<PAGE> 1
Registration No. 333-49638
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)
Wisconsin 6712 39-1413328
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation Industrial Identification
or organization) Classification No.)
Code Number)
14100 West National Avenue
New Berlin, Wisconsin 53151
(262) 827-6700
(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
(262) 827-6700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------------
Copies of all correspondence to:
Erich Mildenberg John Knight
Davis & Kuelthau, S.C. Boardman, Suhr, Curry & Field, LLP
111 East Kilbourn Avenue 1 South Pinckney Street
Milwaukee, Wisconsin 53202 Madison, Wisconsin 53701
(414) 276-0200 (608) 257-9521
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
<TABLE>
<CAPTION>
Title of Each Proposed Proposed Amount
Class of Amount Maximum Maximum of
Securities to be Offering Aggregate Registra-
to be Registered(2) Price Offering tion Fee (3)
Registered(1) per Share Price
<S> <C> <C> <C> <C>
Common 459,680 Not Not $1,440.00
Stock, $1.00 Shares Applicable Applicable
par value
</TABLE>
(1) This Registration Statement relates to securities of the Registrant
issuable to holders of common stock of CBOC, Inc ("CBOC") in the
proposed merger of CBOC 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 CBOC 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 August 1, 2000, by and between Merchants, Merchants Merger Corp.
("Merger Corp.") and CBOC and will further be determined by the number
of shares of CBOC 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 $5,454,000, the book value of CBOC stock to be exchanged in
the Merger as of June 30, 2000, 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
[CBOC, Inc. Letterhead]
Date: December 11, 2000
Dear CBOC Stockholder:
You are cordially invited to attend our special meeting of shareholders to be
held on January 9, 2001, at 4:30 p.m. (local time) at Community Bank of Oconto
County, 500 Cherry Avenue, Oconto Falls, Wisconsin. At the special meeting you
will vote on a proposal to approve the merger of CBOC, Inc. and Merchants Merger
Corp.
If the merger is completed, you will receive not less than 4.701 or more than
5.746 shares of Merchants and Manufacturers Bancorporation, Inc. common stock
for each share of CBOC common stock you own. The exact number of shares of
Merchants stock you will receive will be based on the average of market
quotations of Merchants stock over 20 trading days before the day on which the
merger occurs. In the merger, Merchants will issue up to 459,680 shares of its
common stock. On November 29, 2000, the bid price of Merchants common stock was
$28.00, making 5.746 shares of Merchants common stock worth $160.88. 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 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.
CBOC's Board of Directors has approved the merger and recommends that you vote
for the merger.
The enclosed 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 Ebenreiter
President and Chief Executive Officer
CBOC, Inc.
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 DECEMBER 11, 2000 AND WAS MAILED WITH A
PROXY CARD ON OR ABOUT DECEMBER 13, 2000.
<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: (262) 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 JANUARY
2, 2001, TO RECEIVE THEM BEFORE THE SPECIAL MEETING OF SHAREHOLDERS OF CBOC,
INC.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY STATE IN WHICH IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION.
<PAGE> 5
CBOC, INC.
500 Cherry Avenue
Oconto Falls, WI 54154
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 9, 2001
TO THE SHAREHOLDERS OF CBOC, INC.
A special meeting of shareholders of CBOC, Inc. ("CBOC") will be held
at Community Bank of Oconto County, Oconto Falls, Wisconsin on January 9, 2001,
at 4:30 p.m. for the purpose of voting on the following matters:
1. To approve the Agreement and Plan of Merger dated as of August
1, 2000, as amended by the First Amendment to the Agreement
and Plan of Merger dated as of October 25, 2000, among
Merchants and Manufacturers Bancorporation, Inc.
("Merchants"), Merchants Merger Corp. ("Merger Corp."), a
wholly-owned subsidiary of Merchants and CBOC (the "Merger
Agreement") and the related Plan of Merger providing for the
merger of CBOC with and into Merger Corp. ("the Merger"). (A
copy of the Merger Agreement and Plan of Merger 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 CBOC HAVE APPROVED THE MERGER AGREEMENT AND RECOMMEND
THAT THE SHAREHOLDERS APPROVE THE MERGER AGREEMENT AND PLAN OF MERGER.
Any shareholder desiring to exercise dissenters' rights and be paid in
cash for the fair value of his or her shares of CBOC 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 December 8,
2000, as the record date for the determination of CBOC 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 CBOC
common stock are asked to please complete, date and sign the enclosed proxy
card, which is solicited by the Board of Directors of CBOC, 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.
<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 CBOC COMMON STOCK IS REQUIRED FOR APPROVAL OF THE MERGER
AGREEMENT AND PLAN OF MERGER. 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 Ebenreiter
President and Chief Executive Officer
Oconto Falls, Wisconsin
December 11, 2000
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS
CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR
STOCK CERTIFICATES.
<PAGE> 7
Merchants and Manufacturers Bancorporation, Inc.
CBOC, Inc.
Proxy Statement/Prospectus
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SUMMARY .........................................................................................................1
Merchants and Manufacturers Bancorporation, Inc..........................................................1
CBOC, Inc................................................................................................1
The Special Meeting .....................................................................................1
Votes Required...........................................................................................1
Directors of CBOC Have Agreed to Vote for the Merger.....................................................2
Reasons for the Merger; Recommendation of the Board of Directors of CBOC.................................2
The Merger ..............................................................................................2
General..................................................................................................2
What CBOC 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
Interests of CBOC Officers and Directors in the Merger...................................................4
Financial Consultant Says the Merger is Fair.............................................................4
Dissenting Shareholders' Rights..........................................................................4
The Merger will be Tax Free..............................................................................5
Certain Considerations...................................................................................5
Regulatory Approvals.....................................................................................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..............................................................................................13
Date, Place and Time....................................................................................13
Matters to Be Considered at the Special Meeting.........................................................13
Required Vote...........................................................................................13
Voting of Proxies.......................................................................................13
Revocability of Proxies.................................................................................13
Record Date; Stock Entitled to Vote; Quorum.............................................................13
Solicitation of Proxies.................................................................................14
</TABLE>
i
<PAGE> 8
<TABLE>
<S> <C>
THE MERGER.......................................................................................................14
Background of the Merger................................................................................14
Reasons for the Merger; Recommendation of Board of Directors of CBOC....................................16
Certain Considerations..................................................................................18
Opinion of CBOC Financial Advisor.......................................................................19
Marshall's analysis............................................................................20
Analysis of Selected Comparable Transactions...................................................21
Analysis of CBOC Valuation Multiples...........................................................21
Analysis of Publicly Traded Companies Comparable to CBOC.......................................21
Discounted Earnings Analysis...................................................................22
Analysis of Merchants..........................................................................22
Pro Forma Merger Analysis......................................................................23
Stock Trading Analysis.........................................................................23
Contribution Analysis..........................................................................23
Interests of Certain Persons in the Merger..............................................................24
Merger Consideration....................................................................................24
Regulatory Approvals Required...........................................................................26
Federal ......................................................................................26
Wisconsin......................................................................................26
General ......................................................................................27
The Effective Time......................................................................................27
Conversion of Shares, Procedure for Exchange of Certificates; Fractional Shares.........................28
Description of Merchants Common Stock Issuable in the Merger............................................30
General ......................................................................................30
Dividend Rights................................................................................30
Voting Rights..................................................................................30
Rights Upon Liquidation........................................................................30
Miscellaneous..................................................................................30
Comparison of Shareholder Rights........................................................................30
Authorized Capital Stock.......................................................................31
Required Vote..................................................................................31
Classified Board of Directors..................................................................31
Removal of Directors...........................................................................32
Newly Created Directorships and Vacancies on the Board of Directors............................32
Certain Business Combinations..................................................................32
Resale of Merchants Common Stock Issued Pursuant to the Merger..........................................33
Pre-Merger Dividend Policy .............................................................................33
Post-Merger Dividend Policy.............................................................................33
Conduct of Business Pending the Merger..................................................................34
Certain Material Federal Income Tax Consequences........................................................34
Anticipated Accounting Treatment........................................................................35
Dissenters' Rights......................................................................................35
The Voting Agreement....................................................................................37
Other Related Party Transactions........................................................................37
Management after the Merger.............................................................................37
CERTAIN PROVISIONS OF THE Merger Agreement.......................................................................38
The Merger..............................................................................................38
</TABLE>
ii
<PAGE> 9
<TABLE>
<S> <C>
Representations and Warranties..........................................................................38
Certain Covenants.......................................................................................38
No Solicitation of Transactions.........................................................................40
Conditions to Consummation of the Merger................................................................41
Termination.............................................................................................41
Amendment and Waiver....................................................................................42
Expenses ...............................................................................................42
Break-Up Fee............................................................................................42
CERTAIN PROVISIONS OF THE VOTING AGREEMENT.......................................................................43
CERTAIN INFORMATION CONCERNING MERCHANTS.........................................................................44
CERTAIN INFORMATION CONCERNING CBOC..............................................................................45
Ownership of CBOC Common Stock..........................................................................45
EXPERTS ........................................................................................................47
LEGAL OPINIONS...................................................................................................47
FUTURE SHAREHOLDER PROPOSALS.....................................................................................47
WHERE YOU CAN FIND MORE INFORMATION..............................................................................48
FORWARD-LOOKING STATEMENTS.......................................................................................49
INDEX OF EXHIBITS
Exhibit A - Agreement and Plan of Merger with First Amendment..........................................A-1
Exhibit A-1 - 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 - CBOC 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 the document refers you. See "WHERE YOU CAN FIND MORE
INFORMATION" on pages 47-49. 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 44, 45)
Merchants and Manufacturers Bancorporation, Inc. is a Wisconsin
multi-bank financial holding company with 4 subsidiary banks operating a total
of 20 facilities in Milwaukee, Waukesha and Ozaukee Counties. Merchants also
owns 2 non-bank subsidiaries, Lincoln Neighborhood Redevelopment Corporation,
which was organized for the purpose of redeveloping and rejuvenating certain
areas in the City of Milwaukee and M&M Services, Inc., which provides
operational services to the Banks.
At September 30, 2000, Merchants had assets of $525 million, net loans
of $422 million, total deposits of $404 million and shareholders' equity of $42
million.
The principal executive office of Merchants is located at 14100 West
National Avenue, New Berlin, Wisconsin, 53151, and its telephone number is (262)
827-6700.
CBOC, INC. (pages 45, 46)
CBOC, Inc. is a bank holding company and serves as the holding company
for Community Bank of Oconto County, a Wisconsin commercial bank.
At September 30, 2000, CBOC had total consolidated assets of $62
million, loans of $36 million, deposits of $55 million and equity of $5.6
million. The Bank operates from its main office in Oconto Falls, Wisconsin and a
branch in Gillett, Wisconsin.
The principal executive office of CBOC is located at 500 Cherry Avenue,
Oconto Falls, Wisconsin 54154 and its telephone number is (920) 846-2810. The
main office of Community Bank of Oconto County is located at the same address.
THE SPECIAL MEETING (pages 13, 14)
A special meeting of the shareholders of CBOC will be held at the
Community Bank of Oconto County, 500 Cherry Avenue, Oconto Falls, Wisconsin, on
January 9, 2001, at 4:30 p.m., local time. The close of business on December 8,
2000, is the record date for determining the shareholders of record of CBOC
entitled to notice of and to vote at the CBOC special meeting and any
postponement or adjournment thereof. The purpose of the CBOC special meeting is
to consider and vote upon the merger and other matters that may come before the
CBOC special meeting.
Shareholders of Merchants are not required to approve the merger.
VOTES REQUIRED (page 13)
The Wisconsin Business Corporation Law requires that the merger be
approved by the majority of outstanding shares of CBOC common stock.
-1-
<PAGE> 11
As of the record date, there were 80,000 shares of CBOC common stock
outstanding. As of the record date, directors and executive officers of CBOC
held or exercised voting control over approximately 40% of the outstanding
shares of CBOC common stock.
DIRECTORS OF CBOC HAVE AGREED TO VOTE FOR THE MERGER (pages 43, 44)
Merchants has entered into a voting agreement with each of the
directors of CBOC. The directors have agreed to vote their shares in favor of
the merger and against any acquisition of control of by a third party. The
voting agreements 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
CBOC from considering such an acquisition. The voting agreements are intended to
increase the likelihood that the merger will be consummated.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF CBOC (pages 16-18)
The Board of Directors of CBOC believes that the merger is fair to you
and in your best interests. They recommend that holders of CBOC common stock
vote FOR approval of the merger.
THE MERGER (pages 14-37)
GENERAL.
Under the terms of the merger agreement, CBOC, will merge into
Merchants Merger Corp. As a result of the merger, Community Bank of Oconto
County will become a wholly-owned subsidiary of Merchants Merger Corp. which, in
turn is a wholly-owned subsidiary of Merchants and Manufacturers Bancorporation,
Inc. The merger agreement with amendment is attached to this document as Exhibit
A and the plan of merger is attached as Exhibit A-1 to this document. We
encourage you to read the merger agreement and the plan of merger. They are the
legal documents governing the merger.
WHAT CBOC SHAREHOLDERS WILL RECEIVE IN THE MERGER (pages 24-26)
As a shareholder of CBOC, you will receive Merchants common stock for
your CBOC stock, unless you dissent from the merger and follow the statutory
procedure for perfecting your dissenters' rights. The number of shares of
Merchants common stock you will receive will be computed as follows:
1. If the daily average price of Merchants common stock is
between $31.50 and $38.50, the number of shares of Merchants
common stock you receive will be $181.00 divided by the daily
average price.
2. If the daily average price of Merchants common stock is
between $28.00 and $31.50, you will receive 5.746 shares of
Merchants common stock.
3. If the daily average price of Merchants common stock is
between $38.50 and $42.00, you will receive 4.701 shares of
Merchants common stock.
4. If the daily average price is less than $28.00 or greater than
$42.00, then Merchants and CBOC will make a good faith effort
to renegotiate the number of shares you will receive for your
CBOC 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 20 trading days before the merger. The 20 daily averages will be
totaled and divided by 20 to determine the daily average price.
-2-
<PAGE> 12
You should note that the market price of Merchants common stock may
fluctuate prior to consummation of the merger. You will therefore not know when
you vote on the merger what the Merchants shares you receive will be worth when
issued to you. 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.
