merger on antitrust
grounds. Although a challenge is highly improbable, there can be no assurance
that the Department of Justice will not challenge the Merger or, if such a
challenge is made, as to the result thereof. The commencement of an antitrust
action would stay the effectiveness of the Federal Reserve Board's approval
unless a court specifically orders otherwise. The BHC Act provides for the
publication of notice and public comment on the applications and authorizes the
regulatory agency to permit interested parties to intervene in the proceedings.
Merchants filed an application with the Federal Reserve Bank of Chicago
(the "Federal Reserve Bank") that was accepted for filing by the Federal Reserve
Bank on May 20, 1999.
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Merchants has been advised that the Federal Reserve Bank has approved its
application to acquire 100% of Pyramid as of June 30, 1999. Merger Corp. has
filed a request for waiver with regard to the application requirements under the
BHCA.
Wisconsin. The Merger is also subject to the prior approval by the
Wisconsin Department of Financial Institutions ("DFI") under Section 221.0901 of
the Wisconsin Statutes which requires that the DFI take into consideration (i)
the financial and managerial resources and future prospects of the respective
institutions and whether the transaction would be contrary to the best interests
of the shareholders or customers of the bank or bank holding company to be
acquired; (ii) whether the action would be detrimental to the safety and
soundness of the respective institutions or any subsidiary or affiliate of the
respective institutions; (iii) the record of performance, management, financial
responsibility and integrity, and the CRA rating of the applicant; and (iv)
whether upon consummation of the transaction, the applicant would control in
excess of 30% of the total amount of deposits of insured depository institutions
in Wisconsin as specified under federal banking law.
Merchants filed an application with the DFI on May 21, 1999.Merchants has
been advised that the DFI has approved the application as of July 19, 1999. The
Merger may be consummated at any time within one year of the date approval was
granted by the DFI (subject to the foregoing federal approvals).
General. The Merger cannot proceed in the absence of all requisite
regulatory approvals and compliance with any waiting periods contained in such
approvals. See "Conditions to Consummation of the Merger." In the Merger
Agreement, Merchants and Pyramid have agreed to take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed
with respect to the Merger, including furnishing information to the Federal
Reserve Board or in connection with approvals or filings with other governmental
entities. Merchants and Pyramid have also agreed to take all reasonable action
necessary to obtain approvals of the Federal Reserve Board, the DFI and other
governmental entities. However, the obligation to take reasonable actions is not
to be construed as including an obligation to accept any terms or conditions to
an agreement or other approval of, or any exemption by, any party that are not
customarily contained in approvals of similar transactions granted by such
regulators or if Merchants in good faith determines that such terms or
conditions would have a material adverse effect on its business or financial
condition or would materially detract from the value of Pyramid to Merchants.
Merchants and Pyramid are not aware of any other governmental approvals or
actions that are required for consummation of the Merger except as described
above. Should any other approval or action be required, it is presently
contemplated that such approval or action would be sought. There can be no
assurance that any such approval or action, if needed, could be obtained and, if
such approvals or actions are obtained, there can be no assurance as to the
timing thereof.
The Effective Time
The Merger will become effective as of the later of (a) the date Articles
of Merger are filed with the DFI or (b) the effective date and time of the
Merger as set forth in such Articles of Merger, (the later of (a) and (b) being
the "Effective Time"). The filing with respect to the Merger will occur as
promptly as practicable after the satisfaction or, if permissible, waiver of the
conditions to the Merger as set forth in the Merger Agreement. The Merger
Agreement may be terminated by either party if, among other reasons, the Merger
shall not have been consummated on or before December 31, 1999. Upon
consummation of the Merger, Pyramid will be merged into Merger Corp. and will
not continue its separate existence or operations, to which Merger Corp. as the
surviving corporation will succeed. See "CERTAIN PROVISIONS OF THE
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MERGER AGREEMENT - Conditions to Consummation of the Merger" and "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT - Termination."
Conversion of Shares, Procedure for Exchange of Certificates; Fractional Shares
At the Effective Time and without any action on the part of Merchants,
Pyramid or the holders of Pyramid Common Stock, each share of Pyramid Common
Stock issued and outstanding immediately prior to the Effective Time (other than
shares held by Pyramid shareholders exercising their dissenters rights under the
WBCL) shall be converted into the right to receive shares of Merchants Common
Stock. See "THE MERGER -- Dissenters' Rights." All such shares of Pyramid Common
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each stock certificate previously
representing any such shares of Pyramid Common Stock (other than shares held by
dissenting shareholders as described above) shall thereafter represent the right
to receive a certificate representing shares of Merchants Common Stock into
which such Pyramid Common Stock has been converted. Certificates previously
representing shares of Pyramid Common Stock shall be exchanged for certificates
representing whole shares of Merchants Common Stock upon the surrender of such
certificates as provided below. No fractional shares of Merchants Common Stock
will be issued, and, in lieu thereof, a cash payment will be made as provided
below.
As of the Effective Time. Merchants shall deposit, or cause to be deposited
with Firstar Trust Company (the "Exchange Agent'), for the benefit of the
holders of shares of Pyramid Common Stock and for exchange in accordance with
the terms of the Merger Agreement, certificates representing the shares of
Merchants Common Stock (such certificate for shares of Merchants Common Stock,
together with any dividends or distributions with respect thereto (the "Exchange
Fund")) issuable pursuant to the terms of the Merger Agreement.
As soon as reasonably practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of a certificate which immediately
prior to the Effective Time represented outstanding shares of Pyramid Common
Stock whose shares were converted into the right to receive shares of Merchants
Common Stock, (i) a letter of transmittal and (ii) instructions for use in
effecting the surrender of Pyramid Certificates in exchange for certificates
representing shares of Merchants Common Stock. Upon surrender of a certificate
previously representing shares of Pyramid Common Stock to the Exchange Agent
together with such duly executed letter of transmittal, the holder of such
certificate shall receive in exchange therefore a certificate representing that
number of whole shares of Merchants Common Stock to which such holder is
entitled and the certificate so surrendered shall forthwith be canceled. In the
event of a transfer of ownership of shares which is not registered in the
transfer records of Pyramid, a certificate representing the proper number of
shares of Merchants Common Stock may be issued to a transferee if the
certificate representing such shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered, each certificate previously representing shares of Pyramid Common
Stock shall be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender a certificate representing shares of
Merchants Common Stock and cash in lieu of any fractional shares of Merchants
Common Stock as described below.
PYRAMID SHAREHOLDERS SHOULD NOT FORWARD THEIR STOCK CERTIFICATES TO THE
EXCHANGE AGENT WITHOUT A LETTER OF TRANSMITTAL NOR RETURN THEIR STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.
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No dividends or other distributions declared or made after the Effective
Time with respect to Merchants Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered certificate of
Pyramid Common Stock with respect to the shares of Merchants Common Stock
represented thereby, and no cash payment in lieu of fractional shares shall be
paid to any such holder, until such certificate is surrendered. Subject to the
effect of applicable laws, following surrender of any such certificate, there
shall be paid to the holder of said certificate, which represents whole shares
of Merchants Common Stock issued in exchange therefor, without interest, (i)
promptly, the amount of cash payable with respect to a fractional share of
Merchants Common Stock to which such holder is entitled and the amount of
dividends or other distributions with a record date after the Effective Time
paid with respect to such whole shares of Merchants Common Stock, and (ii) at
the appropriate payment date, the amount of dividends or other distributions,
with a record date after the Effective Time, but prior to surrender and a
payment date occurring after surrender, payable with respect to such whole
shares of Merchants Common Stock.
All shares of Merchants Common Stock issued upon conversion of the shares
of Pyramid Common Stock (including any cash paid for fractional shares) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Pyramid Common Stock.
No certificates or scrip representing fractional shares of Merchants Common
Stock shall be issued upon the surrender for exchange of Pyramid Common Stock
certificates, and such fractional share interest will not entitle the owner
thereof to vote or to any rights of a shareholder of Merchants. Each holder of a
fractional share interest shall be paid an amount in cash equal to the product
obtained by multiplying such fractional share interest to which such holder
would otherwise be entitled by the Bid price of a share of Merchants Common
Stock as published in the Milwaukee Journal Sentinel on the first business day
following the date the Federal Reserve Board issues an order approving
consummation of the Merger. As soon as practicable after the determination of
the amount of cash, if any, to be paid to holders of fractional share interests,
the Exchange Agent shall notify Merchants and Merchants shall make available
such amounts to such holders of such fractional share interests subject to and
in accordance with the terms of the Merger Agreement, as relevant.
Any portion of the Exchange Fund which remains undistributed to the
shareholders of Pyramid for six months after the Effective Time shall be
delivered to Merchants, upon demand, and any shareholders of Pyramid who have
not theretofore complied with the procedures described above shall thereafter
look only to Merchants for payment of their claim for Merchants Common Stock,
any cash in lieu of fractional shares of Merchants Common Stock and any
dividends or distributions with respect to Merchants Common Stock.
Neither Merchants nor Pyramid shall be liable to any holder of shares of
Pyramid Common Stock for any such shares of Pyramid Common Stock (or dividends
or distributions with respect thereto) or cash delivered to a public official
pursuant to any abandoned property, escheat or similar law.
Merchants shall be entitled to deduct and withhold from any cash
consideration payable pursuant to the Merger Agreement to any holder of shares
of Pyramid Common Stock such amounts as Merchants is required to deduct and
withhold with respect to the making of such payment under the Internal Revenue
Code of 1986, as amended (the "Code"), or any provision of state, local or
foreign tax law.
At the Effective Time the stock transfer books of Pyramid shall be closed,
and there shall be no further registration of transfers of shares of Pyramid
Common Stock, thereafter on said record books. From and after the Effective
Time, the holders of certificates of Pyramid Common Stock shall cease to have
any rights with respect to such shares of Pyramid Common Stock except as
otherwise provided in the Merger Agreement, or by law. On or after the Effective
Time, any certificate of Pyramid Common Stock presented
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to the Exchange Agent or Merchants for any reason shall be converted into shares
of Merchants Common Stock in accordance with the terms of the Merger Agreement
as described above.
Persons who hold Merchants Common Stock prior to the Merger will not need
to exchange their existing certificates representing shares of Merchants Common
Stock for new stock certificates.
