<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.E20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14553
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F & M Bancorporation, Inc.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1365327
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Bank Avenue, Kaukauna, Wisconsin 54130
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(Address of principal executive offices) (Zip Code)
(920) 766-1717
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of August 10, 1998.
$1.00 par value common
14,175,594 shares
<PAGE> 2
F & M BANCORPORATION, INC.
AND SUBSIDIARIES
--------------------------
INDEX
-----
Page
Number
------
PART I. FINANCIAL INFORMATION:
- -------------------------------
Item l. Financial Statements 3
Condensed Consolidated Balance Sheets
as of June 30, 1998 and December 31,
1997 (Unaudited) 4
Condensed Consolidated Statements of Earnings
for the six months ended June 30, 1998
and 1997 (Unaudited) 5
Condensed Consolidated Statements of Changes in
Stockholders' Equity for the six months ended
June 30, 1998 and 1997 (Unaudited) 6
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1998
and 1997 (Unaudited) 7
Notes to Condensed Consolidated Financial
Statements (Unaudited) 8
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and
Qualitative Disclosure about Market Risk 17
PART II. OTHER INFORMATION
- --------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Matters 20
Item 6. Exhibits and Reports on Form 8-K 20
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<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed consolidated financial statements included herein have been
included by F & M Bancorporation, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. This information is unaudited but includes all adjustments
(consisting only of normal recurring accruals) which, in the opinion of Company
management, are necessary for a fair presentation of the results for such
periods.
The results of operations for interim periods are not necessarily indicative of
the results of operations for the entire year. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's 1997 Annual Report.
-3-
<PAGE> 4
F & M BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 55,603 $ 56,581
Investment securities (Note B)
Held to maturity 140,094 128,240
Available for sale - stated at fair value 205,478 178,597
Federal funds sold 24,245 36,747
Loans (Note C) 1,320,293 1,197,895
Less: Allowance for loan losses (17,298) 15,090)
--------- ---------
Net loans 1,302,995 1,182,805
Bank premises and equipment, net 37,265 32,858
Other real estate 3,218 917
Other assets 37,021 29,258
---------- ---------
TOTAL ASSETS $1,805,919 $1,646,003
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 203,992 $ 180,312
Interest bearing 1,281,534 1,193,060
---------- ----------
Total deposits 1,485,526 1,373,372
Short-term borrowing 44,731 47,685
Other borrowings 85,133 60,929
Accrued expenses and other liabilities 16,907 15,174
---------- ----------
Total liabilities 1,632,297 1,497,160
Shareholders' Equity
Common stock - $1 par value:
Authorized - 20,000,000 shares
Issued - 10,564,776 and
9,779,130 shares, respectively 10,565 9,779
Capital surplus 88,271 86,334
Retained earnings 75,101 53,101
Net unrealized gain on securities available for sale 133 21
Less-Common stock held in treasury at cost-
15,595 shares and 34,595 shares, respectively (448) (392)
---------- ----------
Total shareholders' equity 173,622 148,843
---------- ----------
Total liabilities and shareholders' equity $1,805,919 $1,646,003
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE> 5
F & M BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $30,376 $25,851 $59,922 $50,007
Interest on investment securities
Taxable 2,987 2,453 5,946 4,688
Exempt from federal tax 1,897 1,621 3,829 3,205
Other interest income 339 313 864 669
Total interest income 35,599 30,238 70,561 58,569
------- ------- ------- -------
Interest expense
Interest on deposits 14,676 12,637 29,469 25,063
Interest on short-term borrowing 823 946 1,571 1,622
Interest on other borrowing 1,085 617 2,067 876
------ ------ ------ ------
Total interest expense 16,584 14,200 33,107 27,561
------ ------ ------ ------
Net interest income 19,015 16,038 37,454 31,008
Provision for loan losses 764 872 1,456 1,255
------ ------ ------ ------
Net interest income after
provision for loan losses 18,251 15,166 35,998 29,753
------ ------ ------ ------
Other income
Service charges on deposit accounts 1,245 1,153 2,365 2,169
Other operating income 1,795 1,125 3,209 1,986
Net securities gain (loss) 0 75 0 69
------ ------ ------ ------
3,040 2,353 5,574 4,224
------ ------ ------ ------
Other expenses
Salaries and employee benefits 6,648 5,705 13,190 11,096
Other operating expense 5,558 4,599 10,827 8,978
------ ------ ------ ------
12,206 10,304 24,017 20,074
------ ------ ------ ------
Income before income taxes 9,085 7,215 17,555 13,903
Income taxes 2,924 2,249 5,531 4,252
------ ------ ------ ------
NET INCOME $ 6,161 $ 4,966 $12,024 $ 9,651
====== ====== ====== ======
EARNINGS PER SHARE - BASIC $ 0.58 $ 0.51 $ 1.14 $ 0.99
EARNINGS PER SHARE - DILUTED $ 0.58 $ 0.51 $ 1.14 $ 0.99
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 5 -
<PAGE> 6
F&M BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1998 June 30, 1997
------------- -------------
Shares Equity Total Shares Equity Total
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Balance-beginning of
period 9,779,130 $148,843 8,173,255 $122,205
Acquisition of Financial Management
Services of Jefferson, Inc 641,854 12,599
Acquisition of Bank of South Wayne 143,792 4,451
Acquisition of East Troy 439,993 7,722
Acquisition of Green County 182,967 3,237
Acquisition of Clear Lake 161,040 1,952
Ten percent stock dividend 821,875
Comprehensive income:
Net Income 12,024 9,651
Other comprehensive
income - Change in net
unrealized gain (loss) on
securities available for
sale 112 (102)
-------------------------------------------------
Total comprehensive
income 12,136 9,549
-------------------------------------------------
Cash dividends (4,360) (3,310)
Purchase Treasury shares (448)
Exercise of stock options 401 67
-------------------------------------------------
Totals 10,564,776 $173,622 9,779,130 $141,422
-------------------------------------------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE> 7
F & M BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
1998 1997
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 12,024 $ 9,651
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and net amortization 2,137 1,575
Provision for loan losses 1,456 1,255
Gain on sale of investment securities (69)
Increase in other assets (3,038) (1,621)
Gain on sale of equipment 0 35
Increase in other liabilities 66 1,483
Provision for other real estate losses 2 11
Gain on sale of other real estate (10) (58)
--------- ---------
Net cash provided by operating activities 12,637 12,262
========= =========
Cash flows from investing activities:
Proceeds from sale of investment securities
available for sale 0 256
Proceeds from maturities of investment
securities available for sale 53,103 24,157
Purchase of investment securities
available for sale (57,243) (51,941)
Proceeds from maturities of investment
securities held to maturity 10,497 5,462
Purchase of investment securities
held to maturity (6,001) (8,395)
Net increase in loans (35,193) (84,801)
Capital expenditures (3,297) (1,721)
Proceeds from sale of equipment 60 322
Proceeds from sale of other real estate 0 912
Payment for purchase of stock of
subsidiary banks, net of cash received 6,303 12,566
--------- ---------
Net cash used in investing activities (31,771) (103,183)
--------- ---------
Cash flows from financing activities:
Net increase (decrease) in deposits (6,810) 16,852
Net increase (decrease) in short-term borrowings (3,455) 34,900
Dividends paid (4,545) (3,310)
Purchase of common stock (448) 0
Net increase in other borrowings 20,504 34,701
Net proceeds options exercised 408 67
--------- ---------
Net cash provided by financing activities 5,654 83,210
--------- ---------
Net decrease in cash and cash equivalents (13,480) (7,711)
Cash and cash equivalents at beginning of period 93,328 72,692
Cash and cash equivalents at end of period $ 79,848 $ 64,981
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE> 8
F & M BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements,
which include the accounts of F&M Bancorporation, Inc. and its subsidiaries,
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. These statements have been restated to
reflect the acquisition of Wisconsin Ban Corp, acquired on May 30, 1997 and
Citizen's National Bancorporation, Inc., acquired August 14, 1997. These
transactions have been accounted for using the pooling of interests method of
accounting. East Troy Bancshares, acquired on January 10, 1997, Green County
Bank, acquired on February 27, 1997, Clear Lake Bancorp., acquired on August 12,
1997, Bank of South Wayne, acquired on February 9, 1998, and Financial
Management Services of Jefferson, Inc., acquired on May 28, 1998, accounted for
as pooling of interests, were not material to prior years' reported operating
results and, accordingly, previous years' results have not been restated. The
acquisitions of the Security office in Antigo, Wisconsin, acquired on September
29, 1997, and the Sentry Bancorp, acquired on January 27, 1997, were accounted
for using the purchase method of accounting; accordingly, the financial data
includes results of operations only since the dates of acquisition. All per
share information has been adjusted to reflect the 10% stock dividend, paid to
shareholders on June 9, 1997. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included.
NOTE B - INVESTMENT SECURITIES
Carrying amounts and market values of investment securities held to
maturity at June 30, 1998 are as follows:
Carrying Market
Amount Value
------ -----
(in thousands)
Exempt obligations of states and political subdivisions $140,094 $ 145,161
-------- ----------
NOTE C - LOANS
At June 30, 1998, loans are as follows:
(in thousands)
Commercial and industrial $ 301,086
Agricultural 94,746
Real estate construction 41,908
Real estate mortgage 790,193
Installment and other consumer 92,360
----------
1,320,293
Less allowance for loan losses (17,298)
----------
Net loans $1,302,995
==========
NOTE D - EARNINGS PER SHARE OF COMMON STOCK Earnings per share are based on
weighted average number of common shares outstanding restated to reflect the
10% stock dividend paid to stockholders on June 9, 1997. The following shows
the computation of the basic and diluted earnings per share for the six months
ended June 30, 1998 and 1997.
