<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1998
REGISTRATION NO. 333-26373
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
F&M BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<CAPTION>
<S> <C> <C>
WISCONSIN 6022 39-1365327
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
ONE BANK AVENUE
KAUKAUNA, WISCONSIN 54130
(920) 766-1717
(Address, including Zip Code, and telephone number,
including area code, of registrant's principal executive offices)
RANDALL A. HAAK, ESQ.
MCCARTY, CURRY, WYDEVEN, PEETERS & HAAK, LLP
120 E. 4TH STREET
KAUKAUNA, WISCONSIN 54130
(920) 766-4693
(Name, address, including Zip Code, and telephone
number, including area code, of agent for
service)
----------------
COPIES TO:
KENNETH V. HALLETT, ESQ. ELLIOT H. BERMAN, ESQ.
QUARLES & BRADY GODFREY & KAHN, S.C.
411 EAST WISCONSIN AVENUE 780 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202 MILWAUKEE, WISCONSIN 53202
(414) 277-5000 (414) 273-3500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effectiveness of this
Post-Effective Amendment No. 2 to the Registration Statement.
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<PAGE> 2
PROSPECTUS
1,871,822 SHARES
F&M BANCORPORATION, INC.
COMMON STOCK
This Prospectus (the "Prospectus") covers the offer and sale of up to
1,871,822 shares of Common Stock, par value $1.00 per share (the "F&M Common"),
of F&M Bancorporation, Inc. ("F&M" or the "Company"), which F&M may issue from
time to time in connection with future acquisitions of other businesses, or
securities of other businesses, in business combination transactions in
accordance with Rule 415(a)(1)(viii) of Regulation C under the Securities Act of
1933, as amended (the "Securities Act") or as otherwise permitted under the
Securities Act.
The Company expects that the terms upon which it may issue the shares
in business combination transactions will be determined through negotiations
with the boards of directors, principal owners and/or other representatives of
the businesses to be acquired. It is expected that the shares of F&M Common that
are issuable will be valued at prices reasonably related to the market prices
for F&M Common prevailing at either the time an acquisition agreement is
executed or at the time an acquisition is consummated. On April __, 1998, the
last reported sales price of F&M Common on The NASDAQ Stock Market ("NASDAQ")
was $_____ per share.
This Prospectus will be used only in connection with business
acquisitions. The Prospectus may be used in connection with business combination
transactions which would be exempt from registration but for the issuance of F&M
Common and the possibility of integration with other transactions; in such case,
no supplement may be required. If an acquisition of a business or securities in
a business combination transaction is not exempt from registration even if
integration is not taken into account, then the offerees of F&M Common in such
acquisition will be furnished with copies of this Prospectus either (i) together
with a Supplement, which will reflect the registration statement as filed or as
amended by a post-effective amendment to the registration statement on Form S-4
which this Prospectus is a part or (ii) if permitted, as supplemented by the
incorporation by reference of information contained in a current report on Form
8-K filed by F&M.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN
FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE ACQUIRORS OF THE F&M COMMON
OFFERED HEREBY.
The date of this Prospectus is April __, 1998.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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AVAILABLE INFORMATION
F&M is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by F&M with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can also be obtained from the Public Reference Section
of the Commission, Washington, D.C. 20549 at prescribed rates. Also, the
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
(such as F&M) that file electronically with the Commission. In addition, because
F&M Common is traded on the NASDAQ Stock Market, material filed by F&M can be
inspected at the offices of National Association of Securities Dealers, Inc.,
1735 K Street N.W., Washington, D.C. 20006.
F&M has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act with respect to the securities to be issued pursuant to or as
contemplated by the Agreement. This Prospectus does not contain all the
information set forth in the Registration Statement. Such additional information
may be obtained at the addresses set forth above. Statements contained in this
Prospectus or in any document incorporated in this Prospectus by reference as to
the contents of any contract or other document referred to herein or therein are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference certain documents of F&M that
are not presented herein or delivered herewith. Such documents (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference) will be provided without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request of such person. Requests should be directed to F&M Bancorporation, Inc.,
One Bank Avenue, Kaukauna, Wisconsin 54130 (telephone 920/766-1717), Attn:
Corporate Secretary.
The following documents filed with the Commission by F&M pursuant to
the Exchange Act are incorporated by reference in this Prospectus:
(i) F&M's Annual Report on Form 10-K for the year ended December 31,
1997; and
(ii) The description of F&M Common included in Item 11 to F&M's
Registration Statement on Form 10, as amended by Post-Effective
Amendment No. 2 thereto filed September 16, 1993.
All reports and definitive proxy or information statements filed by F&M
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus shall be deemed to be incorporated by reference into
this Prospectus from the date of the filings of such documents.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
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TABLE OF CONTENTS
Page No.
AVAILABLE INFORMATION........................................................-2-
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................-2-
SUMMARY ....................................................................-4-
RISK FACTORS.................................................................-5-
F&M MARKET INFORMATION AND DIVIDENDS.........................................-7-
F&M SUMMARY FINANCIAL DATA...................................................-8-
F&M BANCORPORATION, INC......................................................-9-
INFORMATION AS TO F&M COMMON................................................-10-
PLAN OF DISTRIBUTION........................................................-11-
LEGAL OPINIONS..............................................................-12-
EXPERTS ...................................................................-12-
PROCEDURE FOR SUBMITTING SHAREHOLDER PROPOSALS..............................-12-
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NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES MADE HEREBY AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY F&M, OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF F&M SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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SUMMARY
The following is a brief summary of certain information contained in
this Prospectus, including summaries of information believed by the parties to
be material. This summary is intended merely to supply pertinent facts and
highlights of the material contained in or accompanying this Prospectus. The
information contained in this summary is qualified by reference to more detailed
information contained elsewhere, or incorporated by reference, in this
Prospectus.
Unless otherwise indicated, all financial and other data per share of
F&M Common, and all data with respect to such shares, in this Prospectus have
been restated to give retroactive effect to F&M's 10% stock dividend which was
paid in June 1996 and F&M's 10% stock dividend which was paid on June 9, 1997 to
shareholders of record on May 23, 1997.
F&M Bancorporation, Inc.
F&M, which has its principal executive offices at One Bank Avenue,
Kaukauna, Wisconsin 54130 (telephone: 920/766-1717), had total consolidated
assets of $1.6 billion at December 31, 1997. At March 1, 1998, F&M had 20 bank
subsidiaries with 65 offices in Wisconsin, one bank in Minnesota, and a full
service trust company. F&M, a Wisconsin corporation, is a registered holding
company subject to supervision and regulation by the Federal Reserve Board
("FRB") under the Federal Bank Holding Company Act of 1996, as amended.
See "F&M Bancorporation, Inc."
Further information regarding F&M, including audited financial
statements, is included in the reports filed with the Securities and Exchange
Commission which are incorporated herein by reference. Offerees may obtain
copies of such documents from the Commission or by request to F&M. See
"Available Information" and "Incorporation of Certain Documents by Reference."
F&M Common
Shares of F&M Common are traded on the NASDAQ Stock Market under the
symbol "FMBK." See "F&M Market Information and Dividends."
F&M is organized under the Wisconsin Business Corporation Law ("WBCL"),
which determines the rights of holders of F&M Common, except as otherwise
provided in F&M's Articles of Incorporation. Among other things, F&M is subject
to statutory anti-takeover provisions and its Articles of Incorporation provide
for the classification of its board of directors. In addition, F&M (and all
other corporations incorporated or qualified to do business in Wisconsin)
shareholders are subject to statutory personal liability for certain employee
compensation claims. See "Information as to F&M Securities."
Method of Distribution
The shares of F&M Common to be offered hereunder will be offered in
business combination transactions. See "Plan of Distribution."
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RISK FACTORS
In evaluating a transaction with F&M, the shareholders of an entity
being acquired should consider carefully the following factors, along with the
other information contained, or incorporated by reference, in this Prospectus,
and any Supplement thereto.
Acquisitions
Since its inception, F&M has experienced substantial growth through
acquisitions of other financial institutions. F&M's strategy to continue to make
acquisitions is dependent upon its ability to identify potential targets for
acquisition and consummate transactions on terms acceptable to F&M.
Also, F&M's future success is dependent in part upon its ability to
integrate the operations of, and manage over time, acquired financial
institutions. F&M has acquired 13 financial institutions or offices within the
past four years, including one acquisition in 1995, four in 1996, six in 1997
and two to date in 1998. F&M has pending the acquisition of BancSecurity
Corporation, a bank holding company based in Iowa ("BancSecurity") and the
acquisition of Financial Management Services of Jefferson, Inc., a bank holding
company based in southcentral Wisconsin ("FMSJ").
The acquisition of BancSecurity would be the largest acquisition for
F&M both in consideration paid and assets acquired. In addition, it would be
F&M's first large acquisition outside of Wisconsin. The factors of distance from
F&M's executive offices, size and new markets could combine to make the
BancSecurity acquisition transition more challenging for F&M than in past
acquisitions.
Competition
Banks, including the F&M subsidiary banks (the "F&M Banks"), actively
compete with other financial institutions and businesses in both attracting and
retaining deposits and making loans. Financial institution competitors include
banks, savings banks, savings and loan associations and credit unions. Other
business competitors include insurance companies, securities brokerage firms,
trust companies and investment management firms. While F&M believes it has a
competitive advantage because many of its bank office locations represent the
only commercial bank office in their community, competition with other financial
institutions and businesses, as well as the pricing levels of their products and
services, can affect the Banks' ability to obtain and retain customers.
F&M also faces competition in seeking institutions to acquire.
Wisconsin has recently experienced a significant consolidation of its banking
industry, and many large holding companies with greater resources than F&M
(including several out-of-state holding companies) are actively pursuing
acquisitions in Wisconsin. Similar conditions affect acquisition opportunities
in other nearby states such as Minnesota and Iowa. This competition affects the
available acquisition opportunities for F&M and can affect the costs of such
acquisitions. .
Need for Technological Change
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. While F&M's
community banking strategy stresses "traditional" personal service, F&M's future
success will depend in part on its ability to address the needs of its customers
by using technology to provide products and services that will satisfy customer
demands for convenience as well as to create additional efficiencies in F&M's
Banks' operations. Many of F&M's competitors have substantially greater
resources to invest in technological improvements.
Like other financial institutions, F&M must assure that its computer
and other systems are "year 2000 compliant" (meaning 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, and has designated an F&M
employee to coordinate F&M's year 2000 compliance efforts. As
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<PAGE> 7
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 and a significant part of F&M being year 2000
compliant requires such compliance by the third parties. Based in part upon
information being received from these third parties, F&M currently believes that
it will be year 2000 compliant on a timely basis to avoid material operational
disruptions and to comply with the requirements of its regulators. To date, F&M
has not identified material expenditures which will be required to become year
2000 compliant. However, there can be no assurance that such operational
difficulties or expenditures will not be identified or experienced in the
future.
Banking Industry
The banking industry is highly regulated by both federal and state
regulatory authorities. Regulation includes, among other things, capital reserve
requirements, dividend limitations, limitations on products and services
offered, geographical limits, consumer credit regulations, community investment
requirements and restrictions on transactions with affiliated parties. Financial
institution regulation has been the subject of significant legislation in recent
years, may be the subject of further significant legislation in the future, and
is not within the control of F&M. This regulation substantially affects the
business and financial results of all financial institutions and holding
companies, including F&M and the Banks.
F&M, as a member of the banking industry, is affected by general
economic conditions, particularly as those conditions affect the midwestern
communities served by the F&M Banks. A financial institution's earnings also
depend to a large extent upon the relationship between the cost of funds
(primarily deposits) and the yield on earning assets (loans and investments).
This relationship, known as the interest rate margin, is subject to fluctuation
and is affected by regulatory, economic and competitive factors which influence
interest rates, the volume and rate of interest on interest-earning assets and
interest-bearing liabilities, and the level of non-performing assets.
Dependence on Officers
F&M has historically been highly dependent on the services of its
Chairman, Gail E. Janssen. F&M does not have an employment agreement with Mr.
Janssen or maintain "key person" life insurance on Mr. Janssen. F&M has recently
taken actions to reorganize operations on a regional basis and to augment its
corporate staff to help support F&M's substantial growth, to place less
dependence on any one individual, and to anticipate management succession. As
part of these actions, F&M designated John W. Johnson, an F&M officer since
1994, as its President in July 1997 and Chief Executive Officer in November
1997.
Cautionary Statement Regarding Forward-Looking Statements
The discussions in this Joint Proxy Statement/Prospectus, and in the
documents incorporated herein by reference, which are not historical statements
(including those in the future tense or using terms such as "believe," "expect"
and "anticipate") contain forward-looking statements that involve risks and
uncertainties. F&M's actual future results could materially differ from those
discussed. Factors that could cause or contribute to such differences include,
but are not limited to, F&M future lending and collection experience, the
effects of acquisitions, competition from other institutions, changes in the
banking industry and its regulation, needs for technological change, and other
factors including those discussed above in "Risk Factors" and in F&M's
Management's Discussion and Analysis (which is incorporated herein by reference
from F&M Form 10-K for the year ended December 31, 1997 (the "F&M 1997 10-K")),
as well as those discussed elsewhere in this Prospectus, in any supplemental
statement, and the documents incorporated herein by reference.
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F&M MARKET INFORMATION AND DIVIDENDS
F&M Common trades on The NASDAQ Stock Market ("NASDAQ") under the
symbol "FMBK". F&M had approximately 3,150 shareholders of record at March 1,
1998. The following table summarizes high and low prices and cash dividends paid
for F&M Common for the periods indicated. The high and low prices represent
actual trade prices as reported on NASDAQ.
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CASH DIVIDENDS
CALENDAR PERIOD HIGH LOW PAID PER SHARE
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1996 1st quarter $23.55 $20.05 $.149
2nd quarter 28.64 22.32 .149
3rd quarter 28.64 25.68 .155
4th quarter 29.09 27.05 .155
1997 1st quarter 29.09 25.91 .18
2nd quarter 40.25 26.36 .18
3rd quarter 39.50 34.00 .20
4th quarter 41.50 36.50 .20
1998 1st quarter 43.00 36.25 .22
2nd quarter
(through April __)
</TABLE>
F&M has paid quarterly or annual cash dividends since its inception.
The holders of F&M Common are entitled to receive such dividends as are declared
by the board of directors of F&M, which considers (and may change) payment of
dividends quarterly. The ability of F&M to pay dividends is dependent upon the
receipt of dividends from the F&M Banks, payment of which is subject to
regulatory restrictions. In determining cash dividends, the board of directors
of F&M considers the earnings, capital requirements, debt servicing
requirements, financial ratio guidelines issued by the FRB and other banking
regulators, financial condition of F&M and the F&M Banks, and other relevant
factors. See Note 15 of Notes to F&M's Consolidated Financial Statements and the
discussion under "Management's Discussion and Analysis of Results of Operations
and Financial Condition--Financial Condition--Capital Adequacy," incorporated
herein by reference, for restrictions on the ability of the F&M Banks to pay
dividends.
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F&M SUMMARY FINANCIAL DATA
The summary financial data presented below for F&M Bancorporation, Inc.
for each of the years in the five year period ended December 31, 1997, which are
derived from the Consolidated Financial Statements of F&M and should be read in
conjunction with other financial information incorporated by reference in this
Prospectus, such as the separate Consolidated Financial Statements and notes
thereto of F&M, and Management's Discussion and Analysis of Results of
Operations and Financial Condition. See Note (1) below regarding accounting for
business combinations.
<TABLE>
<CAPTION>
Years ended December 31,
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1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(unaudited; dollars in millions, except per share data)
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SUMMARY OF OPERATIONS (1)
Interest income............................. $122.5 $98.9 $87.6 $74.1 $70.9
Interest expense............................ 57.8 45.4 39.4 29.5 29.3
Net interest income......................... 64.7 53.5 48.2 44.6 41.5
Provision for loan losses................... 2.8 2.9 1.7 1.4 1.4
Before extraordinary item and cumulative
effect of change in accounting
principle (2)............................. 20.3 15.4 13.8 10.1 10.2
Net income.................................. 20.3 15.4 13.8 10.1 10.3
Net income applicable to common stock....... 20.3 15.4 13.8 10.1 10.1
PERIOD END BALANCE SHEET DATA (1)
Total assets................................ $1,646.0 $1,335.9 $1,148.9 $1,062.8 $1,011.3
Net loans................................... 1,182.8 958.2 783.1 727.3 629.1
Total deposits.............................. 1,373.4 1,140.4 993.7 925.9 882.2
Short-term borrowings....................... 47.7 42.3 12.6 21.0 6.8
Other borrowings............................ 60.9 18.2 18.1 10.5 16.8
Preferred stock............................. 0 0 0 0 2.1
Total shareholders' equity.................. 148.8 122.2 111.0 97.8 97.4
PER COMMON SHARE DATA (3) Net income per share:
Before extraordinary item and cumulative
effect of change in accounting
principle (2)......................... $2.09 $1.73 $1.59 $1.16 $1.20
Basic................................... 2.09 1.73 1.59 1.16 1.21
Diluted................................. 2.08 1.73 1.59 1.16 1.21
Cash dividends (4).......................... 0.76 0.61 0.50 .40 .30
</TABLE>
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(1) Except as indicated, the data have been restated to reflect F&M's
acquisitions using the pooling of interests method of accounting,
except in the case of certain acquisitions for which prior results were
not restated because they were not material to F&M. See Note 3 of Notes
to F&M's Consolidated Financial Statements incorporated herein by
reference. The data also have not been restated to reflect F&M's 1998
acquisitions; although one of those acquisitions is being accounted for
using the pooling of interests method of accounting, prior periods will
not be restated due to its relatively small size as compared to F&M.
(2) Cumulative effect of change in accounting principle in 1993 represents
the adoption of SFAS No. 109 (Accounting for Income Taxes) by one of
the Company's acquired subsidiaries.
(3) Per share data has been restated to reflect the 10% stock dividends
paid to stockholders in June 1996 and 1997.
(4) Cash dividends per share are not restated to reflect the acquisitions
accounted for using the pooling of interests method of accounting.
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F&M BANCORPORATION, INC.
F&M Bancorporation, Inc. was formed in 1980 to acquire the shares of
Farmers and Merchants Bank of Kaukauna, Wisconsin (now known as F&M
Bank-Kaukauna). F&M has grown internally and through acquisitions from a
one-bank holding company with total assets of $37 million at its inception to a
multi-bank holding company with 66 banking offices. F&M had total assets of over
$1.6 billion, at December 31, 1997.
At December 31, 1997, F&M's subsidiary banks (the "F&M Banks") ranged
in size from $31.4 million to $312.1 million in total assets. The F&M Banks are
community banks which provide a full range of services to consumers and
businesses in small and medium-sized communities throughout Wisconsin and in
Minnesota. F&M also owns a full service trust company. F&M provides the benefits
of holding company affiliation while allowing the F&M Banks to operate with
considerable autonomy.
Pending Acquisitions
Jefferson Acquisition. On December 31, 1997, F&M entered into an
agreement to acquire Financial Management Services of Jefferson, Inc.
("Jefferson"), the holding company for The Farmers & Merchants Bank of Jefferson
("FMBJ"). FMBJ, has two offices in Jefferson, in southcentral Wisconsin. The
agreement provides for the exchange of Jefferson stock for approximately 641,975
shares of F&M Common (subject to adjustments provided in the agreement). The
transaction is expected to be completed in the second quarter of 1998.
At December 31, 1997, Jefferson had total assets of $99.7 million, net
loans of $62.0 million, total deposits of $80.7 million and shareholders' equity
of $13.2 million. For the year ended December 31, 1997, Jefferson had net income
of $1.0 million. F&M expects to account for the transaction using the pooling of
interests method of accounting.
Marshalltown, Iowa Acquisition. On December 1, 1997, F&M entered into
an agreement to acquire BancSecurity Corporation ("BancSecurity") of
Marshalltown, Iowa, the holding company for several banks located in Iowa
("BancSecurity Banks"). The BancSecurity Banks have 14 offices in central, Iowa.
The agreement provides for the exchange of BancSecurity stock for approximately
$145 million of F&M Common (subject to adjustments provided in the agreement).
The transaction is expected to be completed in the second quarter 1998.
At December 31, 1997, BancSecurity had total assets of $546.7 million,
net loans of $329.7 million, total deposits of $446.6 million and shareholders'
equity of $52.1 million. For the year ended December 31, 1997, BancSecurity had
net income of $3.1 million. F&M expects to account for the transaction using the
pooling of interests method of accounting.
Further Information
Further information regarding F&M, including financial statements and
Management's Discussion and Analysis, is incorporated by reference from the F&M
1997 10-K, and subsequent filings (if any). See "Incorporation of Certain
Documents by Reference."
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INFORMATION AS TO F&M COMMON
The Restated Articles of Incorporation of F&M, as amended (the
"Articles"), provide that F&M has authority to issue 20,000,000 shares of Common
Stock, $1.00 par value ("F&M Common"). As part of F&M's annual meeting of
shareholders scheduled to be held on May 21, 1998, F&M shareholders will be
asked to approve an amendment to the Articles to increase the number of
authorized shares that F&M is authorized to issue from twenty (20,000,000)
million to fifty (50,000,000) million shares. The outstanding shares of F&M
Common are, and the shares to be issued in transactions will be, fully paid and
nonassessable, except for statutory liability of shareholders under Section
180.0622(2) (b) of the Wisconsin Business Corporation Law (the "WBCL"), as
judicially interpreted, for certain unpaid indebtedness to employees for
services rendered.
The holders of F&M Common are entitled to one vote for each share held
of record on each matter submitted to a vote of shareholders. Shareholders have
no cumulative voting rights, which means that the holders of shares entitled to
exercise more than 50% of the voting rights are able to elect all of the
directors. F&M's Articles and Bylaws provide for classification of the board of
directors into three classes, one class being subject to election in each year
for three-year terms.
Dividends may be paid to holders of F&M Common when, as and if declared
by the board of directors out of funds legally available therefor, subject to
any contractual restrictions on the payment of dividends. In the event of any
liquidation, dissolution or winding-up of F&M, the holders of F&M Common will be
entitled to receive a pro rata share of the assets of F&M remaining after
payment or provision for payment of the debts and other liabilities of F&M. The
holders of F&M Common are not entitled to any preemptive, subscription,
redemption or conversion rights. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition--Financial Condition--Capital
Adequacy" and Note 15 of Notes to F&M's Consolidated Financial Statements (which
are incorporated herein by reference) for discussions of restrictions on F&M
Banks' ability to pay dividends to F&M.
Certain Statutory Provisions
Except as may otherwise be provided by law, the requisite affirmative
vote of shareholders for certain corporate actions, including a merger or share
exchange with another corporation, sale of all or substantially all of the
corporate property and assets, or voluntary liquidation of F&M, is a majority of
all the votes entitled to be cast on the transaction by each voting group of
outstanding shares entitled to vote thereon. Sections 180.1130 through 180.1134
of the WBCL provide generally that, in addition to the vote otherwise required
by law or the articles of incorporation of a "resident domestic corporation"
(defined to mean a corporation domiciled in Wisconsin with at least 500
shareholders of record, including 100 shareholders of record who have unlimited
voting rights and are Wisconsin residents), certain "business combinations" not
meeting certain adequacy-of-price standards specified in the statute must be
approved by (a) the holders of at least 80% of the votes entitled to be cast and
(b) two-thirds of the votes entitled to be cast by the corporation's outstanding
voting shares owned by persons other than a "significant shareholder" who is a
party to the transaction or an affiliate or associate thereof. Section 180.1130
defines "business combination" to include, subject to certain exceptions, a
merger or share exchange of the issuing public corporation (or any subsidiary
thereof) with or the sale or other disposition of substantially all assets of
the issuing public corporation to, any significant shareholder or affiliate
thereof. "Significant shareholder" is defined generally to mean a person that is
the beneficial owner of 10% or more of the voting power of the outstanding
voting shares of the issuing public corporation. The statute also restricts the
repurchase of shares and the sale of corporate assets by an issuing public
corporation in response to a take-over offer.
F&M presently meets the definition of "issuing public corporation."
Also, Section 180.1150 of the WBCL provides that the voting power of
shares of a "resident domestic corporation" which are held by any person in
excess of 20% of the voting power of the issuing public corporation's shares
shall be limited to 10% of the full voting power of such excess shares. This
statutory voting restriction is not applicable to shares acquired directly from
F&M, to shares acquired in a transaction incident to which shareholders of F&M
vote to restore the full voting power of such shares and under certain other
circumstances.
-10-
<PAGE> 12
Sections 180.1140 through 180.1144 of the WBCL prohibit certain
"business combinations" between a "resident domestic corporation" and a person
beneficially owning 10% or more of the outstanding voting stock of such
corporation (an "interested shareholder") within three years after the date such
person became a 10% beneficial owner (the "acquisition date"), unless the
business combination or the acquisition of such stock has been approved before
the acquisition date by the corporation's board of directors. After such
three-year period, a business combination with the interested shareholder may be
consummated only with the approval of the holders of a majority of the voting
stock not beneficially owned by the interested shareholder, unless the
combination satisfies certain adequacy-of-price standards intended to provide a
fair price for shares held by disinterested shareholders. F&M presently meets
the definition of a "resident domestic corporation."
The foregoing provisions of the WBCL, the classification of F&M's board
of directors and the ability to issue additional shares of F&M Common without
further shareholder approval (except as may be required under NASDAQ Stock
Market corporate governance standards), could have the effect, among others, of
discouraging take-over proposals for F&M or impeding a business combination
between F&M and a major shareholder.
PLAN OF DISTRIBUTION
This Prospectus covers the offer and sale by F&M of up to 1,871,822
shares of F&M Common, which F&M may issue from time to time in connection with
the future acquisitions of other businesses, or securities of other businesses,
in business combination transactions in accordance with Rule 415(a)(1)(viii) of
Regulation C under the Securities Act or as otherwise permitted under the
Securities Act.
F&M expects that the terms upon which it may issue the shares in
business combination transactions will be determined through negotiations with
the boards of directors, principal owners and/or other representatives of the
businesses to be acquired. It is expected that the shares of F&M Common that are
issued will be valued at prices reasonably related to the market prices for F&M
Common prevailing at either the time an acquisition agreement is executed or at
the time an acquisition is consummated.
Of the shares being offered hereby, it is expected that approximately
641,975 shares will be issued in connection with F&M's pending acquisition of
Jefferson. There can be no assurances that such acquisitions will be completed
as anticipated. In the event that any of such acquisitions is not completed,
shares which were to have been issued in such acquisitions may be offered in
connection with other future acquisitions. See "F&M Bancorporation, Inc.
- - Pending Acquisitions."
All expenses to these offerings are expected to be borne by F&M,
although any business to be acquired is likely to be required to bear all of its
expenses in connection with any business combination transaction. Because any
supplement to this registration statement may also constitute a proxy statement
of such acquired business, the acquired business may bear certain of the
expenses relating thereto.