Description of Merchants Common Stock Issuable in the Merger
The following description of Merchants Common Stock issuable in the Merger
is a summary and is qualified in its entirety by reference to the terms of such
security, which is incorporated by reference herein and is set forth in full in
Merchants Amended Articles of Incorporation (the "Merchants Articles"). The
description set forth below is subject in all respects to the WBCL and the
Merchants Articles.
Firstar Trust Company is the transfer agent and registrar for all
outstanding Merchants Common Stock.
THE FOLLOWING DESCRIPTION OF MERCHANTS COMMON STOCK SHOULD BE READ
CAREFULLY BY PYRAMID SHAREHOLDERS SINCE, AT THE EFFECTIVE TIME, EACH ISSUED AND
OUTSTANDING SHARE OF PYRAMID COMMON STOCK WILL BE CONVERTED INTO THE RIGHT TO
RECEIVE SHARES OF MERCHANTS COMMON STOCK AT THE EXCHANGE RATIO.
General. Merchants has one class of common stock, the Merchants Common
Stock. Of the 6,000,000 shares of Merchants Common Stock authorized, 1,489,754
shares were outstanding as of the Record Date, exclusive of shares held in its
treasury. The Merchants Articles do not provide authorization for the issuance
of preferred stock.
Dividend Rights. Dividends on Merchants Common Stock will be payable out of
the assets of Merchants legally available therefor as, if and when declared by
the Merchants Board of Directors. No share of Merchants Common Stock is entitled
to any preferential treatment with respect to dividends.
Voting Rights. Each holder of Merchants Common Stock will be entitled at
each shareholders' meeting of Merchants, as to each matter to be voted upon, to
cast one vote, in person or by proxy, for each share of Merchants Common Stock
registered in his or her name on the stock transfer books of Merchants. Such
voting rights are not cumulative.
Rights Upon Liquidation. In the event of liquidation, dissolution or
winding up of Merchants, whether voluntary or involuntary, the holders of
Merchants Common Stock will be entitled to receive all assets of Merchants
remaining for distribution to its shareholders, on a pro rata basis. Since
Merchants has no preferred stock, the rights of holders of Merchants Common
Stock to receive dividends or payment in the event of liquidation or dissolution
are not subject to prior satisfaction of the rights of any other shareholders.
Miscellaneous. Shares of Merchants Common Stock are not convertible into
shares of any other class of capital stock. Shares of Merchants Common Stock are
not entitled to any preemptive or subscription rights. The issued and
outstanding shares of Merchants Common Stock are fully paid and nonassessable
(except as otherwise provided under the WBCL).
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Comparison of Shareholder Rights
The following is a summary of material differences between the rights of
holders of Pyramid Common Stock and Merchants Common Stock. As Pyramid and
Merchants are both incorporated under the laws of the State of Wisconsin, rights
of shareholders are substantially similar. Differences in the rights of
shareholders of Pyramid and Merchants arise from differences between the
provisions of the Merchants Articles and By-laws and those of Pyramid.
Shareholders of Pyramid, whose rights are governed by Pyramid's Articles of
Incorporation, By-laws and the WBCL will, on consummation of the Merger, become
shareholders of Merchants. Their rights as Merchants shareholders will then be
governed by Merchants' Articles of Incorporation and By-laws and by the WBCL.
The following is a summary of the material differences between the rights of
shareholders of Pyramid and the rights of shareholders of Merchants.
Authorized Capital Stock
Pyramid. Under Pyramid's Articles of Incorporation, the aggregate number of
shares which it is authorized to issue is 125,000 shares of one class of common
stock, $1.00 par value. All shares of Pyramid Common Stock are identical in
rights and have one vote. The holders of Pyramid Common Stock are entitled to
such dividends as may be declared from time to time by the Board of Directors of
Pyramid from funds available therefor and upon liquidation are entitled to
receive pro rata all assets of Pyramid available for distribution to such
holders. Pyramid has no authorized shares of preferred stock and, accordingly,
the rights of holders of Pyramid Common Stock to receive dividends or payment in
the event of voluntary or involuntary dissolution, liquidation or winding up of
Pyramid are not subject to the prior satisfaction of the rights of any other
shareholders.
Merchants. Under Merchants' Articles of Incorporation, Merchants is
authorized to issue 6,000,000 shares of common stock, par value $1.00 per share.
All shares of Merchants Common Stock are identical in rights and have one vote.
For a description of Merchants Common Stock, see "THE MERGER - Description of
Merchants Common Stock Issuable in the Merger."
Required Vote
Pyramid. Pursuant to the WBCL, the affirmative vote of a majority of the
shares of Pyramid Common Stock is required to adopt amendments to the Company's
Articles of Incorporation or approve mergers and certain other extraordinary
transactions.
Merchants. Pursuant to the Merchants' Articles of Incorporation, any
merger, consolidation of Merchants with one or more other corporations, or any
sale, lease or exchange of all or substantially all of the assets of Merchants
requires the affirmative vote of at least eighty percent (80%) of the
outstanding shares of Merchants. However, the matters described in the preceding
sentence require the affirmative vote of a majority of the outstanding shares of
Merchants if such matters have the prior approval of a majority of the Board of
Directors of Merchants. The foregoing provisions may only be amended by the
affirmative vote of not less than eighty percent (80%) of the outstanding shares
of Merchants Common Stock unless such amendment was approved in advance by a
majority of the Directors of Merchants, in which case the affirmative vote of a
majority of the outstanding shares of Merchants Common Stock is required for
adoption of the amendments. All other provisions of the Merchants Articles of
Incorporation may be amended by the affirmative vote of a majority of the
outstanding shares of Merchants Common Stock.
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Classified Board of Directors
Pyramid. Pursuant to Pyramid's By-laws, Pyramid's Board of Directors is
divided into three classes as nearly equal in number as possible, with the
Directors in each class serving for staggered three-year terms. Pyramid's Board
consists of not less than six (6) nor more than nine (9), as fixed from time to
time by the shareholders at each annual meeting. At each annual meeting, the
successors to the class of Directors whose term expires at the time of such
meeting are elected for three year terms. The affirmative vote of the holders of
at least 80% of the voting power of the shares of Pyramid entitled to vote for
the election of directors is required to amend or repeal the above provisions of
Pyramid's By-laws.
Pyramid's By-laws provide that no person who has attained the age of
seventy-two (72) shall be nominated for election as a director of Pyramid. The
present Board of Pyramid consists of six (6) directors.
Merchants. Pursuant to the Articles of Incorporation of Merchants, the
Board of Directors of Merchants is divided into three (3) classes as nearly
equal in number as possible, with the directors in each class serving for
staggered three-year terms. Merchants' Board consists of not less than eleven
(11) nor more than twenty (20), the exact number to be determined at each annual
meeting of shareholders or, within such limits by a majority of the Board of
Directors. At each annual meeting of shareholders, the successors of the class
whose term expires at the time of such meeting are elected for three-year terms.
Removal of Directors
Pyramid. Pursuant to Pyramid's By-laws, any director may be removed from
office by the affirmative vote of a majority of the outstanding shares entitled
to vote for the election of such director and any vacancy so created may be
filled by the affirmative vote of a majority of such shares.
Merchants. The By-laws of Merchants provide that any director may be
removed from office by the affirmative vote of a majority of the shares
outstanding entitled to vote for the election of such director taken at a
special meeting of shareholders called for that purpose.
Newly Created Directorships and Vacancies on the Board of Directors
Pyramid. Any vacancy created by removal from office of a director may be
filled by the affirmative vote of a majority of the outstanding shares entitled
to vote for the election of such directors. Any other vacancy occurring in the
Board of Directors, including a vacancy created by an increase in the number of
directors, may be filled by a majority of the directors then in office.
Merchants. Pursuant to Merchants' Articles of Incorporation, a majority of
the Board of Directors may fill any vacancy on the Board.
Certain Business Combinations
Pyramid. Pyramid's Articles of Incorporation and Bylaws do not contain any
supermajority voting provisions relating to the approval by holders of Pyramid
Common Stock of mergers or other business combinations.
Merchants. Article XI of Merchants' Articles provides that an affirmative
vote of eighty percent (80%) of Merchants' outstanding shares is required to
approve any merger or consolidation of Merchants with one or more other
corporations or any sale, lease or exchange of all or substantially all of the
assets of
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Merchants. The 80% voting requirement does not apply if a majority of Merchants
Directors approve the transaction prior to the mailing of the notice of the
meeting of shareholders at which the matter is to be voted on. In that case, the
affirmative vote of a majority of the outstanding shares of Merchants Common
Stock is required. The foregoing provision may only be amended, modified or
repealed by the affirmative vote of not less than eighty percent (80%) of the
outstanding shares of Merchants Common Stock unless such amendment or
modification has been approved by the Board of Directors. In that case, the
affirmative vote of a majority of the outstanding shares of Merchants Common
Stock is required.
Resale of Merchants Common Stock Issued Pursuant to the Merger
The Merchants Common Stock issued pursuant to the Merger will be registered
under the Securities Act and be freely tradeable under the Securities Act except
for shares issued to any shareholder of Pyramid who may be deemed to be an
"affiliate" of Pyramid for purposes of Rule 145 under the Securities Act. Each
affiliate identified by Pyramid will enter into an agreement with Merchants
providing that such affiliate will be subject to Rule 145(d) of the Securities
Act and shall not transfer any Merchants Common Stock received in the Merger
except in compliance with the Securities Act. In order to comply with pooling of
interests requirements, such persons shall agree to make no disposition of any
shares of Pyramid Common Stock or Merchants Common Stock (or any interests
therein) during the period beginning 30 days before the Effective Time and
ending when the financial results for at least 30 days of combined operations of
Pyramid and Merchants after the Effective Time have been published. This Proxy
Statement/Prospectus does not cover resales of Merchants Common Stock received
by any person who may be deemed to be an affiliate of Pyramid. The foregoing
restrictions are expected to apply to the directors and executive officers of
Pyramid.
Pre-merger Dividend Policy
Pyramid. Pursuant to the Merger Agreement, except for a quarterly dividend
commencing in the first calendar quarter of 1999 not to exceed $1.00 per share,
Pyramid is prohibited from declaring or paying any dividend on, or making any
other distribution in respect of, its outstanding shares of capital stock
without the prior written consent of Merchants. Pyramid does not anticipate
paying any other dividends on shares of the Pyramid Common Stock prior to the
Effective Time.