Weighted
Average
Number of Earnings Per
Net Income Shares Share
- --------------------------------------------------------------------------------
(in Thousands)
1998
Earnings per share-Basic $12,024 10,545,187 $1.14
Effect of Stock options 41,601
- --------------------------------------------------------------------------------
Earnings per share-Diluted $12,024 10,586,788 $1.14
================================================================================
1997
Earnings per share-Basic $ 9,651 9,762,335 $0.99
Effect of stock options 30,007
- --------------------------------------------------------------------------------
Earnings per share-Diluted $ 9,651 9,792,342 $0.99
================================================================================
-8-
<PAGE> 9
NOTE E - NON-PERFORMING ASSETS
The following table sets forth the amount of non-performing loans, other
real estate owned and non-performing assets, and each of their percentages to
total loans at June 30, 1998:
<TABLE>
<S> <C> <C>
(in thousands)
Non-accrual loans $ 9,236 0.70%
Loans past due 90 days or more 433 0.04
Restructured loans 0 0.00
------- ----
Total non-performing loans 9,669 0.74
Other real estate owned 3,218 0.24
------- ----
Total non-performing assets $12,887 0.98%
======= ====
</TABLE>
NOTE F - SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes loan balances at June 30, 1998; 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
which have been charged to expense:
<TABLE>
<S> <C>
(in thousands)
Average balance of loans year to date $1,306,933
==========
Allowance for loan losses at
beginning of period 15,090
Loans charged off
Commercial and Industrial 670
Real Estate - Mortgage 10
Installments and Other Consumer Loans 433
----------
Total charge offs 1,113
Recoveries on loans previously
charged off
Commercial and Industrial 60
Real Estate - Mortgage 8
Installment and Other Consumer Loans 96
----------
Total recoveries 164
Net loans charged off 949
Provisions for loan losses of banks
acquired at date of acquisition 1,701
Provisions for loan
losses 1,456
----------
Allowance for loan losses
at end of period $ 17,298
----------
Ratio of net charge offs
during period to average
loans outstanding (annualized) 0.15%
Allowance for loan
losses to total loans 1.31%
</TABLE>
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<PAGE> 10
NOTE G - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The following table summarizes the allocation of allowances for loan losses
and gives a breakdown of the percentage of loans in each category at June 30,
1998:
Percent
of loans
Amount of in each
reserve category
for loan to total
(in thousands) losses loans
- -------------------------------------------------
Commercial,
industrial, and
agricultural $ 7,958 30.0%
Real estate -
construction 280 3.2
Real estate - mortgage 6,133 59.8
Installment and other
consumer loans 2,927 7.0
------- -----
$17,298 100.0%
======= ======
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<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The following discussion and analysis provides information regarding the
Company's results of operations for the three and six months ended June 30, 1998
and 1997 and financial condition at June 30, 1998. These statements have been
restated to reflect the acquisitions of Wisconsin Ban Corp ("WBC"), acquired on
May 30, 1997 and Citizens National Bancorporation, Inc. ("CNB"), acquired on
August 14, 1997. These transactions have been accounted for using the pooling of
interests method of accounting. East Troy Bancshares ("ETB"), acquired on
January 10, 1997, Green County Bank ("GCB"), acquired on February 27, 1997,
Clear Lake Bancorp.("CLB"), Inc., acquired on August 12, 1997, Bank of South
Wayne, acquired on February 9, 1998, and Financial Management Services of
Jefferson, Inc., acquired on May 28, 1998, accounted for as pooling of
interests, were not material to prior years' reported operating results;
accordingly, previous years' results have not been restated. The acquisitions of
the Security office in Antigo, acquired on September 29, 1997 and the Sentry
Bancorp, acquired on January 27, 1998, were accounted for using the purchase
method of accounting; accordingly, the Company's financial data includes results
of operations of these entities only since the dates of acquisition. All per
share information has been adjusted to reflect the 10% stock dividend, paid to
shareholders on June 9, 1997.
Discussions in this Management's Discussion and elsewhere in the Annual
Report, that are not statements of historical fact (including statements in the
future tense or which include terms such as "believe", "expect", "anticipate" or
"may") are forward-looking statements that involve risks and uncertainties, and
Company'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 collections experiences, 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 described in this Management's Discussion and Analysis
and elsewhere in this report.
SUBSEQUENT EVENTS
On July 1, 1998 the Company acquired 100% of the outstanding shares of
BancSecurity Corporation, Marshalltown, Iowa, a holding company of the Security
Bank, Security Bank Jasper-Poweshiek, and Story County Bank and Trust, which has
fourteen offices in twelve Iowa communities, with total assets of approximately
$537 million. The Company is accounting for this acquisition using the pooling
of interests method of accounting. Information within this report has not been
restated to reflect this acquisition due to the consummation occurring after
June 30, 1998. Because of its relative size as compared to the Company, the
BancSecurity acquisition and the integration of BancSecurity into the Company
may affect both historical and future reported operations and financial
condition.
The Company has also announced one pending acquisition which, if
consummated, would affect the Company's future operations. In July 1998, The
Company announced that it had signed a Definitive Agreement to acquire Community
Bank of Elkhorn ("Bank"). The Bank, which has assets of approximately $100
million and one location in Elkhorn, Wisconsin, is a wholly owned subsidiary of
CBE, Inc. This acquisition will be accounted for using the pooling of interests
method of accounting. Although the pending acquisition is expected to be
consummated in the first quarter of 1999, it remains subject to conditions
precedent and there can be no assurance of completion.
RESULTS OF OPERATIONS
For the three months ended June 30, 1998, net income increased $1.2 million,
or 24.1%, to $6.2 million from $5.0 million in the second quarter of 1997. The
annualized return on average assets was 1.38% for the second quarter of 1998
compared with 1.33% for the second quarter of 1997. Return on average
stockholders' equity on an annualized basis for the second quarter of 1998 and
1997 were 14.49% and 14.28%, respectively.
For the six months ended June 30, 1998, net income increased $2.3 million,
or 24.6%, to $12.0 million from $9.7 million in the first half of 1997. The
annualized return on average assets was 1.36% for the six months ended June 30,
1998 compared with 1.32% for the first half of 1997. Return on average
stockholders' equity on an annualized basis for the six months ended June 30,
1998 and 1997 were 14.29% and 14.19%, respectively.
-11-
<PAGE> 12
Net Interest Income
Net interest income for the three months ended June 30, 1998 increased $3.0
million, or 18.6%, to $19.0 million from $16.0 million in the second quarter of
1997. Total interest income for the second quarter of 1998 increased $5.4
million, or 17.8%, to $35.6 million from $30.2 million in the second quarter of
1997. Interest expense increased $2.4 million, or 16.8%, to $16.6 million in the
second quarter of 1998 from $14.2 million in the second quarter of 1997.
Net interest income for the six months ended June 30, 1998 increased $6.4
million, or 20.8%, to $37.5 million from $31.0 million in the first half of
1997. Total interest income for the six months ended June 30, 1998 increased
$12.0 million, or 20.5%, to $70.6 million from $58.6 million in the first half
of 1997, while interest expense increased $5.5 million, or 20.1%, to $33.1
million in the six months ended June 30, 1998 from $27.6 million in 1997.
Increased net interest income for the three and six month periods is
attributable to the increase in asset volume due to the Company's internal
acquisitions, growth, and relative stability of the Company's net interest
margin (4.74% vs 4.73% at June 30, 1998 and 1997, respectively). Total interest
income increased for the three and six month period in 1998 compared to the same
periods last year as a result of an increase in interest and fees on loans due
to acquisitions, increased loan activity, and generally stable interest rates,
while total interest expense increased for the three and six month periods in
1998 compared to 1997 as a result of increased levels of deposits primarily due
to acquisitions.
Provision for Loan Losses
The amount charged to provision for loan losses is based on Management's
evaluation of the loan portfolio. Management determines the adequacy of the
allowance for loan losses, both on a bank by bank basis and on an overall basis
for the Company, based on past loan loss experience, current economic
conditions, composition of the loan portfolio (including the historical
performance of, and the F&M subsidiary banks' evaluation of the prospects for,
each of the component loans, and the collateral value therefor) and the
anticipated potential for future loss. Management is also mindful of the
expectations of banking industry regulators for certain levels of allowances,
although no particular regulatory obligations have been imposed on the Company
in this regard.
The provision for loan losses for the three months ended June 30, 1998
decreased $108,000, or -12.3%, to $764,000 from $872,000 in the second quarter
of 1997. The provision for loan losses for the six months ended June 30, 1998
was $1.5 million, a 16.0% increase from $1.3 million for the six months ended
June 30, 1997. This increase in the provision for the first six months was made
mainly to reflect an increase in net charge offs which increased from $655,000
in the first six months of 1997 to $949,000 in the first six months of 1998 and
an increase in the loan portfolio. Despite the increases in charge offs and the
loan portfolio, but reflecting allowances of banks acquired in 1998, the Company
was able to increase the loan loss reserve as a percentage of loans to 1.31% due
to an increased provision and recovery activity. See "Allowance for Loan Losses"
for further discussion.
Non-Interest Income
The Company stresses the importance of growth in non-interest income as one
of its key long-term strategies. Non-interest income for the three months ended
June 30, 1998 increased $687,000, or 29.2%, to $3.0 million from $2.4 million in
the second quarter of 1997. Non-interest income for the six months ended June
30, 1998 increased $1.4 million, or 32.0%, to $5.6 million. The increase was due
principally to increases in secondary market commissions, service charges and
other fee income. Purchase acquisitions and acquisitions of banks for which
prior period information was not restated also contributed to the increase of
non-interest income.
-12-
<PAGE> 13
Non-Interest Expense
Non-interest expense for the three months ended June 30, 1998 increased
$1.9 million, or 18.5%, to $12.2 million from $10.3 million in the second
quarter of 1997. Non-interest expense for the six months ended June 30, 1998
increased $3.9 million, or 19.6% to $24.0 million from $20.1 million in the
first half of the year. The increase was primarily due to the acquisitions in
1997 and 1998, resulting from both the cost of the acquisitions and increase
from those with respect for which prior periods were not restated (additional
staffing, data processing fees, occupancy expense, etc.), and the normal
increases in salaries and employee benefits.
The overhead ratio, which is computed by subtracting non-interest income
from non-interest expense (excluding net securities transactions) and dividing
by average total assets, was 2.09% in the first half of 1998 compared with 2.17%
in the first half of 1997. The decrease in this ratio in the first half of 1998
was the result of the factors set forth above.
Due to the sensitivity of the overhead ratio to changes in the balance
sheet, management also looks at trends in the efficiency ratio to assess the
changing relationship between operating expenses and income. The efficiency
ratio measures the amount of cost expended by the Company to generate a given
level of revenues in the normal course of business. It is computed by dividing
total operating expense by net interest income on a fully-taxable equivalent
basis and non-interest income from ongoing operations, excluding nonrecurring
items. The efficiency ratio was 53.3% in the first six months of 1998 compared
with 54.5% in the first six months of 1997. The decreases in this ratio and the
overhead ratio resulted from the various factors set forth above.
Provision for Income Taxes
The Company's provision for income taxes for the three months ended June
30, 1998 increased $675,000, or 30.0%, to $2.9 million from $2.2 million in the
second quarter of 1997. The increase in income tax provision was principally due
to increased taxable income.