No underwriting discounts or commissions will be paid in connection
with the issuance of shares of F&M Common by F&M in any business combination
transactions, although F&M (or an acquired business) may engage investment
advisors in connection with the evaluation of any specific acquisition.
-11-
<PAGE> 13
LEGAL OPINIONS
Quarles & Brady, Milwaukee, Wisconsin, special counsel for F&M, and
McCarty, Curry, Wydeven, Peeters & Haak, LLP, Kaukauna, Wisconsin, general
counsel for F&M, will render opinions on the legality of the shares being
offered hereby and as to certain other matters in connection with the business
combination transactions pursuant to which shares of F&M Common may be issued.
At March 1, 1998, two Quarles & Brady attorneys providing services with respect
to the Registration Statement owned an aggregate of 8,623 shares of F&M Common.
At that date, six McCarty, Curry, Wydeven, Peeters & Haak, LLP attorneys
providing services with respect to the Registration Statement owned an aggregate
of 11,131 shares of F&M Common.
EXPERTS
The consolidated financial statements of F&M as of December 31, 1997
and 1996, and for the years ended December 31, 1997, 1996 and 1995, have been
audited by Wipfli Ullrich Bertelson LLP, independent certified public
accountants, as indicated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said reports.
PROCEDURE FOR SUBMITTING SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, F&M
shareholders may present proper proposals for inclusion in F&M's proxy statement
and for consideration at its annual meeting of shareholders in a timely manner.
If F&M's 1998 annual meeting is held as scheduled, the date for timely
submission is December 20, 1998; if the meeting is materially delayed,
shareholders will be informed of a new date for submission.
-12-
<PAGE> 14
April __, 1998
Dear Fellow Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Financial Management Services of Jefferson, Inc.("FMSJ") to be held on
________, May __, 1998 at ________________________________________, __________,
Wisconsin (the "Special Meeting"). The Special Meeting will begin at _____ _.m.,
Central Time. At the Special Meeting, you will be asked to approve an Agreement
of Merger and Reorganization dated as of December 31, 1997, (the "Agreement"),
which provides for the merger (the "Merger") of FMSJ and a wholly-owned
subsidiary of F&M Bancorporation, Inc. ("F&M"). The Agreement provides that,
upon consummation of the Merger, each holder of FMSJ Common Stock will be
entitled to receive, for each share of FMSJ Common Stock, no par value ("FMSJ
Common") held at the time of the Merger, 17.332 shares of F&M Common Stock,
$1.00 par value ("F&M Common") subject to certain conditions and adjustments set
forth in the Agreement.
THE BOARD OF DIRECTORS OF FMSJ BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF FMSJ AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AGREEMENT.
The attached Supplemental Prospectus/Proxy Statement ("Supplemental
Statement") will provide you with a detailed description of the Agreement and
the transactions contemplated thereby. The Agreement itself is attached as
Exhibit C to the Supplemental Statement. A separately enclosed Prospectus of F&M
(the "Prospectus") will provide you with additional information about F&M.
Extensive information concerning F&M and FMSJ is also provided in the
Supplemental Statement. Additional information concerning F&M is also provided
in F&M's 1997 Annual Report to shareholders accompanying the Supplemental
Statement. Please give this information your careful attention.
The affirmative vote of the holders of not less than a majority of the
shares of FMSJ Common Stock entitled to vote at the Special Meeting is required
to approve the Agreement and the Merger. The failure to execute and return the
accompanying proxy card and or to vote in person at the Special Meeting will
have the effect of a vote cast against the Agreement. Furthermore, abstentions
will have the same effect as votes cast against approval of the Agreement. To
assure that your shares are represented in voting on this very important matter,
please complete and return the accompanying proxy card promptly in the enclosed
envelope, whether or not you plan to attend the Special Meeting. If you do
attend, you may, if you wish, revoke your proxy and vote your shares in person
at the Special Meeting.
If you require assistance, please contact me at FMSJ at 920/674-4210.
Very truly yours,
Henry A. Fischer
Chairman of the Board, President and
Chief Executive Officer
<PAGE> 15
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY __, 1998
To the Shareholders of Financial Management Services of Jefferson, Inc.:
NOTICE is hereby given that a special meeting of the shareholders of
Financial Management Services of Jefferson, Inc., a Wisconsin corporation
("FMSJ"), will be held at ______________________________________, Jefferson,
Wisconsin on ___________, May __, 1998, at _____ _.m. local time, for the
purpose of considering and voting upon the following matters:
1. Approval of the transactions contemplated in an Agreement of
Merger and Reorganization between F&M Bancorporation, Inc.
("F&M") and FMSJ, including approval of the merger transaction
contemplated by an Agreement of Merger and Reorganization in
which each share of FMSJ Common Stock will be converted into
17.332 shares of F&M Common Stock, subject to certain
conditions and adjustments set forth in the Agreement (the
"Merger"); and
2. Such other matters relating to the foregoing as may properly
be brought before the meeting or any adjournment thereof;
all as set forth in the accompanying Supplemental Statement of F&M and FMSJ.
The Board of Directors has fixed the close of business on April __,
1998 as the record date for the determination of shareholders entitled to
receive notice of and to vote at the Special Meeting or any adjournment thereof.
The affirmative vote of the holders of not less than a majority of the
outstanding shares of FMSJ Common Stock entitled to be cast is required for
approval of the Merger. Dissenting FMSJ shareholders have certain rights of
appraisal in this matter; see "Rights of Dissenting Shareholders of FMSJ" in the
Supplemental Statement and the statutory provisions of Wisconsin law set forth
on Exhibit B thereto.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE MARK,
SIGN, DATE, AND RETURN THE ENCLOSED PROXY TO FMSJ PROMPTLY IN THE ACCOMPANYING
POST-PAID ENVELOPE. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE
SPECIAL MEETING, WHETHER YOUR HOLDINGS ARE LARGE OR SMALL. IF FOR ANY REASON YOU
SHOULD DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS
VOTED.
By order of the Board of Directors,
Henry A. Fischer
Chairman of the Board, President and
Chief Executive Officer
April ___, 1998
Jefferson, Wisconsin
<PAGE> 16
PROXY STATEMENT
FOR SUPPLEMENTAL PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS OF
OF F&M BANCORPORATION, INC.
FINANCIAL MANAGEMENT SERVICES
OF JEFFERSON, INC.
This Supplemental Prospectus/Proxy Statement (the "Supplemental
Statement") relates to the proposed acquisition of Financial Management Services
of Jefferson, Inc., a Wisconsin corporation ("FMSJ"), by F&M Bancorporation,
Inc., a Wisconsin corporation ("F&M"), as described herein. A separately
attached prospectus of F&M (the "Prospectus") is also being delivered to
shareholders of FMSJ and contains further information about F&M.
The acquisition of FMSJ by F&M will be made by means of a merger
transaction (the "Merger") in which FMSJ will be merged into F&M Merger
Corporation, a wholly owned subsidiary of F&M ("Subsidiary"), and each
outstanding share of common stock, no par value, of FMSJ ("FMSJ Common") will be
converted into 17.332 shares of Common Stock, $1.00 par value, of F&M ("F&M
Common") subject to certain conditions and adjustments as provided in the
Agreement of Merger and Reorganization among F&M, Subsidiary and FMSJ dated as
of December 31, 1997 (the "Agreement"). Thus, subject to adjustment, a total of
641,975 shares of F&M Common would be issued. For further information, see "The
Merger -- Conversion of FMSJ Common into F&M Common."
FOR CERTAIN RISK FACTORS RELATING TO THIS OFFERING, SEE "RISK FACTORS"
BEGINNING ON PAGE 5 OF THE PROSPECTUS.
The date of this Supplemental Statement is April __, 1998 and the date
of the Prospectus is April __, 1998. This Supplemental Statement and the
separately attached Prospectus are first being mailed to FMSJ shareholders on or
about April __, 1998. On April __, 1998, the closing sales price of F&M as
reported on The NASDAQ Stock Market was $_____.
The information contained in this Supplemental Statement concerning
FMSJ and F&M has been supplied by each of them, respectively. No person has been
authorized in connection with this offering to give any information or to make
any representations other than contained, or incorporated by reference, in this
Supplemental Statement.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS SUPPLEMENTAL STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS SUPPLEMENTAL STATEMENT IN
CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY F&M, FMSJ, OR ANY OTHER PERSON. NEITHER
THE DELIVERY OF THIS SUPPLEMENTAL STATEMENT NOR ANY DISTRIBUTION OF SECURITIES
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF F&M OR FMSJ SINCE THE DATE HEREOF OR THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-1-
<PAGE> 17
AVAILABLE INFORMATION
F&M is subject to the informational requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). The reports, proxy statements and other
information filed by F&M with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at 7 World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates. Also, the Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants (such as F&M)
that file electronically with the Commission.
F&M has filed with the Commission a Post-Effective Amendment No. 2 to a
Registration Statement on Form S-4 (together with any amendments thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities to be issued pursuant to or as
contemplated by the Agreement. This Supplemental Statement does not contain all
the information set forth in the Registration Statement. Such additional
information may be obtained from the Commission's principal office in
Washington, D.C. Statements contained in this Supplemental Statement or in any
document incorporated in this Supplemental Statement by reference as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete (although all required material disclosures are included
herein), and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by F&M pursuant to
the Exchange Act are incorporated by reference in this Supplemental Statement:
(i) F&M's Annual Report on Form 10-K for the year ended December 31,
1997 ("1997 10-K"); and
(ii) The description of F&M Common included in Item 11 to F&M's
Registration Statement on Form 10, as amended by Post-Effective
amendment No. 2 thereto filed September 16, 1993.
All reports and definitive proxy or information statements filed by F&M
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Supplemental Statement shall be deemed to be incorporated by
reference into this Supplemental Statement from the date of the filings of such
documents.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Supplemental
Statement to the extent that a statement contained herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Supplemental Statement.
THIS SUPPLEMENTAL STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
SUPPLEMENTAL STATEMENT IS DELIVERED, WITHOUT CHARGE, ON WRITTEN OR ORAL REQUEST
TO F&M BANCORPORATION, INC., ONE BANK AVENUE, KAUKAUNA, WISCONSIN 54130
(TELEPHONE 920/766-1717), ATTN: CORPORATE SECRETARY. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, ANY REQUESTS SHOULD BE
MADE BY ____________, 1998.
-2-
<PAGE> 18
TABLE OF CONTENTS
SUPPLEMENTAL STATEMENT
Page No.
AVAILABLE INFORMATION........................................................-2-
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................-2-
GENERAL INFORMATION..........................................................-4-
THE SPECIAL MEETING..........................................................-5-
SUMMARY ....................................................................-6-
THE MERGER..................................................................-12-
RIGHTS OF DISSENTING SHAREHOLDERS OF FMSJ...................................-22-
FMSJ MARKET INFORMATION AND DIVIDENDS.......................................-24-
FMSJ SELECTED FINANCIAL DATA................................................-25-
FMSJ MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION...................-26-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC.............................-34-
INFORMATION AS TO SECURITIES................................................-36-
LEGAL OPINIONS..............................................................-37-
EXPERTS ...................................................................-37-
INDEX TO FINANCIAL STATEMENTS...............................................-38-
EXHIBIT A: Fairness Opinion of Robert W. Baird & Co. Incorporated...........A-1
EXHIBIT B: Subchapter XIII of the Wisconsin Business Corporation Law........B-1
EXHIBIT C: Text of the Agreement............................................C-1
-3-
<PAGE> 19
GENERAL INFORMATION
This Supplemental Statement is being furnished to the shareholders of
FMSJ in connection with the proposed Merger, in which each share of FMSJ Common
will be converted into 17.332 shares of F&M Common subject to certain conditions
and adjustments set forth in the Agreement, and the solicitation of proxies on
behalf of FMSJ's Board of Directors to be voted at the special meeting of
shareholders of FMSJ to be held on May __, 1998 and at any adjournment thereof
(the "Special Meeting"). The purpose of the Special Meeting and of this
solicitation is to obtain shareholder action with regard to the approval of the
Merger pursuant to the Agreement.
The Agreement provides for the acquisition of FMSJ by F&M through the
merger of FMSJ into Subsidiary, a Wisconsin corporation organized by F&M
specifically for transactions of this type. In the Merger, shares of FMSJ Common
will be converted into shares of F&M Common subject to certain conditions and
adjustments as set forth in the Agreement. See "The Merger -- Conversion of FMSJ
Common into F&M Common." See "The Special Meeting" and "The Merger."
Consummation of the Merger is subject to the satisfaction of several
conditions, including approval by the shareholders of FMSJ at the Special
Meeting, qualifying for pooling of interests accounting, and obtaining the
requisite approval of the Board of Governors of the Federal Reserve System
("FRB") under the Bank Holding Company Act of 1956, as amended (the "Bank
Holding Company Act") and expiration of the statutory waiting period after such
approval. An application seeking approval of the FRB was approved on March 5,
1998. Consummation of the Merger is also conditioned on obtaining the requisite
approval of the Wisconsin Department of Financial Institutions, Division of
Banking (the "Division"). An application seeking Division approval was approved
on March 12, 1998.
The cost of solicitation of proxies will be borne by FMSJ. However,
because this Supplemental Statement also constitutes a disclosure document with
respect to F&M Common, F&M paid the costs and expenses of the preparation
hereof. In addition to solicitation by mail, directors, officers and employees
of FMSJ may solicit proxies by telephone or personal contact, but will receive
no additional compensation for such services.
The information contained in this Supplemental Statement concerning
FMSJ and F&M has been supplied by each of them, respectively. The information
contained in the separately attached Prospectus was supplied by F&M.
-4-
<PAGE> 20
THE SPECIAL MEETING
In order to approve the transactions contemplated by the Agreement, the
affirmative vote of holders of not less than a majority of outstanding shares of
FMSJ Common entitled to be cast must be received at the Special Meeting.
Obtaining the requisite vote is a requirement of Wisconsin law, and is therefore
required by the Agreement and may not be waived. The Wisconsin Business
Corporation Law ("WBCL") affords those shareholders of FMSJ who properly
exercise their right to dissent from the Merger, in accordance with the
statutory procedures, the right to receive payment of the "fair value" of their
shares in cash. See "Rights of Dissenting Shareholders of FMSJ" herein and
Exhibit B hereto.
Each shareholder of record of FMSJ Common at the close of business on
_______, 1998, will be entitled to one vote for each share of FMSJ Common
registered in such shareholder's name. At that date, there were 37,040 shares of
FMSJ Common issued and outstanding, all of which are entitled to vote. Directors
and executive officers of FMSJ, all of whom intend to vote FOR the Merger,
together own 5,668 shares of FMSJ Common, or 15.3% of the issued and outstanding
shares. See "Financial Management Services of Jefferson, Inc.--Share Ownership."
Shares represented at the Special Meeting by a properly executed proxy
will be voted in accordance with the specification made on the proxy; if no
specification is made, such shares will be voted FOR approval of the Merger. Any
shareholder submitting a proxy has the right to revoke the proxy at any time
before it is voted by giving written notice to the Secretary of FMSJ, by giving
oral notice to the presiding officer during the Special Meeting that the
shareholder intends to vote in person, or by submitting a subsequently dated
proxy. Attendance by a shareholder at the Special Meeting will not in and of
itself constitute revocation of a proxy. PLEASE RETURN THE SIGNED PROXIES TO
FMSJ IN THE POST-PAID ENVELOPE PROVIDED FOR THAT PURPOSE.
THE BOARD OF DIRECTORS OF FMSJ UNANIMOUSLY RECOMMENDS APPROVAL OF THE
MERGER, AS IT BELIEVES THE MERGER TO BE IN THE BEST INTERESTS OF FMSJ AND ITS
SHAREHOLDERS.
Proxies are being solicited on behalf of FMSJ's Board of Directors.
FMSJ's Board of Directors does not intend to present any other matter before the
Special Meeting. By law, the only business that may be conducted at a special
meeting of shareholders is the business described in the notice of meeting.
-5-
<PAGE> 21
SUMMARY
The following is a brief summary of certain information contained in
this Supplemental Statement, including summaries of information believed by the
parties to be material. This summary is intended merely to supply pertinent
facts and highlights of the material contained in or accompanying this
Supplemental Statement. The information contained in this summary is qualified
by reference to more detailed information contained elsewhere, or incorporated
by reference, in this Supplemental Statement.
The Merger
The Agreement provides for the acquisition of FMSJ by F&M through the
merger of FMSJ into Subsidiary. In the Merger, each share of FMSJ Common will be
automatically converted into 17.332 shares of F&M Common subject to certain
conditions and adjustments set forth in the Agreement. See "The Merger" and the
text of the Agreement at Exhibit C hereto.
Purpose of the Special Meeting
Shareholders of FMSJ are being asked to approve the Merger. Such
approval is required for F&M to complete the Merger.
Parties
F&M and FMSJ, Wisconsin corporations, are registered bank holding
companies subject to supervision and regulation by the FRB under the Bank
Holding Company Act. The Farmers & Merchants Bank of Jefferson (the "Bank"), a
wholly-owned subsidiary of FMSJ, is a Wisconsin state bank subject to the
supervision of the Wisconsin Department of Financial Institutions, Division of
Banking (the "Division"), and the Federal Deposit Insurance Corporation
("FDIC").
FMSJ, which has its principal executive offices at 106 South Main
Street, Jefferson, Wisconsin (telephone: 920/674-4210), had total assets of
$99.7 million at December 31, 1997. The Bank has two offices in the city of
Jefferson which is located in Jefferson County, in southcentral Wisconsin.
F&M, which has its principal executive offices at One Bank Avenue,
Kaukauna, Wisconsin 54130 (telephone: 920/766-1717), had total consolidated
assets of over $1.6 billion at December 31, 1997. F&M has 19 Wisconsin state
bank subsidiaries, all of which are FDIC members and are subject to the
supervision of the Division and all but one of which is an FRB member. F&M also
has one Minnesota state bank subsidiary, which is an FDIC member, and a full
service trust company subsidiary. Together, the subsidiary banks have 65 offices
in Wisconsin and one in Minnesota. F&M also has a trust company subsidiary.
Subsidiary is a wholly-owned subsidiary of F&M formed to effect transactions of
this type.
See "F&M Bancorporation, Inc." in the Prospectus, the section entitled
"Business" in the 1997 10-K and "Financial Management Services of Jefferson,
Inc." herein.
Conversion of FMSJ Common Into F&M Common
In the Merger, shares of FMSJ Common will be converted into 17.332
shares of F&M Common, subject to certain conditions and adjustments set forth in
the Agreement. Only full shares will be issued; fractional share interests will
be converted into cash at a per share price based upon market value of F&M
Common. See "The Merger -- Conversion of FMSJ Common into F&M Common."
-6-
<PAGE> 22
Dissenters' Appraisal Rights
Any shareholder or beneficial shareholder of FMSJ who complies with the
procedural requirements of the WBCL in exercising his dissenters' rights will be
entitled to receive cash in the amount of the "fair value" of his shares as
determined pursuant to the exercise of such rights, instead of shares of F&M
Common or cash contemplated by the terms of the Agreement. Failure to comply
with each of the detailed statutory procedural requirements may result in a loss
of such appraisal rights. A condition, which can be waived by F&M, to its
obligation to conclude the transaction is that holders of less than 10% of the
issued and outstanding FMSJ Common will have elected to exercise such rights.
See "The Merger -- Conditions to the Merger," "Rights of Dissenting Shareholders
of FMSJ" and the statutory provisions set forth in Exhibit B hereto.
If a FMSJ shareholder fails to perfect his or her dissenters' rights by
failing strictly to comply with the applicable statutory requirements, he or she
will be bound by the terms of the Agreement. An executed proxy on which no
voting direction is made will be voted FOR approval of the Merger, so a
dissenting shareholder who wishes to have his or her shares represented by a
proxy at the Special Meeting but preserve his dissenters' rights must mark his
or her proxy card either to vote against the Merger or to abstain from voting
thereon, in addition to complying with the other requirements as described
herein.
Fairness Opinion
Robert W. Baird & Co. Incorporated ("Baird") has delivered to the Board
of Directors of FMSJ its written opinion, dated January 27, 1998, to the effect
that, as of such date, the Exchange Ratio is fair, from a financial point of
view, to the holders of FMSJ Common. The full text of the opinion of Baird,
which sets forth the assumptions made, procedures followed, matters considered
and limitations on the review undertaken, is attached as Exhibit A hereto.
HOLDERS OF FMSJ COMMON ARE URGED TO READ SUCH OPINION CAREFULLY AND IN ITS
ENTIRETY. See "The Merger -- Opinion of Financial Advisor to FMSJ."
Conditions to the Merger
The Merger is conditioned upon approval by FMSJ shareholders,
appropriate regulatory approval by the FRB (which has been obtained), and other
conditions set forth in the Agreement. See "The Merger -- Conditions to the
Merger."
As of March 1, 1998, directors and executive officers of FMSJ,
including their spouses and their affiliates, beneficially owned an aggregate of
5,668 shares of FMSJ Common, or 15.3% of the outstanding shares of FMSJ Common.
Such persons have indicated that they intend to vote their shares of FMSJ Common
in favor of the Merger. The directors and executive officers of F&M, and their
affiliates, do not own any shares of FMSJ Common. See "Financial Management
Services of Jefferson, Inc.--Share Ownership."
Federal Income Tax Consequences
The transaction contemplated by the Agreement has been structured by
the parties with the intent that it will constitute a reorganization resulting
in no recognizable gain or loss for federal income tax purposes by those FMSJ
Common shareholders to the extent they receive shares of F&M Common in exchange
for their shares of FMSJ Common. (However, the receipt of cash in lieu of
fractional share interests, and upon exercise of dissenters' rights, will be
taxable.) The parties have not sought any rulings from the Internal Revenue
Service that the transaction constitutes a non-taxable reorganization. However,
it is a condition to consummation of the Merger that Godfrey & Kahn, S.C.,
counsel to FMSJ, will issue an opinion as to the tax-free nature of the exchange
to holders of FMSJ Common who receive F&M Common in the Merger, and as to the
tax effects of cash in lieu of fractional share interests. In the Agreement,
however, F&M has made no representations or warranties as to tax consequences of
the Merger. See "The Merger -- Federal Income Tax Consequences."
-7-
<PAGE> 23
Comparison of F&M Common with FMSJ Common
F&M and FMSJ are organized under the Wisconsin Business Corporation Law
("WBCL"). The WBCL determines the rights of holders of common stock of each such
entity, except as otherwise permissibly provided in their respective articles of
incorporation or bylaws. While the rights of both entities' shareholders are
similar, there are also important differences.
F&M is subject to statutory anti-takeover provisions and its articles
of incorporation and bylaws provide for classification of the Board of
Directors; neither apply to FMSJ. Both F&M and FMSJ shareholders are subject to
statutory personal liability for certain employee wage claims. See "Information
as to Securities--Comparison of F&M Common with FMSJ Common."
In addition to the differences between F&M Common and FMSJ Common
themselves, differences exist in their trading markets. F&M trades on the NASDAQ
Stock Market ("NASDAQ"), while the trading market for shares of FMSJ Common has
been limited.
Required Vote
The affirmative vote of holders of not less than a majority of the
outstanding shares of FMSJ Common entitled to be cast is required under
Wisconsin law to permit the Merger.
Interests of the Bank Insiders
As of March 1, 1998, directors and executive officers of FMSJ,
including their spouses and their affiliates, beneficially owned an aggregate of
5,668 shares of FMSJ Common, or 15.3% of the outstanding shares of FMSJ Common
entitled to vote at the Special Meeting. Such persons have indicated that they
intend to vote for the Merger, and to vote their shares of FMSJ Common in favor
of the Merger. The directors and executive officers of F&M, and their
affiliates, do not own any shares of FMSJ Common. See "General Information" and
"Financial Management Services of Jefferson, Inc.--Share Ownership."
The parties contemplate that F&M will enter into employment agreements
with Sandi M. Clark, currently Secretary of FMSJ and Vice President and Cashier
of the Bank, and Henry A. Fischer, currently Chairman of the Board, President
and Chief Executive Officer of FMSJ and the Bank. Ms. Clark's employment
agreement is expected to be for a two-year term and to provide that Ms. Clark
will continue as vice president and cashier of the Bank. Mr. Fischer's
employment agreement is expected to be for a two year term and to provide that
Mr. Fischer will continue as President of the Bank. The Agreement also provides
that the current members of the Bank's board of directors may remain as
directors until two years after the Effective Time of the Merger.
See "The Merger -- Management after the Merger."
Management after the Merger
Upon consummation of the Merger, F&M expects to continue to operate the
Bank as a separate entity under the control, direction and general policies of
F&M. An F&M designee may be elected to the Board of Directors of the Bank. As
with all of F&M's subsidiary banks (the "F&M Banks"), F&M will perform certain
functions for, and provide certain services to, the Bank, and the Bank will pay
F&M a management fee for those functions and services.
See "Interests of the Bank Insiders" above for information regarding
the proposed employment contracts of Mr. Fischer and Ms. Clark and agreements to
maintain the board membership of current Bank directors. See also "The Merger --
Management after the Merger."
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<PAGE> 24
Accounting Treatment
F&M intends to account for the acquisition of FMSJ by using the pooling
of interests method of accounting.
Recommendation of FMSJ Directors
THE BOARD OF DIRECTORS OF FMSJ UNANIMOUSLY RECOMMENDS APPROVAL OF THE
MERGER. See "The Merger -- Reasons for the Merger."
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<PAGE> 25
Comparative Unaudited Per Share Data
The following table sets forth for F&M Common and FMSJ Common certain
unaudited historical, pro forma and pro forma equivalent per share financial
information for each of the three years ended December 31, 1997, 1996 and 1995.
The information should be read in conjunction with the financial statements and
other information appearing elsewhere in this Supplemental Statement and in the
Prospectus. It is assumed that the exchange ratio will be 17.332 shares of F&M
Common for each share of FMSJ Common. See "The Merger -- Conversion of FMSJ
Common into F&M Common."
<TABLE>
<CAPTION>
As of and for the
years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
F&M
Net Income per Share (basic):
Historical................................. $ 2.09 $ 1.73 $ 1.59
Pro forma (1).............................. 2.05 1.75 1.60
Dividends Paid per Share:
Historical................................. $ 0.764 $0.607 $0.496
Pro forma (2).............................. 0.764 0.607 0.496
Shareholders' Equity per Share:
Historical................................. $ 15.26 (A) (A)
Pro forma (1).............................. 15.58
FMSJ
Net Income per Share (basic):
Historical................................. $ 27.32 $35.13 $28.13
Pro forma equivalent (3)................... 35.53 30.33 27.73
Dividends Paid per Share:
Historical................................. $ 8.00 $ 6.00 $ 5.00
Pro forma equivalent (3)................... 13.24 10.52 8.60
Shareholders' Equity per Share:
Historical................................. $355.78 (A) (A)
Pro forma equivalent (3)................... 270.03
</TABLE>
- ----------------
(1) Giving effect to F&M's proposed acquisition of FMSJ, but not other 1998 or
pending F&M acquisitions.
