<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1997
REGISTRATION NO. 333-26373
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------------
F&M BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
WISCONSIN 6022 39-1365327
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
ONE BANK AVENUE
KAUKAUNA, WISCONSIN 54130
(414) 766-1717
(Address, including Zip Code, and telephone number,
including area code, of registrant's principal executive offices)
RANDALL A. HAAK, ESQ.
MCCARTY, CURRY, WYDEVEN, PEETERS & HAAK
120 E. 4TH STREET
KAUKAUNA, WISCONSIN 54130
(414) 766-4693
(Name, address, including Zip Code, and telephone number,
including area code, of agent for service)
---------------------
COPIES TO:
KENNETH V. HALLETT, ESQ. John Knight, Esq.
QUARLES & BRADY Boardman, Suhr, Curry & Field
411 East Wisconsin Avenue One South Pinckney Street, Suite 410
Milwaukee, Wisconsin 53202 P.O. Box 927
(414) 277-5000 Madison, Wisconsin 53701-0927
(608) 257-9521
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effectiveness of this
Post-Effective Amendment No. 1 to the Registration Statement.
---------------------
The prospectus included in this Registration Statement is a combined prospectus
as permitted by Rule 429 under the Securities Act of 1933. The prospectus will
cover 244,533 shares of F&M Common Stock previously registered and unissued
under Registration Statement No. 333-13321.
<PAGE> 2
PROSPECTUS
2,850,023 SHARES
F&M BANCORPORATION, INC.
COMMON STOCK
This Prospectus (the "Prospectus") covers the offer and sale of up to
2,850,023 shares of Common Stock, par value $1.00 per share (the "F&M Common"),
of F&M Bancorporation, Inc. ("F&M" or the "Company"), which F&M may issue from
time to time in connection with future acquisitions of other businesses, or
securities of other businesses, in business combination transactions in
accordance with Rule 415(a)(1)(viii) of Regulation C under the Securities Act
of 1933, as amended (the "Securities Act") or as otherwise permitted under the
Securities Act.
The Company expects that the terms upon which it may issue the shares in
business combination transactions will be determined through negotiations with
the boards of directors, principal owners and/or other representatives of the
businesses to be acquired. It is expected that the shares of F&M Common that
are issuable will be valued at prices reasonably related to the market prices
for F&M Common prevailing at either the time an acquisition agreement is
executed or at the time an acquisition is consummated. On June 25, 1997, the
last reported sales price of F&M Common on The NASDAQ Stock Market ("NASDAQ")
was $38.50 per share.
This Prospectus will be used only in connection with business acquisitions.
The Prospectus may be used in connection with business combination transactions
which would be exempt from registration but for the issuance of F&M Common and
the possibility of integration with other transactions; in such case, no
supplement may be required. If an acquisition of a business or securities in a
business combination transaction is not exempt from registration even if
integration is not taken into account, then the offerees of F&M Common in such
acquisition will be furnished with copies of this Prospectus either (i)
together with a Supplement, which will reflect the registration statement as
filed or as amended by a post-effective amendment to the registration statement
on Form S-4 which this Prospectus is a part or (ii) if permitted, as
supplemented by the incorporation by reference of information contained in a
current report on Form 8-K filed by F&M.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE ACQUIRORS OF THE F&M COMMON OFFERED
HEREBY.
The date of this Prospectus is June ___, 1997.
_____________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
AVAILABLE INFORMATION
F&M 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"). The reports, proxy statements and
other information filed by F&M with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates. Also, the Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants (such as
F&M) that file electronically with the Commission. In addition, because F&M
Common is traded on the NASDAQ Stock Market, material filed by F&M can be
inspected at the offices of National Association of Securities Dealers, Inc.,
1735 K Street N.W., Washington, D.C. 20006.
F&M has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act with respect to the securities to be issued pursuant to or as
contemplated by the Agreement. This Prospectus does not contain all the
information set forth in the Registration Statement. Such additional
information may be obtained at the addresses set forth above. Statements
contained in this Prospectus or in any document incorporated in this Prospectus
by reference 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference certain documents of F&M that are
not presented herein or delivered herewith. Such documents (other than
exhibits to such documents unless such exhibits are specifically incorporated
by reference) will be provided without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request of such person. Requests should be directed to F&M Bancorporation,
Inc., One Bank Avenue, Kaukauna, Wisconsin 54130 (telephone 414/766-1717),
Attn: Corporate Secretary. (F&M's telephone number will change to 920/766-1717
effective July 26, 1997.)
The following documents filed with the Commission by F&M pursuant to the
Exchange Act are incorporated by reference in this Prospectus:
(i) F&M's Annual Report on Form 10-K for the year ended December 31, 1996;
(ii) F&M's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997;
(iii) F&M's Current Reports on Form 8-K dated January 10, 1997 and May 30,
1997; and
(iv) The description of F&M Common included in Item 11 to F&M's Registration
Statement on Form 10, as amended by Post-Effective Amendment No. 2
thereto filed September 16, 1993.
All reports and definitive proxy or information statements filed by F&M
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus shall be deemed to be incorporated by reference
into this Prospectus from the date of the filings of such documents.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
<PAGE> 4
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page No.
<S> <C>
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
F&M MARKET INFORMATION AND DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
F&M SUMMARY FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
F&M BANCORPORATION, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
INFORMATION AS TO F&M COMMON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
PROCEDURE FOR SUBMITTING SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
</TABLE>
________________
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES MADE HEREBY
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY F&M, OR ANY OTHER PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF F&M SINCE THE DATE HEREOF OR THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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<PAGE> 5
SUMMARY
The following is a brief summary of certain information contained in
this Prospectus, including summaries of information believed by the parties to
be material. This summary is intended merely to supply pertinent facts and
highlights of the material contained in or accompanying this Prospectus. The
information contained in this summary is qualified by reference to more
detailed information contained elsewhere, or incorporated by reference, in this
Prospectus.
Unless otherwise indicated, all financial and other data per share of
F&M Common, and all data with respect to such shares, in this Prospectus have
been restated to give retroactive effect to F&M's 10% stock dividend which was
paid in June 1996 and F&M's 10% stock dividend which is payable on June 9, 1997
to shareholders of record on May 23, 1997.
F&M Bancorporation, Inc.
F&M, which has its principal executive offices at One Bank Avenue,
Kaukauna, Wisconsin 54130 (telephone: 414/766-1717), had total consolidated
assets of $1.3 billion at March 31, 1997. At May 31, 1997, F&M had 18
Wisconsin state bank subsidiaries, all of which are FDIC members and are
subject to the supervision of the Wisconsin Department of Financial
Institutions, Division of Banking. The F&M subsidiary banks maintain 55
offices, all in Wisconsin. All but two of the F&M Banks are members of the
Federal Reserve System, and the remaining two banks are in the process of
becoming members. F&M, a Wisconsin corporation, is a registered bank holding
company subject to supervision and regulation by the Federal Reserve Board
("FRB") under the federal Bank Holding Company Act of 1956, as amended.
See "F&M Bancorporation, Inc."
Further information regarding F&M, including audited financial
statements, is included in the reports filed with the Securities and Exchange
Commission which are incorporated herein by reference. Offerees may obtain
copies of such documents from the Commission or by request to F&M. See
"Available Information" and "Incorporation of Certain Documents by Reference."
F&M Common
Shares of F&M Common are traded on the NASDAQ Stock Market under the
symbol "FMBK." See "F&M Market Information and Dividends."
F&M is organized under the Wisconsin Business Corporation Law
("WBCL"), which determines the rights of holders of F&M Common, except as
otherwise provided in F&M's Articles of Incorporation. Among other things, F&M
is subject to statutory anti-takeover provisions and its Articles of
Incorporation provide for the classification of its board of directors. In
addition, F&M (and all other corporations incorporated or qualified to do
business in Wisconsin) shareholders are subject to statutory personal liability
for certain employee compensation claims. See "Information as to F&M
Securities."
Method of Distribution
The shares of F&M Common to be offered hereunder will be offered in
business combination transactions. See "Plan of Distribution."
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<PAGE> 6
RISK FACTORS
In evaluating a transaction with F&M, the shareholders of an entity
being acquired should consider carefully the following factors, along with the
other information contained, or incorporated by reference, in this Prospectus,
and any Supplement thereto.
Acquisitions
Since its inception, F&M has experienced substantial growth through
acquisitions of other financial institutions. F&M's strategy to continue to
make acquisitions is dependent upon its ability to identify potential targets
for acquisition and consummate transactions on terms acceptable to F&M.
Also, F&M's future success is dependent in part upon its ability to
integrate the operations of, and manage over time, acquired financial
institutions. F&M has acquired ten financial institutions or offices within
the past four years, including two acquisitions in 1994, one in 1995, four in
1996 and two in the first quarter of 1997. The two 1994 acquisitions were the
largest acquisitions undertaken by F&M in terms of the consideration paid and
the size of the acquired institution, respectively. The 1995 acquisition was
F&M's second largest acquisition in both categories. In 1996, F&M consummated
four acquisitions. To date in 1997, F&M has consummated three acquisitions and
has two others pending.
Competition
Banks, including the F&M subsidiary banks (the "F&M Banks") and the
banks proposed to be acquired (together, the "Banks"), actively compete with
other financial institutions and businesses in both attracting and retaining
deposits and making loans. Financial institution competitors include banks,
savings banks, savings and loan associations and credit unions. Other business
competitors include insurance companies, securities brokerage firms, trust
companies and investment management firms. While F&M believes it has a
competitive advantage because many of its bank office locations represent the
only commercial bank office in their community, competition with other
financial institutions and businesses, as well as the pricing levels of their
products and services, can affect the Banks' ability to obtain and retain
customers.
F&M also faces competition in seeking institutions to acquire.
Wisconsin has recently experienced a significant consolidation of its banking
industry, and many large holding companies with greater resources than F&M
(including several out-of-state holding companies) are actively pursuing
acquisitions in Wisconsin. This competition affects the available acquisition
opportunities for F&M and can affect the costs of such acquisitions.
Need for Technological Change
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. While F&M's
community banking strategy stresses "traditional" personal service, F&M's
future success will depend in part on its ability to address the needs of its
customers by using technology to provide products and services that will
satisfy customer demands for convenience as well as to create additional
efficiencies in F&M's Banks' operations. Many of F&M's competitors have
substantially greater resources to invest in technological improvements.
Banking Industry
The banking industry is highly regulated by both federal and state
regulatory authorities. Regulation includes, among other things, capital
reserve requirements, dividend limitations, limitations on products and
services offered, geographical limits, consumer credit regulations, community
investment requirements and restrictions on transactions with affiliated
parties. Financial institution regulation has been the subject of significant
legislation in recent years, may be the subject of further significant
legislation in the future, and is not within the control of F&M.
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<PAGE> 7
This regulation substantially affects the business and financial results of all
financial institutions and holding companies, including F&M and the Banks.
F&M, as a member of the banking industry, is affected by general
economic conditions, particularly as those conditions affect the Wisconsin
communities served by the F&M Banks. A financial institution's earnings also
depend to a large extent upon the relationship between the cost of funds
(primarily deposits) and the yield on earning assets (loans and investments).
This relationship, known as the interest rate margin, is subject to fluctuation
and is affected by regulatory, economic and competitive factors which influence
interest rates, the volume and rate of interest on interest-earning assets and
interest-bearing liabilities, and the level of non-performing assets.
Dependence on Chief Executive Officer
F&M has historically been highly dependent on the services of its
Chairman and Chief Executive Officer, Gail E. Janssen. F&M does not have an
employment agreement with Mr. Janssen or maintain "key person" life insurance
on Mr. Janssen. F&M has recently taken actions to reorganize operations on a
regional basis and to augment its corporate staff to help support F&M's
substantial growth, to place less dependence on any one individual, and to
anticipate management succession. As part of these actions, F&M employed Gary
A. Lichtenberg as its President and Chief Operating Officer in April 1996.
Cautionary Statement Regarding Forward-Looking Statements
The discussions in this Prospectus and any Supplement thereto, and in
the documents incorporated herein by reference, which are not historical
statements (including those in the future tense or including terms such as
"believe," "expect" and "anticipate") contain forward-looking statements that
involve risks and uncertainties. F&M's actual future results could materially
differ from those discussed. Factors that could cause or contribute to such
differences include, but are not limited to, the Company's future lending and
collection experience, the effects of acquisitions, competition from other
institutions, changes in the banking industry and its regulation, needs for
technological change, and other factors including those discussed above in
"Risk Factors" and in F&M's Management's Discussion and Analysis (which is
incorporated herein by reference), as well as those discussed elsewhere in this
Prospectus and the documents incorporated herein by reference.
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<PAGE> 8
F&M MARKET INFORMATION AND DIVIDENDS
F&M Common trades on The NASDAQ Stock Market ("NASDAQ") under the
symbol "FMBK". F&M had approximately 2,950 shareholders of record at February
28, 1997. The following table summarizes high and low prices and cash
dividends paid for F&M Common for the periods indicated. The high and low
prices represent actual trade prices as reported on NASDAQ.
<TABLE>
<CAPTION>
CASH DIVIDENDS
CALENDAR PERIOD HIGH LOW PAID PER SHARE
- ---------------------------------- ---- --- --------------
<S> <C> <C> <C>
1995 1st quarter $ 18.18 $ 16.94 $.124
2nd quarter 18.18 16.32 .124
3rd quarter 20.66 16.84 .124
4th quarter 22.73 19.63 .124
1996 1st quarter 23.55 20.05 .149
2nd quarter 26.64 22.32 .149
3rd quarter 26.64 25.68 .155
4th quarter 29.09 27.05 .155
1997 1st quarter 29.09 25.09 .18
2nd quarter
(through June 25) 39.00 26.36 .18
</TABLE>
According to information provided by NASDAQ (as adjusted for the
subsequent stock 10% dividend), the trading volume of F&M Common on NASDAQ was
1,322,827 shares during 1996 and 962,393 shares during 1995.
F&M has paid quarterly or annual cash dividends since its inception.
The holders of F&M Common are entitled to receive such dividends as are
declared by the board of directors of F&M, which considers (and may change)
payment of dividends quarterly. The ability of F&M to pay dividends is
dependent upon the receipt of dividends from the F&M Banks, payment of which is
subject to regulatory restrictions. In determining cash dividends, the board
of directors of F&M considers the earnings, capital requirements, debt
servicing requirements, financial ratio guidelines issued by the FRB and other
banking regulators, financial condition of F&M and the F&M Banks, and other
relevant factors. See Note 15 of Notes to F&M's Consolidated Financial
Statements and the discussion under "Management's Discussion and Analysis of
Results of Operations and Financial Condition--Financial Condition--Capital
Adequacy," incorporated herein by reference, for restrictions on the ability of
the F&M Banks to pay dividends.
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<PAGE> 9
F&M SUMMARY FINANCIAL DATA
The summary financial data presented below for F&M Bancorporation,
Inc. for each of the quarters ended March 31, 1997 and 1996, and for each of
the years in the three year period ended December 31, 1996, which are derived
from the Consolidated Financial Statements of F&M and should be read in
conjunction with other financial information incorporated by reference in this
Prospectus, such as the separate Consolidated Financial Statements and notes
thereto of F&M, and Management's Discussion and Analysis of Results of
Operations and Financial Condition.
<TABLE>
<CAPTION>
Three Months Ended March 31 Years ended December 31,
--------------------------- ---------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited; dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (1)
Interest income $24,542 $20,500 $86,877 $76,091 $63,942
Interest expense 11,472 9,234 39,246 33,807 25,074
------- ------- -------- -------- --------
Net interest income 13,070 11,266 47,631 42,284 38,868
Provision for loan losses 383 419 2,004 1,653 1,338
Other income 1,609 1,337 5,876 4,649 4,112
Other expense 8,318 7,209 30,382 27,727 30,142
Net income 4,147 3,426 14,413 11,987 8,425
Net income applicable to common stock 4,147 3,426 14,413 11,987 8,403
PERIOD END BALANCE SHEET DATA(1)
Total assets 1,274,027 1,029,915 $1,173,494 $ 996,278 $ 921,384
Total loans 961,855 738,039 864,674 700,044 650,236
Allowance for loan losses (11,783) (9,363) (10,602) (8,921) (8,100)
Net loans 950,072 728,676 854,072 691,123 642,136
Total deposits 1,063,665 886,518 1,005,760 866,712 805,431
Short-term borrowings 59,600 27,718 41,332 12,194 19,846
Other borrowings 18,100 5,333 9,817 10,833 6,366
Total shareholders' equity 118,522 97,651 104,949 94,067 82,931
PER SHARE DATA (1)
Net income per common share .50 .45 1.88 1.62 1.10
Cash dividends (2) .18 .149 .607 .496 .396
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</TABLE>
(1) Except as indicated, the data have been restated to reflect F&M's
acquisition of F&M Bank-Northeast (including both the First National
and Pulaski acquisitions) in 1994, F&M Bank-Waushara County in 1995
and F&M Bank-Algoma in 1996 using the pooling of interests method of
accounting. See Note 3 of Notes to F&M's Consolidated Financial
Statements incorporated herein by reference. The data prior to
January 1, 1996 have not been restated to reflect F&M's acquisition of
Monycor in February 1996 because that acquisition did not have a
material effect on F&M's results of operations or financial condition.
The data also have not been restated to reflect F&M's acquisitions of
State Bank of East Troy and Green County Bank in 1997; although those
acquisitions are being accounted for using the pooling of interests
method of accounting, periods prior to January 1, 1997 will not be
restated due to the relatively small size of those acquisitions as
compared to F&M. The data have not yet been restated to reflect F&M's
acquisition of Wisconsin Ban-Corp. in May 1997, although that
restatement is not expected to have a significant effect on the
Company's financial statements.
(2) Cash dividends per share are not restated to reflect the acquisitions
accounted for using the pooling of interests method of accounting.
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<PAGE> 10
F&M BANCORPORATION, INC.
F&M Bancorporation, Inc. was formed in 1980 to acquire the shares of
Farmers and Merchants Bank of Kaukauna, Wisconsin (now known as F&M
Bank-Kaukauna). F&M has grown internally and through acquisitions from a
one-bank holding company with total assets of $37 million at its inception to
an 18-bank holding company with 55 banking offices. F&M had total assets of
$1.3 billion, at March 31, 1997.
At December 31, 1996, F&M's subsidiary banks (the "F&M Banks") ranged
in size from $31 million to $259 million in total assets. The F&M Banks are
community banks which provide a full range of services to consumers and
businesses in small and medium-sized communities throughout Wisconsin. F&M
provides the benefits of holding company affiliation while allowing the F&M
Banks to operate with considerable autonomy.
Pending Acquisitions
Darlington Acquisition. In February 1997, F&M announced the execution
of a definitive agreement providing for the acquisition of Citizens National
Bancorp., Inc. ("CNB"), the holding company of Citizens National Bank of
Darlington ("Darlington Bank"). Darlington Bank has two offices, in Darlington
and Hazel Green (in southwest Wisconsin). Under the agreement, F&M would
acquire CNB in exchange for shares of F&M Common in an exchange ratio set forth
in the Agreement; it is estimated that approximately 577,500 shares of F&M
Common would be issued in the transaction (subject to adjustments provided in
the agreement). F&M intends to account for the transaction using the pooling
of interest method of accounting. The acquisition remains subject to CNB
shareholder approval, and certain other customary conditions. While there can
be no assurances, F&M expects that the CNB transaction will be consummated in
the third quarter of 1997.
At December 31, 1996, CNB had total assets of $75.3 million, net loans
of $48.9 million, total deposits of $65.2 million and shareholder's equity of
$9.5 million. For the year ended December 31, 1996, CNB had net income of
$653,000.
Clear Lake Acquisition. In June 1997, F&M executed a definitive
agreement for the previously announced proposed acquisition of Clear Lake
Bancorp Inc. ("CLB"), the holding company of Landmark Bank ("Landmark").
Landmark, with its main office in Clear Lake, has four offices in northwest
Wisconsin. The acquisition is expected to be stock-for-stock, at an exchange
ratio to be determined under a formula in the definitive agreement relating to
the proposed acquisition. F&M intends to account for the transaction using the
pooling of interest method of accounting. The acquisition remains subject to
CLB shareholder approval, regulatory approvals, and other customary
conditions. F&M expects that the total value of shares to be issued in the
transaction will be approximately $5.7 million to $6.0 million. While there can
be no assurances, F&M expects that the CLB transaction will be consummated in
late 1997.
At December 31, 1996, CLB had total assets of $35.0 million, net loans
of $24.5 million, total deposits of $31.8 million and shareholder's equity of
$2.1 million. For the year ended December 31, 1996, CLB had net income of
$191,000.
Dundas, Minnesota Acquisition. In June 1997, F&M announced the
signing of a letter of intent for the proposed acquisition of Sentry Bancorp.,
Inc. ("SBI"), the holding company of Cannon Valley Bank ("CVB"). CVB has its
office in the community of Dundas in southeastern Minnesota, and the
acquisition would represent F&M's first office outside of Wisconsin. The
acquisition is expected to be cash transaction, in an amount to be determined
under a formula to be included in the definitive agreement relating to the
proposed acquisition. F&M intends to account for the transaction using the
purchase method of accounting. The acquisition remains subject to execution of
a definitive agreement, SBI shareholder approval, regulatory approvals, and
other customary conditions. While there can be no assurances, F&M expects that
the SBI transaction will be consummated in late 1997.
At December 31, 1996, SBI had total assets of $24.9 million, net loans
of $18.3 million, total deposits of $22.6 million and shareholder's equity of
$2.0 million. For the year ended December 31, 1996, SBI had net income of
$385,000.
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<PAGE> 11
Antigo Office Acquisition. In June 1997, F&M announced execution of
an agreement to acquire the Antigo branch office of Security Bank ("Security"),
which is being divested in connection with Security's acquisition by Marshall &
Ilsley Corporation ("M&I"). The acquisition is expected to include the
purchase of the branch building and other fixed assets and the assumption of
deposit liabilities in a cash transaction, in which F&M will purchase the
physical assets and will be reimbursed in cash (reduced by an agreed-upon
premium) for the assumption of deposits. The transaction is subject to
regulatory approval, consummation of the proposed acquisition of Security by
M&I and other customary conditions. Security's Antigo office currently has
total deposits of approximately $35 million.
Recent Developments
Prairie du Chien Acquisition. On May 30, 1997, F&M acquired Wisconsin
Ban Corp. ("WBC"), the holding company of Prairie City Bank ("PCB"). PCB,
which has been renamed "F&M Bank-Prairie du Chien", has five offices in
southwest Wisconsin. F&M acquired WBC in exchange for 637,010 shares of F&M
Common. Also, outstanding WBC preferred stock was redeemed for approximately
$350,000 in cash, and outstanding indebtedness of WBC to its shareholders and
affiliates, in the amount of approximately $2.6 million (including accrued
interest) was re-paid in cash. F&M is accounting for the transaction using the
pooling of interests method of accounting.
At December 31, 1996, WBC had total assets of $87.3 million, net loans
of $56.0 million, total deposits of $69.9 million and shareholders' equity of
$8.5 million. For the year ended December 31, 1996, WBC had net income of
$740,000.
Brodhead Acquisition. On February 27, 1997, F&M acquired Green County
Bank ("GCB"), with one office in Brodhead in south-central Wisconsin. GCB has
been renamed "F&M Bank-Brodhead." F&M acquired GCB in exchange for 201,264
shares of F&M Common Stock ("F&M Common"), in a formula amount set forth in the
definitive acquisition agreement; the total value of those shares was
approximately $5.4 million for purposes of the agreement. F&M is accounting
for the transaction using the pooling of interests method of accounting,
although periods prior to January 1, 1997 will not be restated because of the
relatively small size of GCB as compared to F&M.
At December 31, 1996, GCB had total assets of $31.5 million, net loans
of $21.5 million, total deposits of $28.1 million and shareholders' equity of
$3.2 million. For the year ended December 31, 1996, GCB had net income of
$287,000.
East Troy Acquisition. On January 10, 1997, F&M acquired East Troy
Bancshares, Inc. ("ETB"), which owned all of the shares of State Bank of East
Troy (renamed "F&M Bank-East Troy"), with one office in East Troy in southeast
Wisconsin. F&M's acquisition of ETB was made in exchange for 483,993 shares of
F&M Common, valued for purposes of the transaction at $13.5 million for
purposes of the agreement. F&M is accounting for the transaction using the
pooling of interests method of accounting, although periods prior to January 1,
1997 will not be restated because of the relatively small size of ETB as
compared to F&M.
At December 31, 1996, ETB had total assets of $56.0 million, net loans
of $43.2 million, total deposits of $46.6 million and shareholders' equity of
$7.7 million. For the year ended December 31, 1996, ETB had net income of
$224,000.
Subsidiary Banks
F&M owns 18 subsidiary banks (the "Banks" or the "F&M Banks"), all of
which are Wisconsin state banks, and each of which (other than recently
acquired banks which have not yet become members) is a member of the Federal
Reserve System. The Banks are community banks which provide a full range of
services to consumers and businesses in small and medium-sized communities
throughout Wisconsin. F&M provides the benefits of holding company affiliation
while allowing the Banks to operate with considerable autonomy.
-10-
<PAGE> 12
The following table presents certain information as to the F&M Banks.
Each of the F&M Banks is wholly-owned by F&M.
<TABLE>
<CAPTION>
NO. OF FULL
YEAR SERVICE OFFICES TOTAL ASSETS
BANK ACQUIRED (1) AT 3/31/97 AT 12/31/96
--------------------------------- ------------ ---------------- -------------
(in millions)
<S> <C> <C> <C>
F&M Bank-Kaukauna 1980 5 $119.6
F&M Bank-Appleton 1981 3 60.7
F&M Bank-Hilbert 1983 3 29.4
F&M Bank-Winnebago County 1985 3 93.5
F&M Bank-New London 1987 1 32.7
F&M Bank-Portage County 1987 2 74.2
F&M Bank-Fennimore 1988 1 46.3
F&M Bank-Potosi 1988 2 33.4
F&M Bank-Lancaster 1990 1 42.6
F&M Bank-Lakeland 1991 7 149.1
F&M Bank-Kiel 1991 1 43.6
F&M Bank-Northeast 1994 11 259.3
F&M Bank-Waushara County 1995 5 101.2
F&M Bank-Superior 1996 1 32.1
F&M Bank-Algoma 1996 2 51.0
F&M Bank-East Troy 1997 1 56.2
F&M Bank-Brodhead 1997 1 31.5
F&M Bank-Prairie du Chien 1997 5 87.2
- ------------------
</TABLE>
(1) In the case of F&M Banks resulting from mergers, represents the date
F&M first acquired any of the constituent banks in those mergers.
F&M's network of community banks generally operates with significant
local autonomy, with general oversight and support from F&M. F&M believes this
autonomy allows the F&M Banks to better serve the customers in their respective
communities, and thus enhances the F&M Banks' business opportunities and
operations. After acquiring banks, F&M generally maintains local bank charters
and keeps intact existing management and boards of directors. Generally, F&M
Bank managements operate independently of F&M in selecting deposit products
developed by F&M and in making pricing and credit decisions. F&M maintains an
approval procedure for new loans above certain threshold amounts and provides
ongoing loan review and administration assistance and other services for the
F&M Banks. F&M encourages F&M Bank officers and employees to be active in
community groups and projects.
-11-
<PAGE> 13
INFORMATION AS TO F&M COMMON
The Restated Articles of Incorporation of F&M, as amended (the
"Articles"), provide that F&M has authority to issue 20,000,000 shares of
Common Stock, $1.00 par value ("F&M Common"). The outstanding shares of F&M
Common are, and the shares to be issued in transactions will be, fully paid and
nonassessable, except for statutory liability of shareholders under Section
180.0622(2) (b) of the Wisconsin Business Corporation Law (the "WBCL"), as
judicially interpreted, for certain unpaid indebtedness to employees for
services rendered.
The holders of F&M Common are entitled to one vote for each share held
of record on each matter submitted to a vote of shareholders. Shareholders
have no cumulative voting rights, which means that the holders of shares
entitled to exercise more than 50% of the voting rights are able to elect all
of the directors. F&M's Articles and Bylaws provide for classification of the
board of directors into three classes, one class being subject to election in
each year for three-year terms.
Dividends may be paid to holders of F&M Common when, as and if
declared by the board of directors out of funds legally available therefor,
subject to any contractual restrictions on the payment of dividends. In the
event of any liquidation, dissolution or winding-up of F&M, the holders of F&M
Common will be entitled to receive a pro rata share of the assets of F&M
remaining after payment or provision for payment of the debts and other
liabilities of F&M. The holders of F&M Common are not entitled to any
preemptive, subscription, redemption or conversion rights. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition--Financial Condition--Capital Adequacy" and Note 15 of Notes to F&M's
Consolidated Financial Statements (which are incorporated herein by reference)
for discussions of restrictions on F&M Banks' ability to pay dividends to F&M.
Certain Statutory Provisions
Except as may otherwise be provided by law, the requisite affirmative
vote of shareholders for certain corporate actions, including a merger or share
exchange with another corporation, sale of all or substantially all of the
corporate property and assets, or voluntary liquidation of F&M, is a majority
of all the votes entitled to be cast on the transaction by each voting group of
outstanding shares entitled to vote thereon. Sections 180.1130 through
180.1134 of the WBCL provide generally that, in addition to the vote otherwise
required by law or the articles of incorporation of an "issuing public
corporation" (defined to mean a corporation domiciled in Wisconsin with at
least 500 shareholders of record, including 100 shareholders of record who have
unlimited voting rights and are Wisconsin residents), certain "business
combinations" not meeting certain adequacy-of-price standards specified in the
statute must be approved by (a) the holders of at least 80% of the votes
entitled to be cast and (b) two-thirds of the votes entitled to be cast by the
corporation's outstanding voting shares owned by persons other than a
"significant shareholder" who is a party to the transaction or an affiliate or
associate thereof. Section 180.1130 defines "business combination" to include,
subject to certain exceptions, a merger or share exchange of the issuing public
corporation (or any subsidiary thereof) with or the sale or other disposition
of substantially all assets of the issuing public corporation to, any
significant shareholder or affiliate thereof. "Significant shareholder" is
defined generally to mean a person that is the beneficial owner of 10% or more
of the voting power of the outstanding voting shares of the issuing public
corporation. The statute also restricts the repurchase of shares and the sale
of corporate assets by an issuing public corporation in response to a take-over
offer. F&M presently meets the definition of "issuing public corporation."
Also, Section 180.1150 of the WBCL provides that the voting power of
shares of an "issuing public corporation" which are held by any person in
excess of 20% of the voting power of the issuing public corporation's shares
shall be limited to 10% of the full voting power of such excess shares. This
statutory voting restriction is not applicable to shares acquired directly from
F&M, to shares acquired in a transaction incident to which shareholders of F&M
vote to restore the full voting power of such shares and under certain other
circumstances.
-12-
<PAGE> 14
Sections 180.1140 through 180.1144 of the WBCL prohibit certain
"business combinations" between a "resident domestic corporation" and a person
beneficially owning 10% or more of the outstanding voting stock of such
corporation (an "interested shareholder") within three years after the date
such person became a 10% beneficial owner (the "acquisition date"), unless the
business combination or the acquisition of such stock has been approved before
the acquisition date by the corporation's board of directors. After such
three-year period, a business combination with the interested shareholder may
be consummated only with the approval of the holders of a majority of the
voting stock not beneficially owned by the interested shareholder, unless the
combination satisfies certain adequacy-of-price standards intended to provide a
fair price for shares held by disinterested shareholders. F&M presently meets
the definition of a "resident domestic corporation."
The foregoing provisions of the WBCL, the classification of F&M's
board of directors and the ability to issue additional shares of F&M Common
without further shareholder approval (except as may be required under NASDAQ
Stock Market corporate governance standards), could have the effect, among
others, of discouraging take-over proposals for F&M or impeding a business
combination between F&M and a major shareholder.
PLAN OF DISTRIBUTION
This Prospectus covers the offer and sale by F&M of up to 2,850,023
shares of F&M Common, which F&M may issue from time to time in connection with
the future acquisitions of other businesses, or securities of other businesses,
in business combination transactions in accordance with Rule 415(a)(1)(viii) of
Regulation C under the Securities Act or as otherwise permitted under the
Securities Act.
F&M expects that the terms upon which it may issue the shares in
business combination transactions will be determined through negotiations with
the boards of directors, principal owners and/or other representatives of the
businesses to be acquired. It is expected that the shares of F&M Common that
are issued will be valued at prices reasonably related to the market prices for
F&M Common prevailing at either the time an acquisition agreement is executed
or at the time an acquisition is consummated.
Of the shares being offered hereby, it is expected that approximately
577,500 shares will be issued in connection with F&M's pending acquisition of
Citizens National Bancorp, Inc. and a number of shares to be determined
will be issued in connection with F&M's pending acquisition of Clear Lake
Bancorp Inc. There can be no assurances that such acquisitions will be
completed as anticipated. In the event that any of such acquisitions is not
completed, shares which were to have been issued in such acquisitions may be
offered in connection with other future acquisitions. See "F&M Bancorporation,
Inc. - Pending Acquisitions."