The provision for income taxes for the six months ended June 30, 1998
increased $1.2 million, or 30.1% to $5.5 million from $4.3 million in 1997. The
increase in income tax provision was principally due to increased taxable
income.
Net Income
As a result of the preceding factors, net income for the second quarter of
1998 increased by $1.2 million, or 24.1% to $6.2 million from $5.0 million in
the same period for 1997. Net income for the first half of 1998 increased by
$2.3 million, or 24.6%, to $12.0 million from $9.7 million in the first half of
1997.
Basic net income per common share was $0.58 for the second quarter of 1998
compared with $0.51 in the second quarter of 1997 an increase of 13.7%. The
Company maintains a stock option plans for officers and directors. Fully diluted
earnings per share are equal to the stated basic earnings per share numbers.
Basic net income per share was $1.14 for the first half of 1998, compared
with $0.99 in the same period for 1997, an increase of 15.2%. As of June 30,
1998, fully diluted earnings per share are equal to the stated basic earnings
per share numbers.
-13-
<PAGE> 14
FINANCIAL CONDITION
Loan Portfolio
At June 30, 1998, total loans increased $122.4 million, or 10.2%, to $1.320
billion from $1.198 billion at December 31, 1997. The loan mix in the Company's
portfolio at June 30, 1998 did not change in any material respect compared with
December 31, 1997. Approximately $89 million in loans, or 73% of the first half
of the year's growth, resulted from acquisitions in which the Company did not
restate its prior financial statements and the remaining balance resulted
primarily from loan demand spread throughout the Company's subsidiary banks.
Non-Performing Assets
Maintaining excellent credit quality continues to be a priority for the
Company. At June 30, 1998, non-performing assets amounted to $12.9 million,
compared to $11.9 million at December 31, 1997. Non-performing loans at June 30,
1998 were $9.7 million, or 0.74% of total loans, compared to $11.0 million at
December 31, 1997. Other real estate owned ("OREO") at June 30, 1998 was $3.2
million as compared to $917,000 at December 31, 1997. The ratio of
non-performing assets to total loans at June 30, 1998 was 0.98%. Management
continues to work at reducing the level of non-performing assets. Non-performing
assets increased the first six months of 1998 because of acquisitions and
developments with respect to a number of separate loans, in different locations
and industries. Management does not believe that there is any common reason or
general trend which accounts for the increase (or that it necessarily is an
indication of expected future developments). However, management continues to
take an aggressive collection effort on these assets, carefully monitors these
(and other) loans, and regularly reviews and evaluates the non-performing
credits to determine appropriate handling and action.
Summary of Loan Loss Experience
For the first half of 1998, total charge-offs were $1.1 million and total
recoveries were $164,000. The annualized ratio of net charge-offs to average
loans outstanding for the six months ended June 30, 1998 was 0.15%. The
charge-offs were not concentrated in any particular industry.
Allowance for Loan Losses
The allowance for loan losses as a percentage of total loans was 1.31% and
1.26% at June 30, 1998 and December 31, 1997, respectively. Management
continually reviews the loan portfolio, and other factors, to determine the
appropriate allowance. The allowance for loan losses is an amount that
management believes will be adequate to absorb possible losses on existing loans
that may become uncollectible based on evaluations of the collectibility of
loans and prior loan loss experience. In determining the additions to the
allowance charged to operating expenses, management considered historical loss
experience, changes in the nature and volume of the loan portfolio, overall
portfolio quality, the reserve levels at acquired banks, and current economic
conditions that may affect the borrower's ability to pay. The ultimate recovery
of all loans is susceptible to future market and economic factors beyond the
Company's control as well as factors affecting particular borrowers. Also, the
process of setting loss reserves involves an estimation of future occurrences,
and is inherently uncertain. These factors may result in future losses or
recoveries differing significantly from the allowances and reserves provided in
the financial statements.
Investment Portfolio
At June 30, 1998, the investment portfolio increased $38.7 million, or
12.6%, to $345.6 million from $306.8 million at December 31, 1997. At June 30,
1998 and December 31, 1997, the investment portfolio represented 19.1% and 18.6%
of total assets, respectively. Increases in the investment portfolio is
primarily attributed to acquisitions that have not been restated and due to the
Company's decision to increase the investment portfolio.
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<PAGE> 15
Deposits
Total deposits at June 30, 1998 increased $112.2 million, or 8.2%, to
$1.486 billion from $1.373 billion at December 31, 1997. Interest-bearing
deposits at June 30, 1998 increased $88.5 million, or 7.4%, to $1.282 billion
from $1.193 billion at December 31, 1997. The increase in deposits is primarily
attributable to the three acquisitions in the first half of 1998 representing
approximately $115 million offset by internal decrease in deposits of
approximately $3 million. Historically, deposits have typically increased at
year end and the gradually returned to prior levels.
Borrowings
Short-term borrowings at June 30, 1998 were $44.7 million, as compared to
$47.7 million at December 31, 1997. Short-term borrowings consist primarily of
federal funds purchased. The Company has used short-term borrowings to assist in
funding its increasing loan demand. Management has taken steps to monitor
short-term borrowings and is comfortable with the current level. Going forward,
continued reliance on short-term funds may be required if loan demand continues
to outpace deposit growth, and, therefore, short-term borrowings are expected to
vary from time to time.
Several of the Company's subsidiary banks, as members of the Federal Home
Loan Bank (FHLB), had borrowings from the FHLB as of June 30, 1998. These
borrowings are secured by pledges of mortgage loans, and totaled $85.1 million
at June 30, 1998, compared to $60.9 million at December 31, 1997. These FHLB
borrowings had original maturities of three months to nine years at June 30,
1998. The increase in other borrowings in 1997 and early 1998 was due to
attractiveness in longer term rates and the Company's implementation of a
leverage program in which FHLB borrowings are matched to securities purchased.
CAPITAL ADEQUACY
During the first half of 1998, stockholders' equity increased $24.8 million
due to net income of $12.0 million in the first half of 1998 and the
acquisitions of Bank of South Wayne and Financial Management Services, Inc.,
offset by dividends paid to stockholders. At June 30, 1998, the Company's
risk-based Tier 1 capital ratio was 11.63%. The total risk-based capital ratio
was 12.88% and the leverage ratio was 9.06%. All such ratios exceed regulatory
minimums of 4.0%, 8.0% and 3.0%, respectively. The average equity to average
assets ratio was 9.53% at June 30, 1998, compared with 9.28% at June 30, 1997.
F & M's common stock dividend payout ratio was 36.3% in the first half of
1998 as compared to 31.1% in the comparable 1997 period. These numbers do not
include the dividends historically paid by acquisitions prior to their
acquisitions by the Company.
At June 30, 1998, each of the Company's subsidiary banks was in compliance
with all applicable capital requirements, and management believes that the
capitalization of those banks is adequate.
During the first half of the year the Company incurred minimal capital
expenditures for replacement and renovation of facilities. The Company to date
has not committed to any major commitments to build or purchase in 1998, but
also expects to finance any such expenditures through earnings and existing
capital resources. The Company financed the cash purchase of Cannon Valley Bank
through earnings and existing capital resources.
LIQUIDITY
As shown in the Company's Consolidated Statements of Cash Flows for the six
months ended June 30, 1998, cash and cash equivalents decreased by $13.5 million
during the period to $79.8 million at June 30, 1998. The decrease primarily
reflected $12.6 million in net cash provided by operating activities and $5.7
million in net cash provided by financing activities, offset by $31.8 million in
net cash used in investing activities. Net cash provided by operating activities
primarily consisted of the Company's net income in the period increased by
adjustments for non-cash credits. Net cash provided by financing activities
principally reflected a decrease in deposits offset by an increase in other
borrowings. Net cash used in investing activities consisted primarily of a net
increase in loans plus necessary capital expenditures offset by net cash
received in acquisitions for which prior periods were not restated.
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<PAGE> 16
The Company manages its liquidity to provide adequate funds to support the
borrowing requirements and deposit flow of its customers. Management views
liquidity as the ability to raise cash at a reasonable cost or with a minimum of
loss and as a measure of balance sheet flexibility to react to marketplace,
regulatory and competitive changes. The primary sources of the Company's
liquidity are investment securities available for sale and other marketable
assets maturing within one year. The Company attempts, when possible, to match
relative maturities of assets and liabilities, while maintaining the desired net
interest margin. The Company can also utilize borrowing capacities if
appropriate. Although the percentage of earning assets represented by loans is
increasing, management believes that its sources of liquidity are adequate.
YEAR 2000
Like other financial institutions, F&M must assure that its computer and
other systems are "year 2000 compliant." "Year 2000 compliant" means being
capable of operating, and accurately recognizing dates and processing
information, in and after the year 2000. To help assure that F&M's systems are
year 2000 compliant on a timely basis, F&M began a focused compliance program
primarily using F&M personnel. As the program has continued, F&M has identified
certain functions and roles in which the use of outside consultants or experts
would help F&M address year 2000 issues on a more expedited basis or in more
depth. Therefore, in addition to the designation of particular F&M employees to
coordinate F&M's year 2000 compliance efforts, F&M has retained outside
assistance. F&M is nearing completion of its review process, and has begun
testing and implementing solutions where necessary. F&M has to date budgeted
$500,000.00 for its compliance efforts, and expended $100,000.00 through June
30, 1998.
As part of that effort, F&M is monitoring year 2000 compliance efforts by
its suppliers, because many of F&M's affected systems (such as data processing)
are contracted from third parties. Therefore, a significant part of F&M being
year 2000 compliant requires such compliance by the third parties, F&M regularly
receives updates from its "mission-critical" suppliers (such as data processors)
as to their Year 2000 compliance efforts. F&M loan officers and others are also
reviewing year 2000 efforts and compliance of F&M's credit customers, as failure
of these customers to be Year 2000 compliant could pose credit risks which could
have a material effect on F&M.
F&M's year 2000 compliance efforts are ongoing. Based in part upon
information being received from the third parties providing services to F&M, F&M
currently believes that it will be year 2000 compliant on a timely basis to
avoid material operational disruptions and to comply in material respects with
the requirements of its regulators. To date, F&M has not identified material
extraordinary expenditures which will be required to become year 2000 compliant,
although further expenditures remain to be incurred and the use of outside
personnel or other factors may increase the costs of year 2000 compliance beyond
F&M's current budget. While not currently anticipated by F&M, it is possible
that F&M may identify or experience material operational difficulties or
expenditures in the future.