Merchants. Merchants expects to continue to declare, until the Effective
Time, its regularly scheduled dividends.
Post-merger Dividend Policy
It is the current intention of the Board of Directors of Merchants to
continue to declare cash dividends on the Merchants Common Stock following the
Merger. The dividend is currently in the amount of $0.15 per quarter or $0.60
per year, in each case per share. Shareholders should note that future dividends
will be determined by the Merchants Board of Directors in light of the earnings
and financial condition of Merchants and its subsidiaries and other factors,
including applicable governmental regulations and policies. In that regard,
Merchants is a legal entity separate and distinct from its banking and
non-banking subsidiaries, and the principal sources of Merchants' income are
dividends and interests form such subsidiaries. The payment of dividends by
Merchants' banking subsidiaries is subject to certain restrictions under
applicable governmental regulations.
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Conduct of Business Pending the Merger
Pursuant to the Merger Agreement, Pyramid has agreed to carry on its
business, and the business of its subsidiaries, in the usual, regular and
ordinary course in substantially the same manner as conducted prior to the
execution of the Merger Agreement, subject to certain covenants and other
agreements agreed to by Pyramid in the Merger Agreement. See "CERTAIN PROVISIONS
OF THE MERGER AGREEMENT - Certain Covenants."
Certain Material Federal Income Tax Consequences
Merchants and Pyramid have received an opinion of Davis & Kuelthau, S.C.,
Counsel for Merchants that the Merger will qualify as a tax-free reorganization
under Section 368(a)(1)(A) of the Code and that each of Merchants and Pyramid
will be a party to such reorganization within the meaning of Section 368(b) of
the Code. Accordingly, Pyramid, Merchants and Merger Corp. will recognize no
gain or loss for federal income tax purposes as a result of the Merger and no
gain or loss will be recognized by any holder of Pyramid Common Stock upon
receipt of Merchants Common Stock pursuant to the Merger (except upon the
receipt of cash in lieu of fractional shares of Merchants Common Stock). The
Internal Revenue Service ("Service") has not been asked to rule upon the tax
consequences of the Merger and such request will not be made. The opinion of
Davis & Kuelthau, S.C. is based entirely upon the Code, regulations now in
effect thereunder, current administrative rulings and practice, and judicial
authority, all of which are subject to change. Unlike a ruling from the Service,
an opinion of an advisor is not binding on the Service and there can be no
assurance, and none is hereby given, that the Service will not take a position
contrary to one or more positions reflected herein or that the opinion will be
upheld by the courts if challenged by the Service.
EACH SHAREHOLDER OF PYRAMID IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL
ADVISORS AS TO THE EFFECT OF SUCH FEDERAL INCOME TAX CONSEQUENCES ON HIS OR HER
OWN PARTICULAR FACTS AND CIRCUMSTANCES AND ALSO AS TO ANY STATE, LOCAL, FOREIGN
OR OTHER TAX CONSEQUENCES ARISING OUT OF THE MERGER.
Based upon the opinion of Davis & Kuelthau, S.C. which in turn is based
upon various representations and subject to various assumptions and
qualifications, the following federal income tax consequences to the
shareholders of Pyramid will result from the Merger:
(i) Provided that the Merger of Pyramid with and into Merger Corp.
qualifies as a statutory merger under applicable law, the Merger will
qualify as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code, and Pyramid, Merchants and Merger Corp. will each
be "a party to a reorganization" within the meaning of Section 368(b) of
the Code for purposes of this reorganization.
(ii) No gain or loss will be recognized by the holders of Pyramid
Common Stock upon the exchange of Pyramid Common Stock solely for Merchants
Common Stock pursuant to the Merger, except with respect to cash received
in lieu of fractional shares of Merchants Common Stock.
(iii) A Pyramid shareholder's aggregate basis in the Merchants Common
Stock received in the Merger will be the same as the aggregate basis of
Pyramid Common Stock exchanged therefor.
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(iv) The holding period of the Merchants Common Stock received by a
holder of Pyramid Common Stock pursuant to the Merger will include the
period during which Pyramid Common Stock exchanged therefor was held,
provided that the Pyramid Common Stock surrendered was held as a capital
asset as of the time of the Merger.
(v) The receipt by a holder of Pyramid Common Stock of cash in lieu
of a fractional share of Merchants Common Stock will be treated as if he or
she received such fractional share from Merchants and then had it redeemed
for cash. Such receipt of cash will be treated under Section 302(b)(1) of
the Code as full payment in exchange for the fractional share.
The foregoing is only a general description of certain material federal
income tax consequences of the Merger for holders of Pyramid Common Stock who
are citizens or residents of the United States and who hold their shares as
capital assets, without regard to the particular facts and circumstances of the
tax situation of each holder of the Pyramid Common Stock. It does not discuss
all of the consequences that may be relevant to holders of Pyramid Common Stock
entitled to special treatment under the Code (such as insurance companies,
financial institutions, dealers in securities, tax-exempt organizations or
foreign persons). The summary set forth above does not purport to be a complete
analysis of all potential tax effects of the transactions contemplated by the
Merger Agreement or the Merger itself. No information is provided herein with
respect to the application and effect of state, local and foreign tax laws and
the possible effects of changes in federal laws or other tax laws.
Anticipated Accounting Treatment
The business combination resulting from the Merger is expected to qualify
as a "pooling of interests" for accounting and financial reporting purposes.
Under this method of accounting, the recorded assets and liabilities of
Merchants and Pyramid will be carried forward to the combined corporation at
their recorded amounts; income of the combined corporation will include income
of Merchants and Pyramid for the entire fiscal year in which the combination
occurs.
The Merger Agreement provides that a condition to the consummation of the
Merger is the receipt of the opinion of the independent public accountants of
Merchants to the effect that the Merger qualifies for "pooling of interests"
accounting treatment. However, Merchants may waive this condition and consummate
the Merger even if the transaction does not qualify for pooling of interests
accounting.
Dissenters' Rights
Under the provisions of Subchapter XIII of the WBCL, a copy of which is
attached to this Proxy Statement/Prospectus as Exhibit D and which provisions
are incorporated herein by reference, any holder of record or beneficial holder
of Pyramid Common Stock has the right to dissent from the Merger and demand
payment of the "fair value" of his or her shares in cash as determined pursuant
to Subchapter XIII of the WBCL ("Dissenters' Rights"). Set forth below is a
summary of the procedures relating to the exercise of Dissenters' Rights. This
summary does not purport to be a complete statement of the provisions of
Subchapter XIII of the WBCL and shareholders wishing to dissent from the Merger
are urged to review Exhibit D in its entirety.
Any shareholder who wishes to assert Dissenters' Rights must deliver a
written notice of his or her intent to exercise such right to Pyramid Bancorp.,
Inc., 101 Falls Road, Grafton, Wisconsin, 53024, Attention: Mr. Thomas Sheehan,
President, before the vote on the Merger Agreement is taken at the Special
Meeting. A PROXY OR VOTE AGAINST THE MERGER AGREEMENT WILL NOT, BY ITSELF, BE
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REGARDED AS A WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT FOR PURPOSES OF
ASSERTING DISSENTERS' RIGHTS.
Furthermore, a Pyramid shareholder wishing to assert Dissenters' Rights may
not vote his or her shares in favor of the Merger.
A record holder of Pyramid Common Stock may assert Dissenters' Rights as to
fewer than all shares registered in that shareholder's name only if the holder
dissents with respect to all shares beneficially owned by any one person and
notifies Pyramid in writing of the name and address of each person on whose
behalf the shareholder asserts such Dissenters' Rights.
A beneficial shareholder may assert Dissenters' Rights as to shares held on
the shareholder's behalf only if, in addition to meeting the other requirements
to dissent, the beneficial shareholder (i) submits to Pyramid the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts Dissenters' Rights and (ii) asserts Dissenters'
Rights with respect to all shares of which the shareholder is the beneficial
shareholder or over which the beneficial shareholder has power to direct the
vote.
If the Merger Agreement is approved by the requisite vote of holders of
Pyramid Common Stock, Pyramid is required to send a notice (the "Dissenters'
Notice") to all dissenting shareholders containing payment demand and stock
certificate surrender information (the "Payment Demand") within 10 days after
such approval. The return date (the "Payment Demand Date") specified by Pyramid
for receiving the Payment Demand from dissenting shareholders may not be less
than 30 nor more than 60 days after the date on which the Dissenters' Notice was
first sent. Upon receipt of the Dissenters' Notice, each dissenting shareholder
must return his payment demand and Certificate for Pyramid Common Stock no later
than the Payment Demand Date as provided in the Dissenters' Notice and certify
whether he or she acquired beneficial ownership of the shares prior to the first
public announcement of the terms of the Merger on March 10, 1999. A Payment
Demand may not be withdrawn without Pyramid's consent.
If the Merger is effectuated, Merchants upon such effectuation, will pay
each dissenting shareholder who properly complied with the statutory
requirements of Subchapter XIII of the WBCL, the amount that Merchants estimates
to be the fair value of such dissenting shareholder's shares, plus accrued
interest from the Effective Time; provided that, with respect to shares acquired
after the first public announcement of the Merger, Merchants may elect to
withhold payment until either such shareholder accepts Merchants offer of fair
value or a court determines the fair value of such shares.
If the Merger is not effectuated within 60 days of the Payment Demand Date,
Pyramid will return all deposited certificates to dissenting shareholders. If
the Merger is thereafter effected, Pyramid will send a new Dissenters' Notice
within 10 days of effecting the Merger and repeat the payment demand procedure
described above.
If any dissenting shareholder is dissatisfied with Merchants' determination
of "fair value," such dissenting shareholder may notify Merchants in writing of
his or her own estimate of the fair value of his or her shares and the amount of
interest due. A dissenting shareholder must assert this right within 30 days
after Merchants makes or offers payment for his or her shares or the right is
waived. Merchants may either accept such dissenting shareholder's estimate of
fair value or commence a proceeding in the Wisconsin Circuit Court of Ozaukee
County to determine the fair value of the shares of all dissenting shareholders
whose own estimates of fair value are not accepted by Merchants.