(2) The F&M pro forma dividends per share amounts represent historical dividends
per share, restated for prior stock splits and dividends, but not restated
for acquisitions.
(3) The FMSJ pro forma equivalent per share amounts are calculated by
multiplying the F&M pro forma per share amounts by an assumed conversion
ratio of 17.332 shares of F&M Common for each share of FMSJ Common. The
actual conversion ratio may be different, and will depend upon certain
factors set forth in the Agreement. See "The Merger--Conversion of FMSJ
Common into F&M Common."
(A) Presented only at December 31, 1997.
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<PAGE> 26
The following table presents historical data on a per common share
basis for F&M and FMSJ, and equivalent per common share basis for FMSJ, as of
the last trading date preceding the first public announcement of the proposed
Merger and as of a recent date.
<TABLE>
<CAPTION>
FMSJ
------------------------------------------------
F&M Per Share
Historical Historical (1) Equivalent Basis(2)
---------- -------------- -------------------
Market Value Per Share as of:
<S> <C> <C> <C> <C>
November 4, 1997...................... $38.50 $267.61 $667.28
, 1998....................
- ------------
</TABLE>
- ------------------
(1) Trading in shares of FMSJ Common is infrequent, and there is no
independent market with respect to such shares. The last prior
transaction of which FMSJ is aware was a repurchase of FMSJ Common in
accordance with FMSJ's repurchase program in August 1997, at $267.61
per share. See "Market Information and Dividends."
(2) FMSJ pro forma equivalent per share amount is calculated by multiplying
the F&M historical market value by an assumed conversion rate of 17.332
shares of F&M Common for each share of FMSJ Common. See "The Merger --
Conversion of FMSJ Common into F&M Common." The actual conversion ratio
may be different.
-11-
<PAGE> 27
THE MERGER
The Agreement contains the representations, warranties and covenants of
FMSJ and F&M, the conditions to the consummation of the Merger and other terms
and provisions with respect to the Merger. The following is a brief description
of the provisions of the Agreement believed by F&M and FMSJ to be material. The
summaries herein of certain provisions of the Agreement do not purport to be
complete statements thereof and are qualified in their entirety by reference to
the text of the Agreement (excluding exhibits and schedules), a copy of which is
appended hereto as Exhibit C.
Reasons for the Merger and Board Recommendation
FMSJ
The Board of Directors of FMSJ has concluded that the proposed Merger
is in the best interest of FMSJ and its shareholders. The principal factors
considered by the Board of Directors in recommending the Merger are:
- Affiliation with F&M will provide FMSJ shareholders with
ownership of a company with geographically diverse operations,
diminishing the risk of erosion of franchise value that
ownership of a local community bank stock entails.
- F&M offered an acquisition price which provides a significant
premium to FMSJ's past trading values in a tax-free
reorganization.
- Holders of FMSJ Common will receive F&M Common, which unlike
FMSJ Common has an active trading market on the NASDAQ. In
general, past trading of FMSJ Common has been isolated.
- The opinion of Baird, dated January 27, 1998, to the effect
that, as of such date, the Exchange Ratio (as defined therein)
is fair, from a financial point of view, to the holders of
FMSJ Common. See "The Merger -- Opinion of Financial Advisor
to FMSJ."
- Affiliation with a larger holding company provides opportunity
to realize economies of scale and increased efficiencies of
operation, to the benefit of FMSJ shareholders and customers.
- Affiliation with F&M will also permit or enhance the
development of new products and services, including, but not
limited to, trust services, for bank customers.
- The Board of Directors believes that an affiliation with a
holding company such as F&M which emphasizes local autonomy is
in the best interest of shareholders, as it enhances bank
customer relationships and opportunities.
As an affiliate of F&M, the Bank will be able to provide its customers
with expanded banking, financing, and related services. The Merger is expected
to create economies of scale and enhance the ability of customers of the Bank to
obtain financial services provided by F&M to its other affiliates.
FOR THESE REASONS, THE BOARD OF DIRECTORS OF FMSJ UNANIMOUSLY
RECOMMENDS APPROVAL OF THE MERGER AND ACCEPTANCE OF THE TRANSACTIONS
CONTEMPLATED BY THE AGREEMENT.
-12-
<PAGE> 28
F&M
From F&M's standpoint, the combination of its business with that of
FMSJ will expand F&M's service area to an additional market in southeast
Wisconsin. This expands the areas of the State of Wisconsin served by F&M Banks
at an attractive location which is relatively near F&M's existing southern
Wisconsin Banks. The acquisition of FMSJ is also anticipated by F&M to help F&M
achieve economies of scale by combining certain operations and creating
additional efficiencies due to F&M's existing capacity to provide various
services to additional subsidiary banks such as FMSJ. For example, F&M offers
its subsidiary banks centralized services relating to marketing, credit review
and analysis, auditing, human resources, accounting, investment management and
data processing, all of which could be provided for FMSJ by existing F&M
personnel.
Negotiation of Terms
In early 1997, FMSJ received an inquiry from an out-of-state bank
holding company expressing interest in discussing a possible business
combination with FMSJ. In February, the Board of Directors formed a special
committee (the "Special Committee") to explore strategic alternatives. The four
members of the Special Committee were Messrs. Fischer, Bauch and Mertens and Ms.
Clark. In the late spring and early summer of 1997, FMSJ was approached by an
in-state bank holding company regarding the possibility of entering into a
business combination. Representatives of the Special Committee met with
representatives of the bank holding company to discuss such a possibility. In
neither of these instances was a formal offer received by FMSJ.
During the summer of 1997, representatives of F&M contacted FMSJ
regarding the possibility of a business combination between the companies. In
July 1997, representatives of F&M and of the Special Committee met to hold
preliminary conversations and exchange preliminary information. Additional
conversations were held in August and September. In October 1997, Mr. Janssen
and Mr. Johnson of F&M met with the Board of Directors of FMSJ to familiarize
the Board with F&M and to express its interest in entering into a business
combination with FMSJ.
In October, the Board of Directors retained Godfrey & Kahn, S.C. to
assist the Board in evaluating the legal issues related to such a transaction.
On November 3, 1997, the Board authorized Mr. Fischer, Chairman of the Board, to
enter into a Letter of Intent with F&M. The Board further authorized the Special
Committee to conduct negotiations with F&M leading to the execution of the
Agreement.
Once direct negotiations began, the terms of the Merger were determined
by arms-length negotiations between members of the Special Committee and the
executive officers of F&M. On December 23, 1997, the Board of Directors met to
review the status of the negotiations and authorized Mr. Fischer to complete the
negotiations and enter into the Agreement on behalf of FMSJ.
Terms of Merger
The Agreement provides that FMSJ will merge with and into Subsidiary.
Subsidiary will be the surviving corporation. Pursuant to the terms of the
Agreement, as of the effective time of the Merger, each of the then outstanding
shares of FMSJ Common will be converted into 17.332 shares of F&M Common subject
to certain conditions and adjustments set forth in the Agreement. The Bank will
then be a wholly-owned indirect subsidiary of F&M.
Outstanding shares of FMSJ Common with respect to which the record or
beneficial holder has perfected dissenters' rights in strict accordance with the
requirements of Subchapter XIII of the WBCL will not be converted under the
terms of the Agreement into shares of F&M Common in the Merger. The holders
thereof shall be entitled only to payment of the "fair value" of their shares in
accordance with Subchapter XIII. See "Rights of Dissenting Shareholders of FMSJ"
and Exhibit B hereto.
-13-
<PAGE> 29
Conversion of FMSJ Common into F&M Common
In the Merger, each of the shares of FMSJ Common automatically will be
converted into shares of F&M Common (the "Exchange Ratio"). The Exchange Ratio
is calculated by dividing the "F&M Stock Offer" (641,975 shares of F&M Common,
subject to adjustment as described below) by the number of shares of FMSJ Common
issued and outstanding as of the Closing Date. The Exchange Ratio will be
multiplied by the number of shares of FMSJ Common held by each FMSJ shareholder
on the Closing Date to determine the number of shares of F&M Common to be issued
to that FMSJ shareholder. The total number of shares of FMSJ Common outstanding
equals 37,040. Therefore, the Exchange Ratio will equal 17.332 shares of F&M
Common for each share of FMSJ Common (i.e., 641,975 divided by 37,040), subject
to adjustment, as described below.
No fractional shares of F&M Common will be issued and all fractional
share interests will be converted into cash at a price per share based upon
market value.
The F&M Stock Offer is subject to adjustment as of the Effective Time
by an amount equal to 1.5 times the sum of all of the amounts discussed below,
divided by the F&M Common Price. The "F&M Selling Price" is defined in the
Agreement as the average closing price for F&M Common as quoted on NASDAQ for
the fifteen trading days on which F&M is actually traded, immediately preceding
the five calendar days prior to the Effective Time. If the sum of the amounts
below is a negative number, the result thus determined will be subtracted from
the F&M Stock Offer.
The adjustment factors to be used in determining the final F&M Stock
Offer are as follows:
(a) The amount by which the Bank's reserve for loan and lease losses is
less than 1.3% of total loans and leases;
(b) The amount by which the expenses of the Merger, whether incurred by
the Bank or FMSJ, exceed $100,000;
(c) The amount by which the Bank's equity as of the closing date of the
Merger, determined in accordance with generally accepted accounting principles
(except that no adjustment will be made as required by FASB 115) is less than
$13.48 million (the "Beginning Equity") plus the Cumulative Minimum Earnings (as
defined) less the sum of (i) quarterly dividends for each calendar quarter prior
to the closing date of the Merger, not to exceed $2.50 per share, and (ii) the
expenses of the Bank or FMSJ relating to the Merger, and (iii) any increase to
the Bank's reserve for loan and lease losses in excess of 1.3% requested by F &
M. The Beginning Equity reflects the dividend of $4.00 per share declared by
FMSJ in December, 1997;
(d) The amount of any unfunded or underfunded liability under any
pension benefit plan maintained by the Bank, assuming the complete termination
of such plan on or prior to the closing date and all expenses of such
termination;
(e) The amount of any loans or leases of the Bank, where the
outstanding principal balance outstanding on December 11, 1997, exceeded
$25,000.00, 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 December
11, 1997, as mutually agreed upon by F&M and FMSJ;
(f) Any material adverse change in the business of FMSJ or Bank or an
increase in their liabilities (exclusive of deposits) which accrues after
December 11, 1997, which is not otherwise reflected in either the calculation of
Bank's Beginning Equity or FMSJ's stated liabilities as of the closing date of
the Merger;
(g) The amount of any obligation to any employee, officer, director or
shareholder which may become payable after the closing date of the Merger at the
option of such person as a result of the Merger; and
(h) The amount of any expenses incurred by FMSJ or Bank in connection
with the Merger which have not been accrued and accounted for prior to the
closing date of the Merger.
-14-
<PAGE> 30
The Exchange Ratio is subject to appropriate adjustment in the case of
an F&M stock split or dividend.
Assuming an exchange ratio of 17.332 shares of F&M Common for each
share of FMSJ Common, after the Merger (but not giving effect to F&M's proposed
acquisition of BancSecurity Corporation), holders of FMSJ Common as a group
would own approximately 6.1% of the then-outstanding shares of F&M Common
(excluding other pending acquisitions). On a pro forma basis at December 31,
1997, not giving effect to F&M's other pending acquisitions, FMSJ shareholders
will contribute 5.7% of the total assets, 5.5% of the deposits and 8.1% of the
capital of the combined entity; FMSJ would contribute 4.8% of the pro forma net
income of the combined entity for the year ended December 31, 1997.
Effective Time of the Merger
The Agreement provides that the Effective Time of the Merger shall be
the date specified in the Articles of Merger filed with the Wisconsin Department
of Financial Institutions. The Articles of Merger will be filed as soon as
practicable after all conditions precedent to the parties' obligations have been
satisfied or waived. Unless further extended by agreement of the parties, if the
closing for the Merger has not taken place by August 31, 1998, F&M and FMSJ each
may terminate the Agreement and abandon the Merger. See "Conditions to the
Merger" and "Waiver, Amendment or Termination" below.
Distribution of F&M Common
After the Special Meeting, either F&M or Firstar Trust Company, F&M's
transfer agent, or another agent acting on its behalf (the "Exchange Agent")
will send a notice and transmittal form to each holder of FMSJ shares, advising
such holder of the procedure for surrendering to the Exchange Agent certificates
representing the shares of FMSJ Common for exchange into one or more
certificates evidencing F&M Common, as provided in the Agreement. Such exchange
will be made as of the Effective Time of the Merger.
Until so surrendered, each outstanding certificate which prior to the
Effective Time represented shares of FMSJ Common will be deemed for all purposes
to evidence only the right to receive the shares of F&M Common into which such
shares of FMSJ Common have been converted; provided, however, unless and until
such certificates representing FMSJ Common are so surrendered, no stock
certificates representing the shares of F&M Common, nor any dividends or other
distributions of any kind payable in respect of shares of F&M Common into which
such FMSJ Common has been converted, shall be paid or delivered to the holder of
an unsurrendered certificate and no interest shall be earned on such cash
dividend amounts. After the Effective Time, upon surrender of certificates
representing shares of FMSJ Common, there shall be delivered to the record
holder of the certificates representing F&M Common issued in exchange therefor,
on or as soon as practicable after such date of surrender, the amount of any
such dividends, or other distribu tions, and the certificates representing the
F&M Common, which as of any date subsequent to the Effective Time, but prior to
the surrender of FMSJ certificates, became payable or deliverable and were not
paid or delivered to such holder with respect to such shares.
Fairness Opinion
Baird. The FMSJ Board of Directors retained Baird to act as its
financial advisor in connection with the Merger and to assist it in its
examination of the fairness, from a financial point of view, of the Exchange
Ratio to the holders of FMSJ Common (other than F&M and its affiliates). On
January 27, 1998 Baird rendered its opinion to the Board of Directors of FMSJ
(subsequently confirmed as of the date of this Supplemental Statement) to the
effect that the Exchange Ratio was fair, from a financial point of view, to the
holders of FMSJ Common (other than F&M and its affiliates).
THE FULL TEXT OF BAIRD'S OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE
SCOPE OF REVIEW UNDERTAKEN BY BAIRD IN RENDERING ITS OPINION, IS ATTACHED AS
EXHIBIT A TO THIS SUPPLEMENTAL STATEMENT. THE BAIRD OPINION IS DIRECTED ONLY TO
THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS
OF FMSJ COMMON AND
-15-
<PAGE> 31
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY FMSJ SHAREHOLDERS AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER. THE SUMMARY OF THE BAIRD
OPINION SET FORTH IN THIS SUPPLEMENTAL STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION ATTACHED AS EXHIBIT A HERETO.
SHAREHOLDERS OF FMSJ SHOULD READ THE BAIRD OPINION CAREFULLY AND IN ITS
ENTIRETY.
Baird's Analysis. In conducting its investigation and analysis and in
arriving at its opinion, Baird reviewed such information and took into account
such financial and economic factors as it deemed relevant. In that connection,
Baird among other things: (i) reviewed certain internal information, primarily
financial in nature, including projections, concerning the business and
operations of FMSJ and F&M furnished to Baird for purposes of its analysis, as
well as publicly available information, including but not limited to F&M's
recent filings with the Securities and Exchange Commission and equity analyst
research reports on F&M prepared by various investment banking firms, including
Baird; (ii) reviewed the Agreement; (iii) reviewed the historical market prices
and trading activity of F&M Common Stock; (iv) compared the respective financial
positions and operating results of FMSJ and F&M with those of companies Baird
deemed relevant; (v) compared the proposed financial terms of the Merger with
the financial terms of certain other business combinations Baird deemed
relevant; and (vi) reviewed certain potential pro forma effects of the Merger,
and certain pro forma effects of the pending acquisition of BancSecurity
Corporation of Marshalltown, Iowa by F&M. Baird held discussions with certain
members of FMSJ's and F&M's senior management concerning FMSJ's and F&M's
historical and current financial condition and operating results, as well as the
future prospects of FMSJ and F&M, respectively. Baird also considered such other
information, financial studies, analysis and investigations and financial,
economic and market criteria as Baird deemed relevant for the preparation of its
opinion. The Exchange Ratio was determined by FMSJ and F&M in arm's-length
negotiations. FMSJ did not place any limitation upon Baird with respect to the
procedures followed or factors considered by Baird in rendering its opinion.
In arriving at its opinion, Baird assumed and relied upon the accuracy
and completeness of all of the financial and other information that was publicly
available or provided to it by or on behalf of FMSJ and F&M, and was not engaged
to independently verify any such information. Baird assumed, with FMSJ's
consent, that (i) all material assets and liabilities (contingent or otherwise,
known or unknown) of FMSJ and F&M are set forth in their respective financial
statements; (ii) the Merger will be accounted for under the pooling-of-interests
method; (iii) the Merger will be consummated in accordance with the terms of the
Agreement without any amendment thereto or waiver by FMSJ or F&M of any
condition to their respective obligations; (iv) the Exchange Ratio will not be
adjusted pursuant to Section 3.4 of the Agreement; and (v) F&M will receive all
regulatory approvals required to effect the Merger without undue delay. Baird
also assumed that (i) the financial forecasts examined by it were reasonably
prepared on bases reflecting the best available estimates and good faith
judgments of FMSJ's and F&M's respective senior managements, as to future
performance of their respective companies and (ii) the strategic and operating
benefits currently contemplated by FMSJ and F&M management to result from the
Merger will be realized. Baird did not undertake or obtain an independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of FMSJ or F&M, nor did it make a physical inspection of the
properties or facilities of FMSJ or F&M. Baird's opinion necessarily was based
upon economic, monetary and market conditions as they existed and could be
evaluated on the date thereof, and did not predict or take into account any
changes which may occur, or information which may become available, after the
date thereof. Furthermore, Baird expressed no opinion as to the price or trading
range at which shares of FMSJ's or F&M's securities would trade following the
date of such opinion.
Analysis of Selected Comparable Transactions. Baird reviewed certain
information relating to four groups of transactions involving business
combinations involving banks: (i) a group of 40 selected business combinations
announced since January 1, 1993, involving Wisconsin-based banks with a total
transaction value of less than $50 million (the "Wisconsin Comparative Group");
(ii) a group of 58 business combinations announced since January 1, 1997,
involving banks based in the Midwestern United States (the "Midwestern
Comparable Group"); (iii) a group of 267 business combinations announced since
January 1, 1997, involving banks in the United States (the "U.S. Comparative
Group"); and (iv) a group of 180 business combinations announced since January
1, 1997, involving banks in the United States with a total transaction value
under $50 million (the "Value Group").
-16-
<PAGE> 32
Wisconsin Comparative Group. For this group of transactions, the median
equity to assets was 10.2% and the mean was 11.0%. The high equity to assets
ratio was 24.4% and the low was 5.0%. The median price to book ratio for
consideration paid was 165.3% and the mean was 172.4%. The transaction values
ranged from a high of 246.1% of book value to a low of 115.2% of book value.
Price to tangible book multiples ranged from 115.2% to 288.7% with a median of
165.3% and an average of 174.7%. The median price to earnings multiple was 14.8x
trailing 12 month earnings and the mean was 15.2x trailing 12 month earnings.
The high price to earnings multiple was 29.8x trailing 12 month earnings and the
low was 6.7x. As a tangible premium to core deposits, the median premium was
8.8% and the mean was 9.3%. Tangible premium to core deposits values ranged from
a high of 24.1% to a low of 2.2%.
Midwestern Comparative Group. For this group of transactions, the
median equity to assets ratio was 9.7% and the mean was 10.7%. The high equity
to assets ratio was 34.8% and the low was 5.3%. The median price to book ratio
for the consideration paid was 188.6% and the mean was 210.1%. Price to book
ratios ranged from a high of 385.6% to a low of 103.6%. Price to tangible book
multiples ranged from 103.6% to 451.2% with a median of 196.1% and mean of
220.4%. The median price to earnings multiple was 18.4x trailing 12 month
earnings and the mean was 19.8x. The high price to earnings multiple was 49.8x
trailing 12 month earnings and the low was 9.1x. As a tangible premium to core
deposits, the median premium was 12.0% and the mean was 14.3%. Tangible premium
to core deposits ranged from a high of 36.2% to a low of 0.5%.
U.S. Comparative Group. For this group of transactions, the median
equity to assets ratio was 8.9% and the mean was 9.5%. The high equity to assets
ratio was 34.8% and the low was 2.9%. The median price to book ratio of the
consideration paid was 223.1% and the mean was 231.7%. Price to book ranged from
a high of 539.4% to a low of 98.7%. Price to tangible book multiples ranged from
98.7% to 593.2% with a median of 226.8% and a mean of 239.9%. The median price
to earnings multiple was 19.6x trailing 12 months earnings and the average was
20.4x. The high price to earnings multiple was 74.3x trailing 12 month earnings
and the low was 5.6x. As a tangible premium to core deposits ranged from a high
of 50.3% to a low of (0.3%).
Value Comparative Group. For this group of transactions, the median
equity to assets ratio was 9.2% and the mean was 9.9%. The high equity to assets
ratio was 34.8% and the low was 2.9%. The median price to book ratio of the
consideration paid was 202.8% and the mean was 210.7%. Price to book ratios
ranged from 433.8% to a low of 98.7%. Price to tangible book multiples ranged
from 451.2% to a low of 98.7% with a median of 210.3% and an average of 214.8%.
The median price to earnings multiple was 18.2x trailing 12 months earnings and
the mean was 19.4x trailing 12 month earnings. The high price to earnings
multiple was 49.8x trailing 12 month earnings and the low was 5.6x. As a
tangible premium to core deposits, the median premium was 12.0% and the mean was
13.8%. Tangible premium to core deposits values ranged from a high of 40.8% to a
low of (0.3%).
By comparison, the consideration paid for FMSJ in the transaction
represented, assuming a price per share for F&M Common of $38.375 times an
exchange ratio of 17.332 shares of F&M equals $665.11 per share of FMSJ Common.
This is a price of 180.6% of book value which compares to a median of 137.5% and
a mean of 146.8% for the comparable companies. The range for the price to book
value of the comparable companies was a high of 229.8% to a low of 97.6%. The
price to tangible book value for FMSJ of 180.6% compared to a median of 142.5%,
and a mean of 149.2% for the comparable companies. The range for the price to
tangible book value of the comparable companies was a high of 229.8% to a low of
97.6%. The price to trailing 12 months earnings for FMSJ was 18.5x compared to a
median of 18.3x and a mean of 20.6x for the comparable companies. The range for
the price to trailing 12 months earnings of the comparable companies was a high
of 56.9x to a low of 7.8x.
As no comparative group or transaction from any comparative group is
identical to the Merger, Baird indicated to the FMSJ Board that the analyses
described above are not mathematical, but rather involve complex considerations
and judgments concerning differences in operating and financial characteristics
including, among other things, differences in revenue composition and earnings
performance among FMSJ and F&M and the selected companies and transactions
reviewed.
Analysis of Publicly Traded Companies Comparable to FMSJ. Baird
reviewed certain publicly available financial information as of the most
recently reported period and stock market information for certain publicly
traded
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<PAGE> 33
companies which Baird deemed relevant. These companies consisted of: Blackhawk
Bancorp, Inc., Commercial Bancshares, Inc., CNBC Bancorp, County Bank Corp.,
First Bankers Trustshares, Inc., Heartland Bancshares, Inc., Illinois Community
Bncp., Inc., Metro Bancorp, MNB Bancshares, Inc., National Bancshares Corp., NCF
Financial Corp., Northwest Bank and Trust Co., Ohio State Bancshares, Inc. and
West MI National Bank & Trust (the "Comparable Companies"). The data described
below with respect to the Comparable Companies consists of the median data for
such group as of the most recently reported period and are compared to FMSJ's
financial operating information, as reported, as of September 30, 1997.
Baird noted that the assets and equity reported for FMSJ were
approximately $98.4 million and $13.6 million compared to approximately $122.9
million and $12.0 million for the Comparable Companies. Baird also noted ratios
of latest 12 months earnings as a percentage of average assets for (i) net
interest income of 3.8% for FMSJ and 4.3% for the Comparable Companies; (ii)
provisions for loan losses of 0.1% for FMSJ and 0.1% for the Comparable
Companies; (iii) other (non-interest) income of 0.3% for FMSJ and 0.6% for the
Comparable Companies; (iv) G&A expenses of 2.2% for FMSJ and 3.2% for the
Comparable Companies; (v) net income (i.e., return on average assets ("ROAA"))
of 1.4% for FMSJ and 1.1% for the Comparable Companies and (vi) ratio of latest
12 months earnings to average equity ("ROAE") of 10.3% for FMSJ and 9.3% for the
Comparable Companies. Baird also noted the latest 12 months annual growth rates
in assets, loans and deposits of 5.6%, 5.4% and 7.0% for FMSJ and 4.0%, 6.2% and
5.2% for the Comparable Companies. Baird noted capital to assets and tangible
capital to assets ratios of 13.9% (for both measures) for FMSJ and 11.5% and
11.1%, respectively for the Comparable Companies. Baird also noted certain asset
quality ratios including non-performing assets to assets and reserves to loans
ratios of 0.3% and 1.3%, respectively, for FMSJ and 0.4% and 1.3%, respectively,
for the Comparable Companies.
Discounted Earnings Analysis. Baird performed a discounted earnings
analysis of FMSJ on a stand-alone basis using FMSJ management's projections of
future earnings for the five-year period ending December 31, 2002. Baird
estimated terminal values for FMSJ using 5% constant asset growth rates, stable
ROAA of 1.54% and annual dividend payout ratios of 24.50% for each of the five
years as projected by FMSJ management, and discount rates of 11% to 13%. Such
analysis resulted in implied values of FMSJ Common Stock ranging from $603.00 to
$713.00. Baird noted that the discounted earnings analysis was included because
it is a widely used valuation methodology, but noted that the results of such
methodology are highly dependent upon the numerous assumptions that must be
made, including earnings growth ratios, dividend payout rates, terminal values
and discount rates.
Analysis of F&M. In order to assess the relative public market
valuation of the F&M Common to be issued in the Merger, Baird reviewed certain
publicly available financial information of the most recently reported period
and stock market information as of January 22, 1998 for F&M and certain selected
publicly traded Midwestern headquartered companies which Baird deemed relevant.
Such comparable companies consisted of: Brenton Banks, Inc., Chemical Financial
Corp., Community Trust Bancorp, Firstbank of Illinois Co., First Commerce
Bancshares, Inc., Grand Premier Financial, Mid-America Bancorp, MidAm Inc.,
Mississippi Valley Bancshares, Republic Bancorp Inc., First Financial Corp. and
Trans Financial Inc. (the "F&M Comparable Companies"). The data described below
with respect to the F&M Comparable Companies consists of median data for such
group and are compared to the price per share of F&M Common (both based on
closing prices as of January 22, 1998) and F&M's financial and operating
information as reported as of September 30, 1997.