On November 29, 2000, the bid price for Merchants common stock was
$28.00 per share and the ask price was $32.00 per share. Shareholders of CBOC
should obtain current price quotations for Merchants common stock.
POST-MERGER DIVIDEND POLICY OF MERCHANTS (page 33)
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 26, 27, 41)
The completion of the merger depends on a number of conditions being
met, including the following:
1. Shareholders of CBOC 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 and Manufacturers
Bancorporation, Inc., CBOC, Inc., Merchants Merger Corp. and
CBOC shareholders who exchange their shares of CBOC 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 34, 35.
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 and Manufacturers Bancorporation, Inc.
or CBOC, Inc. 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 28-30).
At or prior to the time the merger becomes effective, Merchants and
Manufacturers Bancorporation, Inc. will deposit with Firstar Trust Company
certificates representing the shares of Merchants common stock to be issued in
accordance with the terms of the merger agreement.
After the merger becomes effective, Firstar Trust Company will mail to
each CBOC shareholder instructions on how to exchange CBOC stock for Merchants
common stock.
-3-
<PAGE> 13
TERMINATION OF THE MERGER AGREEMENT. (pages 41, 42)
The Boards of Directors of Merchants and CBOC 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 pages 41, 42 of this
document.
REIMBURSEMENT OF EXPENSES. (page 42)
Except in case of a breach of the merger agreement, CBOC and Merchants
will pay their own expenses in connection with the merger.
BREAK-UP FEE (pages 42, 43)
If the merger agreement is terminated because CBOC failed to support
the merger or failed to oppose an offer from a third party to acquire it, then
CBOC 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 CBOC. The break-up fee is $225,000.
CBOC OFFICERS AND DIRECTORS HAVE INTERESTS IN THE MERGER THAT ARE DIFFERENT FROM
YOURS (page 24)
When considering the recommendation of the CBOC Board, you should be
aware that some of the directors and officers of CBOC have interests in the
merger that are different from, or in addition to, your interests as
stockholders in CBOC. These interests exist because of the employment agreement
that President Thomas Ebenreiter and Community Bank of Oconto County have
entered into as of June 30, 2000. The agreement provides the officer with
severance benefits if his employment is terminated after the merger.
The interests also arise from provisions in the merger agreement
relating to the appointment of three CBOC directors to the Merchants Board. 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 19-24)
Marshall Financial Consulting LLC delivered to the CBOC Board its
written opinion that the consideration you will receive for your CBOC stock is
fair, from a financial point of view, to the CBOC 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.
DISSENTING SHAREHOLDERS' RIGHTS (pages 35-37)
If you follow certain procedural requirements, you may be entitled to
receive cash in the amount of the fair value of your CBOC shares instead of the
shares of Merchants common stock offered in the merger. The fair value of the
shares of CBOC 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."
-4-
<PAGE> 14
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 34, 35)
The merger will be tax-free to CBOC 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
CBOC 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 26, 27)
The merger is subject to the approval of the Federal Reserve Board and
the Wisconsin Department of Financial Institutions.
CERTAIN CONSIDERATIONS (pages 18, 19)
In deciding whether to vote in favor of the merger agreement, you
should carefully evaluate the matters discussed in the section under "THE MERGER
- Certain Considerations."
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, 1999, 1998 and 1997
and the nine months ended September 30, 2000, and CBOC Common Stock for the
years ended December 31, 1999, 1998 and 1997 and the nine months ended September
30, 2000 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 CBOC, 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 "CONSOLIDATED 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 Nine At or For the Year
Months Ended Ended December 31,
September 30, 2000
(unaudited) 1999 1998 1997
<S> <C> <C> <C> <C>
Historical:
Net income $ 1.61 $ 1.62 $ 1.86 $ 1.69
Cash dividends declared 0.50 0.57 0.49 0.38
Book value 20.26 19.16 19.02 17.90
Pro forma combined:
Net income (1) $ 1.50 $ 1.58 $ 1.77 $ 1.60
Cash dividends declared (2) 0.50 0.57 0.49 0.38
Book value 18.79 17.80 17.60 16.46
</TABLE>
CBOC Common Stock
<TABLE>
<CAPTION>
At or for the Nine At or for the Year
Months Ended Ended December 31,
September 30, 2000
(unaudited) 1999 1998 1997
Historical: (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income $ 5.93 $ 8.25 $ 7.89 $ 7.06
Cash dividends declared 3.00 3.00 2.50 2.00
Book value 69.91 66.36 64.30 58.29
Equivalent pro forma
combined: (3)
Net income $ 1.03 $ 1.43 $ 1.37 $ 1.23
Cash dividends declared 0.52 0.52 0.43 0.35
Book Value 12.16 11.54 11.18 10.14
</TABLE>
(1) Pro forma net income was computed assuming 2,561,586; 2,566,262;
2,530,897 and 2,464,492 fully diluted shares of Merchants outstanding
for the periods ended September 30, 2000, December 31, 1999 1998 and
1997, respectively.
(2) Based on historical dividends of Merchants.
(3) The pro forma equivalent per share data for CBOC has been computed by
multiplying the pro forma combined per share information by 5.746,
which represents the exchange ratio assuming that the Daily Average
Price of Merchants is between $31.50 and $28.00.
-6-
<PAGE> 16
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>
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
Third Quarter 44.00 41.00 0.15
Fourth Quarter 42.50 35.50 0.15
2000
First Quarter $ 38.50 $ 34.00 $ 0.15
Second Quarter 38.00 35.00 0.20
Third Quarter 34.50 28.38 0.15
Fourth Quarter (partial through
November 30, 2000) 29.75 23.12 0.15
</TABLE>
-7-
<PAGE> 17
On July 31, 2000, 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 $33.75 per share. On October 20,
2000, 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 $28.75 per share. Assuming the Merger had occurred on such
date, at the Bid price the equivalent market value per share of CBOC Common
Stock, calculated by multiplying the Bid price of Merchants Common Stock by the
applicable exchange rate of 5.746, would have been $165.20 which represents
236.3% of September 30, 2000 book value of CBOC and a price to earnings ratio of
20.9x, based on CBOC's annualized net income for the first 9 months of 2000. See
also "THE MERGER-Opinion of CBOC 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 October 20, 2000, there were approximately 1,032 holders of record
and beneficial owners of Merchants Common Stock.
CBOC Common Stock
CBOC Common Stock is not listed on any exchange or quoted in the
over-the-counter market. There is no established trading market for CBOC Common
Stock. In the opinion of CBOC, due to the lack of an active market for CBOC
Common Stock, transactions in CBOC Common Stock of which CBOC is aware are not
frequent enough to produce representative prices.
The Board of Directors of CBOC declared the following per-share
dividends in 1997, 1998, 1999 and during the first 9 months of 2000,
respectively: $2.00, $2.50, $3.00 and $3.00. Pursuant to the Merger Agreement,
the ability of CBOC to pay dividends on CBOC Common Stock prior to the Effective
Time has been restricted to the payment of dividends in the ordinary course
consistent with past practice.
On the Record Date, there were 122 holders of record of CBOC 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 CBOC 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 "CONSOLIDATED FINANCIAL STATEMENTS" and "UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION."
-8-
<PAGE> 18
Selected Historical Financial and Other Data
(In thousands, except per-share data)
<TABLE>
<CAPTION>
Merchants
At or for the Nine Months At or for the Year
Ended September 30 Ended December 31,
(unaudited)
2000 1999 1999 1998 1997 1996 1995
----------------------- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $524,913 $449,389 $474,383 $441,486 $391,685 $358,694 $347,991
Loans, Net 422,018 343,444 363,435 312,761 281,058 241,515 215,409
Investment
securities 62,068 67,743 66,129 67,752 66,827 63,448 74,695
Deposits 404,451 382,291 377,333 372,118 337,429 302,387 296,489
Borrowings 72,849 21,915 53,398 27,333 15,392 21,017 16,597
Shareholders'
equity 42,040 40,621 40,426 39,437 36,772 32,691 32,055
Interest income 28,181 23,400 31,728 30,449 27,820 25,639 24,459
Interest 13,996 10,312 13,999 14,117 12,495 11,600 11,042
expense
Provision for
loan losses 475 796 956 314 227 605 156
Other income 2,383 2,650 3,491 3,307 2,507 2,370 2,079
Other expenses 11,156 10,702 14,956 13,433 12,270 12,566 11,534
Income tax 1,561 1,383 1,905 2,042 1,955 1,090 1,373
Net income 3,376 2,857 3,403 3,850 3,380 2,148 2,433
</TABLE>
-9-
<PAGE> 19
<TABLE>
<CAPTION>
CBOC
At or for the Nine At or for the Year
Months Ended September Ended December 31,
30, (unaudited)
2000 1999 1999 1998 1997 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $61,718 54,504 $58,885 $53,316 $48,906 $44,467 $42,563
Loans 35,975 31,904 30,717 30,120 27,307 26,248 26,234
receivable,
net
Investment
securities 19,634 16,059 19,250 12,696 12,579 11,447 13,118
Deposit
accounts 55,439 48,652 52,892 47,740 43,607 39,612 38,077
Borrowed 376 442 381 174 424 294 573
funds
Shareholders'
equity 5,593 5,163 5,309 5,144 4,663 4,240 3,728
Interest income 3,076 2,792 3,777 3,616 3,354 3,282 3,187
Interest
expense 1,660 1,383 1,864 1,861 1,661 1,622 1,642
Provision for
loan losses 27 9 18 34 29 38 70
Other
income 284 236 317 382 326 321 88
Other
expenses 1,047 999 1,327 1,274 1,197 1,048 1,004
Income tax 152 157 224 198 228 288 216
Net income 474 480 661 631 565 607 343
</TABLE>
-10-
<PAGE> 20
PRO FORMA DATA REFLECTING THE CBOC MERGER
In the following tables, we provide unaudited pro forma condensed
combined financial data of Merchants and subsidiaries which includes the
historical data for Merchants and CBOC. The data are based on an assumption that
Merchants Common Shares are issued for one hundred percent (100%) of CBOC shares
outstanding on September 30, 2000, at an exchange rate of 5.746 shares of
Merchants for each share of CBOC. Operating results data assumes that this
transaction occurred on the first day of each period shown, whereas financial
condition data assumes that this transaction occurred at the date indicated. The
per share information is calculated assuming the number of shares outstanding is
unchanged throughout each respective time period.
In accordance with generally accepted accounting principals, the Merger
will be accounted for using the pooling of interests method. Accordingly, the
recorded assets and liabilities of both Merchants and CBOC will be carried
forward at their recorded amounts and their historical operating results will be
unchanged for the prior periods being reported on. No goodwill will be recorded
as a result of this transaction.
We present this pro forma data as an illustration only. It does not
necessarily indicate the financial position or financial results that would have
actually been reported if the Merger had occurred as of, or at, the beginning of
the periods presented, nor does it necessarily indicate future financial
position or results of operations. The pro forma results of operations neither
assume nor incorporate any benefits from cost savings or synergies of operations
of the combined companies.
Selected Unaudited Pro Forma Financial Data
($ in thousands except per share data)
<TABLE>
<CAPTION>
For the Nine
Months Ended For the Year Ended
September 30, December 31,
2000 1999 1999 1998 1997
--------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement
Interest Income $31,257 $26,192 $35,505 $34,065 $31,174
Interest Expense 15,656 11,695 15,863 15,978 14,156
Net Interest
Income 15,601 14,497 19,642 18,087 17,018
Loss Provision 502 805 974 348 256
Other Income 2,667 2,886 3,808 3,689 2,833
Other Expense 12,203 11,701 16,283 14,707 13,467
Income Before Tax 5,563 4,877 6,193 6,721 6,128
Income Tax 1,713 1,540 2,129 2,240 2,183
Net Income 3,850 3,337 4,064 4,481 3,945
Per Share
Basic earnings per
share $ 1.50 $ 1.30 $ 1.58 $ 1.77 $ 1.60
Diluted earnings
per share 1.49 1.28 1.56 1.73 1.57
</TABLE>
-11-
<PAGE> 21
<TABLE>
<CAPTION>
At the Nine At the Year Ended
Months ended September December 31
30
Balance Sheet 2000 1999 1999 1998 1997
-------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans-Net $457,993 $375,348 $395,534 344,585 $309,591
Assets 586,631 503,893 533,268 494,802 440,591
Deposits 459,890 430,943 430,225 419,858 380,856
Shareholders'
Equity 47,633 45,784 45,735 44,581 41,435
Weighted Average
Shares
Basic weighted 2,562 2,565 2,566 2,531 2,464
average shares
outstanding
Diluted weighted 2,581 2,608 2,613 2,594 2,519
average shares
outstanding
</TABLE>
-12-
<PAGE> 22
THE SPECIAL MEETING
Date, Place and Time
A special meeting will be held at the Community Bank of Oconto County,
500 Cherry Avenue, Oconto Falls, Wisconsin, on January 9, 2001, 4:30 p.m. (local
time) (the "Special Meeting").
Matters to Be Considered at the Special Meeting.
At the Special Meeting, holders of CBOC Common Stock will consider and
vote upon a proposal to approve the Merger Agreement and Plan of Merger 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 CBOC Common Stock entitled to vote at the Special Meeting is required
to approve the Merger Agreement. Each share of CBOC 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 30,185 shares or approximately 37.7% of CBOC 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 properly executed proxies for CBOC 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 and Plan of
Merger.
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 CBOC 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 CBOC Common Stock at the close of business on
December 8, 2000, (the "Record Date") will be entitled to receive notice of and
to vote at the Special Meeting.
At the Record Date, 80,000 shares of CBOC Common Stock were
outstanding. Shares representing a majority of the outstanding shares of CBOC
Common Stock entitled to vote must be represented in person
-13-
<PAGE> 23
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 and Plan of Merger. 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.
Solicitation of Proxies
CBOC will bear the cost of the solicitation of proxies from its
shareholders, except that Merchants will be responsible for 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 CBOC may solicit proxies from shareholders of CBOC 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, CBOC
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 CBOC has
monitored the changes in the banking industry and the future of independent
banks in smaller communities in Wisconsin.
The CBOC Board considered the increasing competition in the banking
industry, the need for ever larger capital expenditures to provide desired
customer services, the general reduction in support for community banks by some
of their corresponding banks and the increasingly complex regulatory and market
structure. The CBOC 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 CBOC Board discussed from time to time the
possibility of combining with another bank or bank holding company, forming an
expanded bank holding company, and making suitable acquisitions and growing
internally. As a result of these discussions, the CBOC Board realized that it
would not be possible to realize sufficient growth through small acquisitions
and internally-generated growth to effectively compete with the large
competitors in its market.