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Shareholders of Pyramid considering exercising dissenters' rights should
bear in mind that the "fair value" to be paid for their Pyramid stock is defined
under Section 180.1301 of the WBCL as "... 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."
In the event any holder of Pyramid Common Stock fails to perfect his or her
rights to dissent by failing to comply strictly with the applicable statutory
requirements of Subchapter XIII of the WBCL, he or she will be bound by the
terms of the Merger Agreement and will not be entitled to payment for his or her
shares under Subchapter XIII of the WBCL. ANY HOLDER OF PYRAMID COMMON STOCK WHO
WISHES TO OBJECT TO THE TRANSACTION AND DEMAND PAYMENT IN CASH FOR HIS OR HER
SHARES SHOULD CONSIDER CONSULTING HIS OR HER OWN LEGAL ADVISOR.
Because an executed proxy relating to Pyramid Common Stock on which no
voting direction is made will be voted at the Special Meeting in favor of the
Merger, a dissenting shareholder who wishes to have his or her shares of Pyramid
Common Stock represented by Proxy at the Special Meeting but preserve his or her
dissenters' rights must mark his or her proxy either to vote against the Merger
or to abstain form voting thereon, in addition to the foregoing requirements.
The Voting Agreement
Pursuant to the Voting Agreement, attached hereto as Exhibit B, the
execution of which was a condition to Merchants entering into the Merger
Agreement, the directors of Pyramid have agreed to vote their shares (i) in
favor of the adoption and approval of the Merger Agreement and the Merger and
(ii) against any Competing Transaction. The Voting Agreement also provides that
Merchants has the exclusive right to purchase any or all of the shares of
Pyramid Common Stock owned by the directors for $250 per share, payable in cash,
subject to any necessary regulatory approval, after a material breach of the
Merger Agreement by Pyramid or any events or circumstances that lead Merchants
reasonably to believe that Pyramid is likely to materially breach the Merger
Agreement, or a breach by any director of the Voting Agreement. The purchase
right is not exercisable as of the date hereof. The purchase price per share
under the Voting Agreement equaled approximately 73% of the value of Pyramid
Common Stock based upon the trading price of Merchants Common Stock at the date
that the Voting Agreement was requested by Merchants. See "CERTAIN PROVISIONS OF
THE VOTING AGREEMENT."
Anti-Takeover Effect of the Voting Agreement. The Voting Agreement may have
the effect of discouraging persons who might now or in the future be interested
in acquiring all of or a significant interest in Pyramid from considering or
proposing such an acquisition, even if such persons were prepared to pay a
higher price per share for Pyramid's Common Stock than the price per share
implicit in the Exchange Ratio. Certain attempts to acquire Pyramid would
trigger Merchants' right to purchase such shares and to receive any premium
offered to the directors of Pyramid.
Other Related Party Transactions
In the ordinary course of conducting their banking and financial service
businesses, each of Merchants, Pyramid and their respective subsidiaries, may do
business and engage in banking transaction with the other party and its
subsidiaries, which may include, but not be limited to, interests or
participation in loans and interbank advances.
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Management after the Merger
In the Merger, Pyramid will be merged into Merger Corp. and the separate
corporate existence of Pyramid will cease. Merchants will thereby acquire
control of the Bank through Merger Corp.
The officers and directors of Merger Corp. prior to the Merger will
continue as officers and directors of the surviving corporation. The directors
of the Bank prior to the Effective Time will continue as directors after the
Effective Time until their successors shall have been duly elected and
qualified.
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Exhibits A and A-1 to this Proxy
Statement/Prospectus and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement.
The Merger
The Merger Agreement provides that, following the approval of the Merger
Agreement by the shareholders of Pyramid and the satisfaction or waiver of the
other conditions to the Merger, Pyramid will be merged with and into Merger
Corp. If the Merger Agreement is approved by the shareholders of Pyramid, the
Merger will become effective upon the Effective Time.
At the Effective Time, pursuant to the Merger Agreement, each outstanding
share of Pyramid Common Stock will be converted into the right to receive 9
shares of Merchants' Common Stock, subject to renegotiation of the Exchange
Ratio if the Daily Average Price (as defined above) of Merchants Common Stock is
less than $36 or greater than $44. See "THE MERGER-Merger Consideration." With
regard to the treatment of fractional share interests, see "The MERGER -
Conversion of Shares; Procedure for Exchange of Certificates; Fractional
Shares."
Representations and Warranties
The Merger Agreement contains customary representations and warranties
relating to, among other things, (i) each of Merchants' and Pyramid's and their
respective subsidiaries' organization and similar corporate matters; (ii) each
of Merchants' and Pyramid's capital structure; (iii) authorization, execution,
delivery, performance and enforceability of the Merger Agreement and other
related matters; (iv) documents filed by Merchants with the Commission and with
the Federal Reserve Board and state banking authorities and the accuracy of
information contained therein; (v) the accuracy of information supplied by each
of Merchants and Pyramid in connection with the Registration Statement and this
Proxy Statement/Prospectus; (vi) compliance with laws including employment and
lending laws; (vii) no material pending or threatened litigation except as
otherwise disclosed by Merchants and Pyramid; (viii) filing of tax returns and
payment of taxes; (ix) certain material contracts and contracts relating to
certain employment, consulting and benefits matters of Pyramid; (x) retirement
and other employee plans and matters of Pyramid relating to ERISA; (xi) the
absence of any burdensome contracts, agreements or restrictions; (xii) the
absence of certain material changes or events since December 31, 1997, relating
to the incurrence of a material adverse effect in the business operations,
properties (including intangible properties), condition (financial or
otherwise), assets or liabilities (including contingent liabilities) of
Merchants or its subsidiaries, taken as a whole, and Pyramid or its
subsidiaries, taken as a whole; (xiii) maintenance of books of account and
accounting controls, loan documentation and disclosure; (xiv) no action taken
that would prevent using the "pooling of interests" method to account for the
Merger or which would prevent the Merger from qualifying as a tax-free
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reorganization under the Code; (xv) certain environmental matters relating to
the properties of Pyramid; (xvi) good title to the properties of Pyramid and its
subsidiaries, free of liens except as specified; and (xvii) certain insurance
matters.
Certain Covenants
Pursuant to the Merger Agreement, Merchants and Pyramid have each agreed
that prior to the Effective Time (and unless the prior written consent of the
other shall have been obtained) each of them and their respective subsidiaries
will operate their respective businesses in a manner that does not violate any
law. In addition, Pyramid has agreed that prior to the Effective Time, Pyramid
will not propose or adopt any amendments to its corporate charter or bylaws in
any way materially adverse to Merchants.
Pursuant to the Merger Agreement, Merchants and Pyramid have each agreed
that prior to the Effective Time (and unless the prior written consent of
Merchants shall have been obtained) Pyramid and its subsidiaries will ((i) carry
on business in the usual, regular and ordinary course consistent with past
practice, (ii) use reasonable efforts to preserve intact their business
organization and assets (and all rights associated therewith), (iii) use
reasonable efforts to maintain and keep their properties in good repair and
condition, (iv) use reasonable efforts to keep all insurance and bonds in full
force and effect, (v) perform in all material respects all obligations under all
material contracts, leases and documents relating to or affecting the assets,
properties and business of Pyramid and its subsidiaries, (vi) purchase and sell
securities in accordance with agreed upon guidelines, (vii) maintain as of the
date on which all conditions have been met and until the Effective Time, a loan
loss reserve of not less than 1.2% of period ending loans, (viii) fully expense
on its financial statement all expenses payable as a result of the consummation
of the Merger (ix) obtain an independent audit of its financial statements for
the year ended December 31, 1998; and (x) comply with and perform in all
material respects all obligations and duties imposed by all applicable laws.
Pyramid has also agreed that prior to the Effective Time (and unless the prior
written consent of Merchants shall have been obtained), neither Pyramid nor its
subsidiaries will: (i) grant any increase in compensation or bonuses (other than
as specified in the Merger Agreement) or retirement benefits to any employee or
otherwise adopt, enter into, amend or modify any employee benefit plan, or enter
into or amend any employment, severance or similar agreement with any director
or officer (other than as is consistent with the normal policy of Pyramid); (ii)
except for quarterly dividends commencing in the first calendar quarter of 1999
not to exceed $1.00 per share, declare or pay any dividend on its outstanding
shares of capital stock; (iii) redeem, purchase or otherwise acquire any shares
of Pyramid capital stock; (iv) merge or consolidate with or into any other
corporation or bank; (v) purchase or otherwise acquire any assets or stock of
any corporation, bank or other business; (vi) liquidate, sell, dispose of, or
encumber any assets or acquire any assets, other than in the ordinary course of
business consistent with past practice; (vii) split, combine or reclassify any
of the capital stock of Pyramid or issue, authorize or propose the issuance of
any other securities in respect of, in lieu of or in substitution for shares of
its capital stock; (viii) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale of, any shares of any class
of Pyramid Common Stock or any rights, warrants or options to acquire, any such
shares; (ix) purchase any shares of Merchants Common Stock (except in a
fiduciary capacity for the account of its customers; (x) change any of its
methods of accounting, or methods of reporting income or deductions for federal
income tax purposes, in effect at December 31, 1997, except as may be required
by law or generally accepted accounting principles; (xi) change any lending,
investment, liability management or other material policies concerning the
business or operations of Pyramid or any subsidiary in any material respect;
(xii) organize any new subsidiaries or enter into any new non-bank line of
business or make any material changes in its operations; (xiii) take any action
which is or is reasonably likely to adversely affect the ability of Merchants or
Merger Corp. to obtain any necessary approvals of governmental authorities
required for the transactions contemplated hereby, adversely affect Pyramid's
ability to perform its covenants and agreements under the Merger Agreement or
result in
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any of the conditions to the Merger not being satisfied; (xiv) incur or assume
any material obligation or liability, or make any loan (excluding loan renewals
of a loan not then classified as "substandard," "doubtful," "loss," "other loans
especially mentioned" or any comparable classifications by Pyramid, the Bank or
banking regulators) or investment (excluding U.S. Treasury Securities) in any
amount greater than $100,000; (xv) assume, guarantee, endorse or otherwise
become liable or responsible for the obligations of any other person or entity;
(xvi) mortgage, license, pledge or grant a security interest in any of its
material assets or allow to exist any material lien thereon, except (A)
liabilities and obligations incurred in the ordinary course of business
consistent with past practices and in amounts not material to Pyramid or its
subsidiaries taken as a whole, and (B) as may be required under existing
agreements to which Pyramid or any subsidiary is a party; (xvii) acquire assets
(including equipment)or securities in excess of $25,000 in the aggregate
(excluding loans to customer and investments permitted above); (xviii) enter
into any other contract or agreement involving annual payments by Pyramid or a
subsidiary or the other party or parties thereto in excess of $20,000; (xix)
pay, discharge, or satisfy any debts or claims not in the ordinary course of
business and consistent with past practices and in no event with a value in
excess of $20,000 individually; (xx) settle any claim, action, suit, litigation,
proceeding, arbitration, investigation or controversy of any kind, for any
amount in excess of $25,000 or in any manner which would restrict in any
material respect the operations or business of Pyramid or its subsidiaries;
(xxi) purchase any new financial product or instrument which involves entering
into a contract with a term of six months or longer; or xxii) take any action or
fail to take any action which individually or in the aggregate can be expected
to have a material adverse effect (as defined in the Merger Agreement) or
Pyramid on its subsidiaries, taken as whole.