All expenses to these offerings are expected to be borne by F&M,
although any business to be acquired is likely to be required to bear all of
its expenses in connection with any business combination transaction. Because
any supplement to this registration statement may also constitute a proxy
statement of such acquired business, the acquired business may bear certain of
the expenses relating thereto.
No underwriting discounts or commissions will be paid in connection
with the issuance of shares of F&M Common by F&M in any business combination
transactions, although F&M (or an acquired business) may engage investment
advisors in connection with the evaluation of any specific acquisition.
-13-
<PAGE> 15
LEGAL OPINIONS
Quarles & Brady, Milwaukee, Wisconsin, special counsel for F&M, and
McCarty, Curry, Wydeven, Peeters & Haak, Kaukauna, Wisconsin, general counsel
for F&M, will render opinions on the legality of the shares being offered
hereby and as to certain other matters in connection with the business
combination transactions pursuant to which shares of F&M Common may be issued.
Two Quarles & Brady attorneys providing services with respect to the
Registration Statement own an aggregate of 8,618 shares of F&M Common.
EXPERTS
The consolidated financial statements of F&M as of December 31, 1996
and 1995, and for the years ended December 31, 1996, 1995 and 1994, have been
audited by Wipfli Ullrich Bertelson LLP, independent certified public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
PROCEDURE FOR SUBMITTING SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, F&M
shareholders may present proper proposals for inclusion in F&M's proxy
statement and for consideration at its annual meeting of shareholders in a
timely manner. If F&M's 1998 annual meeting is held as scheduled, the date for
timely submission is December 1, 1997; if the meeting is materially delayed,
shareholders will be informed of a new date for submission.
-14-
<PAGE> 16
___, 1997
Dear Fellow Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Citizens National Bancorp, Inc. (the "CNB") to be held on August 8, 1997 at
the Fellowship Hall of the Immanuel United Church of Christ, 339 East Louisa
Street, Darlington, Wisconsin (the "Special Meeting"). The Special Meeting
will begin at 10:30 a.m., Central Time. At the Special Meeting, you will be
asked to approve a Plan and Agreement of Merger and Reorganization dated as of
February 26, 1997, as amended May 29, 1997 and June 23, 1997 (the "Agreement"),
which provides for the merger (the "Merger") of CNB and a wholly-owned
subsidiary of F&M Bancorporation, Inc. ("F&M"). The Agreement provides that,
upon consummation of the Merger, each holder of CNB Common Stock will be
entitled to receive, for each share of CNB Common Stock, no par value ("CNB
Common") held at the time of the Merger, 82.347 shares of F&M Common Stock,
$1.00 par value ("F&M Common") subject to certain conditions and adjustments
set forth in the Agreement.
THE BOARD OF DIRECTORS OF CNB BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF CNB AND ITS SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE APPROVAL OF THE AGREEMENT.
The attached Supplemental Prospectus/Proxy Statement ("Supplemental
Statement") will provide you with a detailed description of the Agreement and
the transactions contemplated thereby. The Agreement itself is attached as
Exhibit C to the Supplemental Statement. A separately attached Prospectus of
F&M (the "Prospectus") will provide you with additional information about F&M.
Extensive information concerning F&M and CNB is also provided in the
Supplemental Statement. Please give this information your careful attention.
The affirmative vote of the holders of not less than a majority of the
shares of CNB Common Stock entitled to vote at the Special Meeting is required
to approve the Agreement and the Merger. The failure to execute and return the
accompanying proxy card and or to vote in person at the Special Meeting will
have the effect of a vote cast against the Agreement. Furthermore, abstentions
will have the same effect as votes cast against approval of the Agreement. To
assure that your shares are represented in voting on this very important
matter, please complete and return the accompanying proxy card promptly in the
enclosed envelope, whether or not you plan to attend the Special Meeting. If
you do attend, you may, if you wish, revoke your proxy and vote your shares in
person at the Special Meeting.
If you require assistance, please contact me at CNB at 608/776-4458.
Very truly yours,
Timothy P. McGettigan
Chief Executive Officer
<PAGE> 17
CITIZENS NATIONAL BANCORP, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 8, 1997
To the Shareholders of Citizens National Bancorp, Inc.:
NOTICE is hereby given that a special meeting of the shareholders of
Citizens National Bancorp, Inc., a Wisconsin corporation ("CNB"), will be held
at Fellowship Hall of the Immanuel United Church of Christ, 339 East Louisa
Street, Darlington, Wisconsin on August 8, 1997, at 10:30 a.m. local time, for
the purpose of considering and voting upon the following matters:
1. Approval of the transactions contemplated in a Plan and
Agreement of Merger and Reorganization, as amended, between
F&M Bancorporation, Inc. ("F&M") and CNB, including approval
of the merger transaction contemplated by the Agreement in
which shares of CNB Common will be converted into shares of
F&M Common (the "Merger"); and
2. Such other matters relating to the foregoing as may properly
be brought before the meeting or any adjournment thereof;
all as set forth in the accompanying Supplemental Statement of F&M and CNB.
The Board of Directors has fixed the close of business on June 25,
1997 as the record date for the determination of shareholders entitled to
receive notice of and to vote at the Special Meeting or any adjournment
thereof.
The affirmative vote of the holders of not less than a majority of the
outstanding shares of CNB Common Stock entitled to be cast is required for
approval of the Merger. Dissenting CNB shareholders have certain rights of
appraisal in this matter; see "Rights of Dissenting Shareholders of CNB" in the
Supplemental Statement and the statutory provisions of Wisconsin law set forth
on Exhibit B thereto.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE MARK,
SIGN, DATE, AND RETURN THE ENCLOSED PROXY TO CNB PROMPTLY IN THE ACCOMPANYING
POST-PAID ENVELOPE. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE
SPECIAL MEETING, WHETHER YOUR HOLDINGS ARE LARGE OR SMALL. IF FOR ANY REASON
YOU SHOULD DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS
VOTED.
By order of the Board of Directors,
Timothy P. McGettigan
__________, 1997
Darlington, Wisconsin
<PAGE> 18
PROXY STATEMENT
FOR SUPPLEMENTAL PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS OF
OF F&M BANCORPORATION, INC.
CITIZENS NATIONAL BANCORP, INC.
This Supplemental Prospectus/Proxy Statement (the "Supplemental
Statement") relates to the proposed acquisition of Citizens National Bancorp,
Inc., a Wisconsin corporation ("CNB"), by F&M Bancorporation, Inc., a Wisconsin
corporation ("F&M"), as described herein. A separately attached prospectus of
F&M (the "Prospectus") is also being delivered to shareholders of CNB and
contains further information about F&M.
The acquisition of CNB by F&M will be made by means of a merger
transaction (the "Merger") in which CNB will be merged into F&M Merger
Corporation, a wholly owned subsidiary of F&M ("Subsidiary"), and each
outstanding share of common stock, no par value, of CNB ("CNB Common") will be
converted into 82.347 shares of Common Stock, $1.00 par value, of F&M ("F&M
Common") subject to certain conditions and adjustments as provided in the Plan
and Agreement of Merger and Reorganization among F&M, Subsidiary and CNB dated
as of February 26, 1997, as amended May 29, 1997 and June 23, 1997 (the
"Agreement"). For further information, see "The Merger -- Conversion of CNB
Common into F&M Common."
FOR CERTAIN RISK FACTORS RELATING TO THIS OFFERING, SEE "RISK FACTORS"
ON PAGES 5 AND 6 OF THE PROSPECTUS.
The date of this Supplemental Statement is ___, 1997 and the date
of the Prospectus is ___, 1997. This Supplemental Statement and the
separately attached Prospectus are first being mailed to CNB shareholders on or
about ___, 1997. On June 25, 1997, the closing sales price of F&M as
reported on The NASDAQ Stock Market was $38.50.
The information contained in this Supplemental Statement concerning
CNB and F&M has been supplied by each of them, respectively. No person has
been authorized in connection with this offering to give any information or to
make any representations other than contained, or incorporated by reference, in
this Supplemental Statement.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS SUPPLEMENTAL STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS SUPPLEMENTAL STATEMENT IN
CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY F&M, CNB,OR ANY OTHER PERSON. NEITHER
THE DELIVERY OF THIS SUPPLEMENTAL STATEMENT NOR ANY DISTRIBUTION OF SECURITIES
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF F&M OR CNB SINCE THE DATE HEREOF OR THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
<PAGE> 19
AVAILABLE INFORMATION
F&M 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"). The reports, proxy statements and
other information filed by F&M with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can also be obtained from the Public Reference
Section of the Commission, Washington, D.C. 20549 at prescribed rates. Also,
the Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
(such as F&M) that file electronically with the Commission.
F&M has filed with the Commission a Post-Effective Amendment No. 1 to a
Registration Statement on Form S-4 (together with any amendments thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities to be issued pursuant to or
as contemplated by the Agreement. This Supplemental Statement does not contain
all the information set forth in the Registration Statement. Such additional
information may be obtained from the Commission's principal office in
Washington, D.C. Statements contained in this Supplemental Statement or in any
document incorporated in this Supplemental Statement by reference as to the
contents of any contract or other document referred to herein or therein are
not necessarily complete (although all required material disclosures are
included herein), 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by F&M pursuant to
the Exchange Act are incorporated by reference in this Supplemental Statement:
(i) F&M's Annual Report on Form 10-K for the year ended December
31, 1996;
(ii) F&M's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997;
(iii) F&M's Current Reports on Form 8-K dated January 10, 1997 and
May 30, 1977; and
(iv) The description of F&M Common included in Item 11 to F&M's
Registration statatement on Form 10, as amended by
Post-Effective amendment No. 2 thereto filed September 16,
1993.
All reports and definitive proxy or information statements filed by
F&M pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Supplemental Statement shall be deemed to be
incorporated by reference into this Supplemental Statement from the date of the
filings of such documents.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Supplemental
Statement to the extent that a statement contained herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Supplemental Statement.
THIS SUPPLEMENTAL STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
SUPPLEMENTAL STATEMENT IS DELIVERED, WITHOUT CHARGE, ON WRITTEN OR ORAL REQUEST
TO F&M BANCORPORATION, INC., ONE BANK AVENUE, KAUKAUNA, WISCONSIN 54130
(TELEPHONE 414/766-1717), ATTN: CORPORATE SECRETARY. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, ANY REQUESTS
SHOULD BE MADE BY AUGUST 3, 1997.
-2-
<PAGE> 20
TABLE OF CONTENTS
SUPPLEMENTAL STATEMENT
<TABLE>
PAGE NO.
<S> <C>
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
RIGHTS OF DISSENTING SHAREHOLDERS OF CNB . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
MARKET INFORMATION AND DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
CNB MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION . . . 25
CITIZENS NATIONAL BANCORP, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
INFORMATION AS TO SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
EXHIBIT A: Fairness Opinion of Robert W. Baird & Co. Incorporated. . . . . . . . . . . . . . . . A-1
EXHIBIT B: Subchapter XIII of the Wisconsin Business Corporation Law . . . . . . . . . . . . . . B-1
EXHIBIT C: Text of the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
</TABLE>
ENCLOSURES:
Proxy Form, with return envelope
-3-
<PAGE> 21
GENERAL INFORMATION
This Supplemental Statement is being furnished to the shareholders of
CNB in connection with the proposed Merger, in which each share of CNB Common
will be converted into 82.347 shares of F&M Common subject to certain
conditions and adjustments set forth in the Agreement, and the solicitation of
proxies on behalf of CNB's Board of Directors to be voted at the special
meeting of shareholders of CNB to be held on August 8, 1997 and at any
adjournment thereof (the "Special Meeting"). The purpose of the Special
Meeting and of this solicitation is to obtain shareholder action with regard to
the approval of the Merger pursuant to the Agreement.
The Agreement provides for the acquisition of CNB by F&M through the
merger of Subsidiary, a Wisconsin corporation organized by F&M specifically for
transactions of this type, into CNB. In the Merger, shares of CNB Common will
be converted into shares of F&M Common subject to certain conditions and
adjustments as set forth in the Agreement. See "The Merger -- Conversion of
CNB Common into F&M Common." See "The Special Meeting" and "The Merger."
Consummation of the Merger is subject to the satisfaction of several
conditions, including approval by the shareholders of CNB at the Special
Meeting, qualifying for pooling of interests accounting, and obtaining the
requisite approval of the Board of Governors of the Federal Reserve System
("FRB") under the Bank Holding Company Act of 1956, as amended (the "Bank
Holding Company Act") and expiration of the statutory waiting period after such
approval. An application seeking approval of the FRB was filed on April 3,
1997 and was approved on May 15, 1997.
The cost of solicitation of proxies will be borne by CNB. However,
because this Supplemental Statement also constitutes a disclosure document with
respect to F&M Common, F&M paid the costs and expenses of the preparation
hereof. In addition to solicitation by mail, directors, officers and employees
of CNB may solicit proxies by telephone or personal contact, but will receive
no additional compensation for such services.
The information contained in this Supplemental Statement concerning
CNB and F&M has been supplied by each of them, respectively. The information
contained in the separately attached Prospectus was supplied by F&M. This
Supplemental Statement and the attached Prospectus is being mailed to CNB
shareholders on or about ___, 1997.
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<PAGE> 22
THE SPECIAL MEETING
In order to approve the transactions contemplated by the Agreement,
the affirmative vote of holders of not less than a majority of outstanding
shares of CNB Common entitled to be cast must be received at the Special
Meeting. Obtaining the requisite vote is a requirement of Wisconsin law, and
is therefore required by the Agreement and may not be waived.
In order to approve the Merger transaction described herein, the
affirmative vote of holders of not less than a majority of outstanding shares
of CNB Common entitled to be cast must be received at the Special Meeting. The
Wisconsin Business Corporation Law ("WBCL") affords those shareholders of CNB
who properly exercise their right to dissent from the Merger, in accordance
with the statutory procedures, the right to receive payment of the "fair value"
of their shares in cash. See "Rights of Dissenting Shareholders of CNB" herein
and Exhibit A hereto.
Each shareholder of record of CNB Common at the close of business on
June 25, 1997, will be entitled to one vote for each share of CNB Common
registered in such shareholder's name. At that date, there were 7,013 shares
of CNB Common issued and outstanding, all of which are entitled to vote.
Directors and executive officers of CNB, all of whom intend to vote FOR the
Merger, together own 2275.5 shares of CNB Common, or 32.4% of the issued and
outstanding shares. See "Citizens National Bancorp, Inc.--Share Ownership."
Shares represented at the Special Meeting by a properly executed proxy
will be voted in accordance with the specification made on the proxy; if no
specification is made, such shares will be voted FOR approval of the Merger.
Any shareholder submitting a proxy has the right to revoke the proxy at any
time before it is voted by giving written notice to the Secretary of CNB, by
giving oral notice to the presiding officer during the Special Meeting that the
shareholder intends to vote in person, or by submitting a subsequently dated
proxy. Attendance by a shareholder at the Special Meeting will not in and of
itself constitute revocation of a proxy. PLEASE RETURN THE SIGNED PROXIES TO
CNB IN THE POST-PAID ENVELOPE PROVIDED FOR THAT PURPOSE.
THE BOARD OF DIRECTORS OF CNB RECOMMENDS APPROVAL OF THE MERGER, AS IT
BELIEVES THE MERGER TO BE IN THE BEST INTERESTS OF CNB AND ITS SHAREHOLDERS.
Proxies are being solicited on behalf of CNB's Board of Directors.
CNB's Board of Directors does not intend to present any other matter before the
Special Meeting. By law, the only business that may be conducted at a special
meeting of shareholders is the business described in the notice of meeting.
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<PAGE> 23
SUMMARY
The following is a brief summary of certain information contained in
this Supplemental Statement, including summaries of information believed by the
parties to be material. This summary is intended merely to supply pertinent
facts and highlights of the material contained in or accompanying this
Supplemental Statement. The information contained in this summary is qualified
by reference to more detailed information contained elsewhere, or incorporated
by reference, in this Supplemental Statement.
The Merger
The Agreement provides for the acquisition of CNB by F&M through the
merger of Subsidiary into CNB. In the Merger, shares of CNB Common will be
automatically converted into 82.347 shares of F&M Common subject to certain
conditions and adjustments set forth in the Agreement. See "The Merger" and
the text of the Agreement at Exhibit C hereto.
Purpose of the Special Meeting
Shareholders of CNB are being asked to approve the Merger. Such
approval is required for F&M to complete the Merger.
Parties
F&M and CNB, Wisconsin corporations, are registered bank holding
companies subject to supervision and regulation by the FRB under the Bank
Holding Company Act. The Citizens National Bank of Darlington (the "Darlington
Bank"), a wholly-owned subsidiary of CNB, is a national bank subject to the
supervision of the Office of the Comptroller of the Currency ("OCC"), the FRB,
and the Federal Deposit Insurance Corporation ("FDIC").
CNB, which has its principal executive offices at 207 Wells Street,
P.O. Box 90, Darlington, Wisconsin (telephone: 608/776-4458), had total assets
of $74.5 million at March 31, 1997. The Bank has a main office in Darlington
which is located in Lafayette County and a branch office in Hazel Green, which
is located in Grant County. Lafayette and Grant Counties are both located in
Southwest Wisconsin.
F&M, which has its principal executive offices at One Bank Avenue,
Kaukauna, Wisconsin 54130 (telephone: 414/766-1717), had total consolidated
assets of $1.3 billion at March 31, 1997. F&M has 18 Wisconsin state bank
subsidiaries, all of which are FDIC members and are subject to the supervision
of the Wisconsin Department of Financial Institutions, Division of Banking.
All but two of the F&M Banks are Federal Reserve System members; the other two
subsidiary banks have been recently acquired and are in the process of becoming
members. Together, the subsidiary banks have 55 offices, all in Wisconsin.
Subsidiary is a wholly-owned subsidiary of F&M formed to effect transactions of
this type.
See "F&M Bancorporation, Inc." in the Prospectus and "Citizens
National Bancorp, Inc." herein.
Conversion of CNB Common Into F&M Common
In the Merger, shares of CNB Common will be converted into 82.347
shares of F&M Common, subject to certain conditions and adjustments set forth
in the Agreement. Only full shares will be issued; fractional share interests
will be converted into cash at a per share price based upon market value of F&M
Common. See "The Merger -- Conversion of CNB Common into F&M Common."
Dissenters' Appraisal Rights
Any shareholder or beneficial shareholder of CNB who complies with the
procedural requirements of the WBCL in exercising his dissenters' rights will
be entitled to receive cash in the amount of the "fair value" of his
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<PAGE> 24
shares as determined pursuant to the exercise of such rights, instead of shares
of F&M Common or cash contemplated by the terms of the Agreement. Failure to
comply with each of the detailed statutory procedural requirements may result
in a loss of such appraisal rights. A condition, which can be waived by F&M,
to its obligation to conclude the transaction is that holders of less than 10%
of the issued and outstanding CNB Common will have elected to exercise such
rights. See "The Merger -- Conditions to the Merger," "Rights of Dissenting
Shareholders of CNB" and the statutory provisions set forth in Exhibit B
hereto.
If a CNB shareholder fails to perfect his or her dissenters' rights by
failing strictly to comply with the applicable statutory requirements, he or
she will be bound by the terms of the Agreement. An executed proxy on which no
voting direction is made will be voted FOR approval of the Merger, so a
dissenting shareholder who wishes to have his or her shares represented by a
proxy at the Special Meeting but preserve his dissenters' rights must mark his
or her proxy card either to vote against the Merger or to abstain from voting
thereon, in addition to complying with the other requirements as described
herein.
Fairness Opinion
Robert W. Baird & Co. Incorporated ("Baird") has delivered to the Board of
Directors of CNB its written opinion, February 26, 1997, to the effect that,
as of such date, the Exchange Ratio (as defined therein) is fair, from a
financial point of view, to the holders of CNB Common. The full text of the
opinion of Baird, which sets forth the assumptions made, procedures followed,
matters considered and limitations on the review undertaken, is attached as
Exhibit A hereto. HOLDERS OF CNB COMMON ARE URGED TO READ SUCH OPINION
CAREFULLY AND IN ITS ENTIRETY. See "The Merger--Opinion of Financial Advisor
to CNB".
Conditions to the Merger
The Merger is conditioned upon approval by CNB shareholders,
appropriate regulatory approval by the FRB, and other conditions set forth in
the Agreement. See "The Merger -- Conditions to the Merger."
As of March 31, 1997, directors and executive officers of CNB,
including their spouses and their affiliates, beneficially owned an aggregate
of 2,275.5 shares of CNB Common, or 32.4% of the outstanding shares of CNB
Common. Such persons have indicated that they intend to vote their shares of
CNB Common in favor of the Merger. The directors and executive officers of
F&M, and their affiliates, do not own any shares of CNB Common. See "Citizens
National Bancorp, Inc.--Share Ownership."
Federal Income Tax Consequences
The transaction contemplated by the Agreement has been structured by
the parties with the intent that it will constitute a reorganization resulting
in no recognizable gain or loss for federal income tax purposes by those CNB
Common shareholders to the extent they receive shares of F&M Common in exchange
for their shares of CNB Common. (However, the receipt of cash in lieu of
fractional share interests, and upon exercise of dissenters' rights, will be
taxable.) The parties have not sought any rulings from the Internal Revenue
Service that the transaction constitutes a non-taxable reorganization.
However, it is a condition to consummation of the Merger that McCarty, Curry,
Wydeven, Peeters & Haak, counsel to F&M, will issue an opinion as to the
tax-free nature of the exchange to holders of CNB Common who receive F&M Common
in the Merger, and as to the tax effects of cash in lieu of fractional share
interests. In the Agreement, however, F&M has made no representations or
warranties as to tax consequences of the Merger. See "The Merger -- Federal
Income Tax Consequences."
Comparison of F&M Common with CNB Common
F&M and CNB are organized under the Wisconsin Business Corporation Law
("WBCL"). The WBCL determines the rights of holders of common stock of each
such entity, except as otherwise permissibly provided in their respective
articles of incorporation or bylaws. While the rights of both entities'
shareholders are similar, there are also important differences.
F&M is subject to statutory anti-takeover provisions and its articles
of incorporation and bylaws provide for classification of the Board of
Directors; neither apply to CNB. Both F&M and CNB shareholders are subject
-7-
<PAGE> 25
to statutory personal liability for certain employee wage claims. See
"Information as to Securities--Comparison of F&M Common with CNB Common."
In addition to the differences between F&M Common and CNB Common
themselves, differences exist in their trading markets. F&M trades on the
NASDAQ Stock Market, while the trading market for shares of CNB Common has been
limited.
Required Vote
The affirmative vote of holders of not less than a majority of the
outstanding shares of CNB Common entitled to be cast is required under
Wisconsin law to permit the Merger.
Interests of Darlington Bank Insiders
As of March 31, 1997, directors and executive officers of CNB,
including their spouses and their affiliates, beneficially owned an aggregate
of 2,275.5 shares of CNB Common, or 32.4% of the outstanding shares of CNB
Common entitled to vote at the Special Meeting. Such persons have indicated
that they intend to vote for the Merger, and to vote their shares of CNB Common
in favor of the Merger. The directors and executive officers of F&M, and their
affiliates, do not own any shares of CNB Common. See "General Information" and
"Citizens National Bancorp, Inc.--Share Ownership."
The parties contemplate that Darlington Bank will enter into an
employment agreement with Timothy P. McGettigan, currently President and Chief
Executive Officer of Darlington Bank. The employment agreement will be for a
two-year term, and provide that Mr. McGettigan will remain in his current
position at his current salary and benefit level. The parties also contemplate
that the current members of Darlington Bank's Board of Directors will continue
as members of the Board of Directors of Darlington Bank after the Effective
Time. Retirement from the Board of Directors will occur at age seventy (70)
consistent with F&M's policies, provided that any current director may remain a
director until the earlier of either two (2) years from the Effective Time or
the 1999 annual shareholders' meeting of Darlington Bank.
See "The Merger -- Management after the Merger."
Management after the Merger
Upon consummation of the Merger, F&M expects to continue to operate
Darlington Bank as a separate entity under the control, direction and general
policies of F&M. F&M may convert Darlington Bank to a state charter. It is
further anticipated that F&M's Chairman of the Board, Gail E. Janssen, or
another F&M designee, will be elected to the Board of Directors of Darlington
Bank. As with all of F&M's subsidiary banks (the "F&M Banks"), F&M will
perform certain functions and provide certain services for Darlington Bank, and
Darlington Bank will pay F&M a management fee therefor.
See "Interests of Darlington Bank Insiders" above for information
regarding the proposed employment contract of Mr. McGettigan and agreements to
maintain the board membership of current Darlington Bank directors. See also
"The Merger -- Management after the Merger."
Accounting Treatment
F&M intends to account for the acquisition of CNB by using the pooling
of interests method of accounting.
Recommendation of CNB Directors
THE BOARD OF DIRECTORS OF CNB RECOMMENDS APPROVAL OF THE MERGER. See
"The Merger -- Reasons for the Merger."
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<PAGE> 26
Comparative Unaudited Per Share Data
The following table sets forth for F&M Common and CNB Common certain
unaudited historical, pro forma and pro forma equivalent per share financial
information for each of the three years ended December 31, 1996, 1995 and 1994
and the three months ended March 31, 1997 and 1996. F&M per share information
has been restated to effect F&M's 10% stock dividend in June 1996 and 1997.
The information should be read in conjunction with the financial statements and
other information appearing elsewhere in this Supplemental Statement and in the
Prospectus. It is assumed that the exchange ratio will be 82.347 shares of F&M
Common for each share of CNB Common. See "The Merger -- Conversion of CNB
Common into F&M Common."
<TABLE>
<CAPTION>
As of and for the three As of and for the
months ended March 31, years ended December 31,
---------------------- ------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
F&M
Net Income per Common Share (1):
Historical . . . . . . . . . . . . . . $.50 $.45 $1.88 $1.60 $1.12
Pro forma (2) . . . . . . . . . . . . . $.49 $.44 $1.78 $1.58 $1.14
Dividends Paid per Common Share:
Historical . . . . . . . . . . . . . . .18 .149 .607 .496 .396
Pro forma (3) . . . . . . . . . . . . . .18 .149 .607 .496 .396
Shareholders' Equity per Common Share:
Historical . . . . . . . . . . . . . . $14.16 (A) $13.66 (A) (A)
Pro forma (2) . . . . . . . . . . . . . $14.19 (A) $13.82 (A) (A)
CNB
Net Income per Common Share (1):
Historical . . . . . . . . . . . . . . $30.80 $30.66 $ 41.07 $109.23 $122.06
Pro forma equivalent (4) . . . . . . . $40.35 $36.23 $146.58 $130.11 $93.88
Dividends Paid per Common Share:
Historical . . . . . . . . . . . . . . -0- -0- 71.00 71.00 57.00
Pro forma equivalent (4) . . . . . . . 14.82 12.27 49.98 40.84 32.61
Shareholders' Equity per Common Share:
Historical . . . . . . . . . . . . . . $1.333 (A) $1,308 (A) (A)
Pro forma equivalent (4) . . . . . . . $1.275 (A) $1,138 (A) (A)
- ----------------
</TABLE>
(1) Before extraordinary items and cumulative effect of change in accounting
principles.
(2) Giving effect to F&M's proposed acquisition of CNB, but not other pending
F&M acquisitions. Assumes a 82.347-for-1 conversion, which amount is
subject to adjustment.
(3) The F&M pro forma dividends per share amounts represent historical
dividends per share, restated for prior stock splits and dividends, but
not restated for acquisitions.
(4) The CNB pro forma equivalent per share amounts are calculated by
multiplying the F&M pro forma per share amounts by an assumed conversion
ratio of 82.347 shares of F&M Common for each share of CNB Common.
The actual conversion ratio may be higher or lower, and will depend
upon certain factors set forth in the Agreement. See "The Merger--
Conversion of CNB Common into F&M Common."
(A) Presented only at March 31, 1997 and December 31, 1996.
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<PAGE> 27
The following table presents historical data on a per common share basis for
F&M and CNB, and equivalent per common share basis for CNB, as of the last
trading date preceding the first public announcement of the proposed Merger.
<TABLE>
<CAPTION>
CNB
------------------------------------------------
F&M Per Share
Historical Historical (1) Equivalent Basis(2)
---------- -------------- -------------------
<S> <C> <C> <C>
Market Value Per Share as of:
February 26, 1997 . . . . . . . . . . . . $27.05 (1) $2,227.48
- ------------------
</TABLE>
(1) Trading in shares of CNB Common is infrequent, and there is no independent
market with respect to such shares. To CNB's management's knowledge
there have been only four arms length transactions in shares of CNB
Common since January 1, 1995, all at prices of $250.00 per share. See
"Market Information and Dividends."
(2) CNB pro forma equivalent per share amount is calculated by multiplying the
F&M historical market value by an assumed conversion rate of 82.347
shares of F&M Common for each share of CNB Common. See "The Merger --
Conversion of CNB Common into F&M Common." The actual conversion ratio
may be higher or lower.
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<PAGE> 28
THE MERGER
The Agreement contains the representations, warranties and covenants of CNB
and F&M, the conditions to the consummation of the Merger and other terms and
provisions with respect to the Merger. The following is a brief description of
the provisions of the Agreement believed by F&M and CNB to be material. The
summaries herein of certain provisions of the Agreement do not purport to be
complete statements thereof and are qualified in their entirety by reference to
the text of the Agreement (excluding exhibits and schedules), a copy of which
is appended hereto as Exhibit C.
Reasons for the Merger and Board Recommendation
CNB
The Board of Directors of CNB has concluded that the proposed Merger is in
the best interest of CNB and its shareholders. The principal factors
considered by the Board of Directors in recommending the Merger are:
- Affiliation with F&M will provide CNB shareholders with ownership of a
company with geographically diverse operations, diminishing the risk of
erosion of franchise value that ownership of a local community bank stock
entails.
- F&M offered an acquisition price which provides a significant premium to
CNB's past trading values in a tax-free reorganization.
- Holders of CNB Common will receive F&M Common, which unlike CNB Common has
an active trading market on the NASDAQ National Market System. In
general, past trading of CNB Common has been isolated.
- The opinion of Baird, dated February 26, 1997, to the effect that, as of
such date, the Exchange Ratio (as defined therein) is fair, from a
financial point of view, to the holders of CNB Common. See "The Merger --
Opinion of Financial Advisor to CNB."
- Affiliation with a larger holding company provides opportunity to realize
economies of scale and increased efficiencies of operation, to the benefit
of CNB shareholders and customers.
- Affiliation with F&M will also permit or enhance the development of new
products and services, including, but not limited to, trust services, for
bank customers.
- The Board of Directors believes that an affiliation with a holding company
such as F&M which emphasizes local autonomy is in the best interest of
shareholders, as it enhances bank customer relationships and
opportunities.
As an affiliate of F&M, Darlington Bank will be able to provide its customers
with expanded banking, financing, and related services. The Merger is expected
to create economies of scale and enhance the ability of customers of Darlington
Bank to obtain financial services provided by F&M to its other affiliates.
FOR THESE REASONS, THE BOARD OF DIRECTORS OF CNB RECOMMENDS APPROVAL OF THE
MERGER AND ACCEPTANCE OF THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT.
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<PAGE> 29
F&M
From F&M's standpoint, the combination of its business with that of CNB will
expand F&M's service area to an additional market in Southwest Wisconsin. This
expands the areas of the State of Wisconsin served by F&M Banks at an
attractive location which is relatively near F&M's existing south-central and
Southwest Wisconsin banks. The acquisition of CNB is also anticipated by F&M
to help F&M achieve economies of scale by combining certain operations and
creating additional efficiencies due to F&M's existing capacity to provide
various services to additional subsidiary banks such as CNB. For example, F&M
offers its subsidiary banks centralized services relating to marketing, credit
review and analysis, auditing, human resources, accounting, investment
management and data processing, all of which could be provided for CNB by
existing F&M personnel.
Negotiation of Terms
In June 1996, F&M approached CNB regarding a possible sale by CNB to F&M and,
in September 1996, F&M made a formal presentation to the CNB Board of
Directors. In October 1996, the CNB Board of Directors authorized
representatives of CNB to proceed with negotiations with F&M. Representatives
of CNB and F&M conducted substantial negotiations after the ensuing four-month
period. Those negotiations ultimately resulted in F&M's offer which is
reflected in the Agreement. CNB did not seek nor did it receive offers of
interest from any other institution or person other than F&M.
The CNB Board of Directors retained Baird in November 1996 to evaluate F&M's
proposal, assist in the negotiations with F&M and to render an opinion as to
the adequacy of the offer to shareholders of CNB from a financial point of
view.
Once direct negotiations began, the terms of the Merger were determined by
arm's length negotiations between selected directors of CNB, particularly Mr.