The CBOC Board thus concluded that a combination with another bank or
bank holding company 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.
The Board believed that it was very important for the Bank to retain
its identity as a separately chartered community bank, to retain the name of
Community Bank of Oconto County along with its local management, and to maintain
regular, ongoing input from the local community. Based on its review of other
transactions, the Board felt that the Bank's customers and the community would
suffer a reduction in service
-14-
<PAGE> 24
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, members of the CBOC management and Board periodically
contacted and were contacted by various banks and holding companies regarding
the possible acquisition of CBOC. Finally, in mid-1999, the CBOC Board engaged
Marshall Financial Consulting, LLC ("Marshall") as an advisor to assist in the
preparation and distribution of information packages about CBOC and the Bank to
a limited number of prospective acquirers in order to solicit an offer for CBOC
at a fair and adequate price. By April, 2000, after soliciting 17 potential
purchasers, 11 of whom received the information packages, the Board received
final proposals from three companies ranging between $9,339,000 or $116.74 per
share of CBOC Common Stock, and $15,000,000 or $187.50 per share of CBOC Common
Stock.
Despite receiving an offer from another company, ("Other Company") for
a greater purchase price ($15,000,000 in Other Company's common stock, based on
then current stock-values), the CBOC Board determined that it was in the best
interests of CBOC and its shareholders to accept Merchants offer of $14,480,000
or $181.00 per share of CBOC Common Stock, to be received in the form of shares
of Merchants' Common Stock, based on then-current stock values. This decision
was made after the CBOC Board of Directors engaged in extensive discussions with
both Merchants and the Other Company regarding post-merger operational matters
and the merger consideration. CBOC's Board found that the Merchants' community
banking philosophy more closely resembled CBOC's. CBOC's Board was aware that
Merchants' subsidiary banks were operating under local control and with local
autonomy. CBOC's Board was also mindful of the desire of many of its
shareholders and customers to retain a community-oriented bank with local
control. CBOC's Board believes that Merchants will be more likely to retain the
Bank's name, to operate the Bank with essentially current staff and management,
to solicit local input on decisions regarding banking services, to provide
better banking services to the Oconto County community and to ultimately help
the local community grow and prosper.
The Board also received an offer from the "Other Company" of
$13,000,000 in cash, but decided against the offer for the reasons listed above
and because of the negative tax consequences that a cash-based acquisition would
have on CBOC shareholders.
As a result of the combination with Merchants, because of the greater
resources of the Merchants organization, Community Bank of Oconto County will be
able to more effectively service many business customers in its market area
which it had difficulty accommodating in the past. In addition, the CBOC Board
believes that the shareholders of CBOC will enjoy greater liquidity for their
stock and a means of accurately valuing their investment through a transaction
with Merchants.
As part of the deliberation process, the CBOC 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. A discussion of
Marshall's opinion regarding the exchange is found below.
During the period from January through July, 2000, the Merchants Board
and Merchants Executive Committee held several meetings which culminated in the
approval of a definitive merger agreement by the Merchants Board on July 19,
2000.
After further discussions, an Agreement and Plan of Merger ("Merger
Agreement") embodying the terms of the previous proposal was negotiated with the
assistance of legal counsel and executed by Merchants and CBOC as of August 1,
2000. The parties issued a joint press release announcing the
-15-
<PAGE> 25
transaction. The transaction remains subject to regulatory and shareholder
approval and other conditions set forth in the Merger Agreement.
The Board of Directors of CBOC has approved the Merger Agreement and
believes that the proposed Merger is in the best of CBOC and its shareholders.
Accordingly, the CBOC Board recommends that the shareholders of CBOC vote in
favor of the adoption of the Merger Agreement as discussed herein.
REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS OF CBOC
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, CBOC's current customers will have access to the products
and services offered by Merchants and, conversely, CBOC 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 Oconto
County market which is currently served by Merchants on a limited
basis.
(iv) The similarities between the operations of Merchants and
CBOC 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 CBOC; 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 CBOC
and the financial terms of certain other recent business combinations in the
banking industry.
-16-
<PAGE> 26
CBOC. In considering the Merger, the Directors of CBOC reviewed the
terms and conditions of the proposed Merger Agreement, along with certain
business and financial information relating to Merchants and CBOC. In addition,
the Board of Directors of CBOC 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 Community Bank of Oconto County 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 Oconto County or which might locate in the
community. The Directors of CBOC also concluded that the Merger will enhance
both the long-term and short-term value of CBOC shareholders' investment. Among
the factors important to the directors of CBOC 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
CBOC 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) Merchants' commitment to community banking and to serving
the needs of the local Oconto County community;
(v) 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 CBOC Common Stock;
(vi) The tax-free nature of the Merger for federal income tax
purposes which would permit CBOC's shareholders who receive shares of
Merchants Common Stock to defer federal income taxation under certain
circumstances.
(vii) The potential for future appreciation of Merchants'
Common Stock due to Merchants' greater market presence and financial
resources; and
(viii) The financial terms of other recent business
combinations in the financial services industry.
(ix) The opinion of Marshall that the consideration to be paid
by Merchants in the Merger is fair, from a financial point of view, to
CBOC and its shareholders.
See "THE MERGER - Certain Material Federal Income Tax Consequences."
While each member of CBOC'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 considered and did not
make any determination with respect to any individual factor. CBOC'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 is appropriate, fair and in the best interest of
CBOC's shareholders.
-17-
<PAGE> 27
The Board of Directors of CBOC has determined that the terms of the
Merger are fair to and in the best interests of CBOC and its shareholders for
the reasons stated immediately above.
THE BOARD OF DIRECTORS 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 CBOC
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 CBOC 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 CBOC 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 CBOC 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 CBOC and Merchants operate. In addition,
consolidation and mergers in the banking industry are expected to
continue, resulting in stronger and more effective competitors. Neither
CBOC 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 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.
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(v) Nature of Business. The financial performance of CBOC
results primarily from its retail banking activities located in Oconto
County. CBOC shareholders who receive shares of Merchants Common Stock
will own an interest in a diversified multi-bank holding company
currently operating 20 banking offices located in Milwaukee, Waukesha
and Ozaukee 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 CBOC
Common Stock is based essentially upon the financial condition of CBOC
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.
(viii) Loan Losses. Losses on loans is a risk inherent in the
banking business. Although Merchants maintain a reserve to absorb
future loan losses, we cannot predict such losses with certainty.
Therefore, we cannot predict whether the reserve for loan losses will
be adequate. If additions to the loan los reserve should be required at
some future time, our earnings could be adversely affected at that
time.
(ix) Future Needs for Capital. In order to fund its expansion
plans, or to provide capital to support internal growth of its
subsidiaries, or to raise funds for other general corporate purposes,
Merchants may, from time to time, issue additional securities,
including debt instruments. The issuance of debt instruments (such as
notes or debentures) may have an adverse effect on future earnings of
Merchants if the return on the proceeds of the debt securities is
inadequate in relation to the interest expense. Additionally, in the
event Merchants defaults in the payment of principal or interest on
such debt securities, the dividend and liquidation rights of holders of
Merchants Common Stock are likely to be subordinated to the rights of
the holders of such debt instruments. At this time, Merchants is
actively involved in planning the future issuance of debentures.
However, no definitive, required legal action has been taken in the
matter at this time.
Merchants may also satisfy future needs for additional capital funds
through the issuance of additional equity capital (such as common
stock). In that event, holders of Merchants Common Stock may experience
dilution in ownership and per-share earnings.
Opinion of CBOC Financial Advisor
The CBOC Board retained Marshall Financial Consulting LLC ("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 CBOC Common Stock. On July 22, 2000,
Marshall rendered its opinion to the CBOC Board (subsequently confirmed as of
the date of this Proxy
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Statement/Prospectus) to the effect that the Merger Consideration was fair, from
a financial point of view, to the holders of CBOC 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 CBOC COMMON STOCK AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY CBOC 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 CBOC 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 to CBOC's and Merchants' recent
filings with regulatory authorities; (ii) reviewed the Merger Agreement; (iii)
compared the historical market prices and trading activity of CBOC and Merchants
Common Stock with those of certain other publicly traded companies Marshall
deemed relevant; (iv) compared the financial position and operation results of
CBOC 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 CBOC's and Merchants' senior management concerning CBOC's and
Merchants' historical and current financial condition and operating results, as
well as the future prospects of CBOC and Merchants, respectively. Marshall had
been requested to, and did, solicit third party indications of interest in
acquiring all of CBOC. Marshall solicited 17 potential purchasers and 11 of such
executed a confidentiality agreement and received the offering brochure of CBOC.
Marshall received three written offers from the 11 recipients of the brochures.
Marshall analyzed the three offers and reviewed such offers with CBOC's Board of
Directors. 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 CBOC and Merchants in arm's-length
negotiations. CBOC 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 CBOC and Merchants, and
was not engaged to independently verify any such information. Marshall assumed,
with CBOC's and Merchants' consent, that (i) all material assets and liabilities
(contingent or otherwise, known or unknown) of CBOC 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 waiver of 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
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that the financial forecasts examined by it were reasonably prepared on bases
reflecting the best available estimates and good faith judgments of CBOC'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 CBOC or Merchants, nor did it make a physical inspection of the
properties or facilities of CBOC 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 thirty 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 $25
million. The assets of the comparables ranged from $38.7 million to $282.2
million with the median being $74.7 million and the mean being $89.1 million.
The equity to asset ratio for the comparables ranged from 6.57% to 21.27% with
the median and the mean being 10.57% and 10.99% respectively. The return on
average assets for the comparables ranged from .28% to 2.95% with the median and
the mean being 1.28% and 1.32%, respectively. The comparables' return on equity
ranged from 3.02% to 27.34% with the median and the mean being 11.50% and
12.77%, respectively. The price to book of the comparables ranged from 115.38%
to 382.37% with the median and the mean being 200.55% and 204.43%, respectively.
The price to tangible book for the comparables ranged from 115.38% to 383.11%
with the median and the mean being 204.65% and 205.75%, respectively. The
comparables' price to latest twelve months net income ranged from 10.14x to
42.46x with the median being 17.44x and the mean being 17.00x, respectively. The
tangible premium to core deposits for the comparable companies ranged from 1.97%
to 36.74% with the median and mean being 12.14% and 13.05%, respectively.
Analysis of CBOC Valuation Multiples. Marshall calculated the "Implied
Equity Value Per Share" reflected by the terms of the Merger to be $181 for each
share of CBOC Common Stock, obtained by dividing $181 by assumed Merchants'
Daily Average Price (as defined in the Merger Agreement) ranging from $31.50 per
Merchants' share to $38.50 per Merchants' share. Marshall then calculated the
"Implied Total Equity Value: to be $14,480,000 million, obtained by multiplying
the Implied Equity Value Per Share by the total number of outstanding shares of
CBOC Common Stock. In performing its analysis, Marshall used, among other items,
operating statistics for CBOC's twelve months through December 31, 1999 and
March 31, 2000. Marshall calculated multiples of the Implied Total Equity Value
to CBOC'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 21.86x based on December 31,
1999 results, and 19.13x based on December 31, 2000 estimated earning, 274.20%
of book value, 274.20% of tangible book value and an 18.72% tangible premium to
core deposits.
As no comparative group or transaction from any comparative group is
identical to the Merger, Marshall indicated to the CBOC 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 CBOC and Merchants and the selected companies and transactions
reviewed.
Analysis of Publicly Traded Companies Comparable to CBOC. Marshall
reviewed certain publicly available financial and stock market information for
certain publicly traded companies which Marshall deemed relevant. These
companies consisted of: Princeton National Bancorp, Inc., Northern States
Financial
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Corp., Union Bancorp, Inc., Amcore Financial, Inc., Old Second Bancorp, Inc.,
First Merchants Corp., Shoreline Financial Corp., Independent Bank Corp., Gold
Bancorporation Corp, Inc. and German American Bancorp ("Comparable Companies").
The data described below for such group is as of December 31, 1999 and March 31,
2000 and is compared to CBOC's financial information, as reported, as of
December 31, 1999 and March 31, 2000.
Marshall noted that the equity to assets for CBOC was 9.60% compared
with a median of 7.86% and a mean of 8.60% for the Comparable Companies. The
equity to assets for the Comparable Companies ranged from a high of 10.13% to a
low of 6.48%. Marshall also noted the following operating performance statistics
for CBOC compared to the Comparable Companies: (i) the net interest margin for
CBOC was 3.88% compared to a median of 4.15% and a mean of 4.10%. (The range for
net interest margin of the Comparable Companies was a high of 4.47% to a low of
3.55%); (ii) the efficiency ratio for CBOC was 58.78% compared to a median of
68.84% and a mean of 68.40% for the Comparable Companies. (The range for the
efficiency ratio for the Comparable Companies was 45.13% to 89.40%); (iii) the
return on average assets for CBOC was 1.26% compared to a median of 1.26% and a
mean of 1.40% for the Comparable Companies. (The range on average assets was
.34% and 1.66% for the Comparable Companies), (iv) the return on average equity
for CBOC was 13.23% compared to a median of 12.04% and a mean of 12.18% for the
Comparable Companies. (The range for the return on average equity was 4.97% to
17.18% for the Comparable Companies.)
Discounted Earnings Analysis. Marshall performed a discounted earnings
analysis of CBOC on a stand-alone basis using CBOC management's projections of
future earnings for the five-year period ending December 31, 2004. Marshall
estimated terminal values for CBOC using asset growth rates of 4.00%, return on
average assets of 1.25%, cash dividend payout ratio of 35% of earning in 2000,
2001, 2002, 2003, and 2004, discount rates of 9%, 11% and 13%, and terminal book
value multiples of 110%, 120% and 130%. Based upon projections, Marshall
calculated an implied per share price from $106 to $140 per share of CBOC 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 March 31, 2000 for Merchants and stock market information
of certain selected publicly traded companies which Marshall deemed relevant.