No Solicitation of Transactions
The Merger Agreement provides that Pyramid and its respective subsidiaries
will not initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to any Competing Transaction or negotiate with any person in
furtherance of such inquiries or to obtain a Competing Transaction, or agree to
or endorse any Competing Transaction, or authorize or permit any of its
officers, directors or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to take any such action. Pyramid must promptly notify Merchants
orally and in writing of all of the relevant details relating to all inquiries
and proposals which it may receive relating to any of such matters.
Notwithstanding the foregoing, the Board of Directors of Pyramid is not
prohibited from (i) furnishing or permitting any of its officers, directors,
employees, investment bankers, financial advisors, attorneys, accountants or
other representatives to furnish information to any party that requests
information as to Pyramid if the Board of Directors of Pyramid, after
consultation with and based upon the written advice of independent legal
counsel, determines in good faith that such action is required for the Board of
Directors of Pyramid to comply with its fiduciary duties to shareholders imposed
by law, and if prior to furnishing such information to such party, Pyramid
receives from such party an executed confidentiality agreement in reasonably
customary form.
For purposes of the Merger Agreement, a "Competing Transaction" shall mean
any of the following involving Pyramid or any of Pyramid's subsidiaries: (i) any
merger, consolidation, share exchange, business combination, or other similar
transactions; (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of 10% or more of assets in a single transaction or series of
transactions, excluding from the calculation of such percentage any such
transactions undertaken in the ordinary course of business and consistent with
past practice; (iii) any sale of 10% or more of shares of capital stock (or
securities convertible or exchangeable into or otherwise evidencing, or any
agreement or instrument evidencing, the right to acquire capital stock); (iv)
any tender offer or exchange offer for 10% or more of outstanding shares of
capital stock; (v) any solicitation of proxies in opposition to approval by
Pyramid's shareholders of the
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Merger; (vi) the filing of an acquisition application (or the giving of
acquisition notice) whether in draft or final form under the BHC Act or the
Change in Bank Control Act with respect to Pyramid or its subsidiaries; (vii)
any person shall have acquired beneficial ownership or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder)
shall have been formed which beneficially owns or has the right to acquire
beneficial ownership of 10% or more of the then outstanding shares of capital
stock; or (viii) any public announcement of a proposal, plan or intention to do
any of the foregoing.
Conditions to Consummation of the Merger
The respective obligations of each party to effect the Merger is subject to
various conditions which include, in addition to other customary closing
conditions, the following: (i) the Merger shall have been approved by the
holders of Pyramid Common Stock; (ii) the Registration Statement shall have been
declared effective by the Commission under the Securities Act (and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued) and Merchants shall also have received all other federal and state
securities permits and authorizations necessary to issue Merchants Common Stock
pursuant to the Merger Agreement; (iii) the Merger shall have been approved by
the Federal Reserve Board and the DFI, which approvals shall not contain any
condition which is not reasonably satisfactory to Merchants or Pyramid and any
waiting periods with respect to the Merger shall have expired; and (iv) there
shall not be any injunction or restraining order preventing the consummation of
the Merger in effect.
In addition, Merchants' or Pyramid's respective obligation to effect the
Merger is subject to one or more of the following additional conditions (any of
which may be waived by such party): (i) the representations and warranties of
the other party to the Merger Agreement shall be true and correct in all
material respects and the other party shall have performed in all material
respects all agreements and covenants required to be performed by it under the
Merger Agreement and any agreements entered into in connection therewith, and
the other party shall have obtained all material consents and approvals required
to consummate the Merger; (ii) there shall not be any pending action, proceeding
or investigation before any court or administrative agency or by any government
agency or any other person (a) challenging or seeking material damages in
connection with the Merger or the conversion of Pyramid Common Stock into
Merchants Common Stock pursuant to the Merger, or (b) seeking to restrain,
prohibit or limit the exercise of full rights of ownership or operation by
Merchants or is subsidiaries of all or any portion of the business or assets of
Pyramid or any of its subsidiaries, which in either case is reasonably likely to
have a material adverse effect on either Pyramid and its subsidiaries, taken as
a whole, or Merchants and its subsidiaries, taken as a whole; (iii) the parties
shall have received the opinion of independent counsel to Merchants that the
Merger will be treated for federal income tax purposes as a "reorganization"
within the meaning of Section 368(a) of the Code (see "The MERGER - Certain
Material Federal Income Tax Consequences," above); (iv) Merchants shall have
received an opinion from Ernst & Young, LLP to the effect that the Merger
qualifies for "pooling of interests" accounting treatment; (v) the aggregate of
(a) fractional share interests in Merchants Common Stock to be paid in cash
pursuant to the Merger Agreement and (b) the number of shares of Merchants
Common Stock which would have been issuable pursuant to the Merger Agreement
that will not be issued due to the exercise of dissenters' rights is not more
than 10% of the maximum aggregate number of shares of Merchants Common Stock
which could be issuable as a result of the Merger; (vi) Merchants and Pyramid
shall have received the opinion of counsel regarding certain issues under the
Securities Act and the WBCL; (vii) Merchants shall have received from each
affiliate of Pyramid a signed letter regarding certain restrictions on the
resale of Merchants Common Stock under Rule 145 of the Securities Act; (viii)
Merchants shall have received from Ernst & Young LLP "Comfort Letters" dated as
of the date of mailing of the Proxy Statement/Prospectus and the Closing Date,
covering matters customary
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in transactions such as the Merger; (ix) Merchants shall have received from the
Directors of Pyramid the Voting Agreement discussed. See "CERTAIN PROVISIONS OF
THE VOTING AGREEMENT."
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time by the applicable Board of Directors, whether before or after approval of
the matters presented in connection with the Merger by the shareholders of
Pyramid: (i) by mutual consent of Merchants and Pyramid; (ii) by either Pyramid
or Merchants (x) if there has been a breach in any material respect of any
representation, warranty, covenant or agreement on the part of Pyramid, on the
one hand, or Merchants, on the other hand, respectively set forth in the Merger
Agreement, or (y) if any representation or warranty of Pyramid, on the one hand,
or Merchants on the other hand, respectively, shall be discovered to have become
untrue in any material respect, in either case which breach or other condition
has not been cured within 10 business days following receipt by the
non-terminating party of notice of such breach or other condition (provided that
he Merger Agreement may not be terminated by the breaching party or party making
any representation or warranty which shall have become untrue in any material
respect); (iii) by either Merchants or Pyramid if any permanent injunction
preventing the consummation of the Merger shall have become final and
nonappealable; (iv) by either Merchants or Pyramid if the Federal Reserve Board
or the DFI denied approval of the Merger and neither Merchants nor Pyramid has,
within 30 days after the entry of such order denying approval, filed a petition
seeking review of such order as provided by applicable law; (v) by either
Merchants or Pyramid if the Merger has not been consummated by December 31, 1999
for a reason other than the failure of the terminating party to comply with its
obligations under the Merger Agreement; or (vi) by either Merchants or Pyramid
if the required approval of the shareholders of Pyramid has not been obtained.
In the event of termination of the Merger Agreement by either Pyramid or
Merchants, other than as a result of a material breach by the non-terminating
party, each party will pay its own expenses and the Merger Agreement will become
void and there will be no liability or obligation on the part of Merchants or
Pyramid other than under certain specified provisions of the Merger Agreement
dealing with confidential treatment of non-public information. In the event of
termination of the Merger Agreement by a material breach, in addition to other
remedies at law or equity for breach, the party to have breached will reimburse
the non-breaching parties their expenses under the Merger Agreement.
Amendment and Waiver
The Merger Agreement may be amended at any time prior to the Effective Time
by action taken or authorized by the respective Boards of Directors of Merchants
and Pyramid (except that after the Merger Agreement shall have been approved by
the shareholders of Pyramid, no amendment may be entered into which would reduce
the amount or change the consideration into which each share of Pyramid Common
Stock shall be converted upon consummation of the Merger without further
shareholder approval). At any time prior to the Effective Time the parties may
extend the time for the performance of any of the obligations or other acts of
the other party hereto, waive any inaccuracies in the representations and
warranties contained in the Merger Agreement or in any document delivered
pursuant to the Merger Agreement and waive compliance with any of the agreements
or conditions contained in the Merger Agreement.
Expenses
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Merger Agreement and the transactions contemplated
thereby shall be paid by the party incurring such expense (except that the
parties shall share equally in the expense of printing and reproducing for
filing the
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Registration Statement and this Proxy Statement/Prospectus and all Commission
and other regulatory filing fees incurred in connection with the Merger
Agreement), except if the Merger Agreement is terminated due to the breach of
the Merger Agreement by either party thereto, then, in addition to other
remedies at law or equity for breach of the Merger Agreement, the party so found
to have breached the Merger Agreement shall indemnify the other parties for
their respective expenses.