OTHER
Accounting Changes
In June 1997, The FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements. This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers. It also amends SFAS No.
94, "Consolidation of All Majority-Owned Subsidiaries," to remove the special
disclosure requirements for previously unconsolidated subsidiaries. The
statement is effective for fiscal years beginning after December 15, 1997. In
the initial year of application, comparative information for earlier years is to
be restated. The statement is not expected to have an effect on the financial
position or operating results of the Company, but may require additional
disclosures in the consolidated financial statements.
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<PAGE> 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk is the most significant market risk affecting the
Company. Other types of market risk, such as foreign currency exchange rate risk
and commodity price risk do not arise in the normal course of the Company's
business activities. Managing interest rate risk is fundamental to banking.
Banking institutions manage the inherently different maturity and repricing
characteristics of the lending and deposit-taking lines of business to achieve a
desired interest rate sensitivity position and to limit their exposure to
interest rate risk, the Company manages its balance sheet to achieve maximum
shareholder value within the constraints of its interest rate risk discipline,
the maintenance of high credit quality, and sound leverage and liquidity
positions. Both the interest rate sensitivity and liquidity position of the
Company are reviewed regularly. The primary objective of interest rate
sensitivity management is to maintain net interest income growth while reducing
exposure to the risks inherent in interest rate movements.
The Company's Asset and Liability Management Committee ("ALCO") attempts to
structure the Company's balance sheet to provide for an approximately equal
amount of rate sensitive assets and rate sensitive liabilities. In addition to
facilitating liquidity needs, this strategy assists management in maintaining
relative stability in net interest income despite unexpected fluctuations in
interest rates. The Company believes its market risk exposure, based on the
potential of near-term losses in future earnings, fair values, and cash flows
from reasonably possible near-term changes in market rates or prices is
acceptable at this time.
The Company employs various strategies to reduce its exposure to interest
rate fluctuations. These strategies include: selling longer term maturity
mortgages to the secondary market, utilizing the Federal Home Loan Bank and
other sources to fund assets, and applying various asset positioning strategies
consistent with the overall needs of the Company at any given time. Management
has chosen to sell 15 year and 30 year mortgages to the secondary market as a
means of removing such a long original stated maturity asset off of the bank's
balance sheet and reduce the accompanying interest rate risk associated with the
assets. Instead, member banks are encouraged to retain adjustable rate mortgages
with 1-5 year rate locks on their balance sheets. Federal Home Loan Bank
membership by affiliate banks has enabled banks to diversify their funding
maturity options as well as employ match funding strategies for longer duration
assets. Depending on the interest rate risk position of the Company, the ALCO,
which meets quarterly, implements strategies to re-balance the Company to its
desired position. When the Company is overly liability sensitive,
floating/variable rate commercial loans by subsidiary banks are encouraged by
management. Furthermore, the purchase of floating/variable rate investment
securities are directly coordinated through the Company's Investment Department
when loan demand for this loan type is not present. To help offset longer
assumed maturity core deposits or to extend the duration of the Company's assets
at any given time, longer term securities are purchased directly through the
Company's Investment Department. In addition to these strategies, the Company
has chosen to offer a premium rate money market deposit product to customers
maintaining average balances exceeding $10,000. The rate on the product is tied
directly to the weekly average auction rate on the 3 month United States
Treasury Bill, which management believes positions the Company competitively in
the market.
The method of analysis presented is "earnings at risk" ("EAR"). While the
model employed by the Company is capable of both EAR and "value at risk"
("VAR"), it has chosen to place greater emphasis on EAR because the measurement
is believed to be of greatest concern to Company shareholders, as evidenced by
the marketplace's focus on quarterly and annual earnings. Furthermore, an
immediate rate shock of up or down 100-200 basis points is likely to have a more
visible immediate impact on the Company's earnings as compared to its market
value. Nevertheless, EAR has shortcomings inherent in its analysis. First, the
whole issue as to what maturity should be assigned to the Company's core
deposits is one that can vastly impact the results that the model produces. The
model employed assumes a longer duration assignment to these liabilities based
off of historical experience. Second, the model assumes a normal bell-shaped
curve distribution, although this assumption is elusive in volatile financial
markets. Frequently, the extreme may be the reality as evidenced by the
experience seen in the early 1980s. Third, the model assumes fairly normal
correlation patterns. In reality, however, correlation structures are unstable
over time. Fourth, most EAR approaches measure risk over less than two years.
However, this is likely not enough time to detect structural relationships
between
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<PAGE> 18
variables. And fifth, the model assumes theoretical pricing based off of a
linear relationship between market rates and earnings. This relationship
actually has more of a curvature relationship based off of the inherent
convexity present in all fixed rate instruments having a defined maturity; in
other words, a fixed rate instrument will appreciate by a greater amount than it
will decline.
Based on the model utilized, the interest rate risk of the Company
expressed as a percentage change in net interest income over a one-year time
horizon due to changes in interest rates, at June 30, 1998, is as follows:
Basis Point Change
-------------------------------------
+200 +100 -100 -200
--- --- --- ---
Percentage change in net interest
income due to an immediate change
in interest over a one-year time
horizon (2.20%) (1.47%) 0.74% 1.07%
Management has only recently begun to evaluate the Company's interest rate
risk by using EAR. As a result, no set EAR parameters have yet been identified.
Instead, management continues to utilize rate sensitive asset/rate sensitive
liability (RSA/RSL) measurements for establishing interest rate risk parameters.
Nevertheless, management is expected to establish conservative EAR parameters
consistent with its .70 - 1.20 acceptable range for 0 - 6 month RSA/RSL and .80
- - 1.10 acceptable range for 0 - 1 year RSA/RSL interest rate risk parameters.
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<PAGE> 19
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of the Company's shareholders on May 21, 1998,
pursuant to Proposal 1 (the only matter voted upon), management's nominees named
below were elected as directors, of the class whose term expires in the year
2001, by the indicated votes cast for and withheld with respect to each nominee.
Of the 7,835,494 shares of Common Stock which were represented at the meeting,
the shares voting were voted for the election of each of management's nominees
as follows:
Name of Nominee For Withheld
- -----------------------------------------------------------
Paul J. Hernke 7,758,906 76,588
Gail E. Janssen 7,788,119 47,375
Robert C. Safford 7,783,931 51,563
There were no abstentions or broker non-votes with respect to the election of
directors. In addition to the directors elected at the meeting, the Company's
continuing directors are Otto L. Cox, John W. Johnson, Douglas A. Martin, Duane
G. Peppler, Glenn Shilling and Joseph F Walsh. (On July 1, 1998, Mr. Peppler
retired as a director of the Company; on that date, Ronald E. Fenton was
elected an additional director.)
At a special meeting of the Company's shareholders held on June 29, 1998,
Company shareholders (1) approved the Company's acquisition of BancSecurity
Corporation ("BancSecurity"), and (2) approved an amendment to the Company's
Articles of Incorporation to authorize the issuance of up to 50 million shares
(increased from 20 million shares) of Common Stock. Shares were voted as
follows:
Proposal 1 (BancSecurity): 6,529,080 For
66,903 Against
105,820 Abstain
790,163 Broker Non-votes
Proposal 2 (Add'l Shares): 6,936,541 For
461,800 Against
93,625 Abstain
0 Broker Non-votes
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<PAGE> 20
Item 5. Other Matters
The Securities and Exchange Commission recently adopted new rules relating
to the discretionary voting of proxies at shareholder meetings. Under the new
rules, if a proponent of a matter for shareholder consideration fails to notify
the Company at least 45 days prior to the month and day of mailing the prior
years's proxy statement, then persons voting management proxies would be allowed
to use their discretionary voting authority when the proposal is raised at the
annual meeting, without any discussion of the matter in the proxy statement.
This deadline could be overridden by any advance bylaws notice provision in the
Company's bylaws. In the event the date of the meeting changes by more than 30
days from the prior year (which is expected to be the case for the Company in
1999), then notice must be received a reasonable time before the Company mails
its proxy materials. Because the Company would expect to mail proxy materials no
later than the beginning of April 1999, a reasonable time would be at least
45 days before the anticipated latest mailing date of April 2, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Exhibit Index, which follows the signature page
hereof.
(b) Reports on Form 8-K:
The Registrant filed one report on Form 8-K during the second
quarter of fiscal 1998. The Report on Form 8-K, dated May 29, 1998,
related to the Company's acquisition of Financial Management
Services of Jefferson, Inc. ("FMSJ") on that date. Because of the
relative size of the Company and FMSJ, the report did not include
historical financial statements of FMSJ or pro forma financial
statements of the Company.
Subsequent to the end of the quarter, but prior to the filing of
this report on Form 10-Q, the Company filed a Report on Form 8-K
dated July 1, 1998, related to the Company's acquisition of
BancSecurity on that date. That report included:
1. Audited financial statements of BancSecurity
for the three years ended December 31, 1997
and quarters ended March 31, 1998 and 1997;
2. Pro forma financial statements of the
Company (at March 31, 1998, for three years
ended December 31, 1997 and for quarters
ended March 31, 1998 and 1997) giving effect
to the acquisition.
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<PAGE> 21
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
F & M BANCORPORATION, INC.
----------------------------------------
(Registrant)
Date August 13, 1998 /s/ John W Johnson
------------------- ----------------------------------------
John W Johnson
President and Chief Executive Officer
Date August 13, 1998 /s/ Daniel E. Voet
------------------- ----------------------------------------
Daniel E. Voet
Chief Financial Officer and Treasurer
<PAGE> 22
EXHIBIT INDEX
F & M BANCORPORATION, INC.
Form 10-Q for Quarter Ended June 30, 1998
Exhibit No. Description
- ----------- -----------
2.1 Agreement of Merger and reorganization dated
as of July 22, 1998 among the Company, CBE,
Inc. and F&M Merger Corporation
3(i) Restated Articles of Incorporation of the
Company, as amended through July 22, 1998
[(composite copy)]
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 2.1
AGREEMENT OF MERGER AND REORGANIZATION
Agreement of Merger and Reorganization (hereinafter referred to as
"Agreement"), made as of the 21st day of July, 1998, by and between F&M
Bancorporation, Inc., a Wisconsin corporation, CBE, Inc., a Wisconsin
corporation and F&M Merger Corporation, a Wisconsin corporation.
1. Definitions.
The following definitions shall apply in this Agreement:
1.1 "Agreement" shall mean this Agreement of Merger and
Reorganization.