McGettigan, and the executive officers of F&M, particularly Mr. Janssen.
In January 1997 the CNB Board of Directors authorized entering into an
Agreement with F&M. This Agreement was executed on February 26, 1997, and
amended on May 29, 1997 and June 23, 1997. The transaction remains subject to
regulatory and shareholder approval and other conditions set forth in the
Agreement.
Terms of Merger
The Agreement provides that CNB will merge with and into Subsidiary.
Subsidiary will be the surviving corporation. Pursuant to the terms of the
Agreement, as of the effective time of the Merger, each of the then outstanding
shares of CNB Common will be converted into 82.347 shares of F&M Common subject
to certain conditions and adjustments set forth in the Agreement. Darlington
Bank will then be a wholly-owned indirect subsidiary of F&M.
Outstanding shares of CNB Common with respect to which the record or
beneficial holder has perfected dissenters' rights in strict accordance with
the requirements of Subchapter XIII of the WBCL will not be converted under the
terms of the Agreement into shares of F&M Common in the Merger. The holders
thereof shall be entitled only to payment of the "fair value" of their shares
in accordance with Subchapter XIII. See "Rights of Dissenting Shareholders of
CNB" and Exhibit B hereto.
Conversion of CNB Common into F&M Common
In the Merger, each of the shares of CNB Common automatically will be
converted into shares of F&M Common. The exchange ratio will be calculated by
dividing the total F&M Stock Offer (577,500 shares of F&M Common, subject to
adjustment as described below) by the number of shares of CNB Common issued and
outstanding as of the Closing Date. The exchange ratio will be multiplied by
the number of shares of CNB Common held by each CNB shareholder on the Closing
Date to determine the number of shares of F&M Common to be issued to that CNB
shareholder. The total number of shares of CNB Common outstanding equals
7,013.
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<PAGE> 30
Therefore, the exchange ratio will equal 82.347 shares of F&M Common for each
share of CNB Common (i.e., 577,500 divided by 7,013), subject to adjustment, as
described below.
No fractional shares of F&M Common will be issued and all fractional share
interests will be converted into cash at a price per share based upon market
value.
The F&M Stock Offer is subject to adjustment as of the Effective Time by an
amount equal to 1.65 times the sum of all of the amounts discussed below,
divided by the F&M Selling Price. The F&M Selling Price is defined in the
Agreement as the average closing price for F&M Common as quoted on NASDAQ for
the fifteen (15) trading days on which F&M is actually traded, immediately
preceding the five (5) calendar days prior to the Effective Time. If the sum
of the amounts below is a negative number, the quotient thus determined will be
subtracted from the F&M Stock Offer. If the sum is a positive number, the
quotient thus determined will be added to the F&M Stock Offer.
The adjustment factors are as follows: (a) the amount of all uncollected
loans or leases which are considered as, or have the probability of becoming,
losses based upon circumstances which first arise and become known to F&M after
February 26, 1997, subject, however, to the mutual agreement of the parties,
and if the parties are unable to reach a mutual agreement, either party may
withdraw from the transaction; (b) the amount by which the expenses of the
transaction exceed certain limits set forth in the Agreement; (c) as a result
of any change in accounting practices or procedures adopted by CNB or
Darlington Bank, other than at the request of F&M, after February 26, 1997 and
prior to the Effective Time which have an adverse effect on Darlington Bank's
equity; (d) if the total actual 1997 earnings of Darlington Bank, determined in
accordance with Generally Accepted Accounting Principles applied on a
consistent basis, net of tax effect for the period from January 1, 1997, to the
end of the month prior to the Effective Time are less than $69,000 per month,
the amount of this difference will be a negative adjustment to the F&M Stock
Offer. If the total 1997 actual earnings for the period from January 1, 1997,
to the end of the month prior to the Effective Time exceeds $90,000 per month
the amount of such excess will be a positive adjustment to the F&M Stock Offer.
The actual expenses of the transaction set forth in the Agreement, any audit
expense arising from an audit requested by F&M and any amount necessary to
increase Darlington Bank's reserve for loan and lease losses requested by F&M
will not be considered in determining Darlington Bank's earnings under this
subsection (d); (e) the amount equal to the difference between the fair market
value, if lesser than book value, of any OREO of Darlington Bank; (f) the
amount of any obligation to any employee, officer, director or shareholder
which may become payable after the Effective Time at the option of the
employee, officer, director or shareholder as a result of the change in control
of Darlington Bank; and (g) as a result of any unfunded or underfunded
liability and any benefit plan maintained by Darlington Bank assuming the
complete termination of such plan, any costs of bringing such plan into
compliance with law and any costs of terminating such plan.
Assuming an exchange ratio of 82.347 shares of F&M Common for each share of
CNB Common, after the Merger, holders of CNB Common as a group would own
approximately 6.8% of the then-outstanding shares of F&M Common (excluding
other pending acquisitions). On a pro forma basis at March 31, 1997, not
giving effect to F&M's other pending acquisitions, CNB shareholders will
contribute 5.5% of the total assets, 5.7% of the deposits and 7.3% of the
capital of the combined entity; CNB would contribute 2.0% and 5.0% of the pro
forma net income of the combined entity for the year ended December 31, 1996
and the three months ended March 31, 1997, respectively.
Effective Time of the Merger
The Agreement provides that the Effective Time of the Merger shall be the
date specified in the Articles of Merger filed with the Wisconsin Department of
Financial Institutions. The Articles of Merger shall be filed as soon as
practicable after all conditions precedent to the parties' obligations have
been satisfied or waived. Unless further extended by agreement of the parties,
if the closing for the Merger has not taken place by August 31, 1997, F&M and
CNB each may terminate the Agreement and abandon the Merger. See "Conditions
to the Merger" and "Waiver, Amendment or Termination" below.
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<PAGE> 31
Distribution of F&M Common
After the Special Meeting, either F&M or Firstar Trust Company, F&M's
transfer agent, or another agent acting on its behalf (the "Exchange Agent")
will send a notice and transmittal form to each holder of CNB shares, advising
such holder of the procedure for surrendering to the Exchange Agent
certificates representing the shares of CNB Common for exchange into one or
more certificates evidencing F&M Common, as provided in the Agreement. Such
exchange will be made as of the Effective Time of the Merger.
Until so surrendered, each outstanding certificate which prior to the
Effective Time represented shares of CNB Common will be deemed for all purposes
to evidence only the right to receive the shares of F&M Common into which such
shares of CNB Common have been converted; provided, however, unless and until
such certificates representing CNB Common are so surrendered, no stock
certificates representing the shares of F&M Common, nor any dividends or other
distributions of any kind payable in respect of shares of F&M Common into which
such CNB Common has been converted, shall be paid or delivered to the holder of
an unsurrendered certificate and no interest shall be earned on such cash
dividend amounts. After the Effective Time, upon surrender of certificates
representing shares of CNB Common, there shall be delivered to the record
holder of the certificates representing F&M Common issued in exchange therefor,
on or as soon as practicable after such date of surrender, the amount of any
such dividends, or other distributions, and the certificates representing the
F&M Common, which as of any date subsequent to the Effective Time, but prior to
the surrender of CNB certificates, became payable or deliverable and were not
paid or delivered to such holder with respect to such shares.
Fairness Opinion
Baird. The CNB Board of Directors selected Baird in November 1996 as its
financial advisor on the basis of Baird's reputation, substantial experience in
transactions similar to the Merger and familiarity with CNB and its business.
Baird has acted as such financial advisor to CNB in connection with the Merger
and has assisted the Board of Directors of CNB in its examination of the
fairness, from a financial point of view, of the Exchange Ratio (as defined
below) to the holders of CNB Common (other than F&M and its affiliates). On
February 26, 1997 Baird rendered a written opinion to the Board of Directors of
CNB and on May 22, 1997, Baird rendered its oral opinion (the "Opinion") to the
Board of Directors of CNB to the effect that the Exchange Ratio is fair, from a
financial point of view, to the holders of CNB Common. Baird subsequently
rendered a written opinion confirming its earlier written and oral opinion as of
the date of this Supplemental Statement.
A COPY OF THE UPDATED AND RECONFIRMED BAIRD OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW
UNDERTAKEN BY BAIRD, IS ATTACHED AS EXHIBIT A TO THIS SUPPLEMENTAL
STATEMENT. THE BAIRD OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE
EXCHANGE FROM A FINANCIAL POINT OF VIEW AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY CNB SHAREHOLDERS AS TO HOW SUCH SHAREHOLDERS SHOULD VOTE WITH RESPECT TO
THE MERGER. THE SUMMARY OF THE BAIRD OPINION SET FORTH IN THIS SUPPLEMENTAL
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE BAIRD OPINION ATTACHED AS EXHIBIT A HERETO. SHAREHOLDERS OF CNB SHOULD
READ THE BAIRD OPINION CAREFULLY AND IN ITS ENTIRETY.
Baird's Analysis. In conducting its investigation and analysis and in
arriving at its opinion, Baird reviewed such information and took into account
such financial and economic factors as it deemed relevant. In that connection,
Baird among other things: (i) reviewed certain internal information, primarily
financial in nature, including projections, concerning the business and
operations of CNB furnished to Baird for purposes of its analysis, as well as
publicly available information; (ii) reviewed certain internal information,
primarily financial in nature, including projections, concerning the business
and operations of F&M furnished to Baird for purposes of its analysis, as well
as publicly available information, including but not limited to F&M's recent
filings with the Securities and Exchange Commission; (iii) reviewed the
Agreement; (iv) reviewed the historical market prices and trading activity of
CNB Common Stock; (v) compared the respective financial positions and operating
results of CNB and F&M with those of publicly traded companies Baird deemed
relevant; (vi) compared the proposed financial terms of the Merger with the
financial terms of certain other business combinations Baird deemed relevant;
and (vii) reviewed certain potential pro forma effects of the Merger. Baird
held discussions with certain members of CNB's and F&M's senior management
concerning CNB's and F&M's historical and current financial condition and
operating results, as well as the future prospects of CNB and F&M, respectively.
Baird also considered such other information, financial studies, analysis and
investigations and financial, economic and market criteria as Baird deemed
relevant for the preparation of its opinion. The Exchange Ratio
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was determined by CNB and F&M in arm's-length negotiations. CNB did not place
any limitation upon Baird with respect to the procedures followed or factors
considered by Baird in rendering its opinion.
In arriving at its opinion, Baird 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 CNB and F&M, and was not engaged
to independently verify any such information. Baird assumed, with CNB's
consent, that (i) the Merger will be accounted for as a pooling of interests,
(ii) no adjustment to the Exchange Ratio pursuant to Section 3.4 of the
Agreement will be required and (iii) all material assets and liabilities
(contingent or otherwise, known or unknown) of CNB and F&M, respectively. Baird
assumed that the projections examined by it were reasonably prepared and
represented the best available estimates and good faith judgments of the senior
management of CNB and F&M, respectively, as to future performance of their
respective companies. Baird did not undertake or obtain an independent
valuation or appraisal of any of the assets or liabilities (contingent or
otherwise) of CNB or F&M, nor did it make a physical inspection of the
properties or facilities of CNB or F&M. Baird's opinion necessarily was based
upon economic, monetary and market conditions as they existed and could be
evaluated on the date of its opinion, and did not predict or take into account
any changes which may occur, or information which may become available, after
the date thereof. Furthermore, Baird expressed no opinion as to the price or
trading range at which shares of CNB's or F&M's securities would trade following
the date of such opinion.
Analysis of Selected Comparable Transactions. Baird reviewed certain
information relating to three groups of transactions involving business
combinations involving banks: (i) a group of 27 selected business combinations
announced since January 1, 1993, involving Wisconsin-based banks with a total
transaction value of less than $50 million (the "Wisconsin Comparative Group");
(ii) a group of 20 selected business combinations announced since January 1,
1994, involving banks based in the Midwestern United States with
equity-to-assets ratio in excess of 10.0 percent and involving a total
transaction value between $10 million and $20 million (the "Midwestern
Comparative Group") and (iii) a group of 25 selected business combinations
announced since January 1, 1996, involving banks in the United States with
equity-to-assets ratio in excess of 10.0 percent and involving a total
transaction value between $10 million and $20 million (the "National Comparative
Group").
Wisconsin Comparative Group. For this group of transactions, the median
equity-to-assets was 9.83% and the mean was 10.90%. The high equity to assets
was 15.38% and the low was 4.96%. The mean transaction value was 165.4% of book
value and the mean was 170.9% of book value. The transaction values ranged from
a high of 232.8% of book value to a low of 120.6% of book value. Price to
tangible book multiples ranged from 120.6% to 288.7% with a median of 165.4% and
an average of 173.6%. The median price-to-earnings multiple was 14.42x trailing
12 month earnings and the mean was 14.74x trailing 12 month earnings. The high
price-earnings multiple was 29.84x trailing 12 month earnings and the low was
6.70x. As a tangible premium to core deposits, the median premium was 8.50% and
mean was 8.80%. Tangible premium to core deposits values ranged from a high of
15.03% to a low of 2.21%.
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Midwestern Comparative Group. For this group of transactions, the median
to equity-to-assets was 11.73% and the mean was 12.09%. The high equity to
assets was 15.38% and the low was 10.03%. The median price to book ratio for
the consideration paid was 165.2% and the mean was 166.4%. Price to book ratios
ranged from a high of 206.8% to a low of 128.3%. Price to tangible book
multiples ranged from 128.3% to 206.8% with a median of 168.8% and an mean of
168.1%. The median price to earnings multiple was 16.89x trailing 12 month
earnings and the mean was 16.22x. Pricing ranged from a high price to earnings
multiple of 22.82x to a low of 7.91x. Core deposit premium ratios ranged from
4.27% to 17.88% with a median value of 9.48% and an mean of 10.07%.
National Comparative Group. For this group of transactions, the median
equity to assets was 11.79% and the mean was 12.59%. The high equity to assets
was 20.67% and the low was 10.25%. The median price to book ratio of the
consideration paid was 169.4% and the mean was 179.6%. Price to book ratios
ranged from a high of 260.0% to a low of 117.4%. Price to tangible book
multiples ranged from 117.4% to 260.0% with a median of 169.4% and an mean of
180.7%. The median price to earnings multiple was 16.32x trailing 12 month
earnings and the average was 17.98x. Pricing ranged from a high price to
earnings multiple of 46.97x to a low of 5.60x. Core deposit premium ratios
ranged from 6.21% to 23.35% with a median value of 11.99% and an mean of 12.89%.
By comparison, the consideration paid for CNB in the transaction
represented, assuming a price per share for F&M Common of $28.00 times an
exchange ratio of 82.35 shares of F&M (based on an adjustment for the 10% stock
dividend payable June 9, 1997) equals $2305.72 per share of CNB Common, which is
173.6% of book value, 173.9% of tangible book value, 18.15x trailing 12 month
earnings and an 11.88% tangible premium to core deposits.
As no comparative group or transaction from any comparative group is
identical to the Merger, Baird indicated to the CNB Board that the analyses
described above are not mathematical, but rather involve complex considerations
and judgements concerning differences in operating and financial characteristics
including, among other things, differences in revenue composition and earnings
performance among CNB and F&M and the selected companies and transactions
reviewed.
Analysis of F&M. In order to assess the relative public market valuation
of the F&M Common to be issued in the Merger, Baird reviewed certain publicly
available financial information of the most recently reported period and stock
market information as of May 15, 1997 for F&M and certain selected publicly
traded Midwestern headquartered companies which Baird deemed relevant. Such
comparable companies consisted of: Ambanc Corp., Beverly Bancorporation Inc.,
BancFirst Ohio Corp., Brenton Banks Inc., Chemical Financial Corp., Citizens
Bancshares, CoBancorp, Inc., First Oak Brook Bancshares, First Merchants
Corporation, Grand Premier Financial, Heritage Financial Services, Independent
Bank Corporation, Irwin Financial Corporation, Mid-America Bancorp, Merchants
Bancorp Inc., Michigan Financial Corp., Mississippi Valley Bancshares, National
City Bancshares Inc., National City Bancorp, Old Second Bancorp Inc., Peoples
Bancorp Inc., Pinnacle Banc Group Inc., Pinnacle Financial Services, Park
National Corp., Republic Bancorp Inc., Southside Bancshares Corp., Second
Bancorp Inc., Shoreline Financial Corp., First Financial Corporation
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and UnionBancorp Inc. The data described below with respect to the F&M
Comparable Companies consists of median data for such group and are compared to
F&M Common price (both based on closing prices as of May 15, 1997) and F&M's
financial and operating information as reported as of March 31, 1997.
Baird noted that the ratio of the closing price of F&M Common to the last
twelve months earnings per share was 14.85x as compared to 14.42x and stated
book value was 203.0 for F&M and 176.4% for F&M Comparable Companies. The assets
and equity reported for F&M were approximately $1.3 billion and $119 million
compared to approximately $1.0 billion and $84 million for the F&M Comparable
Companies. Baird also noted ratios of last twelve months earnings items to
average assets for (i) net interest income of 4.31% for F&M and 4.94% for the
F&M Comparable Companies (ii) provisions for loan losses of 0.17% for F&M and
0.18% for F&M Comparable Companies, (iii) non-interest income of 0.53% for F&M
and 0.84% for F&M Comparable Companies, (iv) non-interest expense of 2.75% for
F&M and 2.90% for F&M Comparable Companies, (v) net income (or return on average
assets ("ROAA")) of 1.32% for F&M and 1.16% for F&M Comparable Companies, (vi)
ratio of last twelve month earnings to average equity ("ROAE") of 14.50% for F&M
and 12.66% for the F&M Comparable Companies. Baird also noted last twelve
months growth in assets, loans and deposits of 23.70%, 30.33% and 19.98% for F&M
and 7.81%, 14.05% and 6.66% for F&M Comparable Companies. Baird noted
equity-to-assets and tangible equity-to-assets of 9.30% and 8.86%, respectively,
for F&M and 9.13% and 8.42% for F&M Comparable Companies. Baird also noted
certain asset quality ratios including non-performing assets to assets and
reserves to non-performing loan ratios of 1.02% and 108.78%, respectively, for
F&M and 0.36% and 266.20%, respectively, for the F&M Comparable Companies. The
above pricing ratios were generally similar to the corresponding financial data
for the F&M Comparable Companies.
Pro Forma Merger Analysis. Baird prepared a pro forma analysis of the
financial impact of the Merger. Using financial forecasts for CNB (prepared by
CNB management) and F&M (prepared by F&M management), Baird compared F&M's
earnings per share and book value on a stand alone basis to earnings per share
and book value of the combined companies on a pro forma basis. In conducting
this analysis, Baird assumed that certain effects of the Merger would be
realized as estimated by CNB and F&M management, including cost savings and
operating synergies. This analysis indicated that the Merger would be slightly
dilutive to per share earnings for F&M in the first year, disregarding such cost
savings and operating synergies, and slightly accretive to F&M in the first
year, assuming such cost savings and operating synergies. Baird also noted
slight book value accretion to F&M as a consequence of this transaction.
Assumptions regarding trends in the financial services businesses, actual
results may vary from Baird's analysis due to actual deviation from these
assumptions. The annual indicated dividend of F&M is 0.80 per share. Based
upon an exchange ratio of 82.35 shares of F&M for each share of CNB, the annual
indicated dividend will be $65.88 compared with $71.00 per share for CNB in
1996, a decrease of $5.12 per CNB share.
Stock Trading Analysis. Baird reviewed the historical trading prices and
volume of F&M Common on a daily basis for the two-year period ending on May 15,
1997. Baird also compared the relative trading prices of F&M Common to the
NASDAQ Bank Stock Index and the Dow Jones Industrial Index for the same period.
In performing its analyses, Baird made
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numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
CNB. These analyses are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of
Baird's analysis of the fairness to CNB Shareholders from a financial point of
view and are provided to the CNB Board in connection with the delivery of the
Opinion. The analyses do not purport to be appraisals or to reflect the prices
at which a company might actually be sold or the prices at which any securities
may trade at the present time or at any time in the future. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty. In
addition, as described above, the Opinion and presentation to the CNB Board is
just one of the many factors taken into consideration by the CNB Board.
The summary of the Opinion set forth above does not purport to be a
complete description of the presentation of Baird to the CNB Board or the
analyses performed by Baird. The preparation of a fairness opinion is a complex
process and is not susceptible to partial analysis or summary description.
Baird 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 procedures underlying the Opinion. In
addition, the ranges of valuations resulting from any particular analysis
described above should not be taken to be Baird's view of the actual value of
CNB. The fact that any specific analysis has been referred to in the summary
above is not meant to indicate that such analysis was given more weight than any
other analysis.
Baird, 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, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate and other purposes. CNB retained Baird because
of its experience and expertise in the valuation of businesses and their
securities in connection with mergers and acquisitions. In the ordinary course
of business, Baird may from time to time trade equity securities of F&M for its
own account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities.
Pursuant to an agreement dated November 11, 1996 between CNB and Baird, CNB
has paid Baird a non-refundable retainer fee of $15,000 and $20,000 as a
fairness opinion fee. If the Merger is consummated, CNB will pay Baird a
Transaction Fee of $50,000 against which the retainer and opinion fee are
creditable. Baird also is to receive reimbursement for certain of its out of
pocket expenses, related to this transaction. Additionally, CNB has agreed to
indemnify Baird against certain liabilities, including liabilities under the
federal securities laws, incurred in connection with the engagement of Baird by
CNB.
Conditions to the Merger
The obligations of F&M and CNB to consummate the Merger are conditioned
upon obtaining the requisite approval of the FRB under the Bank Holding Company
Act and expiration of the waiting period after such approval. An application
seeking approval from the FRB under the Bank Holding Company Act was filed on
April 3 and approved May 15, 1997.
The obligations of both F&M and CNB to consummate the Merger are further
conditioned upon the truth and correctness of the representations and warranties
made by the parties to the Agreement on and as of the closing date; compliance
by the other party with all obligations under the Agreement which are to be
performed or complied with prior to or on the closing date; the absence of
litigation or investigation in connection with the Merger; receipt of an opinion
of counsel as to certain federal income tax consequences of the Merger;
consummation of the Merger not later than August 31, 1997; and the occurrence of
all proceedings to be taken in connection with the Merger transaction and the
delivery of all documents incident thereto.
The obligations of F&M are further conditioned upon approval of the Merger
by not less than a majority of the outstanding shares of CNB, which is being
sought at the Special Meeting; qualification of the Merger for pooling of
interests accounting; exercise of dissenters' rights by holders of fewer than
10% of the outstanding shares of CNB Common; registration of the shares of F&M
Common to be issued in the transaction pursuant to the Securities Act; CNB
meeting specified earnings tests; and other conditions set forth in the
Agreement. See "Management after the Merger" below.
Waiver, Amendment or Termination
In addition to the right of F&M or CNB to waive certain of the conditions
to their obligations to proceed with the Merger, the Agreement is subject to
amendment, modification and supplementation by a written agreement signed by the
duly authorized representatives of F&M and CNB.
The Agreement may be terminated and the Merger abandoned without liability
on the part of any party at any time prior to the Closing Date by mutual consent
of F&M and CNB, or by either F&M or CNB if the conditions to their obligations
to proceed under the Agreement have not been met or waived in writing.
In the event of termination and abandonment, not as a result of a breach of
the Agreement, each party would be responsible to pay its own expenses incident
to the Merger.
Management after the Merger
Upon consummation of the Merger, F&M expects to continue to operate
Darlington Bank as a separate entity under the direction and general policies
of F&M, and Darlington Bank's board of directors. F&M may convert Darlington
Bank to a state charter. F&M initially intends to retain Darlington Bank's
current employees, officers and board of directors, with the addition of Gail E.
Janssen, Chairman of the Board and Chief Executive Officer of F&M, or another
F&M designee, as a member of the Board of Directors of Darlington Bank. F&M
performs certain functions and provides various services (such as internal
audit, marketing and lending assistance, investment
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coordination, etc.) for its subsidiary banks, and expects to do the same for
Darlington Bank. F&M will receive a management fee from Darlington Bank for
these functions and services.
The parties contemplate that Darlington Bank will enter into an employment
agreement with Timothy P. McGettigan, currently President and Chief Executive
Officer of Darlington Bank. The employment agreement will be for a two-year
term, and provide that Mr. McGettigan will remain in his current position at
his current salary and benefit level. The parties also contemplate that the
current members of Darlington Bank's Board of Directors will continue as
members of the Board of Directors of Darlington Bank after the Effective Time.
Retirement from the Board of Directors will occur at age seventy (70)
consistent with F&M's policies provided that any current director may remain
director until the earlier of either two (2) years from the Effective Time or
the 1999 annual Shareholders' meeting of Darlington Bank.
Federal Income Tax Consequences
McCarty, Curry, Wydeven, Peeters & Haak, counsel to F&M, expects to issue a
legal opinion as to the tax-free nature of the Merger to holders of CNB Common
under federal law, and such an opinion is a condition to consummation of the
transactions contemplated by the Agreement. However, the parties have not
sought any rulings from the Internal Revenue Service that the Merger
constitutes a non-taxable reorganization under the Internal Revenue Code of
1986, as amended (the "Code"). The parties also have not sought any rulings or
opinions with respect to the state or local tax consequences of the Merger. In
the Agreement, F&M has made no representations or warranties as to tax
consequences. CNB shareholders are therefore urged to consult their own tax
advisors as to the tax effects of the Merger on their own particular
situations.
The McCarty, Curry, Wydeven, Peeters & Haak opinion as to the federal income
tax effects of the proposed transaction, which will be delivered upon the
closing of the Merger, is expected to include the following matters: (a) No
gain or loss will be recognized by holders of CNB Common who receive solely
shares of F&M Common in exchange for their shares of CNB Common; (b) The
aggregate basis of the shares of F&M Common received by holders of CNB Common
in the transaction will be the same as the basis of their shares of CNB Common
surrendered in exchange therefor; and (c) The holding period of the shares of
F&M Common received by holders of CNB Common in the exchange will include the
holding period for their shares of CNB Common exchanged therefor, provided
their shares of CNB Common were held as capital assets on the date of the
exchange.
A CNB shareholder who receives cash in lieu of a fractional share interest in
F&M Common will be treated as having received the cash in redemption of the
fractional share interest. The receipt of cash in lieu of a fractional share
interest should generally result in capital gain or loss to the holder equal to
the difference between the amount of cash received and the portion of the
holder's federal income tax basis in CNB Common allocable to the fractional
share interest. Such capital gain or loss will be long term capital gain or
loss if the holder's holding period for the F&M Common received, determined as
set forth above, is longer than one year.
Resale of F&M Common
The shares of F&M Common to be issued to CNB shareholders in the Merger have
been registered under the Securities Act and may be freely traded by CNB
shareholders who, at the Effective Time, are not "affiliates" of CNB and who
are not "affiliates" of F&M at the time of the proposed resale.
Shares of F&M Common received by "affiliates" of CNB may be resold by them
only (i) in conformity with the resale provisions of Rule 145 under the
Securities Act, (ii) pursuant to a further registration under the Securities
Act, or (iii) in accordance with another available exemption from the
registration requirements of the Securities Act. F&M's obligation to
consummate the Merger is conditioned upon the receipt of an executed
Affiliate's Undertaking to comply with such resale restrictions from each
person who may be deemed an "affiliate" of CNB within the meaning of the
Securities Act and Rule 145.
An "affiliate" is defined under the rules promulgated pursuant to the
Securities Act as a person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, an
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entity. For this purpose, CNB will treat each executive officer, director and
greater-than-5% shareholder of CNB, and each other person identified by counsel
for CNB as a person who may be deemed to be an affiliate, as an affiliate.
Shares of F&M Common issued to such persons in the Merger will be transferable
only in compliance with the Affiliate's Undertaking. F&M is not obligated to
register F&M Common owned by affiliates of CNB under the Securities Act for
resale.
Each of the persons executing an Affiliate's Undertaking also will represent
that he or she will not dispose of or otherwise reduce his or her risk relative
to any beneficially owned shares of F&M Common prior to the publication by F&M
of an earnings statement covering at least 30 days of operations subsequent to
the Effective Time of the Merger, and has not sold or otherwise reduced his or
her risk relative to any shares of F&M Common or shares of CNB Common
beneficially owned by such person within a 30 day period preceding the
Effective Time. The purpose of these requirements is to demonstrate the
continuity of risk-sharing necessary for pooling of interests accounting
treatment.
Accounting Treatment
F&M intends to account for the acquisition of CNB using the pooling of
interests method of accounting. F&M's ability to use pooling of interests
accounting is a condition to the Merger.
RIGHTS OF DISSENTING SHAREHOLDERS OF CNB
Pursuant to Section 180.1302 of the WBCL, any shareholder of CNB, or
beneficial shareholder of CNB who is the beneficial owner of shares held by a
nominee as the shareholder of record, has the right to object to the Merger and
demand payment of the "fair value" of his shares in cash. Any CNB shareholder
or beneficial shareholder electing to do so must file with CNB, before the
Merger vote is taken, a written notice of objection that complies with Section
180.0141 of the WBCL. Furthermore, the CNB shareholder or beneficial
shareholder may not vote his or her shares in favor of the proposed Merger.
If the Merger is approved by the requisite vote, CNB shall send within 10
days after such approval to any dissenting shareholder who has preserved his or
her dissenters' rights by filing such objection and refraining from voting his
shares in favor of the Merger, a dissenters' notice including or having
attached a form for demanding payment that requires the shareholder or
beneficial shareholder asserting dissenters' rights to certify whether he or
she acquired beneficial ownership of the shares before the first announcement
to the news media or to shareholders of the terms of the proposed Merger, a
statement indicating where the shareholder or beneficial shareholder must send
the payment demand and where and when certificates for the CNB shares must be
deposited, a date by which CNB must receive the payment demand and a copy of
the dissenters' rights statutes under the WBCL. Persons receiving a
dissenters' notice must demand payment in writing within the requisite time and
certify whether they acquired beneficial ownership of the shares before the
date specified in the dissenters' notice. The dissenter's CNB share
certificates must also be deposited in accordance with the terms of the notice.
A CNB shareholder may assert dissenters' rights as to fewer than all shares
registered in his or her name only if the shareholder dissents with respect to
all shares beneficially owned by any one person and notifies CNB in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. In order to assert dissenters' rights, a beneficial shareholder must
submit to CNB the shareholder's written consent to the dissent not later than
the time that the beneficial shareholder asserts dissenters' rights, which
consent should be with respect to all shares of which he or she is the
beneficial shareholder.
As soon as the Merger is effectuated or upon receipt of a payment demand,
whichever is later, CNB shall pay each shareholder who has perfected his
dissenters' rights the amount that CNB estimates to be the fair value of his
shares plus accrued interest. The payment shall be accompanied by CNB's latest
available audited financial statements, a statement of CNB's estimate of the
fair value of the shares, an explanation of the calculation of interest, a
statement of the dissenter's right to demand payment if the dissenter is
dissatisfied with CNB's payment, and a copy of the dissenters' rights statutes.
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CNB may elect to withhold payment from a dissenter who was not the beneficial
owner of shares before the date specified in the dissenters' notice. To the
extent CNB elects to withhold such payment after effectuating the Merger, CNB
shall estimate the fair value of the shares plus accrued interest and shall pay
that amount to each dissenter who agrees to accept it in full satisfaction of
his demand. CNB shall send with its offer of payment a statement of its
estimate of the fair value of the shares, an explanation of how interest was
calculated, and a statement of the dissenter's right to demand payment if he is
dissatisfied with the offer.
A dissenter, within 30 days after CNB has made or offered payment for his
shares, shall notify CNB in writing in accordance with Section 180.0141 of the
WBCL if he is dissatisfied with the payment or offer. The notice shall state
the dissenter's estimate of the fair value of his shares and the amount of
interest due and demand payment of that estimate less the payment already
received from CNB, or for dissenters whose payments have been withheld, reject
the offer of payment and demand payment of the fair value of his shares and
interest due if certain conditions are satisfied.
If a dissenter's demand for payment remains unsettled, CNB may bring a
special proceeding within 60 days after receiving the payment demand and
petition a court to determine the fair value of CNB shares and accrued
interest. If this special proceeding is not brought within the 60- day period,
CNB must pay each dissenter whose demand remains unsettled the amount demanded.
For purposes of Subchapter XIII of the WBCL, the "fair value" of CNB's shares
is determined immediately before the effectuation of the Merger, excluding any
appreciation or depreciation in anticipation of the Merger unless such
exclusion would be inequitable.
The full text of Subchapter XIII of the WBCL is set forth as Exhibit B to
this Proxy Statement. Since the foregoing description is not a complete
summary of its provisions, any shareholder who may be considering exercising
his rights as a dissenter is urged to refer to such text. The provisions of
Subchapter XIII require strict compliance, and any CNB shareholder who wishes
to object to the Merger and demand payment for his or her shares should consult
his own attorney or advisor.