Break-Up Fee
Provided that Merchants has not breached in any material respect its
obligations under the Merger Agreement, Pyramid is obligated to pay to Merchants
a fee ("Break-Up Fee") equal to the lesser of 1.5% of the value of the Exchange
Fund (as defined in the Merger Agreement) or $400,000. The Break-Up Fee is
payable to Merchants if (A) the Board of Directors of Pyramid (i) withdraws,
modifies or amends its approval or recommendation of the Merger Agreement; (ii)
does not at the appropriate time recommend that the shareholders of Pyramid vote
in favor of the Merger Agreement or withdraws or modifies such recommendation or
(iii) does not include such voting recommendation in the Proxy
Statement/Prospectus or (B) Pyramid initiates, solicits or encourages or takes
any other action to lead to any Competing Transaction see "CERTAIN PROVISIONS OF
THE MERGER AGREEMENT - No Solicitation of Transactions."
Provided that Pyramid has not breached in any material respect its
obligations under the Merger Agreement, Merchants is obligated to pay to Pyramid
the Break-Up Fee if the Board of Directors of Merchants withdraws, modifies or
amends in any respect its approval of the Merger Agreement.
CERTAIN PROVISIONS OF THE VOTING AGREEMENT
The following is a brief summary of certain provisions of the Voting
Agreement, which is attached as Exhibit B to this Proxy Statement/Prospectus and
is incorporated herein by reference. The following summary is qualified in its
entirety by reference to the Voting Agreement.
Merchants has entered into the Voting Agreement with Directors of Pyramid
and related parties ("directors"). The directors hold 13,312 shares representing
approximately 19.3 of the total voting power of Pyramid Common Stock. The Voting
Agreement provides that the directors, in consideration of the substantial
expenses incurred by Merchants in connection with the Merger Agreement and as a
condition to Merchants entering into the Merger Agreement, shall vote or cause
to be voted or express a written consent with respect to all of such director's
shares:
(a) in favor of adoption and approval of the Merger Agreement and the
Merger at every meeting of shareholders of Pyramid at which such matters
are considered and at every adjournment thereof and in connection with
every proposal to take action by written consent with respect thereto, and
(b) against any other Competing Transaction at every meeting of
shareholders of Pyramid at which such matters are considered and at every
adjournment thereof and in connection with every proposal to take action by
written consent with respect thereto.
The Voting Agreement also provides that Merchants has the exclusive right
to purchase any and all of the shares of Pyramid Common Stock owned by each
director for $250.00 per share, payable in cash, subject to any necessary
regulatory approval, after a material breach of the Merger Agreement by Pyramid
or any events or circumstances that lead Merchants reasonably to believe that
Pyramid is likely to materially
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breach the Merger Agreement or a breach by a director of the Voting Agreement.
The purchase right is not exercisable as of the date hereof. The purchase price
per share under the Voting Agreement equaled approximately 73% of the value of
Pyramid Common Stock based upon the trading price of Merchants Common Stock at
the date that the Voting Agreement was requested by Merchants.
The Voting Agreement also provides that:
(a) Each of the directors agrees that such director will not, nor will
such director permit any entity under such director's control, to deposit
any of such director's shares in a voting trust or subject any of their
shares to any agreement, arrangement or understanding with respect to the
voting of such shares inconsistent with the Voting Agreement.
(b) During the term of the Voting Agreement, each director agrees not
to sell, assign, transfer or dispose (except by means of certain gifts) of
such director's shares.
The Voting Agreement shall terminate upon the earlier of (a) the Effective
Time of the Merger and (b) the date on which the Merger Agreement is terminated
in accordance with its terms. Upon such termination, no party shall have any
further obligations or liabilities under the Voting Agreement; provided that
termination shall not relieve any party from liability for any breach of the
Voting Agreement prior to such termination.
The Voting Agreement binds the actions of the signatories thereto only in
their capacity as shareholders of Pyramid, and such shareholders/directors of
Pyramid were not and could not be contractually bound to abrogate their
fiduciary duties as directors of Pyramid. Accordingly, while such
shareholders/directors are, under the Voting Agreement, contractually bound to
vote as a shareholder in favor of the Merger and against a Competing Transaction
should one be presented, their fiduciary duties as directors nevertheless
require them to act, in their capacity as directors, in the best interests of
Pyramid when they decided to approve and adopt the Merger Agreement. In
addition, such shareholders/directors will continue to be bound by their
fiduciary duties as directors of Pyramid with respect to any decisions they may
take in connection with the Merger or otherwise.
CERTAIN INFORMATION CONCERNING MERCHANTS
Merchants is a registered bank holding company pursuant to the BHC Act. It
was incorporated in Wisconsin in 1982 and pursuant to permission from the
Federal Reserve Board acquired Lincoln State Bank, Milwaukee, Wisconsin and
Franklin State Bank, Franklin, Wisconsin. In 1993 Merchants acquired Lincoln
Savings Bank which was renamed Lincoln Community Bank. The three subsidiary
banks operate a total of seventeen facilities in Milwaukee and Waukesha
Counties. In addition, to the three banks, Merchants owns and operates three
non-bank subsidiaries, Lincoln Neighborhood Redevelopment Corporation, which was
organized to redevelop and rejuvenate certain areas of the City of Milwaukee;
M&M Services, Inc. which provides operational services to the subsidiary banks
and Achieve Mortgage Corporation, which is a mortgage brokerage firm. Merchants
provides advice and specialized services to its bank and nonbank subsidiaries in
various areas including auditing, data processing, marketing/advertising,
investments, personnel services and other financial services closely related to
banking. The respective Boards of Directors and officers of the subsidiaries
retain overall control of and responsibility for their organizations.
As of June 30, 1999, Merchants had consolidated assets of $344 million and
the subsidiary banks had deposits of $298 million.
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Merchants, through its subsidiaries, provides a complete range of retail
banking services to individuals and small-to-medium-size businesses. These
services include checking and savings accounts, NOW, Super NOW and money market
deposit accounts, business loans, personal loans, residential and condominium
mortgage loans, loans for education, MasterCard, VISA and other
consumer-oriented financial services, including IRA and Keogh accounts, safe
deposit and night depository facilities. Automated teller machines, which
provide 24 hour banking services to customers of Merchants have been installed
in many locations in the Merchants service areas. Among the services designed
specifically to meet the needs of small-and medium-size businesses are various
types of specialized financing, cash management services and transfer/collection
facilities.
The Merchants subsidiaries provide lending, depository and related
financial services to commercial, industrial, financial and governmental
customers. In the lending area, these include term loans, revolving credit
arrangements, letters of credit, inventory and accounts receivable financing and
real estate construction lending.
Additional emphasis is given to non-credit services for commercial
customers, such as advice and assistance in the placement of securities,
corporate cash management and financial planning. Merchants subsidiaries make
available check clearing, safekeeping, loan participation, lines of credit,
portfolio analyses, data processing and other services.
Achieve Mortgage Corporation provides certain mortgage banking services
including the origination, underwriting, closing, and the temporary warehousing
of mortgage loans and the sale of loans to investors. The primary focus is on
one-to-four-family residential and multi-family properties, all of which
mortgage loans are saleable into the secondary mortgage market.
Merchants and the Merchants subsidiaries are not dependent upon a single or
a few customers, the loss of which would have a material adverse effect on
Merchants. No material portion of Merchants or Merchants subsidiaries' business
is seasonal.
At December 31, 1998 Merchants and its subsidiaries, as a group, employed
141 full-time and 55 part-time employees.
CERTAIN INFORMATION CONCERNING PYRAMID
Pyramid is a bank holding company incorporated under the laws of the State
of Wisconsin with its principal office in Grafton, Wisconsin. Pyramid owns all
the issued and outstanding stock of the Bank, a Wisconsin banking corporation.
The Bank owns all the issued and outstanding stock of BGS Investments, Inc., a
Nevada corporation ("GBS"). As of June 30, 1999, Pyramid had total assets of
approximately $109 million and the bank had deposits of approximately $83
million.
The Bank is a full service bank serving the banking needs of the city of
Grafton and the surrounding Ozaukee County area. The Bank provides commercial
banking services and products, including savings and demand deposits, real
estate, commercial and consumer loans, collection and safe deposit facilities
and other services tailored to meet the needs of the individual and business
customer. The Bank owns its main banking premises located at 101 Falls Road,
Grafton, Wisconsin. BGS was formed to manage the Bank's investment portfolio.
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<PAGE> 53
The Bank operates an additional facility at the intersection of Pioneer
Road and Port Washington Road in the Town of Grafton (the "Pioneer Branch"). The
Pioneer Branch operates two inside teller stations and two drive-up windows.
Pyramid and the Bank are not dependent upon a single or a few customers,
the loss of which would have a material adverse effect on Pyramid or the Bank.
No material portion of Pyramid's or the Bank's business is seasonal.
At December 31, 1998, Pyramid and Bank employed approximately 32 full-time
and 25 part-time employees.
Ownership of Pyramid Common Stock
The following table sets forth information regarding the beneficial
ownership of Pyramid Common Stock as of the Record Date by each director,
certain executive officers, all directors and executive officers of Pyramid as a
group and each person who is known by Pyramid to be the beneficial owner of more
than 5% of Pyramid Common Stock. Directors and executive officers are deemed to
own all shares of Pyramid Common Stock which may be owned in joint tenancy, by a
spouse, in the names of minor children or in revocable trusts for which the
individual has voting and investment power. The address for each of the
directors is the executive offices of Pyramid.
<TABLE>
<CAPTION>
NAME OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES CLASS
<S> <C> <C>
Thomas J. Sheehan 5,351 7.76
Jerome T. Sarnowski 1,050 1.52
Thomas N. Holton 5,446 7.90
James Kacmarcik 305 0.44
Richard A. Kranitz 300 0.44
Richard Belling 860 1.25
All Directors and executive
officers as a group (6 persons) 13,312 19.32
James Derse Rev. Trust
c/o General Industries
Investment Corp.
741 N. Milwaukee Street
Milwaukee, WI 53202 3,957 5.74
Band & Co., FBO Zaun
Memorial Foundation
c/o Firstar Trust Co.
P. O. Box 2054
Milwaukee, WI 53201 3,425(1) 4.97
</TABLE>
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<PAGE> 54
<TABLE>
<S> <C> <C>
Ralph and Edith Zaun
Rev. Trust
1757 - 12th Ave.