1.2 "BANK" shall mean Community Bank of Elkhorn, 10 North Lincoln
Street, P.O. Box 650, Elkhorn, Wisconsin 53121-0650.
1.3 "BANK Stock" shall mean BANK's voting capital stock $650 par
value.
1.4 "Closing Date" shall mean the date set by mutual agreement of
CBE and F & M and will not occur prior to the satisfaction or the waiver of all
of the conditions to the transaction. The Closing Date is anticipated to be in
January, 1999.
1.5 "Effective Time" shall mean the date on which the Articles of
Merger are received for filing by the State of Wisconsin Department of Financial
Institutions. 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 CBE,
but not prior to the Closing Date.
1.6 "CBE" shall mean CBE, Inc., 10 North Lincoln Street, P.O. Box
650, Elkhorn, Wisconsin 53121-0650.
1.7 "CBE Class A Common" shall mean CBE's Class A voting common
stock, $1.00 par value.
1.8 "CBE Class B Common" shall mean CBE's Class B voting common
stock, $1.00 par value.
1.9 "CBE Stock" shall mean CBE Class A Common and CBE Class B
Common, collectively.
1.10 "Exchange Ratio" shall mean the ratio determined as set forth in
paragraph 3.3(b).
1.11 "CBE Counsel" shall mean Michael Best & Friedrich, 100 East
Wisconsin Avenue, Suite 3300, Milwaukee, Wisconsin 53202, Attn: Frank J.
Pelisek, Esq.
<PAGE> 2
1.12 "CBE Shareholders" shall mean the shareholders of CBE shown on
the list previously delivered to F&M as such list may be updated from time to
time; a copy of the current list is attached hereto as Exhibit 1.12.
1.13 "F&M" shall mean F&M Bancorporation, Inc., One Bank Avenue,
Kaukauna, Wisconsin 54130.
1.14 "F&M Common" shall mean F&M's voting common stock, $1.00 par
value.
1.15 "F&M Stock Price" shall mean the average closing price rounded
to the nearest whole cent, as quoted on the NASDAQ National Market System
("NASDAQ"), for F&M Common 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.
1.16 "F&M Counsel" shall mean McCarty, Curry, Wydeven, Peeters &
Haak, LLP, 120 East Fourth Street, P.O. Box 860, Kaukauna, Wisconsin 54130-0860,
Attn: Randall A. Haak, Esq.
1.17 "Plan of Merger" shall mean the Plan of Merger to be attached
to, and filed with, the Articles of Merger.
1.18 "Securities Counsel" shall mean Quarles & Brady, 411 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202-4497, Attn: Kenneth V. Hallett,
Esq.
1.19 "Subsidiary" shall mean F&M Merger Corporation, One Bank Avenue,
Kaukauna, Wisconsin 54130.
1.20 "Registration Statement" shall mean the Registration Statement
of F&M 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 CBE to its shareholders relating to
approval of the merger (the "Prospectus/Proxy Statement").
1.21 "F&M Proposed Price" is Twenty-one Million and 00/100 Dollars
($21,000,000).
2. Preamble.
F&M and Subsidiary are multi-bank holding companies. Subsidiary is a
wholly-owned subsidiary of F&M. CBE is a one-bank holding company which
presently owns 100% of the issued and outstanding stock of BANK. F&M, Subsidiary
and CBE, 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 CBE
each believe that this transaction is in their best interests and in the
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<PAGE> 3
best interests of their shareholders 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 CBE and Subsidiary will be in the best interest of their respective
corporations and shareholders. The merger of CBE into Subsidiary is intended to
constitute a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D) 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 CBE into Subsidiary.
3.1 Surviving Corporation. At the Effective Time of the merger, CBE shall
be merged into Subsidiary in accordance with the laws of the State of Wisconsin.
Subsidiary will be the surviving corporation and the separate corporate
existence, identity and organization of CBE, 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 CBE and shall be subject to all liabilities,
obligations, limitations and duties of CBE as described in this Agreement.
3.2 Subsidiary Stock Subscription. Subject to 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 and cash as may be
necessary to effect the merger, as described under paragraph 3.3 below.
3.3 Exchange of CBE Common. At the Effective Time, the shares of the CBE
Common shall be converted into shares of F&M Common as follows:
(a) All CBE Shareholders will receive shares of F&M Common based
upon the Exchange Ratio. The Exchange Ratio shall be calculated by dividing the
CBE Stock Price by the F&M Stock Price, rounded to three (3) decimal places. The
Exchange Ratio shall be multiplied by the number of shares of CBE Common held by
each CBE Shareholder on the Closing Date to determine the number of shares of
F&M Common to be issued to that CBE Shareholder. All treasury shares shall be
canceled as of the Effective Time.
(b) Subject to F&M's right to adjust the Exchange Ratio under
paragraph 3.4 below, the CBE Stock Price shall be calculated by dividing the F&M
Proposed Price [Twenty-one Million and 00/100 Dollars ($21,000,000)] by the
number of outstanding shares of CBE
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<PAGE> 4
Common issued and outstanding at the Effective Time (excluding any treasury
shares) [currently Ten Thousand One Hundred (10,100)], rounded to the nearest
whole cent.
(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
the F&M Stock Price.
3.4 Adjustment to F&M Proposed Price . The F&M Proposed Price is subject
to adjustment prior to the calculation of the Exchange Ratio by an amount equal
to two (2.0) times the sum of all amounts determined under subparagraphs (a)
through (g). This sum shall be subtracted from the F&M Proposed Price and the
adjusted F&M Proposed Price shall be used to calculate the Exchange Ratio. The
adjustment factors to be determined as of the Closing Date are as follows:
(a) The amount by which BANK's reserve for loan and lease losses
is less than one and one-tenth percent (1.10%) of total loans and leases.
(b) The amount by which the expenses of this transaction whether
incurred by BANK or CBE [as set forth in paragraph 4.4(e)] exceed the limit
established under paragraph 4.4(e).
(c) The amount by which the BANK's equity as of the Closing
Date, determined in accordance with generally accepted accounting principles
(except that no adjustment shall be made as required by FASB 115) is less than
Seven Million Four Hundred Nineteen Thousand and 00/100 Dollars ($7,419,000.00)
(the "Beginning Equity") plus the Cumulative Minimum Earnings as shown on the
attached Exhibit 3.4(c) for each full month prior to the Closing Date, less the
sum of (i) the expenses of this transaction [as defined in paragraph 4.4(e)],
and (ii) any increase to the BANK's reserve for loan and lease losses requested
by F&M in excess of one and one-tenth percent (1.10%) of loan and leases or
other accounting adjustments requested by F&M (the "BANK's Minimum Equity").
(d) For any loans or leases which are considered as, or have the
probability of becoming, losses as a result of an adverse change in the
condition of such loans after June 24, 1998, as mutually agreed upon by F&M and
CBE.
(e) As the result of a material adverse change in the business
of CBE or BANK or an increase in their liabilities (exclusive of deposits) which
accrues after June 24, 1998, which is not otherwise reflected in either the
calculation of BANK's Adjusted Equity or CBE's stated liabilities as of the
Closing Date. The parties agreement as to the amount of any such adjustment
shall be a condition precedent to the parties' obligation to close.
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<PAGE> 5
(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
transaction contemplated by this Agreement except for the deferred compensation
obligations to Earl A. Paddock and Robert J. Beck, the current liability for
which is fully accrued by BANK.
(g) For the amount of any expenses incurred by CBE or BANK in
connection with this transaction which have not been accrued and accounted for
prior to the Closing Date.
3.5 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.
3.6 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.
3.7 Officers, Directors and Employees. The present members of BANK's
Board of Directors will be retained by F&M as directors of the surviving
corporation 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 director who is age seventy (70) at
the time of consummation of the acquisition of BANK by F&M may remain a director
until the annual shareholders' meeting of the BANK to be held in the year 2000.
F&M shall also enter into a Consulting Agreement with Earl A. Paddock and an
Employment Agreement with Robert J. Beck, in the forms attached as Exhibits 3.7A
and 3.7B, respectively, for the terms described in such agreements. F&M also
contemplates that BANK's current officers and 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
benefits to be offered will be consistent with those currently received by the
employees of F&M or its subsidiary banks holding similar positions. No employee
benefit plans or practices of BANK will be continued by F&M either on an
individual or group basis unless such plans or practices are expressly agreed to
in writing by F&M after the Effective Time. Years of service with BANK shall, to
the extent permitted by applicable law, be counted as years of service with F&M.
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,
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applicable to their position at the time the positions are eliminated, based
upon their years of service with BANK.
4. Representations and Warranties of CBE. CBE, 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. These
representations and warranties shall not survive the closing.
4.1 Ownership and Authority. The current CBE Shareholders are listed on
the list referred in paragraph 1.10.
4.2 CBE Organization and Authority.
(a) CBE is a corporation duly organized and validly existing
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. CBE
is duly registered and authorized to operate as a bank holding company. CBE is
only qualified to do business in the State of Wisconsin.
(b) CBE has good and marketable title to One Thousand (1,000)
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) CBE is presently authorized to issue Thirty-six Thousand
(36,000) shares of Class A Common and Twenty Thousand (20,000) shares of Class B
Common. CBE presently has Six Thousand Seven Hundred Sixty-seven (6,767) shares
of CBE Class A Common issued and outstanding and Three Thousand Three Hundred
Thirty-three (3,333) shares of CBE Class B Common issued and outstanding. CBE
Class A Common and CBE Class B Common vote as a class. All shares of CBE Class A
Common and Class B Common are validly and legally issued and outstanding, all of
which are fully paid and nonassessable, except as provided by Wis. Stats.
Sections 180.0622(2)(b) and judicial interpretations thereof. CBE 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
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corporate action and will not violate any provision of CBE'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 CBE is a party, or by
which CBE 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 CBE'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 CBE is subject.
4.3 BANK Organization and Authority.
(a) BANK is duly organized and validly existing under the laws
of the State of Wisconsin 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 operates a single office in Elkhorn, Wisconsin. All
necessary corporate action 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 One Thousand (1,000) shares of
BANK Stock, BANK's only class of stock. BANK has One Thousand (1,000) shares of
BANK Stock issued and outstanding, all of which are legally and validly issued,
fully paid and nonassessable.
(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 action and will not violate any provision of
BANK'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 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 appropriate federal and state bank regulatory agencies and will not
violate any other restriction of any kind or character to which BANK is subject.
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4.4 Financial Matters.