If a CNB shareholder fails to perfect his or her dissenters' rights by
failing strictly to comply with the applicable statutory requirements, he or
she will be bound by the terms of the Agreement. An executed proxy on which no
voting direction is made will be voted FOR approval of the Merger, so a
dissenting shareholder who wishes to have his or her shares represented by a
proxy at the CNB Special Meeting but preserve his dissenters' rights must mark
his or her proxy card either to vote against the Merger or to abstain from
voting thereon, in addition to complying with the other requirements as
described herein.
A condition of the obligations of both F&M and Subsidiary to consummate the
Merger is that the holders of less than 10% of the issued and outstanding CNB
Common will have elected to exercise their dissenters' rights. See "The Merger
- -- Conditions to the Merger."
-21-
<PAGE> 39
MARKET INFORMATION AND DIVIDENDS
F&M
See page 7 of the Prospectus for F&M Market Information and Dividends.
CNB
The number of holders of record of CNB Common at March 31, 1997, was
approximately 78.
Trading in shares of CNB Common is infrequent, and there is no independent
market with respect to such shares. To CNB's management's knowledge, in 1995
there were four arms-length transactions in CNB Common, involving a total of
400 shares, at a price of $250.00 per share. CNB's management is unaware of
any arms-length transactions of shares of CNB Common in 1996 or 1997.
The following table presents the total annual payment of dividends per share
of CNB Common:
Calendar Year Dividends Paid
1994 $57.00
1995 $71.00
1996 $71.00
The Agreement provides that CNB shall not pay any dividends in 1997
except that dividends may be paid by CNB prior to the Effective Time provided
that the total of all dividends declared in 1996 does not exceed $325,000 and
that the total of all dividends declared in 1997 does not exceed $175,000
without the prior written consent of F&M. No dividends have been paid to date
in 1997.
-22-
<PAGE> 40
CNB SELECTED FINANCIAL DATA
The selected financial data presented below for CNB for each of the
years in the five year period ended December 31, 1996, are derived from the
financial statements of CNB and should be read in conjunction with other
financial information presented elsewhere in this Supplemental Statement. The
financial statements of CNB for the year ended December 31, 1996, have been
audited by Wipfli Ullrich Bertelson, LLP to the extent indicated in their
report thereon. The selected financial data for the years ended December 31,
1995, 1994, 1993 and 1992, and the three month periods ended March 31, 1997 and
1996 are unaudited, but in the opinion of CNB management reflect all
adjustments, consisting of normal recurring accruals, considered necessary for
a fair presentation. The information presented below should be read in
conjunction with the separate financial statements and notes thereto of CNB,
and CNB's Management's Discussion and Analysis of Results of Operations and
Financial Condition, all included elsewhere in this Supplemental Statement.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years ended December 31,
------------------- -----------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands, except per share data)
SUMMARY OF OPERATIONS:
Interest income $1,453 $1,359 $5,579 $5,275 $4,835 $4,593 $ 4,969
Interest expense 728 693 2,831 2,583 2,143 2,196 2,556
------ ------ ------ ------ ------ ------ --------
Net interest income 725 666 2,748 2,692 2,692 2,397 2,413
Provision for loan - - 690 - - - -
------ ------ ------ ------ ------ ------ -------
losses
Net interest income after
provision for loan
losses 725 666 2,058 2,692 2,692 2,397 2,413
Non-interest income 95 110 327 296 309 212 191
Non-interest expense 527 501 2,156 2,017 1,923 1,719 1,521
------ ------ ------ ------ ------ ------ -------
Income before provision
for income taxes 293 275 229 971 1,078 884 1,083
Provision (credit) for
income taxes 77 60 (59) 205 222 165 364
------ ------ ------ ------ ------ ------ -------
Net income $216 $215 $288 $766 $856 $719 $ 719
====== ====== ====== ====== ====== ====== =======
</TABLE>
-23-
<PAGE> 41
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years ended December 31,
----------------- -------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------------------ -------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
PERIOD END BALANCE
SHEET DATA:
Total assets $74,523 $69,744 $75,096 $71,087 $66,387 $64,164 $59,727
Net loans $47,189 $42,962 $48,174 $41,963 $38,130 $33,172 $30,602
Securities $19,005 $20,231 $19,189 $18,185 $22,235 $24,476 $22,106
Total deposits $64,421 $59,640 $65,133 $61,162 $57,342 $55,156 $50,899
Total stockholders' $9,350 $9,515 $9,175 $9,408 $8,719 $8,656 $8,178
equity
PER COMMON SHARE
DATA:
Net income $30.80 $30.66 $41.07 $109.23 $122.06 $102.32 $98.01
Period end book value $1,333.24 $1,356.77 $1,308.28 $1,341.51 $1,243.26 $1,234.28 $1,169.62
Dividends - - $71.00 $71.00 $57.00 $42.00 $31.50
</TABLE>
-24-
<PAGE> 42
CNB MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The following discussion and analysis provides information regarding
the historical results of operations and financial condition of CNB for the
three months ended March 31, 1997 and 1996 and for the years ended December 31,
1996, 1995 and 1994. This discussion and analysis should be read in
conjunction with the related financial statements and notes thereto and the
other financial information included herein.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1996
RESULTS OF OPERATIONS
For the three months ended March 31, 1997, the Company's net income
remained nearly constant at $216,000, as compared with the same period in 1996
of $215,000.
NET INTEREST REVENUE
Net interest revenue increased by $59,000 or 8.86% to $725,000
primarily due to an increase in the average yield on earning assets and
decrease in average rates paid on deposits.
PROVISION FOR CREDIT LOSSES
The amount charged to provision for credit losses is based on
management's evaluation of the loan portfolio. Management determines the
adequacy of the allowance for credit losses based on past loss experience,
current economic conditions, composition of the loan portfolio and the
potential for future loss. Management had determined there was no need for an
additional provision in the first three months of 1997 and 1996, respectively.
OTHER OPERATING REVENUE AND EXPENSES
Other operating revenue decreased $15,000 to $95,000 at March 31, 1997
as compared to $110,000 the same period a year earlier.
Other operating expense increased $26,000 to $527,000 at March 31,
1997 as compared to $501,000 at March 31, 1996. Included in the increase is
additional staff and costs associated with the opening of the branch office in
Hazel Green.
INCOME TAXES
Income taxes increased $17,000 from $60,000 in 1996 due to the
increase in pre-tax income.
FINANCIAL CONDITION
Total assets of $74.5 million at March 31, 1997 represent an increase
of $4.8 million or 6.85% from the same period a year earlier. Total deposits
of $64.4 million at March 31, 1997 represent an increase of $4.8 million or
8.02% from the same period a year earlier. Net loans increased $4.2 million or
9.8% to $47.2 million at March 31, 1997 as compared to $43.0 million March 31,
1996.
-25-
<PAGE> 43
LOAN PORTFOLIO
The following table sets forth the major categories of loans
outstanding and the percentage of total loans for each category at March 31,
1997.
Amount Percent
------ -------
(dollars in thousands)
Commercial $ 6,921 14.40%
Agricultural Production 17,822 37.08%
Real Estate:
Construction 10 0.02%
Commercial 461 0.96%
Agricultural 12,303 25.60%
Residential 2,878 5.99%
Installment 7,667 15.95%
------- -----
Total Loans $48,062 100.00%
======= ======
NON-PERFORMING ASSETS
Non-Performing Assets are a broad measure of problem loans. The
following table sets forth the amount of the Company's non-performing loans,
other real estate owned and non-performing assets, and each of their
percentages to total loans at March 31, 1997.
Amount Percent
------ -------
(dollars in thousands)
Non-accrual loans $ 1,489 3.10%
Loans past due 90 days or more 457 0.95%
------- ----
Total non-performing loans 1,946 4.05%
Other real estate owned - 0.00%
--------- ----
Total non-performing assets $ 1,946 4.05%
======= =====
Non-performing assets as a percentage of total loans outstanding
decreased in the first three months of 1997 to 4.05% which compares with 4.12%
at December 31, 1996. Total non-performing loans increased $540,000 at March
31, 1997 from $1,406,000 a year earlier.
-26-
<PAGE> 44
SUMMARY OF CREDIT LOSS EXPERIENCE
The following table summarizes loan balances at March 31, 1997;
changes in the allowance for credit losses arising from loans charged off and
recoveries on loans previously charged off, by loan category, and provisions
for credit losses that have been charged to expense.
QUARTER ENDED MARCH 31,
1997
--------------
(dollars in thousands)
Average balance of loans for quarter $ 48,313
========
Allowance for loan losses at beginning of quarter $872
Loan charge-offs:
Commercial, municipal and agricultural $ 12
Real estate - mortgage -
Installment*
-
---------
Total loan charge-offs: $ 12
Total recoveries
$ 13
---------
Net loan charge-offs (recoveries) $ (1)
---------
Provision for loan losses
-
---------
Allowance for loan losses at end of quarter $ 873
=========
Ratio of net charge-offs during quarter to
average loans outstanding -0.002%
Allowance for loan losses to total loans 1.82%
----------------------------
*Includes credit cards and related plans
CAPITAL
Total stockholders' equity increased $175,000 to $9,350,000 at March
31, 1997 as compared to December 31, 1996. The increase in equity was the
result of income of $216,000 and a negative impact of $41,000 due to the
adjustment of fair value of investment securities available for sale.
FISCAL 1996 COMPARED TO 1995 AND 1994
RESULTS OF OPERATIONS
-27-
<PAGE> 45
For the year ended December 31, 1996, net income was $288,000, a
decrease of $478,000, or 62.4% from 1995. The decrease was primarily due to a
provision of loan loss reserve of $690,000 and $70,000 legal and consulting
fees incurred in anticipation of the Merger. For the year ended December 31,
1995, net income was $766,000, a decrease of $90,000, or 10.51% from 1994 net
income of $856,000. The decrease was primarily due to an increase in salaries
and employee benefits of $112,000.
NET INTEREST REVENUE
Net interest revenue remained constant at $2.7 million in 1996 and
1995. Total interest income increased 5.8% to $5.6 million in 1996. Average
earning assets increased $3.5 million to $66.6 million in 1996 over 1995.
Average yields on loans decreased from 9.40% in 1995 to 9.25% in 1996. Yield
on investments decreased from 6.05% in 1995 to 5.84% in 1996. Interest expense
increased from 4.71% at December 31, 1995 to 4.90% at December 31, 1996.
Average interest bearing liabilities increased 5.4% or $3.0 million from 1995
to 1996.
Net interest revenue remained constant in 1995 and 1994. Total
interest income increased $440,000 in 1995 from $4.8 million in 1994.
PROVISION FOR CREDIT LOSSES
The amount charged to provision for credit losses is based on
management's evaluation of the loan portfolio. Management determines the
adequacy of the allowance for credit losses based on past loss experience,
current economic conditions, composition of the loan portfolio and the
potential for future loss. The provision for credit losses was $690,000 in
1996, due to the increase of non-performing assets. Management had determined
there was no need for an additional provision in 1995 and 1994 to maintain an
adequate allowance.
OTHER OPERATING REVENUE AND EXPENSES
Other operating revenue increased $31,000 to $327,000 in 1996.
Increased income from the alternative investment department contributed to a
substantial portion of the increase. Other operating revenue decreased $13,000
in 1995 from $309,000 in 1994.
Other operating expenses increased $139,000 to $2,156,000 in 1996.
Additional staff, costs associated with opening of the branch office in Hazel
Green, and legal and consulting fees attributed to a portion of the increase.
These were partially offset by a decrease in FDIC premiums and reduced data
processing costs. Other operating expenses for 1995 increased $94,000 over
1994, primarily due to an increase in salary and employee benefits.
INCOME TAXES
Income taxes have a $59,000 credit for 1996, due to reduced net income
and a tax exempt interest benefit of $112,000. Income taxes were $205,000 for
1995 and $222,000 in 1994. CNB's Nevada investment subsidiary, formed in 1991,
has contributed substantially to state income tax savings.
FINANCIAL CONDITION
At December 31, 1996, total assets of $75.1 million represent an
increase of 5.64% or $4.0 million from a year earlier. Total deposits
increased by $4.0 million to $65,133,000 in 1996. Net loans increased $6.2
million or 14.8% to $48.2 million. The increase in loans was primarily funded
by the increase in deposits and maturing investments in the portfolio of $1.0
million. The loan to deposit ratio was increased to 75.63% in 1996, as
compared to 69.5% in 1995.
LOAN PORTFOLIO
-28-
<PAGE> 46
The following table sets forth the major categories of loans
outstanding and the percentage of total loans for each category at the dates
indicated.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- ------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $6,118 12.47% $4,899 11.54% $3,596 9.29%
Agricultural production $29,905 60.97% $26,168 61.63% $23,283 60.18%
Real estate: $650 1.33% $246 0.58% $3 0.01%
Commercial $476 0.97% $818 1.93% $1,558 4.03%
Agricultural $1,694 3.45% $2,200 5.18% $2,735 7.07%
Residential $2,908 5.93% $2,577 6.07% $2,415 6.24%
Other $7,295 14.88% $5,552 13.07% $5,099 13.18%
-------- ------ ------- -------- ------- ------
Total loans $49,046 100.00% $42,460 100.00% $38,689 100.00%
======== ====== ======= ====== ======= ======
</TABLE>
-29-
<PAGE> 47
NON-PERFORMING ASSETS
Non-performing assets are a broad measure of problem loans. The
following table sets forth the amount of CNB's non-performing loans, other real
estate owned and non-performing assets and each of their percentages to total
loans as of the dates indicated.
Non-performing assets increased $825,000 in 1996 over 1995 to $2.0
million. This compares with a $594,000 increase in 1995 over 1994. Several
large credits in work-out situations represent a majority of non-performing
assets in all three years.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1996 1995 1994
---------------- ----------------- ------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans $1,619 3.30% $914 2.16% $298 0.77%
Accruing loans past due 90 days $403 0.82% $273 0.64% $248 0.64%
or more
------ ------ ------ ----- ---- -----
Total non-performing loans $2,022 4.12% $1,187 2.80% $546 1.41%
Other real estate owned $ - 0.00% $10 0.02% $57 0.15%
------ ------ ------ ----- ---- -----
Total non-performing assets $2,022 4.12% $1,197 2.82% $603 1.56%
====== ====== ====== ====== ===== =====
</TABLE>
-30-
<PAGE> 48
SUMMARY OF CREDIT LOSS EXPERIENCE
The following table summarizes loan balances at the end of each
year; changes in the allowance for loan losses arising from loans charged off
and recoveries on loans previously charged off, by loan category; and
provisions for loan losses that have been charged to expense.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1996 1995 1994
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Average balance of loans for year $46,730 $41,280 $36,540
======= ======= ========
Allowance for loan losses at beginning of year $497 $559 $601
Loan charge-offs:
Commercial, municipal and agricultural $342 $129 $71
Real Estate Mortgages - - 7
Installment* - 18 39
------- -------- -------
Total charge-offs $342 $147 $117
Total recoveries $27 $85 $75
------- -------- -------
Net loan charge-offs (recoveries) $315 $62 $42
Provision for loan losses $690 $ - $ -
------- -------- -------
Allowance for loan losses at end of year $872 $497 $559
======= ======= ========
Ratio of net charge-offs during year to
average loans outstanding 0.67% 0.15% 0.11%
Allowance for loan losses to total loans 1.78% 1.17% 1.44%
</TABLE>
* Includes credit cards and related plans.
CAPITAL
Total stockholders' equity decreased $233,000 from $9.4 million to 9.2
million from 1995 to 1996, as compared to an increase of $689,000 from 1994 to
1995. The decrease in equity in 1996 was the result of a negative impact of
$23,000 due to the adjustment to fair value of investment securities available
for sale and the $498,000 dividend payment which represents a dividend payout of
$210,000 in excess of the net income in 1996. In 1995, the adjustment to fair
value of investment securities available for sale had a positive impact of
$421,000 on equity.
-31-
<PAGE> 49
LIQUIDITY
The management of assets and liabilities provides for the availability
of funds to meet loan commitments, deposit withdrawals and other maturing
liabilities. Liquidity to service these requirements is generated from
maturing short- and long-term assets, internally generated earnings and from
new deposits. CNB's management has tended to rely on the maturity structure of
loans, investments available for sale and transactions in federal funds to meet
liquidity needs. As of December 31, 1996 CNB had $1.2 million in brokered
deposits, but does not rely on brokered deposits as a major source of
liquidity. CNB's liquidity management is not only as a point in time, but also
involves the future estimated needs of the market area served by CNB and
changes in market pricing. CNB primarily monitors the liquidity ratio of
rate-sensitive assets to rate-sensitive liabilities in the one-year time range.
The following table shows the approximate rate-sensitivity gap
position at December 31, 1996:
<TABLE>
<CAPTION>
0 - 90 91 - 365 1 - 5 Over 5
Days Days Years Years Total
------------- ------------- ----------- ----------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans $11,872 $18,197 $16,488 $2,489 $49,046
Investment securities $922 $1,775 $9,987 $6,597 $19,281
Other earning assets $2,140 -- -- -- $2,140
------- ------- ------- ------ -------
Total rate-sensitive assets (RSA) $14,934 $19,972 $26,475 $9,086 $70,467
======= ======= ======= ====== =======
Rate Sensitive Liabilities
Savings deposits $ -- $ 4,601 $ -- $12,495 $17,096
Time deposits 5,797 17,680 19,627 25 43,129
Short-term borrowings 215 -- -- -- 215
------- ------- ------- ------ -------
Total rate-sensitive liabilities (RSL) $6,012 $22,281 $19,627 $12,520 $60,440
======= ======= ======= ====== =======
Interest sensitivity gap $8,922 $(2,309) $6,848 $(3,434) $10,027
======= ======= ======= ====== =======
Cumulative interest sensitivity gap $8,922 $6,613 $13,461 $10,027
======= ======= ======= ======
Ratio of cumulative rate-sensitivity
gap to RSA 59.7% 18.9% 21.9% 14.2%
======= ======= ======= ======
Cumulative ratio of rate-sensitive assets
to rate-sensitive liabilities 248.40% 123.37% 128.09% 116.59%
======= ======= ======= =======
</TABLE>
Management's overall strategy is to coordinate the volume of
rate-sensitive assets and liabilities to minimize the impact of interest rate
movements on the net interest margin. The above table reflects a positive
cumulative gap position at all the intervals shown. Management assumes 100% of
savings and "NOW" accounts are not rate sensitive and are included in the 5+
years category. Management also assumes that money market accounts are less
rate sensitive and are included in the 1 year category. A negative position is
favorable in a falling interest rate environment; a positive position is
favorable in a rising interest rate environment. The gap is within the
acceptable range established by management at each level of maturity, most
significantly management's target range at the one-year level. Management
anticipates interest rates to slightly increase during 1997.
-32-
<PAGE> 50
RECENT ACCOUNTING DEVELOPMENTS
SFAS No. 114 (Accounting by Creditors for Impairment of a Loan) asa
amended by SFAS No. 118 (Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures) was adopted by the Company as of
January 1, 1995 in accordance with the new standard, the allowance for
credit losses includes specific allowances related to loans which have been
judged to be impaired and which fall within the scope of SFAS No. 114
(primarily commercial loans). A loan is impaired when based on current
information, it is probable that the Company will not collect all amounts due
in accordance with the contractual terms of the loan agreement. These specific
allowances are based on discounted cash flows of expected future payments using
the loan's initial effective interest rate or the fair value of the collateral
if the loan is collateral dependent. Since the Company evaluates the overall
adequacy of the allowance for credit losses on an ongoing basis, the adoption
of SFAS No. 114 did not affect the amount of the allowance for credit losses or
the existing income recognition and charge-off policies for nonperforming
loans.
The Financial Accounting Standards Board (FASB) issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," in June 1996. SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities. The statement provides guidelines for classification of a
transfer as a sale. The statement also requires liabilities incurred or
obtained by transferors as part of a transfer of financial assets be initially
recorded at fair value. Subsequent to acquisition, the servicing assets and
liabilities are to be amortized over the estimated net servicing period. This
statement is required to be adopted for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996.
In December 1996, the FASB issued SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125." This
statement defers implementation of certain provisions of SFAS No. 125 for one
year. Adoption of SFAS No. 125 is not anticipated to have a significant impact
on the Company's financial condition or results of operations once implemented.
-33-
<PAGE> 51
CITIZENS NATIONAL BANCORP, INC.
Business
CNB, through Darlington Bank, offers a wide range of traditional bank
services through its full-service office located in Darlington and its branch
office located in Hazel Green. These include commercial, consumer,
agricultural and real estate lending (including WHEDA loans to first-time home
buyers), depository account services, and other services to individuals and
businesses. Darlington Bank does not offer trust services. Darlington Bank's
business is a general mix of business, agricultural and consumer banking.
Darlington Bank has three automatic teller machines, one located at the main
office in Darlington, one at the Darlington Mini Mart Convenience Store, and
one located at the Southwest Mart Convenience Store at the Hazel Green branch
office. In addition, Darlington Bank has a wholly-owned subsidiary, CNB
Investment Corp., a Nevada corporation, whose primary business is the
management of Darlington Bank's investment portfolio.
Darlington Bank's primary service area extends in an approximately
fifteen mile radius from Darlington, in Lafayette County, Wisconsin.
Darlington Bank's main office is located at 207 Wells Street, P.O. Box 90,
Darlington, Wisconsin. Darlington Bank also has a branch office located at the
Southwest Mart Convenience Store, 3525 Percival Street, Highway 80 South, Hazel
Green, Wisconsin.
Darlington Bank is a national bank, subject to regulation by the OCC
and the FDIC. Darlington Bank's deposits are insured by the FDIC, up to
statutory limits.
See "Index to Financial Statements" for historical financial
statements of CNB.
Management
The directors of CNB are elected by its shareholders and serve for
one-year terms. The following persons currently serve as directors of CNB:
<TABLE>
<CAPTION>
Name and Age Principal Occupation Director Since
------------ -------------------- --------------
<S> <C> <C>
Diego Camacho, Jr., 43 Owner and Director of a Funeral Home 1996
John B. Clark, 55 Retired Investment Broker 1992
Harriet A. Halloran, 79 Retired Secretary 1988
Ervin W. Johnson, 80 Chairman of CNB and Darlington Bank;
Partner in the law firm of Johnson, Kranz
& McDaniel 1959
Robert D. Martin, 70 Executive Vice President of CNB and
Darlington Bank 1989
Timothy P. McGettigan, 54 President and Chief Executive Officer of
CNB and Darlington Bank 1989
Howard A. Olson, 77 Retired Educator 1988
Ralph F. Whalen, 71 Retired Farmer 1991
</TABLE>
-34-
<PAGE> 52
The table below shows the executive officers of CNB, each of whom was
elected by the Board of Directors to a one-year term.
<TABLE>
<CAPTION>
Name Office with CNB Since
---- --------------- -----
<S> <C> <C>
Ervin W. Johnson Chairman 1988
Timothy P. McGettigan President and Chief Executive Officer 1990
Robert D. Martin Executive Vice President 1990
Deborah K. Allendorf Vice President and Cashier 1994
Michael P. Lee Vice President 1994
James S. Torstenson Vice President 1994
Mary T. Polkinghorn Vice President 1994
Ruth Thompson Vice President 1994
</TABLE>
At March 31, 1997, Darlington Bank employed 36 persons on a full-time
equivalent basis.
Share Ownership
The table below sets forth information regarding the beneficial
ownership of shares of CNB Common (both the number of shares owned and the
percent of the class) by CNB's directors, and by CNB's directors and executive
officers as a group, and by persons who are known to CNB to beneficially own
more than 5% of CNB Common as of March 31, 1997.
<TABLE>
<CAPTION>
Name Number of Shares Percent
------------------------------ ---------------- -------
<S> <C> <C>
Diego Camacho, Jr. 27 *
John B. Clark(2) 550 7.8%
Harriet A. Halloran 267 3.8%
Ervin W. Johnson(3) 375 5.3%
Robert D. Martin(1) 330 4.7%
Timothy P. McGettigan(1) 342.5 4.9%
Howard A. Olson(1) 320 4.6%
Ralph F. Whalen 30 *
All directors and
executive officers as a group 2,275.5 32.4%
Jill W. and Robert C. May, Jr. (4) 445 6.3%
George L. West (5) 365 5.2%
Janet M. West (6) 365 5.2%
Walter S. West, Jr. (7) 365 5.2%
- -----------
</TABLE>
* Less than 1%
(1) Includes any shares held by, or jointly with, spouse and dependent
children. The shares are reported in such cases on the presumption
that the individual may share voting and/or investment power because of
the family relationship.
(2) Includes 440 shares as to which Mr. Clark has power of attorney. Mr.
Clark's address is 1840 Sherwood Drive, Beloit, Wisconsin 53511.
(3) As trustee of The Ervin W. & Phyllis C. Johnson Trust. The address of
Mr. Johnson and the trust is 1101 East Street, Darlington, Wisconsin
53530.
-35-
<PAGE> 53
(4) Mr. and Mrs. May's address is 20 Hedges Road, Abilene, Texas 79605.
(5) Mr. George L. West's address is 505 East Louisa Street, Darlington,
Wisconsin 53530.
(6) Ms. Janet M. West's address is 519 East Louisa Street, Darlington,
Wisconsin 53530.
(7) Mr. Walter S. West, Jr.'s address is 601 East Louisa Street,
Darlington, Wisconsin 53530.
To CNB's knowledge, directors and executive officers of CNB as a group
own 20 shares of F&M Common. CNB and F&M are unaware of any ownership of CNB
Common by directors or executive officers of F&M.
INFORMATION AS TO SECURITIES
F&M Common
See pages 12 and 13 of the Prospectus for information as to F&M
Common.
CNB Common
The Articles of Incorporation of CNB provide that CNB has authority to
issue 15,000 shares of common stock, no par value of which 7,013 shares are
issued outstanding. CNB's Articles of Incorporation further provide that, in
certain situations, CNB has a right of first refusal to purchase outstanding
shares of CNB Common at the price and on the terms and conditions offered to
any CNB shareholder by a prospective purchaser of such shares.
Holders of CNB Common are entitled to receive dividends thereon if and
when declared and payable by the Board of Directors. Upon any voluntary or
involuntary liquidation, dissolution or winding up of CNB, the holders of CNB
Common would be entitled to receive any remaining assets available for
distribution to CNB shareholders.
The holders of CNB Common are entitled to one vote for each share held
and are not entitled to cumulative voting rights. Most actions involving CNB,
including the election of directors, are subject to approval of the holders of
a majority of the outstanding CNB Common.
Holders of CNB Common are not entitled to any preemptive rights,
except in certain circumstances required by Wisconsin law. CNB Common is fully
paid and not liable to any calls or assessments by CNB, except for potential
calls for additional capital under Section 180.0622(2)(b) of the WBCL. See the
discussion of Section 180.0622(2)(b) above under "Information as to F&M Common"
on page 12 of Prospectus.
Comparison of F&M Common with CNB Common
F&M's and CNB's respective common stocks, and the rights of their
shareholders, are similar. However certain differences exist, including the
following, which include all of those which are deemed by F&M and CNB to be
potentially material.
1. Shares of F&M Common are traded on The NASDAQ Stock Market,
and several regional brokerage firms foster a trading market in F&M Common.
F&M Common is a class of securities registered with the SEC, and F&M therefore
is subject to periodic public reporting with respect thereto. F&M is unaware
of any active market for shares of CNB Common, and CNB is not subject to SEC
reporting requirements.
2. F&M is subject to the statutory anti-takeover provisions of
Sections 180.1130 through 180.1150 of the WBCL because it currently meets the
definitions of "issuing public corporation" and "resident domestic corporation"
thereunder. (See the discussion thereof under "F&M Common--Certain Statutory
Provisions" above.) Those statutory provisions do not apply to CNB.
-36-
<PAGE> 54
3. The Articles and Bylaws of F&M provide for the classification
of the Board of Directors into three classes, whereby directors serve
three-year terms and one of the three classes of directors is subject to
election at each annual meeting. The articles and bylaws of CNB do not provide
for such classification, and each of CNB's directors is elected annually for a
one-year term.
4. The Articles of F&M do not provide for a right of first
refusal to purchase F&M Common at the price and on the terms and conditions
offered to any F&M shareholder by a prospective purchaser of F&M Common, as is
provided in CNB's articles with respect to CNB Common.
LEGAL OPINIONS
Quarles & Brady, Milwaukee, Wisconsin, special counsel for F&M, and
McCarty, Curry, Wydeven, Peeters & Haak, Kaukauna, Wisconsin, general counsel
for F&M, will render opinions on the legality of the shares being offered
hereby and as to certain other matters in connection with the Merger. Two
Quarles & Brady attorneys providing services with respect to the Merger own an
aggregate of 8,618 shares of F&M Common. Certain legal matters in connection
with the Merger will be passed upon for CNB by Boardman, Suhr, Curry & Field,
Madison, Wisconsin. McCarty, Curry, Wydeven, Peeters & Haak is also expected
to render an opinion to CNB shareholders as to certain federal income tax
matters of the Merger.
EXPERTS
The consolidated financial statements of F&M included and incorporated
by reference in this Supplemental Statement, and the other consolidated
financial statements from which the five-year selected financial data included
herein have been derived, have been audited by Wipfli Ullrich Bertelson, LLP,
independent certified public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
The financial statements of CNB as of, and for the year ended,
December 31, 1996, included in this Supplemental Statement have been audited by
Wipfli Ullrich Bertelson, LLP, independent certified public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
-37-
<PAGE> 55
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
CITIZENS NATIONAL BANCORP, INC. HEREIN
Annual Financial Information*
<S> <C>
Independent Auditor's Report* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets at December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Interim Financial Information (unaudited)
Consolidated Balance Sheet at March 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . F-26
Consolidated Statements of Income for the three months ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-28
Consolidated Statements of Cash Flows for the three months ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-29
Notes to Interim Period Financial Status . . . . . . . . . . . . . . . . . . . . . . . . . . F-30
- ------------------
</TABLE>
* CNB's financial statements at, and for the year ended, December 31, 1996,
are audited; other CNB financial statements are unaudited.
-38-
<PAGE> 56
[WIPFLI ULLRICH BERTELSON LLP LOGO]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Citizens National Bancorp, Inc.