Baird noted that the assets and equity reported for F&M were
approximately $1.6 billion and $145 million compared to approximately $1.8
billion and $160 million for the F&M Comparable Companies. The ratio of the
closing price of F&M Common to the last 12 months earnings per share was 18.6x
as compared to 19.3x and the price to book value was 257.4% for F&M and 244.4%
for the F&M Comparable Companies. Baird also noted ratios of last twelve months
earnings as a percentage of average assets for (i) net interest income of 4.3%
for F&M and 3.9% for the F&M Comparable Companies; (ii) provisions for loan
losses of 0.2% for F&M and 0.2% for F&M Comparable Companies; (iii) non-interest
income of 0.6% for F&M and 1.0% for the F&M Comparable Companies; (iv)
non-interest expense of 2.7% for F&M and 3.3% for the F&M Comparable Companies;
(v) net income (or ROAA) of 1.3% for F&M and 1.2% for the F&M Comparable
Companies; and (vi) ratio of last 12 month earnings to average equity (or ROAE)
of 14.5% for F&M and 14.0% for the F&M Comparable Companies. Baird also noted
the last 12 months growth in assets, loans and deposits of 25.2%, 26.1% and
21.1% for F&M and 5.4%, 8.5% and 2.5% for F&M Comparable Companies.
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<PAGE> 34
Baird noted equity to assets and tangible equity to assets of 9.0% and 8.5%,
respectively, for F&M and 9.2% and 8.6% for the F&M Comparable Companies. Baird
also noted certain asset quality ratios including non-performing assets to
assets and reserves to loan ratios of 0.9% and 132.0%, respectively, for F&M and
0.4% and 343.1%, respectively, for the F&M Comparable Companies. The above
pricing ratios were generally similar to the corresponding financial data for
the F&M Comparable Companies.
Pro Forma Merger Analysis. Baird prepared a pro forma analysis of the
financial impact of the Merger. Using financial forecasts for FMSJ (prepared by
FMSJ management) and F&M (prepared by F&M management), Baird compared F&M's
earnings per share and book value on a stand alone basis to earnings per share
and book value of the combined companies on a pro forma basis. This analysis
indicated that the Merger would not be accretive or dilutive to per share
earnings for F&M in the first year. Baird also noted slight book value accretion
to F&M as a consequence of this transaction.
Stock Trading Analysis. Baird reviewed the historical trading prices
and volume of F&M Common on a daily basis for the two year period ending on
January 22, 1998. In performing its analyses, Baird made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of FMSJ. These analyses
are not necessarily indicative of actual values or actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Such analyses were prepared solely as part of Baird's analysis of the fairness
to FMSJ Shareholders from a financial point of view and are provided to the FMSJ
Board in connection with the delivery of the Opinion. The analyses do not
purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. In addition, as described above,
the Opinion and presentation to the FMSJ Board is just one of the many factors
taken into consideration by the FMSJ Board.
Contribution Analysis. Baird analyzed the contribution of each F&M and
FMSJ to the pro forma company of assets, deposits, historical income, estimated
income, equity and ownership. F&M would contribute 94.3% and FMSJ 5.7% of
assets. F&M would contribute 94.4% and FMSJ 5.6% of deposits. F&M would
contribute 93.0% and FMSJ 7.0% to historical income, based the trailing 12
months income ended September 30, 1997. F&M would contribute 93.8% and FMSJ 6.2%
of estimated income, based on estimated income provided by F&M and FMSJ,
respectively. F&M would contributed 91.4% and FMSJ 8.6% of equity. F&M would
represent 93.8% and FMSJ 6.2% of ownership of the pro forma combined
institution.
The summary of the opinion set forth above does not purport to be a
complete description of the presentation of Baird to the FMSJ Board or the
analyses performed by Baird. The preparation of a fairness opinion is a complex
process and is not susceptible to partial analysis or summary description. Baird
believes that its analyses must be considered as a whole and that selecting
portions of its analyses, without considering all factors and analyses would
create an incomplete view of the procedures underlying the Opinion. In addition,
the ranges of valuations resulting from any particular analysis described above
should not be taken to be Baird's view of the actual value of FMSJ. The fact
that any specific analysis has been referred to in the summary above is not
meant to indicate that such analysis was given any more weight than any other
analysis.
Baird, as part of its investment banking business, is engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate and other purposes. FMSJ retained Baird because
of its experience and expertise in the valuation of businesses and their
securities in connection with mergers and acquisitions. In the ordinary course
of business, Baird may from time to time trade equity securities of F&M for its
own account and the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities.
Pursuant to an agreement dated November 6, 1997 between FMSJ and Baird,
FMSJ has paid Baird a non-refundable retainer fee of $10,000 and $15,000 as a
fairness opinion fee. If the Merger is consummated, FMSJ will pay Baird a
transaction fee of $35,000 against which the retainer and opinion fee are
creditable. Baird is also to receive
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<PAGE> 35
reimbursement for certain of its out of pocket expenses not to exceed $5,000
related to this transaction. Additionally, FMSJ has agreed to indemnify Baird
against certain liabilities, including liabilities under the federal securities
laws, incurred in connection with the engagement of Baird by FMSJ.
Conditions to the Merger
The obligations of F&M and FMSJ to consummate the Merger are
conditioned upon obtaining the requisite approvals of the FRB under the Bank
Holding Company Act and expiration of the waiting period after such approval and
the approval of the Division. An application seeking approval from the FRB under
the Bank Holding Company Act was approved March 5, 1998. An application seeking
approval of the Division was approved on March 12, 1998.
The obligations of both F&M and FMSJ to consummate the Merger are
further conditioned upon the truth and correctness of the representations and
warranties made by the parties to the Agreement on and as of the closing date;
compliance by the other party with all obligations under the Agreement which are
to be performed or complied with prior to or on the closing date; the absence of
litigation or investigation in connection with the Merger; receipt of an opinion
of counsel as to certain federal income tax consequences of the Merger;
consummation of the Merger not later than August 31, 1998; and the occurrence of
all proceedings to be taken in connection with the Merger transaction and the
delivery of all documents incident thereto.
The obligations of FMSJ to consummate the Merger are further
conditioned upon the F&M Common Price equaling or being greater than $35.00.
The obligations of F&M are further conditioned upon the F&M Common
Price equaling or being less than $46.00; approval of the Merger by not less
than a majority of the outstanding shares of FMSJ, which is being sought at the
Special Meeting; qualification of the Merger for pooling of interests
accounting; exercise of dissenters' rights by holders of fewer than 10% of the
outstanding shares of FMSJ Common; registration of the shares of F&M Common to
be issued in the transaction pursuant to the Securities Act; FMSJ meeting
specified earnings and equity tests; and other conditions set forth in the
Agreement.
Waiver, Amendment or Termination
In addition to the right of F&M or FMSJ to waive certain of the
conditions to their obligations to proceed with the Merger, the Agreement is
subject to amendment, modification and supplementation by a written agreement
signed by the duly authorized representatives of F&M and FMSJ.
The Agreement may be terminated and the Merger abandoned without
liability on the part of any party at any time prior to the Closing Date by
mutual consent of F&M and FMSJ, or by either F&M or FMSJ if the conditions to
their obligations to proceed under the Agreement have not been met or waived in
writing.
In the event of termination and abandonment, not as a result of a
breach of the Agreement, each party would be responsible to pay its own expenses
incident to the Merger.
Management after the Merger
Upon consummation of the Merger, F&M expects to continue to operate the
Bank as a separate entity under the direction and general policies of F&M, and
the Bank's board of directors. F&M initially intends to retain the Bank's
current employees, officers and board of directors, with the possible addition
of an F&M designee as a member of the Board of Directors of the Bank. F&M
performs certain functions and provides various services (such as internal
audit, marketing and lending assistance, investment coordination, etc.) for its
subsidiary banks, and expects to do the same for the Bank. F&M will receive a
management fee from the Bank for these functions and services.
The parties contemplate that F&M will enter into employment agreements
with Sandi M. Clark, currently Secretary of FMSJ and Vice President and Cashier
of the Bank, and Henry A. Fischer, currently Chairman of the Board,
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<PAGE> 36
President and Chief Executive Officer of FMSJ and the Bank. Ms. Clark's
employment agreement is expected to be for a two year term and to provide that
Ms. Clark will continue as vice president and cashier of the Bank. Mr. Fischer's
employment agreement is expected to be for a two year term and to provide that
Mr. Fischer will continue as President of the Bank. The Agreement also provides
that the current members of the Bank's board of directors may remain as
directors until two years after the Effective Time of the Merger.
Federal Income Tax Consequences
Godfrey & Kahn, S.C., counsel to FMSJ, expects to issue a legal opinion
as to the tax-free nature of the Merger to holders of FMSJ Common under federal
law, and such an opinion is a condition to consummation of the transactions
contemplated by the Agreement. However, the parties have not sought any rulings
from the Internal Revenue Service that the Merger constitutes a non-taxable
reorganization under the Internal Revenue Code of 1986, as amended (the "Code").
The parties also have not sought any rulings or opinions with respect to the
state or local tax consequences of the Merger. In the Agreement, F&M has made no
representations or warranties as to tax consequences. FMSJ shareholders are
therefore urged to consult their own tax advisors as to the tax effects of the
Merger on their own particular situations.
The Godfrey & Kahn, S.C. opinion as to the federal income tax effects
of the proposed transaction, which will be delivered upon the closing of the
Merger, is expected to include the following matters: (a) No gain or loss will
be recognized by holders of FMSJ Common who receive solely shares of F&M Common
in exchange for their shares of FMSJ Common; (b) The aggregate basis of the
shares of F&M Common received by holders of FMSJ Common in the transaction will
be the same as the basis of their shares of FMSJ Common surrendered in exchange
therefor; and (c) The holding period of the shares of F&M Common received by
holders of FMSJ Common in the exchange will include the holding period for their
shares of FMSJ Common exchanged therefor, provided their shares of FMSJ Common
were held as capital assets on the date of the exchange.
A FMSJ shareholder who receives cash in lieu of a fractional share
interest in F&M Common will be treated as having received the cash in redemption
of the fractional share interest. The receipt of cash in lieu of a fractional
share interest should generally result in capital gain or loss to the holder
equal to the difference between the amount of cash received and the portion of
the holder's federal income tax basis in FMSJ Common allocable to the fractional
share interest. Such capital gain or loss will be long term capital gain or loss
if the holder's holding period for the F&M Common received, determined as set
forth above, is longer than one year.
Resale of F&M Common
The shares of F&M Common to be issued to FMSJ shareholders in the
Merger have been registered under the Securities Act and may be freely traded by
FMSJ shareholders who, at the Effective Time, are not "affiliates" of FMSJ and
who are not "affiliates" of F&M at the time of the proposed resale.
Shares of F&M Common received by "affiliates" of FMSJ may be resold by
them only (i) in conformity with the resale provisions of Rule 145 under the
Securities Act, (ii) pursuant to a further registration under the Securities
Act, or (iii) in accordance with another available exemption from the
registration requirements of the Securities Act. F&M's obligation to consummate
the Merger is conditioned upon the receipt of an executed Affiliate's
Undertaking to comply with such resale restrictions from each person who may be
deemed an "affiliate" of FMSJ within the meaning of the Securities Act and Rule
145.
An "affiliate" is defined under the rules promulgated pursuant to the
Securities Act as a person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, an
entity. For this purpose, FMSJ will treat each executive officer, director and
greater-than-5% shareholder of FMSJ, and each other person identified by counsel
for FMSJ as a person who may be deemed to be an affiliate, as an affiliate.
Shares of F&M Common issued to such persons in the Merger will be transferable
only in compliance with the Affiliate's Undertaking. F&M is not obligated to
register F&M Common owned by affiliates of FMSJ under the Securities Act for
resale.
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<PAGE> 37
Each of the persons executing an Affiliate's Undertaking also will
represent that he or she will not dispose of or otherwise reduce his or her risk
relative to any beneficially owned shares of F&M Common prior to the publication
by F&M of an earnings statement covering at least 30 days of operations
subsequent to the Effective Time of the Merger, and has not sold or otherwise
reduced his or her risk relative to any shares of F&M Common or shares of FMSJ
Common beneficially owned by such person within a 30 day period preceding the
Effective Time. The purpose of these requirements is to demonstrate the
continuity of risk-sharing necessary for pooling of interests accounting
treatment.
Accounting Treatment
F&M intends to account for the acquisition of FMSJ using the pooling of
interests method of accounting. F&M's ability to use pooling of interests
accounting is a condition to the Merger.
RIGHTS OF DISSENTING SHAREHOLDERS OF FMSJ
Pursuant to Section 180.1302 of the WBCL, any shareholder of FMSJ, or
beneficial shareholder of FMSJ who is the beneficial owner of shares held by a
nominee as the shareholder of record, has the right to object to the Merger and
demand payment of the "fair value" of his shares in cash. Any FMSJ shareholder
or beneficial shareholder electing to do so must file with FMSJ, before the
Merger vote is taken, a written notice of objection that complies with Section
180.0141 of the WBCL. Furthermore, the FMSJ shareholder or beneficial
shareholder may not vote his or her shares in favor of the proposed Merger.
If the Merger is approved by the requisite vote, FMSJ shall send within
10 days after such approval to any dissenting shareholder who has preserved his
or her dissenters' rights by filing such objection and refraining from voting
his shares in favor of the Merger, a dissenters' notice including or having
attached a form for demanding payment that requires the shareholder or
beneficial shareholder asserting dissenters' rights to certify whether he or she
acquired beneficial ownership of the shares before the first announcement to the
news media or to shareholders of the terms of the proposed Merger, a statement
indicating where the shareholder or beneficial shareholder must send the payment
demand and where and when certificates for the FMSJ shares must be deposited, a
date by which FMSJ must receive the payment demand and a copy of the dissenters'
rights statutes under the WBCL. Persons receiving a dissenters' notice must
demand payment in writing within the requisite time and certify whether they
acquired beneficial ownership of the shares before the date specified in the
dissenters' notice. The dissenter's FMSJ share certificates must also be
deposited in accordance with the terms of the notice.
A FMSJ shareholder may assert dissenters' rights as to fewer than all
shares registered in his or her name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies FMSJ in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. In order to assert dissenters' rights, a beneficial
shareholder must submit to FMSJ the shareholder's written consent to the dissent
not later than the time that the beneficial shareholder asserts dissenters'
rights, which consent should be with respect to all shares of which he or she is
the beneficial shareholder.
As soon as the Merger is effectuated or upon receipt of a payment
demand, whichever is later, FMSJ shall pay each shareholder who has perfected
his dissenters' rights the amount that FMSJ estimates to be the fair value of
his shares plus accrued interest. The payment shall be accompanied by FMSJ's
latest available audited financial statements, a statement of FMSJ's estimate of
the fair value of the shares, an explanation of the calculation of interest, a
statement of the dissenter's right to demand payment if the dissenter is
dissatisfied with FMSJ's payment, and a copy of the dissenters' rights statutes.
FMSJ may elect to withhold payment from a dissenter who was not the
beneficial owner of shares before the date specified in the dissenters' notice.
To the extent FMSJ elects to withhold such payment after effectuating the
Merger, FMSJ shall estimate the fair value of the shares plus accrued interest
and shall pay that amount to each dissenter who agrees to accept it in full
satisfaction of his demand. FMSJ shall send with its offer of payment a
statement of its estimate of the fair value of the shares, an explanation of how
interest was calculated, and a statement of the dissenter's right to demand
payment if he is dissatisfied with the offer.
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<PAGE> 38
A dissenter, within 30 days after FMSJ has made or offered payment for
his shares, shall notify FMSJ in writing in accordance with Section 180.0141 of
the WBCL if he is dissatisfied with the payment or offer. The notice shall state
the dissenter's estimate of the fair value of his shares and the amount of
interest due and demand payment of that estimate less the payment already
received from FMSJ, or for dissenters whose payments have been withheld, reject
the offer of payment and demand payment of the fair value of his shares and
interest due if certain conditions are satisfied.
If a dissenter's demand for payment remains unsettled, FMSJ may bring a
special proceeding within 60 days after receiving the payment demand and
petition a court to determine the fair value of FMSJ shares and accrued
interest. If this special proceeding is not brought within the 60-day period,
FMSJ must pay each dissenter whose demand remains unsettled the amount demanded.
For purposes of Subchapter XIII of the WBCL, the "fair value" of FMSJ's
shares is determined immediately before the effectuation of the Merger,
excluding any appreciation or depreciation in anticipation of the Merger unless
such exclusion would be inequitable.
The full text of Subchapter XIII of the WBCL is set forth as Exhibit B
to this Proxy Statement. Since the foregoing description is not a complete
summary of its provisions, any shareholder who may be considering exercising his
rights as a dissenter is urged to refer to such text. The provisions of
Subchapter XIII require strict compliance, and any FMSJ shareholder who wishes
to object to the Merger and demand payment for his or her shares should consult
his own attorney or advisor.
If a FMSJ shareholder fails to perfect his or her dissenters' rights by
failing strictly to comply with the applicable statutory requirements, he or she
will be bound by the terms of the Agreement. An executed proxy on which no
voting direction is made will be voted FOR approval of the Merger, so a
dissenting shareholder who wishes to have his or her shares represented by a
proxy at the FMSJ Special Meeting but preserve his dissenters' rights must mark
his or her proxy card either to vote against the Merger or to abstain from
voting thereon, in addition to complying with the other requirements as
described herein.
A condition of the obligations of both F&M and Subsidiary to consummate
the Merger is that the holders of less than 10% of the issued and outstanding
FMSJ Common will have elected to exercise their dissenters' rights. See "The
Merger -- Conditions to the Merger."
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<PAGE> 39
FMSJ MARKET INFORMATION AND DIVIDENDS
The number of holders of record of FMSJ Common at March 1, 1998, was
approximately 200.
Trading in shares of FMSJ Common is infrequent, and there is no
independent market with respect to such shares. FMSJ has maintained a repurchase
program to provide holders of FMSJ Common liquidity for their shares. Annually,
the Board of Directors establishes a price at which shares will be repurchased
for the ensuing year. Since the inception of the program, the price has been
established at 80% of the adjusted book value for FMSJ Common on each December
31. This price is then used for the entire ensuing year. In 1997, FMSJ
repurchased 547 shares of FMSJ Common in six transactions. The repurchase price
for 1997 was $267.61. In 1996, FMSJ repurchased 75 shares of FMSJ Common in a
single transaction. The 1996 repurchase price was $243.79. There were no
repurchases under the program in 1995.
The following table presents the total annual payment of dividends per
share of FMSJ Common since January 1, 1996:
Calendar Year Dividends Paid
------------- --------------
1996 $6.00
1997 $8.00
1998 (through March 31) $2.50
The Agreement provides that FMSJ shall not pay any dividends in 1998
except that dividends may be paid by FMSJ prior to the Effective Time provided
that the total of all dividends declared in 1997 did not exceed $8.00 per share
and that the quarterly dividends declared in 1998 do not exceed $2.50 per
quarter without the prior written consent of F&M.
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<PAGE> 40
FMSJ SELECTED FINANCIAL DATA
The selected financial data presented below for FMSJ for each of the
years in the five year period ended December 31, 1997, are derived from the
financial statements of FMSJ and should be read in conjunction with other
financial information presented elsewhere in this Supplemental Statement. The
financial statements of FMSJ for the year ended December 31, 1997, have been
audited by Wipfli Ullrich Bertelson, LLP to the extent indicated in their report
thereon. The selected financial data for the years ended December 31, 1996,
1995, 1994 and 1993, are unaudited, but in the opinion of FMSJ management
reflect all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation. The information presented below should be
read in conjunction with the separate financial statements and notes thereto of
FMSJ, and FMSJ's Management's Discussion and Analysis of Results of Operations
and Financial Condition, all included elsewhere in this Supplemental Statement.
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- --------- ---------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest income $ 7,218 $ 6,914 $ 6,436 $ 5,842 $5,928
Interest expense 3,586 3,419 3,233 2,638 2,668
---------- ---------- ---------- --------- ---------
Net interest income 3,632 3,495 3,203 3,204 3,260
Provision for loan losses 375 120 155 60 75
---------- ---------- ---------- --------- ---------
Net interest income after
provision for loan losses 3,257 3,375 3,048 3,144 3,185
Non-interest income 329 346 294 243 305
Non-interest expense (2,469) (2,039) (2,001) (2,106) (2,023)
---------- ---------- ---------- --------- ---------
Income before provision
for income taxes 1,117 1,682 1,341 1,281 1,467
Provision for
income taxes 103 360 282 216 300
---------- ---------- ---------- --------- ---------
Net income $ 1,014 $ 1,322 $ 1,059 $ 1,065 $1,167
========== ========== ========== ========= =========
PERIOD END BALANCE SHEET
DATA:
Total assets $ 99,653 $ 95,346 $ 93,034 $ 85,625 $80,602
Net loans 61,997 58,251 58,982 53,824 48,808
Investment securities 30,198 28,272 27,156 25,833 26,501
Total deposits 80,653 75,983 74,974 72,280 70,050
Total stockholders' equity 13,178 12,485 11,576 10,103 9,359
PER COMMON SHARE DATA:
Net income $27.32 $35.13 $28.13 $ 28.28 $30.99
Period end book value 355.78 332.16 307.37 268.25 248.50
Dividends 8.00 6.00 5.00 4.20 4.00
</TABLE>
-25-
<PAGE> 41
FMSJ MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The following discussion and analysis provides information regarding
the historical results of operations and financial condition of FMSJ for the
years ended December 31, 1997, 1996 and 1995. This discussion and analysis
should be read in conjunction with the related financial statements and notes
thereto and the other financial information included herein.
FISCAL 1997 COMPARED TO 1996 AND 1995
RESULTS OF OPERATIONS
For the year ended December 31, 1997, net income was $1,014,000, a
decrease of $308,000, or 23.3% from 1996. For the year ended December 31, 1996,
net income was $1,322,000, an increase of $263,000, or 24.8% from the 1995 net
income of $1,059,000.
NET INTEREST REVENUE
Net interest revenue was at $3,632,000 in 1997 and $3,495,000 in 1996.
Total interest income increased 4.4% to $7.2 million in 1997. Average earning
assets increased 4.25% to $91.7 million in 1997 from $88.0 million in 1996,
while interest-bearing liabilities increased 3.47%. Average yields on loans
increased to 8.86% from 8.76%, while the yield on taxable investments
instruments remained constant, while the yield on non-taxable investment
declined. Interest bearing liability costs increased slightly to 4.73% at
December 31, 1997 from 4.67% at December 31, 1996.
Net interest revenue increased $292,000 or 9.12% to $3,495,000 in 1996.
Total interest income increased $478,000 in 1996 from $6,436,000. Average
earning assets increased $4.2 million from 1995 to 1996 while interest bearing
liabilities increased only $3.0 million.
-26-
<PAGE> 42
The following table presents the relative contribution of changes in
volume and interest rates on changes in FMSJ net interest income using average
balances.
<TABLE>
<CAPTION>
1997 compared to 1996 1996 compared to 1995
Increase (Decrease) Due to (1) Increase (Decrease) Due to (1)
----------------------------- ------------------------------
Volume Rate Net Volume Rate Net
-------- ------ ------ ------- ------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans (2) $ 144 $ 61 $ 205 $ 195 $ 228 $ 423
Taxable investment securities 38 2 40 137 (30) 107
Nontaxable investment securities (2) 92 (30) 62 (7) (48) (55)
Other investments 21 -- 21 (12) 2 (10)
-------- ------ ------ ------- ------
Total interest earning assets $ 295 $ 33 $ 328 $ 313 $ 152 $ 465
-------- ------ ------ ------- ------- ------
LIABILITIES & STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Savings deposits $ 80 $ 31 $ 111 $ (16) $ (8) $ (24)
Time deposits 58 59 117 59 11 70
Short-term borrowings 1 (1) -- 7 (3) 4
Other borrowings (49) (12) (61) 143 (7) 136
-------- ------ ------ ------- ------- ------
Total interest bearing liabilities 90 77 167 193 (7) 186
-------- ------ ------ ------- ------- ------
Net change in net interest income $ 205 $ (44) $ 161 $ 120 $ 159 $ 279
======== ====== ====== ======= ======= ======
</TABLE>
(1) The change in interest due to both rate and volume has been allocated
to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
(2) The amount of interest income on nontaxable loans and investment
securities has been adjusted to its fully tax equivalent.
-27-
<PAGE> 43
The following table sets forth average consolidated FMSJ balance sheet
data and average yield and rate data on a tax equivalent basis for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------- -------- -------- ------ -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Loans (1)(2)(3) 61,265 5,430 8.86% 59,646 5,225 8.76% 57,361 4,802 8.37%
Taxable investment securities 16,082 1,006 6.26% 15,450 966 6.25% 13,267 859 6.47%
Nontaxable investment
securities (2) 12,997 1,091 8.39% 11,904 1,029 8.64% 11,986 1,084 9.04%
Other investments 1,399 75 5.36% 999 54 5.41% 1,225 64 5.22%
------ ------- ------- -------- ------- -------
Total 91,743 7,602 8.29% 87,999 7,274 8.27% 83,839 6,809 8.12%
Noninterest earning assets:
Cash and due from banks 2,570 2,283 2,185
Premises & equipment-net 2,582 2,144 1,709
Other assets 1,620 1,366 1,228
Less: Allowance for loan loss (876) (724) (637)
------ ------- -------
Total 97,639 93,068 88,324
====== ======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Savings deposits 33,290 1,126 3.38% 30,920 1,015 3.28% 31,436 1,039 3.31%
Time deposits 37,887 2,189 5.78% 36,894 2,072 5.62% 35,822 2,002 5.59%
Short-term borrowings 946 55 5.81% 921 55 5.97% 812 51 6.28%
Other borrowings 3,698 216 5.84% 4,542 277 6.10% 2,202 141 6.40%
------- ----- ------ ----- ------ -----
Total 75,821 3,586 4.73% 73,277 3,419 4.67% 70,272 3,233 4.60%
Non-interest bearing liabilities:
Demand deposits 7,613 6,431 6,282
Other liabilities 1,252 1,367 1,070
Stockholders' equity 12,953 11,993 10,700
------- ------ ------
Total 97,639 93,068 88,324
======= ====== ======
Net interest income 4,016 3,855 3,576
Rate spread 3.56% 3.60% 3.52%
Net interest margin 4.38% 4.38% 4.27%
</TABLE>
(1) For the purposes of these computations, non-accruing loans are included
in the daily average loan amounts outstanding.
(2) The amount of interest income on nontaxable investment securities and
loans has been adjusted to its fully tax equivalent.
(3) Loan fees are included in total interest income as follows: 1997 -
$28,000; 1996 - $36,000; and 1995 - $26,000.