(a) True copies of CBE's consolidated financial statements,
consisting of consolidated 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, 1997, 1996 and
1995 have been delivered by CBE to F&M ("CBE's Financial Statements"). To the
best knowledge of CBE's officers and directors, after due and diligent inquiry
all of CBE's Financial Statements are true and correct in all material respects
and present an accurate and complete disclosure of the financial condition of
CBE as of their respective dates, and the earnings for the periods covered, all
determined in accordance with generally accepted accounting principles ("GAAP"),
applied on a consistent basis.
(b) To the best of BANK's knowledge, after due and diligent
inquiry, BANK does not have any loans presently outstanding (i) which are not in
compliance with the requirements of federal or state banking laws or
regulations, except as set forth in Exhibit 4.4(b), (ii) which present any
greater than normal risk of collection or (iii) which were not made in the
normal course of business. BANK's last examination by the FDIC was as of April
28, 1998, and by the State of Wisconsin Department of Financial Institutions,
Division of Banking ("Division") was as of April 27, 1998. Since the dates of
these examinations, BANK, after making due and diligent inquiry, is not aware of
any outstanding loans which are or may be subject to adverse classification
except as set forth in BANK's watch list date June 30, 1998, a copy of which is
included in Exhibit 4.4(b). CBE's last examination by the Federal Reserve Bank
of Chicago ("FRB") was as of March 31, 1994. Since the dates of these
examinations, neither BANK nor CBE is aware of any adverse change in the
business or operations of CBE or BANK, or of any adverse regulatory action or
proceeding against BANK, CBE or their respective officers, directors or
employees.
(c) CBE and BANK have good marketable title to all of their
assets, business and properties including, without limitation, all such
properties reflected in CBE's Financial Statements as of December 31, 1997, 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 1998 which are not yet due. CBE and BANK do not have any notice of any
special assessment which will be levied or assessed against any real property
owned or leased by them. To the best knowledge of CBE's officers and directors,
after due and diligent inquiry all real property owned, operated and leased by
CBE and BANK except as set forth in Exhibit 4.4(c) is in full compliance in all
material respects with all applicable federal, state and local statutes
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and regulations 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 and neither CBE nor BANK has received any citations, notices,
charges or other complaints claiming a violation of the foregoing nor are CBE or
BANK aware of any investigation of any alleged violation.
(d) All property and assets owned or currently in use by CBE 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) are in good operating condition and repair subject only to
normal wear and tear. A schedule of all real and depreciable personal property
owned by CBE and BANK is attached as Exhibit 4.4(d). If CBE or BANK lease any
real or personal property, a separate schedule clearly identifying such leased
property will be included as a part of Exhibit 4.4(d). As of the Closing Date,
all such property and assets will be in the condition represented above.
(e) For the period from January 1, 1998 to the Closing Date,
BANK has projected in good faith that its ordinary earnings determined in
accordance with GAAP, net of tax effect, shall be as set forth in the attached
Exhibit 3.4(c). The expenses of this transaction are those incurred by BANK for
legal, tax opinion, accounting and/or auditing or investment banking and/or
brokerage fees or expenses associated with the acquisition of BANK by F&M and
will be reasonable and customary and will not in any event exceed Sixty Thousand
and 00/100 Dollars ($60,000.00).
4.5 Changes Since Specific Dates. Since December 31, 1997, with
respect to CBE and BANK there have not been:
(a) Any loss, damage, destruction or failure to maintain the
tangible assets of CBE and BANK (whether or not covered by insurance), or
affecting their business or properties, which will materially adversely affect
the financial condition or operations CBE 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 CBE
and BANK ineffective in whole or in part.
(c) Any acquisition by CBE and BANK of a capital asset at a cost
in excess of Ten Thousand Dollars ($10,000.00) without prior approval of F&M,
except as shown on the attached Exhibit 4.5(c).
(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 CBE and BANK in prior years.
(f) Any issuance, or agreement to issue, on or before the
Closing Date or thereafter, directly or indirectly, any additional shares of
stock of CBE and BANK.
(g) Any declaration, setting aside or payment of any dividend or
any distribution in respect to CBE's stock or any redemption, purchase or other
acquisition by CBE or BANK of any stock or any other repayments to the
shareholders of CBE or BANK for the 1998 fiscal year.
(h) Any sale, transfer, or other disposition, prior to maturity,
of any security or other earning asset (exclusive of loans and leases), except
as approved in writing by F&M.
(i) Any borrowings or other indebtedness (excluding deposit
liabilities) the balance of which currently exceeds the amounts disclosed by
CBE's December 31, 1997 Financial Statements.
(j) Any mortgage, lien, pledge, security interest, assessment,
levy, charge, claim or other encumbrance made with respect to any of the
properties or assets of CBE or BANK except as disclosed by CBE's December 31,
1997 Financial Statements.
(k) Any sale, transfer or other disposition of assets of CBE and
BANK except in the normal course of business and consistent with past practices,
provided, however, that CBE and BANK may not dispose of any securities prior to
maturity without the prior consent of F&M.
(l) Any material change in the manner in which business was
being conducted by CBE and BANK prior to December 31, 1997, or other material
failure by CBE and BANK to use their best efforts to maintain their present
business organization (subject to the terms of this Agreement), employees and
customers.
(m) Any loan or commitment to make a loan by BANK with an
interest rate, repayment term, collateral or security requirements or other
conditions which are materially different from those upon which BANK made loans
prior to December 31, 1997, except to the extent such difference is in response
to competitive conditions encountered by BANK.
(n) Any other material adverse change in the prospects,
financial condition, assets, liabilities, properties or business of CBE or BANK.
4.6 Liabilities.
(a) Neither CBE nor BANK have any liabilities, whether accrued,
absolute, contingent or otherwise, which arose or relate to any transaction or
occurrence involving CBE or BANK or their respective officers, directors,
employees, agents or servants prior to the date of
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this Agreement which are not disclosed in the CBE Financial Statements described
above. To the best of their knowledge, after due and diligent inquiry, 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 CBE and BANK.
(b) To the best of their knowledge, all parties with whom CBE
and BANK have contractual arrangements are in compliance therewith. Neither CBE
nor BANK has declared, and is not prepared to declare, any such parties in
default under any such contractual arrangements. Neither CBE nor BANK is in
default in any material respect under any contracts to which it 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 CBE and BANK or result in the
creation of a lien, charge, assessment, encumbrance or other claim whatsoever
upon any asset of CBE and BANK. None of the contracts to which CBE and BANK is a
party will be adversely affected by the transaction contemplated by this
Agreement.
(c) To the best of their knowledge, CBE 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.
Neither CBE 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 their knowledge, threatened, against or involving CBE and BANK or
affecting their assets, properties or business. CBE and BANK do not know, 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, except for normal foreclosure, repossession and
collection litigation involving BANK as described in the attached Exhibit
4.6(d).
(e) The assets and liabilities or potential liabilities of CBE
and BANK are fully insured (except for the deductible thereunder), except for
taxes, deposits, repurchase agreements or other similar deposit-type
instruments, and all policies of insurance carried by CBE and 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 CBE and BANK required to be bonded. The limits of
coverage, deductibles and other material nonstandard provisions of such
insurance and bonds are disclosed in the attached
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Exhibit 4.6(e). 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. CBE 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 have paid all taxes including
any interest, penalties and assessments when due in a timely manner. The taxes
provided for in CBE's Financial Statements and which will be accrued prior to
the Closing Date will be adequate for the payment of any unpaid taxes as of the
Closing Date. None of the income tax returns of CBE or BANK have been audited in
the last seven (7) years. Neither CBE nor BANK has waived any restrictions on
the assessment or collection of taxes or consented to the extension of any
statute of limitations relating to any tax liability. Neither CBE nor BANK have
determined or been advised that they 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 CBE and BANK.
4.8 Contracts and Commitments. Neither CBE and BANK have 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 CBE and BANK.
4.9 Reporting and Withholding on Payment of Interest. To the best of
their knowledge, after due and diligent inquiry, CBE and BANK have 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 them, and
have complied with all provisions requiring the withholding for income taxes on
such amounts when required. CBE and BANK have instituted adequate procedures to
assure compliance with such provisions. To the best of their knowledge, all
reporting to the IRS required of CBE and BANK has been done in a timely manner
via proper medium. Neither CBE nor BANK have been advised of any violation or
potential violation with respect to such reporting requirements.
4.10 Employees and Employee Benefits.
(a) CBE and BANK are not parties to or bound by any written or
oral (i) employment or employment-related consulting contract which is not
terminable at will by CBE or BANK, as the case may be without penalty, (ii)
employee fringe benefit program or practice
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covering all employees as a group or any individual employees which is not
terminable at will by CBE or BANK, as the case may be without penalty, or (iii)
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 the attached Exhibits 4.10(b) and 4.10(c).
(b) All pension, profit sharing, or other employee pension
benefit plans of CBE and 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 CBE's and BANK's best
knowledge, after due and diligent inquiry, 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 CBE
nor BANK have 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 CBE and 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) All employee welfare benefit plans of CBE and 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 CBE'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 CBE nor BANK have 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 any pending or
threatened claim against CBE or BANK or their directors, officers, employees or
agents arising out of any statute,
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ordinance or regulation alleging that CBE or BANK (i) has discriminated against
applicants for employment, employees or the public, (ii) has any employment
practices, policies or procedures which are discriminatory or have been
breached, (iii) has failed to comply with federal and state wage and hour laws,
rules or regulations, (iv) has violated Occupational Safety and Health
Administration statutes, regulations or standards or (v) has committed an unfair
labor practice(s).
(e) Beck Salary Continuation Agreement. As of the Effective
Time, the Executive Employee Salary Continuation Agreement (the "Beck
Agreement") for Robert J. Beck dated October 29, 1996, between Beck and BANK
and/or CBE shall terminate and the liability of BANK and CBE, and F&M and
Subsidiary as the successors in interest, shall be liquidated at the amount
accrued by BANK and/or CBE on their books for the Beck Agreement as of December
31, 1998. This amount shall be paid to Beck on or before December 31, 1998.
4.11 Environmental Matters.
(a) To the knowledge of CBE 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. ss.144.76, on, upon or
into the real property owned by or leased to CBE or BANK or, to the best of
CBE's and BANK's knowledge, upon any real estate or property which secures any
loan made by CBE or BANK or which CBE or BANK have a right to acquire upon
foreclosure or otherwise .
(b) To the knowledge of CBE and BANK, there have been no 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 CBE or BANK, or which secures a loan made by CBE or BANK or may be
acquired by CBE or BANK in foreclosure.