Darlington, Wisconsin
We have audited the accompanying consolidated balance sheet of Citizens
National Bancorp, Inc. and Subsidiary as of December 31, 1996, 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
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citizens National
Bancorp, Inc. and Subsidiary at December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Wipfli Ullrich Bertelson LLP
--------------------------------------
Wipfli Ullrich Bertelson LLP
April 4, 1997
Appleton, Wisconsin
F-1
<PAGE> 57
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in Thousands)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
Audited Unaudited
1996 1995
--------------- ----------------
<S> <C> <C>
Cash and due from banks $ 2,512 $ 2,285
Federal funds sold 2,140 6,248
--------------- ---------------
Cash and cash equivalents 4,652 8,533
Interest-bearing deposits in other financial institutions 99 101
Investment securities available for sale - Stated at fair value 19,189 18,185
Total loans 49,046 42,460
Allowance for credit losses 872 497
--------------- ---------------
Net loans 48,174 41,963
Premises and equipment 1,027 970
Other assets 1,955 1,335
--------------- ---------------
TOTAL ASSETS $ 75,096 $ 71,087
=============== ===============
</TABLE>
F-2
<PAGE> 58
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Audited Unaudited
1996 1995
--------------- ----------------
<S> <C> <C>
Liabilities:
Non-interest-bearing deposits $ 4,908 $ 4,677
Interest-bearing deposits 60,225 56,485
--------------- ---------------
Total deposits 65,133 61,162
Short-term borrowings 215 116
Other liabilities 573 401
--------------- ---------------
Total liabilities 65,921 61,679
--------------- ---------------
Commitments and contingent liabilities (Note 13)
Stockholders' equity:
Common stock - $1 stated value:
Authorized - 15,000 shares
Issued - 7,500 shares 8 8
Capital surplus 1,492 1,492
Retained earnings 8,225 8,435
Less - Common stock held in treasury, at cost, 487 shares (555) (555)
Unrealized gain on securities available for sale -
Net of tax 5 28
--------------- ---------------
Total stockholders' equity 9,175 9,408
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 75,096 $ 71,087
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 59
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands, Except Earnings Per Share)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1996 1995 1994
--------------- --------------- ----------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 4,320 $ 3,891 $ 3,373
Interest on investment securities:
Taxable 779 799 922
Tax-exempt 373 444 492
Other interest income 107 141 48
--------------- --------------- ---------------
Total interest income 5,579 5,275 4,835
--------------- --------------- ---------------
Interest expense:
Deposits 2,809 2,575 2,099
Short-term borrowings 22 8 44
--------------- --------------- ---------------
Total interest expense 2,831 2,583 2,143
--------------- --------------- ---------------
Net interest income 2,748 2,692 2,692
Provision for credit losses 690 -0- -0-
--------------- --------------- ---------------
Net interest income after provision
for credit losses 2,058 2,692 2,692
--------------- --------------- ---------------
Other income:
Service fees 185 202 226
Net security losses -0- (3) -0-
Write down of securities (50) -0- -0-
Other operating income 192 97 83
--------------- --------------- ---------------
Total other income 327 296 309
--------------- --------------- ---------------
Other expenses:
Salaries and employee benefits 1,159 1,085 973
Net occupancy expense 129 123 112
FDIC assessment 28 69 123
Data processing 105 129 146
Other operating expenses 735 611 569
--------------- --------------- ---------------
Total other expenses 2,156 2,017 1,923
--------------- --------------- ---------------
</TABLE>
F-4
<PAGE> 60
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands, Except Earnings Per Share)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1996 1995 1994
--------------- --------------- ----------------
<S> <C> <C> <C>
Income before provision (credit) for
income taxes $ 229 $ 971 $ 1,078
Provision (credit) for income taxes (59) 205 222
--------------- --------------- ---------------
Net income $ 288 $ 766 $ 856
=============== =============== ===============
Earnings per share $ 41.07 $ 109.23 $ 122.06
=============== =============== ===============
Weighted average shares outstanding 7,013 7,013 7,013
=============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 61
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Capital Retained
Stock Surplus Earnings
--------------- --------------- ---------------
<S> <C> <C> <C>
UNAUDITED
---------
Balance, January 1, 1994 $ 8 $ 1,492 $ 7,711
Net income 856
Change in accounting for investments -
Adoption of SFAS No. 115
Dividends paid (400)
Change in unrealized gain (loss) on securities
available for sale - Net of tax
--------------- --------------- ---------------
Balance, December 31, 1994 8 1,492 8,167
Net income 766
Dividends paid (498)
Change in unrealized gain (loss) on securities
available for sale - Net of tax
--------------- --------------- ---------------
Balance, December 31, 1995 8 1,492 8,435
AUDITED
-------
Net income 288
Dividends paid (498)
Change in unrealized gain (loss) on securities
available for sale - Net of tax
--------------- --------------- ---------------
Balance, December 31, 1996 $ 8 $ 1,492 $ 8,225
=============== =============== ===============
</TABLE>
F-6
<PAGE> 62
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gain
(Loss) on
Securities
Available
Treasury for Sale -
Stock Net of Tax Total
--------------- --------------- ---------------
<S> <C> <C>
$ (555) $ -0- $ 8,656
856
47 47
(400)
(440) (440)
--------------- --------------- ---------------
(555) (393) 8,719
766
(498)
421 421
--------------- --------------- ---------------
(555) 28 9,408
288
(498)
(23) (23)
--------------- --------------- ---------------
$ (555) $ 5 $ 9,175
=============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 63
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash
equivalents:
Cash flows from operating activities:
Net income $ 288 $ 766 $ 856
--------------- --------------- ---------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and net
amortization 137 147 169
Provision for credit losses 690 -0- -0-
Credit for deferred income taxes (313) 26 19
Net security losses -0- 3 -0-
Write down of securities 50 -0- -0-
Change in other assets (300) (35) (92)
Change in other liabilities 172 165 (39)
--------------- --------------- ---------------
Total adjustments 436 306 57
--------------- --------------- ---------------
Net cash provided by operating activities 724 1,072 913
--------------- --------------- ---------------
Cash flows from investing activities:
Net decrease in interest-bearing deposits
in other financial institutions 2 198 172
Proceeds from sale of securities
available for sale -0- 2,886 -0-
Proceeds from maturities of securities:
Available for sale 4,503 1,629 1,426
Held to maturity -0- 3,158 3,790
Payment for purchases of securities:
Available for sale (5,613) (1,580) (1,479)
Held to maturity -0- (1,480) (2,085)
Net increase in loans (6,901) (3,833) (4,958)
Capital expenditures (168) (35) (146)
--------------- --------------- ---------------
Net cash provided by (used in)
investing activities (8,177) 943 (3,280)
--------------- --------------- ---------------
</TABLE>
F-7
<PAGE> 64
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1996 1995 1994
--------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 3,971 $ 3,837 $ 2,184
Net increase (decrease) in short-term
borrowings 99 (145) 46
Dividends paid (498) (498) (400)
--------------- --------------- ----------------
Net cash provided by financing activities 3,572 3,194 1,830
--------------- --------------- ----------------
Net increase (decrease) in cash and cash
equivalents (3,881) 5,209 (537)
Cash and cash equivalents at beginning 8,533 3,324 3,861
--------------- --------------- ----------------
Cash and cash equivalents at end $ 4,652 $ 8,533 $ 3,324
=============== =============== ================
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 2,836 $ 2,504 $ 2,096
Income taxes 177 239 174
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 65
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Citizens National Bancorp, Inc. (the
"Company") and its subsidiary conform to generally accepted accounting
principles and general practices within the banking industry. Significant
accounting policies are summarized below.
Nature of Operations
Citizens National Bancorp, Inc. provides banking services to individual and
corporate customers through its wholly owned subsidiary, The Citizens National
Bank of Darlington (the "Bank").
The Bank operates as a full-service financial institution with a primary market
area including, but not limited to, Lafayette County. The Bank offers a full
range of commercial and retail banking services to customers within the Bank's
market area. The Bank provides commercial, real estate, agricultural, and
consumer loans, as well as a variety of traditional deposit products.
CNB Investment Corporation, a Nevada corporation, is a wholly owned subsidiary
of the Bank. CNB Investment Corporation owns and manages a portfolio of
investment securities, all of which are permissible investments of the Bank
itself.
Principles of Consolidation
The consolidated financial statements include the accounts of Citizens National
Bancorp, Inc. and its subsidiary. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results may differ from these estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, non-interest-bearing deposits in correspondent banks, and federal funds
sold. Generally, federal funds are sold for one-day periods.
F-9
<PAGE> 66
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment Securities
The Company's investment securities are classified and accounted for as
securities available for sale. Securities available for sale consist of debt
and mortgage-related securities not classified as securities held to maturity.
Unrealized holding gains and losses, net of tax, on securities available for
sale are reported as a net amount in a separate component of stockholders'
equity until realized. Gains and losses on the sale of securities are
determined using the specific-identification method.
Interest and Fees on Loans
Interest on loans is credited to income as earned. Interest income is not
accrued on loans where management has determined collection of such interest is
doubtful. When a loan is placed on nonaccrual status, previously accrued but
unpaid interest deemed uncollectible is reversed and charged against current
income. Loan-origination fees are credited to income when received, as
capitalization of the fees and related costs would not have a material effect
on the financial statements.
Allowance for Credit Losses
The allowance for credit losses includes specific allowances related to
commercial loans which have been judged to be impaired. A loan is impaired
when, based on current information, it is probable that the Bank will not
collect all amounts due in accordance with the contractual terms of the loan
agreement. These specific allowances are based on discounted cash flows of
expected future payments using the loan's initial effective interest rate or
the fair value of the collateral if the loan is collateral dependent.
The Bank continues to maintain a general allowance for credit losses for loans
not considered impaired. The allowance for credit losses is maintained at a
level which management believes is adequate to provide for possible credit
losses. Management periodically evaluates the adequacy of the allowance using
the Bank's past credit loss experience, known and inherent risks in the
portfolio, composition of the portfolio, current economic conditions, and other
factors. This evaluation is inherently subjective since it requires material
estimates that may be susceptible to significant change.
F-10
<PAGE> 67
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Premises and Equipment
Premises and equipment are stated at cost. Maintenance and repair costs are
charged to expense as incurred. Gains or losses on disposition of premises and
equipment are reflected in income. Depreciation is computed on accelerated and
straight line methods and is based on the estimated useful lives of the assets.
Income Taxes
Deferred income taxes have been provided under the liability method. Deferred
tax assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities as measured by the
current enacted tax rates which will be in effect when these differences are
expected to reverse. Deferred tax expense (benefit) is the result of changes
in the deferred tax asset and liability.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit, commitments
under credit card arrangements, and standby letters of credit. Such financial
instruments are recorded in the financial statements when they become payable.
Advertising Costs
Advertising costs are expensed as incurred.
Future Accounting Changes
The Financial Accounting Standards Board (FASB) issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," in June 1996. SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment of
liabilities. The statement provides guidelines for classification of a
transfer as a sale. The statement also requires liabilities incurred or
obtained by transferors as part of a transfer of financial assets be initially
recorded at fair value. Subsequent to acquisition, the servicing assets and
liabilities are to be amortized over the estimated net servicing period. This
statement is required to be adopted for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996.
In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date
of Certain Provisions of FASB Statement No. 125." This statement defers
implementation of certain provisions of SFAS No. 125 for one year. Adoption of
SFAS No. 125 is not anticipated to have a significant impact on the Company's
financial condition or results of operations once implemented.
F-11
<PAGE> 68
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES
The estimated fair value and amortized cost of investment securities available
for sale at December 31 are as follows:
<TABLE>
<CAPTION>
Audited - 1996
------------------------------------------------------------------------
Gross Gross
Estimated Unrealized Unrealized Amortized
Fair Value Gains Losses Cost
--------------- --------------- --------------- ----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 5,573 $ 14 $ 49 $ 5,608
Obligations of states and
political subdivisions 7,865 41 6 7,830
Mortgage-related securities 3,429 29 27 3,427
Other securities 2,322 10 5 2,317
--------------- --------------- --------------- ---------------
Total $ 19,189 $ 94 $ 87 $ 19,182
=============== =============== =============== ===============
<CAPTION>
Unaudited - 1995
------------------------------------------------------------------------
Gross Gross
Estimated Unrealized Unrealized Amortized
Fair Value Gains Losses Cost
--------------- --------------- --------------- ----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 5,156 $ 23 $ 30 $ 5,163
Obligations of states and
political subdivisions 6,982 57 60 6,985
Mortgage-related securities 3,221 48 28 3,201
Other securities 2,826 37 11 2,800
--------------- --------------- --------------- ---------------
Total $ 18,185 $ 165 $ 129 $ 18,149
=============== =============== =============== ===============
</TABLE>
F-12
<PAGE> 69
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
Fair values of securities are estimates based on financial methods or prices
paid for similar securities. It is possible interest rates could change
considerably resulting in a material change in the estimated fair value.
The estimated fair value and amortized cost of investment securities available
for sale at December 31, 1996, by contractual maturity, are shown below.
Contractual maturities will differ from expected maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Estimated Amortized
Fair Value Cost
-------------- ----------------
(Dollars in Thousands)
<S> <C> <C>
Due in three months or less $ 943 $ 941
Due after three months through one year 1,637 1,633
Due after one year through five years 9,850 9,857
Due after five years through ten years 2,493 2,494
Due after ten years 837 830
-------------- ---------------
15,760 15,755
Mortgage-related securities 3,429 3,427
-------------- ---------------
Total $ 19,189 $ 19,182
============== ===============
</TABLE>
Following is a summary of the proceeds from sales of investment securities
available for sale as well as gross gains and losses for the years ended
December 31:
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1996 1995 1994
--------------- -------------- ----------------
(Dollars in Thousands)
<S> <C> <C> <C>
Proceeds from sales of investment
securities available for sale $ -0- $ 2,886 $ -0-
Gross gains on sales -0- 59 -0-
Gross losses on sales -0- 62 -0-
</TABLE>
The Company recognized a loss in 1996 of $50,000 due to other than temporary
price declines on investment securities.
F-13
<PAGE> 70
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
Investment securities pledged to secure public deposits, short-term borrowings,
and for other purposes required by law had an estimated fair value of
$1,381,000, and amortized cost of $1,390,000, as of December 31, 1996.
A significant portion of the securities issued by states and political
subdivisions are rated by Moody's with ratings ranging from A to AAA. For
those securities not rated, market values are obtained from brokerage services
utilized by the Company. At December 31, 1996, the total carrying value of
nonrated obligations of states and political subdivisions was $4,281,000.
NOTE 3 - LOANS
The composition of loans at December 31 follows:
<TABLE>
<CAPTION>
Audited Unaudited
1996 1995
-------------- ----------------
(Dollars in Thousands)
<S> <C> <C>
Commercial, industrial, and financial $ 6,118 $ 4,899
Agricultural 29,905 26,168
Real estate mortgage 5,728 5,841
Installment 7,295 5,552
-------------- ---------------
Total loans $ 49,046 $ 42,460
============== ===============
</TABLE>
The aggregate amount of nonperforming loans was $2,022,000 and $1,187,000 at
December 31, 1996 and 1995, respectively. Nonperforming loans are those which
are contractually past due 90 days or more as to interest or principal
payments, those loans on a nonaccrual status, or loans the terms of which have
been renegotiated to provide a reduction or deferral of interest or principal.
If nonaccrual and renegotiated loans had been current, or not troubled,
$75,000, $44,000, and $21,000 of interest income would have been recorded for
the years ended December 31, 1996, 1995, and 1994, respectively. Interest
income actually recorded on these loans was $15,000, $13,000, and $10,000 for
the years ended December 31, 1996, 1995, and 1994, respectively.
F-14
<PAGE> 71
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - LOANS (CONTINUED)
The recorded investment in loans considered to be impaired was $1,087,000 and
$683,000 of which $516,000 and $96,000 was on a nonaccrual basis at December
31, 1996 and 1995, respectively. The related allowance for loan losses on
impaired loans was $132,000 and $31,000 as of December 31, 1996 and 1995,
respectively. The average recorded investment in impaired loans was $885,000
and $312,000 during 1996 and 1995, respectively. The Company recognized
interest income on those impaired loans of $75,000 and $35,000 which included
$73,000 and $34,000 of interest income recognized using the cash basis method
of income recognition for the years ended December 31, 1996 and 1995,
respectively.
The Bank, in the ordinary course of banking business, grants loans to its
executive officers and directors including their families and firms in which
they are principal owners.
Substantially all loans to executive officers and directors were made on the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with others and did not involve more than the
normal risk of collectibility or present other unfavorable features. Activity
in such loans during 1996 is summarized below:
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Loans outstanding, December 31, 1995 $ 148
New loans 161
Repayment (62)
--------------
Loans outstanding, December 31, 1996 $ 247
==============
</TABLE>
An analysis of the allowance for credit losses for the years ended December 31
follows:
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1996 1995 1994
--------------- --------------- ----------------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance, January 1 $ 497 $ 559 $ 601
Provision for credit losses 690 -0- -0-
Recoveries on loans 27 85 75
Loans charged off (342) (147) (117)
--------------- --------------- ---------------
Balance, December 31 $ 872 $ 497 $ 559
=============== =============== ===============
</TABLE>
F-15
<PAGE> 72
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - PREMISES AND EQUIPMENT
An analysis of premises and equipment at December 31 follows:
<TABLE>
<CAPTION>
Audited Unaudited
1996 1995
--------------- ----------------
(Dollars in Thousands)
<S> <C> <C>
Land $ 75 $ 75
Buildings and improvements 1,135 1,110
Furniture and equipment 695 588
--------------- ---------------
Totals 1,905 1,773
Less - Accumulated depreciation and amortization (878) (803)
--------------- ---------------
Net book value $ 1,027 $ 970
=============== ===============
</TABLE>
Depreciation and amortization of premises and equipment charged to operating
expenses amounted to $111,000 in 1996, $117,000 in 1995, and $139,000 in 1994.
NOTE 5 - OTHER REAL ESTATE
Included in other assets is other real estate totaling $10,000 at December 31,
1995. There is no other real estate at December 31, 1996. Operating expenses
for 1996, 1995, and 1994, include charges of $-0-, $4,000, and $6,000,
respectively, for costs related to operation and sale of other real estate.
NOTE 6 - DEPOSITS
The distribution of deposits at December 31 is as follows:
<TABLE>
<CAPTION>
Audited Unaudited
1996 1995
--------------- ----------------
(Dollars in Thousands)
<S> <C> <C>
Non-interest-bearing demand deposits $ 4,908 $ 4,677
Interest-bearing demand deposits 7,477 7,641
Savings deposits 5,018 5,160
Money market deposits 4,601 2,621
Time deposits 43,129 41,063
--------------- ---------------
Total deposits $ 65,133 $ 61,162
=============== ===============
</TABLE>
F-16
<PAGE> 73
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - DEPOSITS (CONTINUED)
Time deposits of $100,000 or more were $5,572,000 and $5,626,000 at December
31, 1996 and 1995, respectively. Interest expense on time deposits of $100,000
or more was $311,000, $196,000, and $116,000 for the years ended December 31,
1996, 1995, and 1994, respectively.
NOTE 7 - SHORT-TERM BORROWINGS
Short-term borrowings consist of treasury tax and loan deposits and federal
funds purchased and generally mature within one day from the transaction date.
Details of short-term borrowings at December 31 follows:
<TABLE>
<CAPTION>
Audited Unaudited
1996 1995
--------------- ----------------
(Dollars in Thousands)
<S> <C> <C>
Treasury tax and loan deposits $ 189 $ 116
Federal funds purchased 26 -0-
--------------- ---------------
Total short-term borrowings $ 215 $ 116
=============== ===============
</TABLE>
NOTE 8 - INCOME TAXES
The components of the provision (credit) for income taxes are as follows for
the years ended December 31:
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1996 1995 1994
--------------- --------------- ----------------
(Dollars in Thousands)
<S> <C> <C> <C>
Current tax expense:
Federal $ 198 $ 134 $ 146
State 56 45 57
--------------- --------------- ---------------
Total current 254 179 203
Deferred tax expense (credit) (313) 26 19
--------------- --------------- ---------------
Total provision (credit) for income taxes $ (59) $ 205 $ 222
=============== =============== ===============
</TABLE>
F-17
<PAGE> 74
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES (CONTINUED)
As of December 31, 1996 and 1995, deferred income taxes are provided for the
temporary differences between the financial reporting and tax bases of the
Company's assets and liabilities. The major components of deferred tax assets
and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
Audited Unaudited
1996 1995
--------------- ----------------
(Dollars in Thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses $ 276 $ 36
Nonperforming assets 76 31
Other 73 39
--------------- ----------------
Total deferred tax assets 425 106
--------------- ----------------
Deferred tax liabilities:
Depreciation (13) (7)
Unrealized gain on securities available for sale (2) (8)
--------------- ----------------
Total deferred tax liabilities (15) (15)
--------------- ----------------
Net deferred tax assets $ 410 $ 91
=============== ================
</TABLE>
A summary of the source of differences between income taxes at the federal
statutory rate and the provision (credit) for income taxes for the years ended
December 31 follows:
<TABLE>
<CAPTION>
Audited - 1996 Unaudited - 1995 Unaudited - 1994
--------------------------- --------------------------- ---------------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------------- ---------- -------------- ---------- ------------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax expense at
statutory rate $ 78 34.0 $ 330 34.0 $ 367 34.0
Increase (decrease)
in taxes resulting
from:
Tax-exempt interest (112) (48.9) (137) (14.1) (159) (14.7)
State income tax (4) (1.7) 33 3.4 40 3.7
Other (21) (9.2) (21) (2.2) (26) (2.4)
------------- ----- -------------- ----- ------------- -----
Provision (credit) for
income taxes $ (59) (25.8) $ 205 21.1 $ 222 20.6
============= ===== ============== ===== ============= =====
</TABLE>
F-18
<PAGE> 75
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - LEASES
The Company leases a building for a branch office. The lease is for a period
of five years and expires in 2001. The Company has the option to extend the
lease for an additional five years.
Future minimum payments, by year and in the aggregate, are as follows:
<TABLE>
<CAPTION>
(Dollars In Thousands)
<S> <C>
1997 $ 24
1998 24
1999 24
2000 24
2001 16
------------
Total $ 112
============
</TABLE>
Rental expense totaled $8,000 for 1996. There was no rental expense for 1995
or 1994.
NOTE 10 - RETIREMENT PLAN
The Bank sponsors a defined contribution 401(k) profit sharing plan covering
substantially all employees age 21 and older and who have completed one year of
service. Participants are allowed to make voluntary contributions to the plan
through salary reductions. Employer contributions include a discretionary
matching contribution equal to a percentage of the amount of salary reduction.
In applying this matching percentage, only salary reductions up to 4% of the
participants' compensation are considered. The Bank may also make a special
discretionary profit-sharing contribution.
Retirement plan expense charged to operations under the plan totaled $46,000,
$42,000, and $37,000 for 1996, 1995, and 1994, respectively.
F-19
<PAGE> 76
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11 - REGULATORY MATTERS
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
below) of total and Tier I capital to risk-weighted assets and of Tier I
capital to average assets. Management believes, as of December 31, 1996, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank 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,
and 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
Bank's category.
The Bank's actual capital amounts and ratios as of December 31, 1996, are
presented in the following table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------ ---------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ---------- ---------------- ---------- --------------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk
weighted assets) $ 9,766 18.7% >= $ 4,178 >= 8.0% >= $ 5,222 >= 10.0%
Tier I capital (to risk
weighted assets) $ 9,114 17.5% >= $ 2,083 >= 4.0% >= $ 3,124 >= 6.0%
Tier I capital (to
average assets) $ 9,114 12.4% >= $ 2,940 >= 4.0% >= $ 3,675 >= 5.0%
</TABLE>
The Bank is subject to restrictions on the amount of dividends it may declare
without regulatory approval. At December 31, 1996, $1,493,000 of retained
earnings was available for dividend declaration without prior regulatory
approval.
F-20
<PAGE> 77
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12 - ADVERTISING COSTS
Advertising costs are expensed as incurred (or the first time advertising takes
place). Advertising expense for 1996, 1995, and 1994 was $40,000, $52,000, and
$47,000, respectively.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Financial Instruments With Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Those instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance sheets.
The Bank's exposure to credit loss, in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit, is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. A summary
of the Bank's commitments and contingent liabilities at December 31, 1996, is
as follows:
<TABLE>
<CAPTION>
Notional
Amount
---------------
(Dollars in Thousands)
<S> <C>
Commitments to extend credit $ 4,669
Standby letters of credit 78
Credit card commitments 1,201
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the party. Collateral held varies but may
include accounts receivable; inventory; property, plant, and equipment; and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The commitments are
structured to allow for 100% collateralization on all standby letters of
credit.
F-21
<PAGE> 78
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Credit card commitments are commitments on credit cards issued by the Bank and
serviced by other companies. These commitments are unsecured.
Contingencies
In the normal course of business, the Bank is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the financial
statements.
NOTE 14 - CONCENTRATION OF CREDIT RISK
The Bank grants residential, commercial, agricultural, and consumer loans
within its market area. At December 31, 1996, approximately 61% of the Bank's
loan portfolio consists of agricultural loans. The ability of debtors to honor
their contracts is tied to the economy within the Bank's market area.
NOTE 15 - SUBSEQUENT EVENT
On February 26, 1997, the Company signed a Plan and Agreement of Merger to sell
100% of its outstanding shares to F&M Bancorporpation, Inc. in exchange for F&M
Bancorporation, Inc. stock. This transaction is subject to regulatory and
stockholder approval. The transaction is expected to be completed in the third
quarter of 1997.
F-22
<PAGE> 79
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS
------
Audited Unaudited
1996 1995
--------------- ----------------
<S> <C> <C>
Cash $ 23 $ 20
Investment in subsidiary 9,151 9,382
Other assets 1 6
--------------- ---------------
TOTAL ASSETS $ 9,175 $ 9,408
=============== ===============
STOCKHOLDERS' EQUITY
--------------------
TOTAL STOCKHOLDERS' EQUITY $ 9,175 $ 9,408
=============== ===============
</TABLE>
F-23
<PAGE> 80
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1996 1995 1994
--------------- --------------- ----------------
<S> <C> <C> <C>
Income - Dividends received from
subsidiary $ 498 $ 498 $ 400
--------------- --------------- ---------------
Expenses - Other 3 9 9
--------------- --------------- ---------------
Income before credit for income
taxes and equity in undistributed net
income (loss) of subsidiary 495 489 391
Credit for income taxes 1 3 3
--------------- --------------- ---------------
Income before equity in undistributed
net income (loss) of subsidiary 496 492 394
Equity in undistributed net income (loss)
of subsidiary (208) 274 462
--------------- --------------- ---------------
Net income $ 288 $ 766 $ 856
=============== =============== ===============
</TABLE>
F-24
<PAGE> 81
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1996 1995 1994
--------------- --------------- ----------------
<S> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Net income $ 288 $ 766 $ 856
--------------- --------------- ---------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net (income)
loss of subsidiary 208 (274) (462)
Change in other assets 5 8 9
--------------- --------------- ---------------
Total adjustments 213 (266) (453)
--------------- --------------- ---------------
Net cash provided by operating
activities 501 500 403
--------------- --------------- ---------------
Net cash used in financing
activities - Dividends paid (498) (498) (400)
--------------- --------------- ---------------
Net increase in cash 3 2 3
Cash at beginning 20 18 15
--------------- --------------- ---------------
Cash at end $ 23 $ 20 $ 18
=============== =============== ===============
</TABLE>
F-25
<PAGE> 82
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS -- UNAUDITED
MARCH 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash and due from banks $ 2,066 $ 1,427
Federal funds sold 3,315 2,429
-------- --------
Cash and cash equivalents 5,381 3,856
Interest-bearing deposits in other financial institutions 99 99
Investment securities available for sale -- Stated at fair value 19,005 20,231
Total loans 48,062 43,461
Allowance for credit losses 873 499
-------- --------
Net loans 47,189 42,962
Premises and equipment 1,048 964
Other assets 1,801 1,632
-------- --------
TOTAL ASSETS $74,523 $69,744
======= =======
</TABLE>
F-26
<PAGE> 83
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Liabilities:
Non-interest-bearing deposits $ 3,856 $ 3,222
Interest-bearing deposits 60,565 56,418
------ ------
Total deposits 64,421 59,640
Short-term borrowings 186 101
Other liabilities 566 488
------ ------
Total liabilities 65,173 60,229
------ ------
Stockholders' equity:
Common stock - $1 stated value:
Authorized - 15,000 shares
Issued - 7,500 shares 8 8
Capital surplus 1,492 1,492
Retained earnings 8,441 8,650
Less - Common stock held in treasury, at cost, 487 shares (555) (555)
Unrealized loss on securities available for sale - Net of tax (36) (80)
------ ------
Total stockholders' equity 9,350 9,515
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 74,523 $ 69,744
======= ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-27
<PAGE> 84
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
For the Three Months Ended March 31, 1997 and 1996
(Dollars in Thousands, Except Earnings Per Share)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $ 1,152 $ 1,007
Interest on investment securities:
Taxable 188 196
Tax-exempt 89 91
Other interest income 24 65
-------- --------
Total interest income 1,453 1,359
-------- --------
Interest expense:
Deposits 727 692
Short-term borrowings 1 1
-------- --------
Total interest expense 728 693
-------- --------
Net interest income 725 666
Provision for credit losses -0- -0-
-------- --------
725 666
Net interest income after provision for credit losses -------- --------
Other income:
Service fees 45 38
Other operating income 50 72
-------- --------
Total other income 95 110
-------- --------
Other expenses:
Salaries and employee benefits 318 287
Net occupancy expense 40 34
Other operating expenses 169 180
-------- --------
Total other expenses 527 501
-------- --------
Income before provision for income taxes 293 275
Provision for income taxes 77 60
-------- --------
Net income $ 216 $ 215
======== ========
Earnings per share $ 30.80 $ 30.66
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-28
<PAGE> 85
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
For the Three Months Ended March 31, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 216 $ 215
-------- --------
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for depreciation and net amortization 32 35
Change in other assets 175 (238)
Change in other liabilities (7) 87
-------- --------
Total adjustments 200 (116)
-------- --------
Net cash provided by operating activities 416 99
-------- --------
Cash flows from investing activities:
Net decrease in interest-bearing deposits -0- 2
Proceeds from maturities of available for sale securities 1,217 420
Payment for purchases of available for sale securities (1,100) (2,639)
Net decrease (increase) in loans 985 (999)
Capital expenditures (48) (23)
-------- --------
Net cash provided by (used in) investing activities 1,054 (3,239)
-------- --------
Cash flows from financing activities:
Net decrease in deposits (712) (1,522)
Net decrease in short-term borrowings (29) (15)
-------- --------
Net cash used in financing activities (741) (1,537)
-------- --------
Net increase (decrease) in cash and cash equivalents 729 (4,677)
Cash and cash equivalents at beginning 4,652 8,533
-------- --------
Cash and cash equivalents at end $ 5,381 $ 3,856
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-29
<PAGE> 86
CITIZENS NATIONAL BANCORP, INC. AND SUBSIDIARY
----------------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited consolidated financial statements do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for fair presentation have been included.
NOTE 2 - INVESTMENT SECURITIES AVAILABLE FOR SALE
- -------------------------------------------------
Carrying amounts and market values of investment securities available for sale
at March 31, 1997, are as follows:
<TABLE>
<CAPTION>
Amortized
Cost Fair Value
------------ ----------
(Dollars in thousands)
<S> <C> <C>
U.S Treasury securities and obligations of U.S.
government corporations and agencies $ 5,076 $ 5,012
Obligations of states and political subdivisions 8,382 8,407
Mortgage-related securities 3,387 3,373
Other securities 2,214 2,213
-------- --------
Total investment securities available for sale $ 19,059 $ 19,005
======== ========
</TABLE>
NOTE 3 - LOANS
- --------------
At March 31, 1997, loans are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Commercial, industrial, and financial $ 6,921
Agricultural 17,822
Real estate mortgage 15,652
Installment 7,667
---------
48,062
Less - Allowance for credit losses 873
---------
Net loans $ 47,189
=========
</TABLE>
F-30
<PAGE> 87
EXHIBIT A
February 26, 1997
Board of Directors
Citizen's National Bancorporation, Inc.
207 Wells Street
Darlington, Wisconsin 53530
Dear Members of the Board:
Citizen's National Bancorporation, Inc. ("CNB") is about to enter into a Plan
and Agreement of Merger and Reorganization (the "Agreement") with F&M
Bancorporation, Inc. ("F&M") and F&M Merger Corporation, a wholly owned
subsidiary of F&M ("Subsidiary"). Pursuant to the Agreement, at the Effective
Time (as defined in the Agreement), CNB will be merged into Subsidiary and each
outstanding share of common stock, no par value ("CNB Common Stock") of CNB
(other than shares held in CNB's treasury or owned by CNB, F&M, any respective
subsidiaries, or holders perfecting dissenters' rights) will be converted into
the number of shares of common stock, par value $1.00 per share of F&M ("F&M
Common") equal to the Exchange Ratio (as hereinafter defined).
The Exchange Ratio will be 74.861, which is calculated by dividing the 7,013
shares of CNB Common Stock issued and outstanding into 525,000 shares of F&M
Common, the F&M Stock Offer. This Exchange Ratio is subject to certain
possible adjustments as defined in the Agreement, based upon CNB's performance
in 1997 to the end of the month prior to the Closing Date. The Exchange Ratio
will not change provided the F&M Selling Price, which is determined by the
average closing price of F&M Common, as quoted on the NASDAQ National Market
System, for the 15 trading days on which F&M Common is actually traded,
immediately preceding five calendar days prior to the Closing Date of the
transaction, provided, however, that the F&M Per Share Price shall not be less
than $27.50 or exceed $33.50.
You have requested our opinion, as investment bankers, as to the fairness of
the proposed terms of the Exchange Ratio to the CNB shareholders from a
financial point of view.
Robert W. Baird & Co. Incorporated ("Baird"), 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, competitive
biddings, secondary distributions of listed and unlisted securities,private
placements, and valuations for estate, corporate and other purposes.
A-1
<PAGE> 88
Board of Directors
February 26, 1997
Page 2
In conducting our investigation and analysis and in arriving at our opinion
herein, we have reviewed such information and taken into account such financial
and economic factors as we have deemed relevant under the circumstances. In
that connection, we have, among other things: (i) reviewed certain internal
information, primarily financial in nature, concerning the business and
operations of CNB furnished to us by or on behalf of CNB for purposes of the
analysis as well as publicly available information including but not limited to
CNB's consolidated financial statements for recent years and interim periods;
(ii) reviewed certain internal information, primarily financial in nature,
including projections, concerning the business and operations of F&M furnished
to us for purposes of our analysis, as well as publicly available information
including but not limited to F&M's consolidated financial statements for recent
years and interim periods and other filings with the Securities and Exchange
Commission (the "SEC"); (iii) reviewed the Agreement; (iv) compared the
historical market prices and trading activity of CNB Common and respective
financial positions and operating results of CNB and F&M with those of the
publicly traded companies we deemed relevant; (vi) compared the proposed
financial terms of the Merger with the financial terms of certain other
business combinations we deemed relevant; and (vii) reviewed the potential pro
forma effects of the Merger. We have held discussions with certain members of
CNB's and F&M's senior management concerning CNB's and F&M's respective
historical and current financial conditions and operating results, as well as
the future prospects of CNB and F&M respectively. We have also considered such
other information, financial studies, analysis and investigations and
financial, economics and market criteria which we deemed relevant for the
preparation of this opinion.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of all the financial and other information provided us by or on
behalf of CNB and F&M, or publicly available, and have not attempted
independently to verify any such information. We have also assumed, with your
consent, that (i) the Merger will be accounted for a s a pooling of interest
and (ii) all material assets and liabilities (contingent or otherwise, known or
unknown) of CNB and F&M are as set forth in the consolidated financial
statements of CNB and F&M, respectively. We have assumed that the projections
examined by us have been reasonably prepared and represent the best available
estimates and good faith judgements of the senior managements of CNB and F&M,
respectively, as to futureperformance of their respective companies. In
conducting out review, we have not made nor obtained an independent evaluation
or appraisal of any of the assets or liabilities (contingent or otherwise) of
CNB or F&M nor have we made a physical inspection of the properties or
facilities of CNB or F&M. Our opinion necessarily is based upon economic,
monetary and market conditions as they exist and can be evaluated on the date
hereof, and does not predict or take into account any changes which may occur,
or information which may become available, after the date hereof.