Grafton, WI 53024 2,965(1) 4.30
</TABLE>
(1) To the knowledge of Pyramid, Mr. Ralph Zaun holds shared voting and
investment power with regard to these shares.
EXPERTS
The consolidated financial statements of Merchants incorporated by
reference in Merchants and Manufacturers Bancorporation, Inc.'s Annual Report
(Form 10-K) for the year ended December 31, 1998, have been audited by Ernst &
Young, LLP, independent auditors, as set forth in their report thereon
incorporated by reference and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Pyramid as of December 31, 1998
and 1997, and for each of the years in the three-year period ended December 31,
1998, have been included in this Proxy Statement/Prospectus and in the
registration statement in reliance upon the report of Virchow, Krause & Company,
LLP, independent certified public accountants, and upon the authority of said
firm as experts in accounting and auditing.
Merchants has retained Davis & Kuelthau, S.C. to render an opinion on the
federal income tax consequences of the Merger and in connection therewith, Davis
& Kuelthau, S.C. has reviewed the discussion herein entitled "THE MERGER -
Certain Material Federal Income Tax Consequences." Such opinion has been
included in the registration statement in reliance upon the authority of said
firm as experts in tax matters.
LEGAL OPINIONS
The validity of the shares issued in connection with the Merger will be
passed upon for Merchants by Davis & Kuelthau, S.C., Milwaukee, Wisconsin.
Certain other legal matters in connection with the Merger will be passed upon
for Merchants by Davis & Kuelthau, S.C. and for Pyramid by Michael Best &
Friedrich LLP, Milwaukee, Wisconsin.
FUTURE SHAREHOLDER PROPOSALS
If the Merger is consummated, shareholders of Pyramid will become
shareholders of Merchants. Pursuant to Rule 14a-(8) promulgated under the
Exchange Act, Merchants shareholders may present proper proposals for inclusion
in Merchants proxy statement for consideration at the next annual meeting of its
shareholders by submitting their proposals to Merchants in a timely manner.
Shareholders of Pyramid who become shareholders of Merchants may present
proposals for inclusion in Merchants' proxy statement for its year 2000 Annual
Meeting as the 1999 Annual Meeting of Merchants has been held.
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<PAGE> 55
WHERE YOU CAN FIND MORE INFORMATION
Merchants is subject to the informational 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
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Midwest Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and Northeast Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material may
also be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of such Web site is http://www.sec.gov.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement on Form S-4 and exhibits thereto (the
"Registration Statement") covering the securities offered hereby which Merchants
has filed with the Commission, certain portions of which have been omitted
pursuant to the rules and regulations of the Commission, and to which portions
reference is hereby made for further information with respect to Merchants and
the securities offered hereby. The Registration Statement is available for
inspection and copying as set forth above. Statements contained in this Proxy
Statement/ Prospectus or in any document incorporated by reference in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
All information concerning Merchants included in this Proxy
Statement/Prospectus has been furnished by Merchants, and all information
concerning Pyramid included in this Proxy Statement/Prospectus has been
furnished by Pyramid.
No person is authorized to give any information or make any representation
not contained in this Proxy Statement/Prospectus and, if given or made, the
information or representation should not be relied upon as having been
authorized by Merchants or Pyramid. This Proxy Statement/Prospectus does not
constitute an offer to sell or a solicitation of an offer to purchase the
securities offered hereby, or the solicitation of a proxy, in any jurisdiction
to or from any person to whom it is unlawful to make such offer or solicitation
of an offer or proxy in such jurisdiction. Neither the delivery of this Proxy
Statement/ Prospectus nor any distribution of the securities to which this Proxy
Statement/Prospectus relates shall, under any circumstances, create any
implication that there has been no change in the affairs of Merchants or Pyramid
since the date of this Proxy Statement/Prospectus.
The Commission allows us to "incorporate by reference" information into
this Proxy Statement/Prospectus, which means that we can disclose information to
you by referring you to another document filed separately with the Commission.
The information that we incorporate by reference is deemed to be part of this
Proxy Statement/Prospectus, except for any information superseded by information
contained in this Proxy Statement/Prospectus. This Proxy Statement/Prospectus
incorporates by reference the documents listed below that Merchants has
previously filed with the Commission. Those documents contain important
information about Merchants and its financial condition.
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<PAGE> 56
a) Merchants' Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
b) Merchants' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
c) Merchants' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999.
d) Merchants Notice of Annual Meeting and Proxy Statement dated May
5, 1999.
Merchants is also incorporating by reference all additional documents
that it will file with the Commission between the date of this Proxy
Statement/Prospectus and the date of the Special Meeting of the shareholders of
Pyramid.
Documents which Merchants incorporates by reference are available from
Merchants without charge, excluding all exhibits unless Merchants has
specifically incorporated by reference an exhibit in this Proxy
Statement/Prospectus. Shareholders may obtain documents incorporated by
reference in this Proxy Statement/Prospectus by requesting them in writing or by
telephone from Merchants at the following address:
Merchants and Manufacturers Bancorporation, Inc.
14100 West National Avenue
New Berlin, WI 53151
Attention: Michael J. Murry, Chairman of the Board
Telephone (414)827-6700
If you would like to request documents from Merchants, please do so by
, 1999 to receive them before the Special Meeting.
FORWARD-LOOKING STATEMENTS
Cautionary Statement for Purposes of the Private Litigation Reform Act of
1995.
This Proxy Statement/Prospectus (including information incorporated by
reference herein), information included in, or incorporated by reference from
future filings by Merchants with the Commission, and information contained in
written material, press releases and oral statements issued or made by or on
behalf of Merchants or Pyramid contain, or may contain, certain "forward-looking
statements" including statements concerning plans, objectives and future events
or performance, and other statements which are other than statements of
historical fact. Forward looking statements include information concerning
possible or assumed future results of operations of Merchants and Pyramid set
forth under "THE MERGER-Reasons for the Merger" and "THE MERGER-Opinion of
Pyramid Financial Advisor" and those preceded by, followed by or that include
the words "believes," "expects," "anticipates" or similar expressions. For those
statements, Merchants and Pyramid claim the protection of the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. It should be understood that the following
important factors, in addition to those discussed elsewhere in this document and
in the documents incorporated by reference, could affect the future results of
Merchants and Pyramid, and could cause those results to differ materially from
those expressed in such forward-looking statements. Factors that may cause
actual results to differ materially from those contemplated by such
forward-looking statements include, but are not limited to, the following: (i)
failure to fully realize or to realize within the expected time frame expected
cost savings from the Merger; (ii) lower than expected income or revenues
following the Merger, or higher than expected operating costs; (iii) a
significant increase in competitive
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<PAGE> 57
pressure in the banking and financial services industry; (iv) business
disruption related to the Merger (both before and after completion); (v) greater
than expected costs or difficulties related to the integration of the management
of Merchants and Pyramid; (vi) litigation costs and delays caused by litigation;
(vii) higher than anticipated costs in completing the Merger; (viii)
unanticipated regulatory delays or constraints or changes in the proposed
transaction required by regulatory authorities; (ix) reduction in interest
margins due to changes in the interest rate environment; (x) poorer than
expected general economic conditions, including acquisition and growth
opportunities, either nationally or in the states in which the combined company
will be doing business; (xi) legislation or regulatory changes which adversely
affect the businesses in which the combined company would be engaged; and (xii)
other unanticipated occurrences which may delay the consummation of the Merger,
increase the costs related to the Merger or decrease the expected financial
benefits of the Merger.
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<PAGE> 58
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is incorporated under the Wisconsin Business Corporation
Law (the "WBCL"). Under Section 180.0851 of the WBCL, the Registrant shall
indemnify a director or officer, to the extent such person is successful on the
merits or otherwise in the defense of a proceeding, for all reasonable expenses
incurred in the proceeding because he or she was a director or officer of the
Registrant. In all other cases, the Registrant shall indemnify a director or
officer against liability incurred in a proceeding to which such person was a
party because he or she was a director or officer of the Registrant; unless
liability was incurred because he or she breached or failed to perform a duty
owed to the Registrant and such breach or failure to perform constitutes: (i) a
willful failure to deal fairly with the Registrant or its shareholders in
connection with a matter in which the director or officer has a material
conflict of interest; (ii) a violation of criminal law, unless the director or
officer had reasonable cause to believe his or her conduct was lawful or no
reasonable cause to believe his or her conduct was unlawful; (iii) a transaction
from which the director or officer derived an improper personal profit; or (iv)
willful misconduct. Section 180.0858 of the WBCL provides that subject to
certain limitations, the mandatory indemnification provisions do not preclude
any additional right to indemnification or allowance of expenses that a director
of officer may have under the Registrant's articles of incorporation, bylaws, a
written agreement between the director or officer and the Registrant or a
resolution of the Board of Directors or adopted by majority vote of the
Registrant's shareholders.
Section 180.0859 of the WBCL provides that it is the public policy of
the State of Wisconsin to require or permit indemnification, allowance of
expenses and insurance to the extent required or permitted under Sections
180.0850 to 18.0858 of the WBCL for any liability incurred in connection with a
proceeding involving a federal or state statute, rule or regulation regulating
the offer, sale or purchase of securities.
The Registrant's Articles of Incorporation contain no provisions in
relation to the indemnification of directors and officers o the Registrant.
Under Article X of the Registrant's By-Laws, the Registrant extends
rights of indemnification to any person who is made or threatened to be made a
party to any action or claim or proceeding by reason of the fact that such
person is or was a director, officer, employee or agent of the Registrant,
except as to matters in which he or she is finally adjudged to have been guilty
of fraud in the performance of his or her duty as such director, officer,
employee or agent. Indemnification is provided for expenses and amounts paid in
the final disposition of claims, actions, suits or proceedings including
settling of such matters. The rights of indemnification under the Registrant's
By-Laws are in addition to rights to which such persons may be entitled as a
matter of law, agreement, vote of shareholders or otherwise.
Officers and directors of the Registrant and Registrant's subsidiaries
are covered by directors' and officers' liability insurance under which they are
insured (subject to certain exceptions and limitations specified in the policy)
against expenses and liabilities arising out of proceedings to which they are
parties by reason of being or having been directors or officers of Registrant or
Registrant's subsidiaries.
II-1
<PAGE> 59
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Sequential Page No.