Such comparable companies consist of Princeton National Bancorp, Inc., Northern
States Financial Corp., Union Bancorp, Inc., Amcore Financial, Inc., Old Second
Bancorp, Inc., First Merchants Corp., Shoreline Financial Corp., Independent
Bank Corp., Gold Bancorporation Corp, Inc. and German American Bancorp (the
"Merchants' Comparable Companies"). The data described below for such group is
as of December 31, 1999 and March 31, 2000. Marshall noted the following
operating performance statistics for Merchants compared to the Merchants
Comparable Companies: (i) Merchants' net interest margin was 3.69% compared to a
median of 4.15% and a mean 4.10% for the Merchants' Comparable Companies (the
range for net interest margin was 3.55% to 4.47% for the Merchants' Comparable
Companies); (ii) the efficiency ratio for Merchants was 67.00% compared with a
median of 68.84% and a mean of 68.40% for the Merchants' Comparable Companies
(The range for the efficiency ratio was 45.13% to 89.40% for the Merchants'
Comparable Companies); (iii) the return on average assets for Merchants was .76%
compared to a median of 1.26% and a mean of 1.40% for the Merchants' Comparable
Companies (The range for the return on average assets was .34% to 1.66% for the
Merchants' Comparable Companies); (iv) the return on average equity for
Merchants was 8.76% compared to a median of 12.04% and a mean of 12.18% for the
Merchants'
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Comparable Companies (The range for the return on average equity was 4.97% to
17.18% for the Merchants' Comparable Companies); (v) the ratio of non-performing
assets to total assets for Merchants was .50% compared with a median of .44% and
a mean of .51% for the Merchants' Comparable Companies (The range for the
non-performing assets to total assets was .20% to .88% 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 CBOC (prepared
by CBOC'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 2000 by 9.4%. Merchants furnished Marshall with certain
projections for the year ended December 31, 2001. Such projections show that the
transaction is not dilutive to earnings per share in 2001. The analysis shows
that it is dilutive to book value per share by 6.8% at March 31, 2000.
Stock Trading Analysis. Marshall reviewed the historical trading prices
and volume of Merchants Common Stock for the three years ending December 31,
1999 and six months ended June 30,2000. The price of Merchants Common Stock
ranged from a high to a low from January 1, 1997 through December 31, 1997 of
$29.09 to $16.97, from $42.50 to $25.00 January 1, 1998 through December 31,
1998, from $44.00 to $35.50, January 1, 1999 through December 31, 1999, and
$39.00 to $34.50 from January 1, 2000 to June 30, 2000, respectively. The
trading volumes in calendar year 1997, 1998, 1999 and the six months ended June
30, 2000 were 54,185, 98,565, 159,600 and 147,100 shares, respectively.
Merchants furnished Marshall with certain projections for the year ended
December 31, 2001. Such projections show that the transaction is not dilutive to
earnings per share in 2001.
Contribution Analysis. Marshall analyzed the contribution of each of
CBOC and Merchants to the pro forma company of assets, deposits, net income,
estimated net income, tangible equity and ownership at or through December 31,
1999. Marshall calculated that: Merchants would contribute 89.98% and CBOC
10.02% of assets; Merchants would contribute 88.22% and CBOC 11.78% of deposits;
Merchants would contribute 86.09% and CBOC 13.91% of 1999 net income, Merchants
would contribute 86.77% and CBOC 13.23% of forecasted 2000 net income; Merchants
would contribute 88.51% and CBOC 11.49% of tangible equity; and Merchants would
represent 84.06% and CBOC 15.94% based on the issuance by Merchants of 413,680
shares out of a pro forma total of 2,595,018 shares.
In connection with its written opinion dated October 31, 2000, Marshall
confirmed the appropriateness of its reliance on the analyses used to render its
opinion dated July 22, 2000, 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 CBOC 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 analyses 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.
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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. CBOC 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 August 25, 1999, between CBOC and
Marshall, CBOC has paid Marshall a non-refundable retainer fee of $10,000, a fee
of $25,000 for rendering its opinion dated July 22, 2000, and will pay a closing
fee of 1/2 of 1% of the consideration paid for the common stock of CBOC, less
the $35,000 previously paid. CBOC also has agreed to reimburse Marshall for
certain of its out-of-pocket expenses incurred in connection with its
engagement. Additionally, CBOC has agreed to indemnify Marshall against certain
liabilities, including liabilities under the federal securities laws, incurred
in connection with the engagement of Marshall by CBOC.
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 Ebenreiter, Chairman of the
Board of Directors and President and Chief Executive Officer of CBOC and the
Bank will be elected to the Board of Directors of Merchants. In addition, Mr.
Richard Pamperin and Mr. Michael Judge, Directors of CBOC and the Bank will be
elected to the Board of Directors of Merchants. As of June 30, 2000, Mr.
Ebenreiter has entered into an employment agreement with the Bank which will
continue after the Bank becomes a subsidiary of Merchants as a result of the
Merger. The employment agreement will continue for two years (unless sooner
terminated as provided in the employment agreement). The employment agreement
provides for Mr. Ebenreiter to serve as president and chief executive officer of
the Bank on a full-time basis during the first year and on a half-time basis
during the second year of the agreement. In addition to an annual base salary,
Mr. Ebenreiter will be entitled to such other benefits as are generally made
available to other officers serving in comparable positions at the Bank or other
subsidiaries of Merchants. Mr. Ebenreiter has agreed not to compete with the
Bank or its affiliates during the employment period and for two years after
termination of employment with the Bank.
Merchants (through the Bank as employer) will succeed to the Bank's
obligations with respect to the employment agreement. The Boards of Directors of
Merchants and CBOC 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 CBOC Common Stock
outstanding at the Effective Time will be converted into the right to receive
shares of Merchants Common Stock subject to the provisions with respect to
fractional shares or unless dissenters' rights have been perfected. The number
of shares of Merchants Common Stock to be received by shareholders of CBOC for
each share of CBOC Common Stock will be computed as follows:
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1. If the Daily Average Price of Merchants Common Stock is
between $31.50 and $38.50, each share of CBOC Common Stock
will be exchanged for the number of shares of Merchants Common
Stock equal to $181.00 divided by the Daily Average Price.
2. If the Daily Average Price of Merchants Common Stock is
between $28.00 and $31.50, each share of CBOC Common Stock
will be exchanged for 5.746 shares of Merchants Common Stock.
3. If the Daily Average Price of Merchants Common Stock is
between $38.50 and $42.00, each share of CBOC Common Stock
will be exchanged for 4.701 shares of Merchants Common Stock.
4. If the Daily Average Price is less than $28.00 or greater than
$42.00, then Merchants and CBOC will make a good faith effort
to renegotiate the Merger Consideration.
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 CBOC if such quotations
are not published in the Milwaukee Journal Sentinel) on each of the twenty (20)
trading days preceding the fifth day prior to the Effective Time. On each of
such 20 trading days, the Bid and Ask prices will be averaged to calculate the
market quotation for that day, and the resulting twenty (20) market quotations
will be summed and the result divided by twenty (20) 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 $2.00 on any of the 20 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 $28.00 or greater than $42.00, then Merchants and CBOC 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
CBOC shareholders would receive in the Merger and whether Merchants and CBOC
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 CBOC shareholders, the Merger will be completed
in the fourth calendar quarter of 2000, although no assurance as to the time of
completion can be given.
In the event that the Daily Average Price is less than $28.00 or
greater than $42.00 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 CBOC, 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.
In the event it becomes necessary to renegotiate the exchange ratio
pursuant to the terms of the Merger Agreement, the CBOC Board of Directors is
likely to consult with its legal and financial advisors to determine the
fairness of a renegotiated exchange ratio. Shareholders of CBOC should note that
the
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fairness opinion obtained by the CBOC 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 $28.00 or more than $42.00. 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 CBOC 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 CBOC 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 CBOC were to continue as an independent entity. In addition, the CBOC 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 CBOC 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 subsidiary banks of Merchants and CBOC 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.
Merger Corp. and Merchants have 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 October 23, 2000.
Merger Corp. and Merchants received approval of their application from
the Federal Reserve Bank as of November 17, 2000.
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
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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.
Merger Corp. and Merchants have filed an application with the DFI on
October 11, 2000. Merchants and Merger Corp. are awaiting approval of their
application from the DFI. 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 CBOC 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 CBOC 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 CBOC to Merchants.
Merchants and CBOC 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 of the articles of Merger 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, 2000, unless such condition is waived. Upon consummation of the
Merger, CBOC 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 MERGER AGREEMENT - Conditions to
Consummation of the Merger" and "CERTAIN PROVISIONS OF THE MERGER AGREEMENT -
Termination."
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Conversion of Shares, Procedure for Exchange of Certificates; Fractional Shares
At the Effective Time and without any action on the part of Merchants,
CBOC or the holders of CBOC Common Stock, each share of CBOC Common Stock issued
and outstanding immediately prior to the Effective Time (other than shares held
by CBOC 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 CBOC 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 CBOC 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 CBOC
Common Stock has been converted. Certificates previously representing shares of
CBOC 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, Milwaukee, Wisconsin (the "Exchange
Agent"), for the benefit of the holders of shares of CBOC Common Stock and for
exchange in accordance with the terms of the Merger Agreement, certificates
representing the shares of Merchants Common Stock (such certificates 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 CBOC
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 CBOC Certificates in exchange for certificates
representing shares of Merchants Common Stock. Upon surrender of a certificate
previously representing shares of CBOC 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 CBOC, 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 CBOC 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.
CBOC 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.
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 CBOC 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
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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 CBOC 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 CBOC Common Stock.
No certificates or scrip representing fractional shares of Merchants
Common Stock shall be issued upon the surrender for exchange of CBOC 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 date of the
Effective Time. 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 CBOC for six months after the Effective Time shall be delivered
to Merchants, upon demand, and any shareholders of CBOC 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 CBOC shall be liable to any holder of shares of
CBOC Common Stock for any such shares of CBOC 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 CBOC 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 CBOC shall be closed,
and there shall be no further registration of transfers of shares of CBOC Common
Stock thereafter on said record books. From and after the Effective Time, the
holders of certificates of CBOC Common Stock shall cease to have any rights with
respect to such shares of CBOC Common Stock except as otherwise provided in the
Merger Agreement, or by law. On or after the Effective Time, any certificate of
CBOC Common Stock presented 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.
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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, Milwaukee, Wisconsin, is the transfer agent and
registrar for all outstanding Merchants Common Stock.
THE FOLLOWING DESCRIPTION OF MERCHANTS COMMON STOCK SHOULD BE READ
CAREFULLY BY CBOC SHAREHOLDERS SINCE, AT THE EFFECTIVE TIME, EACH ISSUED AND
OUTSTANDING SHARE OF CBOC COMMON STOCK WILL BE CONVERTED INTO THE RIGHT TO
RECEIVE SHARES OF MERCHANTS COMMON STOCK AT THE EXCHANGE RATIO DESCRIBED ABOVE
UNDER "MERGER CONSIDERATION".
General. Merchants has one class of common stock, the Merchants Common
Stock. Of the 6,000,000 shares of Merchants Common Stock authorized, 2,104,459
shares were outstanding as of August 1, 2000 (the date of the Merger Agreement),
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).
Comparison of Shareholder Rights
The following is a summary of material differences between the rights
of holders of CBOC Common Stock and Merchants Common Stock. As CBOC 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
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of CBOC and Merchants arise from differences between the provisions of the
Merchants Articles and By- laws and those of CBOC. Shareholders of CBOC, whose
rights are governed by CBOC'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 CBOC and the rights
of shareholders of Merchants.
Authorized Capital Stock
CBOC. Under CBOC's Articles of Incorporation, the aggregate number of
shares which it is authorized to issue is 250,000 shares of one class of common
stock, $1.00 par value. All shares of CBOC Common Stock are identical in rights
and have one vote. The holders of CBOC Common Stock are entitled to such
dividends as may be declared from time to time by the Board of Directors of CBOC
from funds available therefor and upon liquidation are entitled to receive pro
rata all assets of CBOC available for distribution to such holders, CBOC has no
authorized shares of preferred stock and, accordingly, the rights of holders of
CBOC Common Stock to receive dividends or payment in the event of voluntary or
involuntary dissolution, liquidation or winding up of CBOC 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
CBOC. Pursuant to the WBCL, the affirmative vote of a majority of the
shares of CBOC Common Stock is generally required to adopt amendments to CBOC's
Articles of Incorporation or approve mergers and certain other extraordinary
transactions. However, Article 5 of CBOC's Articles of Incorporation (relating
to CBOC's Board of Directors) requires the affirmative vote of 80% of the
outstanding shares of all classes of CBOC stock entitled to vote thereon.
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.
Classified Board of Directors
CBOC. Pursuant to Article 5 of CBOC's Articles of Incorporation, CBOC'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. Pursuant to Article 5 and Section 3.02 of CBOC's By-laws, CBOC's Board
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consists of not less then three (3) nor more than twelve (12) members, with the
exact number fixed from time to time by the Board. The present Board of CBOC
consists of ten (10) members. 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. Article 5 requires the affirmative vote of 80% of the
outstanding shares of all classes of CBOC stock entitled to vote thereon.
Section 3.02 of CBOC's By-laws requires the affirmative vote or consent of the
holders of four-fifths of the shares of all classes of CBOC stock entitled to
vote on such amendment; provided, however, that if any class or series of shares
is entitled to vote on the amendment as a class, such amendment requires the
affirmative vote of four-fifths of the shares of each class of shares and series
entitled to vote on the amendment as a class and of the total shares entitled to
vote on the amendment.
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.
The present Board of Directors of Merchants consists of fifteen (15) members.
Removal of Directors
CBOC. Pursuant to Article 5 of CBOC's Articles of Incorporation, any
director may be removed from office by the affirmative vote of 80% of the
outstanding shares entitled to vote for the election of such director.
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
CBOC. Any vacancy occurring in the Board of Directors, including a
vacancy created by an increase in the number of Directors, may be filled by the
shareholders by affirmative vote of a majority of the outstanding shares
entitled to vote. During such time as the shareholders fail or are unable to
fill such vacancies, then and until the shareholders act, (i) the Board of
Directors may fill the vacancy by the act of a majority of the Directors present
at a meeting in which a quorum is present; or (ii) if the Directors remaining in
office constitute fewer than a quorum of the Board, they may fill the vacancy by
the affirmative vote of a majority of all Directors remaining 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
CBOC. CBOC's Articles of Incorporation and Bylaws do not contain any
supermajority voting provisions relating to the approval by holders of CBOC
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
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with one or more other corporations or any sale, lease or exchange of all or
substantially all of the assets of 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 CBOC who may be deemed to be
an "affiliate" of CBOC for purposes of Rule 145 under the Securities Act. Each
affiliate identified by CBOC 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 CBOC 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 CBOC 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 CBOC. The foregoing
restrictions are expected to apply to the directors and executive officers of
CBOC.