Our opinion has been prepared at the request and for the information of CNB's
Board of Directors, and shall not be reproduced, summarized, described or
referred to without the prior written consent of Baird; provided, however,
that this letter may be reproduced in full in the
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Board of Directors
February 26, 1997
Page 3
Proxy Statement/Prospectus relating to the Merger. This opinion does not
address the relative merits of the Merger and any other potential transactions
or business strategies considered by CNB's Board of Directors, and does not
constitute a recommendation to any shareholder of CNB as to how any such
shareholder should vote with respect to the Merger. Baird will receive a fee
for rendering this opinion. We have also acted as financial advisor to F&M in
the past and may provide financial advisory or other investment banking
services to F&M or its affiliates in the future.
In the ordinary course of our business, we may from time to time trade the
securities of F&M for our own account or the accounts of our customers and
accordingly, may at any time hold long or short positions in such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Exchange Ratio is fair, from a financial point of view, to the
holders of CNB Common .
Very truly yours,
ROBERT W. BAIRD & CO. Incorporated
/s/ Benard E. Adee
Bernard E. Adee
First Vice President
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Exhibit B
SUBCHAPTER XIII
DISSENTERS' RIGHTS
SECTIONS 180.1301 TO 180.1331 OF THE WISCONSIN
BUSINESS CORPORATION LAW
180.1301 DEFINITIONS. In ss. 180.1301 to 180.1331:
(1) "Beneficial shareholder" means a person who is a beneficial owner of
shares held by a nominee as the shareholder.
(1M) "Business combination" has the meaning given in s. 180.1130(3).
(2) "Corporation" means the issuer corporation or, if the corporate action
giving rise to dissenters' rights under s. 180.1302 is a merger or share
exchange that has been effectuated, the surviving domestic corporation or
foreign corporation of the merger or the acquiring domestic corporation or
foreign corporation of the share exchange.
(3) "Dissenter" means a shareholder or beneficial shareholder who is entitled
to dissent from corporate action under s. 180.1302 and who exercises that right
when and in the manner required by ss. 180.1320 to 180.1328.
(4) "Fair value", with respect to a dissenter's shares other than in a
business combination, means the value of the shares immediately before the
effectuation of the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable. "Fair value", with respect to a dissenter's
share in a business combination, means market value, as defined in s.
180.1130(9)(a) 1 to 4.
(5) "Interest" means interest from the effectuation date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all of the circumstances.
(6) "Issuer corporation" means, a domestic corporation that is the issuer of
the shares held by a dissenter before the corporate action.
180.1302 RIGHT TO DISSENT. (1) Except as provided in sub. (4) and s.
180.1008(3), a shareholder or beneficial shareholder may dissent from, and
obtain payment of the fair value of his or her shares in the event of, any of
the following corporate actions:
(a) Consummation of a plan of merger to which the issuer corporation is a
party if any of the following applies:
1. Shareholder approval is required for the merger by s. 180.1103 or by the
articles of incorporation.
2. The issuer corporation is a subsidiary that is merged with its parent
under s. 180.1104.
(b) Consummation of a plan of share exchange if the issuer corporation's
shares will be acquired, and the shareholder or the shareholder holding shares
on behalf of the beneficial shareholder is entitled to vote on the plan.
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(c) Consummation of a sale or exchange of all, or substantially all, of the
property of the issuer corporation other than in the usual and regular course
of business, including a sale in dissolution, but not including any of the
following:
1. A sale pursuant to court order.
2. A sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale.
(d) Except as provided in sub. (2), any other corporate action taken pursuant
to a shareholder vote to the extent that the articles of incorporation, bylaws
or a resolution of the board of directors provides that the voting or nonvoting
shareholder or beneficial shareholder may dissent and obtain payment for his or
her shares.
(2) Except as provided in sub. (4) and s. 180.1008(3), the articles of
incorporation may allow a shareholder or beneficial shareholder to dissent from
an amendment of the articles of incorporation and obtain payment of the fair
value of his or her shares if the amendment materially and adversely affects
rights in respect of a dissenter's shares because it does any of the following:
(a) Alters or abolishes a preferential right of the shares.
(b) Creates, alters or abolishes a right in respect of redemption, including
a provision respecting a sinking fund for the redemption or repurchase, of the
shares.
(c) Alters or abolishes a preemptive right of the holder of shares to acquire
shares or other securities.
(d) Excludes or limits the right of the shares to vote on any matter or to
cumulate votes, other than a limitation by dilution through issuance of shares
or other securities with similar voting rights.
(e) Reduces the number of shares owned by the shareholder or beneficial
shareholder to a fraction of a share if the fractional share so created is to
be acquired for cash under s. 180.0604.
(3) Notwithstanding sub. (1)(a) to (c), if the issuer corporation is a
statutory close corporation under ss. 180.1801 to 180.1837, a shareholder of
the statutory close corporation may dissent from a corporate action and obtain
payment of the fair value of his or her shares, to the extent permitted under
sub. (1)(d) or (2) or s. 180.1803, 180.1813(1)(d) or (2)(b), 180.1815(3) or
180.1829(1)(c).
(4) Except in a business combination or unless the articles of incorporation
provide otherwise, subs. (1) and (2) do not apply to the holders of shares of
any class or series if the shares of the class or series are registered on a
national securities exchange or quoted on the national association of
securities dealers, inc., automated quotations system on the record date fixed
to determine the shareholders entitled to notice of a shareholders meeting at
which shareholders are to vote on the proposed corporate action.
(5) Except as provided in s. 180.1833, a shareholder or beneficial
shareholder entitled to dissent and obtain payment for his or her shares under
ss. 180.1301 to 180.1331 may not challenge the corporate action creating his or
her entitlement unless the action is unlawful or fraudulent with respect to the
shareholder, beneficial shareholder or issuer corporation.
180.1303 DISSENT BY SHAREHOLDERS AND BENEFICIAL SHAREHOLDERS. (1) A
shareholder may assert dissenters' rights as to fewer than all of the shares
registered in his or her name only if the shareholder dissents with respect to
all shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he or she
asserts dissenters' rights. The rights of a shareholder who under this
subsection asserts dissenters' rights as to fewer than all of the shares
registered in his or her name are determined
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as if the shares as to which he or she dissents and his or her other shares
were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held
on his or her behalf only if the beneficial shareholder does all of the
following:
(a) Submits to the corporation the shareholder's written consent to the
dissent not later than the time that the beneficial shareholder asserts
dissenters' rights.
(b) Submits the consent under par. (a) with respect to all shares of which he
or she is the beneficial shareholder.
180.1320 NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate action
creating dissenters' rights under s. 180.1302 is submitted to a vote at a
shareholders' meeting, the meeting notice shall state that shareholders and
beneficial shareholders are or may be entitled to assert dissenters' rights
under ss. 180.1301 to 180.1331 and shall be accompanied by a copy of those
sections.
(2) If corporate action creating dissenters' rights under s. 180.1302 is
authorized without a vote of shareholders, the corporation shall notify, in
writing and in accordance with s. 180.0141, all shareholders entitled to assert
dissenters' rights that the action was authorized and send them the dissenters'
notice described in s. 180.1322.
180.1321 NOTICE OF INTENT TO DEMAND PAYMENT. (1) If proposed corporate
action creating dissenters' rights under s. 180.1302 is submitted to a vote at
a shareholders' meeting, a shareholder or beneficial shareholder who wishes to
assert dissenters' rights shall do all of the following:
(a) Deliver to the issuer corporation before the vote is taken written notice
that complies with s. 180.0141 of the shareholder's or beneficial shareholder's
intent to demand payment for his or her shares if the proposed action is
effectuated.
(b) Not vote his or her shares in favor of the proposed action.
(2) A shareholder or beneficial shareholder who fails to satisfy sub. (1) is
not entitled to payment for his or her shares under ss. 180.1301 to 180.1331.
180.1322 DISSENTERS' NOTICE. (1) If proposed corporate action creating
dissenters' rights under s. 180.1302 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to all shareholders
and beneficial shareholders who satisfied s. 180.1321.
(2) The dissenters' notice shall be sent no later than 10 days after the
corporate action is authorized at a shareholders' meeting or without a vote of
shareholders, whichever is applicable. The dissenters' notice shall comply
with s. 180.0141 [which is set forth below] and shall include or have attached
all of the following:
(a) A statement indicating where the shareholder or beneficial shareholder
must send the payment demand and where and when certificates for certificated
shares must be deposited.
(b) For holders of uncertificated shares, an explanation of the extent to
which transfer of the shares will be restricted after the payment demand is
received.
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(c) A form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and that requires the shareholder or beneficial shareholder
asserting dissenters' rights to certify whether he or she acquired beneficial
ownership of the shares before that date.
(d) A date by which the corporation must receive the payment demand, which
may not be fewer than 30 days nor more than 60 days after the date on which the
dissenters' notice is delivered.
(e) A copy of ss. 180.1301 to 180.1331.
180.1323 DUTY TO DEMAND PAYMENT. (1) A shareholder or beneficial
shareholder who is sent a dissenters' notice described in s. 180.1322, or a
beneficial shareholder whose shares are held by a nominee who is sent a
dissenters' notice described in s. 180.1322, must demand payment in writing and
certify whether he or she acquired beneficial ownership of the shares before
the date specified in the dissenters' notice under s. 180.1322(2)(c). A
shareholder or beneficial shareholder with certificated shares must also
deposit his or her certificates in accordance with the terms of the notice.
(2) A shareholder or beneficial shareholder with certificated shares who
demands payment and deposits his or her share certificates under sub. (1),
retains all other rights of a shareholder or beneficial shareholder until these
rights are canceled or modified by the effectuation of the corporate action.
(3) A shareholder or beneficial shareholder with certificated or
uncertificated shares who does not demand payment by the date set in the
dissenters' notice, or a shareholder or beneficial shareholder with
certificated shares who does not deposit his or her share certificates where
required and by the date set in the dissenters' notice, is not entitled to
payment for his or her shares under ss. 180.1301 to 180.1331.
180.1324 RESTRICTIONS ON UNCERTIFICATED SHARES. (1) The issuer corporation
may restrict the transfer of uncertificated shares from the date that the
demand for payment for those shares is received until the corporate action is
effectuated or the restrictions released under s. 180.1326.
(2) The shareholder or beneficial shareholder who asserts dissenters' rights
as to uncertificated shares retains all of the rights of a shareholder or
beneficial shareholder, other than those restricted under sub. (1) until these
rights are canceled or modified by the effectuation of the corporate action.
180.1325 PAYMENT. (1) Except as provided in s. 180.1327, as soon as the
corporate action is effectuated or upon receipt of a payment demand, whichever
is later, the corporation shall pay each shareholder or beneficial shareholder
who has complied with s. 180.1323 the amount that the corporation estimates to
be the fair value of his or her shares, plus accrued interest.
(2) The payment shall be accompanied by all of the following:
(a) The corporation's latest available financial statements, audited and
including footnote disclosure if available, but including not less than a
balance sheet as of the end of a fiscal year ending not more than 16 months
before the date of payment, an income statement for that year, a statement of
changes in shareholders' equity for that year and the latest available interim
financial statements, if any.
(b) A statement of the corporation's estimate of the fair value of the
shares.
(c) An explanation of how the interest was calculated.
(d) A statement of the dissenter's right to demand payment under s. 180.1328
if the dissenter is dissatisfied with the payment.
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(e) A copy of ss. 180.1301 to 180.1331.
180.1326 FAILURE TO TAKE ACTION. (1) If an issuer corporation does not
effectuate the corporate action within 60 days after the date set under s.
180.1322 for demanding payment, the issuer corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the issuer corporation effectuates the corporate action, the
corporation shall deliver a new dissenters' notice under s. 180.1322 and repeat
the payment demand procedure.
180.1327 AFTER-ACQUIRED SHARES. (1) A corporation may elect to withhold
payment required by s. 180.1325 from a dissenter unless the dissenter was the
beneficial owner of the shares before the date specified in the dissenters'
notice under s. 180.1322(2)(c) as the date of the first announcement to news
media or to shareholders of the terms of the proposed corporate action.
(2) To the extent that the corporation elects to withhold payment under sub.
(1) after effectuating the corporate action, it shall estimate the fair value
of the shares, plus accrued interest, and shall pay this amount to each
dissenter who agrees to accept it in full satisfaction of his or her demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated,
and a statement of the dissenter's right to demand payment under s. 180.1328 if
the dissenter is dissatisfied with the offer.
180.1328 PROCEDURE IF DISSENTER DISSATISFIED WITH PAYMENT OR OFFER. (1) A
dissenter may, in the manner provided in sub. (2), notify the corporation of
the dissenter's estimate of the fair value of his or her shares and amount of
interest due, and demand payment of his or her estimate, less any payment
received under s. 180.1325, or reject the offer under s. 180.1327 and demand
payment of the fair value of his or her shares and interest due, if any of the
following applies:
(a) The dissenter believes that the amount paid under s. 180.1325 or offered
under s. 180.1327 is less than the fair value of his or her shares or that the
interest due is incorrectly calculated.
(b) The corporation fails to make payment under s. 180.1325 within 60 days
after the date set under s. 180.1322 for demanding payment.
(c) The issuer corporation, having failed to effectuate the corporate action,
does not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set under s.
180.1322 for demanding payment.
(2) A dissenter waives his or her right to demand payment under this section
unless the dissenter notifies the corporation of his or her demand under sub.
(1) in writing within 30 days after the corporation made or offered payment for
his or her shares. The notice shall comply with s. 180.0141.
180.1330 COURT ACTION. (1) If a demand for payment under s. 180.1328
remains unsettled, the corporation shall bring a special proceeding within 60
days after receiving the payment demand under s. 180.1328 and petition the
court to determine the fair value of the shares and accrued interest. If the
corporation does not bring the special proceeding within the 60-day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall bring the special proceeding in the circuit court
for the county where its principal office or, if none in this state, its
registered office is located. If the corporation is a foreign corporation
without a registered office in this state, it shall bring the special
proceeding in the county in this state in which was located
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the registered office of the issuer corporation that merged with or whose
shares were acquired by the foreign corporation.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the special proceeding.
Each party to the special proceeding shall be served with a copy of the
petition as provided in s. 801.14.
(4) The jurisdiction of the court in which the special proceeding is brought
under sub. (2) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the
question of fair value. An appraiser has the power described in the order
appointing him or her or in any amendment to the order. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the special proceeding is entitled to
judgment for any of the following:
(a) The amount, if any, by which the court finds the fair value of his or her
shares, plus interest, exceeds the amount paid by the corporation.
(b) The fair value, plus accrued interest, of his or her shares acquired on
or after the date specified in the dissenter's notice under s. 180.1322(2)(c),
for which the corporation elected to withhold payment under s. 180.1327.
180.1331 COURT COSTS AND COUNSEL FEES. (1)(a) Notwithstanding ss. 814.01
to 814.04, the court in a special proceeding brought under s. 180.1330 shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of appraisers appointed by the court and shall assess the costs
against the corporation, except as provided in par. (b).
(b) Notwithstanding ss. 814.01 and 814.04, the court may assess costs against
all or some of the dissenters, in amounts that the court finds to be equitable,
to the extent that the court finds the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment under s. 180.1328.
(2) The parties shall bear their own expenses of the proceeding, except that,
notwithstanding ss. 814.01 to 814.04, the court may also assess the fees and
expenses of counsel and experts for the respective parties, in amounts that the
court finds to be equitable, as follows:
(a) Against the corporation and in favor of any dissenter if the court finds
that the corporation did not substantially comply with ss. 180.1320 to
180.1328.
(b) Against the corporation or against a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to
the rights provided by this chapter.
(3) Notwithstanding ss. 814.01 to 814.04, if the court finds that the
services of counsel and experts for any dissenter were of substantial benefit
to other dissenters similarly situated, the court may award to these counsel
and experts reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
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* * * * *
180.0141 NOTICE. (1) This section applies to notice that is required under
this chapter and that is made subject to this section by express reference to
this section.
(2)(a) A person shall give notice in writing, except as provided in par.
(b).
(b) A person may give oral notice if oral notice is permitted by the articles
of incorporation or bylaws and not otherwise prohibited by this chapter.
(3) Except as provided in s. 180.0721(4) or unless otherwise provided in the
articles of incorporation or bylaws, notice may be communicated in person, by
telephone, telegraph, teletype, facsimile or other form of wire or wireless
communication, or by mail or private carrier, and, if these forms of personal
notice are impracticable, notice may be communicated by a newspaper of general
circulation in the area where published, or by radio, television or other form
of public broadcast communication.
(4) Written notice to a domestic corporation or a foreign corporation
authorized to transact business in this state may be addressed to its
registered agent at its registered office or to the domestic corporation or
foreign corporation at its principal office. With respect to a foreign
corporation that has not yet filed an annual report under s. 180.1622, the
address of the foreign corporation's principal office may be determined from
its application for a certificate of authority.
(5)(a) Except as provided in par. (b) and ss. 180.0807(2) and 180.0843(1),
written notice is effective at the earliest of the following:
1. When received.
2. Five days after its deposit in the U.S. mail, if mailed postpaid and
correctly addressed.
3. On the date shown on the return receipt, if sent by registered or
certified mail, return receipt requested, and the receipt is signed by or on
behalf of the addressee.
4. On the effective date specified in the articles of incorporation or
bylaws.
(b) Written notice by a domestic corporation or foreign corporation to its
shareholder is effective when mailed and may be addressed to the shareholder's
address shown in the domestic corporation's or foreign corporation's current
record of shareholders.
(c) Oral notice is effective when communicated.
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EXHIBIT C
PLAN AND AGREEMENT OF MERGER AND REORGANIZATION
AS AMENDED MAY 29, 1997 AND JUNE 23, 1997
Plan and Agreement of Merger and Reorganization (hereinafter referred to as
"Agreement"), made as of the 27th day of February, 1997, as amended on May 29,
1997 and June 23, 1997 by and between F & M Bancorporation, Inc., a Wisconsin
corporation, F & M Merger Corporation, a Wisconsin corporation, and Citizens
National Bancorp, Inc., a Wisconsin corporation.
1. Definitions.
The following definitions shall apply in this Plan and Agreement of Merger
and Reorganization:
1.1 "Agreement" shall mean this Plan and Agreement of Merger and
Reorganization.
1.2 "BANK" shall mean The Citizens National Bank of Darlington, 207 Wells
Street, P.O. Box 90, Darlington, Wisconsin 53530.
1.3 "BANK Stock" shall mean BANK's voting capital stock $100.00 par value.
1.4 "CNB Shareholders" shall mean the shareholders of CNB identified in the
Schedule of Shareholders attached hereto as Exhibit 1.4.
1.5 "CNB Counsel" shall mean Boardman, Suhr, Curry & Field, 410 Firstar
Plaza, One South Pinckney Street, P.O. Box 927, Madison, Wisconsin 53701-0927,
Attn: John Knight, Esq.
1.6 "CNB" shall mean Citizens National Bancorp, Inc., 207 Wells Street,
Darlington, Wisconsin 53530.
1.7 "CNB Common" shall mean CNB's voting common stock, no par value.
1.8 "Closing Date" shall mean the date set by mutual agreement of CNB and
F & M and will not occur prior to the satisfaction or the waiver of all of the
conditions to the transaction.
1.9 "Effective Time" shall mean the date the Articles of Merger are filed
with the State of Wisconsin Department of Financial Institutions, Division of
Corporate and Consumer Services (the "Division"). The Articles of Merger shall
be filed as soon as possible after the conditions precedent to this merger have
been met or waived by F & M and CNB, but shall not be effective prior to the
Closing Date.
1.10 "F & M" shall mean F & M Bancorporation, Inc., One Bank Avenue,
Kaukauna, Wisconsin 54130.
1.11 "F & M Common" shall mean F & M's voting common stock, $1.00 par
value.
1.12 "F & M Selling Price" shall mean the average closing price for F & M
Common, as quoted on the NASDAQ National Market System ("NASDAQ"), for the
fifteen (15) trading days on which F & M Common is actually traded, immediately
preceding the five (5) calendar days prior to the Closing Date of the
transaction.
1.13 "F & M Counsel" shall mean McCarty, Curry, Wydeven, Peeters & Haak,
120 East Fourth Street, P.O. Box 860, Kaukauna, Wisconsin 54130-0860, Attn:
Randall A. Haak, Esq.
1.14 "Securities Counsel" shall mean Quarles & Brady, 411 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202-4497, Attn: Kenneth V. Hallett, Esq.
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1.15 "Subsidiary" shall mean F & M Merger Corporation, One Bank Avenue,
Kaukauna, Wisconsin 54130, a wholly-owned subsidiary of F & M.
1.16 "Registration Statement" shall mean the Registration Statement of F &
M as amended pursuant to which the shares of F & M Common to be issued in the
merger will be registered with the Securities and Exchange Commission ("SEC"),
and which shall include the prospectus of F & M relating to the F & M Common
issuable in the transaction and the proxy statement of CNB to its shareholders
relating to approval of the merger (the "Prospectus/Proxy Statement").
2. Preamble.
F & M and Subsidiary are multi-bank holding companies with subsidiary banks
located in Wisconsin. BANK is a national banking corporation located in
Darlington, Wisconsin and is a wholly-owned subsidiary of CNB. F & M and CNB,
by their respective employees and agents have had the opportunity to make such
review and investigation of the other as they deem appropriate and to negotiate
the terms and conditions of this Agreement. F & M, Subsidiary and CNB each
believe that this transaction is in their best interests and in the best
interests of their shareholders and communities and desire to set forth their
agreement and understanding in this Agreement.
The parties have considered the proposed merger and believe that a merger
between CNB and Subsidiary resulting in BANK becoming a subsidiary of F & M
will be in the best interest of their respective corporations, shareholders,
and communities. The merger of CNB into Subsidiary is intended to constitute a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Internal Revenue Code of 1986, as amended.
In consideration of the foregoing and the terms, conditions and covenants of
this Agreement and in reliance on the warranties and representations contained
herein, the parties adopt this Plan and Agreement of Merger and Reorganization
and agree as follows:
3. Merger of CNB into Subsidiary.
3.1 Surviving Corporation. At the Effective Time of the merger, CNB shall be
merged into Subsidiary in accordance with the laws of the State of Wisconsin.
Subsidiary shall be the surviving corporation and the separate corporate
existence, identity, and the organization of CNB, except as specifically
provided by law and this Agreement, shall cease. As the surviving corporation,
Subsidiary shall succeed to and possess all the assets, properties, powers,
privileges, rights and immunities of CNB and shall be subject to all
liabilities, obligations, limitations and duties of Subsidiary as described in
this Agreement.
3.2 Subsidiary Stock Subscription. Subject to the fulfilling of the
conditions precedent to the closing of this transaction set forth below, F & M
will transfer to Subsidiary such shares of F & M Common as may be necessary to
effect the merger, as described under paragraph 3.3 below.
3.3 Exchange of CNB Common. At the Effective Time, the shares of the CNB
Common shall be converted into shares of F & M Common as follows:
(a) All CNB Shareholders will receive shares of F & M Common based upon
the Exchange Ratio. The Exchange Ratio shall be calculated by dividing the F
& M Stock Offer by the number of outstanding shares of CNB Common at the
Effective Time, rounded to three decimal places. The Exchange Ratio shall be
multiplied by the number of shares of CNB Common held by each CNB Shareholder
to determine the number of shares of F & M Common to be issued to that CNB
Shareholder.
(b) Subject to satisfying the requirements of paragraph 3.4, the F & M
Stock Offer is Five Hundred Twenty-five Thousand (525,000) shares of F & M
Common, adjusted as proportionately necessary to reflect any stock dividend
declared between the date of this Agreement and the Closing Date.
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(c) No fractional shares of F & M Common shall be issued; all fractional
shares will be converted to cash in an amount equal to the fractional share
determined in accordance with the formula set forth above multiplied by F & M
Selling Price.
(d) In the event F&M declares a stock dividend or stock split in form of a
stock dividend with respect to F & M Common, the record date for which is prior
to the Closing Date, the F & M Stock Offer will be adjusted proportionately to
reflect such stock dividend. For example, if F & M declared a ten percent
(10%) stock dividend, the F & M Stock Offer shall be increased by ten percent
(10%) from 525,000 to 577,500 shares.
3.4 Adjustment to F & M Stock Offer . The F & M Stock Offer is subject to
adjustment as of the Closing Date by an amount equal to 1.65 times the sum of
all amounts determined under subparagraphs (a) through (g) below divided by the
F & M Selling Price, rounded to the nearest whole share. If the sum is a
negative number, the quotient thus determined shall be subtracted from the F &
M Stock Offer. If the sum is a positive number, the quotient thus determined
shall be added to the F & M Stock Offer. The adjustment factors are as
follows:
(a) The amount of all uncollected loans or leases which are considered as,
or have the probability of becoming, losses (i) as determined by F & M's due
diligence review of BANK, if any, as set forth in writing to CNB (which shall
be upon agreement of the parties regarding the loans and leases to be included
therein be designated as Exhibit 3.4 (a) to this Agreement) within forty-five
(45) days following execution of this Agreement, provided, however, that CNB
may terminate this Agreement without any liability or responsibility to F & M
whatsoever if CNB determines in its sole discretion within fifteen (15) days
following the notice of the proposed adjustment to CNB that CNB is not
satisfied with the proposed adjustment under this section of such review, or
(ii) based upon circumstances which first arise and become known to F & M
after the execution of this Agreement, subject, however, to the mutual
agreement of the parties, and if the parties are unable in good faith to reach
such a mutual agreement, either party may withdraw from the transaction;
(b) The amount by which the expenses of this transaction [as set forth in
paragraph 4.4(d)] exceed the limit set forth in paragraph 4.4(d);
(c) As a result of any change in accounting practices or procedures
adopted by CNB or BANK, other than at the request of F & M, after the date of
this Agreement and prior to the Closing Date which have an adverse affect on
BANK's equity;
(d) If the total actual 1997 earnings of BANK, determined in accordance
with generally accepted principles applied on a consistent basis ("GAAP"), net
of tax effect (the "Actual Earnings") for the period from January 1, 1997, to
the end of the month prior to the Closing Date are less than Sixty-nine
Thousand Dollars ($69,000) per month (the "Minimum Earnings"), the amount of
this difference shall be a negative adjustment to the F & M Stock Offer. If
the total 1997 Actual Earnings for the period from January 1, 1997, to the end
of the month prior to the Closing Date exceed Ninety Thousand Dollars ($90,000)
per month (the "Maximum Earnings") the amount of this excess shall be a
positive adjustment to the F & M Stock Offer. The actual expenses of this
transaction as set forth in Exhibit 4.4(d), any audit expenses arising from an
audit requested by F & M and any amount necessary to increase BANK's reserve
for loan and lease losses requested by F & M shall not be considered in
determining BANK's Maximum Earnings or Minimum Earnings, or BANK's equity under
paragraph 4.4(f);
(e) The amount equal to the difference between the fair market value, if
lesser than book value, of any OREO of BANK;
(f) The amount of any obligation to any employee, officer, director or
shareholder which may become payable after the Closing Date at the option of
the employee, officer, director or shareholder as a result of the change in
control of BANK contemplated by this agreement; and
(g) As a result of any unfunded or underfunded liability in any benefit
plan maintained by BANK assuming the complete termination of such plan, any
costs of bringing such plan into compliance with law and any costs of
terminating such plan.
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3.5 Right to Terminate. F & M shall have the right to terminate this
Agreement without liability to CNB or its shareholders by giving CNB notice of
its election to do so within fifteen (15) days after F & M completes its due
diligence review of CNB and BANK. F & M shall complete its due diligence
review of BANK within forty-five (45) days of execution of this Agreement.
3.6 Articles of Incorporation. The Articles of Incorporation of Subsidiary
in effect immediately prior to the Effective Time of the merger shall continue
in full force and effect as the Articles of Incorporation of the surviving
corporation.
3.7 Bylaws. The Bylaws of Subsidiary in effect immediately prior to the
Effective Time of the merger, shall continue in full force and effect as the
bylaws of the surviving corporation.
3.8 Officers, Directors and Employees. The officers and directors of
Subsidiary at the Effective Time of the merger shall remain as the officers and
directors of the surviving corporation. F & M shall also enter into an
Employment Agreement in the form attached as Exhibit 3.8 with Timothy P.
McGettigan for the term described in such Employment Agreement.
4. Representations and Warranties of CNB. CNB, by its duly authorized
officers, directors or other agents makes the following representations and
warranties to F & M, each of which is true and correct as of the date hereof,
and shall remain true and correct to and including the Closing Date, and shall
be unaffected by any investigation heretofore or hereafter made by, or any
notice to F & M:
4.1 Ownership and Authority. The current CNB Shareholders are identified in
the Schedules attached hereto as Exhibit 1.4.
4.2 CNB Organization and Authority.
(a) CNB is a corporation duly organized, validly existing and in good
standing under the laws of the State of Wisconsin with all requisite corporate
power and authority to own, operate and lease its properties and to carry on
its business as now being conducted and to enter into and perform its
obligations under this Agreement upon receiving the necessary shareholder and
regulatory approval. CNB is duly registered and authorized to operate as a
bank holding company. CNB is only qualified to do business in the State of
Wisconsin.
(b) CNB has good and marketable title to Seventy-five Hundred
(7,500)shares of BANK Stock, free and clear of any and all claims, mortgages,
liens, security interests, pledges or other encumbrances of any kind
whatsoever.
(c) CNB is presently authorized to issue Fifteen Thousand (15,000) shares
of CNB Common. CNB presently has Seven Thousand Thirteen (7,013) shares of CNB
Common validly and legally issued and outstanding, all of which are fully paid
and nonassessable, except as provided by Wis. Stats. Section 180.0622(2)(b).
Treasury shares will not participate in this exchange. CNB has not issued, and
does not have outstanding, any option, warrant or convertible securities or
other right to purchase or convert any obligation into such corporation's
securities and has not agreed to issue or sell any additional securities of any
type.
(d) The execution, delivery and performance of this Agreement and the
consummation of the transaction contemplated under it have been duly authorized
by appropriate corporate approval exclusive of the shareholder vote required
under applicable law which will be taken before the Closing Date, and will not
violate any provision of CNB's articles of incorporation or bylaws or any
provisions of, or result in the acceleration of any obligation under the
mortgage, lien, lease, agreement, instrument, court order, arbitration award,
judgment or decree to which CNB is a party, or by which CNB is bound and will
not require the consent, authorization or approval of any other public or
private person or entity other than the approval by CNB's shareholders and the
appropriate federal and state securities and banking regulatory agencies and
will not violate any other restriction of any kind or character to which CNB is
subject.
4.3 BANK Organization and Authority.
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(a) BANK is duly organized, validly existing and in good standing under
the laws of the United States and has all requisite banking and corporate power
and authority to own, operate and lease its properties and to carry on its
business as now being conducted. BANK has its main office in Darlington,
Wisconsin and has a branch office in Hazel Green, Wisconsin. All necessary
corporate approval and authorization and regulatory approval for BANK's present
operations has been given and remains in full force and effect and in good
standing.
(b) BANK is authorized to issue Seventy-five Hundred (7,500) shares of
BANK Stock, BANK's only class of stock. BANK has Seventy-five Hundred (7,500)
shares of BANK Stock issued and outstanding, all of which are legally and
validly issued, fully paid and nonassessable except as provided by the laws of
the United States.
(c) BANK has not issued and does not have outstanding any option, warrant
or convertible securities or other right to purchase or convert any obligation
into BANK's securities and has not agreed to issue or sell any additional
securities of any type.
(d) The execution, delivery and performance of this Agreement and the
consummation of the transaction contemplated under it have been duly authorized
by appropriate corporate approval, exclusive of the shareholder vote required
under applicable law which will be taken before the Closing Date, and will not
violate any provision of BANK's articles of association or bylaws or any
provisions of, or result in the acceleration of any obligation under the
mortgage, lien, lease, agreement, instrument, court order, arbitration award,
judgment or decree to which BANK is a party, or by which BANK is bound and will
not require the consent, authorization or approval of any other public or
private person or entity other than the approval by BANK's shareholders and the
appropriate federal and state securities and banking regulatory agencies and
will not violate any other restriction of any kind or character to which BANK
is subject.