PROVISION FOR CREDIT LOSSES
The amount charged to provision for credit losses is based on
management's evaluation of the loan portfolio. Management determines the
adequacy of the allowance for credit losses based on past credit loss
experience, current economic conditions, composition of the loan portfolio and
the potential for future loss. The provisions for credit losses was $375,000 in
1997, as compared to $120,000 in 1996 and $155,000 in 1995. A significant
portion of the increase from 1996 to 1997 reflected a one-time change to the
allowance for credit losses made in connection with the Merger, so that FMSJ's
reserves would conform to F&M's standards.
-28-
<PAGE> 44
OTHER OPERATING REVENUE AND EXPENSES
Other operating revenue decreased $29,000 to $172,000 in 1997. Other
operating revenue increased $44,000 in 1996 from $157,000 in 1995. Security
losses were $7,000 in 1996 compared with $8,000 in 1995. No securities gains or
losses were incurred in 1997. Service charges have remained relatively constant
from 1995 through 1997.
Total other expenses increased $430,000 in 1997. Occupancy expenses
increased $56,000, or 22.4%, and other operating expenses increased $378,000, or
47.3%, primarily due to one-time expenses related to the Merger. Other operating
expenses increased $38,000, or 1.9%, to $2,039,000 in 1996 from 1995. During
this time period salaries and benefits increased $39,000, while all other
operating expenses were unchanged.
INCOME TAXES
Income taxes were $103,000 in 1997 compared with $360,000 in 1996 and
$282,000 in 1995. Tax expense as a percent of income before income taxes was
9.2% in 1997, 21.4% in 1996 and 21% in 1995. The decrease in income taxes is the
result of decreased profitability and a higher proportion of tax exempt income.
FINANCIAL CONDITION
LOAN PORTFOLIO
The following table sets forth the major categories of loans
outstanding and the percentage of total loans for each category at the dates
indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1997 1996 1995
------------------ -------------------- -------------------
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
$12,238 20% $10,905 19% $10,384 17%
Commercial
Agricultural production 2,674 4 3,180 5 3,133 5
Real estate:
Commercial 4,877 8 2,933 5 2,374 4
Agricultural 6,511 10 6,183 11 2,252 4
Residential 30,403 48 28,493 48 32,652 55
Other 6,402 10 7,309 12 9,103 15
------- ------- ------- ------- ------- -------
Total loans $63,105 100% $59,003 100% $59,898 100%
======= ======= ======= ======= ======= =======
</TABLE>
-29-
<PAGE> 45
NON-PERFORMING ASSETS
Non-performing assets are a broad measure of problem loans. The
following table sets forth the amount of FMSJ's non-performing loans, other real
estate owned and non-performing assets and each of their percentages to total
loans as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1997 1996 1995
------------------- --------------------- -------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Non-accrual loans $ 7 .01% $ 291 .49% $ 602 1.01%
Accruing loans past due 90 days
or more 1 -- 12 .02 6 .01
------- --------- -------- ------ -------- -----------
Total non-performing loans 8 .01 303 .51 608 1.02
------- --------- -------- ------ -------- -----------
Other real estate owned 175 .28 0 -- 0 --
------- --------- -------- ------ -------- -----------
Total non-performing assets $ 183 .29% $ 303 .51% $ 608 1.02
======= ========= ======== ====== ======== ===========
</TABLE>
-30-
<PAGE> 46
SUMMARY OF CREDIT LOSS EXPERIENCE
The following table summarizes loan balances at the end of each
year; changes in the allowance for credit losses arising from loans charged off
and recoveries on loans previously charged off, by loan category; and provisions
for credit losses that have been charged to expense.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1997 1996 1995
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Average balance of loans for year $ 61,265 $ 59,646 $ 57,361
=========== ============= ============
Allowance for credit losses at beginning of year $ 752 $ 726 $ 607
Loan charge-offs:
Commercial, municipal and agricultural 3 73 13
Real estate mortgages 0 0 4
Installment* 38 34 26
----------- ------------- ------------
Total charge-offs 41 107 43
Total recoveries 22 13 7
----------- ------------- ------------
Net loan charge-offs (recoveries) 19 94 36
Provision for credit losses 375 120 155
----------- ------------- ------------
Allowance for credit losses at end of year $ 1,108 $ 752 $ 726
=========== ============= ============
Ratio of net charge-offs during year to .03% .16% .06%
average loans outstanding
Allowance for credit losses to total loans 1.8% 1.3% 1.2%
</TABLE>
- --------------------
* Includes credit cards and related plans.
CAPITAL
The Bank is subject to, and in compliance with, various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could have
a direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and
-31-
<PAGE> 47
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital to risk-weighted assets and of Tier
I capital to average assets. Management believes, as of December 31, 1997, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Office
of the Wisconsin Department of Financial Institutions categorized the Bank as
well capitalized under the regulatory framework for prompt corrective action. To
be categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that management
believes have changed the Bank's category.
The Bank's actual capital amounts and ratios as of December 31, 1997,
and regulatory capital standards, are presented in the following table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------------- --------------------------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- -------------- ---------------- ---------------- -------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total capital (to risk-
weighted assets) $ 13,619 20.4% >=$ 5,333 >=8.0% >=$ 6,666 >=10.0%
- - - -
Tier I capital (to risk-
weighted assets) $ 12,780 19.2% >=$ 2,666 >=4.0% >=$ 4,000 >= 6.0%
- - - -
Tier I capital (to average
assets) $ 12,780 12.9% >=$ 3,973 >=4.0% >=$ 4,966 >= 5.0%
- - - -
</TABLE>
The Bank is subject to restrictions on the amount of dividends it may
declare without regulatory approval. At December 31, 1997, $3,002,000 of
retained earnings was available for dividend declaration without prior
regulatory approval.
-32-
<PAGE> 48
LIQUIDITY, INTEREST SENSITIVITY AND MARKET RISK MANAGEMENT
The following table sets forth certain information as to FMSJ's
liquidity and interest rate sensitivity.
<TABLE>
<CAPTION>
0 - 90 91 - 365 1 - 5 OVER 5
DAYS DAYS YEARS YEARS TOTAL
------------ -------------- ---------- ---------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans $ 13,715 $ 21,088 $ 28,284 $ 18 $ 63,105
Investment securities 315 3,453 13,439 13,260 30,467
Other earning assets 389 389
------------ -------------- ---------- ---------- ------------
Total rate-sensitive assets (RSA) 14,419 24,541 41,723 13,278 93,961
============ ============== ========== ========== ============
Rate Sensitive Liabilities
NOW 11,437 11,437
Savings deposits 22,064 22,064
Time deposits 9,355 17,779 10,820 37,954
Short-term borrowings 4,200 4,200
------------ -------------- ---------- ---------- ------------
Total rate-sensitive liabilities (RSL) 9,355 21,979 10,820 33,501 75,655
============ ============== ========== ========== ============
Interest sensitivity gap 5,064 2,562 30,903 (20,223) 18,306
============ ============== ========== ========== ============
Cumulative interest sensitivity gap 5,064 7,626 38,529 18,306
============ ============== ========== ==========
Ratio of cumulative rate-sensitivity
gap to RSA 35.1 19.6 47.8 19.5
============ ============== ========== ==========
Cumulative ratio of rate-sensitive assets 154.1 124.4 191.5 124.2
to rate-sensitive liabilities ============ ============== ========== ==========
</TABLE>
Management of FMSJ considers its sources of liquidity to be adequate
and its interest rate sensitivity position to be within acceptable ranges.
Derivative financial instruments include futures, forwards, interest
rate swaps, option contracts and other financial instruments with similar
characteristics. FMSJ does not currently engage in the use of derivative
instruments. In addition, FMSJ has no market risk sensitive instruments held for
trading purposes.
FMSJ is, however, party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit,
standby letters of credit and credit card commitments. Interest rate risk is the
most significant market risk affecting FMSJ. Other types of market risk, such as
foreign currency exchange rate risk and commodity price risk, do not arise in
the normal course of FMSJ'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. Both the interest rate sensitivity and
liquidity position of FMSJ 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.
-33-
<PAGE> 49
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC.
Business
FMSJ, through the Bank, offers a wide range of traditional bank
services through its two full-service offices and motor bank located in
Jefferson. These services include commercial, consumer, agricultural and real
estate lending (including WHEDA loans to first-time home buyers), depository
account services, and other services to individuals and businesses. The Bank
does not offer trust services. The Bank's business is a general mix of business,
agricultural and consumer banking. In addition, the Bank has a wholly-owned
subsidiary, Jefferson Investments, Inc., a Nevada corporation, whose primary
business is the management of the Bank's investment portfolio.
The Bank's primary service area is in Jefferson County, particularly
the portion in and near the city of Jefferson, in south-central Wisconsin.
The Bank is a Wisconsin state bank, subject to regulation by the
Wisconsin Department of Financial Institutions, Division of Banking and the
FDIC. The Bank's deposits are insured by the FDIC, up to statutory limits.
See "Index to Financial Statements" for historical financial statements
of FMSJ.
Management
The directors of FMSJ are elected by its shareholders and serve for
staggered three-year terms. The following persons currently serve as directors
of FMSJ:
<TABLE>
<CAPTION>
Director Term
Name and Age Principal Occupation Since Expires
------------ -------------------- -------- -------
<S> <C> <C> <C>
Richard N. Bauch, 50 Personal Investments 1985 1999
Sandi M. Clark, 58 Vice President and Cashier of the Bank;
Secretary of FMSJ 1985 1998
Henry A. Fischer, 61 Chairman of the Board, President and
Chief Executive Officer of FMSJ 1985 1999
Gilbert Lenz, 85 Retired 1985 2000
Philip C. Mertens, 57 Treasurer, Arrow, Inc. 1987 1998
Donald Nass, 72 Retired 1985 2000
Robert Niebler, 50 Pharmacist 1993 2000
John W. Spangler, 59 President, Spangler Brothers Seed 1985 1998
William H. Stade, 62 President, Stade Realty & Auction 1986 1999
</TABLE>
-34-
<PAGE> 50
The table below shows the executive officers of FMSJ, each of whom was
elected by the Board of Directors to a one-year term.
<TABLE>
<CAPTION>
Name Office with FMSJ Since
---- ---------------- -----
<S> <C> <C>
Henry A. Fischer Chairman of the Board, President and Chief
Executive Officer *
Donald Nass Vice Chairman 1985
Sandi M. Clark Secretary 1985
Charles F. Klug Treasurer 1985
</TABLE>
- -----------------
* Mr. Fischer has served as President and Chief Executive Officer since
1985 and as Chairman of the Board since 1995.
At March 1, 1998, the Bank employed 32 persons on a full-time
equivalent basis.
Share Ownership
The table below sets forth information regarding the beneficial
ownership of shares of FMSJ Common (both the number of shares owned and the
percent of the class) by FMSJ's directors, and by FMSJ's directors and executive
officers as a group. FMSJ is not aware of persons who beneficially own more than
5% of FMSJ Common as of March 1, 1998.
Name Number of Shares(1) Percent
---------------- ---------------- -------
Richard N. Bauch 978 2.6%
Sandi M. Clark 830 2.2%
Henry Fischer 1,721 4.6%
Gilbert Lenz 400 1.1%
Philip Mertens 186 *
Donald Nass 726 2.0%
Robert Niebler 25 *
John Spangler 522 1.4%
William Stade 280 *
All directors and executive
officers as a group (10 persons) 5,668 15.3%
- -------------------
* Less than 1%
(1) All shares are solely owned, except that the following persons own the
indicated numbers of shares jointly with their respective spouses: Ms.
Clark (830); Mr. Fischer (351); Mr. Lenz (400); Mr. Mertens (186); Mr.
Nass (726); and Mr. Spangler (270).
To FMSJ's knowledge, FMSJ directors and executive officers own no
shares of F&M Common. FMSJ and F&M are unaware of any ownership of FMSJ Common
by directors or executive officers of F&M.
-35-
<PAGE> 51
INFORMATION AS TO SECURITIES
F&M Common
See pages 12 and 13 of the Prospectus for information as to F&M Common.
FMSJ Common
The Articles of Incorporation of FMSJ provide that FMSJ has authority
to issue 39,000 shares of common stock, no par value of which 37,040 shares are
issued outstanding.
Holders of FMSJ Common are entitled to receive dividends thereon if and
when declared and payable by the Board of Directors. Upon any voluntary or
involuntary liquidation, dissolution or winding up of FMSJ, the holders of FMSJ
Common would be entitled to receive any remaining assets available for
distribution to FMSJ shareholders.
The holders of FMSJ Common are entitled to one vote for each share held
and are not entitled to cumulative voting rights. Most actions involving FMSJ,
including the election of directors, are subject to approval of the holders of a
majority of the outstanding FMSJ Common. However, certain actions (such as
business combinations with significant shareholders and the removal of
directors) require an 80% affirmative vote of the outstanding shares of FMSJ
Common.
Holders of FMSJ Common are not entitled to any preemptive rights,
except in certain circumstances required by Wisconsin law. FMSJ Common is fully
paid and not liable to any calls or assessments by FMSJ, except for potential
calls for additional capital under Section 180.0622(2)(b) of the WBCL. See the
discussion of Section 180.0622(2)(b) above under "Information as to F&M Common"
on page 12 of Prospectus.
Comparison of F&M Common with FMSJ Common
F&M's and FMSJ's respective common stocks, and the rights of their
shareholders, are similar. However certain differences exist, including the
following, which include all of those which are deemed by F&M and FMSJ to be
potentially material.
1. Shares of F&M Common are traded on The NASDAQ Stock Market, and
several regional brokerage firms foster a trading market in F&M Common. F&M
Common is a class of securities registered with the SEC, and F&M therefore is
subject to periodic public reporting with respect thereto. F&M is unaware of any
active market for shares of FMSJ Common, and FMSJ is not subject to SEC
reporting requirements.
2. F&M is subject to the statutory anti-takeover provisions of Sections
180.1130 through 180.1150 of the WBCL because it currently meets the definitions
of "resident domestic corporation" thereunder. (See the discussion thereof under
"F&M Common--Certain Statutory Provisions" above.) Those statutory provisions do
not apply to FMSJ, although FMSJ's Articles require an 80% affirmative vote for
a merger or similar transaction with a significant shareholder.
3. The Articles and Bylaws of both F&M and FMSJ provide for the
classification of the Board of Directors into three classes, whereby directors
serve three-year terms and one of the three classes of directors is subject to
election at each annual meeting. FMSJ's Articles further provide for an 80% vote
to remove directors, while a majority vote would be required for such an action
at F&M.
4. The Articles of F&M do not provide for a right of first refusal to
purchase F&M Common at the price and on the terms and conditions offered to any
F&M shareholder by a prospective purchaser of F&M Common, as is provided in
FMSJ's articles with respect to FMSJ Common.
-36-
<PAGE> 52
LEGAL OPINIONS
Quarles & Brady, Milwaukee, Wisconsin, special counsel for F&M, and
McCarty, Curry, Wydeven, Peeters & Haak, LLP, Kaukauna, Wisconsin, general
counsel for F&M, will render opinions on the legality of the shares being
offered hereby and as to certain other matters in connection with the Merger. At
March 1, 1998, two Quarles & Brady attorneys providing services with respect to
the Merger owned an aggregate of 8,623 shares of F&M Common. At that date, six
McCarty, Curry, Wydeven, Peeters & Haak, LLP attorneys providing services with
respect to the Registration Statement owned an aggregate of 11,131 shares of F&M
Common. Certain legal matters in connection with the Merger will be passed upon
for FMSJ by Godfrey & Kahn, S.C., Milwaukee, Wisconsin. Godfrey & Kahn, S.C. is
also expected to render an opinion to FMSJ shareholders as to certain federal
income tax matters of the Merger.
EXPERTS
The consolidated financial statements of F&M included and incorporated
by reference in this Supplemental Statement, and the other consolidated
financial statements from which the five-year selected financial data included
herein have been derived, have been audited by Wipfli Ullrich Bertelson, LLP,
independent certified public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
The financial statements of FMSJ as of, and for the year ended,
December 31, 1997, included in this Supplemental Statement have been audited by
Wipfli Ullrich Bertelson, LLP, independent certified public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
-37-
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
PAGE NO.
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. HEREIN
Annual Financial Information*
Independent Auditor's Report*........................................F-1
Consolidated Balance Sheets at December 31, 1997 and 1996............F-2
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995..................................F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995............................F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995..................................F-8
Notes to Financial Statements........................................F-10
- ------------------
* FMSJ's financial statements at, and for the year ended, December 31, 1997,
are audited; other FMSJ financial statements are unaudited.
-38-
<PAGE> 54
-1-
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Financial Management Services of Jefferson, Inc.
Jefferson, Wisconsin
We have audited the accompanying consolidated balance sheet of Financial
Management Services of Jefferson, Inc. and Subsidiary as of December 31, 1997,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Financial Management
Services of Jefferson, Inc. and Subsidiary at December 31, 1997, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/
------------------------------------
Wipfli Ullrich Bertelson LLP
January 23, 1998
Appleton, Wisconsin
F-1
<PAGE> 55
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
--------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
Audited Unaudited
1997 1996
-------------- ---------------
<S> <C> <C>
Cash and due from banks $ 2,467 $ 3,133
Federal funds sold 389 1,282
-------------- --------------
Cash and cash equivalents 2,856 4,415
Interest-bearing deposits in other financial institutions 269 324
Investment securities available for sale - Stated at fair value 30,198 28,272
Total loans 63,105 59,003
Allowance for credit losses (1,108) (752)
-------------- --------------
Net loans 61,997 58,251
Premises and equipment 2,531 2,501
Other assets 1,802 1,583
-------------- --------------
TOTAL ASSETS $ 99,653 $ 95,346
============== ==============
</TABLE>
F-2
<PAGE> 56
-2-
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Audited Unaudited
1997 1996
-------------- --------------
<S> <C> <C>
Liabilities:
Non-interest-bearing deposits $ 9,198 $ 7,813
Interest-bearing deposits 71,455 68,170
-------------- --------------
Total deposits 80,653 75,983
Short-term borrowings 500 755
Other borrowings 3,700 4,700
Other liabilities 1,622 1,423
-------------- --------------
Total liabilities 86,475 82,861
-------------- --------------
Commitments and contingent liabilities (Note 15)
Stockholders' equity:
Common stock - No par value:
Authorized - 39,000 shares
Issued - 37,662 shares 3,766 3,766
Retained earnings 9,183 8,466
Less - Common stock held in treasury, at cost, 622 and
75 shares at December 31, 1997 and 1996, respectively (165) (18)
Unrealized gain on securities available for sale -
Net of tax 394 271
-------------- --------------
Total stockholders' equity 13,178 12,485
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 99,653 $ 95,346
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 57
-3-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996, and 1995
(Dollars in Thousands, Except Earnings Per Share)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 5,419 $ 5,217 $ 4,800
Interest on investment securities:
Taxable 1,006 966 859
Tax-exempt 718 677 713
Other interest income 75 54 64
-------------- -------------- --------------
Total interest income 7,218 6,914 6,436
-------------- -------------- --------------
Interest expense:
Deposits 3,315 3,087 3,041
Short-term borrowings 55 55 51
Other borrowings 216 277 141
-------------- -------------- --------------
Total interest expense 3,586 3,419 3,233
-------------- -------------- --------------
Net interest income 3,632 3,495 3,203
Provision for credit losses 375 120 155
-------------- -------------- --------------
Net interest income after provision
for credit losses 3,257 3,375 3,048
-------------- -------------- --------------
Other income:
Service fees 157 152 145
Net security losses -0- (7) (8)
Other operating income 172 201 157
-------------- -------------- --------------
Total other income 329 346 294
-------------- -------------- --------------
Other expenses:
Salaries and employee benefits 886 990 951
Net occupancy expense 306 250 211
Write-down of other real estate 100 -0- -0-
Other operating expenses 1,177 799 839
-------------- -------------- --------------
Total other expenses 2,469 2,039 2,001
-------------- -------------- --------------
</TABLE>
F-4
<PAGE> 58
-4-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
Years Ended December 31, 1997, 1996, and 1995
(Dollars in Thousands, Except Earnings Per Share)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Income before provision for income taxes $ 1,117 $ 1,682 $ 1,341
Provision for income taxes 103 360 282
-------------- -------------- --------------
Net income $ 1,014 $ 1,322 $ 1,059
============== ============== ==============
Earnings per share - Basic $ 27.32 $ 35.13 $ 28.13
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 59
-5-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
-----------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996, and 1995
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gain
(Loss) on
Securities
Available
Common Retained Treasury for Sale -
Stock Earnings Stock Net of Tax Total
-------------- ------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
UNAUDITED
Balance, January 1, 1995 $ 3,766 $ 6,499 $ -0- $ (162) $ 10,103
Net income 1,059 1,059
Dividends paid (189) (189)
Change in unrealized gain (loss)
on securities available for
sale - Net of tax 603 603
-------------- ------------- -------------- -------------- -------------
Balance, December 31, 1995 3,766 7,369 -0- 441 11,576
Net income 1,322 1,322
Dividends paid (225) (225)
Purchase of treasury common stock (18) (18)
Change in unrealized gain (loss)
on securities available for
sale - Net of tax (170) (170)
-------------- ------------- -------------- -------------- -------------
Balance, December 31, 1996 3,766 8,466 (18) 271 12,485
AUDITED
Net income 1,014 1,014
Dividends paid (297) (297)
Purchase of treasury common stock (147) (147)
Change in unrealized gain (loss)
on securities available for
sale - Net of tax 123 123
-------------- ------------- -------------- -------------- -------------
Balance, December 31, 1997 $ 3,766 $ 9,183 $ (165) $ 394 $ 13,178
============== ============= ============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 60
-6-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
--------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996, and 1995
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1997 1996 1995
------------- -------------- --------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash
equivalents:
Cash flows from operating activities:
Net income $ 1,014 $ 1,322 $ 1,059
-------------- -------------- --------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and net
amortization 217 170 126
Provision for credit losses 375 120 155
Provision (credit) for deferred income
taxes (225) 10 (84)
Write down of other real estate 100 -0- -0-
Net security losses -0- 7 8
Change in other assets (48) (107) 64
Change in other liabilities 136 84 280
-------------- -------------- --------------
Total adjustments 555 284 549
-------------- -------------- --------------
Net cash provided by operating activities 1,569 1,606 1,608
-------------- -------------- --------------
Cash flows from investing activities:
Net (increase) decrease in interest-bearing
deposits in other financial institutions 55 21 (187)
Proceeds from sale of securities
available for sale -0- 506 2,393
Proceeds from maturities of securities:
Available for sale 3,359 5,046 2,726
Held to maturity -0- -0- 973
Payment for purchases of securities:
Available for sale (5,145) (7,417) (5,577)
Held to maturity -0- -0- (925)
Net (increase) decrease in loans (4,121) 801 (5,503)
Capital expenditures (247) (750) (345)
-------------- -------------- --------------
Net cash used in investing activities (6,099) (1,793) (6,445)
-------------- -------------- --------------
</TABLE>
F-7
<PAGE> 61
-7-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
---------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1997, 1996, and 1995
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 4,670 $ 1,010 $ 2,692
Net increase (decrease) in short-term
borrowings (255) (80) 653
Proceeds from other borrowings -0- 200 2,500
Principal payments on other borrowings (1,000) -0- -0-
Purchase of shares of treasury common
stock (147) (18) -0-
Dividends paid (297) (225) (189)
-------------- -------------- -------------
Net cash provided by financing activities 2,971 887 5,656
-------------- -------------- -------------
Net increase (decrease) in cash and cash
equivalents (1,559) 700 819
Cash and cash equivalents at beginning 4,415 3,715 2,896
-------------- -------------- -------------
Cash and cash equivalents at end $ 2,856 $ 4,415 $ 3,715
============== ============== =============
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 3,564 $ 3,420 $ 3,146
Income taxes 359 364 320
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 62
-8-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
-----------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Financial Management Services of
Jefferson, Inc. (the "Company") and its subsidiary conform to generally accepted
accounting principles and general practices within the banking industry.
Significant accounting policies are summarized below.
Nature of Operations
Financial Management Services of Jefferson, Inc. provides banking services to
individual and corporate customers through its wholly owned subsidiary, Farmers
& Merchants Bank of Jefferson (the "Bank").
The Bank operates as a full-service financial institution with a primary market
area including, but not limited to, Jefferson County. The Bank offers a full
range of commercial and retail banking services to customers within the Bank's
market area. The Bank provides commercial, real estate, agricultural, and
consumer loans, as well as a variety of traditional deposit products.
Jefferson Investments Inc., a Nevada corporation, is a wholly owned subsidiary
of the Bank. Jefferson Investments Inc. owns and manages a portfolio of
investment securities, all of which are permissible investments of the Bank
itself.
Principles of Consolidation
The consolidated financial statements include the accounts of Financial
Management Services of Jefferson, Inc. and its subsidiary. All significant
intercompany balances and transactions have been eliminated.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results may differ from these estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, non-interest- bearing deposits in correspondent banks, and federal funds
sold. Generally, federal funds are sold for one-day periods.
F-9
<PAGE> 63
-9-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
----------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment Securities
The Company's investment securities are classified and accounted for as
securities available for sale. Securities available for sale consist of debt
and mortgage-related securities not classified as securities held to maturity.
Unrealized holding gains and losses, net of tax, on securities available for
sale are reported as a net amount in a separate component of stockholders'
equity until realized. Gains and losses on the sale of securities are
determined using the specific-identification method.
Interest and Fees on Loans
Interest on loans is credited to income as earned. Interest income is not
accrued on loans where management has determined collection of such interest is
doubtful. When a loan is placed on nonaccrual status, previously accrued but
unpaid interest deemed uncollectible is reversed and charged against current
income. Loan-origination fees are credited to income when received, as
capitalization of the fees and related costs would not have a material effect on
the financial statements.
Allowance for Credit Losses
The allowance for credit losses includes specific allowances related to
commercial loans which have been judged to be impaired. A loan is impaired
when, based on current information, it is probable that the Bank will not
collect all amounts due in accordance with the contractual terms of the loan
agreement. These specific allowances are based on discounted cash flows of
expected future payments using the loan's initial effective interest rate or the
fair value of the collateral if the loan is collateral dependent.
The Bank continues to maintain a general allowance for credit losses for loans
not considered impaired. The allowance for credit losses is maintained at a
level which management believes is adequate to provide for possible credit
losses. Management periodically evaluates the adequacy of the allowance using
the Bank's past credit loss experience, known and inherent risks in the
portfolio, composition of the portfolio, current economic conditions, and other
factors. This evaluation is inherently subjective since it requires material
estimates that may be susceptible to significant change.
Premises and Equipment
Premises and equipment are stated at cost. Maintenance and repair costs are
charged to expense as incurred. Gains or losses on disposition of premises and
equipment are reflected in income. Depreciation is computed on accelerated and
straight-line methods and is based on the estimated useful lives of the assets.
F-10
<PAGE> 64
-10-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
----------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other Real Estate
Other real estate is carried at the lower of cost or fair value, less estimated
sales costs.