4.12 Accuracy of All Statements. No representation or warranty by CBE or
BANK in this Agreement or otherwise, in the CBE Financial Statements, or in any
other statement, certificate, schedule or exhibit hereto furnished or to be
furnished by or on behalf of CBE 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 were provided or reviewed by CBE and BANK with respect to CBE
and BANK will not, at the
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date it is first mailed or delivered to CBE's Shareholders, and will not, at the
date or dates of the meeting of CBE's Shareholders called to approve the Merger,
as then amended or supplemented, contain any statements that are, at the time
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, CBE 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. CBE 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.
5. Representations and Warranties of F&M.
F&M, by its duly authorized officers, employees or other agents makes the
following representations to CBE, 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 CBE except as set forth herein. These representations and warranties
shall not survive the closing.
5.1 Organization and Authority.
(a) F&M is a corporation duly organized and validly existing
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.
(b) Subsidiary is a corporation duly organized and validly
existing under the laws of the State of Wisconsin will 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.
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(c) F&M is authorized to issue Fifty Million (50,000,000) shares
of F&M Common and as of July 11, 1998, had Fourteen Million One Hundred
Seventy-four Thousand One Hundred Eighty-one (14,174,181) shares issued and
outstanding. F&M anticipates that additional shares of F&M Common may be issued
by it prior to the Closing Date. All outstanding shares are legally and validly
issued and fully paid and nonassessable except as provided by Wis. Stats.
ss.180.0622(2)(b) and judicial interpretations thereof.
5.2. Performance of this Agreement. The execution and performance of
this Agreement and the consummation of the transaction contemplated under it
have been duly authorized by appropriate corporate approval and will not violate
any provision of F&M's or Subsidiary's articles of incorporation or bylaws or
any provision 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 are 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.
ss.180.0622(2)(b) and judicial interpretations thereof.
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, 1997, 1996 and 1995, have been delivered by F&M to CBE ("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.
5.5 Litigation. There are no legal, administrative or other
proceedings, investigations or inquiries or other claims, judgments, consent
decrees, stipulations, injunctions or restrictions which may have a material
adverse effect on F&M and F&M's subsidiaries and affiliates taken as a whole
either threatened, pending or outstanding against or involving F&M or
Subsidiary,
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nor do 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 Directors, Officers and Employees of BANK. Neither F&M or its
directors, officers, employees, agents, attorneys or accountants have made or
will make any representations or warranties as to any further positions with
BANK or F&M following the consummation of the transaction contemplated by this
Agreement to any director, officer or employee of CBE or BANK, except as set
forth in written agreements between BANK and any of its employees as disclosed
to F&M and except as provided in paragraph 3.7.
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 furnished
by or on behalf of F&M or Subsidiary pursuant to this Agreement, nor any
document or certificate delivered to CBE 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 CBE's shareholders, and will
not, at the date or dates of the meeting of the CBE 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
and Subsidiary make 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 describes CBE 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 and
Subsidiary with CBE without the intervention of any broker or third party on
behalf of F&M and Subsidiary. F&M and Subsidiary have 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.
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5.10 Paddock Agreement. F&M acknowledges the BANK's continuing
obligation to Paddock under the Executive Employee Salary Continuation Agreement
for Earl A. Paddock dated May 14, 1997, as amended (the "Paddock Agreement")
after the Effective Time. Paddock will be provided office space as assigned by
the BANK at BANK's expense during the term of the Paddock Consulting Agreement
set forth in Exhibit 3.7A.
6. Covenants of CBE.
CBE 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 CBE and BANK and CBE and BANK shall furnish
or cause to be furnished to F&M or its authorized representatives all
information with respect to the affairs and business of CBE 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, CBE and BANK:
(a) Shall carry on their business diligently and
substantially in the same manner as heretofore and CBE and BANK shall not engage
in or institute any unusual or novel methods of doing business and shall inform
F&M in advance before either introducing any new products or services or
modifying any existing products or services other than changes in interest rates
paid or charged in response to changes in competitive or market conditions.
(b) Shall not (i) grant any increase in the rates of pay,
salary, or compensation provided to its officers, directors or employees which
become effective on or after August 1, 1998, without the advance written consent
of F&M (ii) for the fiscal year ended December 31, 1998, increase the amount of
any bonus paid by BANK in excess of the amount paid by BANK for the year ended
December 31, 1997, (iii) pay any bonuses for the 1998 fiscal year, and (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.
(c) Shall not enter into any contract or commitment or engage
in any transaction which is outside the normal course of business and which is
inconsistent with CBE's or BANK's past business practices.
(d) Shall not create any indebtedness without the prior
written consent of F&M other than (i) short term indebtedness incurred in the
normal course of business, (ii)
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indebtedness incurred pursuant to an existing contract previously disclosed to
F&M, or (iii) indebtedness incurred 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, stock option or issue directly or indirectly any shares of
common or preferred stock or any other security.
(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 and property
(real and personal) taxes which will be due with respect to any 1998 earnings
and shall file all tax reports or returns and pay all income, franchise, real
estate, personal property, 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 CBE 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 CBE and BANK and
to preserve for F&M the present relationships of CBE 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 CBE or BANK prior to their normal
maturity dates.
(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 CBE or
BANK, except for routine collection litigation which is initiated by BANK and is
not expected to result in any loss to BANK, provided that if any counterclaim,
cross-claim or third-party claim is asserted in such litigation, F&M shall be
given notice thereof.
(m) Shall not make loans or grant credit to any customer on
terms materially more favorable than those which are available under BANK's
current underwriting guidelines. F&M, CBE and BANK understand that BANK, in
order to meet market conditions may need to
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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 by more than 25 basis points unless BANK has disclosed the reason for
the decline to F&M in advance and F&M has consented in writing to the adjustment
causing such decline.
(o) Shall remain in compliance with all agreements,
commitments, understandings, undertakings or other obligations to the Division,
the FDIC, the FRB or any other regulatory agency having jurisdiction over CBE
and BANK.
(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 CBE 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 interest accounting treatment
of the merger or to cause the merger not to qualify as a tax-free
reorganization.
6.4 Stock Records. Prior to the special shareholders meeting to
approve the Merger, the Board of Directors of CBE, 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 or obtain unanimous consent of
shareholders as provided by statute and CBE's bylaws.
6.5 Audited Financial Statements. If audited financial statements of
CBE and/or BANK are required to permit the shares of F&M Common to be registered
with the SEC, CBE agrees to furnish such statements for the required years to
F&M. If required, the cost of such audited financial statements shall not be
deducted in determining the BANK's Minimum Equity under paragraph 3.4(c)
6.6 Reserves for Loan and Lease Losses. BANK shall take such action
as may be necessary to maintain its reserve for loan and lease losses at one and
one-tenth percent (1.10%) of loans and leases until the Closing Date, or shall
have the prior written consent of F&M to establish a lower reserve for loan and
lease losses.
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6.7 Affiliates. CBE shall have taken all reasonable steps to obtain
affiliate's undertakings pursuant to SEC Rule 145 from its directors, officers
and shareholders who own five percent (5%) or more of its outstanding stock.
6.8 Funding of Paddock Agreement. If BANK continues to fund the
obligations under the Paddock Agreement, in the amount currently being
contributed, BANK's obligation to Paddock under the Paddock Agreement will be
fully funded when Paddock reaches the age of sixty (60).
7. Covenants of F&M. F&M and Subsidiary hereby covenant and agree as
follows:
(a) As promptly as practicable after the execution of this
Agreement, F&M and Subsidiary, with the cooperation of CBE, 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 and Subsidiary, with the cooperation of CBE, 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 and
Subsidiary shall also use their best efforts to qualify under the blue sky laws
of the various states in which common shareholders of CBE 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 and Subsidiary shall
pay the expenses of preparing and delivering the joint Prospectus/Proxy
Statement for CBE's Shareholders.
(b) As promptly as practicable after the execution of this
Agreement, F&M and Subsidiary shall take action to obtain regulatory approval of
this transaction.
(c) 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.
(de) Within ten (10) days after its audited financial
statements are in final form and publicly announced, F&M shall deliver a copy
thereof to CBE.
(f) Upon execution of this Agreement, F&M will investigate
the availability of directors and officers' liability insurance coverage under
its policy covering the directors and officers of F&M and its Subsidiaries and
will promptly notify CBE of the availability and coverage under such insurance
for the directors and officers of CBE and BANK upon consummation of the
acquisition.
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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 CBE and BANK hereunder,
shall have been continuously true and correct from the date of execution of this
Agreement to the Closing Date, 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 CBE and BANK shall have
complied with all other terms, conditions and covenants of this Agreement.
8.2 Compliance with Covenants. Except as expressly set forth in
paragraph 8.7, CBE 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, CBE 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 CBE's Director and Shareholder Authorization. The merger
contemplated by this Agreement shall have been duly and validly authorized by
CBE'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.
8.6 Accuracy of Financial Statements. F&M and Subsidiary and their
representatives shall be reasonably satisfied as to the accuracy of all year end
and interim period balance sheets, statements of income and other financial
statements of CBE or BANK furnished to F&M and Subsidiary for periods ended
after December 31, 1996.
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8.7 BANK Minimum Equity. BANK will have equity as of the Closing
Date, determined in accordance with GAAP at least equal to the "BANK's Minimum
Equity", provided that in making this determination, FASB 115 shall not be
considered.
8.8 BANK Earnings. The Actual Earnings of BANK from January 1, 1998
through the month end prior to the month in which closing occurs, determined in
accordance with GAAP applied on a consistent basis shall not be less than the
Cumulative Minimum Earnings [as set forth in Exhibit 3.4(c)] from January 1,
1998 through the month end prior to the month in which closing occurs.
8.9 Legal Opinion. F&M shall have received the opinion of CBE
Counsel referred to in subparagraph 10.3(e).
8.10 Time Limit on Closing. Closing shall have taken place by
January 31, 1999.
8.11 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 and Subsidiary may reasonably
request shall have been delivered to F&M and Subsidiary. CBE 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.
8.12 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 and Subsidiary 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 CBE Stock to consummate
the merger.
8.13 Prospectus/Proxy Statement. The Prospectus/Proxy Statement will
not contain any untrue statement of a material fact or omit any material fact
regarding CBE or BANK 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.
8.14 Exchange of Stock Certificates. As a condition of delivery of
the consideration required by this Agreement, the CBE Shareholders shall have
executed and delivered documents assigning their shares of CBE Common Stock 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.