- ----------- ----------- -------------------
<S> <C> <C>
2(a) Agreement and Plan of Merger dated as of March 9, 1999
among the Registrant, Merchants Merger Corp. and Pyramid
Bancorp., Inc., incorporated by reference to Exhibits A
and A-1 to the Proxy Statement/Prospectus of the
Registrant and Pyramid Bancorp., Inc. (the "Proxy
Statement/Prospectus").
2(b) Voting Agreement dated as of March 9, 1999 among certain
shareholders of Pyramid Bancorp., Inc. and the
Registrant incorporated by reference to Exhibit B to the
Proxy Statement/Prospectus.
3(a) Articles of Incorporation, as amended of Registrant.
3(b) Bylaws, of Registrant incorporated by reference to
Exhibit 3.2 of Registrant's Registration Statement on
Form S-1 filed on October 2, 1992 SEC File No. 33-53002.
4 The Registrant has outstanding certain long term debt.
None of such debt exceeds 10% of the total assets of
the Registrant and its consolidated subsidiaries. Thus,
copies of the constituent instruments defining the
rights of the holders of such debt are not included as
exhibits to this Registration Statement. The Registrant
agrees to furnish copies of such instruments to the
Commission upon request.
5 Opinion of Davis & Kuelthau, S.C. regarding legality of
issuance of the Registrant's securities.
8 Opinion of Davis & Kuelthau regarding certain federal
income tax matters
10(a) The 1996 Incentive Stock Option Plan of the Registrant.
10(b) Salary Continuation Agreement between Lincoln State Bank
and James Bomberg.
</TABLE>
II-2
<PAGE> 60
10(c) Employment agreements between Registrant and Conrad
Kaminski and between Lincoln State Bank and James
Bomberg incorporated by reference to Exhibit 10.2 of
Registrant's Registration Statement on Form S-1 filed on
October 2, 1992, SEC File No. 33-53002.
Employment Agreements between Registrant and Michael
J. Murry, James Mroczkowski and John Krawczyk.
Employment Agreements between M&M Services, Inc.
and Robert Blonski and Gregory Stengel, respectively.
Employment Agreement between Achieve Mortgage
Corporation and Robert Donaj.
Employment Agreement between Grafton State Bank and
Thomas Sheehan.
Pursuant to Instruction 2 of Item 601 - Exhibits,
Employment Agreements between Grafton State Bank and
Peter J. Schumacher, Richard Belling and Jefford R.
Larson, respectively, are omitted. The terms of such
agreements are substantially identical in all material
respects to the agreement between Grafton State Bank and
Thomas Sheehan.
The only material difference between the Sheehan
Agreement and the three omitted agreements are reflected
in "Position and Duties" and "Base Salary" as follows:
<TABLE>
<CAPTION>
Name Position Base Salary
<S> <C> <C> <C>
Peter J. Schumacher Controller $48,300
Richard L. Belling V.P.-Mortgages 67,000
Jefford R. Larson V.P. Commercial 62,000
Lending
</TABLE>
21 List of Subsidiaries of the Registrant.
23(a) Consent of Ernst & Young, LLP as to the financial
statements of the Registrant.
23(b) Consent of Davis & Kuelthau, S.C. incorporated by
reference to Exhibits 5 and 8.
23(c) Consent of Virchow, Krause & Co. LLP as to financial
statements of Pyramid Bancorp., Inc.
23(d) Consent of Marshall Financial Consulting LLC, financial
adviser to Pyramid.
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<PAGE> 61
23(e) Consent of Michael Best & Friedrich LLC.
23(f) Rule 438 Consent of three directors of Pyramid who will
become directors of Registrant upon completion of the
Merger.
24 Powers of Attorney.
All listed Exhibits were previously filed.
(b) No financial statement schedules are required to be filed herewith pursuant
to Item 21(b) or (c) of this Form.
ITEM 22. UNDERTAKINGS
(a)(1) The undersigned Registrant hereby undertakes:
(i) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement: (x) to include any prospectus
required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act"); (y) 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;
(z) 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) That, for the purpose of determining any liability
under the Securities Act, 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 such time
shall be deemed to be the initial bona fide offering
thereof.
(iii) 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.
(2) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act), that is
incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form
with respect to
II-4
<PAGE> 62
reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of
the applicable form.
(4) The registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (3) immediately preceding, or (ii)
that purports to meet the requirements of section 10(a)(3) of
the Securities Act and is used in connection with an offering
of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, 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.
(5) 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 Securities 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
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.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became effective.
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<PAGE> 63
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this pre-effective amendment No.1 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
Berlin, State of Wisconsin, on this 30th day of September, 1999.
MERCHANTS AND MANUFACTURERS
BANCORPORATION, INC.
By: /s/ Michael J. Murry
--------------------------------------
Michael J. Murry,
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this
pre-effective amendment no. 1 has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
---------------- ------------------- ------------
<S> <C> <C>
/s/Michael J. Murry Chairman of the Board of September 30, 1999
- ----------------------------------------- Directors (Principal Executive
Michael J. Murry Officer)
/s/James Bomberg President and a Director September 30, 1999
- ----------------------------------------
James Bomberg
/s/James Mroczkowski Vice President, Chief Financial September 30, 1999
- ---------------------------------------- Officer, and Principal Financial
James Mroczkowski and Accounting Officer
* Director September 30, 1999
- ----------------------------------------
J. Michael Bartels
* Director September 30, 1999
- ----------------------------------------
Duane Cherek
* Director September 30, 1999
- ----------------------------------------
Robert Donaj
* Director September 30, 1999
- ----------------------------------------
Thomas Gapinski
* Director September 30, 1999
- ----------------------------------------
Casimir S. Janiszewski
* Director September 30, 1999
- ----------------------------------------
David Kaczynski
</TABLE>
II-6
<PAGE> 64
<TABLE>
<CAPTION>
<S> <C> <C>
* Director September 30, 1999
- ----------------------------------------
Conrad Kaminski
* Director September 30, 1999
- ----------------------------------------
John Krawczyk
* Director September 30, 1999
- ----------------------------------------
Nicholas Logarakis
* Director September 30, 1999
- ----------------------------------------
Longin Prazynski
* Director September 30, 1999
- ----------------------------------------
Gervaise Rose
* Director September 30, 1999
- ----------------------------------------
James Sass
* Director September 30, 1999
- ----------------------------------------
Keith Winters
</TABLE>
*Michael J. Murry hereby signs this registration statement on September
30, 1999 on behalf of each of the indicated persons for whom he is
attorney-in-fact pursuant to a power of attorney filed herewith.
/s/ Michael J. Murry
--------------------------
Michael J. Murry
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<PAGE> 65
EXHIBIT INDEX
Exhibit No. Description Sequential
Page No.
2(a) Agreement and Plan of Merger dated as of March 9,
1999 among the Registrant, Merchants Merger Corp.
and Pyramid Bancorp., Inc., incorporated by
reference to Exhibits A and A-1 to the Proxy
Statement/Prospectus of the Registrant and Pyramid
Bancorp., Inc. (the "Proxy Statement/Prospectus").
2(b) Voting Agreement dated as of March 9, 1999 among
certain shareholders of Pyramid Bancorp., Inc. and
the Registrant incorporated by reference to
Exhibit B to the Proxy Statement/Prospectus.
3(a) Articles of Incorporation, as amended of Registrant.
3(b) Bylaws, of Registrant incorporated by reference to
Exhibit 3.2 of Registrant's Registration Statement on
Form S-1 filed on October 2, 1992 SEC File No. 33-
53002.
4 The Registrant has outstanding certain long term
debt. None of such debt exceeds 10% of the total
assets of the Registrant and its consolidated
subsidiaries. Thus, copies of the constituent
instruments defining the rights of the holders of
such debt are not included as exhibits to this
Registration Statement. The Registrant agrees to
furnish copies of such instruments to the
Commission upon request.
5 Opinion of Davis & Kuelthau, S.C. regarding
legality of issuance of the Registrant's
securities.
8 Opinion of Davis & Kuelthau regarding certain federal
income tax matters
10(a) The 1996 Incentive Stock Option Plan of the
Registrant.
10(b) Salary Continuation Agreement between Lincoln State
Bank and James Bomberg.
II-8
<PAGE> 66
10(c) Employment agreements between Registrant and
Conrad Kaminski and between Lincoln State Bank and
James Bomberg incorporated by reference to Exhibit
10.2 of Registrant's Registration Statement on
Form S-1 filed on October 2, 1992, SEC File No.
33-53002.
Employment Agreements between Registrant and
Michael J. Murry, James Mroczkowski and John
Krawczyk.
Employment Agreements between M&M Services,
Inc. and Robert Blonski and Gregory Stengel,
respectively.
Employment Agreement between Achieve Mortgage
Corporation and Robert Donaj.
Employment Agreement between Grafton State Bank
and Thomas Sheehan.
Pursuant to Instruction 2 of Item 601 - Exhibits,
Employment Agreements between Grafton State Bank
and Peter J. Schumacher, Richard Belling and Jefford
R. Larson, respectively, are omitted. The terms of
such agreements are substantially identical in all
material respects to the agreement between Grafton
State Bank and Thomas Sheehan.
The only material difference between the Sheehan
Agreement and the three omitted agreements are
reflected in "Position and Duties" and "Base Salary"
as follows:
<TABLE>
<CAPTION>
Name Position Base Salary
<S> <C> <C> <C>
Peter J. Schumacher Controller $48,300
Richard L. Belling V.P.-Mortgages 67,000
Jefford R. Larson V.P. Commercial 62,000
Lending
</TABLE>
21 List of Subsidiaries of the Registrant.
23(a) Consent of Ernst & Young, LLP as to the financial
statements of the Registrant.
II-9
<PAGE> 67
23(b) Consent of Davis & Kuelthau, S.C. incorporated by
reference to Exhibits 5 and 8.
23(c) Consent of Virchow, Krause & Co. LLP as to financial
statements of Pyramid Bancorp., Inc.
23(d) Consent of Marshall Financial Consulting LLC,
financial adviser to Pyramid.
23(e) Consent of Michael Best & Friedrich LLC.
23(f) Rule 438 Consent of three directors of Pyramid who
will become directors of Registrant upon completion
of the Merger.
24 Powers of Attorney.
All listed Exhibits have been previousley filed.
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