Income Taxes
Deferred income taxes have been provided under the liability method. Deferred
tax assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities as measured by the
current enacted tax rates which will be in effect when these differences are
expected to reverse. Deferred tax expense (benefit) is the result of changes in
the deferred tax asset and liability.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit, commitments
under credit card arrangements, and standby letters of credit. Such financial
instruments are recorded in the financial statements when they become payable.
Advertising Costs
Advertising costs are expensed as incurred.
Earnings per Share
Earnings per common share are based upon the weighted average number of common
shares outstanding. The weighted average number of shares outstanding was
37,115 in 1997; 37,637 in 1996; and 37,662 in 1995.
Basic and fully dilutive earnings per share are the same, therefore, only basic
earnings per share is presented.
F-11
<PAGE> 65
-11-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
----------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Future Accounting Changes
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income in a full set of general- purpose financial statements.
This statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This statement requires that an enterprise display an
amount representing total comprehensive income for the period in a financial
statement, but does not require a specific format for that financial statement.
This statement also requires that an enterprise, a) classify items of other
comprehensive income by their nature in a financial statement and, b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position. The statement is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. Management, at this
time, cannot determine the effect that adoption of this statement may have on
the financial statements of the Company as comprehensive income is dependent on
the amount and nature of assets and liabilities held with general nonincome
changes to equity.
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 and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. 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 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 financial statements.
NOTE 2 - RESTRICTIONS ON CASH AND CASH EQUIVALENTS
Cash and cash equivalents in the amount of $396,000 are restricted at
December 31, 1997, to meet the reserve requirements of the Federal Reserve
System.
F-12
<PAGE> 66
-12-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
----------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - INVESTMENT SECURITIES
The estimated fair value and amortized cost of investment securities available
for sale at December 31 are as follows:
<TABLE>
<CAPTION>
Audited - 1997
---------------------------------------------------------------
Gross Gross
Estimated Unrealized Unrealized Amortized
Fair Value Gains Losses Cost
------------ -------------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 10,395 $ 59 $ 14 $ 10,350
Obligations of states and
political subdivisions 14,261 494 13,767
Mortgage-related securities 4,583 62 8 4,529
Other securities 959 4 955
-------------- -------------- -------------- --------------
Total $ 30,198 $ 619 $ 22 $ 29,601
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Unaudited - 1996
------------------------------------------------------------------
Gross Gross
Estimated Unrealized Unrealized Amortized
Fair Value Gains Losses Cost
------------- --------------- -------------- ----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 9,673 $ 73 $ 50 $ 9,650
Obligations of states and
political subdivisions 11,901 382 21 11,540
Mortgage-related securities 5,628 44 24 5,608
Other securities 1,070 7 1,063
-------------- -------------- -------------- --------------
Total $ 28,272 $ 506 $ 95 $ 27,861
============== ============== ============== ==============
</TABLE>
F-13
<PAGE> 67
-13-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
----------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
Fair values of securities are estimates based on financial methods or prices
paid for similar securities. It is possible interest rates could change
considerably resulting in a material change in the estimated fair value.
The estimated fair value and amortized cost of investment securities available
for sale at December 31, 1997, by contractual maturity, are shown below.
Contractual maturities will differ from expected maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Estimated Amortized
Fair Value Cost
------------- --------------
(Dollars in Thousands)
<S> <C> <C>
Due in three months or less $ 773 $ 773
Due after three months through one year 2,957 2,938
Due after one year through five years 11,062 10,411
Due after five years through ten years 5,999 6,220
Due after ten years 4,824 4,730
------------- --------------
25,615 25,072
Mortgage-related securities 4,583 4,529
------------- --------------
Total $ 30,198 $ 29,601
============= ==============
</TABLE>
Following is a summary of the proceeds from sales of investment securities
available for sale as well as gross gains and losses for the years ended
December 31: '
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1997 1996 1995
-------------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C>
Proceeds from sales of investment
securities available for sale $ -0- $ 506 $ 2,393
Gross gains on sales -0- 8 5
Gross losses on sales -0- 15 13
</TABLE>
Investment securities pledged to secure public deposits, short-term borrowings,
and for other purposes required by law had an estimated fair value of $4,499,000
and amortized cost of $4,497,000 as of December 31, 1997.
F-14
<PAGE> 68
-14-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
----------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
A significant portion of the securities issued by states and political
subdivisions are rated by Moody's with ratings ranging from A to AAA. For those
securities not rated, market values are obtained from brokerage services
utilized by the Company. At December 31, 1997, the total carrying value of
nonrated obligations of states and political subdivisions was $6,835,000.
NOTE 4 - LOANS
The composition of loans at December 31 follows:
<TABLE>
<CAPTION>
Audited Unaudited
1997 1996
------------- --------------
(Dollars in Thousands)
<S> <C> <C>
Commercial, industrial, and financial $ 12,238 $ 10,905
Agricultural 9,185 9,363
Real estate mortgage 35,280 31,426
Installment 6,402 7,309
------------- --------------
Total loans $ 63,105 $ 59,003
============= ==============
</TABLE>
There were no material nonperforming loans at December 31, 1997 and 1996.
Nonperforming loans are those which are contractually past due 90 days or more
as to interest or principal payments, those loans on a nonaccrual status, or
loans the terms of which have been renegotiated to provide a reduction or
deferral of interest or principal.
There were no loans considered to be impaired during the years ended or at
December 31, 1997 and 1996.
The Bank, in the ordinary course of banking business, grants loans to its
executive officers and directors including their families and firms in which
they are principal owners.
F-15
<PAGE> 69
-15-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
--------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - LOANS (CONTINUED)
Substantially all loans to executive officers and directors were made on the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with others and did not involve more than the
normal risk of collectibility or present other unfavorable features. Activity in
such loans during 1997 is summarized below:
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Loans outstanding, December 31, 1996 $ 1,431
New loans 2,711
Repayment (3,566)
-------------
Loans outstanding, December 31, 1997 $ 576
=============
</TABLE>
An analysis of the allowance for credit losses for the years ended
December 31 follows:
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1997 1996 1995
-------------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance, January 1 $ 752 $ 726 $ 607
Provision for credit losses 375 120 155
Recoveries on loans 22 13 7
Loans charged off (41) (107) (43)
-------------- -------------- --------------
Balance, December 31 $ 1,108 $ 752 $ 726
============== ============== ==============
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
An analysis of premises and equipment at December 31 follows:
<TABLE>
<CAPTION>
Audited Unaudited
1997 1996
-------------- --------------
(Dollars in Thousands)
<S> <C> <C>
Land $ 437 $ 437
Buildings and improvements 2,302 2,295
Furniture and equipment 1,077 837
-------------- --------------
Totals 3,816 3,569
Less - Accumulated depreciation and amortization 1,285 1,068
-------------- --------------
Net book value $ 2,531 $ 2,501
============== ==============
</TABLE>
F-16
<PAGE> 70
-16-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
---------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT (CONTINUED)
Depreciation and amortization of premises and equipment charged to operating
expenses amounted to $217,000 in 1997, $170,000 in 1996, and $126,000 in 1995.
NOTE 6 - OTHER REAL ESTATE
Included in other assets is other real estate totaling $175,000 at December 31,
1997. Operating expenses for 1997 include a write-down of $100,000 for other
real estate. There was no other real estate at December 31, 1996, and no
operating expenses relating to other real estate for the years ended December
31, 1996 and 1995.
NOTE 7 - DEPOSITS
The distribution of deposits at December 31 is as follows:
<TABLE>
<CAPTION>
Audited Unaudited
1997 1996
-------------- ---------------
(Dollars in Thousands)
<S> <C> <C>
Non-interest-bearing demand deposits $ 9,198 $ 7,813
Interest-bearing demand deposits 11,437 10,850
Savings deposits 15,439 15,258
Money market deposits 6,625 5,018
Time deposits 37,954 37,044
-------------- --------------
Total deposits $ 80,653 $ 75,983
============== ==============
</TABLE>
Time deposits of $100,000 or more were $3,051,000 and $4,705,000 at December 31,
1997 and 1996, respectively. Interest expense on time deposits of $100,000 or
more was $262,000, $221,000, and $211,000 for the years ended December 31, 1997,
1996, and 1995, respectively.
NOTE 8 - SHORT-TERM BORROWINGS
Short-term borrowings of $500,000 and $755,000 at December 31, 1997 and 1996,
respectively, consisted of securities sold under repurchase agreements, which
generally mature within one to four days from the transaction date.
F-17
<PAGE> 71
-17-
FINANCIAL MANAGMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
--------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - OTHER BORROWINGS
Other borrowings of $3,700,000 and $4,700,000 at December 31, 1997 and 1996,
respectively, consisted of Federal Home Loan Bank advances. As members of the
Federal Home Loan Bank (FHLB) system, the Bank utilizes various borrowing
alternatives, secured by pledges of mortgage loans (totaling approximately
$63,105,000) and FHLB stock. At December 31, 1997, the outstanding advance had
a maturity of December 11, 2002, but is callable after December 1998. The
interest rate is fixed at 5.39% and is payable monthly.
NOTE 10 - POSTRETIREMENT HEALTH BENEFITS
The Bank provides postretirement health benefits to retired employees over the
age of 65 and employees over 50 who retire early. The benefits provided by the
plan are 65% of health insurance premiums. The plan is unfunded and the Bank
funds the benefit on a current basis. Included in other liabilities is an
accrual of $490,000 and $467,000 for December 31, 1997 and 1996, respectively.
Operating expenses for 1997, 1996, and 1995 include charges of $23,000, $22,000,
and $21,000, respectively, for expenses related to postretirement health
benefits.
The weighted average discount rate used to measure the accumulated
postretirement health benefit obligation was 8%. The assumed health care cost
trend used in measuring the accumulated postretirement health benefit obligation
was 15% in 1997, 1996, and 1995.
If the health care cost trend rate was increased by 1%, the accumulated
postretirement health benefit obligation as of December 31, 1997, would increase
by $53,000, or 11%.
NOTE 11 - INCOME TAXES
The components of the provision for income taxes are as follows for the years
ended December 31:
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1997 1996 1995
-------------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C>
Current tax expense:
Federal $ 297 $ 307 $ 323
State 31 43 43
-------------- -------------- --------------
Total current 328 350 366
Deferred tax expense (credit) (225) 10 (84)
-------------- -------------- --------------
Total provision for income taxes $ 103 $ 360 $ 282
============== ============== ==============
</TABLE>
F-18
<PAGE> 72
-18-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
---------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES (CONTINUED)
As of December 31, 1997 and 1996, deferred income taxes are provided for the
temporary differences between the financial reporting and tax bases of the
Company's assets and liabilities. The major components of deferred tax assets
and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
Audited Unaudited
1997 1996
-------------- --------------
(Dollars in Thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses $ 333 $ 192
Write-down of other real estate 39 -0-
Postretirement benefits 193 184
Other 93 29
-------------- --------------
Total deferred tax assets 658 405
-------------- --------------
Deferred tax liabilities:
Depreciation (53) (25)
Unrealized gain on securities available for sale (203) (140)
-------------- --------------
Total deferred tax liabilities (256) (165)
-------------- --------------
Net deferred tax assets $ 402 $ 240
============== ==============
</TABLE>
F-19
<PAGE> 73
-19-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
--------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES (CONTINUED)
A summary of the source of differences between income taxes at the federal
statutory rate and the provision for income taxes for the years ended December
31 follows:
<TABLE>
<CAPTION>
Audited - 1997 Unaudited - 1996 Unaudited - 1995
------------------------ ------------------------ ------------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------------- --------- ------------ ---------- ------------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax expense at
statutory rate $ 380 34.0 $ 572 34.0 $ 456 34.0
Increase (decrease)
in taxes resulting
from:
Tax-exempt interest (245) (21.9) (248) (14.7) (231) (17.2)
State income tax (11) (1.0) 29 1.7 17 1.3
Other (21) (1.9) 7 .4 40 2.9
------------- ------- ------------ ------ ------------ ------
Provision for
income taxes $ 103 9.2 $ 360 21.4 $ 282 21.0
============= ======= ============ ====== ============ ======
</TABLE>
NOTE 12 - RETIREMENT PLANS
The Bank sponsors a defined contribution 401(k) profit sharing plan covering
substantially all employees age 21 and older and who have completed one year of
service. Participants are allowed to make voluntary contributions to the plan
through salary reductions. Employer contributions include a discretionary
matching contribution equal to 75% of the amount of salary reduction. In
applying this matching percentage, only salary reductions up to 4% of the
participants' compensation are considered. The Bank may also make a
discretionary profit sharing contribution.
The Bank established a money purchase plan on April 1, 1997, covering all
employees age 21 and older who have completed one year of service. Employer
contributions amount to 6% of qualifying wages.
Retirement plan expense charged to operations under the plans totaled $76,000,
$66,000, and $71,000 for 1997, 1996, and 1995, respectively.
F-20
<PAGE> 74
-20-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
-----------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital to risk-weighted assets and of Tier I capital
to average assets. Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Office of the
Wisconsin Department of Financial Institutions categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in the table. There
are no conditions or events since that notification that management believes
have changed the Bank's category.
The Bank's actual capital amounts and ratios as of December 31, 1997, are
presented in the following table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------- ------------------------ -----------------------
Amount Ratio Amount Ratio Amount Ratio
---------------- ------- ----------- --------- ----------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-
weighted assets) $ 13,619 20.4% >$ 5,333 >8.0% >$ 6,666 >10.0%
- - - -
Tier I capital (to risk-
weighted assets) $ 12,780 19.2% >$ 2,666 >4.0% >$ 4,000 > 6.0%
- - - -
Tier I capital (to
average assets) $ 12,780 12.9% >$ 3,973 >4.0% >$ 4,966 > 5.0%
- - - -
</TABLE>
F-21
<PAGE> 75
-21-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
-----------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - REGULATORY MATTERS (CONTINUED)
The Bank is subject to restrictions on the amount of dividends it may declare
without regulatory approval. At December 31, 1997, $3,002,000 of retained
earnings was available for dividend declaration without prior regulatory
approval.
NOTE 14 - ADVERTISING COSTS
Advertising costs are expensed as incurred (or the first time advertising takes
place). Advertising expense for 1997, 1996, and 1995 was $59,000, $60,000, and
$56,000, respectively.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Financial Instruments With Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Those instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance sheets.
The Bank's exposure to credit loss, in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit, is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. A summary
of the Bank's commitments and contingent liabilities at December 31, 1997, is as
follows:
<TABLE>
<CAPTION>
Notional
Amount
--------------
(Dollars in Thousands)
<S> <C>
Commitments to extend credit $ 2,094
Standby letters of credit 382
Credit card commitments 1,965
</TABLE>
F-22
<PAGE> 76
-22-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the party. Collateral held varies but may
include accounts receivable; inventory; property, plant, and equipment; and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The commitments are
structured to allow for 100% collateralization on all standby letters of credit.
Credit card commitments are commitments on credit cards issued by the Bank and
serviced by other companies. These commitments are unsecured.
Contingencies
In the normal course of business, the Bank is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the consolidated
financial statements.
NOTE 16 - CONCENTRATION OF CREDIT RISK
The Bank grants residential, commercial, agricultural, and consumer loans within
its market area. At December 31, 1997, approximately 14.6% of the Bank's loan
portfolio consists of agricultural loans. The ability of debtors to honor their
contracts is tied to the economy within the Bank's market area.
NOTE 17 - PENDING SALE
On December 31, 1997, the Company entered into a letter of intent to sell 100%
of its outstanding shares to F&M Bancorporation, Inc. in exchange for F&M
Bancorporation, Inc. stock. This transaction is subject to regulatory and
stockholder approval. The transaction is expected to be completed in the second
quarter of 1998.
F-23
<PAGE> 77
-23-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
--------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 18 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
BALANCE SHEETS
December 31, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS
------
Audited Unaudited
1997 1996
-------------- --------------
<S> <C> <C>
Cash $ 3 $ 3
Investment in subsidiary 13,174 12,482
Other assets 1 -0-
-------------- --------------
TOTAL ASSETS $ 13,178 $ 12,485
============== ==============
STOCKHOLDERS' EQUITY
--------------------
TOTAL STOCKHOLDERS' EQUITY $ 13,178 $ 12,485
============== ==============
</TABLE>
F-24
<PAGE> 78
-24-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
---------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 18 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Income - Dividends received from
subsidiary $ 446 $ 242 $ 219
-------------- -------------- --------------
Expenses - Other 1 1 17
-------------- -------------- --------------
Income before credit for income
taxes and equity in undistributed net
income of subsidiary 445 241 202
Credit for income taxes -0- -0- (6)
-------------- -------------- --------------
Income before equity in undistributed
net income of subsidiary 445 241 208
Equity in undistributed net income of
subsidiary 569 1,081 851
-------------- -------------- --------------
Net income $ 1,014 $ 1,322 $ 1,059
============== ============== ==============
</TABLE>
F-25
<PAGE> 79
-25-
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON, INC. AND SUBSIDIARY
-----------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 18 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Net income $ 1,014 $ 1,322 $ 1,059
-------------- -------------- --------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net income
of subsidiary (569) (1,081) (851)
Change in other assets (1) 4 (4)
Change in other liabilities -0- -0- (15)
-------------- -------------- --------------
Total adjustments (570) (1,077) (870)
-------------- -------------- --------------
Net cash provided by operating
activities 444 245 189
-------------- -------------- --------------
Cash flows from financing
activities:
Dividends paid (297) (225) (189)
Purchase of treasury shares (147) (18) -0-
-------------- -------------- --------------
Net cash used in financing activities (444) (243) (189)
-------------- -------------- --------------
Net increase in cash -0- 2 0
Cash at beginning 3 1 1
-------------- -------------- --------------
Cash at end $ 3 $ 3 $ 1
============== ============== ==============
</TABLE>
F-26
<PAGE> 80
Exhibit A
Robert W. Baird & Co. Incorporated Letterhead
January 27, 1998
Board of Directors
Financial Management Services of Jefferson, Inc.
106 South Main Street
Jefferson, WI 53549
Members of the Board:
Financial Management Services of Jefferson, Inc. ("FMS") has entered
into an Agreement of Merger and Reorganization (the "Agreement") with F&M
Bancorporation, Inc., a Wisconsin corporation ("F&M") and F&M Merger
Corporation, a wholly owned subsidiary of F&M ("Subsidiary"). Pursuant to the
Agreement: (i) FMS will merge with and into Subsidiary (the "Merger") and (ii)
at the Effective Time (as defined in the Agreement), each outstanding share of
common stock, no par value, (the "FMS Common Stock") of FMS will be converted
solely into the right to receive the number of shares of common stock, par value
$1.00 per share (the "F&M Common Stock") of F&M equal to the Exchange Ratio (as
hereinafter defined).
The "Exchange Ratio" means the F&M Stock Offer (as hereinafter
defined), divided by the number of shares of FMS Common stock issued and
outstanding at the Effective Time (excluding any treasury shares), rounded to
three (3) decimal places. The "F&M Stock Offer" means 641,975, subject to
adjustment pursuant to Section 3.4 of the Agreement.
You have requested our opinion as to the fairness, from a financial
point of view, of the Exchange Ratio to the holders of the FMS Common Stock
(other than F&M and its affiliates).
Robert W. Baird & Co. Incorporated ("Baird"), as part of its investment
banking business, is engaged in the evaluation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes.
In conducting our investigation and analysis and in arriving at our
opinion herein, we have reviewed such information and taken into account such
financial and economic factors as we have deemed relevant under the
circumstances. In that connection, we have, among other things: (i) reviewed
certain internal information, primarily financial in nature, including
projections, concerning the business and operations of FMS and F&M furnished to
us for purposes of our analysis, as well as publicly available information,
including but not limited to, F&M's recent filings with the Securities and
Exchange Commission and equity analyst research reports on F&M prepared by
various investment banking firms including Baird; (ii) reviewed the Agreement in
the form entered into by FMS's Board of Directors; (iii) compared the historical
market prices and trading activity of the F&M Common Stock with those of certain
other publicly traded companies we deemed relevant; (iv) compared the financial
position and operating results of FMS and F&M with those of other companies we
deemed relevant; (v) compared the proposed financial terms of the Merger with
the financial terms of certain other business combinations involving banks that
we deemed relevant; and (vi) reviewed the potential pro forma financial effects
of the Merger on F&M. We have held discussions with members of FMS's and F&M's
respective senior management concerning FMS's and F&M's historical and current
financial condition and operating results, as well as the future prospects of
FMS and F&M. We have also considered such other information, financial studies,
analysis and investigations and financial, economic and market criteria which we
deemed relevant for the preparation of this opinion.
In arriving at our opinion, we have assumed and relied upon the
accuracy and completeness of all of the financial and other information that was
publicly available or provided to us by or on behalf of FMS and F&M, and have
A-1
<PAGE> 81
not been engaged to independently verify any such information. We have assumed,
with your consent, that (i) all material assets and liabilities (contingent or
otherwise, known or unknown) of FMS and F&M are as set forth in their respective
consolidated financial statements; (ii) the Merger will be accounted for under
the pooling-of-interests method; (iii) the Merger will be consummated in
accordance with the terms of the Agreement without any amendment thereto or
waiver by FMS or F&M of any condition to their respective obligations; (iv) the
Exchange Ratio will not be adjusted pursuant to Section 3.4 of the Agreement;
and (v) F&M will receive all regulatory approvals required to effect the Merger
without undue delay. We have also assumed, with your consent that (i) the
financial forecasts examined by us were reasonably prepared on bases reflecting
the best available estimates and good faith judgments of FMS's and F&M's
respective senior managements as to future performance of FMS and F&M,
respectively and (ii) the strategic and operating benefits currently
contemplated by F&M and FMS management to result from the Merger will be
realized. In conducting our review, we have not undertaken nor obtained an
independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of FMS and F&M nor have we made a physical inspection
of the properties or facilities of FMS or F&M. Our opinion necessarily is based
upon economic, monetary and market conditions as they exist and can be evaluated
on the date hereof, and does not predict or take into account any changes which
may occur, or information which may become available, after the date hereof.
Furthermore, we express no opinion as to the price or trading range at which the
F&M Common Stock will trade following the date hereof.
Our opinion has been prepared at the request and solely for the
information of the Board of Directors of FMS, and shall not be used for any
other purpose or disclosed to any other party without the prior written consent
of Baird. This opinion does not address the relative merits of the Company
Merger and any other potential transactions or business strategies considered by
FMS's Board of Directors, and does not constitute a recommendation to any
shareholder of FMS as to how any such shareholder should vote with respect to
the Merger. Baird will receive a fee for rendering this opinion and a fee upon
successful completion of the Merger. From time to time, Baird has provided
investment banking services to F&M, for which it has received its customary
compensation.
In the ordinary course of our business, we may from time to time trade
the securities of F&M for our own account or the accounts of our customers and,
accordingly, may at any time hold long or short positions in such security.
Based upon and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Exchange Ratio is fair, from a financial point of view,
to the holders of FMS Common Stock (other than F&M and its affiliates).
Very truly yours,
ROBERT W. BAIRD & CO. INCORPORATED
/s/ Bernard E. Adee
Bernard E. Adee
First Vice President
A-2
<PAGE> 82
EXHIBIT B
SUBCHAPTER XIII
DISSENTERS' RIGHTS
SECTIONS 180.1301 TO 180.1331 OF THE WISCONSIN
BUSINESS CORPORATION LAW
180.1301 DEFINITIONS. In Sections 180.1301 to 180.1331:
(1) "Beneficial shareholder" means a person who is a beneficial owner of
shares held by a nominee as the shareholder.
(1M) "Business combination" has the meaning given in Section 180.1130(3).
(2) "Corporation" means the issuer corporation or, if the corporate action
giving rise to dissenters' rights under Section 180.1302 is a merger or share
exchange that has been effectuated, the surviving domestic corporation or
foreign corporation of the merger or the acquiring domestic corporation or
foreign corporation of the share exchange.
(3) "Dissenter" means a shareholder or beneficial shareholder who is
entitled to dissent from corporate action under Section 180.1302 and who
exercises that right when and in the manner required by Section 180.1320
to 180.1328.
(4) "Fair value", with respect to a dissenter's shares other than in a
business combination, means the value of the shares immediately before the
effectuation of the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable. "Fair value", with respect to a dissenter's
share in a business combination, means market value, as defined in Section
180.1130(9)(a) 1 to 4.
(5) "Interest" means interest from the effectuation date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all of the circumstances.
(6) "Issuer corporation" means, a domestic corporation that is the issuer
of the shares held by a dissenter before the corporate action.
180.1302 RIGHT TO DISSENT. (1) Except as provided in sub. (4) and Section
180.1008(3), a shareholder or beneficial shareholder may dissent from, and
obtain payment of the fair value of his or her shares in the event of, any of
the following corporate actions:
(a) Consummation of a plan of merger to which the issuer corporation is a
party if any of the following applies:
1. Shareholder approval is required for the merger by Section 180.1103 or
by the articles of incorporation.
2. The issuer corporation is a subsidiary that is merged with its parent
under Section 180.1104.
(b) Consummation of a plan of share exchange if the issuer corporation's
shares will be acquired, and the shareholder or the shareholder holding shares
on behalf of the beneficial shareholder is entitled to vote on the plan.
(c) Consummation of a sale or exchange of all, or substantially all, of the
property of the issuer corporation other than in the usual and regular course
of business, including a sale in dissolution, but not including any of the
following:
B-1
<PAGE> 83
1. A sale pursuant to court order.
2. A sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale.
(d) Except as provided in sub. (2), any other corporate action taken
pursuant to a shareholder vote to the extent that the articles of
incorporation, bylaws or a resolution of the board of directors provides that
the voting or nonvoting shareholder or beneficial shareholder may dissent and
obtain payment for his or her shares.
(2) Except as provided in sub. (4) and Section 180.1008(3), the articles of
incorporation may allow a shareholder or beneficial shareholder to dissent from
an amendment of the articles of incorporation and obtain payment of the fair
value of his or her shares if the amendment materially and adversely affects
rights in respect of a dissenter's shares because it does any of the following:
(a) Alters or abolishes a preferential right of the shares.
(b) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares.
(c) Alters or abolishes a preemptive right of the holder of shares to
acquire shares or other securities.
(d) Excludes or limits the right of the shares to vote on any matter or to
cumulate votes, other than a limitation by dilution through issuance of shares
or other securities with similar voting rights.
(e) Reduces the number of shares owned by the shareholder or beneficial
shareholder to a fraction of a share if the fractional share so created is to
be acquired for cash under Section 180.0604.
(3) Notwithstanding sub. (1)(a) to (c), if the issuer corporation is a
statutory close corporation under Sections 180.1801 to 180.1837, a shareholder
of the statutory close corporation may dissent from a corporate action and
obtain payment of the fair value of his or her shares, to the extent permitted
under sub. (1)(d) or (2) or Section 180.1803, 180.1813(1)(d) or (2)(b),
180.1815(3) or 180.1829(1)(c).