4.4 Financial Matters.
(a) True copies of CNB's financial statements, consisting of balance
sheets, consolidated statements of operations, consolidated statements of cash
flow, and consolidated statements of stockholders' equity as of the close of
business on December 31, 1995, 1994, and 1993, have been delivered by CNB to F
& M ("CNB's Financial Statements"). All of CNB's Financial Statements are true
and correct in all material respects and present an accurate and complete
disclosure of the financial condition of CNB as of their respective dates, and
the earnings for the periods covered, all determined in accordance with
generally accepted accounting standards applied on a consistent basis.
(b) To the best knowledge of CNB and BANK, BANK does not have any loans
presently outstanding which may result in material adverse effect on the
financial condition of BANK because such loan is not in compliance with the
requirements of federal or state banking laws or regulations, which present any
greater than normal risk of collection or which were not made in the normal
course of business. BANK's last examination by the Office of the Comptroller
of the Currency ("OCC") was as of September 30, 1995 for which a report has
been prepared and as of September 30, 1996 for which a report has not yet been
delivered to BANK. CNB was last examined by the Federal Reserve Bank of
Chicago ("FRB") as of December 31, 1993. To the best knowledge of CNB and BANK
as of the date hereof BANK does not have any loans which are reasonably
expected to result in a loss to BANK before the Closing Date, except as set
forth in the attached Exhibit 4.4(b). Neither CNB nor BANK has notice of any
adverse regulatory action or proceeding against BANK, or CNB or their
respective officers, directors, or employees, nor to their best knowledge has
any such action been threatened against BANK, or CNB or their respective
officers, directors or employees.
(c) CNB and BANK have good marketable title to all of their assets,
business and properties including, without limitation, all such properties
reflected in the CNB Financial Statements as of December 31, 1995, except (i)
to the extent such assets and properties have been disposed of for fair value
in the ordinary course of business since the date of the Financial Statements
referred to in paragraph 4.4(a), as set forth in Exhibit 4.4(c), free and clear
of any mortgage, lien, pledge, security interest, assessment, levy, charge,
claim or other encumbrance, except for real estate and personal property taxes
for 1996 which are not yet due; (ii) as noted in the Financial Statements or
the notes thereto; (iii) statutory liens not yet delinquent; (iv) security
interests granted incident to borrowings by BANK
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from the Federal Reserve Banks, the Federal Home Loan Banks or secured deposits
of funds by federal, state, municipal or other governmental agencies; (v) minor
defects and irregularities in title and encumbrances which do not materially
impair the use thereof for the purposes for which they are held; and (vi) liens
in connection with repurchase agreements. Neither CNB nor BANK has any notice
of any special assessment which will be levied or assessed against any real
property owned or leased by either of them. To the best of CNB's and BANK's
knowledge, all real property owned, operated and leased by CNB and/or BANK is
in full compliance in all material respects with all applicable federal, state
and local statutes and regulations as currently applicable to CNB or BANK as
the case may be including, but not limited to, any building codes, safety
codes, OSHA regulations, environmental laws and regulations, the Americans with
Disabilities Act, zoning ordinances and other similar codes, ordinances and
regulations. Neither CNB nor BANK has received any citations, notices, charges
or other complaints claiming a violation of the foregoing nor is either CNB or
BANK aware of any investigation of any alleged violation.
(d) For the period from January 1, 1997 to December 31, 1997, BANK has
projected in good faith that its ordinary earnings determined in accordance
with generally accepted accounting principles, applied on a consistent basis,
net of tax effect shall be Eight Hundred Ninety-two Thousand Nine Hundred Fifty
and 00/100 Dollars ($883,468.00). The expenses of this transaction are those
incurred by CNB and BANK for legal, accounting and/or auditing or investment
banking and/or brokerage fees or expenses associated with the acquisition of
CNB by F & M (exclusive of the audit performed at the request of F & M) and
will be reasonable and customary and will not in any event exceed One Hundred
Twenty Thousand and 00/100 Dollars ($120,000.00).
(e) All property and assets owned or currently in use by CNB and BANK, or
in which they have an interest (excluding interests which arise in collateral
given to secure loans made by BANK or because of a security interest granted to
BANK) or which are in either CNB's or BANK's possession, are in good operating
condition and repair subject only to normal wear and tear and are set forth on
the attached Exhibit 4.4(e) [for personal property only items with an original
cost basis of Five Hundred and 00/100 Dollars ($500.00) or more]. If CNB or
BANK lease any real or personal property, a separate schedule clearly
identifying such leased property will be included in Exhibit 4.4(e). As of the
Closing Date, all such property and assets will be in the condition represented
above.
(f) As of December 31, 1996, BANK's equity, determined in accordance with
GAAP, but excluding (i) any adjustment (positive or negative) to such equity
pursuant to FASB 115, and (ii) the year end adjustment to increase its reserve
for loan and lease losses to 1.50 percent of loans and leases was Nine Million
Six Hundred Twenty-eight Thousand and 00/100 Dollars ($9,628,000.00).
(g) For the fiscal year ended December 31, 1996, after excluding amounts
paid for new positions, temporary employees and student apprentices created in
1996, BANK did not increase the amount of the salaries, wages, bonuses or other
cash compensation by an aggregate amount which exceeds six and 88/100 percent
(6.88%) of the aggregate amount of such salaries, wages, bonuses or other cash
compensation for the fiscal year ended December 31, 1995.
4.5 Changes Since December 31, 1996. Since December 31, 1996, with respect
to CNB and BANK there has not been:
(a) Any loss, damage, destruction or failure to maintain the tangible
assets of CNB or BANK (whether or not covered by insurance), or affecting its
business or properties, which will materially adversely affect the financial
condition or operations of CNB or BANK.
(b) Any lapse, revocation, failure to maintain in full force and effect or
other event which, through the passage of time or the giving of notice, or both
could render any insurance coverage previously maintained by CNB or BANK
ineffective in whole or in part.
(c) Any acquisition by CNB or BANK of a capital asset at a cost in excess
of Five Thousand Dollars ($5,000.00).
(d) Any amendment to their Articles of Incorporation or Bylaws.
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(e) Any change in accounting procedures, practices or methods from those
used by CNB or BANK in prior years provided, however, that prior to December
31, 1996, (i) BANK increased its reserve for loan and lease losses to one and
50/100 percent (1.50%) of loans and leases, provided, however, such increase in
excess of 0.95% of BANK's reserve for loans and leases shall not reduce the
purchase price payable by F & M under this Agreement, and such purchase price
shall be calculated as if such increase in reserves for loan and lease losses
did not occur, unless the increase results from losses charged to the reserve,
and (ii) BANK and CNB paid certain expenses associated with this transaction
with the prior consent of F & M.
(f) Any increase in or agreement to increase salaries, wages, fringe
benefits, benefits under any plan subject to ERISA, or other compensation of
any officers, directors, employees or agents of BANK, except that for 1997,
BANK may (i) grant wage and/or salary increases consistent with past practices
which do not exceed, in the aggregate, four and 36/100ths percent (4.36%) of
the wages and salaries being paid as of December 31, 1996, and (ii) pay bonuses
for the 1996 fiscal year which do not exceed those paid for the fiscal year
ended December 31, 1995 without the prior consent of F & M.
(g) Any issuance, or agreement to issue, on or before the Closing Date or
thereafter, directly or indirectly, any additional shares of CNB Common or BANK
Stock, any other class of stock, or other securities of CNB or BANK.
(h) Any declaration, setting aside or payment of any dividend or any
distribution in respect to CNB Common or BANK Stock or any redemption, purchase
or other acquisition by CNB or BANK of any stock or any other repayments to the
shareholders of CNB or BANK except for dividends declared for the 1996 fiscal
year will not exceed Three Hundred Twenty-five Thousand and 00/100 Dollars
($325,000.00) and for the 1997 fiscal year will not exceed One Hundred
Seventy-five Thousand and 00/100 Dollars ($175,000.00).
(i) Any sale, transfer, or other disposition, prior to maturity, of any
security or other earning asset (exclusive of loans and leases).
(j) Any borrowings or other indebtedness (excluding deposit liabilities)
in excess of the amounts disclosed by CNB's and BANK's December 31, 1996
Financial Statements, provided, however, that (i) under no circumstances shall
the total outstanding balances of such borrowings or other indebtedness (except
for borrowings under subpart (ii) below exceed the total amount historically
borrowed by BANK for similar purposes, and (ii) in the case of borrowings from
the Federal Home Loan Bank (the "FHLB"), the total outstanding borrowings shall
not at any time exceed Two Million and 00/100 Dollars ($2,000,000.00).
(k) Any mortgage, lien, pledge, security interest, assessment, levy,
charge, claim or other encumbrance made with respect to any of the properties
or assets of CNB or BANK in addition to those disclosed by CNB's December 31,
1996 Financial Statements, except to provide security for deposits with BANK in
the ordinary course of its business as set forth in Exhibit 4.4(k), and to the
Federal Home Loan Bank in connection with borrowings from that Bank as and to
the extent permitted under this Agreement.
(l) Any sale, transfer or other disposition of assets of CNB or BANK
except in the normal course of business and consistent with past practices, and
except for transfers made to its investment subsidiary for investment purposes
and not for resale BANK has not sold, transferred or disposed of any
securities prior to maturity.
(m) Any material change in the manner in which business was being
conducted by CNB or BANK prior to December 31, 1996, or other material failure
by CNB or BANK to use their best efforts to maintain its present business
organization (subject to the terms of this Agreement), employees and customers.
(n) Any loan or commitment to make a loan by BANK with an interest rate,
repayment term, collateral or security requirement or other condition which are
materially different from those upon which BANK made loans prior to December
31, 1996, except to the extent such difference is in response to competitive
conditions encountered by BANK.
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(o) Any change in the arrangements currently utilized by BANK for
performing its data processing without the prior written consent of F & M.
(p) Any other materially adverse change in CNB's or BANK's prospects,
financial condition, assets, liabilities, properties or business.
4.6 Liabilities.
(a) Neither CNB nor BANK has any liabilities, whether accrued, absolute,
contingent or otherwise, which arose or relate to any transaction or occurrence
involving CNB or BANK or their respective officers, directors, employees,
agents or servants prior to the date of this Agreement which are not disclosed
by the CNB's Financial Statements described above or in Exhibit 4.6(a). To the
best of their knowledge, as of the date hereof, no known circumstances,
conditions, happenings, events or arrangements, contractual or otherwise, exist
which may hereafter give rise to any such liabilities of CNB or BANK.
(b) To the best of their knowledge and except as disclosed on Exhibits
3.4(a) and 8.19, all parties with whom CNB and BANK have contractual
arrangements are in compliance therewith. Neither CNB nor BANK has declared,
nor is either of them prepared to declare, any such parties in default under
any such contractual arrangements. Neither CNB nor BANK is in default in any
material respect under any contracts to which either of them is a party, nor
has any event occurred, which through the passage of time or the giving of
notice or both, would constitute a default under any such contract or
obligation or cause the acceleration of any obligation of CNB or BANK or result
in the creation of any lien, charge, assessment, encumbrance or other claim
whatsoever upon any asset of CNB or BANK. None of the contracts to which CNB
or BANK is a party will be adversely affected by the transaction contemplated
by this Agreement.
(c) To the best of their knowledge, CNB and BANK are in compliance in all
material respects with all applicable federal, state, county and local
statutes, ordinances, regulations, decrees, orders, or other laws, the
violation of which would have a material adverse effect on the financial
condition of CNB or BANK. Neither CNB nor BANK has received notice of any
alleged violation of any such statutes, ordinances, regulations, decrees,
orders or other laws.
(d) No legal, administrative or other proceedings, investigations or
inquiries or other claims, judgments, consent decrees, stipulations,
injunctions or restrictions are either pending or outstanding, or to the best
of its knowledge, threatened against, or involving CNB or BANK or affecting
their assets, properties or business. Neither CNB nor BANK knows or have any
grounds to know, of any basis for any such proceedings, investigations or
inquiries or other claims, judgments, consent decrees, stipulations,
injunctions or restrictions.
(e) A schedule of all insurance policies in effect as to CNB and BANK is
set forth in Exhibit 4.6(e). All policies of insurance carried by BANK are in
full force and all premiums thereon have been paid in a timely manner and are
paid to date and all bonds have been acquired and maintained on all employees,
agents, officers and directors of CNB or BANK required to be bonded. Said
insurance and bonds, including but not limited to, general comprehensive
(commercial) public liability insurance covering personal injuries, death and
property damage, fidelity bonds and worker's compensation insurance have been
acquired and maintained for at least the past five (5) years.
4.7 Taxes. CNB and BANK have filed all federal, state and local tax returns
and reports covering income, sales, use, real or personal property or other
taxes of any type required to be filed and has paid all taxes including any
interest, penalties and assessments which are due and required to be paid. The
taxes provided for in CNB's Financial Statements and which will be provided for
prior to the Closing Date will be adequate for the payment of any unpaid taxes
as of such dates. CNB's federal income tax return has never been audited.
Neither CNB nor BANK has waived any restrictions on the assessment or
collection of any taxes or consented to the extension of any statute of
limitations relating to any tax liability. Neither CNB nor BANK has determined
or been advised that either CNB or BANK may be liable for a material deficiency
or other liability in respect to any state or federal income tax returns or
other tax returns previously filed by CNB or BANK.
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4.8 Contracts and Commitments. Except as disclosed in Exhibit 4.8, neither
CNB nor BANK has any contracts or commitments, either oral or written, with any
officer, director, shareholder, employee, customer, depositor, supplier of
goods or services or any other entity or person which contain any terms or
conditions which are not usual and customary under the circumstances and which
may have a material adverse effect on the operations, profitability or net
worth of CNB or BANK.
4.9 Reporting and Withholding on Payment of Interest. To the best of CNB's
and BANK's knowledge, BANK has fully complied with the Internal Revenue Code
(the "Code"), and all rules and regulations of the Internal Revenue Service
("IRS") issued thereunder, with respect to the reporting of payments of
interest and other payments by it, and has complied with all provisions
requiring the withholding for income taxes on such amounts when required. BANK
has instituted adequate procedures to assure compliance with such provisions.
To the best of CNB's and BANK's knowledge, all reporting to the IRS required of
BANK has been done in a timely manner via proper medium. BANK has not been
advised of any violation or potential violation with respect to such reporting
requirements.
4.10 Employees and Employee Benefits.
(a) CNB does not have any employees. Neither CNB nor BANK is a party to
or is bound by any written or oral (i) employment or employment-related
consulting contract which is not terminable at will by either CNB or BANK as
the case may be without penalty, (ii) plan or agreement providing for any
employee bonus, deferred compensation, pension, profit sharing, retirement
benefits, stock purchase, stock option, employee pension benefit plan or
employee welfare benefit plan except as set forth in paragraphs 4.10(b) and
4.10(c) to this Agreement.
(b) CNB does not have any pension, profit sharing or other types of
employee pension benefits plan. All pension, profit sharing, or other employee
pension benefit plans of BANK ("the Plans") are described in Exhibit 4.10(b)
and are now, and will continue until the Closing Date to be, qualified Plans
under Section 401(a) of the Code, in full compliance with the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"). To CNB's and
BANK's best knowledge, all premiums, notices, reports and other filings
required to be delivered or filed under applicable law with respect to such
Plans have been duly and timely delivered or filed. Neither CNB nor BANK has
any knowledge of any fact or circumstance which would materially and adversely
affect such Plans' qualified status or compliance as above described, or of any
"reportable event" (as such term is defined in Section 4043(c) of ERISA) or any
"prohibited transaction" (as such term is defined in Section 406 of ERISA and
Section 4975(c) of the Code) which has occurred since the date on which said
sections first became applicable to the Plans. The Plans satisfy the minimum
funding standards set forth in the Code and ERISA. As of the Closing Date
there will be no unfunded vested liability of the Plans, except for the
obligation of BANK for contributions for the current year which are not yet due
and payable but for which adequate amounts are being accrued on a monthly
basis.
(c) CNB does not have any employee welfare benefit plans. All employee
welfare benefit plans of BANK (the "Welfare Plans") are described in Exhibit
4.10(c) and are now, and will continue until the Closing Date to be, in full
compliance with the Code and the Employee Retirement Income Security Act of
1974 as amended ("ERISA"). To CNB's and BANK's best knowledge, all notices,
reports and other filings required to be delivered or filed under applicable
law with respect to such Welfare Plans have been duly and timely delivered or
filed. Neither CNB nor BANK has any knowledge of any fact or circumstance
which would adversely affect such Welfare Plans' compliance as above described
or any "prohibited transaction" (as such term is defined in Section 406 of
ERISA and Section 4975(c) of the Code) which has occurred since the date on
which said sections first became applicable to the Welfare Plans.
(d) No person or governmental agency has made any claim against CNB or
BANK or their respective directors, officers, employees or agents arising out
of any statute, ordinance or regulation alleging (i) discrimination against
applicants for employment, employees or the public, (ii) any employment
practices, policies or procedures are discriminatory or have been breached,
(iii) a failure to comply with federal and state wage and hour laws, rules or
regulations, (iv) a violation of occupational safety and health statutes,
regulations or standards or (v) that CNB or BANK has committed an unfair labor
practice(s).
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4.11 Environmental Matters.
(a) To the best knowledge of CNB and BANK, there has been no release of
any hazardous substance, as defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA") nor any release of
oil or hazardous substance as provided under Wis. Stats. Section 144.76, on,
upon or into the real property owned or leased to CNB or BANK or, to the best
of CNB's and BANK's knowledge upon any real estate or property which secures
any loan made by BANK or which BANK has a right to acquire upon foreclosure or
otherwise.
(b) Based upon such information which has come to BANK in the ordinary
course of business, but without making any independent investigation or
verification, neither CNB nor BANK is specifically aware of any such releases
on, upon or into any real property adjoining or in the vicinity of the property
described in paragraph 4.11(a) above, which through air, soil or groundwater
migration could have come to be located upon any property owned or leased by
CNB or BANK, or which secures a loan made by BANK or which may be acquired by
BANK in foreclosure.
4.12 Accuracy of All Statements. No representation or warranty by CNB or
BANK in this Agreement or otherwise, in any of CNB's Financial Statements, or
in any other statement, certificate, schedule or exhibit hereto furnished or to
be furnished by or on behalf of CNB or BANK pursuant to this Agreement, nor any
document or certificate delivered to F & M pursuant to this Agreement or in
connection with actions contemplated hereby, contains or shall contain any
untrue statement of material fact or omits or shall omit a material fact
necessary to make the statement contained therein not misleading.
4.13 Prospectus/Proxy Statement. The parts of the Prospectus/Proxy
Statement which are provided or reviewed by CNB with respect to CNB or BANK
will not, at the date it is first mailed or delivered to the CNB's
Shareholders, and will not, at the date or dates of the meeting of CNB's
Shareholders called to approve the Merger, as then amended or supplemented,
contain any statements that are, at the time at which, and in light of the
circumstances under which they are made, false or misleading with respect to
any material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not false or
misleading. Notwithstanding the foregoing, CNB makes no representation or
warranty regarding and shall have no responsibility for the accuracy of any
information with respect to F & M or Subsidiary or any of their affiliates or
subsidiaries contained in the Prospectus/Proxy Statement.
4.14 Financial Adviser. Except for the services of Robert W. Baird & Co.
Incorporated ("Baird"), CNB has not engaged, consented to engage, or authorized
any financial adviser, broker, investment banker, or similar third party to act
on its behalf, directly or indirectly, in connection with the transaction
contemplated by this Agreement. Any fees or expenses payable to Baird shall be
paid by CNB, which fees and expenses are included in the estimate of expenses
set forth in paragraph 4.4(d).
5. Representations and Warranties of F & M.
F & M, by its duly authorized officers, employees or other agents makes the
following representations to CNB, each of which is true and correct as of the
date hereof and shall remain true and correct to and including the Closing
Date, shall be unaffected by any investigation heretofore or hereafter made by
or any notice to BANK except as set forth herein.
5.1 Organization and Authority.
(a) F & M is a corporation duly organized, validly existing and in good
standing under the laws of the State of Wisconsin with all requisite corporate
power and authority to own, operate and lease its properties and to carry on
its business as now being conducted and to enter into and perform its
obligations under this Agreement, upon receiving the necessary approval from
the federal and state regulatory authorities. F & M is only qualified to do
business in the State of Wisconsin and has received approval from the Federal
Reserve Bank of Chicago to engage in business as a bank holding company.
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(b) Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the State of Wisconsin with all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted and to enter into and perform its
obligations under this Agreement, upon receiving the approval of its
shareholders and the federal and state regulatory authorities. Subsidiary is
only qualified to do business in the State of Wisconsin.
(c) F & M is authorized to issue Twenty Million (20,000,000) shares of F &
M Common and has Seven Million Four Hundred Twenty-one Thousand Nine Hundred
Thirty-three (7,421,933) shares issued and outstanding. F & M will issue
additional shares of F & M Common prior to the Closing Date. These outstanding
shares are legally and validly issued and fully paid and nonassessable except
as provided by Wis. Stats. Section 180.0622(2)(b).
5.2 Performance of this Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transaction contemplated under it
have been duly authorized by appropriate corporate action and will not violate
any provision of F & M's or Subsidiary's articles of incorporation or bylaws or
any provisions of, or result in the acceleration of any obligation under any
mortgage, lien, lease, agreement, instrument, court order, arbitration award,
judgment or decree to which F & M or Subsidiary is a party, or by which F & M
or Subsidiary is bound and will not require the consent, authorization or
approval of any other public or private person or entity other than the
approval by F & M as the sole shareholder of Subsidiary and the appropriate
federal and state securities and banking regulatory agencies and will not
violate any other restriction of any kind or character to which F & M or
Subsidiary is subject except as set forth in this Agreement.
5.3 Legality of Shares to be Issued. The shares of F & M Common to be
delivered pursuant to this Agreement, when so delivered, will have been duly
and validly authorized and issued by F & M and will be fully paid and
nonassessable, except as provided by Wis. Stats. Section 180.0622(2)(b). Such
shares of F & M Common shall have been registered by F & M under the Securities
Act of 1993, and shall be freely transferrable thereunder (except for
restrictions on transfer applying to affiliates of F & M and BANK).
5.4 Financial Statements. True copies of the audited consolidated
financial statements of F & M consisting of consolidated balance sheets,
consolidated statements of income, consolidated statements of stockholder's
equity and consolidated statements of cash flows as of the close of business on
December 31, 1995 and 1994, have been delivered by F & M to BANK (F & M's
Financial Statements). All of F & M's Financial Statements are true and
correct in all material respects and present an accurate and complete
disclosure of the financial condition of F & M as of their respective dates and
of the earnings for the periods covered, in accordance with generally accepted
accounting principles applied on a consistent basis, except that such financial
statements have not been restated to reflect F & M's acquisition of F & M
Bank-Algoma (f/k/a Community State Bank), which is being accounted for as a
pooling of interests.
5.5 Litigation. There are no legal, administrative or other proceedings,
investigations or inquiries or other claims, judgments, consent decrees,
stipulations, injunctions or restrictions, either threatened, pending or
outstanding against or which may have a material adverse effect on F & M or
Subsidiary or their properties or business, nor does F & M or Subsidiary know,
or have reasonable grounds to know, of any basis for any such proceedings,
investigations or inquiries, or other claims, judgments, consent decrees,
stipulations, injunctions or restrictions.
5.6 Severance Plans. The Restated Employee Severance Benefits Plan and the
Restated Executive Severance Benefits Plan, as adopted and amended by F & M,
shall apply to all employees of BANK following the closing of the transaction
contemplated by this Agreement, provided, however, Timothy P. McGettigan or
Robert D. Martin are terminated by F & M or BANK without cause or due to
reduction in workforce within twelve (12) months of the Closing Date Robert D.
Martin shall receive the greater of the benefits payable under such plan or
fifty-two (52) weeks of benefits under such plan and Timothy P. McGettigan
shall only be entitled to the severance benefits under his employment
agreement. Continuous years of service for all employees with BANK prior to
the Closing Date shall be considered years of service with F & M under these
plans.
5.7 Accuracy of All Statements. No representation or warranty by F & M or
Subsidiary in this Agreement or otherwise, nor any financial statements,
statement, certificate, schedule or exhibit hereto furnished or to be
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furnished by or on behalf of F & M or Subsidiary pursuant to this Agreement,
nor any document or certificate delivered to CNB pursuant to this Agreement or
in connection with actions contemplated hereby, contains or shall contain any
untrue statement of material fact or omits or shall omit a material fact
necessary to make the statement contained therein not misleading.
5.8 Prospectus/Proxy Statement. The Prospectus/Proxy Statement will not,
at the date it is first mailed or delivered to the CNB Shareholders, and will
not, at the date or dates of the meeting of the CNB Shareholders called to
approve the Merger, as then amended or supplemented, contain any statements
that are at the time at which, and in light of the circumstances under which
they are made, false or misleading with respect to any material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not false or misleading. Notwithstanding the
foregoing, F & M makes no representation or warranty and shall have no
responsibility for the accuracy of any information contained in or omitted from
the Prospectus/Proxy Statement in so far as it relates to CNB or BANK.
5.9 No Broker. All negotiations relative to this Agreement and the
transaction contemplated hereby have been carried on directly by F & M with CNB
without the intervention of any broker or third party on behalf of F & M. F &
M has not engaged, consented to engage, or authorized any broker, investment
banker, or third party to act on its behalf, directly or indirectly, in any
capacity in connection with the transaction contemplated by this Agreement.
5.10 BANK's Status. F & M has no present plans to alter BANK's status as
an independent bank operating under its own charter, although F & M may convert
BANK to a state member bank following the Closing Date. F & M may, at some
future time, determine that merger, consolidation, reorganization or sale of
substantially all of the assets of BANK with or to other subsidiary banks of F
& M, Subsidiary or others may occur and nothing herein shall be construed to
limit or diminish the rights of F & M or Subsidiary or their successors or
assigns from taking any such action.
6. Covenants of CNB.
CNB hereby covenants and agrees as follows:
6.1 Access to Information. F & M and its authorized representatives shall
have full access during normal business hours to all properties, books,
records, contracts and documents of CNB and BANK and CNB or BANK as the case
may be shall furnish or cause to be furnished to F & M or its authorized
representative all information with respect to the affairs and business of CNB
or BANK as F & M may reasonably request.
6.2 Actions Prior to Closing. From and after the date of this Agreement
and until the Closing Date, CNB and BANK:
(a) Shall carry on their business diligently and substantially in the same
manner as heretofore and shall not engage in or institute any unusual or novel
methods of doing business or changes in accounting procedures or practices
without the prior written consent of F & M, provided, however, that BANK will
increase its reserve for loan and lease losses to one and 50/100 percent
(1.50%) of loans and leases prior to December 31, 1996 and shall use their best
efforts to inform F & M in advance before either introducing any new products
or services or modifying any existing products or services.
(b) Shall not (i) grant any increase in the rates of pay, salary or
compensation provided to its officers, directors or employees, which in
combination with all increases which became effective on or after January 1,
1997 for the 1997 calendar year (regardless if approved before or after January
1, 1997) exceed in the aggregate four and 36/100 percent (4.36%) of the total
compensation paid to the officers, directors or employees of BANK as of
December 31, 1996, (ii) for the fiscal year ended December 31, 1996, increase
the amount of any bonus paid by BANK in excess of the amount paid by BANK for
the year ended December 31, 1995, (iii) pay any bonuses for the 1997 fiscal
year, or(iv) increase or decrease the benefits provided under, the contribution
to, or the cost sharing allocation of any employee fringe benefit or any of the
benefit plans described in Exhibits 4.10(b) and 4.10(c), except for normal
adjustments imposed by third party providers.
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(c) Except with the prior written consent of F & M shall not enter into
any contract or commitment or engage in any transaction which is not in the
normal course of business and which is not consistent with CNB's or BANK's past
business practices.
(d) Shall not create any indebtedness other than (i) short term
indebtedness incurred in the normal course of business, (ii) indebtedness
incurred pursuant to an existing contract previously disclosed to F & M, (iii)
indebtedness to the FHLB subject to the dollar limit set forth in paragraph
4.5(j), or (iv) indebtedness other than as necessary to do the acts and things
contemplated by this Agreement.
(e) Shall not declare or pay any cash dividend, stock dividend or make any
other distribution in respect of its stock, or directly or indirectly redeem,
purchase or otherwise acquire any of its own stock, or grant any stock warrant,
options or issue directly or indirectly any shares of common or preferred stock
or any other security of any type whatsoever or in any way dispose of any
shares of its own stock or any other security, except that dividends may be
paid by CNB prior to the Closing Date provided that the total of all dividends
declared in the fiscal year ended December 31, 1996 do not exceed Three Hundred
Twenty-five Thousand and 00/100 Dollars ($325,000.00), and that the total of
all dividends declared in the 1997 fiscal year do not exceed One Hundred
Seventy-five Thousand and 00/100 Dollars ($175,000.00) without the prior
written consent of F & M.
(f) Shall not amend their Articles of Incorporation or Bylaws or make any
changes in authorized or issued stock.
(g) Shall maintain current insurance in effect and acquire such additional
insurance as may be reasonably required by increased business and risks, and
operate, maintain and repair all property in a normal business manner.
(h) Shall make adequate provision for any income tax which will be due
with respect to any 1996 or 1997 earnings accrued prior to the Closing Date and
shall file all tax reports or returns and pay all income, franchise, sales,
use, excise or other taxes on or before the date on which such reports,
returns, or payments are due.
(i) Shall pay all liabilities in a timely manner on or before their due
dates and shall make adequate provision or accruals for all liabilities of CNB
and BANK.
(j) Shall use their best efforts (without making any commitments on behalf
of F & M) to preserve their business organization intact, to keep available to
F & M the present key officers and employees of CNB and BANK and to preserve
for F & M the present relationships of CNB and BANK with their suppliers,
customers and others having business relations with them.
(k) Shall not sell or dispose of any property or assets except in the
normal course of business, including but not limited to, selling or disposing
of any securities held by BANK or its investment subsidiary prior to their
normal maturity dates without the prior written consent of F & M.
(l) Shall promptly notify F & M of any lawsuits, claims, proceedings,
regulatory actions or investigations that may be threatened, brought, asserted
or commenced against it or its officers, directors, employees or agents
involving in any way the business, properties or assets of CNB or BANK.
(m) Shall not make loans or grant credit to any customer on terms
materially more favorable than those which are available from competitive
sources. F & M understands that BANK, in order to meet market conditions may
need to offer terms more favorable than those currently offered but that BANK
will not be a market leader in this regard.
(n) Shall not allow BANK's primary capital to asset ratio (12 C.F.R. Part
325 method), determined in accordance with accepted accounting standards
applicable to preparation of Reports of Condition required to be filed with the
Federal Deposit Insurance Corporation, applied on a consistent basis, to drop
below eight percent (8%).
(o) Shall remain in compliance with all agreements, commitments,
understandings, undertakings or other obligations to the OCC, the FRB or any
other regulatory agency having jurisdiction over CNB and BANK.
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(p) Shall cooperate fully and completely with F & M in the preparation and
filing of the Registration Statement, and shall provide to F & M such
information as may be required for use therein pertaining to CNB and BANK, or
their businesses or operations.
(q) Shall not take any action which would be reasonably likely to make
unavailable either the pooling of interests accounting treatment of the merger
or to cause the merger not to qualify as a tax-free reorganization.
6.3 Audited Financial Statements. BANK shall, at F & M's expense, deliver
audited financial statements to F & M for the period ended December 31, 1996 on
or before April 15, 1997. The audit will be performed by Wipfli Ullrich &
Bertelson, L.L.P.
6.4 Stock Records. Prior to the special shareholders meeting to approve the
Merger, the Board of Directors of CNB, in accordance with its bylaws, shall
take such steps as are necessary to close its stock transfer books and
establish a record date for such meeting after the close of the transfer books,
furnish F & M with a current shareholder list as of such record date and
validly call a special shareholders meeting.
6.5 1997 Budget. Prior to formal adoption by BANK, CNB will submit BANK's
1997 budget to F & M.
6.6 Reserves for Loan and Lease Losses. Prior to December 31, 1996, BANK
increased its reserve for loan and lease losses to one and 50/100 percent
(1.50%) of loans and leases and shall take such action as may be necessary to
maintain this reserve at this level until the Closing Date, provided however
that the amount of such increase from Ninety-five one hundredths percent
(0.95%) of loans and leases to one and 50/100 percent (1.50%) of loans and
leases shall not be considered in determining BANK's Minimum Earnings under
paragraph 3.4(d), or equity under paragraph 4.4(f) unless the amount results
from a loss or expense charged to such reserve.