Pre-Merger Dividend Policy
CBOC. Pursuant to the Merger Agreement, except for dividends paid in
the ordinary course and consistent with past practice, CBOC 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.
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. During the first three quarters of the year 2000, Merchants paid a
quarterly dividend of $0.15, $0.20 and $0.15, respectively, in each case per
share. It is expected that Merchants will pay a quarterly dividend of $0.15 per
share in the fourth quarter of 2000. 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 fees from 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, CBOC has agreed to carry on its
business, and the business of its subsidiary, 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 CBOC in the Merger Agreement. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT - Certain Covenants."
Certain Material Federal Income Tax Consequences
Merchants and CBOC 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 CBOC will
be a party to such reorganization within the meaning of Section 368(b) of the
Code. Accordingly, CBOC, 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 CBOC 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 CBOC 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 CBOC will result from the Merger:
(i) Provided that the Merger of CBOC 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 CBOC, 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 CBOC
Common Stock upon the exchange of CBOC 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 CBOC shareholder's aggregate basis in the Merchants
Common Stock received in the Merger will be the same as the aggregate
basis of CBOC Common Stock exchanged therefor.
(iv) The holding period of the Merchants Common Stock received
by a holder of CBOC Common Stock pursuant to the Merger will include
the period during which CBOC Common Stock
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exchanged therefor was held, provided that the CBOC Common Stock
surrendered was held as a capital asset as of the time of the Merger.
(v) The receipt by a holder of CBOC 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 CBOC 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 CBOC Common Stock. It does not discuss all of
the consequences that may be relevant to holders of CBOC 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 CBOC will be carried forward to the combined corporation at
their recorded amounts; income of the combined corporation will include income
of Merchants and CBOC 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.
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 CBOC 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 CBOC, Inc., 500
Cherry Avenue, Oconto Falls, WI 54154, Attention: Mr. Thomas Ebenreiter,
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
REGARDED AS A WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT FOR PURPOSES OF
ASSERTING DISSENTERS' RIGHTS.
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Furthermore, a CBOC shareholder wishing to assert Dissenters' Rights
may not vote his or her shares in favor of the Merger.
A record holder of CBOC 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 CBOC 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 CBOC 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
CBOC Common Stock, CBOC 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 CBOC for receiving the
Payment Demand from dissenting shareholders may not be less than thirty (30) nor
more than sixty (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 CBOC 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 August 9, 2000. A Payment
Demand may not be withdrawn without CBOC'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 sixty (60) days of the Payment
Demand Date, CBOC will return all deposited certificates to dissenting
shareholders. If the Merger is thereafter effected, CBOC will send a new
Dissenters' Notice within ten (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 thirty (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 Oconto County to determine the fair value of the shares of all
dissenting shareholders whose own estimates of fair value are not accepted by
Merchants.
Shareholders of CBOC considering exercising dissenters' rights should
bear in mind that the "fair value" to be paid for their CBOC 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,
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excluding any appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable."
In the event any holder of CBOC 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 CBOC 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 CBOC Common Stock on which no
voting direction is given will be voted at the Special Meeting in favor of the
Merger, a dissenting shareholder who wishes to have his or her shares of CBOC
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 CBOC 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. 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 CBOC from
considering or proposing such an acquisition, even if such persons were prepared
to pay a higher price per share for CBOC's Common Stock than the price per share
implicit in the exchange ratios described under "Merger Consideration" above.
Other Related Party Transactions
In the ordinary course of conducting their banking and financial
service businesses, each of Merchants, CBOC 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.
Management after the Merger
In the Merger, CBOC will be merged into Merger Corp. and the separate
corporate existence of CBOC 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 officers
and directors of the Bank prior to the Effective Time will continue as officers
and directors after the Effective Time until their successors shall have been
duly elected and qualified, unless they resign or are removed under the
provisions of Bank's Articles of Incorporation or Bylaws.
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement and Plan of Merger, which are attached as Exhibits A and A-1 to this
Proxy Statement/Prospectus and are incorporated herein by reference. Such
summary is qualified in its entirety by reference to the Merger Agreement and
Plan of Merger.
The Merger
The Merger Agreement provides that, following the approval of the
Merger Agreement by the shareholders of CBOC and the satisfaction or waiver of
the other conditions to the Merger, CBOC will be merged with and into Merger
Corp. If the Merger Agreement is approved by the shareholders of CBOC, the
Merger will become effective upon the Effective Time.
At the Effective Time, pursuant to the Merger Agreement, each
outstanding share of CBOC Common Stock will be converted into the right to
receive the number of shares of Merchants Common Stock as described under
"Merger Consideration" above, subject to renegotiation of the exchange ratio if
the Daily Average Price (as defined above) of Merchants Common Stock is less
than $28.00 or greater than $42.00. 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 CBOC's and their
respective subsidiaries' organization and similar corporate matters; (ii) each
of Merchants' and CBOC'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 CBOC 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 CBOC; (viii) filing of tax returns and
payment of taxes; (ix) certain material contracts and contracts relating to
certain employment, consulting and benefits matters of CBOC; (x) retirement and
other employee plans and matters of CBOC 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, 1999, 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 CBOC 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 reorganization under the Code; (xv) certain
environmental matters relating to the properties of CBOC; (xvi) good title to
the properties of CBOC and its subsidiaries, free of liens except as specified;
and (xvii) certain insurance matters.
Certain Covenants
Pursuant to the Merger Agreement, Merchants and CBOC 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
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their respective subsidiaries will operate their respective businesses in a
manner that does not violate any law. In addition, CBOC has agreed that prior to
the Effective Time, CBOC 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 CBOC have each agreed
that prior to the Effective Time (and unless the prior written consent of
Merchants shall have been obtained) CBOC 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 CBOC and its subsidiaries, (vi) purchase and sell
securities in accordance with past practices, (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, 1999; and (x) comply with and perform in all material
respects all obligations and duties imposed by all applicable laws. CBOC has
also agreed that prior to the Effective Time (and unless the prior written
consent of Merchants shall have been obtained), neither CBOC 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 CBOC); (ii)
declare or pay any dividend on its outstanding shares of capital stock except in
the ordinary course, consistent with past practices; (iii) redeem, purchase or
otherwise acquire any shares of CBOC 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 CBOC 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 CBOC 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, 1999,
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 CBOC 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
CBOC's ability to perform its covenants and agreements under the Merger
Agreement or result in 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 CBOC, the Bank or banking regulators) or investment
(excluding U.S. Treasury Securities and municipal loans) in any amount greater
than $100,000 for securities or $500,000 for loans; (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 CBOC
or its subsidiaries taken as a whole, and
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(B) as may be required under existing agreements to which CBOC 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 CBOC or a subsidiary 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 CBOC 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 on CBOC or its subsidiaries, taken as whole.
No Solicitation of Transactions
The Merger Agreement provides that CBOC 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. CBOC 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 CBOC 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 CBOC if the
Board of Directors of CBOC, 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 CBOC to comply with its fiduciary
duties to shareholders imposed by law, and if prior to furnishing such
information to such party, CBOC 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 CBOC or any of CBOC'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
CBOC's shareholders of the 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 CBOC 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.
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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 CBOC 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 CBOC 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 CBOC'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 CBOC 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 CBOC or any of
its subsidiaries, which in either case is reasonably likely to have a material
adverse effect on either CBOC 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) Merchants and CBOC shall have received the
opinion of counsel regarding certain issues under the Securities Act and the
WBCL; (vi) Merchants shall have received from each affiliate of CBOC a signed
letter regarding certain restrictions on the resale of Merchants Common Stock
under Rule 145 of the Securities Act; (vii) 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 in
transactions such as the Merger; (viii) Merchants shall have received from the
Directors of CBOC the Voting Agreement discussed. See "CERTAIN PROVISIONS OF THE
VOTING AGREEMENT." (ix) no material adverse change in the current staff of
executive officers of Merchants shall occur prior to the Effective Time.
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 CBOC: (i) by mutual consent of Merchants and CBOC; (ii) by
either CBOC or Merchants (x) if there has been a breach in any material respect
of any representation, warranty, covenant or agreement on the part of CBOC, 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 CBOC, on the one
hand, or Merchants on the other hand, respectively, shall be discovered to have
become untrue in any material respect, in either
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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 CBOC if any
permanent injunction preventing the consummation of the Merger shall have become
final and nonappealable; (iv) by either Merchants or CBOC if the Federal Reserve
Board or the DFI denied approval of the Merger and neither Merchants nor CBOC
has, within thirty (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 CBOC if the Merger has not been consummated by December
31, 2000, for a reason other than the failure of the terminating party to comply
with its obligations under the Merger Agreement; (vi) by either Merchants or
CBOC if the required approval of the shareholders of CBOC has not been obtained;
(vii) by either Merchants or CBOC if applicable conditions have not been
satisfied or waived by December 31, 2000; (viii) by either Merchants or CBOC if
they are unable to renegotiate the Merger Consideration; if required under
Section 1.06(c)(4) of the Merger Agreement.
In the event of termination of the Merger Agreement by either CBOC 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
CBOC 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 CBOC (except that after the Merger Agreement shall have been
approved by the shareholders of CBOC, no amendment may be entered into which
would reduce the amount or change the consideration into which each share of
CBOC 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
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 party for its respective expenses.
Break-Up Fee
Provided that Merchants has not breached in any material respect its
obligations under the Merger Agreement, CBOC is obligated to pay to Merchants a
fee ("Break-Up Fee") equal to $225,000, if (A) the Board of Directors of CBOC
(i) withdraws, modifies or amends its approval or recommendation of the
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Merger Agreement; (ii) does not at the appropriate time recommend that the
shareholders of CBOC 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) CBOC 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 CBOC has not breached in any material respect its
obligations under the Merger Agreement, Merchants is obligated to pay to CBOC
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 CBOC
and related parties ("directors"). The directors hold 30,185 shares representing
approximately 37.7% of the total voting power of CBOC 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 CBOC 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 CBOC 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:
(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.
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The Voting Agreement binds the actions of the signatories thereto only
in their capacity as shareholders of CBOC, and such shareholders/directors of
CBOC were not and could not be contractually bound to abrogate their fiduciary
duties as directors of CBOC. 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 CBOC 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 CBOC with
respect to any decisions they may take in connection with the Merger or
otherwise.
CERTAIN INFORMATION CONCERNING MERCHANTS
Merchants is a registered financial 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. In 1999, Merchants
acquired the Grafton State Bank. The four subsidiary banks operate a total of
nineteen facilities in Milwaukee, Waukesha and Ozaukee Counties. In addition, to
the four banks, Merchants owns and operates two non-bank subsidiaries, Lincoln
Neighborhood Redevelopment Corporation, which was organized to redevelop and
rejuvenate certain areas of the City of Milwaukee; and M&M Services, Inc. which
provides operational services to the subsidiary banks. 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 September 30, 2000, Merchants had consolidated assets of $525
million and the subsidiary banks had deposits of $404 million.
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, 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.
-44-
<PAGE> 54
Grafton State Bank 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 September 30, 2000, Merchants and its subsidiaries, as a group,
employed 172 full-time and 81 part-time employees.
CERTAIN INFORMATION CONCERNING CBOC
CBOC is a bank holding company incorporated under the laws of the State
of Wisconsin with its principal office in Oconto Falls, Wisconsin. CBOC owns all
the issued and outstanding stock of the Bank, a Wisconsin banking corporation.
As of September 30, 2000, CBOC had total assets of approximately $62 million and
the Bank had deposits of approximately $55 million.
The Bank is a full-service bank serving the banking needs of Oconto
County and the eastern portion of Shawano County which is included in the
Gillett School District. The Bank provides commercial banking services and
products, including savings and demand deposits, real estate, commercial and
consumer loans, collection and safe deposit services and other services tailored
to meet the needs of the individual and business customer.
The Bank owns its main banking premises located at 500 Cherry Avenue,
Oconto Falls, Wisconsin. The Bank operates an additional branch facility at 202
East Main Street in the community of Gillett, Wisconsin (the "Gillett Branch").
The Gillett Branch operates 3 inside teller stations and 1 drive-up window.
CBOC and the Bank are not dependent upon a single or a few customers,
the loss of which would have a material adverse effect on CBOC or the Bank. No
material portion of CBOC's or the Bank's business is seasonal.
At September 30, 2000, CBOC and the Bank employed approximately 17
full-time and 13 part-time employees.
OWNERSHIP OF CBOC COMMON STOCK
The following table sets forth information regarding the beneficial
ownership of CBOC Common Stock as of the Record Date by each director, certain
executive officers, all directors and executive officers of CBOC as a group and
each person who is known by CBOC to be the beneficial owner of more than 5% of
CBOC Common Stock. Directors and executive officers are deemed to own all shares
of CBOC Common Stock which may be owned in joint tenancy, but 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 CBOC.
-45-
<PAGE> 55
<TABLE>
<CAPTION>
NAME OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES CLASS
<S> <C> <C>
Don E. Baker 50 .1%
Donald Bartels 1,200 1.5%
Thomas C. Ebenreiter 4,420 5.5%
Rodney T. Goodell 8,000 10.0%
Dale Halla (held by Hohako & 1,675 2.1%
Co. FBO Dale Halla)
Michael T. Judge 150 .2%
Richard Pamperin 4,074 5.1%
Donald Peterson 1,840 2.3%
James Sharpe 1,400 1.8%
Michael M. Staszak (3,961
shares held by Oconto Falls
Insurance Center) 5,511 6.9%
Everett Yoap 3,540 4.4%
All Directors and executive
officers as a group (11 persons) 31,860 39.8%
Thomas E. Rogers Marital Trust
c/o Peter T. Rogers, Trustee
P. O. Box 497
Marion, WI 54950-0497 4,000 5.0%
</TABLE>
Provided below is information regarding the three (3) directors of CBOC who will
be elected to the Board of Directors of Merchants after consummation of the
Merger:
NAME AGE PRINCIPAL OCCUPATION
Thomas Ebenreiter 73 Banker, Director, President and CEO of Bank
since November 14, 1989; Director, President
and CEO of CBOC since October 14, 1991.