(4) Except in a business combination or unless the articles of
incorporation provide otherwise, subs. (1) and (2) do not apply to the holders
of shares of any class or series if the shares of the class or series are
registered on a national securities exchange or quoted on the national
association of securities dealers, inc., automated quotations system on the
record date fixed to determine the shareholders entitled to notice of a
shareholders meeting at which shareholders are to vote on the proposed
corporate action.
(5) Except as provided in Section 180.1833, a shareholder or beneficial
shareholder entitled to dissent and obtain payment for his or her shares under
Sections 180.1301 to 180.1331 may not challenge the corporate action creating
his or her entitlement unless the action is unlawful or fraudulent with
respect to the shareholder, beneficial shareholder or issuer corporation.
180.1303 DISSENT BY SHAREHOLDERS AND BENEFICIAL SHAREHOLDERS. (1) A
shareholder may assert dissenters' rights as to fewer than all of the shares
registered in his or her name only if the shareholder dissents with respect to
all shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he or she
asserts dissenters' rights. The rights of a shareholder who under this
subsection asserts dissenters' rights as to fewer than all of the shares
registered in his or her name are determined as if the shares as to which he or
she dissents and his or her other shares were registered in the names of
different shareholders.
B-2
<PAGE> 84
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on his or her behalf only if the beneficial shareholder does all of the
following:
(a) Submits to the corporation the shareholder's written consent to the
dissent not later than the time that the beneficial shareholder asserts
dissenters' rights.
(b) Submits the consent under par. (a) with respect to all shares of which
he or she is the beneficial shareholder.
180.1320 NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate action
creating dissenters' rights under Section 180.1302 is submitted to a vote at a
shareholders' meeting, the meeting notice shall state that shareholders and
beneficial shareholders are or may be entitled to assert dissenters' rights
under Sections 180.1301 to 180.1331 and shall be accompanied by a copy of those
sections.
(2) If corporate action creating dissenters' rights under Section 180.1302
is authorized without a vote of shareholders, the corporation shall notify, in
writing and in accordance with Section 180.0141, all shareholders entitled to
assert dissenters' rights that the action was authorized and send them the
dissenters' notice described in Section 180.1322.
180.1321 NOTICE OF INTENT TO DEMAND PAYMENT. (1) If proposed corporate
action creating dissenters' rights under Section 180.1302 is submitted to a
vote at a shareholders' meeting, a shareholder or beneficial shareholder who
wishes to assert dissenters' rights shall do all of the following:
(a) Deliver to the issuer corporation before the vote is taken written
notice that complies with Section 180.0141 of the shareholder's or beneficial
shareholder's intent to demand payment for his or her shares if the proposed
action is effectuated.
(b) Not vote his or her shares in favor of the proposed action.
(2) A shareholder or beneficial shareholder who fails to satisfy sub. (1)
is not entitled to payment for his or her shares under Sections 180.1301 to
180.1331.
180.1322 DISSENTERS' NOTICE. (1) If proposed corporate action creating
dissenters' rights under Section 180.1302 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders and beneficial shareholders who satisfied Section 180.1321.
(2) The dissenters' notice shall be sent no later than 10 days after the
corporate action is authorized at a shareholders' meeting or without a vote of
shareholders, whichever is applicable. The dissenters' notice shall comply
with Section 180.0141 [which is set forth below] and shall include or have
attached all of the following:
(a) A statement indicating where the shareholder or beneficial shareholder
must send the payment demand and where and when certificates for certificated
shares must be deposited.
(b) For holders of uncertificated shares, an explanation of the extent to
which transfer of the shares will be restricted after the payment demand is
received.
(c) A form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and that requires the shareholder or beneficial shareholder
asserting dissenters' rights to certify whether he or she acquired beneficial
ownership of the shares before that date.
(d) A date by which the corporation must receive the payment demand, which
may not be fewer than 30 days nor more than 60 days after the date on which the
dissenters' notice is delivered.
B-3
<PAGE> 85
(e) A copy of Sections 180.1301 to 180.1331.
180.1323 DUTY TO DEMAND PAYMENT. (1) A shareholder or beneficial
shareholder who is sent a dissenters' notice described in Section 180.1322, or a
beneficial shareholder whose shares are held by a nominee who is sent a
dissenters' notice described in Section 180.1322, must demand payment in
writing and certify whether he or she acquired beneficial ownership of the
shares before the date specified in the dissenters' notice under Section
180.1322(2)(c). A shareholder or beneficial shareholder with certificated
shares must also deposit his or her certificates in accordance with the terms
of the notice.
(2) A shareholder or beneficial shareholder with certificated shares who
demands payment and deposits his or her share certificates under sub. (1),
retains all other rights of a shareholder or beneficial shareholder until these
rights are canceled or modified by the effectuation of the corporate action.
(3) A shareholder or beneficial shareholder with certificated or
uncertificated shares who does not demand payment by the date set in the
dissenters' notice, or a shareholder or beneficial shareholder with
certificated shares who does not deposit his or her share certificates where
required and by the date set in the dissenters' notice, is not entitled to
payment for his or her shares under Sections 180.1301 to 180.1331.
180.1324 RESTRICTIONS ON UNCERTIFICATED SHARES. (1) The issuer
corporation may restrict the transfer of uncertificated shares from the date
that the demand for payment for those shares is received until the corporate
action is effectuated or the restrictions released under Section 180.1326.
(2) The shareholder or beneficial shareholder who asserts dissenters'
rights as to uncertificated shares retains all of the rights of a shareholder or
beneficial shareholder, other than those restricted under sub. (1) until these
rights are canceled or modified by the effectuation of the corporate action.
180.1325 PAYMENT. (1) Except as provided in Section 180.1327, as soon as
the corporate action is effectuated or upon receipt of a payment demand,
whichever is later, the corporation shall pay each shareholder or beneficial
shareholder who has complied with Sections 180.1323 the amount that the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
(2) The payment shall be accompanied by all of the following:
(a) The corporation's latest available financial statements, audited and
including footnote disclosure if available, but including not less than a
balance sheet as of the end of a fiscal year ending not more than 16 months
before the date of payment, an income statement for that year, a statement of
changes in shareholders' equity for that year and the latest available interim
financial statements, if any.
(b) A statement of the corporation's estimate of the fair value of the
shares.
(c) An explanation of how the interest was calculated.
(d) A statement of the dissenter's right to demand payment under
Section 180.1328 if the dissenter is dissatisfied with the payment.
(e) A copy of Sections 180.1301 to 180.1331.
180.1326 FAILURE TO TAKE ACTION. (1) If an issuer corporation does not
effectuate the corporate action within 60 days after the date set under Section
180.1322 for demanding payment, the issuer corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
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(2) If after returning deposited certificates and releasing transfer
restrictions, the issuer corporation effectuates the corporate action, the
corporation shall deliver a new dissenters' notice under Section 180.1322 and
repeat the payment demand procedure.
180.1327 AFTER-ACQUIRED SHARES. (1) A corporation may elect to withhold
payment required by Section 180.1325 from a dissenter unless the dissenter was
the beneficial owner of the shares before the date specified in the dissenters'
notice under Section 180.1322(2)(c) as the date of the first announcement to
news media or to shareholders of the terms of the proposed corporate action.
(2) To the extent that the corporation elects to withhold payment under
sub. (1) after effectuating the corporate action, it shall estimate the fair
value of the shares, plus accrued interest, and shall pay this amount to each
dissenter who agrees to accept it in full satisfaction of his or her demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated,
and a statement of the dissenter's right to demand payment under Section
180.1328 if the dissenter is dissatisfied with the offer.
180.1328 PROCEDURE IF DISSENTER DISSATISFIED WITH PAYMENT OR OFFER. (1) A
dissenter may, in the manner provided in sub. (2), notify the corporation of
the dissenter's estimate of the fair value of his or her shares and amount of
interest due, and demand payment of his or her estimate, less any payment
received under Section 180.1325, or reject the offer under Seciton 180.1327 and
demand payment of the fair value of his or her shares and interest due, if any
of the following applies:
(a) The dissenter believes that the amount paid under Section 180.1325 or
offered under Section 180.1327 is less than the fair value of his or her shares
or that the interest due is incorrectly calculated.
(b) The corporation fails to make payment under Section 180.1325 within
60 days after the date set under Section 180.1322 for demanding payment.
(c) The issuer corporation, having failed to effectuate the corporate
action, does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the date set
under Section 180.1322 for demanding payment.
(2) A dissenter waives his or her right to demand payment under this
section unless the dissenter notifies the corporation of his or her demand
under sub. (1) in writing within 30 days after the corporation made or offered
payment for his or her shares. The notice shall comply with Section 180.0141.
180.1330 COURT ACTION. (1) If a demand for payment under Seciton 180.1328
remains unsettled, the corporation shall bring a special proceeding within 60
days after receiving the payment demand under Section 180.1328 and petition the
court to determine the fair value of the shares and accrued interest. If the
corporation does not bring the special proceeding within the 60-day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall bring the special proceeding in the circuit court
for the county where its principal office or, if none in this state, its
registered office is located. If the corporation is a foreign corporation
without a registered office in this state, it shall bring the special
proceeding in the county in this state in which was located the registered
office of the issuer corporation that merged with or whose shares were acquired
by the foreign corporation.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the special proceeding.
Each party to the special proceeding shall be served with a copy of the
petition as provided in s. 801.14.
(4) The jurisdiction of the court in which the special proceeding is
brought under sub. (2) is plenary and exclusive. The court may appoint one or
more persons as appraisers to receive evidence and recommend decision on the
question
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of fair value. An appraiser has the power described in the order appointing
him or her or in any amendment to the order. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the special proceeding is entitled to
judgment for any of the following:
(a) The amount, if any, by which the court finds the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation.
(b) The fair value, plus accrued interest, of his or her shares acquired on
or after the date specified in the dissenter's notice under Section
180.1322(2)(c), for which the corporation elected to withhold payment under
Section 180.1327.
180.1331 COURT COSTS AND COUNSEL FEES. (1)(a) Notwithstanding Sections
814.01 to 814.04, the court in a special proceeding brought under Section
180.1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court and shall assess
the costs against the corporation, except as provided in par. (b).
(b) Notwithstanding Sections 814.01 and 814.04, the court may assess costs
against all or some of the dissenters, in amounts that the court finds to be
equitable, to the extent that the court finds the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment under Section 180.1328.
(2) The parties shall bear their own expenses of the proceeding, except
that, notwithstanding Section 814.01 to 814.04, the court may also assess the
fees and expenses of counsel and experts for the respective parties, in amounts
that the court finds to be equitable, as follows:
(a) Against the corporation and in favor of any dissenter if the court
finds that the corporation did not substantially comply with Sections 180.1320
to 180.1328.
(b) Against the corporation or against a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to
the rights provided by this chapter.
(3) Notwithstanding Sections 814.01 to 814.04, if the court finds that the
services of counsel and experts for any dissenter were of substantial benefit
to other dissenters similarly situated, the court may award to these counsel
and experts reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
* * * * *
180.0141 NOTICE. (1) This section applies to notice that is required
under this chapter and that is made subject to this section by express
reference to this section.
(2)(a) A person shall give notice in writing, except as provided in par.
(b).
(b) A person may give oral notice if oral notice is permitted by the
articles of incorporation or bylaws and not otherwise prohibited by this
chapter.
(3) Except as provided in Section 180.0721(4) or unless otherwise
provided in the articles of incorporation or bylaws, notice may be communicated
in person, by telephone, telegraph, teletype, facsimile or other form of wire
or wireless communication, or by mail or private carrier, and, if these forms
of personal notice are impracticable, notice may be communicated by a newspaper
of general circulation in the area where published, or by radio, television or
other form of public broadcast communication.
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(4) Written notice to a domestic corporation or a foreign corporation
authorized to transact business in this state may be addressed to its
registered agent at its registered office or to the domestic corporation or
foreign corporation at its principal office. With respect to a foreign
corporation that has not yet filed an annual report under Section 180.1622, the
address of the foreign corporation's principal office may be determined from
its application for a certificate of authority.
(5)(a) Except as provided in par. (b) and Sections 180.0807(2) and 180.0843
(1), written notice is effective at the earliest of the following:
1. When received.
2. Five days after its deposit in the U.S. mail, if mailed postpaid and
correctly addressed.
3. On the date shown on the return receipt, if sent by registered or
certified mail, return receipt requested, and the receipt is signed by or on
behalf of the addressee.
4. On the effective date specified in the articles of incorporation or
bylaws.
(b) Written notice by a domestic corporation or foreign corporation to its
shareholder is effective when mailed and may be addressed to the shareholder's
address shown in the domestic corporation's or foreign corporation's current
record of shareholders.
(c) Oral notice is effective when communicated.
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EXHIBIT C
AGREEMENT OF MERGER AND REORGANIZATION
Agreement of Merger and Reorganization (hereinafter referred to as
"Agreement"), made as of the 31st day of December, 1997, by and between F & M
Bancorporation, Inc., a Wisconsin corporation, Financial Management Services of
Jefferson, 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 The Farmers & Merchants Bank of Jefferson, 106
South Main Street, Jefferson, Wisconsin 53549.
1.3 "BANK Stock" shall mean BANK's voting capital stock $100 par
value.
1.4 "Closing Date" shall mean the date set by mutual agreement of
FMS and F & M and will not occur prior to the satisfaction or the waiver of all
of the conditions to the transaction.
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 FMS, but not prior to the Closing Date.
1.6 "FMS" shall mean Financial Management Services of Jefferson,
Inc., 106 South Main Street, Jefferson, Wisconsin 53549.
1.7 "FMS Common" shall mean FMS's voting common stock, no par value.
1.8 "Exchange Ratio" shall mean the ratio determined as set forth in
paragraph 3.3(b).
1.9 "FMS Counsel" shall mean Godfrey & Kahn, S.C., 780 North Water
Street, Milwaukee, Wisconsin 53202, Attn: Elliot H. Berman, Esq.
1.10 "FMS Shareholders" shall mean the shareholders of FMS 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 1.10.
1.11 "F & M" shall mean F & M Bancorporation, Inc., One Bank Avenue,
Kaukauna, Wisconsin 54130.
1.12 "F & M Common" shall mean F & M's voting common stock, $1.00 par
value.
1.13 "F & M Common Price" shall mean the average closing price, 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.
1.14 "F & M Counsel" shall mean McCarty, Curry, Wydeven, Peeters &
Haak, 120 East Fourth Street, P.O. Box 860, Kaukauna, Wisconsin 54130-0860,
Attn: Randall A. Haak, Esq.
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1.15 "Plan of Merger" shall mean the Plan of Merger to be attached
to, and filed with, the Articles of Merger.
1.16 "Securities Counsel" shall mean Quarles & Brady, 411 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202-4497, Attn: Kenneth V. Hallett,
Esq.
1.17 "Subsidiary" shall mean F & M Merger Corporation, One Bank
Avenue, Kaukauna, Wisconsin 54130.
1.18 "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 FMS to its shareholders
relating to approval of the merger (the "Prospectus/Proxy Statement").
1.19 "F & M Stock Offer" shall mean the quotient set forth in
paragraph 3.3(b).
1.20 "JII" shall mean Jefferson Investment, Inc., a Nevada
corporation and wholly owned subsidiary of BANK.
2. Preamble.
F & M and Subsidiary are multi-bank holding companies. Subsidiary is a
wholly-owned subsidiary of F & M. FMS is a one-bank holding company which
presently owns 100% of the issued and outstanding stock of BANK. F & M,
Subsidiary and FMS, 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 FMS each believe that this transaction is in their best
interests and in the 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 FMS and Subsidiary will be in the best interest of their
respective corporations and shareholders. The merger of FMS into Subsidiary is
intended to constitute a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended.
In consideration of the foregoing and the terms, conditions and
covenants of this Agreement and in reliance on the warranties and
representations contained herein, the parties adopt this Plan and Agreement of
Merger and Reorganization and agree as follows:
3. Merger of FMS into Subsidiary.
3.1 Surviving Corporation. At the Effective Time of the merger, FMS
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 FMS, 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 FMS and shall be subject to all
liabilities, obligations, limitations and duties of FMS 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 FMS Common. At the Effective Time, the shares of
the FMS Common shall be converted into shares of F & M Common as follows:
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(a) All FMS Shareholders will receive shares of F & M
Common based upon the Exchange Ratio. The Exchange Ratio shall be
calculated by dividing the F & M Stock Offer by the number of
outstanding shares of FMS Common issued and at the Effective Time
(excluding any treasury shares), rounded to three (3) decimal places.
The Exchange Ratio shall be multiplied by the number of shares of FMS
Common held by each FMS Shareholder on the Closing Date to determine the
number of shares of F & M Common to be issued to that FMS 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 F&M Stock Offer is Six Hundred Forty-one
Thousand Nine Hundred Seventy-five (641,975). The F & M Stock Offer
shall be adjusted proportionately as necessary to reflect any stock
dividends, stock split, recapitalization, or other adjustment in the
capital structure F & M which becomes effective between the date of this
Agreement and the Closing Date.
(c) No fractional shares of F & M Common shall be issued;
all fractional shares will be converted to cash in an amount equal to
the fractional share determined in accordance with the formula set forth
above multiplied by F & M Common Price.
(d) In the event that F & M declares a stock dividend or a
stock split in the form of a stock dividend with respect to F & M
Common, the record date for which is prior to the Closing Date, the F &
M Stock Offer will be adjusted proportionately to reflect such stock
dividend. For example, if F & M declared a ten percent (10%) stock
dividend, the F & M Stock Offer shall be increased by ten percent (10%)
from Six Hundred Forty-one Thousand Nine Hundred Seventy-five
(641,975) to Seven Hundred Six Thousand One Hundred Seventy-three
(706,173).
3.4 Adjustment to F & M Stock Offer. The F & M Stock Offer is
subject to adjustment as of the Closing Date by an amount equal to one and
five tenths (1.5) times the sum of all amounts determined under subparagraphs
(a) through (h) divided by the F & M Common Price, rounded to the nearest whole
number. If the sum is a negative number, the quotation thus determined shall
be subtracted from the F & M Stock Offer. 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 three-tenths percent (1.3%) of total loans
and leases.
(b) The amount by the expenses of this transaction whether
incurred by BANK or FMS [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 Thirteen Million Four Hundred Eighty Thousand and
00/100 Dollars ($13,480,000.00) (the "Beginning Equity") plus the
Cumulative Minimum Earnings as shown on the attached Exhibit 3.4(c) for
each full month in 1998 prior to the Closing Date, less the sum of (i)
quarterly dividends for each calendar quarter prior to the Closing Date,
not to exceed Two and 50/100 Dollars ($2.50) per share, and (ii) the
expenses of this transaction [as defined in paragraph 4.4(e)], and (iii)
any increase to the BANK's reserve for loan and lease losses requested
by F & M in excess of one and three-tenths percent (1.30%) of loan and
leases or other accounting adjustments requested by F & M (the "BANK's
Minimum Equity"). The Beginning Equity reflects the dividend of $4.00
per share declared by BANK in December, 1997.
(d) By the amount of any unfunded or underfunded liability
under any pension benefit plan maintained by BANK, assuming the complete
termination of such plan on or prior to the Closing Date and all
expenses of such termination.
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(e) For any loans or leases, where the outstanding
principal balance outstanding on December 11, 1997, exceeded $25,000.00,
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
December 11, 1997, as mutually agreed upon by F & M and FMS.
(f) As the result of a material adverse change in the
business of FMS or BANK or an increase in their liabilities (exclusive
of deposits) which accrues after December 11, 1997, which is not
otherwise reflected in either the calculation of BANK's Adjusted Equity
or FMS'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.
(g) 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.
(h) For the amount of any expenses incurred by FMS 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 earlier of either two (2) years from the
Effective Date or the annual shareholders' meeting of the BANK to be held in
the year 2000. F & M shall also enter into Employment Agreements with Sandi M.
Clark and Henry A. Fischer, in the forms attached as Exhibits 3.7A and 3.7B,
respectively, for the terms described in such Employment 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.
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, applicable to their position at the time the positions are
eliminated, based upon their years of service with BANK.
F & M will allow BANK to continue to pay the BANK's portion of the cost
of medical insurance premiums for the three (3) retirees who are currently
covered by the BANK's existing retiree medical benefit plan (the "Plan") and
for one current employee who is covered by the Plan who is expected to retire
in 1998 (with the same benefits as the three present retirees) for the
remainder of their lifetimes. F & M will also pay the BANK's portion of the
cost of medical insurance premiums for a period of three (3) years from the
date of retirement (but not beyond age 65) for the nine (9) current BANK
employees who are covered by the Plan and who are 50 years of age or older and
who elect to retire after 1998 but before age 65.
4. Representations and Warranties of FMS. FMS, 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
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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 FMS Shareholders are
listed on the list referred in paragraph 1.10.
4.2 FMS Organization and Authority.
(a) FMS is a corporation duly organized, validly existing
and in good standing under the laws of the State of Wisconsin with all
requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted and to
enter into and perform its obligations under this Agreement upon
receiving the necessary shareholder and regulatory approval. FMS is
duly registered and authorized to operate as a bank holding company.
FMS is only qualified to do business in the State of Wisconsin.
(b) FMS has good and marketable title to Thirty-seven
Thousand Eight Hundred (37,800) 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) FMS is presently authorized to issue Thirty-nine
Thousand (39,000) shares of FMS Common. FMS presently has Thirty-
seven Thousand Forty (37,040) shares of FMS Common validly and legally
issued and outstanding, all of which are fully paid and nonassessable,
except as provided by Wis. Stats. Section 180.0622(2)(b) and judicial
interpretations thereof. FMS has not issued, and does not have
outstanding, any option, warrant or convertible securities or other
right to purchase or convert any obligation into such corporation's
securities and has not agreed to issue or sell any additional securities
of any type.
(d) The execution, delivery and performance of this Agreement
and the consummation of the transaction contemplated under it have been
duly authorized by appropriate corporate approval and will not violate
any provision of FMS'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 FMS is a party, or by which FMS 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
FMS'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 FMS is subject.
4.3 BANK Organization and Authority.
(a) BANK is duly organized, validly existing and in good
standing 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
has its main office and a branch office in Jefferson, Wisconsin. All
necessary corporate approval and authorization and regulatory approval
for BANK's present operations has been given and remains in full force
and effect and in good standing. BANK owns one hundred percent (100%)
of JII, its operating investment subsidiary.
(b) BANK is authorized to issue Thirty-seven Thousand
Eight Hundred (37,800) shares of BANK Stock, BANK's only class of stock.
BANK has Thirty-seven Thousand Eight Hundred (37,800) 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.
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(d) The execution, delivery and performance of this
Agreement and the consummation of the transaction contemplated under it
have been duly authorized by appropriate corporate approval 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
approval by BANK's shareholders and 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.
4.4 Financial Matters.
(a) True copies of FMS'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, 1996, 1995, and 1994 have been delivered by FMS to F & M
("FMS's Financial Statements"). To the best knowledge of FMS's officers
and directors, after due and diligent inquiry all of FMS's Financial
Statements are true and correct in all material respects and present an
accurate and complete disclosure of the financial condition of FMS as of
their respective dates, and the earnings for the periods covered, all
determined in accordance with accepted accounting standards applicable
to preparation of Reports of Condition to be filed with the Federal
Deposit Insurance Corporation ("FDIC") ("RAP"), 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 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), which present any
greater than normal risk of collection or which were not made in the
normal course of business. BANK's last examination by the FDIC was as
of March 31, 1997 and by the State of Wisconsin Department of Financial
Institutions, Division of Banking ("Division") June 17, 1996. FMS's
last examination by the Federal Reserve Bank of Chicago (the "FRB") was
December 31, 1994. Since the dates of these examinations, FMS and BANK,
after making due and diligent inquiry, are not aware of any outstanding
loans which are or may be subject to adverse classification except as
set forth in BANK's watch list as of November 30, 1997, a copy of which
is included in Exhibit 4.4(b), or of any adverse regulatory action or
proceeding against BANK, FMS or their respective officers, directors, or
employees, except as shown in the examination reports prepared by the
FDIC, the Division and the FRB as a result of their most recent
examinations.
(c) FMS, BANK and JII have good marketable title to all of
their assets, business and properties including, without limitation, all
such properties reflected in the FMS's Financial Statements as of
December 31, 1996, 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 1997 which are
not yet due. FMS 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 FMS's officers and
directors, after due and diligent inquiry all real property owned,
operated and leased by FMS, BANK and JII 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 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 FMS nor BANK has received any citations, notices, charges or
other complaints claiming a violation of the foregoing nor are FMS or
BANK aware of any investigation of any alleged violation.
(d) All property and assets owned or currently in use by
FMS, BANK and JII, or in which they have an interest (excluding
interests which arise in collateral given to secure loans made by BANK
or because of a security interest granted to BANK) or which are in their
depreciable possession, are in good operating condition and repair
subject only to normal wear and tear. A schedule of all real and
depreciable
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personal property owned by FMS, BANK and JII is attached as Exhibit
4.4(d). If FMS 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 RAP, applied on a consistent basis, 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 One Hundred Thousand and 00/100 Dollars ($100,000.00).
4.5 Changes Since Specific Dates. Since December 31, 1996, with
respect to FMS, BANK and JII there have not been:
(a) Any loss, damage, destruction or failure to maintain
the tangible assets of FMS, BANK and JII (whether or not covered by
insurance), or affecting their business or properties, which will
materially adversely affect the financial condition or operations FMS 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 FMS, BANK and JII ineffective in whole or in
part.
(c) Any acquisition by FMS, BANK and JII 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.
(e) Any change in accounting procedures, practices or
methods from those used by FMS and BANK in prior years, except those
approved in writing in advance by F & M.
(f) Any issuance, or agreement to issue, on or before the
Closing Date or thereafter, directly or indirectly, any additional
shares of stock of FMS, BANK and JII.
(g) Any declaration, setting aside or payment of any
dividend or any distribution in respect to FMS's stock or any
redemption, purchase or other acquisition by FMS or BANK of any stock or
any other repayments to the shareholders of FMS or BANK in excess of
Eight Dollars ($8.00) per share for the 1997 fiscal year and as
permitted for 1998 as described in paragraph 6.2 (e).
(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 FMS's December 31, 1996 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 FMS or BANK except as disclosed by
FMS's December 31, 1996 Financial Statements.
(k) Any sale, transfer or other disposition of assets of
FMS, BANK and JII except (i) the buildings directly to the east of the
main BANK building on Racine Street owned by the BANK (the "Racine
Street Properties") and (ii) in the normal course of business and
consistent with past practices, provided,
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however, that FMS, BANK and JII 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 FMS, BANK and JII prior to December 31, 1996, or
other material failure by FMS, BANK and JII 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, 1996, 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 FMS,
BANK or JII.
4.6 Liabilities.
(a) Neither FMS, BANK or JII have any liabilities, whether
accrued, absolute, contingent or otherwise, which arose or relate to any
transaction or occurrence involving FMS or BANK or their respective
officers, directors, employees, agents or servants prior to the date of
this Agreement which are not disclosed in FMS 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 FMS, BANK and
JII.