7. Covenants of F & M. F & M hereby covenants and agrees as follows:
(a) As promptly as practicable after the execution of this Agreement, F &
M, with the cooperation of CNB and BANK, shall prepare and file with the SEC
the Registration Statement. As promptly as practicable after comments, if any,
are received from the SEC on such preliminary Registration Statement, F & M,
with the cooperation of CNB and BANK, shall file with the SEC an amendment to
the Registration Statement responding to such comments, and shall seek to have
such Registration Statement declared effective. F & M shall also use its best
efforts to qualify, under the blue sky laws of the various states in which CNB
Shareholders are located, the shares of F & M Common Stock to be issued
pursuant to this transaction and shall file the NASD Listing Application in a
timely manner. F & M shall pay the expenses of preparing and delivering the
joint Prospectus/Proxy Statement for CNB's Shareholders.
(b) As promptly as practicable after the execution of this Agreement, F &
M shall take such action as may be necessary to cause Subsidiary to perform its
obligations in connection with this transaction under this Agreement.
(c) As promptly as practicable after the execution of this Agreement, F &
M shall take action to obtain regulatory approval of this transaction.
(d) Shall not take any action which would be reasonably likely to make
unavailable either the pooling of interest accounting treatment of the merger
or to cause the merger not to qualify as a tax-free reorganization.
7.2 Officers, Directors and Employees. The present members of BANK's Board
of Directors will be retained by F & M as directors of the BANK provided that
continued membership on the board is consistent with safe and sound banking
practices and is in the best interest of F & M and BANK. Retirement from the
Board of Directors will occur at age seventy (70), as provided by F & M policy,
provided that any current director may remain a director until the earlier of
either two (2) years from the Effective Date or the 1999 annual shareholders'
meeting of the BANK. F & M contemplates that BANK's current employees will
continue to be responsible for the BANK's operations in general, subject to
review and supervision by F & M, as determined by F & M to be consistent
with safe and sound banking practices and the best interest of F & M and BANK.
The salaries and
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benefits to be offered will be consistent with those currently received by the
employees of F & M or its subsidiary banks holding similar positions. Years of
service with BANK shall, to the extent permitted by applicable law, be counted
as years of service with F & M and the surviving corporation. In the unlikely
event positions with the BANK are eliminated as a result of the transaction
contemplated by this Agreement, the employees affected by such action will be
covered by F & M's severance plan, applicable to their position at the time the
positions are eliminated, based upon their years of service with BANK.
7.3 Directors' and Officers' Liability Insurance. F & M will provide the
officers and directors of BANK and CNB with directors' and officers' liability
insurance (without any exclusion of prior acts) with the same limits of
liability, deductibility and terms and conditions as is provided by F & M to
its other subsidiaries. This representation is intended to create a
contractual right for the benefit of BANK's and CNB's officers and directors
and may be separately enforced by them subsequent to consummation of the
transaction contemplated by this Agreement in the event F & M fails to comply
with this covenant, provided, however, that nothing herein shall obligate F &
M to provide such coverage if it determines in its sole discretion not to
provide such coverage to all of its subsidiary banks or to offer such coverage
to its subsidiary banks, including BANK, with different limits of liability,
deductibilities or other terms and conditions than those under the coverage
currently in force, without any exclusion for prior acts, however.
8. Conditions Precedent to F & M's Obligation. Each and every obligation of F
& M and Subsidiary to be performed on the Closing Date shall be subject to the
satisfaction prior thereto of the following conditions:
8.1 Truth of Representations and Warranties. The representations and
warranties made in this Agreement or given on behalf of CNB and BANK hereunder,
shall have been continuously true and correct from the date of execution of
this Agreement to the Closing Date, except as publicly announced by CNB or BANK
and/or as reflected in public filings made by CNB or BANK with the OCC or the
FRB, and shall be true and correct on and as of the Closing Date with the same
effect as though such representations and warranties had been made or given on
and as of the Closing Date, and CNB and BANK shall have complied with all other
terms, conditions and covenants of this Agreement.
8.2 Compliance with Covenants. CNB and BANK shall have performed all of
their obligations, and complied with all of the covenants under this Agreement
which are to be performed or complied with by them from the date of this
Agreement through and as of the Closing Date, including the delivery of the
closing documents specified in paragraph 10.3.
8.3 Absence of Suit. No action, suit or proceeding before any court or any
governmental or regulatory authority shall have been commenced or threatened,
and no investigation by any governmental or regulatory authority shall have
been commenced, against F & M, Subsidiary, CNB or BANK, or any of the
affiliates, associates, officers, directors or employees of any of them,
seeking to restrain, prevent or change the transaction contemplated hereby, or
questioning the validity or legality of any such transaction, or seeking
damages in connection with any of such transaction.
8.4 BANK's Director and Shareholder Authorization. The merger contemplated
by this Agreement shall have been duly and validly authorized by CNB's and
BANK's directors and shareholders in accordance with the laws of the State of
Wisconsin.
8.5 Receipt of Approvals. All approvals, consents and/or waivers, including
any approvals required by any federal or state governmental regulatory agency,
that are necessary to effect the transactions contemplated hereby shall have
been received and all waiting periods thereunder shall have expired, provided
the failure to obtain the same was not the result of an act or omission by F &
M.
8.6 Accuracy of Financial Statements. In the event interim financial
statements are provided to F & M by CNB or BANK, F & M and its representatives
shall be reasonably satisfied as to the accuracy of all interim balance sheets,
statements of income and other financial statements of CNB or BANK furnished to
F & M and Subsidiary for periods ended after December 31, 1995.
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8.7 Legal Opinion. F & M shall have received the opinion of CNB Counsel
referred to in subparagraph 10.3(d).
8.8 Time Limit on Closing. Closing shall have taken place by August 31,
1997.
8.9 Proceedings and Instruments Satisfactory; Certificates. All
proceedings, corporate or otherwise, to be taken in connection with the
transactions contemplated by this Agreement shall have occurred and all
appropriate documents incident thereto as F & M may reasonably request shall
have been delivered to F & M. CNB and BANK shall have delivered certificates
in such detail as F & M may reasonably request as to compliance with the
conditions set forth in this Article 8.
8.10 Securities Matters. The Registration Statement shall have been
declared effective under the Securities Act of 1933 by the SEC. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose shall, to the knowledge
of F & M, on or prior to the Effective Time, have been initiated or threatened
by the SEC. F & M shall have received all other federal or state securities
permits, exemptions, registrations or other authorizations necessary to issue
the F & M Common in exchange for the CNB Common to consummate the merger.
8.11 Prospectus/Proxy Statement. The Prospectus/Proxy Statement will not
contain any untrue statement of a material fact or omit any material fact
required to be stated therein or necessary to make the statements contained
therein, in the light of the circumstances under which they were made, not
misleading.
8.12 Exchange of Stock Certificates. As a condition of delivery of the
consideration required by this Agreement, the CNB Shareholders shall have
executed and delivered documents assigning their shares of CNB Common to F & M
and/or Subsidiary containing appropriate representations regarding tax matters,
ownership, authority to act, residency and such other matters as F & M shall
request.
8.13 Affiliates of BANK. Each person who shall be deemed to be an
"affiliate" of CNB within the meaning of the Securities Act of 1933 and Rule
145 promulgated by the SEC thereunder shall have executed and delivered to F &
M an Affiliate's Undertaking, in the form attached hereto as Exhibit 8.13,
dated as of the Effective Time.
8.14 Pooling Accounting. The merger contemplated herein shall be treated
as and qualify for accounting using the pooling of interests method.
8.15 No Change Prior to Closing Date. No material adverse change in the
business or financial condition of BANK shall occur after the execution of this
Agreement but prior to the Closing Date.
8.16 Tax Status. No information has been discovered or made known to
F & M to indicate that the IRS has challenged or intends to challenge the
status of this transaction as a tax-free reorganization.
8.17 Dissenters' Rights. That no more than ten percent (10%) of the total
consideration paid by F & M in this transaction, determined in accordance with
the accounting rules applicable to the pooling of interests, shall be paid in
cash, including amounts paid for fractional shares and amounts paid to CNB
Shareholders who exercise their dissenters rights under Wis. Stats. Section
180.
8.18 Employment Agreements. BANK and Timothy P. McGettigan shall have
executed the employment agreement in the form attached hereto as Exhibit 3.8.
8.19 Accounting Adjustments. Prior to the Valuation Date, the loans
identified on Exhibit 3.4(a) shall either be collected in full or the
uncollected portion thereof written off and charged against the reserve for
loan and lease losses. In addition, BANK shall, prior to the Valuation Date,
make the adjustments for the items shown on Exhibit 8.19.
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8.20 BANK Earnings. The Actual Earnings of BANK from January 1, 1997
through the month end prior to the month in which closing occurs, determined in
accordance with generally accepted accounting principles, applied on a
consistent basis shall not be less than the Minimum Earnings from January 1,
1997, through the month end prior to the month in which closing occurs.
9. Conditions Precedent to CNB's Obligations.
Each and every obligation of CNB to be performed on the Closing Date shall
be subject to the satisfaction prior thereto of the following conditions:
9.1 Truth of Representations and Warranties. The representations and
warranties made by F & M and Subsidiary in this Agreement or given on their
behalf hereunder, shall have been continuously true and correct from the date
of execution of this Agreement to the Closing Date, except as publicly
announced by F & M or Subsidiary and/or reflected in public filings made by F &
M or Subsidiary with the SEC or the FRB as this may affect the statements in
paragraph 5.1(c), and shall be true and correct on and as of the Closing Date
with the same effect as though such representations and warranties had been
made or given on and as of the Closing Date and F & M and Subsidiary shall have
complied with all other terms, conditions and covenants of this Agreement.
9.2 F & M's Compliance. F & M and Subsidiary shall have performed and
complied with all of their obligations under this Agreement which are to be
performed or complied with by them prior to or as of the Closing Date,
including delivery of the closing documents.
9.3 Absence of Suit. No action, suit or proceeding before any court or any
governmental or regulatory authority shall have been commenced or be threatened
and, no investigation by any governmental or regulatory authority shall have
been commenced, against F & M, Subsidiary, CNB or BANK, or any of the
affiliates, associates, officers, directors or employees of any of them,
seeking to restrain, prevent or change the transactions contemplated hereby, or
questioning the validity or legality of any such transactions, or seeking
damages in connection with any of such transactions.
9.4 Proceedings and Instruments Satisfactory; Certificates. All
proceedings, corporate or otherwise, to be taken by F & M or Subsidiary in
connection with the transaction contemplated by this Agreement shall have
occurred and all appropriate documents incident thereto as CNB may reasonably
request shall have been delivered to CNB. F & M shall have delivered
certificates in such detail as CNB may reasonably request as to compliance with
the conditions set forth in this Article 9.
9.5 Receipt of Approvals. All approvals, consents and or waivers, including
any approvals required by any federal or state governmental regulatory agency
that are necessary to effect the transactions contemplated hereby shall have
been received, and all waiting periods shall have expired provided the failure
to obtain the same was not the result of an act or omission by CNB or BANK.
9.6 Time Limit on Closing. Closing shall have taken place by August 31,
1997.
9.7 Legal Opinion. CNB shall have received the opinion of F & M Counsel
referred to in subparagraph 10.4(d).
9.8 Prospectus/Proxy Statement. The Prospectus/Proxy Statement will not
contain any untrue statement of material fact or omit any material fact
required to be stated therein or necessary to make the statements contained
therein, in the light of the circumstances under which they were made, not
misleading.
9.9 Tax Status. No information has been discovered or made known to CNB to
indicate that the IRS has challenged or intends to challenge the status of this
transaction as a tax-free reorganization.
9.10 Tax Opinion. CNB Shareholders shall have received an opinion from
F & M Counsel satisfactory to CNB and for the benefit of CNB shareholders to
the effect that the transaction contemplated by this Agreement shall
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be tax-free to those CNB Shareholders who receive F & M Common in exchange for
their CNB Common (excluding fractional or dissenting shares).
9.11 Shareholder Vote. CNB Shareholders and directors shall have approved
the transaction as required by applicable law.
9.12 Securities Matters. The Registration Statement shall have been
declared effective under the Securities Act of 1933 by the SEC. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose shall, to the knowledge
of F & M or Subsidiary, on or prior to the Effective Time, have been initiated
or threatened by the SEC. F & M shall have received all other federal or state
securities permits, exemptions, registrations or other authorizations necessary
to issue the F & M Common in exchange for the CNB Stock to consummate the
merger.
10. Closing.
10.1 Time and Place. The closing of this transaction ("Closing") shall
take place at the offices of F & M (or such other place as the parties may
agree) on the Closing Date.
10.2 Rights of CNB Shareholders After the Effective Time. After the
Effective Time and until the surrender of a stock certificate representing
shares of CNB Common, each such outstanding certificate, which prior to the
Effective Time represented shares of CNB Common, shall be deemed for all
purposes, subject to the further provisions of this Agreement, to evidence the
ownership of the number of full shares of F & M Common into which such shares
have been converted; provided, however, that unless and until any such
certificates representing CNB Common shall be so surrendered, the stock
certificate representing the shares, any dividends or other distributions of
any kind payable in respect of shares of F & M Common into which such CNB
Common has been converted, shall be withheld by F & M. Upon the subsequent
surrender and exchange of such CNB Common certificates, such holder of record
of the certificates formerly representing shares of CNB Common (or such
holder's assignee) shall be paid the amount of any such cash dividends or other
distributions, without interest, which became payable under this Agreement to
holders of record of shares of F & M Common on or after the Effective Time and
prior to the surrender and exchange of the certificates. Delivery of
certificates representing shares of F & M Common to former CNB Shareholders who
have tendered their certificates for their shares of CNB Common at or before
the Effective Time shall be made as soon as reasonably possible after the
Effective Time.
10.3 Documents to be Delivered by CNB. At the time of or prior to the
closing, CNB shall deliver the following documents:
(a) A certificate by the chairman, vice-chairman or president of CNB and
BANK that to the best of such officers' knowledge (i) that the representations
and warranties made by CNB and/or BANK as the case may be in this Agreement are
true and correct on as of the Closing Date with the same effect as though such
representations and warranties had been made on or given on and as of the
Closing Date, (ii) that CNB and BANK have performed and complied with all of
their obligations under this Agreement which are to be performed or complied
with by or prior to or on the Closing Date, and (iii) that all Schedules and
Exhibits delivered by CNB and/or BANK to F & M prior or as of the Closing Date
are true, correct and complete as of the Closing Date.
(b) An Incumbency Certificate for the officers executing the documents in
connection with the transaction contemplated hereby.
(c) Copies of the Articles of Incorporation and Bylaws of CNB and BANK,
duly certified by their respective custodians as true, correct and complete
copies thereof, including any amendments as of the Closing Date.
(d) A written opinion from CNB counsel dated as of the Closing Date
addressed to F & M and F & M Counsel, in form and substance substantially in
the form attached hereto as Exhibit 10.3(d).
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<PAGE> 115
(e) Certified copies of resolutions adopted by CNB's board of directors to
the effect that the execution, delivery and performance of this Agreement and
the transactions contemplated by it have been duly and validly authorized in
accordance with the laws of the State of Wisconsin and of the action taken by
the CNB's Shareholders to approve the merger as provided by the laws of the
State of Wisconsin.
(f) Such other documents of transfer, certificates or authority and other
documents as F & M may reasonably request.
10.4 Documents to be Delivered by F & M and Subsidiary. At the closing F &
M and Subsidiary shall deliver the following documents:
(a) Certificates for shares of F & M Common as determined under Article 3
of this Agreement which condition shall be met by authorization by F & M to its
exchange agent to release such shares to the CNB Shareholders when all
conditions to this transaction have been met or waived. Such certificates will
be in the name of CNB Shareholders entitled to the same in accordance with
their interest in CNB as of the Effective Time provided, however, that any
certificates need not be delivered until such time as the provisions of
paragraph 10.2 have been complied with by the CNB Shareholders.
(b) An Incumbency Certificate relating to all parties executing documents
relating to any of the transactions contemplated hereby on behalf of F & M and
Subsidiary.|
(c) A certificate by an officer of F & M that, to the best of such
officer's knowledge, (i) the representations and warranties made by F & M and
Subsidiary in this Agreement are true and correct as of the Closing Date, (ii)
that F & M and Subsidiary have performed and complied with all of their
obligations which are to be performed or complied with by or prior to or as of
the Closing Date and (iii) that all Schedules and Exhibits delivered by F & M
to CNB are true, correct and complete as of the Closing Date.
(d) A written opinion from counsel for F & M and Subsidiary dated as of
the Closing Date addressed to CNB and CNB Counsel in form and substance
substantially in the form attached hereto as Exhibit 10.4(d).
(e) A written opinion from Securities Counsel dated as of the Effective
Time addressed to F & M and CNB, reasonably satisfactory in form and substance
to F & M Counsel, to the effect that the shares of F & M Common issuable in the
transaction are the subject of an effective Registration Statement with the
SEC, and that no stop order relating to such Registration Statement has been
issued by the SEC and that, to the knowledge of such counsel, no proceedings
for that purpose shall have been initiated or threatened by the SEC.
(f) Certified copies of the resolutions adopted by F & M's and
Subsidiary's boards of directors to the effect that the execution, delivery and
performance of this Agreement and the transactions contemplated by it have been
duly and validly authorized in accordance with the laws of the State of
Wisconsin.
11. Law Governing.
This Agreement shall be construed and interpreted according to the laws of
the State of Wisconsin.
12. Assignment.
This Agreement may not be assigned in whole or in part without the written
consent of all parties, provided, however, that Subsidiary's participation in
this transaction shall not require any further consent or authorization.
13. Amendment and Modification.
This Agreement may only be amended or modified by a written agreement signed
by the duly authorized representatives of F & M and CNB.
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14. Abandonment.
This Agreement may be terminated and the transaction provided for by this
Agreement may be abandoned at any time before the Closing Date:
(a) If the parties are unable to reach agreement pursuant to paragraph
3.4(a), or by mutual consent of F & M and CNB;
(b) By F & M if any of the conditions provided for in Article 8 of
this Agreement have not been met and have not been waived in writing by F & M;
or
(c) By CNB if (i) exercises its rights to terminate under paragraph
3.4(a), (ii) any of the conditions provided for in Article 9 of this Agreement
have not been met and have not been waived in writing by BANK, or (iii) a public
announcement by F & M that an agreement has been reached for F & M to be
acquired by a third party if CNB gives written notice to F & M of its election
to do so within twenty (20) days of the date of such announcement.
(d) In the event of a breach of this Agreement, by notice from the other
party to the breaching party as set forth below.
In the event of termination and abandonment by any party as provided in this
Article, written notice shall forthwith be given to the other party setting
forth the breach of this Agreement or the default in performance which has
occurred, or the condition which has not been met. The party to whom the
notice is directed shall, if such party is able to effect a satisfaction or
cure, have ten (10) days after such notice is given to satisfy such condition
or cure such breach or default, provided that if such ten (10) day period is
not sufficient and the party is making a diligent effort to satisfy such
condition or cure such breach or default, the time to do so may be extended for
such period as the parties may agree not to exceed thirty (30) days provided
however, that the F & M Selling Price shall be the higher of the price as of
the date of the notice or as of the date on which the default is satisfied or
cured. The termination and/or abandonment of this Agreement shall not alter or
diminish the liability of the party that failed to comply with the conditions
of this Agreement. Each party shall pay its own expenses incident to
preparation for the consummation of this Agreement and the transactions
contemplated hereunder.
(e) If this Agreement or the transaction contemplated hereby is terminated
by F & M for any reason other than those set forth in subparagraphs 14(a) or
(b), F & M shall promptly [in any event within five (5) business days after
such termination] pay CNB a fee equal to Five Hundred Thousand and 00/100
Dollars ($500,000.00).
If this Agreement or the transaction contemplated hereby is terminated by CNB
for any reason other than those set forth in subparagraphs 14(a) or (c), CNB
shall promptly [in any event within five (5) business days after such
termination] pay F & M a fee equal to Five Hundred Thousand and 00/100 Dollars
($500,000.00).
(f) In the event F & M declares a stock dividend or stock split, the
maximum and minimum F & M Selling Price set forth in subparagraphs (b) and (c),
above, and in paragraph 1.12, shall be adjusted downward in proportion to the
declared stock dividend or stock split. For example, a 10% stock dividend would
result in a 10% decrease in the F & M Selling Price set forth in paragraph 1.12.
15. Notices.
All notices, requests, demands, and other communications hereunder shall be
deemed to have been duly given, upon actual delivery, if delivered by hand; or
upon receipt by the addressee, if given by mail (certified mail - return
receipt requested with postage prepaid is required for notice by mail); or upon
receipt by the addressee, if by private courier; or upon receipt of the
transmission by the addressee if by telecopy (with a copy sent by first class
mail):
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<PAGE> 117
(a) If to CNB, to Timothy P. McGettigan, c/o The Citizen's National Bank
of Darlington, 207 Wells Street, P.O. Box 90, Darlington, Wisconsin, FAX:
608-776-2689, with a copy to John Knight, Esq., Boardman, Suhr, Curry & Field,
410 Firstar Plaza, One South Pinckney Street, P.O. Box 927, Madison, Wisconsin
53701-0927, FAX: 608-283-1709.
(b) If to F & M or Subsidiary, to Mr. Gail E. Janssen, One Bank Avenue,
Kaukauna, Wisconsin 54130, FAX: 414-766-5628, with a copy to Randall A. Haak,
Esq., McCarty, Curry, Wydeven, Peeters & Haak, P.O. Box 860, Kaukauna Wisconsin
54130, FAX: 414-766-4756.
The place to which notice is to be given may be changed by notice given in
accordance with this Article.
16. Entire Agreement.
This Agreement, with Exhibits, embodies the entire agreement between the
parties hereto with respect to the transaction contemplated herein and
supersedes all prior agreements, written or oral, express or implied and all
negotiations, discussions or other matters between the parties and there have
been and are no agreements representations or warranties between the parties
other than those set forth or provided for herein.
17. Counterparts.
This Agreement may be executed in two (2) or more partially or fully executed
counterparts, each of which shall be deemed an original and shall bind the
signatory, but all of which together shall constitute but one and the same
instrument.
18. Binding Effect.
This Agreement shall inure to the benefit of and bind the parties and their
respective heirs, beneficiaries, transferees, successors, and assigns.
19. Headings. The headings of this Agreement are inserted for convenience only
and shall not constitute a part hereof.
20. Confidentiality.
Except as necessary to take action pursuant to this Agreement, each party
agrees that all information and documents received from the other party
regarding the proposed transaction shall be held in confidence and that all
documents containing such information will be returned upon request if the
parties abandon the transaction. The parties further agree to use such
information only in connection with the proposed transaction contemplated by
this Agreement. This paragraph shall not apply to information or documents
which are, or by law must be made, publicly available. The parties agree to
not publicly disclose this Agreement or its Exhibits or any of the provisions
hereof, except as a part of regulatory filings or pursuant to press releases
and other public statements approved by F & M and CNB.
21. Further Documents.
F & M, Subsidiary, and CNB agree to execute any and all other documents and
to take such other action or corporate proceedings as may be reasonably
necessary or desirable to carry out the terms hereof.
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<PAGE> 118
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed all as of the day and year first above written.
F & M BANCORPORATION, INC. ("F & M")
By: /s/ Gail E. Janssen
------------------------------------
Gail E. Janssen, Chairman and CEO
ATTEST:
By: /s/ Janet M. Lakso
------------------------------------
Janet M. Lakso, Secretary
F & M MERGER CORPORATION ("Subsidiary)
By: /s/ Gail E. Janssen
------------------------------------
Gail E. Janssen, Chairman
ATTEST:
By: /s/ Daniel E. Voet
------------------------------------
Daniel E. Voet, Secretary
CITIZENS NATIONAL BANCORP, INC. ("CNB")
By: /s/ Timothy P. McGettigan
------------------------------------
Timothy P. McGettigan, President
ATTEST:
By: /s/ Robert D. Martin
------------------------------------
Robert D. Martin, Executive Vice
President
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<PAGE> 119
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
F&M is incorporated under the Wisconsin Business Corporation Law (the
"WBCL").
Under Section 180.0851(1) of the WBCL, F&M is required to 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 if such person was a party because he or she was a director
or officer of F&M. In all other cases, F&M is required by Section 180.0851(2)
to 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
F&M, unless it is determined that he or she breached or failed to perform a
duty owed to F&M and the breach or failure to perform constitutes: (i) a
willful failure to deal fairly with F&M 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(1) 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 or officer may have
under F&M's Articles of Incorporation, Bylaws, any written agreement or a
resolution of the Board of Directors or 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
180.0858 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.
Section 180.0828 of the WBCL provides that, with certain exceptions, a
director is not liable to a corporation, its shareholders, or any person
asserting rights on behalf of the corporation or its shareholders, for damages,
settlements, fees, fines, penalties or other monetary liabilities arising from
a breach of, or failure to perform, any duty resulting solely from his or her
status as a director, unless the person asserting liability proves that the
breach or failure to perform constitutes any of the four exceptions to
mandatory indemnification under Section 180.0851(1) referred to above.
Under Section 180.0833 of the WBCL, directors of F&M against whom
claims are asserted with respect to the declaration of improper dividends or
distributions to shareholders or certain other improper acts which they
approved are entitled to contribution from other directors who approved such
actions and from shareholders who knowingly accepted an improper dividend or
distribution, as provided therein.
Article X of F&M's Bylaws provides that F&M will indemnify any
director or officer who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of F&M) by reason of the fact that he or she is or was a director or
officer of F&M, against expenses reasonably incurred by such person if he or
she acted in good faith and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his or her conduct was unlawful. Directors
and officers are similarly identified under Article X for any action or suit by
or in the right of F&M if they acted in good faith and have not been adjudged
to be liable for misconduct in the performance of their duty to F&M. The
Bylaws also provide that F&M shall have the power to purchase and maintain
insurance on any director or officer for any liability asserted against him or
her and incurred by such person
II-1
<PAGE> 120
arising out of his or her status as an officer or director, whether or not F&M
would have the power to indemnify such person against such liability under the
Bylaws or the WBCL. F&M's Articles of Incorporation and Bylaws do not limit
the indemnification to which directors and officers are entitled under the
WBCL.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of F&M pursuant to
the foregoing provisions, or otherwise, F&M has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by F&M of expenses incurred or paid by a director, officer or
controlling person of F&M 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, F&M 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 of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits set forth on the Exhibit Index attached hereto, which is
incorporated herein by reference, are filed as part of this Registration
Statement.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement.
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the registration statement is on Form S-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registration is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any financial
statements required by 3-19 of Regulation S-X at the start of any delayed
offering or throughout a continuous offering.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referred to in Item 20 of
this
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<PAGE> 121
registration statement, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such 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 Act and will be governed by the final adjudication of such
issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post- effective amendment that contains a form of
prospectus 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.
(x) 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.
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<PAGE> 122
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF KAUKAUNA, STATE OF WISCONSIN, ON JUNE 26, 1997.
F&M BANCORPORATION, INC.
By: /s/ Gail E. Janssen
--------------------------------------
Gail E. Janssen, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.*
SIGNATURE AND TITLE
<TABLE>
<S> <C>
/s/ Gail E. Janssen * /s/ Douglas A. Martin
- --------------------------------------------------- ---------------------------------------------------
Gail E. Janssen, Chairman of the Douglas A. Martin, Director
Board and Chief Executive Officer
/s/ Daniel E. Voet * /s/ Duane G. Peppler
- --------------------------------------------------- ---------------------------------------------------
Daniel E. Voet, Chief Financial Officer and Duane G. Peppler, Director
Treasurer (also, Principal Accounting Officer)
* /s/ Otto L. Cox * /s/ Robert C. Safford
- --------------------------------------------------- ---------------------------------------------------
Otto L. Cox, Director Robert C. Safford, Director
* /s/ Paul J. Hernke * /s/ Glenn L. Schilling
- --------------------------------------------------- ---------------------------------------------------
Paul J. Hernke, Director Glenn L. Schilling, Director
* /s/ John W. Johnson * /s/ Joseph F. Walsh
- --------------------------------------------------- ---------------------------------------------------
John W. Johnson, Director Joseph F. Walsh, Director
* /s/ Gary A. Lichtenberg
- ---------------------------------------------------
Gary A. Lichtenberg, Director
** By /s/ Daniel E. Voet
---------------------------------------------
Daniel E. Voet, Attorney-in-Fact
</TABLE>
_____________
* Each of the above signatures is affixed as of June 26, 1997.
<PAGE> 123
F&M BANCORPORATION, INC.
(THE "REGISTRANT")
EXHIBIT INDEX
TO
POST-EFFECTIVE AMENDMENT NO. 1
TO
REGISTRATION STATEMENT ON FORM S-4
<TABLE>
<CAPTION>
Exhibit Incorporated Herein Previously Filed
Number Description By Reference Filed Herewith
- ------- ----------- ------------ ----- --------
<S> <C> <C> <C>
2.1 Amended and Restated X
Agreement and Plan of As Exhibit C
Merger and Reorganization to the
dated as of February 27, Supplemental
1997, as amended May 29, Statement
1997 and June 23, 1997
by and among the
Registrant, F&M Merger
Corporation and Citizens
National Bancorp, Inc.
5.1 Opinion of Quarles & Brady X
regarding legality of
securities being registered
8.1 Tax Opinion of McCarty, X
Curry, Wydeven, Peeters &
Haak
23.1 Consent of Wipfli Ullrich X
Bertelson LLP
23.2 Consent of Quarles & Brady X
(included in
Exhibit 5.1)
23.3 Consent of McCarty, Curry, X
Wydeven, Peeters & Haak (included in
Exhibit 8.1)
23.4 Consent of Robert W. Baird &
Co. Incorporated X
24 Power of Attorney X
(contained on the Signature
Page)
</TABLE>
__________________
* Excluding schedules and exhibits, which are identified in such
documents. The Registrant agrees to furnish supplementally a copy of
any omitted schedule or exhibit to the Commission upon request.
EI-1
<PAGE> 1
EXHIBIT 8.1
June 25, 1997
Citizens National Bank of Darlington
207 Wells Street
P.O. Box 90
Darlington, Wisconsin 53530
Ladies and Gentlemen:
RE: Registration Statement on Form S-4 for Proposed Merger of Citizens
National Bancorporation, Inc. ("CNB") into F & M Merger Corporation
("Subsidiary"), a wholly-owned subsidiary of F & M Bancorporation ("F & M").
We have acted on behalf of F & M Bancorporation, Inc., in connection with the
Plan and Agreement of Merger and Reorganization between and among F & M, CNB
and Subsidiary dated as of February 27, 1997, (the "Reorganization Agreement"),
and the Post-Effective Amendment No. 1 to the Registration Statement of F & M
on Form S-4, to which this letter is an exhibit (the "Registration Statement").
We have reviewed the section of the Registration Statement entitled "The Merger
- - Federal Income Tax Consequences" and that section, including the form of
opinion, accurately reflects our opinion regarding the matters of law discussed
in that section, assuming tax-free reorganization treatment. This opinion is
based on our interpretation of the currently applicable sections of the
Internal Revenue Code, Treasury Regulations, Internal Revenue Service Rulings,
and the cases we believe are controlling.
The transactions contemplated by the Reorganization Agreement are conditioned
upon the issuance by McCarty, Curry, Wydeven, Peeters & Haak of its opinion
that the proposed merger of F & M and Bank constitute a reorganization within
the meaning of Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended. That opinion regarding reorganization
treatment has not yet been given and is not contained in this letter.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Yours very truly,
/s/ McCarty, Curry, Wydeven, Peeters & Haak
McCARTY, CURRY, WYDEVEN, PEETERS & HAAK
<PAGE> 1
Exhibit 23.1
CONSENT OF WIPFLI ULLRICH BERTELSON LLP
We consent to the incorporation by reference of our reports on the financial
statements of F&M Bancorporation, Inc. (dated January 31, 1997) and
Citizens National Bancorp, Inc. (dated April 4, 1997) in this Registration
Statement on Form S-4, and to the references to our firm under the heading
"Experts" in the prospectus forming part of the Registration Statement.
/s/ Wipfli Ullrich Bertelson LLP
---------------------------------
June 25, 1997
Appleton, Wisconsin
<PAGE> 1
EXHIBIT 23.4
CONSENT OF ROBERT W. BAIRD & CO. INCORPORATED
In connection with the proposed merger of Citizens National Bancorp, Inc.,
Darlington, Wisconsin into F & M Merger Corporation, a wholly owned subsidiary
of F&M Bancorporation, Inc., in accordance with the Plan and Agreement of
Merger and Reorganization, as amended, among F&M Bancorporation, Inc., F&M
Merger Corporation and Citizens National Bancorp, Inc., the undersigned, acting
as an independent financial advisor to the Board of Directors of Citizens
National Bancorp, Inc., hereby consents to the reference to our firm in the
Post-Effective Amendment No. 1 to Form S-4 Registration Statement and Joint
Proxy Statement/Prospectus included therein and the inclusion of our fairness
opinion as an exhibit to the Registration Statement and Joint Proxy
Statement/Prospectus.
Dated: June 24, 1997
-------------
ROBERT W. BAIRD & CO. Incorporated
By: /s/ Bernard E. Adee
--------------------
Bernard E. Adee
First Vice President