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8.15 Affiliates of CBE. Each person who shall be deemed to be an
"affiliate" of CBE 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 8.15, dated as
of the Effective Time.
8.16 Pooling Accounting. The merger contemplated herein shall be
treated as and qualify for accounting treatment using the pooling of interests
method.
8.17 Tax Status. F&M shall have delivered to CBE an opinion of legal
counsel selected by F&M to the effect that the shares of F&M Common to be issued
in this transaction in exchange for shares of CBE Common Stock will be issued as
part of a tax-free reorganization. F&M covenants to proceed diligently and in
good faith to obtain such opinion as soon as practically possible.
8.18 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 accounting
treatment, shall be paid in cash, including amounts paid for fractional shares
and amounts paid to CBE Shareholders who exercise their dissenters rights under
Wis. Stats. ss.ss.180. 1301 et seq.
8.19 F&M Stock Price. The F&M Stock Price shall be less than or equal
to Forty-five Dollars ($45.00). This amount shall be adjusted by the amount of
any stock dividends, stock split or other recapitalization of F&M. For example,
if F&M declares a 10% stock dividend, this amount shall be adjusted to $40.50.
8.20 Beck Employment Contract. Beck and BANK, with F&M's prior
approval, will have entered into an employment agreement in the form attached as
Exhibit 3.7B which will provide, among other things, that Beck will become a
participant in the F&M Bancorporation, Inc. Employees' Retirement and Savings
Plan and Trust as soon as possible after the Effective Time.
8.21 Beck Agreement. At or prior to the Effective Time, the Beck
Agreement shall have been terminated upon terms and conditions acceptable to
F&M.
8.22 Paddock Retirement. As of the Effective Time, Paddock will
retire as an employee of BANK and shall become an independent contractor under
the Consulting Agreement described in paragraph 3.7A.
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9. Conditions Precedent to CBE's Obligations.
Each and every obligation of CBE 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 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.
9.2 F&M's and Subsidiary's Compliance. F&M and Subsidiary shall have
performed and complied with all of its 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, CBE 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 and Subsidiary in
connection with the transaction contemplated by this Agreement shall have
occurred and all appropriate documents incident thereto as CBE may reasonably
request shall have been delivered to CBE. F&M and Subsidiary shall have
delivered certificates in such detail as CBE may reasonably request to comply
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 and shareholder approval which CBE shall make a good faith, best effort
to obtain, 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 CBE
or BANK.
9.6 Time Limit on Closing. Closing shall have taken place by January
31, 1999.
9.7 Legal Opinion. CBE shall have received the opinion of F&M
Counsel referred to in subparagraph 10.4(d).
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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. CBE shall have received an opinion of CBE Counsel to
the effect that the transaction contemplated by this Agreement will be tax-free
reorganization to those CBE Shareholders who receive F&M Common in exchange for
their CBE Common (excluding fractional or dissenting shares). In connection with
rendering this opinion CBE and BANK agree to execute certificates reasonably
requested by the issuer of the opinion.
9.10 Directors and Officers Liability Insurance. F&M shall furnish
evidence to CBE that the directors and officers of CBE and BANK are covered
under the directors and officers liability insurance provided to the directors
and officers of F&M and its subsidiaries, which coverage shall include coverage
in accordance with the standard terms and conditions of such policy for claims
based upon occurrences which occurred prior to F&M acquisition of CBE. In the
event such coverage is not available, F&M may satisfy this condition by offering
separate coverage to CBE's directors and officers which is substantially
equivalent to the coverage carried by CBE as of the date of this Agreement.
9.11 F&M Stock Price. The F&M Stock Price shall be greater to or
equal to Thirty-seven ($37.00). This amount shall be adjusted by the amount of
any stock dividends, stock split or other recapitalization of F&M. For example,
if F&M declares a 10% stock dividend, this amount shall be adjusted to $33.30.
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 CBE Shareholders After the Effective Time. After the
Effective Time and until the surrender of a stock certificate representing
shares of CBE Common, each such outstanding certificate, which prior to the
Effective Time represented shares of CBE 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 or cash into which such
shares have been converted as provided in this Agreement; provided, however,
that unless and until any such certificates representing CBE Common shall be so
surrendered, the cash or stock certificate representing the shares, any
interest, dividends or other distributions of any kind payable shall be
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withheld by F&M. Upon the subsequent surrender and exchange of such CBE Common
certificates, such holder of record of the certificates formerly representing
shares of CBE 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. Delivery of certificates representing shares of
F&M Common or cash payment to former CBE Shareholders who have tendered their
certificates for their shares of CBE 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 CBE. At the time of or prior to the
closing dated as of the Closing Date, CBE shall deliver the following documents:
(a) Certificates by the chairman, vice-chairman or president
of CBE and BANK (i) that the representations and warranties made by CBE or BANK
as the case may be in this Agreement are true and correct in all material
respects 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 CBE and BANK have performed and complied with all of
their covenants and obligations under this Agreement which are to be performed
or complied with by or prior to or on the Closing Date, (iii) that all
conditions of this transaction required to be met with respect to CBE have been
met or are waived by CBE, and (iv) that all Schedules and Exhibits delivered by
CBE 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 CBE
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 CBE Counsel dated as of the
Closing Date addressed to F&M and F&M Counsel, that the matters set forth in
paragraphs 4.2, 4.3, 4.4(c), 4.5(d), 4.5(f), 4.5(j) and 4.6(d) are true and
correct as represented in the form attached hereto as Exhibit 10.3(d).
(e) Certified copies of resolutions adopted by CBE'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.
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(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. As of the
Closing Date, F&M and Subsidiary shall deliver the following documents:
(a) Certificates for shares of F&M Common and cash payments
as determined under Article 3 of this Agreement. Such checks or certificates
will be in the name of CBE Shareholders entitled to the same in accordance with
their interest in CBE as of the Effective Time provided, however, that such cash
and any certificates need not be delivered until such time as the provisions of
paragraph 10.2 have been complied with by such 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) Certificates by an officer of F&M and Subsidiary 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 covenants and obligations which are to be performed or complied with by
or prior to or as of the Closing Date, (iii) that all conditions of this
transaction required to be met with respect to CBE and Subsidiary have been met
or are waived by F&M and Subsidiary, and (iv) that all Schedules and Exhibits
delivered by F&M to CBE 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 CBE and CBE Counsel that the matters
set forth in paragraphs 5.1, 5.2, and 5.3 are true and correct as represented in
the form attached hereto as Exhibit 10.4(d).
(e) 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.
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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, Subsidiary and CBE.
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) By mutual consent of F&M, Subsidiary and CBE;
(b) By F&M and Subsidiary, or 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 Subsidiary. If the condition set by paragraph 8.19 is not met, F&M may waive
this condition and the F&M Stock Price determined under paragraph 1.13 shall be
used notwithstanding the provisions of paragraph 8.19.
(c) By CBE if any of the conditions provided for in Article
9 of this Agreement have not been met and have not been waived in writing by
CBE. If the condition set by paragraph 9.11 is not met, CBE may waive this
condition and the F&M Stock Price determined under paragraph 1.13 shall be used
notwithstanding the provisions of paragraph 9.11.
(d) In the event of a breach of this Agreement, by notice
from the non-breaching 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 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 Stock
Price shall be the higher of the price as of the date of the notice or as of the
date on
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<PAGE> 30
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.
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):
(a) If to CBE, to CBE, Inc., 10 North Lincoln Street,
P.O. Box 650, Elkhorn, Wisconsin 53121-0650, Attn: Earl Paddock, President and
Chairman of the Board, FAX: 414- 235-3838, with a copy to Michael Best &
Friedrich, Attn: Frank J. Pelisek, 100 East Wisconsin Avenue, Suite 3300,
Milwaukee, Wisconsin 53202, FAX: 414-277-0656.
(b) If to F&M or Subsidiary, to Mr. Gail E. Janssen, One
Bank Avenue, Kaukauna, Wisconsin 54130, FAX: 920-766-5628, with a copy to
Randall A. Haak, Esq., McCarty, Curry, Wydeven, Peeters & Haak, LLP, P.O. Box
860, Kaukauna Wisconsin 54130, FAX: 920-766-4756.
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.
-30-
<PAGE> 31
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 CBE.
21. Further Documents.
F&M, Subsidiary and CBE 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> 32
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, Chairman of the Board
ATTEST:
By:__/s/____________________________
Janet M. Lakso Secretary
F&M MERGER CORPORATION ("SUBSIDIARY")
By:__/s/_______________________________
Gail E. Janssen, President
ATTEST:
By:__/s/_______________________________
Joseph F. Walsh, Vice President
CBE, INC. ("CBE")
By:__/s/_______________________________
Earl A. Paddock, President and
Chairman of the Board
ATTEST:
By:__/s/_______________________________
Audrey Peterson, Secretary
-32-
<PAGE> 1
EXHIBIT 3(i)
\
[composite copy]
RESTATED
ARTICLES OF INCORPORATION
OF
F & M BANCORPORATION, INC.
[as amended through July 22, 1998]
F & M Bancorporation, Inc., a corporation organized under the laws of
the State of Wisconsin, hereby adopts the following Restated Articles of
Incorporation of said corporation, which amend, supersede and take the place of
its heretofore existing articles of incorporation and all amendments thereto.
Article 1. Name. The name of the corporation is:
F & M Bancorporation, Inc.
Article 2. Duration. The period of its existence shall be
perpetual.
Article 3. Purpose. The corporation may engage in any lawful
activity within the purposes for which corporations may be organized under
the Wisconsin Business Corporation Law, Chapter 180, Wisconsin Statutes.
Article 4. Authorized shares. The aggregate number of shares
which the corporation shall have authority to issue is 50,000,000,
consisting of one class only, designated as "Common Stock," having a One Dollar
($1.00) par value. [as amended July 22, 1998]
Article 5. Preemptive rights. No shareholder of the corporation
shall have any preemptive rights to subscribe for or to purchase or to
acquire any issue of shares, or securities convertible into such shares, or
carrying a right to subscribe to or acquire such shares, or any other securities
of the corporation.
Article 6. Requisite Affirmative Vote Requirements. The
affirmative vote of a majority of the shares entitled to vote shall be
required for all matters requiring approval of shareholders.
Article 7. Registered office and registered agent. The address
of the registered office is Fourth Street Plaza, Kaukauna, Wisconsin 54130.
The name of the corporation's registered agent at such address is Gail E.
Janssen.
Article 8. Number of directors. The number and classes of the
directors shall be set forth in the bylaws of the Corporation.
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9,779
0
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