Michael Judge 53 Attorney; Director of Bank since September
13, 1994; Director of CBOC since November
8, 1994.
-46-
<PAGE> 56
Richard Pamperin 59 Banker, Director and Vice President of Bank
since November 14, 1989; Director of CBOC
since October 14, 1991; Director and
President of Premier Community Bank,
Marion, Wisconsin, since December 4, 1978;
President and Director of MSB
Bancorporation, Marion, Wisconsin, since
August 24, 1984. Director of Capital
Bancshares, Green Bay, Wisconsin, since
January 18, 1994.
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, 1999, 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 CBOC as of December 31, 1999,
and for the year then ended have been included in this Proxy
Statement/Prospectus and in the registration statement in reliance upon the
report of Ernst & Young, LLP, independent auditors given on 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 CBOC by Boardman, Suhr, Curry &
Field, LLP, Madison, Wisconsin.
FUTURE SHAREHOLDER PROPOSALS
If the Merger is consummated, shareholders of CBOC will become
shareholders of Merchants. Pursuant to Rule 14a-(8) promulgated under the
Securities Exchange Act of 1934, 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 CBOC who become shareholders of
Merchants may present proposals for inclusion in Merchants' proxy statement for
its year 2001 Annual Meeting as the 2000 Annual Meeting of Merchants has been
held.
-47-
<PAGE> 57
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 CBOC included in this Proxy Statement/Prospectus has been furnished
by CBOC.
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 CBOC. 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 CBOC
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.
-48-
<PAGE> 58
a) Merchants' Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, as amended.
b) Merchants' Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000.
c) Merchants' Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000.
d) Merchants' Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000.
e) Merchants Notice of Annual Meeting and Proxy Statement dated
May 5, 2000.
f) Merchants' Current Report on Form 8-K filed on January 14,
2000, as amended on March 31, 2000.
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
CBOC.
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 (262)827-6700
If you would like to request documents from Merchants, please do so by
January 2, 2001, 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 CBOC contain, or may contain, certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, 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 CBOC set forth under "THE MERGER-Reasons for the
Merger" and "THE MERGER-Opinion of CBOC Financial Advisor" and those preceded
by, followed by or that include the words "believes," "expects," "anticipates,"
"may," "will," "should," "intend," "estimate," "potential" or similar
expressions. For those statements, Merchants and CBOC claim the protection of
the safe harbor provisions for forward-looking statements contained in
-49-
<PAGE> 59
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 CBOC, 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 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 CBOC;
(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. Except as may be
required under federal law, we undertake no obligation to publicly update any
forward-looking statements for any reason, even if new information becomes
available or other events occur. In addition, our past results of operations do
not necessarily indicate our future results.
-50-
<PAGE> 60
EXHIBIT E
CBOC, INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND RATIO DATA)
<TABLE>
<CAPTION>
As of and for the
nine-months ended As of and for the year ended
September 30, December 31,
--------------------------------------------------------------------------------------
2000 1999 1999 1998 1997
---------------- ---------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Income statement data:
Interest income $ 3,076 $ 2,792 $ 3,777 $ 3,616 $ 3,355
Interest expense 1,660 1,383 1,864 1,861 1,661
--------------------------------------------------------------------------------------
Net interest income 1,416 1,409 1,913 1,755 1,694
Provision for loan losses 27 9 18 34 29
Other income 284 236 317 382 326
Other expense 1,048 999 1,327 1,274 1,197
--------------------------------------------------------------------------------------
Income before income taxes 625 637 885 829 794
Income tax expense 151 157 224 198 229
--------------------------------------------------------------------------------------
Net income $ 474 $ 480 $ 661 $ 631 $ 565
======================================================================================
Per common share data:
Net income per share
Basic $5.93 $6.00 $8.26 $7.89 $7.06
Diluted 5.93 6.00 8.26 7.89 7.06
Weighted average shares outstanding
Basic 80,000 80,000 80,000 80,000 80,000
Diluted 80,000 80,000 80,000 80,000 80,000
Cash dividends per share $3.00 $3.00 $3.00 $2.50 $2.00
Balance sheet data:
Total assets $ 61,718 $ 54,504 $ 58,885 $ 53,316 $ 48,906
Loans 36,467 32,497 32,564 32,292 28,968
Allowance for loan losses 492 459 465 468 435
Total deposits 55,439 48,652 52,892 47,740 43,607
Stockholders' equity 5,593 5,163 5,309 5,144 4,663
</TABLE>
CHANGES IN FINANCIAL CONDITION
Total Company assets at year-end 1999 were $58.9 million. During 1999, assets
increased by $5.6 million or 10.4% from December 31, 1998. The majority of this
increase was in investment securities, which increased by $6.5 million or 51.6%
to $19.2 million. The investment security growth experienced was primarily due
to purchases of US Agency securities which offer variable rates and the
guarantee of the US Government. The purchases of these securities were funded by
retail deposit growth.
Total loans increased $272,000 or 0.84% from December 31, 1998 to December 31,
1999. The majority of the increase in loan balances were in residential and
commercial loans located in the Company's primary market area.
Total deposits increased from $47.7 million at December 31, 1998 to $52.9
million at December 31, 1999, an increase of $5.2 million, or 10.8%. All of the
deposit growth occurred within the Company's primary market area. The majority
of the deposit increase was in additional time deposits as well as savings and
money market accounts.
Stockholders' equity increased by $165,000 million or 3.2% in 1999. This
increase resulted from Company net income of $661,000. The increase was
partially offset by a $240,000 dividend paid to shareholders during the period
and a $256,000 reduction in the value of securities available-for-sale.
E-1
<PAGE> 61
During the period from December 31, 1999 to September 30, 2000 total assets
increased $2.8 million or 4.8%, from $58.9 million to $61.7 million; the
majority of the increase was in loans, which increased $3.9 million and
investment securities which increased $2.0 million.
Total deposits also increased by $2.5 million the period from December 31, 1999
to September 30, 2000. The majority of the increase can be attributed to the
growth in money market accounts and certificates of deposit.
Stockholders' equity increased $284,000 from December 31, 1999 to September 30,
2000. The increase resulted from $474,000 of net income and the increase in the
market value of securities categorized as available-for-sale. These increases
were partially offset by a $240,000 dividend paid to shareholders during the
period
RESULTS OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THE
NINE MONTHS ENDED SEPTEMBER 30, 1999
Net income for the nine-month period ended September 30, 2000 was $474,000
compared to $480,000 for the nine months ended September 30, 1999, a decrease of
$6,000 or 1.3%. Basic and diluted net income per share was $5.93 and $6.00 for
the nine-month periods ended September 30, 2000 and 1999, respectively.
Net interest income remained unchanged during the period. A decreased net
interest margin from 3.77% for the nine-month period ending September 30, 1999
to 3.65% for the nine-month period ended September 30, 2000 was offset by a $1.9
million increase in average earning assets during the period.
The balance in the allowance for loan losses is based on management's evaluation
of the loan portfolio. Management determines the adequacy of the allowance for
loan losses based on past loan loss experience, current economic conditions,
composition of the loan portfolio, and the potential for future loss. During the
nine month period ended September 30, 2000, there was $18,000 less in net
charge-offs compared with the same period in 1999. Due to increases in the loan
portfolio the provision for loan losses grew by $18,000 for the nine-month
period ended September 30, 2000. Management believes the allowance is adequate
to absorb any current or future losses in the loan portfolio.
Other income increased by $48,000, or 20.3% for the first nine months of 2000
compared to the first nine months of 1999. This change was due to increases in
service charges on deposit accounts and increased comissions on credit life
insurance.
Operating expenses increased from $999,000 to $1.0 million, an increase of
$49,000, or 4.9% for the first nine months of 2000 compared to the same period
in 1999. Reductions in occupancy expense and other expenses were offset by a
$47,000 increase in salary and related benefit costs.
Income tax expense decreased by $6,000 in the first nine months of 2000 compared
with the same period in 1999 due to a decrease in the before tax income.
RESULTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Net income in 1999 totaled $661,000 or an increase of $30,000 or 4.8% over the
$631,000 earned in 1998. Net income in 1998 was $66,000 or 11.7% over the 1997
level of $565,000. On a per share basis, basic and diluted net income was $8.26,
$7.89 and $7.06 for 1999, 1998 and 1997, respectively. The growth in net income
was due largely to the growth in assets of the Company's subsidiary bank,
increased fee income, and improved operating efficiencies. At December 31, 1999,
1998 and 1997, the total assets per employee were approximately $2.8 million,
$2.5 million and $2.4 million, respectively.
E-2
<PAGE> 62
Net interest income increased $158,000, or 9.0% to $1.9 million in 1999 compared
to $1.8 million in 1998. The 1998 total represented an increase of $61,000, or
3.6% compared to 1997. The net interest margin for 1999 was 3.65% compared with
3.58% in 1998 and 3.88% in 1997. The margin has remained relatively constant
even though competitive pressures and reduced market interest rates have
produced lower loan rates as well as higher costs of retaining deposits. As the
yield on earnings assets has declined from 8.10% in 1997, 7.81% in 1998 and
7.48% in 1999, the cost of funding those earning assets has decreased as well
from 4.22% in 1997, 4.23% in 1998 and 3.83% in 1999. The level of earning assets
increased by $4.8 million from 1997 to 1998 and by $4.2 million from 1998 to
1999.
The provision for loan losses was $18,000 for 1999, representing a decrease of
$16,000 or 47.0% over the $34,000 of loss provision charged to operations in
1998. The 1998 provision was $5,000 more than the $29,000 provision incurred in
1997. The increase in the 1998 provision was principally a result of higher
charge-offs recorded in the period. Due to the increase in loans outstanding,
the percentage of the allowance for loan losses to total gross loans outstanding
decreased from 1.57% to 1.53% from 1997 to 1998 and from 1.53% to 1.49% from
1998 to 1999. Even though the percentage of the loan loss allowance ratio has
been declining management believes the allowance is adequate to absorb any
current or future losses in the loan portfolio.
Other income consists primarily of deposit account service charges, gains on
sales of loans and related fee income. Other income decreased by $65,000 or
17.0% in 1999 compared to 1998 and increased by $56,000 or 17.2% in 1998
compared to 1997. The decrease in 1999 other income can be attributed to a
reduction in secondary market loan fees.
Other expenses increased $53,000 or 4.2% in 1999 compared to a $77,000 or 6.4%
increase in 1998 over 1997 levels. Salary and related benefit expenses increased
by $18,000 or 2.3% in 1999 due to normal pay increases and higher benefit costs.
Similarly, salary and benefits increased by $42,000 or 5.8% from 1997 to 1998.
Occupancy expense decreased $2,000 in 1999 compared to 1998 and increased by
$24,000 or 19.5% in 1998 due partly to additional depreciation associated with
fixed asset expenditures, higher maintenance costs and increased real estate
taxes.
Income tax expense increased by $26,000 or 13.1% from 1998 to 1999 while income
taxes decreased from 1997 to 1998 by $31,000 or 13.5%. The decline in 1998
income taxes can be attributed to the increased balance of tax-exempt
securities. Income before taxes increased each year, from $794,000 in 1997 to
$829,000 in 1998 and to $885,000 in 1999. The effective income tax rate was
25.3%, 23.9% and 28.8% for 1999, 1998 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The concept of liquidity comprises the ability of an enterprise to maintain
sufficient cash flow to meet its needs and obligations on a timely basis. Bank
liquidity must be considered in terms of the nature and mix of the institution's
sources and uses of funds. Bank liquidity is provided from several asset
categories. The asset side of the balance sheet provides liquidity through
maturities of investment securities and repayment and pay-offs of loans. Cash
and amounts due from correspondent banks, interest bearing deposits in banks,
investment securities available for sale and Federal Funds sold are primarily
sources of asset liquidity. At December 31, 1999, these categories totaled
approximately $26.2 million; these categories totaled approximately $25.3
million at September 30, 2000. The Company has no significant plans for major
capital expenditures in 2000.
Management believes that, in the current economic environment, the Bank's
liquidity position is adequate. There are no known trends, nor any known
demands, commitments, events or uncertainties that will result or are reasonably
likely to result in a material increase or decrease in the Bank's liquidity.
EFFECTS OF INFLATION
The Company's consolidated financial statements and notes thereto have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike most industrial
companies, nearly all of the assets and liabilities of the Company are monetary
in nature. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.
E-3
<PAGE> 63
REGULATORY CAPITAL REQUIREMENTS
The Federal Reserve Board, the Company's primary regulator, has adopted
risk-based capital regulations, which require the Company to maintain a
risk-based capital/ratio of at least 8.0%. The Company's capital ratios and
those of the Bank exceed the minimum ratios required by their respective
regulators. The FDIC and the State of Wisconsin Department of Financial
Institutions examine and regulate the Bank.
Management is not aware of any pending regulatory requirements or
recommendations that, if enacted, would have a material adverse impact on the
Company's capital, liquidity, or results of operations.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
For each period ended shown, the allowance for loan losses has been allocated to
the following categories in amounts deemed reasonably necessary to provide for
the possibility of losses being incurred within each category of loans at the
dates indicated.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
(Unaudited) (Unaudited)
Percent of Percent of Percent of
loans in loans in loans in
Allowance each Allowance each Allowance each
for loan category to for loan category to for loan category to
Balance at end of period applicable to: losses total loans losses total loans losses total loans
------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and commercial real estate
loans $146 31.4% $114 24.4% $86 19.8%
Real estate - mortgage 229 49.2 272 58.1 278 64.0
Installment and other loans 90 19.4 82 17.5 71 16.2
----------------------------------------------------------------- ------------
$465 100.0% $468 100.0% $435 100.0%
==============================================================================
</TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
As of and for the year ended December 31,
1998 1997
1999 Unaudited Unaudited
---------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Loan balance at year end $32,564 $32,292 $28,968
---------------------------------------------------------
Balance of allowance for loan losses at beginning of period 468 435 405
Loans charged off:
Commercial loans -- -- --
Real estate - mortgage loans 8 -- --
Installments and other loans 15 2 4
---------------------------------------------------------
Total loans charged off 23 2 4
Recoveries of loans previously charged off:
Commercial loans -- -- --
Real estate - mortgage loans -- -- --
Installments and other loans 2 1 4
---------------------------------------------------------
Total recoveries 2 1 4
Net loans charged off 21 1 --
Additions to allowance for loan losses charged to operating
expense 18 34 30
---------------------------------------------------------
Balance of allowance for loan losses at end of period $465 $468 $435
=========================================================
Ratios:
Net charge-offs to loans outstanding at period end 0.06% 0.00% 0.01%
Net charge-offs to total allowance 4.52% 0.21% 0.92%
Allowance to year end gross loans outstanding 1.43% 1.45% 1.50%
</TABLE>
E-4
<PAGE> 64
LOAN COMPOSITION
The following table summarizes the loan composition at the end of each period.