(b) To the best of their knowledge, all parties with whom
FMS, BANK and JII have contractual arrangements are in compliance
therewith. Neither FMS, BANK and JII has declared, and is not prepared
to declare, any such parties in default under any such contractual
arrangements. Neither FMS, BANK and JII 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 FMS, BANK and JII or
result in the creation of a lien, charge, assessment, encumbrance or
other claim whatsoever upon any asset of FMS, BANK and JII. None of
the contracts to which FMS, BANK and JII is a party will be adversely
affected by the transaction contemplated by this Agreement.
(c) To the best of their knowledge, FMS, BANK and JII are
in compliance in all material respects with all applicable federal,
state, county and local statutes, ordinances, regulations, decrees,
orders, or other laws. Neither FMS, BANK and JII 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 FMS, BANK and JII or affecting their assets, properties or
business. FMS, BANK and JII 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 described in the attached Exhibit 4.6(d).
(e) The assets and liabilities or potential liabilities of
FMS, BANK and JII 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 FMS, BANK and JII 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
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and maintained on all employees, agents, officers and directors of FMS,
BANK and JII required to be bonded. The limits of coverage, deductibles
and other material nonstandard provisions of such insurance and bonds
are disclosed in the attached 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. FMS, BANK and JII 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 which are due and
required to be paid. The taxes provided for in FMS'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 FMS, BANK or JII have been audited in the last seven (7) years.
Neither FMS, BANK and JII 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 FMS, BANK and JII 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 FMS, BANK and JII.
4.8 Contracts and Commitments. Neither FMS, BANK and JII 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 FMS, BANK and
JII.
4.9 Reporting and Withholding on Payment of Interest. To the best
of their knowledge, after due and diligent inquiry, FMS, BANK and JII 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. FMS 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 FMS and BANK has been done in a
timely manner via proper medium. Neither FMS nor BANK have been advised of any
violation or potential violation with respect to such reporting requirements.
4.10 Employees and Employee Benefits.
(a) FMS 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 FMS or BANK, as the case may be without
penalty or (ii) plan or agreement providing for any employee bonus,
deferred compensation, pension, profit sharing, retirement benefits,
stock purchase, stock option, employee pension benefit plan or employee
welfare benefit plan except as set forth in the attached Exhibits
4.10(b) and 4.10(c).
(b) All pension, profit sharing, or other employee pension
benefit plans of FMS 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 FMS'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 FMS 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
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FMS 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 FMS 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 FMS'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 FMS 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 FMS or BANK or their directors, officers,
employees or agents arising out of any statute, ordinance or regulation
alleging that FMS 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
statutes, regulations or standards or (v) has committed an unfair labor
practice(s).
4.11 Environmental Matters.
(a) To the knowledge of FMS and BANK, there has been no
release of any hazardous substance, as defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
("CERCLA") nor any release of oil or hazardous substance as provided
under Wis. Stats. Section 144.76, on, upon or into the real property
owned by or leased to FMS or BANK or, to the best of FMS's and BANK's
knowledge, upon any real estate or property which secures any loan made
by FMS or BANK or which FMS or BANK have a right to acquire upon
foreclosure or otherwise, except as set forth in Exhibit 4.4(c).
(b) To the knowledge of FMS 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 FMS or BANK, or which secures a
loan made by FMS or BANK or may be acquired by FMS or BANK in
foreclosure.
4.12 Accuracy of All Statements. No representation or warranty by
FMS, BANK or JII in this Agreement or otherwise, in the FMS Financial
Statements, or in any other statement, certificate, schedule or exhibit hereto
furnished or to be furnished by or on behalf of FMS, BANK or JII 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 FMS and BANK with respect to FMS
and BANK will not, at the date it is first mailed or delivered to FMS's
Shareholders, and will not, at the date or dates of the meeting of FMS's
Shareholders called to approve the Merger, as then amended or supplemented,
contain any statements that are, at the time at which, and in light of the
circumstances under which they are made, false or misleading with respect to
any material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not false or
misleading.
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Notwithstanding the foregoing, FMS 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. FMS 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, except for Robert W. Baird & Co.
Incorporated.
5. Representations and Warranties of F & M.
F & M, by its duly authorized officers, employees or other agents makes
the following representations to FMS, 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 FMS 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, validly existing
and in good standing under the laws of the State of Wisconsin with all
requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted and to
enter into and perform its obligations under this Agreement, upon
receiving the necessary approval from the federal and state regulatory
authorities. F & M is only qualified to do business in the State of
Wisconsin and has received approval from the Federal Reserve Bank of
Chicago to engage in business as a bank holding company.
(b) Subsidiary is a corporation duly organized, validly
existing and in good standing 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.
(c) F & M is authorized to issue Twenty Million
(20,000,000) shares of F & M Common and as of November 30, 1997, has
Nine Million Seven Hundred Forty-nine Thousand, Nine Hundred Eighty
(9,749,980) shares issued and outstanding. F & M anticipates that
additional shares of F & M Common will be issued by it prior to the
Closing Date. F & M also anticipates that prior to the Closing Date it
will amend its Articles of Incorporation to increase the number of
authorized shares. All outstanding shares are legally and validly
issued and fully paid and nonassessable except as provided by Wis.
Stats. Section 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. Section 180.0622(2)(b) and
judicial interpretations thereof.
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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, 1996, 1995, and 1994, have been delivered by F & M to FMS ("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, 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 FMS 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 FMS 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 FMS's shareholders,
and will not, at the date or dates of the meeting of the FMS 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 the FMS and 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 FMS 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.
6. Covenants of FMS.
FMS 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 FMS and BANK and FMS 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 FMS as F & M may
reasonably request.
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6.2 Actions Prior to Closing. From and after the date of this
Agreement and until the Closing Date, FMS, BANK and JII:
(a) Shall carry on their business diligently and
substantially in the same manner as heretofore and FMS 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 January 1, 1998, without the advance
written consent of F & M (ii) for the fiscal year ended December
31, 1997, increase the amount of any bonus paid by BANK in excess of the
amount paid by BANK for the year ended December 31, 1996, (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 not in the normal course of business
and which is not consistent with FMS's, BANK's or JII'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) 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 options or issue directly
or indirectly any shares of common or preferred stock or any other
security of any type whatsoever or in any way dispose of any shares of
its own stock or any other security, except for the payment of dividends
from BANK to FMS for FMS's normal operations consistent with past
practices and for quarterly dividends to the F & M's Shareholders
declared and payable in 1998 for any calendar quarter prior to the
Effective Tine in which the FMS Shareholders will not be entitled to
receive a dividend as F & M Shareholders, not to exceed Two and 50/100
Dollars ($2.50) per share per quarter. Notwithstanding the immediately
preceding sentence, it is the intent of the parties that the FMS
Shareholders receive a dividend for each calendar quarter in 1998. The
parties agree to adjust the limitations in this paragraph to the extent
necessary to carry out this intent.
(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 FMS, BANK and JII.
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(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 FMS and BANK and to preserve for F & M the present
relationships of FMS 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 (i) the Racine Street Properties and (ii) in the normal course of
business, including but not limited to, selling or disposing of any
securities held by FMS 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 FMS 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, FMS and BANK understand
that BANK, in order to meet market conditions may need to offer terms
more favorable than those currently offered but that BANK will not be a
market leader in this regard.
(n) Shall not allow BANK's primary capital to asset ratio
(12 C.F.R. Part 325 method), determined in accordance with accepted
accounting standards applicable to preparation of Reports of Condition
required to be filed with the Federal Deposit Insurance Corporation,
applied on a consistent basis, to drop 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
Director, the FDIC or any other regulatory agency having jurisdiction
over FMS 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 FMS 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 FMS, 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 FMS's bylaws.
6.5 Audited Financial Statements. If audited financial statements of
FMS and/or BANK are required to permit the shares of F & M Common to be
registered with the SEC, FMS agrees to furnish such statements for the required
years to F & M.
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 3/10 percent (1.30%) 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 Fairness Opinion. Shall proceed diligently to obtain an opinion
from Robert W. Baird & Co. Incorporated that the proposed transaction is fair,
from a financial perspective, to the shareholders of FMS.
6.8 1997 Financial Statements. As soon as FMS's 1997 financial
statements have been completed, FMS will deliver copies to F & M.
6.9 Affiliates. FMS 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.
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 FMS, 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 FMS, 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 FMS 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 FMS'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.
(d) Notify FMS, at the time of any public announcement, of
any tender offer by another financial institution or holding company to
acquire F & M Common, or of F & M's intention to enter into a merger
agreement with another financial institution or holding company.
(e) Within ten (10) days after its audited financial
statements are in final form and publicly announced, F & M shall deliver
a copy thereof to FMS.
(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 FMS of the
availability and coverage under such insurance for the directors and
officers of FMS and BANK upon consummation of the acquisition.
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 FMS 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 FMS 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, FMS, BANK and JII shall have performed all of their obligations,
and complied with all of the covenants under this Agreement which are
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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, FMS 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 FMS's Director and Shareholder Authorization. The merger
contemplated by this Agreement shall have been duly and validly authorized by
FMS'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 FMS or BANK furnished to F & M and Subsidiary for
periods ended after December 31, 1996.
8.7 BANK Minimum Equity. BANK will have equity as of the Closing
Date, determined in accordance with generally accepted accounting principles
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 RAP applied on a consistent basis shall not be less than the
Cumulative Minimum Earnings [as defined in paragraph 3.5(d)] 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 FMS
Counsel referred to in subparagraph 10.3(e).
8.10 Time Limit on Closing. Closing shall have taken place by August
31, 1998.
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. FMS 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 FMS
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 FMS 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.
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8.14 Exchange of Stock Certificates. As a condition of delivery of
the consideration required by this Agreement, the FMS Shareholders shall have
executed and delivered documents assigning their shares of FMS 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.
8.15 Affiliates of FMS. Each person who shall be deemed to be an
"affiliate" of FMS 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 using the pooling of interests method
provided that this condition shall be deemed waived if the disqualification is
the result of an omission by F & M.
8.17 Tax Status. F & M shall have delivered to FMS 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 FMS 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 FMS Shareholders who exercise their dissenters rights under
Wis. Stats. Section Section 180. 1301 et seq.
8.19 F & M Common Price. The F & M Common Price shall be less than
or equal to Forty-six Dollars ($46.00).
9. Conditions Precedent to FMS's Obligations.
Each and every obligation of FMS 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, FMS 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 FMS may reasonably
request shall have been delivered to FMS. F & M and Subsidiary shall have
delivered certificates in such detail as FMS may reasonably request to comply
with the conditions set forth in this Article 9.
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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 FMS 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 FMS or BANK.
9.6 Time Limit on Closing. Closing shall have taken place by August
31, 1998.
9.7 Legal Opinion. FMS shall have received the opinion of F & M
Counsel referred to in subparagraph 10.4(d).
9.8 Prospectus/Proxy Statement. The Prospectus/Proxy Statement will
not contain any untrue statement of material fact or omit any material fact
required to be stated therein or necessary to make the statements contained
therein, in the light of the circumstances under which they were made, not
misleading.
9.9 Tax Status. FMS shall have received an opinion of FMS Counsel
to the effect that the transaction contemplated by this Agreement will be
tax-free reorganization to those FMS Shareholders who receive F & M Common in
exchange for their FMS Common (excluding fractional or dissenting shares) in
connection with rendering this opinion F & M and subsidiary agree to execute
certificates reasonably requested by the issuer of the opinion. F & M
covenants to proceed diligently and in good faith to obtain such opinion as
soon as practically possible.
9.10 Directors and Officers Liability Insurance. F & M shall furnish
evidence to FMS that the directors and officers of FMS 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
FMS. In the event such coverage is not available, F & M may satisfy this
condition by offering separate coverage to FMS's directors and officers which
is substantially equivalent to the coverage carried by FMS as of the date of
this Agreement.
9.11 F & M Common Price. The F & M Common Price shall be greater to
or equal to Thirty-five Dollars ($35.00).
9.12 Fairness Opinion. The Board of Directors of FMS shall have
received, not later than January 31, 1998, an opinion from Robert W. Baird &
Co. Incorporated ("Baird") to the effect that the consideration to be received
by the FMS Shareholders in the transaction contemplated in this Agreement is
fair from a financial point of view. FMS shall fully cooperate and take all
action necessary to allow Baird to complete its review and issue its opinion in
a timely manner.
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 FMS Shareholders After the Effective Time. After the
Effective Time and until the surrender of a stock certificate representing
shares of FMS Common, each such outstanding certificate, which prior to the
Effective Time represented shares of FMS 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 FMS Common shall be so
surrendered, the cash or stock certificate representing the shares, any
interest
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dividends or other distributions of any kind payable shall be withheld by F &
M. Upon the subsequent surrender and exchange of such FMS Common certificates,
such holder of record of the certificates formerly representing shares of FMS
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 FMS Shareholders who have tendered their certificates
for their shares of FMS 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 FMS. At the time of or prior to
the closing, FMS shall deliver the following documents:
(a) Certificates by the chairman, vice-chairman or
president of FMS and BANK (i) that the representations and warranties
made by FMS 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 FMS 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 FMS have been met or are waived by
FMS, and (iv) that all Schedules and Exhibits delivered by FMS 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
FMS 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 FMS 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 FMS'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.
(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 FMS Shareholders entitled to the
same in accordance with their interest in FMS 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 FMS and
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Subsidiary have been met or are waived by F & M and Subsidiary, and (iv)
that all Schedules and Exhibits delivered by F & M to FMS 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 FMS and FMS 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.
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 FMS.
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 FMS;
(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.
(c) By FMS 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 FMS.
(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 Common Price shall be the higher of the price as of the date of the
notice or as of the date on which the default is satisfied or cured. The
termination and/or abandonment of this Agreement shall not alter or diminish
the liability of the party that failed to comply with the conditions of this
Agreement. Each party shall pay its own expenses incident to preparation for
the consummation of this Agreement and the transactions contemplated hereunder.
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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 FMS, to Financial Management Services of
Jefferson, Inc., 106 South Main Street, Jefferson, Wisconsin 53549,
Attn: Henry A. Fischer, President and Chairman of the Board, FAX:
920-674-3710,- with a copy to Godfrey & Kahn, S.C., Attn: Elliot H.
Berman, Esq., 780 North Water Street, Milwaukee, Wisconsin 53202 FAX:
414-273-5198.
(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, 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.
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 FMS.
21. Further Documents.
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F & M, Subsidiary, and FMS 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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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/_________________________
Daniel E. Voet, Secretary
FINANCIAL MANAGEMENT SERVICES OF JEFFERSON,
INC. ("FMS")
By:_____/s/_________________________
Henry A. Fischer, President and Chairman
of the Board
ATTEST:
By:_____/s/_________________________
Sandi M. Clark, Secretary
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
F&M is incorporated under the Wisconsin Business Corporation Law (the
"WBCL").
Under Section 180.0851(1) of the WBCL, F&M is required to indemnify a
director or officer, to the extent such person is successful on the merits or
otherwise in the defense of a proceeding, for all reasonable expenses incurred
in the proceeding if such person was a party because he or she was a director or
officer of F&M. In all other cases, F&M is required by Section 180.0851(2) to
indemnify a director or officer against liability incurred in a proceeding to
which such person was a party because he or she was a director or officer of
F&M, unless it is determined that he or she breached or failed to perform a duty
owed to F&M and the breach or failure to perform constitutes: (i) a willful
failure to deal fairly with F&M or its shareholders in connection with a matter
in which the director or officer has a material conflict of interest; (ii) a
violation of criminal law, unless the director or officer had reasonable cause
to believe his or her conduct was lawful or no reasonable cause to believe his
or her conduct was unlawful; (iii) a transaction from which the director or
officer derived an improper personal profit; or (iv) willful misconduct. Section
180.0858(1) provides that, subject to certain limitations, the mandatory
indemnification provisions do not preclude any additional right to
indemnification or allowance of expenses that a director or officer may have
under F&M's Articles of Incorporation, Bylaws, any written agreement or a
resolution of the Board of Directors or shareholders.
Section 180.0859 of the WBCL provides that it is the public policy of
the State of Wisconsin to require or permit indemnification, allowance of
expenses and insurance to the extent required or permitted under Sections
180.0850 to 180.0858 of the WBCL, for any liability incurred in connection with
a proceeding involving a federal or state statute, rule or regulation regulating
the offer, sale or purchase of securities.
Section 180.0828 of the WBCL provides that, with certain exceptions, a
director is not liable to a corporation, its shareholders, or any person
asserting rights on behalf of the corporation or its shareholders, for damages,
settlements, fees, fines, penalties or other monetary liabilities arising from a
breach of, or failure to perform, any duty resulting solely from his or her
status as a director, unless the person asserting liability proves that the
breach or failure to perform constitutes any of the four exceptions to mandatory
indemnification under Section 180.0851(1) referred to above.
Under Section 180.0833 of the WBCL, directors of F&M against whom
claims are asserted with respect to the declaration of improper dividends or
distributions to shareholders or certain other improper acts which they approved
are entitled to contribution from other directors who approved such actions and
from shareholders who knowingly accepted an improper dividend or distribution,
as provided therein.
Article X of F&M's Bylaws provides that F&M will indemnify any director
or officer who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of F&M) by reason of the fact that he or she is or was a director or
officer of F&M, against expenses reasonably incurred by such person if he or she
acted in good faith and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his or her conduct was unlawful. Directors and
officers are similarly identified under Article X for any action or suit by or
in the right of F&M if they acted in good faith and have not been adjudged to be
liable for misconduct in the performance of their duty to F&M. The Bylaws also
provide that F&M shall have the power to purchase and maintain insurance on any
director or officer for any liability asserted against him or her and incurred
by such person arising out of his or her status as an officer or director,
whether or not F&M would have the power to indemnify such person against such
liability under the Bylaws or the WBCL. F&M's Articles of Incorporation and
Bylaws do not limit the indemnification to which directors and officers are
entitled under the WBCL.
II-1
<PAGE> 113
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of F&M pursuant to the
foregoing provisions, or otherwise, F&M has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by F&M of expenses incurred or paid by a director, officer or
controlling person of F&M in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, F&M will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits set forth on the Exhibit Index attached hereto, which is
incorporated herein by reference, are filed as part of this Registration
Statement.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement.
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the registration statement is on Form S-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registration is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any financial
statements required by 3-19 of Regulation S-X at the start of any delayed
offering or throughout a continuous offering.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referred to in Item 20 of
this registration statement, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In
II-2
<PAGE> 114
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(x) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
II-3
<PAGE> 115
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF KAUKAUNA, STATE OF WISCONSIN, ON MARCH 31, 1998.
F&M BANCORPORATION, INC.
By: /s/ John W. Johnson
------------------------------
John W. Johnson, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.*
SIGNATURE AND TITLE
<TABLE>
<CAPTION>
<S> <C>
/s/ Gail E. Janssen ** Douglas A. Martin
- ------------------------------------------------ -----------------------------------------
Gail E. Janssen, Chairman of the Board Douglas A. Martin, Director
/s/ John W. Johnson ** Duane G. Peppler
- ------------------------------------------------ -----------------------------------------
John W. Johnson, President, Chief Duane G. Peppler, Director
Executive Officer and Director
/s/ Daniel E. Voet ** Robert C. Safford
- ------------------------------------------------ -----------------------------------------
Daniel E. Voet, Chief Financial Officer and Robert C. Safford, Director
Treasurer (also, Principal Accounting Officer)
** Otto L. Cox ** Glenn L. Schilling
- -------------------------------------------------- -----------------------------------------
Otto L. Cox, Director Glenn L. Schilling, Director
** Paul J. Hernke ** Joseph F. Walsh
- -------------------------------------------------- -----------------------------------------
Paul J. Hernke, Director Joseph F. Walsh, Director
*Each signature is affixed as of March 31, 1998
** By /s/ Daniel E. Voet
---------------------------------------------
Daniel E. Voet, Attorney-in-Fact
</TABLE>
<PAGE> 116
F&M BANCORPORATION, INC.
(THE "REGISTRANT")
EXHIBIT INDEX
TO
POST-EFFECTIVE AMENDMENT NO. 2
TO
REGISTRATION STATEMENT ON FORM S-4
<TABLE>
<CAPTION>
Exhibit Incorporated Herein Previously Filed
Number Description By Reference Filed Herewith
- ------- ----------- ----------------------------- ---------- --------
<S> <C> <C> <C> <C>
2.1 Agreement of Merger and X
Reorganization dated as of December 31, As Exhibit C
1997, by and among the Registrant, F&M to the
Merger Corporation and Financial Supplemental
Management Services of Jefferson, Inc. Statement
5.1 Opinion of Quarles & Brady X
regarding legality of
securities being registered
8.1 Tax Opinion of Godfrey & X
Kahn, S.C.
23.1 Consent of Wipfli Ullrich X
Bertelson LLP
23.2 Consent of Quarles & Brady X
(included in
Exhibit 5.1)
23.3 Consent of Godfrey & X
Kahn, S.C. (included in
Exhibit 8.1)
23. Consent of Robert W. Baird X
& Co. Incorporated
24 Power of Attorney X
(contained on the Signature
Page)
</TABLE>
- ------------------
* Excluding schedules and exhibits, which are identified in such
documents. The Registrant agrees to furnish supplementally a copy of
any omitted schedule or exhibit to the Commission upon request.
EI-1
<PAGE> 1
EXHIBIT 8.1
[Godfrey & Kahn, S.C. letterhead]
April 1, 1998
Financial Management Services
of Jefferson, Inc.
106 South Jefferson Street
Jefferson, Wisconsin 53549
RE: Federal Income Tax Consequences of Merger between
F&M Merger Corporation and Financial Management
Services of Jefferson, Inc.
Gentlemen:
We have acted as counsel for Financial Management Services of
Jefferson, Inc. ("FMS") in connection with the negotiation and execution of the
Agreement of Merger and Reorganization by and between FMS and F&M
Bancorporation, Inc. ("F&M") dated as of December 31, 1997 (the "Agreement")
pursuant to which FMS will be merged with and into F&M Merger Corporation
("Subsidiary"), a wholly-owned subsidiary of F&M (the "Merger"). This letter
furnishes you with our opinion, as required pursuant to Section 9.9 of the
Agreement, as to certain of the federal income tax consequences of the Merger.
For purposes of the opinions set forth below, we have relied, with the
consent of FMS and the consent of F&M, upon the accuracy and completeness of the
statements and representations (which statements and representations we have
neither investigated nor verified) contained, respectively, in the certificates
of the officers of FMS and F&M (copies of which are incorporated herein by
reference) and have assumed that such certificates will be complete and accurate
as of the Effective Time. We have also relied upon the accuracy of the
Registration Statement filed with the Securities Exchange Commission, as amended
through the date hereof which includes the form of prospectus and proxy
statement (collectively, the "Registration Statement") in connection with the
Merger. Any capitalized term used and not defined herein has the meaning given
to it in the Agreement.
Proposed Transaction
Pursuant to Section 3.1 of the Agreement, at the Effective Time, FMS
will be merged with and into Subsidiary and FMS'
<PAGE> 2
Financial Management Services
of Jefferson, Inc.
April 1, 1998
Page 2
separate existence will cease. Each share of FMS Common outstanding at the
Effective Time, other than treasury shares, will be converted into the right to
receive that number of shares of F&M Common as determined under Sections 3.3 and
3.4 of the Agreement. Under Section 3.3(c) of the Agreement, each FMS
shareholder will receive cash in lieu of any fractional shares of F&M Common to
which he would otherwise be entitled in the Merger. In addition, Wisconsin law
provides for dissenters' rights for the shareholders of FMS in connection with
the Merger.
Conclusions
Based on our examination of the Agreement, the foregoing description
and the representations made to us, and assuming that the transaction is
consummated in accordance with the terms of the Agreement and that the Merger
qualifies as a statutory merger under the applicable laws of the State of
Wisconsin, it is our opinion that for federal income tax purposes:
1. The Merger will be a reorganization within the meaning of Section
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code").
2. Pursuant to Code Section 354(a)(1), the FMS shareholders will
recognize no gain or loss on the exchange of their FMS Common solely in exchange
for F&M Common.
3. The payment of cash to the FMS shareholders in lieu of their
fractional interests of F&M Common will be treated as if the fractional shares
were distributed as part of the exchange and then redeemed. These payments will
be treated as having been received as distributions in full payment in exchange
for stock redeemed as provided in Code Section 302(a) (Rev. Rul. 66-365, 1966-2
C.B. 116 and Rev. Proc. 77-41, 1977-2 C.B. 574).
Our opinion is not, nor should it be construed or relied upon as, a
guaranty, nor is it in any way binding on Internal Revenue Service.
We hereby consent to the use of this opinion as Exhibit 8.1
<PAGE> 3
Financial Management Services
of Jefferson, Inc.
April 1, 1998
Page 3
to the Registration Statement and we further consent to the use of our name in
the Registration Statement under the caption "The Merger - Federal Income Tax
Consequences." In giving this consent, we do not admit that we are in a category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission issued thereunder.
Very truly yours,
/s/ Godfrey & Kahn, S.C.
GODFREY & KAHN, S.C.
<PAGE> 1
[Wipfli Ullrich Bertelson LLP letterhead]
Exhibit 23.1
Independent Accountants' Consent
We consent to incorporation by reference in the Registration Statement on Form
S-4 (No. 333-26373) of F&M Bancorporation, Inc. of (i) our report dated January
23, 1998, relating to the consolidated balance sheets of F&M Bancorporation,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997 and
(ii) our report dated January 23, 1998, relating to the consolidated balance
sheets of Financial Management Services of Jefferson, Inc. and Subsidiaries as
of December 31, 1997, and the related consolidated statements of income, changes
in stockholders' equity and cash flows for the year ended December 31, 1997, and
the reference to our firm under the headings "FMSJ Selected Financial Data" and
"Experts" in the Supplemental Statement forming a part of that Registration
Statement, as amended.
/s/ Wipfli Ullrich Bertelson LLP
---------------------------------
Certified Public Accountants
Appleton, Wisconsin
March 30, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF ROBERT W. BAIRD & CO. INCORPORATED
In connection with the proposed merger of Financial Management Services, Inc.,
Jefferson, Wisconsin into F & M Merger Corporation, a wholly owned subsidiary of
F&M Bancorporation, Inc., in accordance with the Agreement of Merger and
Reorganization among F&M Bancorporation, Inc., F&M Merger Corporation and
Financial Management Services, Inc., the undersigned, acting as an independent
financial advisor to the Board of Directors of Financial Management Services,
Inc. hereby consents to the reference to our firm in the Post-Effective
Amendment No. 2 to Form S-4 Registration Statement and Proxy
Statement/Supplemental Prospectus included therein and the inclusion of our
fairness opinion as an exhibit to the Registration Statement and Joint Proxy
Statement/Supplemental Prospectus.
Dated: March 30, 1998
ROBERT W. BAIRD & CO. Incorporated
By: /s/ Bernard E. Adee
---------------------------------
Bernard E. Adee
First Vice President