<TABLE>
<CAPTION>
December 31,
1999 1998
Unaudited
----------------------------------
<S> <C> <C>
(Dollars in thousands)
Commercial $10,886 $9,776
Agricultural production 3,766 3,418
First mortgage
Residential 7,577 7,865
Commercial and multi-family 3,615 4,440
Construction 264 906
Farmland 2,301 2,152
----------------------------------
Total first mortgage 13,757 15,363
Installment and consumer 3,758 3,215
Other loans 397 520
----------------------------------
32,564 32,292
Less: allowance for loan losses 465 468
----------------------------------
Loans, net $32,099 $31,824
==================================
</TABLE>
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES AS OF DECEMBER 31,
1999
<TABLE>
<CAPTION>
Loan maturities (Dollars in thousands)
After 1
through 5
1 Year or less years After 5 years Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial real estate $1,772 $1,843 $0 $3,615
Commercial 6,267 4,381 238 10,886
---------------------------------------------------------------------
Total $8,039 $6,224 $238 $14,501
=====================================================================
Amount over one year with:
----------------
Fixed rates $6,461
================
Floating or adjustable rates $0
================
</TABLE>
PAST DUE AND NONPERFORMING LOANS
The following table reflects as of the period ended the aggregate amounts of
loans past due and nonperforming.
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
Unaudited Unaudited
---------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans $-- $55 $---
Loans contractually past due over 90 days -- 2 1
Restructured loans -- -- --
---------------------------------------------------
Total $-- $57 $1
===================================================
</TABLE>
If interest on the nonaccrual loans had been accrued, such income would have
approximated $0, $3,000 and $0 for the years ended December 31, 1999, 1998 and
1997.
Loans are normally placed on non-accrual status when they become contractually
past due 90 days or more as to interest or principal payments. Previously
accrued and uncollected interest on such loans is reversed, and income is
recorded only to the extent that interest payments are substantially received in
cash and a determination has been made that the principal balance of the loan is
collectible. If collectibility of the principal is in doubt, payments received
are applied to loan principal. At December 31, 1999, 1998 and 1997 there were no
loans outstanding which were considered to be impaired, as defined in the
Statement of Accounting Standards No. 114 and 118.
E-5
<PAGE> 65
CONSOLIDATED FINANCIAL STATEMENTS
CBOC, Inc. and Subsidiary
Nine months ended September 30, 2000 (unaudited) and year ended December 31,
1999
<PAGE> 66
CBOC, Inc. and Subsidiary
Consolidated Financial Statements
Nine months ended September 30, 2000 (unaudited) and
year ended December 31, 1999
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors ..........................................................................1
Consolidated Financial Statements
Consolidated Statements of Financial Condition ..........................................................2
Consolidated Statements of Income .......................................................................3
Consolidated Statements of Stockholders' Equity .........................................................4
Consolidated Statements of Cash Flows ...................................................................5
Notes to Consolidated Financial Statements ..............................................................6
</TABLE>
<PAGE> 67
Report of Independent Auditors
The Board of Directors and Stockholders
CBOC, Inc. and Subsidiary
We have audited the accompanying consolidated statements of financial condition
of CBOC, Inc. and Subsidiary (the Corporation) as of December 31, 1999, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CBOC, Inc. and
Subsidiary at December 31, 1999, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
By: /s/ Ernst & Young LLP .
-----------------------------------
Ernst & Young LLP
August 18, 2000
Milwaukee, Wisconsin
<PAGE> 68
CBOC, Inc. and Subsidiary
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
(Unaudited)
------------------------------------
(Dollars In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,255 $ 3,631
Interest-bearing deposits at other banks - 100
Federal funds sold 1,850 3,247
------------------------------------
Cash and cash equivalents 4,105 6,978
Investment securities available-for-sale at fair value 19,634 17,868
Loans receivable, net 35,975 32,099
Premises and equipment 988 1,041
FHLB stock 166 160
Other assets 850 739
------------------------------------
Total assets $61,718 $58,885
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $55,439 $52,892
Borrowings 376 381
Accrued expenses and other liabilities 310 303
------------------------------------
Total liabilities 56,125 53,576
Stockholders' equity:
Common stock $1.00 par value; 250,000 shares authorized;
80,000 shares issued; 80,000 shares outstanding 80 80
Additional paid-in capital 1,975 1,975
Net unrealized loss on securities available-for-sale (81) (132)
Retained earnings 3,619 3,386
------------------------------------
Total stockholders' equity 5,593 5,309
------------------------------------
Total liabilities and stockholders' equity $61,718 $58,885
====================================
</TABLE>
See accompanying notes.
<PAGE> 69
CBOC, Inc. and Subsidiary
Consolidated Statements of Income
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
2000 1999 1999
----------------------------------------------------
(Unaudited)
(Dollars In Thousands,
Except Per Share Amounts)
<S> <C> <C> <C>
Interest income:
Loans, including fees $2,295 $2,064 $2,782
Investment securities:
Taxable 449 293 320
Exempt from federal income taxes 265 249 453
Other 67 186 222
----------------------------------------------------
Total interest income 3,076 2,792 3,777
Interest expense:
Deposits 1,632 1,377 1,855
Borrowings 28 6 9
----------------------------------------------------
Total interest expense 1,660 1,383 1,864
Net interest income 1,416 1,409 1,913
Provision for loan losses 27 9 18
----------------------------------------------------
Net interest income after provision for loan losses 1,389 1,400 1,895
Non-interest income:
Service charges on deposits 99 57 77
Service charges on loans 53 67 95
Other 132 112 145
----------------------------------------------------
284 236 317
Non-interest expenses:
Salaries and employee benefits 631 584 787
Premises and equipment 117 119 149
Data processing fees 96 91 122
Other 204 205 269
----------------------------------------------------
1,048 999 1,327
Income before income taxes 625 637 885
Income taxes 151 157 224
----------------------------------------------------
Net income $ 474 $ 480 $ 661
====================================================
Basic earnings per share $ 5.93 $ 6.00 $ 8.26
====================================================
Dividends per share $ 3.00 $ 3.00 $ 3.00
====================================================
</TABLE>
See accompanying notes.
<PAGE> 70
CBOC, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common
Stock Unrealized
and Gain (Loss)
Additional on Securities
Paid-in Available-for- Retained
Capital Sale Earnings Total
------------------------------------------------------------------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $2,055 $ 124 $2,965 $5,144
Comprehensive income:
Net income - - 661 661
Other comprehensive income -
Change in unrealized loss on securities
available-for-sale, net of deferred income
taxes of $170 - (256) - (256)
---------------
Total comprehensive income 405
Cash dividends declared - $3.00 per share - - (240) (240)
------------------------------------------------------------------------
Balance at December 31, 1999 2,055 (132) 3,386 5,309
Comprehensive income (unaudited):
Net income - - 474 474
Other comprehensive income -
Change in unrealized loss on securities
available-for-sale, net of deferred income
taxes of $54 - 51 - 51
---------------
Total comprehensive income 525
Cash dividends declared - $3.00 per share (unaudited) - - (240) (240)
------------------------------------------------------------------------
Balance at September 30, 2000 (unaudited) $2,055 $(81) $3,619 $5,593
========================================================================
</TABLE>
See accompanying notes.
<PAGE> 71
CBOC, Inc. and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999 1999
(Unaudited)
----------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 474 $ 480 $ 661
Adjustments to reconcile net income to cash provided
by operating activities:
Provision for loan losses 27 9 18
Provision for depreciation 65 63 77
Benefit for deferred taxes - (13) (13)
Net amortization of investment securities premiums
and discounts 1 1 10
Net gain on sale of loans (23) (42) (56)
Mortgage loans originated for sale (1,922) (4,269) (5,382)
Proceeds from mortgage loans sold 2,166 4,411 5,316
Increase in accrued interest receivable (69) (104) (130)
Increase in accrued interest payable 36 20 6
Other 1 (68) 19
----------------------------------------------------
Net cash provided by operating activities 756 488 526
INVESTING ACTIVITIES
Purchases of securities available-for-sale (5,195) (13,593) (16,188)
Proceeds from redemption and maturities of securities
available-for-sale 3,407 8,290 8,876
Net increase in loans (4,125) (322) (171)
Purchases of premises and equipment (12) (259) (281)
Proceeds from sale of premises - - 14
Redemption of Federal Home Loan Bank stock (6) (12) (12)
----------------------------------------------------
Net cash used in investing activities (5,931) (5,896) (7,762)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 2,547 912 5,153
Net increase (decrease) in borrowings (5) 269 207
Payments of cash dividends to stockholders (240) (240) (240)
----------------------------------------------------
Net cash provided by financing activities 2,302 941 5,120
----------------------------------------------------
Increase (decrease) in cash and cash equivalents (2,873) (4,467) (2,116)
Cash and cash equivalents at beginning of period 6,978 9,094 9,094
----------------------------------------------------
Cash and cash equivalents at end of period $4,105 $4,627 $6,978
====================================================
Supplemental cash flow information and noncash transactions:
Interest paid $1,624 $1,363 $1,798
Income taxes paid 149 140 189
</TABLE>
<PAGE> 72
CBOC, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Nine months ended September 30, 2000 (unaudited) and year ended December 31,
1999
1. ACCOUNTING POLICIES
BUSINESS
CBOC, Inc. and Subsidiary (the Corporation) provides a full range of personal
and commercial financial services to customers through its wholly owned bank
subsidiary, the Community Bank of Oconto County. The Corporation is subject to
competition from other financial institutions. It is also subject to the
regulations of certain federal and state agencies and periodic examinations by
those regulatory agencies.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of the
Corporation and its wholly owned subsidiary. All significant intercompany
accounts and transactions have been eliminated.
In preparing the consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include amounts due from banks (both interest-bearing
and non-interest-bearing) and federal funds sold.
INVESTMENT SECURITIES
All of the Corporation's investment securities are classified as
available-for-sale and are stated at fair value, with the unrealized gains and
losses, net of tax, reported as a separate component of stockholders' equity.
The amortized cost of debt securities is adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization is included in
interest income from the related security.
<PAGE> 73
CBOC, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
Interest and dividends are included in interest income from the related
securities. Realized gains and losses and declines in value judged to be
other-than-temporary are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method.
INTEREST AND FEES ON LOANS
Interest on loans is recorded as income when earned. Loans are placed on
non-accrual status, generally recognizing interest as income when received, when
in the opinion of management, the collectibility of principal or interest
becomes doubtful.
ALLOWANCE FOR LOAN LOSSES
A provision for loan losses is made when a loss is probable and can be
reasonably estimated. The provision is based on past experience and on
prevailing market conditions. Management's evaluation of loss considers various
factors including, but not limited to, general economic conditions, loan
portfolio composition and prior loss experience.
The Corporation had no impaired loans in 2000 or 1999.
A substantial portion of the Banks' loans are collateralized by real estate in
Oconto County, Wisconsin. Accordingly, the ultimate collectibility of a
substantial portion of the Banks' loan portfolio and the recovery of a
substantial portion of the carrying amount of real estate owned is susceptible
to changes in market conditions in Oconto County, Wisconsin.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses, future additions to
the allowance may be necessary based on changes in economic conditions.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Expenditures for normal repairs and maintenance are charged to operations as
incurred. The cost of premises and equipment is depreciated, using the
straight-line method, over the estimated useful lives of the assets.
<PAGE> 74
CBOC, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE INFORMATION
Earnings per share of common stock have been computed based on common stock
outstanding during each period (80,000 shares).
2. INVESTMENT SECURITIES
The following is a summary of securities:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------------------------------------------------------
<S> <C> <C> <C> <C>
At September 30, 2000 (unaudited):
U.S. treasury and other U.S. government
securities $ 6,022 $ 2 $ 75 $ 5,949
State and political subdivision certificates 8,545 44 78 8,511
Corporate bonds and commercial paper 5,202 - 28 5,174
--------------------------------------------------------
$19,769 $46 $181 $19,634
========================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------------------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1999:
Mutual funds $ 101 $ - $ - $ 101
U.S. treasury and other U.S. government
securities 7,209 6 84 7,131
State and political subdivision certificates 8,675 21 133 8,563
Corporate bonds and commercial paper 2,103 - 30 2,073
--------------------------------------------------------
$18,088 $27 $247 $17,868
========================================================
</TABLE>
Securities carried at $1,660 (unaudited) and $3,284 at September 30, 2000 and
December 31, 1999, respectively, were pledged principally to secure liabilities
to the Federal Reserve Bank.
<PAGE> 75
CBOC, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
2. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and market value of securities at September 30, 2000 and
December 31, 1999, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
-------------------------------------------
<S> <C> <C>
At September 30, 2000 (unaudited):
Due in one year or less $ 6,192 $ 6,183
Due after one year through five years 9,188 9,079
Due after five years through ten years 3,699 3,696
Due after ten years 690 676
-------------------------------------------
$ 19,769 $ 19,634
===========================================
At December 31, 1999:
Due in one year or less $ 2,576 $ 2,575
Due after one year through five years 10,993 10,858
Due after five years through ten years 3,615 3,579
Due after ten years 904 856
-------------------------------------------
$ 18,088 $ 17,868
===========================================
</TABLE>
There were no sales of securities available for sale during 1999 or the nine
months ended September 30, 2000 (unaudited).
<PAGE> 76
CBOC, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
3. LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
(Unaudited)
------------------------------------
<S> <C> <C>
First mortgage:
Conventional single-family residential $ 8,087 $ 7,577
Commercial and multifamily residential 4,680 3,615
Construction 577 264
Farmland 2,437 2,301
-------------------------------------
15,781 13,757
Agricultural loans 4,266 3,766
Commercial business loans 11,823 10,886
Consumer and installment loans 4,578 3,758
Lease financing - 389
Other 19 8
------------------------------------
36,467 32,564
Less:
Allowance for loan losses (492) (465)
------------------------------------
$35,975 $32,099
====================================
</TABLE>
Transactions in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
(Unaudited)
------------------------------------
<S> <C> <C>
Balance at beginning of period $465 $468
Provisions charged to operations 27 18
Charge-offs (2) (23)
Recoveries 2 2
------------------------------------
Balance at end of period $492 $465
====================================
</TABLE>
Total nonaccrual loans were $60 (unaudited) and $0 at September 30, 2000 and
December 31, 1999, respectively.
<PAGE> 77
CBOC, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
4. PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
(Unaudited)
------------------------------------
<S> <C> <C>
Land $ 32 $ 32
Office buildings and improvements 807 808
Furniture and equipment 583 570
------------------------------------
1,422 1,410
Less accumulated depreciation (434) (369)
------------------------------------
$988 $1,041
====================================
</TABLE>
5. DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
(Unaudited)
------------------------------------
<S> <C> <C>
Negotiable Order of Withdrawal accounts:
Non-interest-bearing $ 4,909 $ 5,961
Interest-bearing 2,530 2,389
Savings deposits 3,238 3,586
Money market investment accounts 18,507 16,355
Time deposits and certificate accounts 26,255 24,601
------------------------------------
$55,439 $52,892
====================================
</TABLE>
The scheduled maturities of time deposits and certificate accounts are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
(Unaudited)
------------------------------------
<S> <C> <C>
Maturities during the period ending:
In one year $19,836 $20,485
In one to three years 5,569 3,787
Thereafter 850 329
------------------------------------
$26,255 $24,601
====================================
</TABLE>
<PAGE> 78
CBOC, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
5. DEPOSITS (CONTINUED)
At September 30, 2000 and December 31, 1999, time deposits and certificate
accounts with balances greater than $100 amounted to $6,234 (unaudited) and
$5,965, respectively.
6. BORROWINGS
At September 30, 2000 and December 31, 1999, the Bank had treasury, tax and loan
borrowings of $376 (unaudited) and $381, respectively, with an interest rate of
6.40% (unaudited) and 4.52%, respectively.
7. STOCKHOLDERS' EQUITY
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
that follows) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of September 30, 2000 and December
31, 1999, that the Bank meets all capital adequacy requirements to which they
are subject.
<PAGE> 79
CBOC, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
7. STOCKHOLDERS' EQUITY (CONTINUED)
As of September 30, 2000 and December 31, 1999, the most recent notification
from the Federal Deposit Insurance Corporation categorized all the Banks as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that management
believes have changed the Banks' classifications as of September 30, 2000.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------------- ------------------------------- --------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------- ------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF SEPTEMBER 30, 2000
(unaudited)
Total Capital (to Risk-
Weighted Assets) $6,142 16.17% $3,039 8.00% $3,799 10.00%
Tier 1 Capital (to Risk-
Weighted Assets) 5,650 14.87% 1,520 4.00% 2,280 6.00%
Tier 1 Capital (to Average
Assets) 5,650 9.83% 2,299 4.00% 2,874 5.00%
</TABLE>
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------------- -------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999
Total Capital (to Risk-
Weighted Assets) $5,843 17.09% $2,735 8.00% $3,419 10.00%
Tier 1 Capital (to Risk-
Weighted Assets) 5,416 15.84% 1,368 4.00% 2,052 6.00%
Tier 1 Capital (to Average
Assets) 5,416 9.64% 2,247 4.00% 2,809 5.00%
</TABLE>
8. RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
Dividends are paid by the Corporation from funds which are provided by dividends
from the Bank. However, certain restrictions exist regarding the ability of the
Bank to transfer funds to the Corporation in the form of cash dividends, loans
or advances. Approval of the regulatory authorities is required to pay dividends
in excess of certain levels of the Banks' retained earnings.
<PAGE> 80
CBOC, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
8. RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES (CONTINUED)
As of September 30, 2000 and December 31, 1999, the Bank had equity of $5,593
(unaudited) and $5,309, respectively, of which $474 (unaudited) and $631,
respectively, were available for distribution to the Corporation as dividends
without prior regulatory approval.
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30 DECEMBER 31
2000 1999
(Unaudited)
------------------------------------
<S> <C> <C>
Current:
Federal $ 98 $143
State 48 67
------------------------------------
146 210
Deferred (benefit):
Federal 4 11
State 1 3
------------------------------------
5 14
------------------------------------
$ 151 $224
====================================
</TABLE>
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30 DECEMBER 31
2000 1999
(Unaudited)
------------------------------------
<S> <C> <C>
Income tax at statutory rate $212 $ 304
Increase (reduction) resulting from:
Tax-exempt interest income (93) (123)
State income taxes, net of federal tax benefit 32 46
Other - (3)
------------------------------------
$151 $ 224
====================================
</TABLE>
<PAGE> 81
CBOC, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
(Unaudited)
------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $184 $173
Unrealized loss on securities 53 88
Other assets 14 14
------------------------------------
Total deferred tax assets 251 275
Deferred tax liabilities -
Depreciation 82 66
------------------------------------
Total deferred tax liabilities 82 66
------------------------------------
Net deferred tax asset $169 $209
====================================
</TABLE>
10. LOANS TO RELATED PARTIES
In the ordinary course of business, loans are granted to related parties, which
include management personnel, directors and entities in which such persons are
principal stockholders. Activity in loans to related parties is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
(Unaudited)
------------------------------------
<S> <C> <C>
Balance at beginning of period $1,845 $ 2,518
Loans originated 332 575
Repayments (146) (1,248)
------------------------------------
Balance at end of period $2,031 $ 1,845
====================================
</TABLE>
<PAGE> 82
CBOC, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
11. LOAN COMMITMENTS AND CONTINGENT LIABILITIES
Off-balance-sheet financial instruments whose contracts represent credit and/or
interest rate risk at September 30, 2000 and December 31, 1999, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
(Unaudited)
------------------------------------
<S> <C> <C>
Commitments to originate mortgage loans (expiring within three
months) -
Adjustable rates $1,162 $1,360
Unused lines of credit:
Commercial business 1,701 4,772
Home equity (adjustable rate) 92 103
Credit cards (fixed rate) 817 728
Standby letters of credit 240 257
</TABLE>
Loan commitments and line-of-credit loans are made to accommodate the financial
needs of the Bank's customers. Standby letters of credit commit the Bank to make
payments on behalf of customers when certain specified future events occur.
These arrangements essentially have the same credit risk as that involved in
extending loans to customers, and are subject to the Bank's normal credit
policies. Collateral is obtained based on management's credit assessment of the
customer.
Since many of the commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cost requirements.
Management does not anticipate any losses as a result of the above related
transactions; however, the above amounts represent the maximum exposure to
credit loss for loan commitments, line-of-credit loans and standby letters of
credit.
12. MERGER PENDING
CBOC, Inc. announced in August 2000, that they have agreed in principle to merge
with Merchants and Manufacturers Bancorporation, Inc. The merger will involve an
exchange of Merchants and Manufacturers common stock for CBOC common stock. It
is also subject to approval by shareholders and regulators. The transaction is
anticipated to close by January 2001.
<PAGE> 83
CBOC, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
13. CBOC, INC. PARENT COMPANY ONLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL CONDITION SEPTEMBER 30 DECEMBER 31
2000 1999
(Unaudited)
------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 20 $ 20
Tax benefit receivable 4 4
Investment in subsidiaries 5,569 5,285
------------------------------------
Total assets $5,593 $5,309
====================================
LIABILITIES
Total liabilities - -
STOCKHOLDERS' EQUITY
Common stock $ 80 $ 80
Additional paid-in capital 1,975 1,975
Unrealized gain (loss) on available for sale securities (81) (132)
Retained earnings 3,619 3,386
Less treasury stock - -
------------------------------------
Total stockholders' equity 5,593 5,309
------------------------------------
Total liabilities and stockholders' equity $5,593 $5,309
====================================
</TABLE>
<PAGE> 84
CBOC, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
13. CBOC, INC. PARENT COMPANY ONLY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
2000 1999 1999
(Unaudited)
------------------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF INCOME
Income -
Dividends from subsidiaries $240 $240 $240
------------------------------------------------------
Expenses -
Other - - -
------------------------------------------------------
- - -
------------------------------------------------------
Income before income tax benefit and equity in
undistributed net income of subsidiaries 240 240 240
Income tax benefit - - -
------------------------------------------------------
Income before equity in undistributed net income
of subsidiaries 240 240 240
Equity in undistributed net income of subsidiaries 234 240 421
------------------------------------------------------
Net income $474 $480 $661
======================================================
</TABLE>
<PAGE> 85
CBOC, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
13. CBOC, INC. PARENT COMPANY ONLY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR
NINE MONTHS ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30 DECEMBER 31
2000 1999 1999
(Unaudited)
-----------------------------------------------------
<S> <C> <C> <C>
CONDENSED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Net income $ 474 $ 480 $ 661
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of
subsidiaries (234) (240) (421)
------------------------------------------------------
Net cash provided by operating activities 240 240 240
FINANCING ACTIVITIES
Payment of cash dividends (240) (240) (240)
------------------------------------------------------
Net cash used by financing activities (240) (240) (240)
------------------------------------------------------
Increase in cash and cash equivalents - - -
Cash and cash equivalents at beginning of period 20 20 20
------------------------------------------------------
Cash and cash equivalents at end of period $ 20 $ 20 $ 20
======================================================
</TABLE>
<PAGE> 86
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 of 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> 87
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. A listing of the exhibits required by Item 601 of Regulation
S-K is contained in the Exhibit Index which immediately precedes the
exhibits filed herewith.
(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 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
II-2
<PAGE> 88
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.
II-3
<PAGE> 89
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 7th day of December, 2000.
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 December 7, 2000
-------------------------------------------- Directors (Principal Executive -------------
Michael J. Murry Officer)
/s/James Bomberg President and a Director December 7, 2000
-------------------------------------------- -------------
James Bomberg
/s/James Mroczkowski Executive Vice President, Chief December 7, 2000
-------------------------------------------- Financial Officer, and Principal -------------
James Mroczkowski Financial and Accounting Officer
* Director December 7, 2000
-------------------------------------------- -------------
J. Michael Bartels
* Director December 7, 2000
-------------------------------------------- -------------
Duane Cherek
* Director December 7, 2000
-------------------------------------------- -------------
Thomas Gapinski
* Director December 7, 2000
-------------------------------------------- -------------
Casimir S. Janiszewski
* Director December 7, 2000
-------------------------------------------- -------------
James Kacmarcik
</TABLE>
II-4
<PAGE> 90
<TABLE>
<S> <C> <C>
* Director December 7, 2000
-------------------------------------------- -------------
David Kaczynski
* Director December 7, 2000
-------------------------------------------- -------------
Conrad Kaminski
* Director December 7, 2000
-------------------------------------------- -------------
Nicholas Logarakis
* Director December 7, 2000
-------------------------------------------- -------------
Gervase Rose
* Director December 7, 2000
-------------------------------------------- -------------
Jerome Sarnowski
* Director December 7, 2000
-------------------------------------------- -------------
James Sass
* Director December 7, 2000
-------------------------------------------- -------------
Thomas Sheehan
* Director December 7, 2000
-------------------------------------------- -------------
Keith Winters
</TABLE>
*Michael J. Murry hereby signs this registration statement on December
7, 2000, 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
II-5
<PAGE> 91
EXHIBIT INDEX
Exhibit No. Description
2(a) Agreement and Plan of Merger dated as of
August 1, 2000, among the Registrant,
Merchants Merger Corp. and CBOC, Inc.,
incorporated by reference to Exhibits A and
A-1 to the Proxy Statement/Prospectus of the
Registrant and CBOC, Inc. (the "Proxy
Statement/Prospectus").
2(b) Voting Agreement dated as of August 1, 2000,
among certain shareholders of CBOC, Inc. and
the Registrant incorporated by reference to
Exhibit B to the Proxy Statement/Prospectus.
3(a) Articles of Incorporation, as amended of
Registrant incorporated by reference to
Exhibit 3(a) of Registrant's Registration
Statement on Form S-4 filed on October 4,
1999, SEC File No. 333-86855.
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, S.C. regarding
certain federal income tax matters
10(a) The 1996 Incentive Stock Option Plan of the
Registrant incorporated by reference to
Exhibit 10(a) of Registrant's Registration
Statement on Form S-4 filed on October 4,
1999, SEC File No. 333-86855.
10(b) Salary Continuation Agreement between
Lincoln State Bank and James Bomberg
incorporated by reference to Exhibit 10(b)
of Registrant's Registration Statement on
Form S-4 filed on October 4, 1999, SEC File
No. 333-86855.
II-6
<PAGE> 92
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, incorporated by reference to
Exhibit 10(c) of Registrant's Registration
Statement on Form S-4 filed on October 4,
1999, SEC File No. 333-86855.
Employment Agreements between M&M Services,
Inc. and Robert Blonski and Gregory Stengel,
respectively, incorporated by reference to
Exhibit 10(c) of Registrant's Registration
Statement on Form S-4 filed on October 4,
1999, SEC File No. 333-86855.
Employment Agreement between Achieve
Mortgage Corporation and Robert Donaj,
incorporated by reference to Exhibit 10(c)
of Registrant's Registration Statement on
Form S-4 filed on October 4, 1999, SEC File
No. 333-86855.
Employment Agreement between Grafton State
Bank and Thomas Sheehan, incorporated by
reference to Exhibit 10(c) of Registrant's
Registration Statement on Form S-4 filed on
October 4, 1999, SEC File No. 333-86855.
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>
Peter J. Schumacher Controller $48,300
Richard L. Belling V.P.-Mortgages 67,000
Jefford R. Larson V.P. Commercial 62,000
Lending
</TABLE>
Employment Agreement between Registrant and
Edward H. Cichurski.
21 List of Subsidiaries of the Registrant.
II-7
<PAGE> 93
23(a) Consent of Ernst & Young, LLP as to the
financial statements of the Registrant and
CBOC, Inc.
23(b)(c) Consent of Davis & Kuelthau, S.C.
incorporated by reference to Exhibits 5 and
8.
23(d) Consent of Marshall Financial Consulting
LLC, financial adviser to CBOC, Inc.
23(e) Consent of Boardman, Suhr, Curry & Field,
LLP.
23(f) Rule 438 Consent of three directors of CBOC,
Inc. who will become directors of Registrant
upon completion of the Merger.
24 Powers of Attorney.
All listed exhibits have been previously filed.
II-8
